AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 2000
REGISTRATION NO. 333-37962
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 4
TO
FORM S-3
ON
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
----------------
EGLOBE, INC.
(Exact name of registrant as specified in its charter)
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<CAPTION>
DELAWARE 7389 13-3486421
<S> <C> <C>
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
</TABLE>
----------------
1250 24th Street, NW
Washington, DC 20037
(202) 822-8981
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
Francis L. Young
General Counsel
eGlobe, Inc.
1250 24th Street, NW
Washington, DC 20037
(202) 822-8981
(Name, address, including zip code, and telephone number, including area code,
of registrant's agent for service)
----------------
Copies to:
Steven M. Kaufman, Esq.
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
(202) 637-5600
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective and from time to time as determined by market conditions.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ----------
If this Form is a post-effective amendment filed pursuant Rule 462(c) under the
Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ----------
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
----------------
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per share(1) ..... 79,626,582 $ 0.9063 $72,165,571 $ 19,051.71
</TABLE>
* The registrant hereby files this Form S-1 to register additional shares of
common stock and pursuant to Rule 429 amends its registration statement on
Form S-1 (No. 333-78299). A total of 19,517,243 shares of common stock were
registered on such registration statement for which the registrant paid a
registration fee equal to $19,153.05.
(1) In addition to the shares set forth in this table, this Registration
Statement also covers an indeterminate number of shares of common stock
that may be issuable upon conversion of the Series P Preferred Stock and
the Series Q Preferred Stock and upon the exercise of related warrants to
purchase common stock due exclusively to stock splits, stock dividends and
similar transactions in accordance with Rule 416. The registrant has
included a good faith estimate of the number of additional shares of common
stock that may be issued pursuant to the market adjustment features of the
Series P Preferred Stock and the Series Q Preferred Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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--------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 6, 2000
99,143,825 SHARES
EGLOBE, INC.
COMMON STOCK
This prospectus relates to the possible offer and sale from time to time
of up to 99,143,825 shares of our common stock by the selling stockholders
identified in this prospectus. The shares to be sold consist of currently
outstanding common stock and shares of common stock which may be issued by us
upon conversion or exercise of currently outstanding convertible securities and
warrants. We will not receive any proceeds from the sale of such shares, but we
will receive proceeds from the exercise of warrants to purchase common stock to
the extent that such common stock is included in the shares registered in the
registration statement of which this prospectus is a part.
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
YOU SHOULD CONSIDER BEFORE YOU INVEST IN THE COMMON STOCK BEING SOLD WITH THIS
PROSPECTUS.
----------------
See page 98 for a table listing the selling stockholders and setting forth
certain information with respect to each selling stockholder.
The selling stockholders may offer the shares in public or private
transactions, on or off the Nasdaq National Market, at prevailing market
prices, prices related to prevailing market prices, privately negotiated prices
or fixed prices, which may be changed. See "Plan of Distribution" beginning on
page 106 for a more detailed discussion of the intended methods of sale.
----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------
The date of this prospectus is November 6, 2000.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
If it is against the law in any state to make an offer to sell the shares
(or to solicit an offer from someone to buy the shares), then this prospectus
does not apply to any person in that state, and no offer or solicitation is
made by this prospectus to any such person.
You should rely only on the information provided or incorporated by
reference in this prospectus or any supplement. Neither we nor any of the
selling stockholders have authorized anyone to provide you with different
information. You should not assume that the information in this prospectus or
any supplement is accurate as of any date other than the date on the front of
such documents.
TABLE OF CONTENTS
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PAGE
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Prospectus Summary ..................................................................... 3
Risk Factors ........................................................................... 9
Cautionary Note Regarding Forward-Looking Statements ................................... 18
Price Range for Common Stock ........................................................... 19
Dividend Policy ........................................................................ 19
Transfer Agent and Registrar ........................................................... 19
Use of Proceeds ........................................................................ 19
Selected Historical and Pro Forma Consolidated Financial Data .......................... 20
Management's Discussion and Analysis of Financial Condition and Results of Operations .. 23
Quantitative and Qualitative Disclosure About Market Risk .............................. 37
Our Business ........................................................................... 38
Management ............................................................................. 66
Executive Compensation ................................................................. 68
Security Ownership of Management ....................................................... 76
Security Ownership of Certain Beneficial Owners ........................................ 77
Certain Relationships and Related Transactions ......................................... 78
Description of Capital Securities ...................................................... 82
Selling Stockholders ................................................................... 96
Plan of Distribution ................................................................... 106
Legal Matters .......................................................................... 108
Experts ................................................................................ 108
Where You Can Find More Information .................................................... 108
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights more detailed information and financial
statements contained later in this prospectus. This summary does not contain
all of the information that you should consider before investing in the shares.
You should read the entire prospectus carefully, especially the risks of
investing in the shares discussed under "Risk Factors."
ABOUT EGLOBE
OUR CORPORATE NAME
We are incorporated in the State of Delaware under the corporate name of
eGlobe, Inc. Formerly, we were known as Executive Telecard, Ltd. Our common
stock is quoted on the Nasdaq National Market under the symbol "EGLO."
Our principal executive offices are located at 1250 24th Street, N.W.,
Suite 725, Washington, D.C. 20004 and our telephone number is (202) 822-8981.
WHAT WE DO
We are a voice-based application services provider offering enhanced
telecommunications and information services, including Internet protocol
transmission services, telephone portal and unified messaging services on an
outsourced basis, which means that, primarily, we provide other
telecommunications companies services that allow end users to access the World
Wide Web, email, voice mail, fax and other information services over a
telephone or computer. Through our World Direct network, we originate telephone
calls and transmit data in over 90 territories and countries and terminate
telephone calls and receive data transmissions anywhere in the world and
through our Internet protocol network, we can originate and terminate Internet
protocol-based telecommunication services, which are services that travel over
the Internet or use Internet technologies for transmission in over 30 countries
and six continents. Our customers are principally large national
telecommunications companies, Internet service providers and competitive
telephone companies around the world. Our goal is to become a leading
network-based global outsource provider of services that interface the
telephone with the Internet.
In December 1997, we brought in new management and directors to handle
adverse results in our calling card business. Until 1998, our entire focus was
on supporting calling card services. Beginning in 1998, but primarily in 1999,
that focus changed.
o We restructured key portions of our operations and refocused our
business to include Internet protocol transmission technologies
through an acquisition of IDX at the end of 1998.
o In 1999, we developed the Internet protocol transmission portion of
our business, which is now a principal business for eGlobe.
o In early 1999, we acquired Telekey, a specialty calling card service
that improved the overall margins on our calling card business.
o In mid-1999, we added global unified messaging, which is the ability
to retrieve voice mail and faxes over a telephone or computer, and
telephone portal capabilities, which are the ability to retrieve
information from a portal Internet site through a telephone,
through another acquisition of the assets of Connectsoft.
o In June 1999, we changed our name to eGlobe, Inc. signaling that we
have a new product line and a new focus.
o We acquired iGlobe effective August 1999 that brought us Latin
American Internet protocol transmission operations.
3
<PAGE>
o We added some needed assets and operating abilities by acquiring
network operating centers in our acquisition of Swiftcall in July
1999 and a call center in our acquisition of control of ORS in
September 1999.
o We acquired Coast in December 1999 that will strengthen our telephone
portal and unified messaging offerings, as well as adding to our
customer support capabilities and providing us with several large
e-commerce customers.
o In March 2000 we completed our merger with Trans Global
Communications, Inc., a facilities-based, direct connection and
resale network international telecommunications services provider.
This was accounted for as a pooling of interests.
Following our recent acquisitions, we principally offer the following:
o Network Services, including our Internet protocol voice and fax
capabilities, network transmission services and our toll-free
services;
o Enhanced Services, primarily consisting of IP-based enhanced services
such as:
o unified messaging,
o telephone portal,
o our combined Interactive Voice Response and Interactive Data
Response services, which is an integrated voice and Internet
response services platform,
o along with our traditional calling card enhancement service;
o Voice over Internet clearinghouse and settlement services in
partnership with Trans Nexus, which enables Internet and circuit
based telephone companies to terminate calls anywhere in the world
and settle payments among other eGlobe clearinghouse members;
o Customer Care, consisting of our state-of-the-art calling center which
provides 24 hours a day, seven days a week, customer service in 12
languages for both eGlobe services and other customers, including
customer care for a number of e-commerce companies; and
o Retail Services, primarily consisting of a domestic long-distance
business acquired as a part of the Coast acquisition.
We recently engaged Jefferies & Company, Inc., an institutional
brokerage and investment bank for middle market growth companies, to assist us
in completing our strategic funding and development plans.
CURRENT FINANCIAL SITUATION
We are currently in arrears on payments, including a $300,000 promissory
note and capital leases in the amount of $650,000. Provided that we manage our
cashflow and payables in the manner outlined by our business plan, we will need
to raise up to an additional $43.1 million through June 30, 2001 to have
sufficient working capital to run our business, fund preexisting liabilities
and note payable obligations, purchase capital equipment, develop and/or
acquire new services and continue to fund anticipated operating losses.
The consolidated financial statements contained in this prospectus have
been prepared assuming that we will continue as a going concern. However our
independent public accountants have determined that the potential redemption of
the Series P Preferred Stock and the Series Q Preferred Stock combined with
recurring losses from our operations, as net capital deficiency, significant
short-term cash commitments and a lack of firm financial commitments raise
substantial doubt about our ability to continue as a going concern.
CONVERSION AND REDEMPTION OF OUTSTANDING
PREFERRED STOCK
As of November 1, 2000, our outstanding shares of Series P Preferred
Stock and Series Q Preferred Stock (including additional shares of Series Q
Preferred Stock that we will issue upon effectiveness of the registration
statement of which this prospectus is a part) are convertible into at least
approximately 26,346,000 shares of common stock. Such conversion may have a
negative effect on the price of our common stock
4
<PAGE>
due to the increase in the number of shares available in the market. Such a
decrease in the price of our common stock would then allow the selling
stockholders to convert their convertible preferred stock into greater amounts
of common stock, which could depress the price of our common stock further if
the negative effect on our price did not already reflect this adjustment.
The holders of the Series P Preferred Stock and the Series Q Preferred
Stock have the right to force us to redeem the outstanding shares of the Series
P Preferred Stock and Series Q Preferred Stock because we failed to register
the shares of common stock issuable upon conversion of the Series P Preferred
Stock and the Series Q Preferred Stock and the associated warrants by July 15,
2000. The holder of the Series P Preferred Stock and the Series Q Preferred
Stock has advised us in writing that it has no present intention to exercise
its right to demand redemption by virtue of such failure provided that the
registration statement of which this prospectus is a part is declared effective
by October 15, 2000. If we are forced to redeem the outstanding shares of the
Series P Preferred Stock and the Series Q Preferred Stock, we are currently
unable to immediately pay the redemption value.
In order to issue 20% or more of our common stock upon conversion of the
Series P Preferred Stock and Series Q Preferred Stock and exercise of the
related warrants we must obtain the approval of a majority of our common stock
present in person or represented by proxy and entitled to vote at our annual
meeting. The vote relating to the issuance of 20% or more of our common stock
upon conversion of the Series P Preferred Stock and Series Q Preferred Stock and
exercise of related warrants was postponed until November 16, 2000. If we fail
to obtain the necessary approval, the holders of the Series P Preferred Stock
and Series Q Preferred Stock have the right to force us to redeem the
outstanding shares of Series P Preferred Stock and Series Q Preferred Stock. We
are currently unable to immediately pay the redemption value.
PENDING TRANSFER OF LISTING TO NASDAQ SMALLCAP MARKET
On June 23, 2000, we received written notice from Nasdaq advising us
that we had failed to maintain a $5.00 bid price over the last 30 consecutive
trading days, which is required for continued listing on the Nasdaq National
Market, and that, if such problem was not remedied within 90 days, Nasdaq would
delist our common stock from the Nasdaq National Market. At a hearing before
the Nasdaq Listing Qualifications panel on October 26, 2000, we requested a
transfer of our listing to the Nasdaq SmallCap Market. Our request for such
transfer remains pending.
REVERSE STOCK SPLIT
On October 25, 2000, our stockholders approved reverse stock splits of
1-for-2.7, 1-for-3.7 and 1-for-4.7 with the precise ratio to be determined by
our Board of Directors, and on October 31, 2000, our Board of Directors
declared a 1-for-4.7 reverse stock split. The reverse stock split will become
effective on November 13, 2000 and each 4.7 shares of our common stock that was
issued and outstanding immediately prior to the effective time will be changed
into one validly issued, fully paid and non-assessable share of our common
stock without any action by the holders of shares of our common stock.
ABOUT THE REGISTRATION STATEMENT
This prospectus relates to the possible offer and sale from time to time
of 99,143,825 shares of our common stock by various selling stockholders. The
shares to be sold consist of currently outstanding common stock and shares of
common stock which may be issued by us upon conversion or exercise of currently
outstanding convertible securities and warrants. We will not receive any
proceeds from the sale of such shares, but we will receive proceeds from the
exercise of warrants to purchase common stock to the extent that such common
stock is included in the shares registered in the registration statement of
which this prospectus is a part.
5
<PAGE>
Of the shares covered by the registration statement of which this
prospectus is a part, 62,967,068 were issued in connection with acquisitions,
19,984,813 were issued in connection with loans, 1,244,608 were issued in
connection with services, 54,473 were issued in connection with settlement of
claims, 14,418,485 were issued in connection with investments, and 474,378 were
issued in connection with employment.
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED SELECTED FINANCIAL DATA
This is a summary of the selected historical and pro forma consolidated
financial data of eGlobe for the periods ended and as of the dates indicated.
Effective with the period ended December 31, 1998, we converted to a December
31 fiscal year end. Therefore, the period ended December 31, 1998 represents a
nine-month period as compared to the twelve-month fiscal years ended December
31, 1999 and March 31, 1998, 1997, and 1996. The historical consolidated
financial statements of the Company have been restated to give retroactive
effect to the merger with Trans Global effective March 23, 2000, which has been
accounted for using the pooling of interests method of accounting. As a result,
the selected unaudited pro forma condensed consolidated financial information
and selected historical consolidated financial data are presented as if the
combining companies had been consolidated for all periods presented.
The summary selected unaudited pro forma condensed consolidated financial
information for the year ended December 31, 1999 includes the operating results
of the Company, Telekey, Connectsoft, iGlobe, ORS, and Coast assuming the
acquisitions, accounted for under the purchase method of accounting, had been
consummated at January 1, 1999. Also, the reclassification of acquired goodwill
to other identifiable intangibles for Telekey and the exchange of the Series G
Preferred Stock and the Series K Preferred Stock were assumed to have occurred
on January 1, 1999. The acquisitions of UCI and IDX, along with the subsequent
reclassification of acquired goodwill to other identifiable intangibles, the
increase in the convertibility of the preferred stock issued to the IDX
stockholders and the subsequent renegotiations of the IDX purchase agreement
are reflected in the Company's historical Consolidated Statement of Operations
for the year ended December 31, 1999 contained elsewhere herein. All
acquisitions were completed prior to December 31, 1999 and are included in the
historical financial data. Accordingly, a pro forma balance sheet as of June
30, 2000 and a pro forma condensed statement of operations for the six months
ended June 30, 2000 have not been included in a table below.
The historical consolidated financial data as of June 30, 2000 and 1999,
have been derived from our Unaudited Interim Consolidated Financial Statements
included elsewhere in the registration statement of which this prospectus is a
part and, in the opinion of management, include all adjustments necessary for
the fair presentation of such data. The results of operations for the interim
periods presented are not necessarily indicative of the results that may be
expected for the full financial year. The historical consolidated financial
data as of December 31, 1999 and 1998 and March 31, 1998 have been derived from
our Audited Consolidated Financial Statements included elsewhere in this
prospectus.
The selected unaudited pro forma condensed consolidated financial
information and selected historical consolidated financial data should be read
in conjunction with, and is qualified in its entirety by reference to our
Audited Consolidated Financial Statements and the related Notes, our Unaudited
Interim Consolidated Financial Statements and the related Notes, our Unaudited
Pro Forma Condensed Consolidated Statement of Operations and the related Notes
and the "Management's Discussion and Analysis of Financial Condition" section
appearing elsewhere in this registration statement. The following pro forma
data is presented for illustrative purposes only and does not purport to
represent what the Company's results of operations or financial position would
have been had the acquisitions described herein occurred on the dates indicated
for any future period or at any future date.
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PRO FORMA
---------------
FOR THE YEAR
ENDED
DECEMBER 31,
1999
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CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net Revenue ........................................................... $ 162,743,000
Loss from Operations .................................................. (59,856,000)
Other Income (Expense) ................................................ (7,856,000)
Net Loss Before Extraordinary Item .................................... (66,750,000)
Preferred Stock Dividends ............................................. 14,588,000
Net Loss Before Extraordinary Item Attributable to Common Stockholders (81,338,000)
Net Loss per Common Share:
Basic ................................................................ $ (1.32)
Diluted .............................................................. $ (1.32)
</TABLE>
7
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HISTORICAL
--------------------------------------------------
FOR THE FOR THE YEAR
SIX MONTHS ENDED ENDED
JUNE 30, DECEMBER 31,
--------------------------------- ----------------
2000 1999 1999(2)
---------------- ---------------- ----------------
<S> <C> <C> <C>
CONSOLIDATED
STATEMENT OF
OPERATIONS DATA:
Net Revenues ........................ $ 65,041,000 $ 80,115,000 $ 141,948,000
Income (Loss) from Operations ....... (45,346,000) (16,054,000) (46,913,000)
Other Income (Expenses) ............. (4,298,000) (3,593,000) (7,252,000)
Net Income (Loss) Before
Extraordinary Item ................. (49,644,000) (19,647,000) (53,203,000)
Loss on Early Retirement of
Debt ............................... -- -- (1,901,000)
Net Income (Loss) ................... (49,644,000) (19,647,000) (55,104,000)
Preferred Stock Dividends ........... 16,703,000 4,329,000 11,930,000
Net Income (Loss) Attributable to
Common Stockholders ................ (66,347,000) (23,976,000) (67,034,000)
Weighted Average Shares
Outstanding: (4)
Basic .............................. 84,596,873 58,904,001 60,611,000
Diluted ............................ 84,596,873 58,904,001 60,611,000
Net Earnings (Loss) per Common
Share-Basic and Diluted: (1)(4)
Net Earnings (Loss) Before
Extraordinary Item ................ $ (0.78) $ (0.41) $ (1.08)
Loss on Early Retirement of
Debt .............................. -- -- $ (.03)
Net Earnings (Loss) ................ $ (0.78) $ (0.41) $ (1.11)
<CAPTION>
HISTORICAL
---------------------------------------------------------------
FOR THE NINE
MONTHS ENDED
DECEMBER 31, FOR THE YEARS ENDED MARCH 31,
-------------- ------------------------------------------------
1998(3) 1998 1997 1996
-------------- ---------------- -------------- ----------------
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CONSOLIDATED
STATEMENT OF
OPERATIONS DATA:
Net Revenues ........................ $ 90,420,000 $ 79,596,000 $ 38,163,000 $ 30,324,000
Income (Loss) from Operations ....... (4,655,000) (3,077,000) 2,062,000 2,963,000
Other Income (Expenses) ............. (725,000) (6,219,000) (1,453,000) 70,000
Net Income (Loss) Before
Extraordinary Item ................. (5,958,000) (11,257,000) 498,000 2,719,000
Loss on Early Retirement of
Debt ............................... -- -- -- --
Net Income (Loss) ................... (5,958,000) (11,257,000) 498,000 2,719,000
Preferred Stock Dividends ........... -- -- -- --
Net Income (Loss) Attributable to
Common Stockholders ................ (5,958,000) (11,257,000) 498,000 2,719,000
Weighted Average Shares
Outstanding: (4)
Basic .............................. 57,737,000 57,082,000 55,861,000 55,850,000
Diluted ............................ 57,737,000 57,082,000 56,159,000 55,850,000
Net Earnings (Loss) per Common
Share-Basic and Diluted: (1)(4)
Net Earnings (Loss) Before
Extraordinary Item ................ $ (0.10) $ (0.20) $ 0.01 $ 0.05
Loss on Early Retirement of
Debt .............................. -- -- -- --
Net Earnings (Loss) ................ $ (0.10) $ (0.20) $ 0.01 $ 0.05
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
----------------------------- -----------------------------
2000 1999 1999(2) 1998(3)
--------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and Cash Equivalents ......... $ 1,103,000 $ 4,681,000 $ 2,817,000 $ 4,132,000
Total Assets ...................... 107,385,000 90,068,000 113,795,000 64,379,000
Current Liabilities ............... 75,893,000 75,011,000 67,782,000 54,635,000
Long-Term Obligations, Minority
Interest and Redeemable
Stock ............................ 34,873,000 7,549,000 17,995,000 1,237,000
Total Stockholders' (Deficit)
Equity ........................... (3,381,000) 7,508,000 28,018,000 8,507,000
<CAPTION>
AS OF MARCH 31,
--------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and Cash Equivalents ......... $ 3,434,600 $ 2,742,000 $ 951,000
Total Assets ...................... 34,740,000 28,236,000 17,085,000
Current Liabilities ............... 20,626,000 10,642,000 9,950,000
Long-Term Obligations, Minority
Interest and Redeemable
Stock ............................ 8,065,000 12,270,000 2,587,000
Total Stockholders' (Deficit)
Equity ........................... 6,049,000 5,324,000 4,548,000
</TABLE>
(1) Based on the weighted average number of shares outstanding during the
period. Basic and diluted earnings (loss) per common share is the same for
all periods presented.
(2) Includes the results of operations from the date of acquisition for the
February 12, 1999 acquisition of Telekey, the June 17, 1999 acquisition of
Connectsoft, the August 1, 1999 effective acquisition of iGlobe, the
September 20, 1999 acquisition of ORS and the December 2, 1999 acquisition
of Coast.
(3) Includes the results of operations from the date of acquisition for the
December 2, 1998 acquisition of IDX and the December 31, 1998 acquisition
of UCI.
(4) The weighted average number of shares outstanding during the periods has
been adjusted to reflect a ten percent (10%) stock split, effected in the
form of stock dividends and distributed August 5, 1996.
8
<PAGE>
RISK FACTORS
We caution you that our performance is subject to risks and uncertainties.
There are a variety of important factors like those that follow that may cause
our future results to differ materially from those projected in any of our
forward-looking statements made in this prospectus or otherwise.
SINCE EARLY 1999 WE HAVE SIGNIFICANTLY INCREASED OUR OUTSTANDING SHARES OF
CAPITAL STOCK AND YOU LIKELY WILL SUFFER FURTHER DILUTION.
Since December 1998, we issued 15 separate series of convertible
preferred stock, five of which remain authorized, but have no shares
outstanding and two of which remain authorized and have shares outstanding. We
also granted warrants to providers of bridge loans, the former IDX
stockholders, investors in various financings and the lender in a $20 million
debt placement. As a result, the number of shares of common stock on a
fully-diluted basis has increased from 17.8 million shares as of November 1,
1998 to 122.8 million shares as of November 1, 2000. These figures assume
conversion of all preferred stock and convertible debt, exercise of all options
(other than employee and director options) and warrants and achievement of all
earnout provisions related to acquisitions by companies acquired as of November
1, 2000. To arrive at these figures, we have made a good faith estimate of the
number of shares of common stock that may be issued upon conversion of all
preferred stock (based on the assumption that we will receive stockholder
approval of the issuance of 20% or more of our common stock upon conversion of
the Series P Preferred Stock and Series Q Preferred Stock and exercise of the
related warrants), and have made a good faith estimate of the number of shares
of common stock that may be issued pursuant to earnout provisions (assuming all
targets and thresholds of the earnout provisions are reached). The actual
number of shares of common stock issuable upon conversion of the convertible
preferred stock is indeterminate, is subject to adjustment and could be
materially less or more than such estimated number depending on the future
market price of our common stock. The actual number of shares of common stock
issuable upon achievement of the earnout provisions is indeterminate, is
subject to adjustment and could be materially less or more than such estimated
number depending on the acquired companies' achievement of certain revenue and
EBITDA targets and the market price of our common stock at the date the
registration statement of which this prospectus is a part is declared effective
by the SEC. This increase in the number of outstanding shares of our capital
stock has resulted in a significant reduction in the respective equity
interests and voting power held by our stockholders other than those purchasing
additional stock in the recent financings who may have thereby maintained their
equity interests and voting power. We expect to issue additional shares of
capital stock in connection with further financings, acquisitions and joint
ventures which could further increase substantially the number of outstanding
shares of our common stock on a fully-diluted basis.
THE CONVERSION OF OUTSTANDING PREFERRED STOCK MAY HAVE A SIGNIFICANT NEGATIVE
EFFECT ON THE PRICE OF OUR COMMON STOCK.
As of November 1, 2000, 15,000 shares of Series P Preferred Stock and
4,000 shares of Series Q Preferred Stock were issued and outstanding. Upon
effectiveness of the registration statement of which this prospectus is a part,
we will issue an additional 6,000 shares of Series Q Preferred Stock. If
converted on November 1, 2000, 15,000 shares of Series P Preferred Stock and
10,000 shares of Series Q Preferred Stock would have been convertible, at a
conversion price of approximately $0.45 per share, into approximately
57,420,446 shares of common stock, but this number of shares could become
significantly greater in the event of a decrease in the trading price of the
common stock.
The conversion price at which the preferred stock converts into common
stock adjusts based upon the market price of our common stock. As a result, if
the market price declines, the conversion price also declines and the more
common stock the holder will get upon conversion. If the market price of our
common stock is low enough, the number of shares could be substantially greater
and could exceed 25% or even more of our common stock as of November 1, 2000.
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<PAGE>
The following table shows the total number of shares of common stock
that would be issuable upon conversion of Series P Preferred Stock and Series Q
Preferred Stock using various ranges of potential conversion prices and the
percentage those shares would represent of our outstanding common stock
assuming we received stockholder approval to issue 20% or more of our common
stock as of November 1, 2000.
<TABLE>
<CAPTION>
CONVERSION SHARES % OF
PRICE ISSUABLE SHARES O/S
-------------- ------------ -----------
<S> <C> <C>
$ 1.00 25,850,000 26.2%
$ 1.50 17,234,000 17.5%
$ 2.75 9,400,000 9.5%
$ 5.00 5,170,000 5.2%
$ 8.00 3,231,000 3.3%
$ 12.04 2,147,000 2.2%
</TABLE>
To the extent the selling stockholders convert their preferred stock and
then sell their common stock, the common stock price may decrease due to the
additional shares in the market. This could allow the selling stockholders to
convert their convertible preferred stock into greater amounts of common stock,
the sales of which could further depress the stock price. The significant
downward pressure on the price of the common stock as the selling stockholders
convert and sell material amounts of common stock could encourage short sales
by the selling stockholders and others. This could place further downward
pressure on the price of the common stock. When the Series P Preferred Stock
and Series Q Preferred Stock are converted, other stockholders could experience
a significant reduction in their respective interests and voting power in
eGlobe.
REDEMPTION OF OUR OUTSTANDING PREFERRED STOCK MAY HAVE A SIGNIFICANT NEGATIVE
EFFECT ON OUR OPERATIONS.
Holders of shares of the Series P Preferred Stock and the Series Q
Preferred Stock have the right to force us to redeem outstanding shares of
Series P Preferred Stock and Series Q Preferred Stock under certain
circumstances. If we are forced to redeem our outstanding Series P Preferred
Stock and Series Q Preferred Stock, we are currently unable to immediately pay
the redemption value.We may be forced to redeem the outstanding Series P
Preferred Stock and the Series Q Preferred Stock,
o if we fail to timely file all reports required to be filed with the
SEC in order to become eligible and maintain our eligibility for
the use of SEC Form S-3,
o if we fail to register the shares of common stock issuable upon
conversion of the Series P Preferred Stock, the Series Q Preferred
Stock and associated warrants with the SEC by July 15, 2000,
o if our common stock is no longer listed on the Nasdaq National Market
(as it currently is) or, in the alternative, on either the Nasdaq
SmallCap Market, the New York Stock Exchange or the American Stock
Exchange,
o if we or any of our subsidiaries make an assignment for the benefit of
creditors or become involved in bankruptcy, insolvency,
reorganization or liquidation proceedings,
o if we merge out of existence without the surviving company assuming
the obligations relating to the Series P Preferred Stock and the
Series Q Preferred Stock, or
o if we fail to timely honor conversions of Series P Preferred Stock and
Series Q Preferred Stock.
For both the Series P Preferred Stock and the Series Q Preferred Stock, the
redemption value under such circumstances will be the greater of 120% of the
sum of the purchase price, any penalties in arrears and a 5% effective yield or
an amount based on the market price of shares of our common stock at the time
of redemption. If forced to redeem the Series P Preferred Stock and the Series
Q Preferred Stock on November 1, 2000 as a result of any of the above
circumstances, we would be required to pay $23.6 million in cash.
Because we failed to register the shares of common stock issuable upon
conversion of the Series P Preferred Stock, the Series Q Preferred Stock and
the associated warrants by July 15, 2000, we may be required to redeem the
Series P Preferred Stock and the Series Q Preferred Stock. The holder of the
Series P Preferred Stock and the Series Q Preferred Stock has advised us in
writing that it has no present intention to exercise its right to demand
redemption by virtue of such failure; provided that the registration statement
of which this prospectus is a part is declared effective by October 15, 2000.
There can be no assurance that the holder of the Series P Preferred Stock and
the Series Q Preferred Stock will grant us a waiver of its right to demand
redemption caused by this or any other circumstance in the future.
Additionally, holders of shares of the Series P Preferred Stock and
Series Q Preferred Stock have the right to force us to redeem outstanding
shares of Series P Preferred Stock and Series Q Preferred
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<PAGE>
Stock that would be convertible into the number of shares of common stock above
7,157,063 shares (19.99% of our common stock on January 27, 2000) if the holder
has already converted such preferred stock into at least 7,157,063 shares of
common stock and we fail to obtain stockholder approval of our issuance of 20%
or more of our outstanding common stock on January 27, 2000 upon conversion of
the Series P Preferred Stock and the Series Q Preferred Stock. The holder has
not converted any of the Series P Preferred Stock or the Series Q Preferred
Stock or exercised the related warrants. We have included a good faith
estimate, which assumes that we will receive stockholder approval of the
issuance of 20% or more of our common stock at our next annual meeting, of the
number of shares of common stock that will be issuable upon conversion of the
Series P Preferred Stock, the Series Q Preferred Stock and the related warrants
on the registration statement of which this propsectus is a part. There can be
no assurance that we will receive stockholder approval of the issuance of 20%
or more of our common stock. We are nonetheless registering 10,000,000 shares
of common stock for issuance upon conversion of the Series P Preferred Stock
and Series Q Preferred Stock and exercise of the related warrants. If we fail
to receive such stockholder approval, we will have registered more shares of
common stock than will actually be issued and we will have to redeem the excess
Series P Preferred Stock and Series Q Preferred Stock. If the Series P
Preferred Stock or Series Q Preferred Stock are redeemed under such
circumstances, the redemption value will be equal to $1,000 per share plus 5%
per annum. If forced to redeem the Series P Preferred Stock and the Series Q
Preferred Stock on November 1, 2000 as a result of any of the above
circumstances, we would be required to pay $19.7 million in cash.
Payment of the penalty fees and redemption of the Series P Preferred
Stock and Series Q Preferred Stock will require a lump sum of cash, which would
require us to raise additional funds and to reallocate funds from other
intended uses, including acquisitions of new businesses and development of new
products. Accordingly, redemption of the Series P Preferred Stock and the
Series Q Preferred Stock would negatively affect our ability to finance our
current and future operations. If forced to redeem the Series P Preferred Stock
and the Series Q Preferred Stock, the redemption would have a material adverse
effect on our financial condition and business.
OUR COMMON STOCK MAY BE DELISTED FROM THE NASDAQ NATIONAL MARKET AND WE MAY BE
UNABLE TO OBTAIN A LISTING ON THE NASDAQ SMALLCAP MARKET OR MAINTAIN A LISTING
ON THE NASDAQ SMALLCAP MARKET IF WE ARE UNABLE TO MAINTAIN A STOCK PRICE ABOVE
$1.00 PER SHARE FOLLOWING THE REVERSE STOCK SPLIT.
On June 23, 2000, we received written notice from Nasdaq advising us
that we had failed to maintain a $5.00 bid price over the last 30 consecutive
trading days, which is required for continued listing on the Nasdaq National
Market, and that, if such problem was not remedied within 90 days, Nasdaq would
delist our common stock from the Nasdaq National Market. At a hearing before
the Nasdqaq Listing Qualifications panel on October 26, 2000, we requested a
transfer of our listing to the Nasdaq SmallCap Market. Our request for such
transfer remains pending, but there can be no assurance that such request will
be granted. If our application to transfer our listing to the Nasdaq SmallCap
Market is denied, we will be delisted. Even if our application to transfer our
listing to the SmallCap market is granted, the market price of our common stock
has historically been highly volatile and we can provide no assurance that the
price of our common stock after the reverse stock split will not fall below
$1.00 per share, which could prompt Nasdaq to delist our common stock from the
Nasdaq SmallCap Market.
If our common stock is delisted, there would be a reduction in the
market liquidity for our common stock. If our common stock were not listed or
quoted on another market or exchange an investor would find it more difficult
to dispose of, or to obtain accurate quotations for the price of, our common
stock. Additionally, if our common stock is delisted from the Nasdaq National
Market and we fail to obtain listing or quotation on another market or
exchange, broker-dealers may be less willing or able to sell and/or make a
market in our common stock and purchasers of our common stock may have more
difficulty selling their securities in the secondary market. This could also
trigger the redemption of our Series P Preferred Stock and Series Q Preferred
Stock. Such a reduction in liquidity would likely reduce our ability to raise
capital and would have a significant negative impact on our business plans and
operations, including our ability to acquire new businesses and develop new
products.
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<PAGE>
WE HAVE INCURRED SIGNIFICANT LOSSES AND WE MAY NOT BE ABLE TO BECOME PROFITABLE
IN THE FUTURE.
LOSSES. We incurred a net loss of $49.6 million for the six months ended
June 30, 2000 and a net loss of $55.1 million for the year ended December 31,
1999, of which $34.6 million and $29.1 million, respectively, is primarily due
to increased costs and expenses related to growth, acquisition costs and
certain other non-cash charges. We continue to incur operating losses and are
likely to report net losses for the next year, due in part to large non-cash
charges for goodwill and other intangibles amortization and amortization of the
value of warrants associated with financings.
ABILITY TO BECOME PROFITABLE IN THE FUTURE. Our ability to achieve
profitability and positive cash flow in the future depends upon many factors,
including our ability to increase revenue while maintaining or reducing costs.
A variety of factors, both external, which are beyond our control such as
global pricing pressures, demand for services and general economic conditions
and internal such as our ability to raise capital and upgrade technology, and
maintain vendor and customer relationships, may keep us from succeeding in
increasing or maintaining revenue or achieving or sustaining economies of scale
and positive cash flow in the future, and our failure to do so could prevent or
delay us from becoming profitable. If we do not become profitable in the
future, the value of our shares could fall and we could have difficulty
obtaining funds to continue our operations.
WE ARE CURRENTLY IN ARREARS ON PAYMENTS AND COULD BE REQUIRED TO CUT BACK OR
STOP OUR OPERATIONS IF WE ARE UNABLE TO OBTAIN NEEDED FUNDING.
We are currently in arrears on payments. As of November 1, 2000 we are
in default on a 7% promissory note to Oasis for $300,000, and capital leases in
the amount of $650,000 for certain property and equipment with terms of 18
months to 36 months bearing interest ranging from 8.5% to 28.0%. Provided that
we manage our cashflow and payables in the manner outlined by our business
plan, which is based on conservative projections of scaled down growth and
aggressive payment plan using worst-case scenarios for operations,we will need
to raise up to an additional $43.1 million through June 30, 2001, to have
sufficient working capital to run our business, fund preexisting liabilities
and note payable obligations, purchase capital equipment, develop and/or
acquire new services, and continue to fund certain anticipated operating
losses. We expect to receive approximately $6.0 million from RGC International
Investors in connection with the second closing of the Series Q Preferred Stock
upon effectiveness of the registration statement of which this prospectus is a
part. If we do not receive this $6 million from RGC International Investors we
will need to raise that amount from another source within the next 60 days. We
have received $1.5 million from a private sale of securities and $250,000 from
the sale of the Coast internet service provider business. We expect to receive
approximately $1.2 million from a tax refund related to Trans Global, $650,000
from the sale of the Evans building in Denver, CO, and $575,000 from the sale
of the Coast long distance business. Assuming receipt of these funds, we will
need to raise $32.9 million by June 30, 2001 to have sufficient working capital
to run and grow our business. To the extent that we spend more on acquisitions
or service development, our need for additional financing will increase. Should
we be unsuccessful in our efforts to raise additional capital, we may be
required to cut back or stop operations. There can be no assurance that we will
raise additional capital or generate funds from operations sufficient to meet
our obligations and planned requirements. If we cannot raise the required funds
or restructure our existing obligations, there will be a material adverse
effect on our business and prospects. It will be difficult to obtain funding if
our stock price remains low.
The potential redemption of our Series P and Series Q Preferred Stock,
coupled with the fact that we have suffered recurring losses from operations,
have a net capital deficiency, have significant short-term cash commitments and
do not presently have sufficient firm commitments from outside sources to
achieve our growth plan, raises substantial doubt about our ability to continue
as a going concern.
WE HAVE BEEN, AND WILL CONTINUE TO BE, SUBJECT TO LARGE AND NON-CASH ACCOUNTING
CHARGES.
During the six months ended June 30, 2000 and twelve months ended
December 31, 1999, we recorded significant charges totaling $34.6 million and
$29.1 million, respectively. For the six months ended June 30, 2000, non-cash
charges totaled $26.7 million, consisting primarily of $9.8 million in non-cash
compensation expenses, $11.8 million for depreciation and amortization, $3.5
million in allowances for bad debt and $1.6 million in amortization of debt
discount. In addition, we
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<PAGE>
incurred expenses of $2.5 million directly related to our merger with Trans
Global. For December 31, 1999, non-cash charges totaled $26.6 million,
consisting primarily of $15.5 million for depreciation and amortization, $5.2
million for amortization of debt discount, $2.5 million for allowance for bad
debt, $1.9 million on loss on early retirement of debt and $1.5 million in
non-cash compensation expenses.
The following table lists the estimated non-cash charges that we expect
to continue to incur for the remaining quarters of 2000 and for the years
ending December 31, 2001 and 2002. We are unable to predict on a going forward
basis other non-cash charges such as amortization of debt discount on future
debt financing and acquisition expenses related to future unidentified
acquisitions.
<TABLE>
<CAPTION>
(IN MILLIONS)
REMAINING
2000 2001 2002
---------- ---------- ----------
<S> <C> <C> <C>
Depreciation and
amortization $ 6.3 $ 15.7 $ 14.7
Deferred compensation
related to stock
options 3.5 3.9 1.7
Amortization of debt
discount 1.3 2.9 1.4
------ ------ ------
Total $ 11.1 $ 22.5 $ 17.8
</TABLE>
WE MAY NOT EFFECTIVELY MANAGE TRANS GLOBAL AND WE MAY NOT SUCCESSFULLY
INTEGRATE THE BUSINESS OF TRANS GLOBAL INTO OUR ORGANIZATION, WHICH COULD HAVE
A SIGNIFICANT NEGATIVE EFFECT ON OUR OPERATIONS.
We completed the acquisition of Trans Global, a provider of long
distance telephone services, at the end of March 2000, which we accounted for
under the pooling of interests method. All of Trans Global's operations were in
the Network Services segment of our operations. Our Network Services segment
accounted for approximately 80% of our revenue for the six months ended June
30, 2000. Managing Trans Global as part of our organization is critical to the
potentially beneficial impact of our recently completed acquisition. Trans
Global's business could decrease or stagnate if we do not effectively manage
Trans Global as an integral part of our organization. We may have difficulty
integrating Trans Global, assimilating the new employees and implementing
reporting, monitoring and forecasting procedures. In addition, the continuing
integration of Trans Global may divert management attention from our existing
businesses and may result in additional administrative expense. If we do not
continue to maintain the operations, network, revenue and key relationships of
Trans Global within our Network Services segment, we could experience a
significant negative effect on our operations.
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE ACQUIRED COMPANIES INTO OUR
OPERATIONS, WHICH COULD SLOW OUR GROWTH.
Since December 1998, we have completed nine acquisitions or joint
ventures. Completed acquisitions and joint ventures include:
o IDX, a voice over Internet protocol company, in December 1998;
o UCI, a calling card services company in Greece, in December 1998;
o Telekey, a card based provider of enhanced communications services, in
February 1999;
o the assets of Connectsoft, a developer of unified messaging software,
in June 1999;
o Swiftcall, the owner of a network operating center, in July 1999;
o iGlobe, a supplier of Internet protocol services, particularly voice
over Internet protocol in the Latin American market effective on
August 1, 1999 and closing on October 14, 1999;
o a joint venture to operate ORS, a transaction support services and
call center, with Outsourced Automated Services and Integrated
Solutions, in September 1999; on May 12, 2000 we became the sole
operator of ORS;
o Coast, a provider of enhanced long-distance interactive voice and
Internet services, in December 1999; and
o Trans Global, a provider of long distance telephone service, in March
2000.
As a result of these acquisitions and joint venture we added 163
employees and 13 operating locations. This does not include call center
representatives leased under a services contract for ORS who are neither
employees of eGlobe or ORS. We may have difficulty integrating these companies,
assimilating the new employees and implementing reporting, monitoring and
forecasting procedures. In addition, the continuing integration of these
companies may divert management attention from our existing businesses and may
result in additional administrative expense. We
13
<PAGE>
acquired these companies subject to a variety of existing obligations.
Moreover, in our due diligence investigation of these companies, we may not
have discovered all matters of a material nature relating to these companies
and their businesses.
WE DEPEND ON THE COMPANIES WE ACQUIRE TO EXPAND OUR MARKETS, OPERATIONS,
NETWORKS AND SERVICES.
As part of our business strategy, we will continue to evaluate strategic
acquisitions of businesses and to pursue joint ventures principally relating to
our current operations. These transactions commonly involve certain risks,
including, among others, that:
o we may experience difficulty in assimilating acquired operations,
services, products and personnel, which may slow our revenue
growth;
o we may not be able to successfully incorporate acquired technology and
rights into our service offerings and maintain uniform standards,
controls, procedures and policies; and
o we may not be able to locate or acquire appropriate companies at
attractive prices.
Expected benefits from future acquisitions may not be realized, revenues
of acquired companies may be lower than expected, and operating costs or
customer loss and business disruption may be greater than expected.
Additional acquisitions may require additional capital resources. We may
not have timely access to additional financing sources on acceptable terms. If
we do not, we may not be able to expand our markets, operations, facilities,
network and services through acquisitions as we intend.
WE MAY HAVE TO LOWER PRICES OR SPEND MORE MONEY TO COMPETE EFFECTIVELY AGAINST
COMPANIES WITH GREATER RESOURCES THAN US, WHICH COULD RESULT IN LOWER REVENUES.
Our industry is intensely competitive and rapidly evolving. The
communications industry is dominated by companies much larger than us such as
AT&T, Worldcom and British Telecom, with much greater name recognition, larger
customer bases and financial, personnel, marketing, engineering, technical and
other resources substantially greater than ours. Some of these companies that
we compete against have longstanding monopolies in some jurisdictions and
receive preferential treatment from their local government. To the extent that
these companies offer services similar to and priced competitively with our
services, there likely would be a negative effect on our pricing which would
result in lower revenues. In addition, several other companies, such as ITXC,
iBasis and GRIC Communications, have offered or have announced intentions to
offer enhanced communications services similar to certain of the enhanced
services we plan to offer. To the extent that such entities are successful in
offering superior services or introducing credible service offerings before we
do, we likely would be adversely affected and such effects could be material.
We expect new types of products and services not yet announced or available in
the marketplace to be developed and introduced which will compete with the
services we offer today and plan to offer.
RAPID TECHNOLOGICAL AND MARKET CHANGES CREATE SIGNIFICANT RISKS FOR US.
Communications technology is changing rapidly. These changes influence
the demand for our services. We need to be able to anticipate these changes and
to develop new and enhanced products and services quickly enough for the
changing market. We, like others in our industry, believe it will be necessary
to offer a suite of enhanced business communications services, and that those
companies which do not offer acceptable services in a timely manner will not be
able to compete successfully. We may not be able to keep up with rapid
technological and market changes and we may not be able to offer acceptable new
services in a timely manner to be able to compete successfully. In addition,
others may develop services or technologies that will render our services or
technology noncompetitive or obsolete.
IF WE FAIL TO CREATE AND MAINTAIN STRATEGIC RELATIONSHIPS WITH INTERNATIONAL
CARRIERS, OUR REVENUES WILL DECLINE.
Relations with international carriers enable us to offer additional
services that we cannot offer on our own and to offer our services to a larger
customer base than we could otherwise reach through our direct marketing
efforts. We believe international relationships and alliances are important and
that such relationships will be even more important as providers add new
services. Our success depends in part on our ability to maintain and develop
such relationships, the quality of these relationships and the ability of these
strategic partners to
14
<PAGE>
market services effectively. Our failure to maintain and develop such
relationships or our strategic partners' failure to market our services
successfully could lower our sales, delay product launches and hinder our
growth plans.
WE RELY ON IP VOICE TELEPHONY, THE REGULATION OF WHICH IS CHANGING AND
UNCERTAIN AND MAY NEGATIVELY AFFECT OUR BUSINESS.
Since Internet protocol, also known as "IP" telephony is a recent market
development, the regulation of IP telephony is still evolving. A number of
countries currently prohibit IP telephony. Other countries permit but regulate
IP telephony. In the U.S., the FCC has stated that some forms of IP telephony
appear to be similar to traditional telephone services, but the FCC has not
decided whether, or how, to regulate providers of IP telephony. In addition,
several efforts have been made to enact U.S. federal legislation that would
either regulate or exempt from regulation services provided over the Internet.
State public utility commissions also may retain intrastate jurisdiction and
could initiate proceedings to regulate the intrastate aspects of IP telephony.
If governments prohibit or regulate IP telephony we could be subject to
a variety of regulatory requirements or penalties, including without
limitation, orders to cease operations or to limit future operations, loss of
licenses or of license opportunities, fines, seizure of equipment and, in some
jurisdictions, criminal prosecution. The revenue and/or profit generated from
IP telephony may have become a significant portion of our overall revenue
and/or profit at the time IP telephony is regulated and/or curtailed. Any of
the developments described above could have a material adverse effect on our
business, operating results and financial condition.
WE HAVE ONLY LIMITED PROTECTION OF PROPRIETARY RIGHTS AND TECHNOLOGY.
We rely primarily on a combination of intellectual property laws and
contractual provisions to protect our proprietary rights and technology.
However, these laws and contractual provisions provide only limited protection.
Unauthorized parties may copy our technology, reverse engineer our software or
otherwise obtain and use information we consider proprietary. In addition, the
laws of some foreign countries do not protect our proprietary rights to the
same extent as the laws of the U.S. Our means of protecting our proprietary
rights and technology may not be adequate. In addition, it is likely that our
competitors will independently develop similar technology and that we will not
have any rights under existing laws to prevent the introduction or use of such
technology.
WE ARE EXPOSED TO RISKS OF INFRINGEMENT CLAIMS.
Many patents, copyrights and trademarks have been issued in the
telecommunication service area. We believe that in the ordinary course of our
business third parties may claim that our current or future products or
services infringe the patent, copyright or trademark rights of such third
parties. We cannot ensure that actions or claims alleging patent, copyright or
trademark infringement will not be brought against us, or that, if such actions
are brought, we will ultimately prevail. Any such claims, regardless of their
merit, could be time consuming, result in costly litigation, cause delays in
introducing new or improved products or services, require us to enter into
royalty or licensing agreements, or cause us to stop using the challenged
technology, trade name or service mark at potentially significant expense to
us. If our key technology is found to infringe the intellectual property rights
of others, it could have a material adverse effect on our business, financial
condition and results of operations.
OUR OPERATING PLATFORMS AND SYSTEMS MAY FAIL OR BE CHANGED, EXPOSING OUR
BUSINESS TO DOWNTIME.
Our operations depend upon protecting and maintaining our operating
platforms and central processing center against damage, technical failures,
unauthorized intrusion, computer viruses, natural disasters, sabotage and
similar events. We cannot ensure that an event would not cause the failure of
one or more of our communications platforms or even our entire network. Such an
interruption could have a material adverse effect on our business, financial
condition and results of operations. In addition, customers or others may
assert claims of liability against us as a result of any such interruption.
THE LOSS OF KEY PERSONNEL COULD WEAKEN OUR TECHNICAL AND OPERATIONAL EXPERTISE,
DELAY OUR INTRODUCTION OF NEW SERVICES OR ENTRY INTO NEW MARKETS AND LOWER THE
QUALITY OF OUR SERVICE.
Our success depends upon the continued efforts of our senior management
team and our technical, marketing and sales personnel. We believe our
15
<PAGE>
continued success will depend to a significant extent upon the efforts and
abilities of Christopher J. Vizas, our Chairman and Chief Executive Officer
(who joined us in December 1997), and other key executives. We also believe
that to be successful we must hire and retain highly qualified engineering
personnel. In particular, we rely on key employees to design and develop our
proprietary operating platforms and related software, systems and services.
Competition in the recruitment of highly qualified personnel in the
telecommunications services industry is intense. Hiring employees with the
skills and attributes required to carry out our strategy can be extremely
competitive and time-consuming. We may not be able to retain or successfully
integrate existing personnel or identify and hire additional qualified
personnel. If we lose the services of key personnel or are unable to attract
additional qualified personnel, our business could be materially and adversely
affected. We do not have key-man life insurance.
OUR BUSINESS IS EXPOSED TO REGULATORY, POLITICAL AND OTHER RISKS ASSOCIATED
WITH INTERNATIONAL BUSINESS.
We conduct a significant portion of our business outside the U. S. and
accordingly, derive a portion of our revenues and accrue expenses in foreign
currencies. Accordingly, our results of operations may be materially affected
by international events and fluctuations in foreign currencies. We do not
currently employ foreign currency controls or other financial hedging
instruments. Our international operations and business expansion plans are also
subject to a variety of government regulations, currency fluctuations,
political uncertainties and differences in business practices, staffing and
managing foreign operations, longer collection cycles in certain areas,
potential changes in tax laws, and greater difficulty in protecting
intellectual property rights. Governments may adopt regulations or take other
actions, including raising tariffs, that would have a direct or indirect
adverse impact on our business opportunities within such governments'
countries. Furthermore, from time to time, the political, cultural and economic
climate in various national markets and regions of the world may not be
favorable to our operations and growth strategy.
OUR BUSINESS IS SUBJECT TO REGULATORY RISKS THAT MAY RESULT IN INCREASED COSTS
OR AFFECT OUR ABILITY TO RUN OUR BUSINESS.
We are subject to regulation in many jurisdictions. Our business is
subject to risks that changes in regulation may increase our costs or otherwise
affect our ability to run the business.
U.S. FEDERAL REGULATION. Under current FCC policy, we are considered a
non-dominant common carrier and, as a result, are subject to lesser regulation
than common carriers classified as dominant. We must have an authorization from
the FCC to provide international services, and must file tariffs at the FCC
setting forth the terms and conditions under which we provide certain
international and domestic services. We believe that these and other regulatory
requirements impose a relatively minimal burden on us at the present time.
However, we cannot ensure that the current U.S. regulatory environment and the
present level of FCC regulation will continue, or that we will continue to be
classified as non-dominant.
OTHER GOVERNMENT REGULATION. In most countries where we operate,
equipment cannot be connected to the telephone network without appropriate
approvals, and therefore, we must obtain such approval to install and operate
our operating platforms or other equipment. In most jurisdictions where we
conduct business we rely on local companies with which we have ongoing
contracts to obtain the requisite authority. Relying on local companies causes
us to depend entirely upon the cooperation of the telephone utilities with
which we have made arrangements for our authority to conduct business, as well
as some of our operational and administrative requirements. Any telephone
utility could cease to accommodate our requirements at any time. Depending upon
the location of the telephone utility, this action could have a material
adverse effect on our business and prospects. Such relationships may not
continue and governmental authorities may seek to regulate our services or
require us to obtain a license to conduct our business.
OUR STOCK PRICE WILL FLUCTUATE, AND COULD DECLINE SIGNIFICANTLY AS A RESULT OF
VOLATILITY IN TELECOMMUNICATIONS STOCKS.
Market prices for securities of telecommunications services companies
have generally been volatile. Since our common stock has been publicly traded,
the market price of our common stock has fluctuated over a wide range and may
continue to do so in the future. The market price of our common stock could be
subject to significant fluctuations in response to various factors and events,
including, among other things:
16
<PAGE>
o the depth and liquidity of the trading market for our common stock;
o quarterly variations in actual or anticipated operating results;
o growth rates;
o changes in estimates by analysts;
o market conditions in the industry;
o announcements by competitors;
o regulatory actions; and
o general economic conditions.
In addition, the stock market has from time to time experienced
significant price and volume fluctuations, which have particularly affected the
market prices of the stocks of high-technology companies and which may be
unrelated to the operating performance of particular companies. Furthermore,
our operating results and prospects from time to time may be below the
expectations of public market analysts and investors. Any such event could
result in a decline in the price of our common stock.
A prolonged decline in the price of our common stock could result in a
reduction in the liquidity of our common stock and a reduction in our ability
to raise capital. Such reductions would force us to reallocate funds from other
planned uses and will have a significant negative effect on our business plans
and operations, including our ability to acquire new businesses and develop new
products. If our stock price declines, there can be no assurance that we can
raise additional capital or generate funds from operations sufficient to meet
our obligations.
PROVISIONS IN OUR CHARTER AND BYLAWS AND IN DELAWARE LAW COULD DISCOURAGE
TAKEOVER ATTEMPTS WE OPPOSE EVEN IF OUR STOCKHOLDERS MIGHT BENEFIT FROM A
CHANGE IN CONTROL OF EGLOBE.
Our restated certificate of incorporation allows our Board of Directors
to issue up to ten million shares of preferred stock and to fix the rights,
privileges and preferences of those shares without any further vote or action
by the stockholders. The rights of the holders of the common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
shares of preferred stock that we may issue in the future. Any issuances of
preferred stock in the future could have the effect of making it more difficult
for a third party to acquire a majority of our outstanding voting stock. In
addition, our restated certificate of incorporation divides our board of
directors into three classes serving staggered three year terms which may have
the effect of delaying or preventing changes in control or of our management.
Our certificate of incorporation also imposes an ownership limit of 30% (40% on
a fully diluted basis) on stockholders except where the stockholder makes a
tender offer resulting in the stockholder owning 85% or more of our outstanding
common stock, or receives prior approval of our board of directors. Further, as
a Delaware corporation, we are subject to section 203 of the Delaware General
Corporation Law. This section generally prohibits us from engaging in mergers
and other business combinations with stockholders that beneficially own 15% or
more of our voting stock, or with their affiliates, unless our directors or
stockholders approve the business combination in the prescribed manner. These
provisions may discourage any attempt to obtain control of us by merger, tender
offer or proxy contest or the removal of incumbent management.
17
<PAGE>
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the information incorporated by reference in it, as
well as any prospectus supplement that accompanies it, include "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. We intend the forward-looking statements to be covered
by the safe harbor provisions for forward-looking statements in these sections.
All statements regarding our expected financial position and operating results,
our business strategy and our financing plans are forward-looking statements.
These statements can sometimes be identified by our use of forward-looking
words such as "may," "will," "anticipate," "estimate," "expect," or "intend."
We cannot promise that our expectations in such forward-looking statements will
turn out to be correct. Our actual results could be materially different from
and worse than our expectations. Important factors that could cause our actual
results to be materially different from our expectations include those
discussed in this prospectus under the caption "Risk Factors."
18
<PAGE>
PRICE RANGE FOR COMMON STOCK
Since September 19, 1998, except between August 17, 1999 and August 20,
1999, when our common stock was listed on the OTC Bulletin Board, our common
stock traded on the Nasdaq National Market under the symbol "EGLO." Prior to
this time, beginning on December 1, 1989, our common stock traded on the Nasdaq
National Market under the symbol "EXTL." The following table reflects the high
and low prices reported on the Nasdaq National Market for each quarter listed.
<TABLE>
<CAPTION>
HIGH LOW
---------- -------
<S> <C> <C>
Quarter Ended June 30, 1998 ............... 4 1/4 2 1/32
Quarter Ended September 30, 1998 .......... 3 9/16 1 9/16
Quarter Ended December 31, 1998 ........... 2 1/2 1 1/4
Quarter Ended March 31, 1999 .............. 3 5/16 1 1/2
Quarter Ended June 30, 1999 ............... 5 3/4 2 5/8
Quarter Ended September 30, 1999 .......... 3 27/32 1 9/16
Quarter Ended December 31, 1999 ........... 4 7/16 2 3/8
Quarter Ended March 31, 2000 .............. 13 7/8 5
Quarter Ended June 30, 2000 ............... 8 1/2 3
Quarter Ended September 30, 2000 .......... 3 7/32 1 3/16
</TABLE>
The approximate number of holders of our common stock as of November 1,
2000 was in excess of 15,000 record and beneficial owners.
DIVIDEND POLICY
We have not paid or declared any cash dividends on our common stock
since our inception and do not anticipate paying any cash dividends on our
common stock in the near future. We declared a ten percent (10%) common stock
split, effected in the form of a stock dividend, on June 30, 1995 and
distributed it on August 25, 1995 to stockholders of record as of August 10,
1995. On May 21, 1996, we declared another ten percent (10%) common stock
dividend. Stockholders of record on June 14, 1996 received the dividend on
August 5, 1996.
Our payment of cash dividends is currently restricted under the terms of
our debt facility with EXTL Investors and our ability to pay dividends to
holders of our common stock is restricted under the terms of the Series P
Preferred Stock and the Series Q Preferred Stock. Each of these series of
preferred stock accrues dividends. In all cases, dividends accrue until
declared and paid by us. No dividends may be granted on common stock or any
preferred stock ranking junior to any senior preferred stock until all accrued
but unpaid dividends on the senior preferred stock is paid in full.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
USE OF PROCEEDS
The selling stockholders will receive all of the net proceeds from the
sale of their shares. We will not receive any proceeds from the sale of the
shares.
19
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED SELECTED FINANCIAL DATA
This is a summary of the selected historical and pro forma consolidated
financial data of eGlobe for the periods ended and as of the dates indicated.
Effective with the period ended December 31, 1998, we converted to a December
31 fiscal year end. Therefore, the period ended December 31, 1998 represents a
nine-month period as compared to the twelve-month fiscal years ended December
31, 1999 and March 31, 1998, 1997, and 1996. The historical consolidated
financial statements of the Company have been restated to give retroactive
effect to the merger with Trans Global effective March 23, 2000, which has been
accounted for using the pooling of interests method of accounting. As a result,
the selected unaudited pro forma condensed consolidated financial information
and selected historical consolidated financial data are presented as if the
combining companies had been consolidated for all periods presented.
The summary selected unaudited pro forma condensed consolidated financial
information for the year ended December 31, 1999 includes the operating results
of the Company, Telekey, Connectsoft, iGlobe, ORS, and Coast assuming the
acquisitions, accounted for under the purchase method of accounting, had been
consummated at January 1, 1999. Also, the reclassification of acquired goodwill
to other identifiable intangibles for Telekey and the exchange of the Series G
Preferred Stock and the Series K Preferred Stock were assumed to have occurred
on January 1, 1999. The acquisitions of UCI and IDX, along with the subsequent
reclassification of acquired goodwill to other identifiable intangibles, the
increase in the convertibility of the preferred stock issued to the IDX
stockholders and the subsequent renegotiations of the IDX purchase agreement
are reflected in the Company's historical Consolidated Statement of Operations
for the year ended December 31, 1999 contained elsewhere herein. All
acquisitions were completed prior to June 30, 2000 and are included in the
historical financial data. Accordingly, a pro forma balance sheet as of June
30, 2000 has not been included in a table below.
The historical consolidated financial data as of June 30, 2000 and 1999,
have been derived from our Unaudited Interim Consolidated Financial Statements
included elsewhere in this registration statement and, in the opinion of
management, include all adjustments necessary for the fair presentation of such
data. The results of operations for the interim periods presented are not
necessarily indicative of the results that may be expected for the full
financial year. This historical consolidated financial data as of December 31,
1999 and 1998 and March 31, 1998 have been derived from our Audited
Consolidated Financial Statements included elsewhere in this prospectus.
The selected unaudited pro forma condensed consolidated financial
information and selected historical consolidated financial data should be read
in conjunction with, and is qualified in its entirety by reference to our
Consolidated Financial Statements and the related Notes our Unaudited Pro Forma
Condensed Consolidated Statement of Operations and the related Notes, our
Unaudited Interim Consolidated Financial Statements and the related Notes and
the "Management's Discussion and Analysis of Financial Condition" section
appearing elsewhere in this registration statement. The following pro forma
data is presented for illustrative purposes only and does not purport to
represent what the Company's results of operations or financial position would
have been had the acquisitions described herein occurred on the dates indicated
for any future period or at any future date.
<TABLE>
<CAPTION>
PRO FORMA
---------------
FOR THE YEAR
ENDED
DECEMBER 31,
1999
<S> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net Revenue ............................................. $ 162,743,000
Loss from Operations .................................... (59,856,000)
Other Income (Expense) .................................. (7,856,000)
Net Loss Before Extraordinary Item ...................... (66,750,000)
Preferred Stock Dividends ............................... 14,588,000
Net Loss Before Extraordinary Item Attributable to Common
Stockholders ........................................... (81,338,000)
Net Loss per Common Share:
Basic .................................................. $ (1.32)
Diluted ................................................ $ (1.32)
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------------
FOR THE FOR THE YEAR
SIX MONTHS ENDED ENDED
JUNE 30, DECEMBER 31,
--------------------------------- ----------------
2000 1999 1999(2)
---------------- ---------------- ----------------
<S> <C> <C> <C>
CONSOLIDATED
STATEMENT OF
OPERATIONS DATA:
Net Revenues ........................ $ 65,041,000 $ 80,115,000 $ 141,948,000
Income (Loss) from Operations ....... (45,346,000) (16,054,000) (46,913,000)
Other Income (Expenses) ............. (4,298,000) (3,593,000) (7,252,000)
Net Income (Loss) Before
Extraordinary Item ................. (49,644,000) (19,647,000) (53,203,000)
Loss on Early Retirement of
Debt ............................... -- -- (1,901,000)
Net Income (Loss) ................... (49,644,000) (19,647,000) (55,104,000)
Preferred Stock Dividends ........... 16,703,000 4,329,000 11,930,000
Net Income (Loss) Attributable to
Common Stockholders ................ (66,347,000) (23,976,000) (67,034,000)
Weighted Average Shares
Outstanding: (4)
Basic .............................. 84,596,873 58,904,001 60,611,000
Diluted ............................ 84,596,873 58,904,001 60,611,000
Net Earnings (Loss) per Common
Share-Basic and Diluted: (1)(4)
Net Earnings (Loss) Before
Extraordinary Item ................ $ (0.78) $ (0.41) $ (1.08)
Loss on Early Retirement of
Debt .............................. -- -- $ (.03)
Net Earnings (Loss) ................ $ (0.78) $ (0.41) $ (1.11)
<CAPTION>
HISTORICAL
-----------------------------------------------------------------
FOR THE NINE
MONTHS ENDED
DECEMBER 31, FOR THE YEARS ENDED MARCH 31,
---------------- ------------------------------------------------
1998(3) 1998 1997 1996
---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
CONSOLIDATED
STATEMENT OF
OPERATIONS DATA:
Net Revenues ........................ $ 90,420,000 $ 79,596,000 $ 38,163,000 $ 30,324,000
Income (Loss) from Operations ....... (46,913,000) (3,077,000) 2,062,000 2,963,000
Other Income (Expenses) ............. (725,000) (6,219,000) (1,453,000) 70,000
Net Income (Loss) Before
Extraordinary Item ................. (5,958,000) (11,257,000) 498,000 2,719,000
Loss on Early Retirement of
Debt ............................... -- -- -- --
Net Income (Loss) ................... (5,958,000) (11,257,000) 498,000 2,719,000
Preferred Stock Dividends ........... -- -- -- --
Net Income (Loss) Attributable to
Common Stockholders ................ (5,958,000) (11,257,000) 498,000 2,719,000
Weighted Average Shares
Outstanding: (4)
Basic .............................. 57,737,000 57,082,000 55,861,000 55,850,000
Diluted ............................ 57,737,000 57,082,000 56,159,000 55,850,000
Net Earnings (Loss) per Common
Share-Basic and Diluted: (1)(4)
Net Earnings (Loss) Before
Extraordinary Item ................ $ (0.10) $ (0.20) $ 0.01 $ 0.05
Loss on Early Retirement of
Debt .............................. -- -- -- --
Net Earnings (Loss) ................ $ (0.10) $ (0.20) $ 0.01 $ 0.05
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
----------------------------- -----------------------------
2000 1999 1999(2) 1999(3)
--------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and Cash Equivalents ......... $ 1,103,000 $ 4,681,000 $ 2,817,000 $ 4,132,000
Total Assets ...................... 107,385,000 90,068,000 113,379,000 64,379,000
Current Liabilities ............... 75,893,000 75,011,000 67,782,000 54,635,000
Long-Term Obligations, Minority
Interest and Redeemable
Stock ............................ 34,873,000 7,549,000 17,995,000 1,237,000
Total Stockholders' (Deficit)
Equity ........................... (3,381,000) 7,508,000 28,018,000 8,507,000
<CAPTION>
AS OF MARCH 31,
--------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and Cash Equivalents ......... $ 3,434,600 $ 2,742,000 $ 951,000
Total Assets ...................... 34,740,000 28,236,000 17,085,000
Current Liabilities ............... 20,626,000 10,642,000 9,950,000
Long-Term Obligations, Minority
Interest and Redeemable
Stock ............................ 8,065,000 12,270,000 2,587,000
Total Stockholders' (Deficit)
Equity ........................... 6,049,000 5,324,000 4,548,000
</TABLE>
(1) Based on the weighted average number of shares outstanding during the
period. Basic and diluted earnings (loss) per common share is the same for
all periods presented.
(2) Includes the results of operations from the date of acquisition for the
February 12, 1999 acquisition of Telekey, the June 17, 1999 acquisition of
Connectsoft, the August 1, 1999 effective acquisition of iGlobe, the
September 20, 1999 acquisition of ORS and the December 2, 1999 acquisition
of Coast.
(3) Includes the results of operations from the date of acquisition for the
December 2, 1998 acquisition of IDX and the December 31, 1998 acquisition
of UCI.
(4) The weighted average number of shares outstanding during the periods has
been adjusted to reflect a ten percentage (10%) stock split, effected in
the form of stock dividends and distributed August 5, 1996.
21
<PAGE>
QUARTERLY RESULTS
The following tables set forth certain unaudited quarterly financial data,
and such data expressed as a percentage of revenue, for the 10 quarters ended
June 30, 2000. In the opinion of management, the unaudited financial
information set forth below has been prepared on the same basis as the audited
financial information included elsewhere herein and includes all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the information set forth. The operating results for any quarter are not
necessarily indicative of results for any future period.
The consolidated financial statements of the Company for all periods
presented have been restated to give retroactive effect to the merger with
Trans Global effective March 23, 2000, which has been accounted for using the
pooling of interests method of accounting. As a result, the quarterly financial
data are presented as if the combining companies had been consolidated for all
periods presented.
<TABLE>
<CAPTION>
1998 1999
----------------------------------------------- -------------
MAR 31 JUN 30 SEP 30 DEC 31 MAR 31
----------- ----------- ----------- ----------- -------------
IN MILLIONS OF U.S. DOLLARS (EXCEPT SHARE, PER SHARE DATA AND
OPERATING DATA)
<S> <C> <C> <C> <C> <C>
Revenue ............................................ $ 24.7 $ 30.2 $ 27.2 $ 33.0 $ 44.2
Costs and expenses:
Selling, general and administrative ............... 4.8 4.6 4.9 3.8 6.1
Corporate realignment/settlement .................. 1.0 -- 1.0 -- --
Compensation related to stock options ............. -- -- -- -- --
Deferred compensation related to acquisitions ..... -- -- -- 0.4 0.9
Depreciation and amortization ..................... 1.2 1.1 1.0 1.1 1.4
Amortization of goodwill and other intangible
assets ........................................... -- -- -- 0.2 0.6
------- -------- -------- ------- ---------
Total costs and expenses ........................... 7.0 5.7 6.9 8.5 9.0
------- -------- -------- ------- ---------
Loss from operations ............................... ( 1.4) ( 0.2) ( 0.4) ( 4.1) ( 6.9)
Proxy related litigation expense ................... ( 3.5) -- -- ( 0.1) --
Interest expense ................................... ( 0.7) ( 0.3) ( 0.2) ( 0.5) ( 0.9)
Interest income .................................... -- 0.1 0.2 0.2 0.3
Loss on i1.com investment .......................... -- -- -- -- --
Loss on Unitel investment .......................... -- -- -- -- --
Other expense, net ................................. ( 0.3) 0.1 ( 0.2) 0.1 --
------- -------- -------- ------- ---------
Loss before taxes (benefit) on income and
extraordinary item ................................ ( 5.9) ( 0.3) ( 0.6) ( 4.5) ( 7.5)
Taxes (benefit) on income (loss) ................... 1.7 0.3 0.5 0.2 --
------- -------- -------- ------- ---------
Net loss before extraordinary item ................. ( 7.6) ( 0.6) ( 1.1) ( 4.3) ( 7.5)
Loss on early retirement of debt ................... -- -- -- -- --
------- -------- -------- ------- ---------
Net loss ........................................... ( 7.6) ( 0.6) ( 1.1) ( 4.3) ( 7.5)
Preferred stock dividends .......................... -- -- -- ( 3.7)
------- -------- ------- ---------
Net loss attributable to common stockholders ....... $ (7.6) $ (0.6) $ (1.1) $ (4.3) $ (11.2)
------- -------- -------- -------- ---------
Net loss per share -
Basic and Diluted ................................. $ (0.13) $ (0.01) $ (0.02) $ (0.1) $ (0.19)
======== ========= ========= ======== ==========
Weighted average shares outstanding ................ 57,082 57,257 57,461 57,737 57,874
<CAPTION>
1999 2000
--------------------------------------- -------------------------
JUN 30 SEP 30 DEC 31 MAR 31 JUN 30
------------- ------------- ----------- ------------- -------------
IN MILLIONS OF U.S. DOLLARS (EXCEPT SHARE, PER SHARE DATA AND
OPERATING DATA)
<S> <C> <C> <C> <C> <C>
Revenue ............................................ $ 35.9 $ 31.9 $ 29.9 $ 35.1 $ 30.0
Costs and expenses:
Selling, general and administrative ............... 7.6 8.3 13.0 15.5 13.8
Corporate realignment/settlement .................. -- -- --
Compensation related to stock options ............. -- -- -- 5.9 2.5
Deferred compensation related to acquisitions ..... -- 0.1 0.5 1.4 0
Depreciation and amortization ..................... 1.5 1.9 3.6 3.2 2.9
Amortization of goodwill and other intangible
assets ........................................... 1.0 3.3 2.3 2.9 2.9
--------- --------- -------- -------- ---------
Total costs and expenses ........................... 10.1 13.6 19.2 28.9 22.1
--------- --------- -------- -------- ---------
Loss from operations ............................... ( 9.2) ( 12.3) ( 18.5) ( 26.2) ( 19.1)
Proxy related litigation expense ................... -- -- -- -- --
Interest expense ................................... ( 3.2) ( 1.8) ( 1.8) ( 2.0) ( 1.7)
Interest income .................................... 0.3 0.1 -- -- --
Loss on i1.com investment .......................... -- -- -- -- ( 0.6)
Loss on Unitel investment .......................... -- -- -- -- ( 0.1)
Other expense, net ................................. -- -- -- -- --
--------- --------- -------- --------- ---------
Loss before taxes (benefit) on income and
extraordinary item ................................ ( 12.1) ( 14.1) ( 20.5) ( 28.2) ( 21.5)
Taxes (benefit) on income (loss) ................... -- ( 0.4) ( 0.6) -- --
--------- --------- -------- --------- ---------
Net loss before extraordinary item ................. ( 12.1) ( 13.7) ( 19.9) ( 28.2) ( 21.5)
Loss on early retirement of debt ................... -- -- 1.9 -- --
--------- --------- -------- --------- ---------
Net loss ........................................... ( 12.1) ( 13.7) ( 21.8) ( 28.2) ( 21.5)
Preferred stock dividends .......................... ( 0.6) ( 6.5) ( 1.1) ( 10.2) ( 6.5)
--------- --------- -------- --------- ---------
Net loss attributable to common stockholders ....... $ (12.7) $ (20.2) ( 22.9) $ (38.4) $ (28.0)
--------- --------- -------- --------- ---------
Net loss per share -
Basic and Diluted ................................. $ (0.21) $ (0.33) $ (0.38) $ (0.47) $ (0.32)
========== ========== ========= ========== ==========
Weighted average shares outstanding ................ 58,904 60,301 60,611 81,337 84,597
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND CONDITION AND RESULTS OF OPERATIONS
The following discussion contains, in addition to historical
information, forward-looking statements that involve risks and uncertainties.
Our actual results may differ significantly from the results discussed in the
forward-looking statements.
GENERAL
During 1998 and 1999 we have restructured and refocused our business and
implemented a new, broader services strategy. A fundamental part of that
strategy has been to actively acquire companies which add new services and
technology which assist us in achieving our goal of becoming a premier
outsource provider of applications that globally connect the telephone to the
Internet. Most of the services and technologies needed to achieve our goal were
acquired through acquisitions. As a result of the restructuring and the
acquisitions, we believe that we are reaching our goal and can now offer
services such as Internet protocol transmission services, telephone portal and
unified messaging services. We provide our global outsourced services primarily
to national or former national telecommunications companies, to competitive
telephone companies in liberalized markets and to Internet service providers.
Beginning in December 1998 and throughout 1999, we completed eight
acquisitions and in the first quarter of 2000 we completed a merger with Trans
Global, which was accounted for using the pooling of interests method. As a
result of this merger, all financial information and Management's Discussion
and Analysis of Financial Condition and Results of Operations have been
restated to include Trans Global for all periods presented.
The following highlights significant business events for us:
o In 1998 and 1999, we extended our global technology platforms to
enable us to offer multiple products that allow one to utilize the
Internet through a telephone, including IP voice and fax
capabilities and unified messaging products and services.
o In 1998, we made two principal investments in technology to allow us
to achieve our vision -- the acquisition of IDX for our underlying
voice over the Internet technology and the investment in a
technology license for our unified messaging service. (see
discussion of Connectsoft below).
o We changed our year-end to a calendar year-end, beginning with the
nine month period ended December 31, 1998.
o To gain greater control over the development of the technology, we
acquired a unified messaging technology company, Connectsoft
Communications (now Vogo) in mid-1999.
o In 1999, we acquired Swiftcall and ORS that added a network operating
center, switches and call center operations needed to expand our
business and to offer the highest quality services to our
customers.
o We completed two equity private placements of preferred stock and
warrants in early 1999.
o We acquired Telekey, a specialty calling card business in early 1999.
o In 1999, we borrowed $20 million from our largest stockholder in a
secured debt financing, the proceeds of which we used to develop
our enhanced IP services.
o We acquired iGlobe in late 1999 that allowed us to expand our voice
over Internet protocol operations into Latin American. We acquired
satellite transponder space, uplink and downlink facilities and key
relationships with several major carriers within Latin America.
o In 2000, we closed two equity private placements with RGC
International Investors, LDC of preferred stock and warrants from
which we have received $19.0 million and will receive an additional
$6.0 million upon effectiveness of the registration statement of
which this prospectus is a part. We used the proceeds from these
financings primarily to pay for acquisition costs we incurred in
connection with the Trans Global merger.
o Our merger with Trans Global at the end of March 2000 has provided us
with significant network, revenues, key relationships within the
Caribbean and the Middle East, and a number of new members of our
senior management team.
o In August 2000, we entered into an agreement to sell certain assets
acquired from Coast, including the Coast Internet service provider
and help desk business, to Information Management Solutions
Consulting, a limited liability company owned by affiliates of
Bijan Moaveni, our Chief Operating Officer.
o In September 2000 we entered into an agreement to amend the $20
million debt facility and related 5% secured notes. In
23
<PAGE>
connection with the amendment of the debt facility, all past
defaults were waived by the lender and deemed cured. In addition,
the outstanding balance was reduced to approximately $16 million.
o On October 25, 2000 we held our annual shareholders meeting, where one
of the proposals to be voted on required shareholder approval of
the issuance of common stock upon the conversion of the Series P
Convertible Preferred Stock and Series Q Convertible Preferred
Stock and the exercise of certain warrants. We deferred the vote on
this proposal until November 16, 2000 in order to permit us to
obtain additional responses from stockholders holding their shares
in street name. As noted in Note 11 to the unaudited consolidated
financial statements and Note 16 to the audited consolidated
financial statements, if the Series P and Series Q Preferred Stock
is no longer convertible into common stock, we may be required to
redeem the preferred stock. If we are forced to redeem the
outstanding Series P and Series Q Preferred Stock, we are currently
unable to immediately pay the redemption value. Further, the Series
Q Preferred Stock agreement also provides that we may issue up to
6,000 additional shares of Series Q preferred Stock and warrants to
purchase an additional 150,000 shares of common stock to RGC for
$6.0 million at a second closing to be completed no later than July
15, 2000. We have only been able to obtain a waiver of RGC's
current default through October 15, 2000. We believe that if we are
able to obtain the additional votes from our shareholders we will
be able to obtain the $6.0 million in additional funding.
As a result of the acquisitions, we now have the following business
segments: Network Services, Customer Care, Retail Services and Enhanced
Services. Network Services includes our facilities-based, direct connection and
resale network with voice, fax and data termination capabilities, our Internet
protocol voice and fax capabilities and our toll free services. Enhanced
Services consists of global IP-based enhanced services including, unified
messaging, telephone portal, our clearing and settlement services and our
combined IVR (Interactive Voice Response) and IDR (Interactive Data Response)
services and our legacy global card services enhancement business. Customer
Care, consists of our state-of-the-art calling center for eGlobe services and
other customers, including customer care for a number of e-commerce companies.
Retail Services primarily consists of our domestic long-distance and Internet
service provider business acquired as part of the Coast acquisition. All of
Trans Global's operations were in the Network Services segment.
The extensive acquisition activity, the addition of new lines of
business, the organic growth of these new lines, the change in year-end, the
change in revenue and expense mix, rate changes and the raising of new
financing discussed below have caused our financial information to no longer be
comparable to the prior periods. The following table reflects the acquisitions
and the merger in chronological order, by acquisition date and sets forth the
cost of purchase and nature of consideration paid by us.
<TABLE>
<CAPTION>
COST TO
PURCHASE
DATE ACQUISITION (IN MILLIONS) NATURE OF CONSIDERATION
--------------- ------------- --------------- ---------------------------------------------------------------
<S> <C> <C> <C>
December 1998 IDX $ 10.8 (a) 500,000 shares of our Series B Convertible Preferred
Stock (b) warrants to purchase up to an additional 2,500,000
shares of common stock; (c) $5.0 million in convertible
promissory notes; (d) $1.5 million in bridge loan advances to
IDX that we made prior to the acquisition; (e) $418,000
convertible subordinated promissory note for IDX dividends
accrued and unpaid on IDX's Preferred Stock; (f) direct
costs associated with the acquisition of $0.4 million. The
former stockholders of IDX subsequently, exchanged The
Series B Preferred Stock, warrants to purchase 2,500,000
shares of common stock and convertible subordinated notes
in the original principal amount of $4.0 million for shares of
Series H Convertible Preferred Stock, warrants to purchase
1,087,000 shares of common stock and shares of Series I
Optional Redemption Preferred Stock, respectively.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
COST TO
PURCHASE
DATE ACQUISITION (IN MILLIONS) NATURE OF CONSIDERATION
---------------- ------------- --------------- --------------------------------------------------------------
<S> <C> <C> <C>
December 1998 UCI $ 1.2 (a) 125,000 shares of common stock (b) warrants to
purchase 50,000 shares of common stock and (c) $2.1
million note payable.
February 1999 Telekey $ 3.4 (a) $0.1 million in cash at closing; (b) $150,000 promissory
note; (c) 1,010,000 shares of Series F Convertible Preferred
Stock ("Series F Preferred") valued at $2.0 million and (d)
agreement to issue at least 505,000 and up to an additional
1,010,000 shares of Series F Preferred Stock two years from
the date of closing subject to Telekey meeting certain
revenue and EBITDA objectives and (e) direct costs
associated with the acquisition of $0.2 million. In May 2000
we issued 757,500 shares of common stock, of which the
value of 505,000 shares was included in the initial purchase
consideration, in payment of an earn-out and the termination
dates of certain employment agreements.
June 1999 Connectsoft $ 5.3 (a) one share of Series G Cumulative Convertible
Redeemable Preferred Stock ("Series G Preferred")
valued at $3.0 million; (b) $1.8 million in advances to
Connectsoft made prior to the acquisition which were
included in the purchase price; and (c) direct costs
associated with the acquisition of $0.5 million. We,
subsequently, exchanged shares of Series K Cumulative
Convertible Preferred Stock for the shares of Series G
Preferred Stock.
July 1999 Swiftcall $ 3.3 (a) 526,063 shares of common stock valued at $1,645,000 as
payment for the first of the two installment payments and (b)
371,675 shares of common stock valued at $1,162,000 as
payment for the final installment payment.
August 1999 iGlobe $ 9.9 (a) one share of 20% Series M Convertible Preferred Stock
valued at $9.6 million (b) direct acquisition costs of
approximately $0.3 million.
September 1999 ORS $ 3.0 (a) 1.5 million shares of our common stock valued at $3.0
million on the date of issuance and (b) warrants, subject to
contingencies (See Note 4 to the Unaudited Consolidated
Financial Statements), to purchase additional shares of its
common stock to eGlobe/Oasis LLC.
December 1999 Coast $ 16.7 (a) 16,100 shares of Series O Convertible Preferred Stock
valued at $13.4 million; (b) 882,904 shares of common
stock valued at approximately $3.0 million and (c) direct
costs associated with the acquisition of approximately $0.3
million.
March 2000 Trans Pooling of 40,000,000 of our common stock. We also issued 2,000,000
Global Interests shares of our common stock in escrow to cover our
potential indemnification obligations under the merger
agreement.
</TABLE>
The following table also identifies the acquisitions and merger with a
segment or segments and provides revenue comparisons, after the elimination of
inter-segment revenues for the six months ended June 30, 2000 and 1999, for the
year ended December 31, 1999 as compared to the nine month period ended
December 31, 1998 and to the year ended March 31, 1998.
25
<PAGE>
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS SIX MONTHS
ENDED ENDED
(IN THOUSANDS) DATE OF BUSINESS JUNE 30, JUNE 30,
COMPANY NAME TRANSACTION SEGMENT 2000 1999
---------------------------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
eGlobe-Card Services ............. Legacy Enhanced $ 5,225 $10,701
Executive TeleCard, Inc.
(TeleCall) ...................... Legacy Retail 64 235
IDX International, Inc. .......... Dec.-98 Network 6,932 5,480
UCI .............................. Dec.-98 Enhanced -- --
Telekey, Inc. .................... Feb.-99 Enhanced 1,113 1,067
Connectsoft (Vogo) ............... June-99 Enhanced 110 18
Swiftcall ........................ July-99 Network -- --
iGlobe, Inc. ..................... August-99 Network 4,363 --
Oasis Reservations Services Customer
(ORS) ........................... Sept.-99 Care 2,365 --
Interactive Media Works
(IMW) ........................... Dec.-99 Enhanced 774 --
Coast International, Inc. ........ Dec.-99 Retail 3,422 --
Trans Global
Communications, Inc. ............ March-00 Network 40,673 62,614
------- --------
Total Revenue for the period ..... $65,041 $80,115
======= =======
<CAPTION>
REVENUE
-------------------------------------------
FOR THE
FOR THE YEAR NINE MONTHS FOR THE YEAR
ENDED ENDED ENDED
(IN THOUSANDS) DECEMBER 31, DECEMBER 31, MARCH 31, DESCRIPTION OF
COMPANY NAME 1999 1998 1998 SERVICES
---------------------------------- -------------- -------------- ------------- ------------------------------------
<S> <C> <C> <C> <C>
eGlobe-Card Services ............. $ 16,840 $ 21,360 $ 31,819 Pre Paid and Global
Post Paid Card Services
Executive TeleCard, Inc.
(TeleCall) ...................... 394 553 1,304 Domestic long-distance services
IDX International, Inc. .......... 15,522 578 -- Internet protocol transmission
services
UCI .............................. -- -- -- Development stage company in
Mediterranean region
Telekey, Inc. .................... 2,968 -- -- Specialty calling card services
Connectsoft (Vogo) ............... 125 -- -- Global unified messaging,
telephone portal services and a
technology license for unified
messaging technology
Swiftcall ........................ -- -- -- Network operating center
iGlobe, Inc. ..................... 3,608 -- -- Latin American Internet protocol
transmission operations
Oasis Reservations Services
(ORS) ........................... 1,637 -- -- Support services and call center
Interactive Media Works 133
(IMW) ........................... -- -- Interactive voice and Internet
services
Coast International, Inc. ........ 607 -- -- Enhanced long-distance services
Trans Global
Communications, Inc. ............ 100,114 67,929 46,473 Facilities-based, direct connection
--------- ----------- ----------- and resale network
------------------------------------
Total Revenue for the period ..... $ 141,948 $ 90,420 $ 79,596
========= =========== ===========
</TABLE>
For a detailed discussion of each acquisition and segment information,
see Notes 4 and 12 to the Audited Consolidated Financial Statements and Note 12
to the Unaudited Consolidated Financial Statements for the Six Months Ended
June 30, 2000 and 1999.
During the first half of 2000 we completed debt and equity financings
from which we received $19.5 million in gross proceeds. This resulted from the
sale of Series P Convertible Preferred Stock and Series Q Convertible Preferred
Stock, from which we received $15.0 million and $4.0 million, respectively, in
gross proceeds, and $500,000 in related party debt. In addition we received
approximately $2.7 million from the exercise of options and warrants. These
proceeds were used to provide support for our ongoing operations, to fund our
increased operational costs as we continue to incur build out costs associated
with growth related to increased minutes that resulted from the Trans Global
merger, and to purchase short term investments. See further discussion of the
various debt and equity financings in Note 7 "Notes Payable and Long Term Debt"
and Note 9 "Stockholders' Equity" to the Unaudited Consolidated Interim
Financial Statements.
We also completed debt and equity financings during 1999 from which we
received approximately $48.0 million in gross proceeds. This total amount
consists of $6.8 million in proceeds from notes payable, primarily financing
agreements for equipment, $28.3 million in proceeds from related party notes
payable, primarily the secured notes with EXTL Investors, $12.7 million from
the issuance of preferred stock, particularly Series D Cumulative Convertible
Preferred Stock for $5.0 million, Series E Cumulative Convertible Preferred
Stock for $5.0 million, and Series N Cumulative Convertible Preferred Stock for
$2.7 million and $250,000 in the issuance of common stock. In addition we
received approximately $0.8 million from the exercise of options and warrants.
These proceeds, which total approximately $48.8 million were used to pay off
debt, further invest in the growth of the businesses, pay down outstanding
liabilities and provide other support for ongoing operations. See further
discussion of the various debt financings in Note 5, "Notes Payables and
Long-Term Debt" and Note 7, "Related Party Transactions" to the Audited
Consolidated Financial Statements. For further discussion of the various equity
financings, the exercise of options and warrants and purchase of common stock
by an existing investor, see Note 10, "Stockholders' Equity" to the Audited
Consolidated Financial Statements.
26
<PAGE>
OVERVIEW
We incurred a net loss of $49.6 million, $19.6 million, $55.1 million,
$6.0 million and $11.3 million for the six months ended June 30, 2000 and 1999,
the year ended December 31, 1999, the nine months ended December 31, 1998 and
the year ended March 31, 1998, respectively, of which $34.6 million, $10.0
million, $29.1 million, $6.9 million and $16.0 million is attributable to the
following charges to income:
<TABLE>
<CAPTION>
(NINE MONTHS)
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, MARCH 31,
2000 1999 1999 1998 1998
---------- ---------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Additional allowance for doubtful accounts ............. $ 3.5 $ 0.5 $ 2.5 $ 1.0 $ 1.6
Amortization of goodwill and other intangibles
(primarily related to acquisitions) ................... 5.7 1.6 7.1 0.2 0.2
Deferred compensation to employees of acquired
companies ............................................. 1.4 1.0 1.5 0.4 --
Deferred compensation related to stock options ......... 8.4 -- -- -- --
Depreciation and amortization .......................... 6.1 2.8 8.4 3.2 3.3
Interest expense net of the amortization of debt
discounts related to debt ............................. 2.1 1.1 2.5 0.7 1.3
Amortization of debt discounts ......................... 1.6 3.0 5.2 0.3 0.5
Loss on early retirement of debt ....................... -- -- 1.9 -- --
Settlement costs ....................................... -- -- -- 1.0 --
Proxy-related litigation settlement costs .............. -- -- -- 0.1 3.9
Corporate realignment costs ............................ -- -- -- -- 3.1
Additional provision for taxes on income ............... -- -- -- -- 1.5
Merger expenses ........................................ 2.5 -- -- -- --
Penalty warrants ....................................... 1.6 -- -- -- --
Other items ............................................ 1.7 -- -- -- 0.6
------ ------ ------- ------ ------
Total ............................................... $ 34.6 $ 10.0 $ 29.1 $ 6.9 $ 16.0
====== ====== ======= ====== ======
</TABLE>
The $2.5 million of merger expenses incurred by the Company related to
investment banking and advisory fees, legal and accounting costs and expenses
associated with printing and mailing the proxy statement for the special
stockholders' meeting.
After deducting these items, the loss for the six months ended June 30,
2000 and 1999 was $15.0 million and $9.6 million respectively and for the year
ended December 31, 1999 was $26.0 million, compared to net income of $0.9
million for the nine months ended December 31, 1998 and net income of $4.7
million for the year ended March 31, 1998.
The principal factors for the losses incurred for the six months ended
June 30, 2000 and 1999 and the year ended December 31, 1999 are: (1) the
incurrence of upfront costs to build out capacity to meet our anticipated
growth relating primarily to the traffic that will result from the Trans Global
merger, (2) increased competition in the international telecommunications
market, (3) a change in pricing by Trans Global's primary supplier, AT&T,
during 1999 which increased costs and drove margins down, (4) the costs of
integrating our acquisitions, (5) increase in headcount of 20%, and (6) legal
and administrative charges principally incurred to support the acquisition
operations.
With respect to Enhanced Services, we maintain over 40 calling card
platforms around the world. All calls made by our customer's cardholders using
the World Direct Network are validated, connected, and recorded by these
platforms. Information from the platforms is sent to our billing system for
rating, invoicing and transmission. The billing process generates for each
call, the card number, call date, duration of the call, the country of call
origination, the called number, the country of call destination, and the
billing amount for the specific call. The billing system, also, organizes all
calls based upon a customer "code" and presents the data in a readable format.
These Call Detail Recorders (CDR's) are provided to each of our customers
27
<PAGE>
each month. In addition, a summary invoice for each customer is prepared and
sent to the customer that represents actual minutes of usage by the customer.
When the invoice is created the revenue is recognized. Payment by the customer
is made by wire payment or by check for the invoiced amount.
In summary, the rate per minute (pricing) multiplied by the duration
(minutes) represents the gross revenue that we recognize. Our carrier costs are
a separate and independent cost to us that is captured as a "Cost of Revenue".
Network Services provides Internet protocol transmission technology.
Revenue and direct costs from such services, mainly from routing charges for
voice and fax traffic through the network, are recognized as the service is
provided. Some Network Services contracts require monthly minimum payments to
be paid, which are reported as deferred revenue and recognized as the services
are performed.
Customer Care records deferred revenue related to certain reservations
service contracts paid in advance, based on forecasted amounts which will be
recognized as revenue as the services are provided.
Retail Services recognize revenue upon completion of telephone calls by
the end users.
REVENUE
Revenues for the first six months of 2000 consist primarily of 11% of
Enhanced Services and 80% of Network Services. Declines in the first half of
2000 were experienced in both of these segments due to increasing competition,
which has put downward pressure on both prices and margins. In addition,
Network Service revenues are decreasing because we have decided to shift from
being a purely arbitrage resale business, towards direct route and IP structure
operations in order to gain the advantage of better gross profit margins.
Positive effects of the shift towards direct route and IP structure operations
were evident in the 37% and 32% growth in revenue from the second half of 1999
and the first and second quarter of 2000.
During 1999, 14% of our revenue was generated from Enhanced Services and
84% from Network Services. The predominant contributors to revenue for 1999
were card enhancement services in Enhanced Services and voice and data over
Internet protocol transport and facilities-based, direct connection and resale
network in Network Services. Most of our Enhanced Services revenue is generated
from providing various card services to customers under contracted terms who
are charged on a per call basis. Certain new offerings such as unified
messaging and telephone portal and the interactive voice and Internet protocol
services often have monthly subscriber charges in addition to per transaction
charges. The transaction charge for service is on a per call basis, determined
primarily by minutes of use and originating and terminating points of call. The
charging structure for Network Services transmissions revenues are based on the
number of minutes used upon the completion of a call. However, some contracts
call for monthly minimums to be paid for the monthly services to be provided
and limited recurring revenues for monthly service fees for circuit capacity
and for co-location/switch partitioning services. Non-recurring charges to
customers for Network Services vary with the amount of minutes utilized and the
country of termination. In prior years we also generated revenue from other
sources, generally sales of billing and platform systems and non-recurring
special projects.
For the year ended December 31, 1999, Network Services and Enhanced
Services were the principal contributors to revenue. However, the card
enhancement services element of the Enhanced Services segment has declined
while the unified messaging and telephone portal services have begun to realize
initial revenues to offset this decline.
COST
The principal component of the cost of revenue is transmission costs and
termination charges by other U.S. and foreign carriers to originate, carry or
terminate calls. Transmission expenses are largely fixed monthly payments
associated with capacity on domestic and international facilities and
associated switch expenses. Termination expenses consist of variable cost per
minute charges paid to domestic and international carriers to terminate long
distance traffic. Traffic under resale arrangements is typically obtained on a
variable, per minute and short term basis which could subject the Company to
unanticipated price increases and potential service cancellations. We continue
to pursue strategies for reducing costs of transmissions. These strategies
include purchasing underlying capacity, increasing minutes to generate
economies of scale, establishing partnering arrangements with various carriers,
negotiating more cost-effective agreements with other carriers and routing
traffic to the lowest-cost, highest quality providers. Also in fiscal
28
<PAGE>
year 1999 and thereafter, the strategy includes cost effective provisioning of
our own IP trunks.
Other components of operating costs are selling and administrative
expenses, which include personnel costs, consulting and legal fees, travel
expenses, bad debt allowances and other administrative expenses. Depreciation
and amortization expense includes the allocation of the cost of transmission
equipment, property and office equipment, and various intangible assets, which
include goodwill and intangibles arising principally from our acquisitions,
over their useful lives.
RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999, AND THE YEAR ENDED
DECEMBER 31, 1999 COMPARED TO THE NINE MONTH PERIOD ENDED DECEMBER 31, 1998 AND
THE YEAR ENDED MARCH 31, 1998
Revenue. We generate revenue from providing enhanced, network, customer
care and retail services in Europe, Asia Pacific, North America and Latin
America as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999 DECEMBER 31, 1999
-------------------- --------------------- ---------------------
(IN MILLIONS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Enhanced Services ........... $ 7.2 11.1% $ 11.8 14.7% $ 20.1 14.2%
Network Services ............ 52.0 80.0% 68.1 85.1% 119.2 84.0%
Customer Care ............... 2.4 3.7% -- -- 1.6 1.1%
Retail Services ............. 3.5 5.2% 0.2 0.2% 1.0 0.7%
Total by operation ......... $ 65.1 100.0% $ 80.1 100.0% $ 141.9 100.0%
Europe ...................... $ 4.2 6.5% $ 3.9 4.9% $ 7.3 5.1%
Asia Pacific ................ 4.7 7.2% 4.4 5.5% 7.9 5.6%
North America ............... 53.3 81.8% 68.9 86.0% 121.7 85.8%
Latin America ............... 2.1 3.2% 1.9 2.4% 3.5 2.5%
------ ----- ------ ----- ------- -----
Other ....................... 0.8 1.3% 1.0 1.2% 1.5 1.0%
Total by geography ......... $ 65.1 100% $ 80.1 100% $ 141.9 100.0%
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, 1998 MARCH 31, 1998
--------------------- ---------------------
(IN MILLIONS OF U.S. DOLLARS)
<S> <C> <C> <C> <C>
Enhanced Services ........... $ 21.4 23.7% $ 31.8 40.0%
Network Services ............ 68.5 75.8% 46.5 58.4%
Customer Care ............... -- -- -- --
Retail Services ............. 0.5 0.5% 1.3 1.6%
Total by operation ......... $ 90.4 100.0% $ 79.6 100.0%
Europe ...................... $ 2.2 2.4% $ 3.5 4.4%
Asia Pacific ................ 6.0 6.6% 10.3 12.9%
North America ............... 76.7 84.9% 56.6 71.1%
Latin America ............... 5.2 5.8% 8.2 10.3%
------ ----- ------ -----
Other ....................... 0.3 0.3% 1.0 1.3%
Total by geography ......... $ 90.4 100.0% $ 79.6 100.0%
</TABLE>
Our revenues for the six months ended June 30, 2000 of $65.1 million
decreased 18.9% from the same period in 1999. This decrease in revenue occurred
primarily in the Network Services segment (primarily Trans Global). This
decrease was in part due to Trans Global's decision to shift from being a
purely arbitrage resale business towards direct route and IP structure
operations in order to gain the advantage of better gross profit margins, as
discussed above under "Overview and Revenue". Positive effects of the shift
towards direct route and IP structure operations were evident in the 37% and
32% growth in revenue from the second half of 1999 and the first and second
quarter of 2000.
Our revenues for the year ended December 31, 1999 increased to $141.9
million as compared to $90.4 million for the nine months ended December 31,
1998, with Network Services and Enhanced Services being the primary business
segments contributing to the increase, as discussed above under "Overview and
Revenue". Our revenues increased to $90.4 million for the nine months ended
December 31, 1998 as compared to $79.6 million for the year ended March 31,
1998. The increase in revenue for 1999 as compared to the nine months ended
December 31, 1998 was primarily attributable to the growth in the Network
Services segments. The growth in Network Services (from $68.5 million for the
nine months ended December 31, 1998 to $119.2 million for the year ended
December 31, 1999) can be principally attributed to the additions related to
the revenues of the IDX and iGlobe acquisitions and increased revenues for
Trans Global of $32.2 million. The growth in Trans Global revenue from $67.9
million for the nine months ended December 31, 1998 to $100.4 for the year
ended December 31, 1999, was primarily due to the addition of over 15 new
wholesale-carrier customers, which increased the number of customers to 40 at
December 31, 1999 as compared to approximately 26 at December 31, 1998. The
demand for minutes increased at Trans Global to approximately 307 million
minutes at December 31, 1999 from approximately 228 million minutes as of
December 31, 1998 as a result of decreasing prices. This increase in Trans
Global revenue approximates 47.9% improvement in revenue or approximately a
$32.5 million increase in revenue. Also, $19.0 million of the increase in
Network Services
29
<PAGE>
revenues was due to expansion of the facilities-based, direct connection and
resale and Internet networks which are now in 30 countries. Other increases in
1999 revenues included approximately $3.0 million attributable to Telekey which
was acquired in February 1999 and $1.6 million attributable to our call center
operations which were acquired in September 1999. As anticipated by management,
unified messaging and telephone portal services did not generate material
revenues during the two month period subsequent to the initial commercial
launch of the service in October 1999.
The increase in revenues for the nine months ended December 31, 1998 as
compared to the year ended March 31, 1998 was primarily due to the increase in
Trans Global revenues of $21.5 million. This increase was due primarily to the
addition of new customers, market growth and an increased demand for services
from existing clients.
Offsetting a portion of the increase in the 1999 revenue was a decline
in the card enhancement services revenue of 6.7% for the year ended December
31, 1999 as compared to the nine month period ended December 31, 1998 with a
similar change for the nine month period ended December 31, 1998 as compared to
the year ended March 31, 1998. The decline in the card services business
resulted directly from a combination of a precipitous decline in global prices
over 1999 and a series of management policy decisions that removed us from most
aspects of the prepaid card business in North America. These decisions led to
the migration of customers off our platforms and a decline in minutes and
associated revenue as a result of contract modifications to strengthen services
and control.
Gross Profit. For the six months ended June 30, 2000 and 1999, the year
ended December 31, 1999, the nine month period ended December 31, 1998, and the
year ended March 31, 1998, gross profit was $5.7 million (representing 7.3% of
sales), $3.1 million (representing 3.8% of sales), $5.0 million (representing
less than 4% of sales), $16.5 million (representing 18% of sales), and $20.8
million (representing 26% of sales), respectively.
For the six months ended June 30, 2000, margins increased for both
Network Services and Enhanced Services compared to prior periods. The
improvement in Enhanced Services is in part due to acquisitions of several
companies in February and December of 1999 as well as more cost effective
routing of telecommunications traffic. The improvement in the Network Services
segment is related to leases of capacity and other up-front costs necessary to
implement new routes and services, primarily in the Middle East and Asia
Pacific regions. As long as we continue to expand our global IP network and add
additional IP routes, gross margins will be negatively affected by the cost of
turning up a new IP route. Although there are some initial start up costs, a
significant amount of the new routes are now beginning to make a positive
contribution. We believe that the added efficiencies of the IP routes will
quickly (usually within two quarters) begin to add positively to our gross
margin. It is also expected that costs to build out the network to accommodate
the anticipated threefold increase in traffic resulting from the Trans Global
merger and the need to build out routes for Latin America to continue our
growth will continue to contribute negatively to gross margins. We believe
margins will continue to improve as we more efficiently fill our routes and
obtain additional owned capacity. An anticipated increase in the cost of
revenue related to leases of capacity in the Network Services segment and other
up-front costs necessary to implement new routes and services were the key
elements behind this margin decline in 1999. In addition, margins were driven
down in 1999 by increased competition in the wholesale telecommunications
markets and as the direct result of several major carriers demanding lower
prices. Trans Global's circuit costs incurred in transmitting telecommunication
services increased at year-end 1999 by approximately $2.0 million due to the
expansion of its international network in Europe and the Middle East. As long
as the IP voice network of Network Services is being expanded with new routes
and services being added, such up-front costs will be incurred. It is also
expected that costs to build out the network to accommodate the anticipated
threefold increase in traffic resulting from the Trans Global merger and the
need to build out routes for Latin America to grow iGlobe routes and services
will contribute negatively to gross margins through the second half of 2000.
Also included in the difference between the margins for the year ended December
31, 1999, as compared to prior periods, are costs incurred primarily in the
first quarter of 1999 due to pricing decisions which led to large negative
margins in some card services contracts. During the nine
30
<PAGE>
months ended December 31, 1998 as compared to the year ended March 31, 1998,
the reduction in gross margin percentage was primarily due to the effect of the
increasingly competitive environment for international wholesale services. We
believe margins will improve as we more efficiently fill our routes and realize
the benefits of additional owned capacity through the Trans Global merger.
Selling, General and Administrative Expenses, exclusive of $1.4 million,
$0.9 million, $1.5 million and $0.4 million reported below of deferred
compensation related to acquisitions. Selling, general and administrative
expenses, exclusive of $1.4 million, $0.9 million, $1.5 million and $0.4
million reported below of deferred compensation related to acquisitions totaled
$29.3 million, $13.7 million $35.0 million, $16.3 million and $17.3 million for
the six months ended June 30, 2000 and 1999, the year ended December 31, 1999,
the nine months ended December 31, 1998 and the year ended March 31, 1998,
respectively. Included in the December 31, 1999 costs is a $2.5 million
provision for doubtful accounts compared to a $1.0 million provision for the
nine months ended December 31, 1998 and a $1.6 million provision for the year
ended March 31, 1998. The increase in the costs from June 30, 1999 to June 30,
2000 is the result of increases in personnel as a result of the acquisition
activity. The 56% increase in the reserve for doubtful accounts from December
31, 1998 to December 31, 1999 was primarily due to a recent deterioration in
the payment performance of one customer. Excluding these charges, other
selling, general and administrative expenses, principally salaries and related
expenses are averaging $8.1 million per quarter for the year ended December 31,
1999, $5.1 million per quarter for the nine months ended December 31, 1998 and
$4.0 million per quarter for the year ended March 31, 1998. The principal
factors for the increase in the 1999 and 1998 quarterly average sales, general
and administrative costs were increases in headcount and the related occupancy
costs associated with the increase in headcount. Headcount was 314 at December
31, 1999, 235 at December 31, 1998 and 164 at March 31, 1998. Most of the
increase in 1999 was related to the acquisition activity through which
approximately 95 employees were added (before adjustment for
terminations/departures). Most of these were added in the third quarter of 1999
related to the iGlobe (33 employees) and ORS (3 full-time employees)
acquisitions and the fourth quarter of 1999 related to the Coast (59 employees)
acquisition. As included in the totals above, Trans Global's headcount was 38
at December 31, 1999, 33 as of December 31, 1998 and 19 as of March 31, 1998.
As the operations of these acquired companies are integrated, these costs as a
percentage of revenue are expected to continue to decrease.
Settlement Costs. As described in Note 7 to the Audited Consolidated
Financial Statements in 1998 we entered into a settlement agreement with our
then largest stockholder to resolve all current and future claims. The
difference in value between the convertible preferred stock issued to the
stockholder and the common stock surrendered by the stockholder was $1.0
million, which resulted in a non-cash charge to the Consolidated Statement of
Operations in the quarter ended September 30, 1998.
Corporate Realignment Costs. We incurred various realignment costs
during the fiscal year ended March 31, 1998, resulting from the review of
operations and activities undertaken by new corporate management. These costs,
which totaled $3.1 million, include employee severance, legal and consulting
fees and the write down of certain investments made in our Internet service
development program. We did not incur realignment costs during the nine months
ended December 31, 1998, for the year ended December 31, 1999 or for the six
months ended June 30, 2000 and 1999.
Compensation Related to Stock Options. Compensation expense related to
stock options of $8.4 million was recorded for the six months ended June 30,
2000. This charge was to record the value of options granted in excess of
shares available for grant under the Employee Stock Option Plan ("Employee
Plan"). The Board of Directors granted these options to certain executives and
directors subject to stockholder approval of the increase in the number of
shares available under the Employee Plan. The stockholders approved the
increase of the number of shares available under the Employee Plan from
3,250,000 to 7,000,000 shares on March 23, 2000. The excess of the market price
of $9.94 on March 23, 2000 (stockholder approval date) and the option exercise
price for these options was $15.2 million and is being recorded as compensation
expense over the vesting period of the options. There were no similar charges
recorded for the fiscal year ended March 31,
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1998, the nine months ended December 31, 1998, for the year ended December 31,
1999 or for the six months ended June 30, 1999.
Deferred Compensation Related to Acquisitions. These non-cash charges
totaled $1.4 million for the six months ended June 30, 2000, $0.9 million for
the six months ended June 30, 1999, $1.5 million for the year ended December
31, 1999 and $0.4 million for the nine months ended December 31, 1998. This
expense relates to stock allocated to employees of acquired companies by their
former owners out of acquisition consideration paid by us. Such transactions,
adopted by the acquired companies prior to acquisition, require us to record
the market value of the stock issuable to employees as of the date of
acquisition as compensation expense with a corresponding credit to
stockholders' equity and to continue to record the effect of subsequent changes
in the market price of the issuable stock until actual issuance. These charges
will not be recorded in future periods for these particular acquisitions. See
Note 4 to the Audited Consolidated Financial Statements for further discussion
of subsequent renegotiations of certain of these issuances.
Depreciation and Amortization Expense. These expenses were $11.9
million, $4.4 million, $15.5 million, $3.4 million and $3.5 million for the six
months ended June 30, 2000 and 1999, the year ended December 31, 1999, the nine
months ended December 31, 1998 and the year ended March 31, 1998, respectively.
The increase of $7.4 million from June 30, 1999 to June 30, 2000 is due to
amortization charges of $4.1 million related to goodwill and other intangibles
associated with the acquisitions completed since June 1999. The increase for
the year ended December 31, 1999 and prior period is principally due to
amortization charges of $7.1 million related to goodwill and other intangibles
associated with the acquisitions completed since December 1, 1998. The balance
of the increase was primarily attributable to increases in the fixed assets of
acquired companies and Trans Global.
Proxy Related Litigation Expense. During the nine month period ended
December 31, 1998, we incurred $0.1 million in proxy related litigation
expenses as compared to $3.9 million for the year ended March 31, 1998 related
to the class action lawsuit for which a settlement agreement was reached in
April 1998. Of the amount recorded in the year ended March 31, 1998, $3.5
million related to the value assigned to the 350,000 shares of common stock
referred to above, which were valued at $10.00 per share pursuant to the terms
of the settlement agreement. Such value related to our obligation under the
Stipulation of Settlement to issue additional stock if the market price of our
stock was less than $10.00 per share during the defined periods. We had no
obligation to issue additional stock if our share price is above $10.00 per
share for fifteen consecutive days during the two year period after all shares
have been distributed to the Class. In March 2000, that condition was satisfied
and we have no further obligations under the Stipulation of Settlement. All
shares required to be issued under the settlement agreement were issued to the
class action litigants and we have no further obligations under the settlement
agreement.
Additionally, we settled with another stockholder related to the same
securities class action in May 1988 and issued that stockholder 28,700 shares
of common stock at the market price at the date of settlement for a total value
of $81,000.
Interest Expense. Interest expense totaled $3.7 million for the six
months ended June 30, 2000, $4.1 million for the six months ended June 30,
1999, $7.7 million for the year ended December 31, 1999, $1.0 million for the
nine months ended December 31, 1998, and $1.8 million for the year ended March
31, 1998. The sharp increase at year-end December 31, 1999 was primarily due to
amortization of the debt discounts related to the value of warrants associated
with acquisitions and financings and in part due to an increase in debt. This
amortization continued in the year 2000, with interest expense remaining
relatively consistent from the same period in the prior year.
Other Expense. We recorded a foreign currency transaction loss of $0.1
million during the year ended December 31, 1999, $0.1 million during the nine
months ended December 31, 1998 and $0.4 million for the year ended March 31,
1998. The losses for all periods arose from foreign currency cash and accounts
receivable balances we maintained during the period in which the U.S. dollar
strengthened. Our exposure to foreign currency losses is mitigated due to the
variety of customers and markets which comprise our customer base, as well as
geographic diversification of that customer base.
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In addition, the majority of our largest customers settle their accounts in
U.S. dollars.
Interest Income. For the six months ended June 30, 2000, interest income
totaled $0.2 million, a decrease from June 30, 1999 of $0.3 million. This
change is a result of decrease in revenues and increase in acquisition
activity, both of which reduced cash reserves for investment. Interest income
totaled $0.7 million for the year ended December 31, 1999 as compared to $0.5
million and $0.2 million for the nine month period ended December 31, 1998 and
the year ended March 31, 1998. The increase period to period is primarily due
to higher interest income earned as a result of the increased sales revenue and
from cash received from various equity and debt financings.
Taxes (Benefit) on Income. A tax benefit of approximately $1.0 million
was recorded for the year ended December 31, 1999 due to the operating loss
incurred by Trans Global that will be carried back to prior years as a
deduction resulting in a federal income tax refund. This refund is expected to
be received during the fourth quarter of 2000. For the nine months ended
December 31, 1998 and for the year ended March 31, 1998, we recorded a $0.6
million and a $2.0 million provision for income taxes, respectively. These
provisions were based on Trans Global having operating income in both periods
resulting in current tax provisions. Also, we recorded an additional provision
of $1.5 million in the year ended March 31, 1998 based on the initial results
of a restructuring study, which identified potential international tax issues.
Settlements and payments made with various tax jurisdictions have decreased our
estimated remaining liabilities to $0.4 million as of June 30, 2000. We
continue to work with various jurisdictions to settle outstanding tax
obligations for prior years.
Loss on Early Retirement of Debt. In August 1999, we repaid $4.0 million
under the $20.0 million notes with EXTL Investors by issuing 40 shares of
Series J Preferred Stock. At the date of the exchange, the carrying value of
the $4.0 million notes, net of the unamortized discount of approximately $1.9
million, was approximately $2.1 million. The excess of the fair value of the
Series J Preferred Stock of $4.0 million over the carrying value of the notes
of $1.9 million was recorded as an extraordinary loss on early retirement of
debt during 1999.
LIQUIDITY, CAPITAL RESOURCES AND OTHER
FINANCIAL DATA
As we continue our aggressive growth plan during the year 2000 and we
intend to pursue that plan into the foreseeable future, we will require large
cash demands and aggressive cash management. We have raised significant
financing through a combination of issuances of preferred stock and proceeds
from the exercise of warrants and options. Cash and cash equivalents were $1.1
million at June 30, 2000 compared to $2.8 million at December 31, 1999.
Short-term investments were $3.0 million at June 30, 2000 as compared to $1.5
million at December 31, 1999. The decrease in cash and cash equivalents of $1.6
million was primarily due to use of cash to support our planned expansion of
our telecommunication networks and the increased operational costs associated
with the various acquisitions and the merger with Trans Global. The increase in
short-term investments of $1.5 million was primarily due to an increase in cash
placed in Money Market Funds received from equity-based financings and
Certificates of Deposit purchased to back letters of credit given as security
for payments to various vendors. Accounts receivable, net, increased by $0.8
million to $15.9 million at June 30, 2000 from $15.1 million at December 31,
1999, mainly due to increased revenues and the extension of credit to new
wholesale carrier customers. Cash outflows for operating activities for the six
months June 30, 2000 totaled $16.8 million, as compared to cash outflows of
$14.6 million for the six months ended June 30, 1999. This increase in outflows
was due primarily to our growth through acquisitions and the effect that the
acquisition activity and upfront costs to add capacity had on operating losses
and higher selling, general and administrative expenses. See further discussion
in "Results of Operations."
There was a net working capital deficiency of $53.2 million at June 30,
2000 compared to a deficiency of $44.7 million at December 31, 1999.
Cash outflows for investing activities during the six months ended June
30, 2000 totaled $2.4 million, which was $2.3 million lower than the cash
outflows for the six months ended June 30, 1999. This decreased outflow was due
to a decrease in net purchases of property and equipment to $0.8
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million in 2000 from $10.6 million in 1999, and a decrease in investments in
acquisitions to zero in 2000 from $1.6 million in 1999. In addition we
purchased short-term investments of $1.6 million in 2000 as compared to selling
short-term investments of $7.7 million in 1999.
Cash generated from financing activities totaled $17.6 million during
the six months ended June 30, 2000 compared to $19.7 million during the six
months ended June 30, 1999. This decrease of $2.1 million was primarily due to
net proceeds from sales of preferred stock of $19.5 million (as compared to net
proceeds of $10.0 million in 1999), proceeds from the exercise of warrants and
options of $2.7 million and proceeds from notes payable-related party of $0.7
million. These proceeds were offset by principal payments of $3.4 million on
notes payable, stock issuance of $1.0 million, and payments of $0.8 million on
various capital leases.
On an operating level, we are continuing to try to negotiate certain
contract and payment terms with American Prepaid, an Enhanced Services
customer, that has an outstanding balance at September 1, 2000 of $2.3 million.
We have recorded reserves of $2.0 million to cover this outstanding balance. We
have not been able to work out a resolution with this customer. We may have to
take a more aggressive course of action to resolve this matter and we are
considering all alternatives at this time. As our revenue mix continues to
shift towards Network Services, card enhancement service have become less
significant to our overall revenue.
CURRENT FUNDING REQUIREMENTS
For the first six months of 2000, we met our cash requirements from (1)
proceeds from the exercise of options and warrants of $2.7 million, (2)
proceeds of $0.5 million from sales of Series N Preferred Stock, (3) proceeds
of $15.0 million from the sale of Series P Convertible Preferred Stock ("Series
P Preferred Stock"), and (4) proceeds of $4.0 million from the sale of Series Q
Convertible Preferred Stock ("Series Q Preferred Stock").
Current funds will not permit us to achieve the growth, both short and
long-term that management is targeting. This growth will require additional
capital. The plan under which we are currently operating requires substantial
additional funding through the second quarter of 2001 of up to $43.1 million.
This estimate is based on conservative projections of a scaled growth plan
using worst-case scenarios for operations. Even if we meet our projections for
becoming EBITDA (earnings before interest, taxes, depreciation and
amortization) positive after eliminating non-cash items during the third
quarter of 2000, we will still have capital requirements through June 2001. We
will need to fund our pre-existing liabilities, notes payable obligations and
the purchase of capital equipment, along with financing our growth plans to
meet the needs of our acquisition program. To the extent that we spend more on
acquisitions or service development, our need for additional financing will
increase. There is the possibility that the amount of financing required could
be diminished by secured equipment-based financings.
We should receive $6.0 million in proceeds from the sale of additional
shares of Series Q Preferred Stock immediately upon the effectiveness of the
registration of the common stock underlying this preferred stock. On October
25, 2000 we held our annual shareholders meeting, where one of the proposals to
be voted on required shareholder approval of the issuance of common stock upon
the conversion of the Series P Convertible Preferred Stock and Series Q
Convertible Preferred Stock and the exercise of certain warrants. We deferred
the vote on this proposal until November 16, 2000 in order to permit us to
obtain additional responses from stockholders holding their shares in street
name. As noted in Note 11 to the unaudited consolidated financial statements
and Note 16 to the audited consolidated financial statements, if the Series P
and Series Q Preferred Stock is no longer convertible into common stock, we may
be required to redeem the preferred stock. If we are forced to redeem the
outstanding Series P and Series Q Preferred Stock, we are currently unable to
immediately pay the redemption value. Further, the Series Q Preferred Stock
agreement also provides that we may issue up to 6,000 additional shares of
Series Q preferred Stock and warrants to purchase an additional 150,000 shares
of common stock to RGC for $6.0 million at a second closing to be completed no
later than July 15, 2000. We have only been able to obtain a waiver of RGC's
current default through October 15, 2000. We believe that if we are able to
obtain the additional votes from our shareholders we will be able to obtain the
$6.0 million in additional
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funding. We have received $1.5 million from a private sale of securities and
$250,000 from the sale of the Coast Internet service provider business. We
expect to receive approximately $1.2 million from a tax refund issued to Trans
Global, $650,000 from the sale of the Evans building in Denver, CO, and
$575,000 from the sale of the Coast long distance business. See Note 13 to the
Unaudited Consolidated Financial Statements for further discussion. Assuming
receipt of these funds, we will need to raise $32.9 million by June 30, 2001 to
have sufficient working capital to run and operate our business. We anticipate
that the additional capital needed will come from a combination of financings
that could consist of debt, private equity, or a line of credit facility during
the eight-month period from November 2000 through June 2001. However, in order
to be able to continue to pursue our growth plan we believe that we need to
conclude a significant financing prior to the end of 2000. Without such
financing, we will have to sharply curtail our growth activities, specifically
development of our enhanced IP services.
In addition to the firm commitment discussed previously, we are
proceeding with other financing opportunities, which have not been finalized.
We have a variety of opportunities in both the debt and equity markets to raise
the necessary funds, which we need to pay existing obligations and achieve our
growth plan through the end of the quarter ended June 30, 2001. It will be
difficult to obtain funding if our stock price remains low. If we continue to
incur operating losses and are also unsuccesful in raising additional funds to
cover such losses, we may not meet our current projected breakeven which could
cause our growth plans to be sharply curtailed and our business to be adversely
affected.
We anticipate that increased sales in the international market with
higher margins will reduce our net working capital deficiency and contribute to
our funding requirements through the second quarter of 2001.
On December 14, 1999, Trans Global entered into a letter agreement with
AT&T, Trans Global's largest supplier at the time, regarding the payment of
various past due 1999 switch and circuit costs. Pursuant to that agreement,
Trans Global agreed to pay AT&T approximately $13.8 million in consecutive
monthly installments at 9% interest through January 1, 2001. The payable is
secured by certain assets of Trans Global. As of June 30, 2000, the remaining
balance due to AT&T was $10.5 million. Trans Global, as of September 1, 2000
has not paid $6.5 million of scheduled payments that were due in April, May and
June 2000. In addition, approximately $3.8 million of payables for current
usage are in arrears. Trans Global is currently in discussions with AT&T
regarding alternative arrangements for settlement of the outstanding
obligations, and believes that conclusion of an arrangement that is not
materially adverse to our immediate or long-term future operations is possible.
There can be no assurance that Trans Global will be able to satisfactorily
resolve this matter. Should this not be resolved and should AT&T take action to
take possession of the assets held as security, Trans Global believes that its
business will not be adversely impacted. There is no guarantee that Trans
Global's, and therefore our operations will not be adversely affected should no
satisfactory resolution between the parties be reached.
As of November 1, 2000, we are in default on a 7% promissory note to
Oasis for $300,000, and capital leases in the amount of $650,000 for certain
property and equipment with terms of 18 months to 36 months bearing interest
ranging from 8.5% to 28.0%.
On September 12, 2000 we entered into an agreement to amend and restate
the loan and note purchase agreement dated April 9, 1999 and related 5% secured
notes (see Our Business - Developments in 1999 and 2000 - "Completion of $20
Million Financing"). Prior to the amendment, the total outstanding principal
balance under the 5% secured notes to EXTL Investors, which was recently
renamed in connection with a merger EXTL - Special Investment Risks, LLC, was
$19,677,989, which includes interest and penalties of $1,000,000. As amended
the 5% secured notes will be paid in monthly principal installments of $50,000
beginning October 15, 2000 with the residual unpaid principal becoming due on
its July 1, 2002 maturity date. As amended, the 5% secured notes will bear
interest at the prime rate plus 2% and will accrue monthly on the unpaid
principal and unpaid interest and will be due at maturity. EXTL - Special
Investment Risks, LLC waived all past defaults and all violations of existing
loan instruments were deemed cured.
EXTL - Special Investment Risks, LLC exercised its warrant to purchase
5,000,000 shares of our common stock in connection with the
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amendment of the loan and note purchase agreement by reducing the outstanding
principal under the 5% secured notes by $3,677,989, resulting in a remaining
note indebtedness of $15,000,000 plus interest of $1,000,000. In connection
with the amendment, we issued warrants to EXTL - Special Investment Risks, LLC
to purchase 1,000,000 shares of our common stock at $1.94 per share expiring
July 1, 2004.
We are obligated under certain conditions to redeem the shares of Series
P Preferred Stock and Series Q Preferred Stock. On July 15, 2000, we failed to
register the shares of common stock issuable upon conversion of the Series P
and Q Preferred Stock and associated warrants with the SEC, however the holder
of the Series P and Q Preferred Stock has advised us in writing it has no
present intention to exercise its right to demand redemption, so long as the
registration statement of which this prospectus is part covering the common
stock and associated warrants is declared effective by October 15, 2000. See
Note 11 to the Unaudited Consolidated Financial Statements for further
discussion.
Taxes. During 1998, we undertook a study to simplify eGlobe's
organizational and tax structure and identified potential international tax
issues. In connection with this study, we determined that we had potential tax
liabilities and recorded an additional tax provision of $1.5 million in the
year ended March 31, 1998 to reserve against liabilities which could have
arisen under the existing structure. We initiated discussions with the Internal
Revenue Service ("IRS") related to the U.S. Federal income tax issues
identified by the study and findings. The IRS has accepted our returns and has
decided not to audit these returns. We have paid all taxes associated with
these returns and all interest invoiced by the IRS to date. Neither the final
outcome of this process or the outcome of any other issues can be predicted
with certainty.
As of December 31, 1999, we have recorded a net deferred tax asset of
$26.5 million and have approximately $57.7 million U.S. and $2.0 million
foreign net operating loss carryforwards available. We have recorded a
valuation allowance equal to the net deferred tax asset as management has not
been able to determine that it is more likely than not that the deferred tax
asset will be realized based in part on the foreign operations and availability
of the operating loss carryforwards to offset U.S. and foreign tax provisions.
The U.S. carryforwards expire in various years through 2019 and are subject to
limitation under the Internal Revenue Code of 1986, as amended. The foreign net
operating loss carryforwards expire in various years through 2004 and are
subject to local limitations on use.
A receivable for a federal income tax refund of approximately $1.0
million was recorded as of December 31, 1999 relating to Trans Global's loss
carrybacks. This refund is expected to be received during the fourth quarter of
2000. See Note 11, "Taxes (Benefit) on Income (Loss)" to the Audited
Consolidated Financial Statements regarding further discussion of taxes on
income.
Effect of Inflation. We believe that inflation has not had a material
effect on the results of operations to date.
ACCOUNTING ISSUES
Recent Accounting Pronouncements -- The Financial Accounting Standards
Board ("FASB") has issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 requires companies to record derivatives
on the balance sheet as assets or liabilities, measured at fair market value.
Gains or losses resulting from changes in the values of those derivatives are
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving offsetting changes
in fair value or cash flows. SFAS No. 133, as extended by SFAS No. 137, is
effective for fiscal years beginning after June 15, 2000 and is currently not
applicable to us because we do not enter into hedging or derivative
transactions.
In December 1999, the U.S. Securities and Exchange Commission ("SEC")
released Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB" 101), which clarifies the SEC's views on revenue
recognition. We believe our existing revenue recognition policies and
procedures are in compliance with SAB 101 and therefore, SAB 101's adoption
will not have a material impact on our financial condition, results of
operations or cash flows.
In March 2000, the FASB issued Emerging Issues Task Force Issue No.
00-2, "Accounting for Web Site Development Costs" ("EITF 00-2"), which was
effective for all such
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costs incurred for fiscal quarters beginning after June 30, 2000. This Issue
establishes accounting and reporting standards for costs incurred to develop a
web site based on the nature of each cost. Currently, as we have no web site
development costs, the adoption of EITF 00-2 would have no impact on our
financial condition or results of operations. To the extent we begin to enter
into such transactions in the future, we will adopt the Issue's disclosure
requirements in the quarterly and annual financial statements for the year
ending December 31, 2000.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation" ("FIN 44"), which was
effective July 1, 2000, except that certain conclusions in this Interpretation
which cover specific events that occur after either December 31, 1998, or
January 12, 2000 were recognized on a prospective basis from July 1, 2000. This
Interpretation clarifies the application of APB Opinion 25 for certain issues
related to stock issued to employees. We adopted FIN 44 effective July 1, 2000,
we believe the adoption of FIN 44 had no material impact on our financial
condition, results of operations or cash flows.
In September 2000, the FASB issued Emerging Issues Task Force Issue No.
99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent" ("EITF
99-19."), which was effective for all such costs incurred for fiscal quarters
beginning after June 30, 2000. This issue establishes accounting and reporting
standards for when a company should recognize revenue in the amount of the
gross amount billed to the customer and when the company should recognize
revenue based on the net amount retained because, in substance, it has earned a
commission from the vendor-manufacturer of the goods or services on the sale.
We adopted EITF 99-19 effective June 30, 2000, we believe the adoption of EITF
99-19 had no material impact on our financial condition, results of operations
or cash flows.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK
At June 30, 2000 we had other financial instruments consisting of cash
and fixed and variable rate debt which are held for purposes other than
trading. The substantial majority of our debt obligations have fixed interest
rates and are denominated in U.S. dollars, which is our reporting currency. We
measure our exposure to market risk at any point in time by comparing the open
positions to a market risk of fair value. The market prices we use to determine
fair value are based on management's best estimates, which consider various
factors including: closing exchange prices, volatility factors and the time
value of money. At June 30, 2000, the carrying value of our debt obligations,
excluding capital lease obligations, was $20.1 million (net of unamortized
discount of $5.7 million) which also approximates fair value. The
weighted-average interest rate of our debt obligations, excluding capital lease
obligations, at December 31, 1999 was 7.1%. At June 30, 2000, $0.5 million of
our cash was restricted in accordance with the terms of our financing
arrangements and certain acquisition holdback agreements. We actively monitor
the capital and investing markets in analyzing our capital raising and
investing decisions. At June 30, 2000, we were exposed to some market risk
through interest rates on our long-term debt and preferred stock and foreign
currency. At June 30, 2000, our exposure to market risk was not material. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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OUR BUSINESS
GENERAL
Today, we are a voice-based application services provider offering
enhanced telecommunications and information services, including Internet
protocol transmission services, telephone portal and unified messaging services
on an outsourced basis. Through our World Direct network, we originate traffic
in over 90 territories and countries and terminate traffic anywhere in the
world and through our IP network, we can originate and terminate IP-based
telecommunication services in over 30 countries and six continents. Our
customers are principally large national telecommunications companies, Internet
service providers and competitive telephone companies around the world.
We incorporated in 1987 as International 800 TeleCard, Inc., a wholly
owned subsidiary of Residual, a publicly traded company that provided toll-free
(800) and related value-added telecommunications services to businesses around
the world. We changed our name to Executive TeleCard, Ltd. in October 1988. We
built on the national relationships with telecommunications administrations,
and in 1989 we began installing calling card platforms in or close to the
facilities of various national telephone companies. We went public that same
year by way of a stock dividend by our former parent company.
In December 1997, we brought in new management and directors to handle
adverse results in our calling card business. Until 1998, our entire focus was
on supporting calling card services. Beginning in 1998, but primarily in 1999,
that focus changed.
o We restructured key portions of our operations and refocused our
business to include Internet protocol transmission technologies
through an acquisition of IDX at the end of 1998.
o In 1999, we developed the Internet protocol transmission portion of
our business, which is now a principal business for eGlobe.
o In early 1999, we acquired Telekey, a specialty calling card service
that improved the overall margins on our calling card business.
o In mid-1999, we added global unified messaging (the ability to
retrieve voice mail and faxes over a telephone or computer) and
telephone portal (the ability to retrieve information from a portal
Internet site through a telephone) capabilities through another
acquisition of the assets of Connectsoft.
o In June 1999, we changed our name to eGlobe, Inc. signaling that we
have a new product line and a new focus.
o We acquired iGlobe effective August 1999 that brought us Latin
American Internet protocol transmission operations.
o We added some needed assets and operating abilities by acquiring
network operating centers in our acquisition of Swiftcall in June
1999 and a call center in our acquisition of control of ORS in
September 1999.
o We acquired Coast in December 1999 that will strengthen our telephone
portal and unified messaging offerings, as well as adding to our
customer support capabilities and providing us with several large
e-commerce customers. In August 2000 we sold the Internet service
provider business and are planning on selling the long distance
business.
o In March 2000 we completed our merger with Trans Global
Communications, Inc., a facilities-based international
telecommunications services provider.
We recently enagaged Jefferies & Company, Inc., an institutional
brokerage and investment bank for middle market growth companies, to assist us
in completing our strategic funding and development plans.
OPERATING PLATFORMS AND IP NETWORK
OPERATING PLATFORMS
We have installed operating platforms in more than 40 locations around
the world. These platforms are computers, software and related communications
termination equipment. In many instances, our platforms are co-located with the
international gateway facilities of the dominant telephone company in a
national market.
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Frequently that company is both our operating partner and our customer. A
discussion of our foreign sales and risks associated with international
business appears under the caption "Risk Factors--Our business is exposed to
regulatory, political and other risks associated with international business."
The platforms are connected to both the local telephone network and to
international networks. The platforms supply global services to our customers.
Their functions include:
o managing voice and data access to one or more networks;
o identifying and validating user access;
o providing various levels of transaction processing;
o routing calls or data messages;
o providing access to additional service functions (for example, our
unified messaging service); and
o supplying billing and accounting information.
One of the strengths of the platform is its inherent flexibility.
Subject to our adding necessary interfaces and applications programming, it
supports a range of different services.
IP NETWORK
Until the end of 1998, we had no transmission facilities of our own. Our
network of platforms relied on transmission services supplied by others to
route calls or messages. With the acquisition of an Internet protocol
transmission services business, that began to change. We have developed and are
expanding an international network of telecommunications trunks that employ
Internet protocol, known as IP, as the basic method of transporting telephone
calls, faxes or data messages. A telecommunications trunk is a large
communications channel configured for data traffic. Our platforms use this IP
network to route calls and messages.
Although the IP network we acquired had a global presence, until
recently most of that network was based in Asia-Pacific. In 1999, we added more
than a dozen countries to our IP network through a combination of new
agreements and our acquisition of iGlobe effective August 1, 1999 with its
network of telecommunications trunks in Latin America. Our network now extends
to approximately 30 countries. The Trans Global merger has again enabled us to
expand our IP network into other regions of the world, particularly the Middle
East and Latin America.
Our network business serves principally as a provider to, and operating
partner with, telephone companies and Internet service providers. This key
element of our IP network service helps it mesh with our operating platform
service. Using our privately-managed global IP network to provide transmission
services for our other services will reduce costs and create other operating
efficiencies. Perhaps most important, it will permit us to offer new Internet
based services to our customers, such as global unified messaging and telephone
portal capabilities, which would have been difficult to supply without our
expanding privately-managed network.
We are concentrating on developing business and operating arrangements
with our existing customers to keep expanding our network and our range of
network services.
TRANS GLOBAL NETWORK
Our newly acquired subsidiary, Trans Global, currently operates
international gateway switches in New York, New York and London, England linked
by owned Trans-Atlantic cable facilities. Trans Global utilizes switching
equipment supplied by vendors such as Lucent, Nortel, Nokia and Nuera for its
major network elements. Trans Global uses a multiple switch configuration which
provides redundant capability to minimize the effect of a single network switch
component failure.
Trans Global also has rights in digital undersea fiber optic cable
between New York and London. These rights, also known as indefeasible rights of
use, are in the Gemini cable system. In addition, facilities leases on such
cable systems such as Flag are utilized for customer connectivity out of the
London switching center. By using the Flag cable system, Trans Global is
capable of offering high quality voice over IP services to locations such as
Cairo. Trans Global has invested in these indefeasible rights of use based on
its expectations for traffic between its two switching facilities.
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Trans Global serves its carrier customers and monitors its network from
its network operating centers in New York City and London. Each operating
center is monitored by experienced personnel 24 hours a day, 7 days a week.
Trans Global's switching facilities are linked to a proprietary billing
system, which we believe provides Trans Global with a competitive advantage by
permitting management on a near real-time basis to determine the most
cost-effective termination alternatives and manage gross margins by route. This
allows Trans Global to increase its network efficiency and immediately respond
to customer routing changes to maximize revenue and margin. Trans Global
maintains a detailed information database of its customers, which it uses to
monitor usage, track customer satisfaction and analyze a variety of customer
behaviors, including buying patterns and needs.
Trans Global has installed Internet protocol equipment that allows for
the transmission of IP voice service. Internet protocol should provide
additional cost efficiencies for transporting a substantial portion of Trans
Global's international voice and data traffic. This would allow Trans Global to
develop new, low-cost termination arrangements and offer new services in
conjunction with existing or new in-country service providers.
Trans Global recently began providing voice over IP services in
cooperation with Telecom Egypt, the government owned telecommunications
operator in Egypt. We believe it is currently the only operator legally
providing IP voice calling into and out of Egypt.
SERVICES
Following our recent acquisitions, we currently offer or will offer on a
going-forward basis the following:
o Network Services, including our Internet protocol voice and fax
capabilities, network transmission services and our toll-free
services;
o Enhanced Services, primarily consisting of domestic IP-based enhanced
services such as:
o unified messaging,
o telephone portal,
o our combined IVR (Interactive Voice Response) and IDR (Interactive
Data Response) services, and
o voice over Internet clearinghouse and settlement services in
partnership with Trans Nexus and Cisco,along with our traditional
calling card enhancement service;
o Customer Care, consisting of our state-of-the-art calling center which
provides 24 hours a day, seven days a week, customer service in 12
languages for both eGlobe services and other customers, including
customer care for a number of e-commerce companies; and
o Retail Services, primarily consisting of our domestic long-distance
and Internet service provider "ISP" business acquired as a part of
the Coast International acquisition. We have sold the ISP business
and are planning on selling the long distance business. We have
entered into a letter of intent with an interested third party and
are moving forward to complete a definitive agreement to sell that
business.
NETWORK SERVICES
OUR NETWORK SERVICES. As of August 1999, network services has become our
largest revenue generator. Our network services experienced an increase in
revenues to $7.9 million in the fourth quarter of 1999 from $5.6 million in the
prior quarter. The majority of that increase represented growth in telephone
traffic generated by our IP network. The remainder represented new private line
service generated by the recently acquired Latin American IP network.
Paralleling the growth in revenue, minutes carried by our IP network in the
fourth quarter of 1999 increased almost 20% over the prior quarter to more than
32.3 million. Our revenues from voice over IP services, known as VoIP, have
increased 460% since the first quarter of 1999. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
We offer new, low-cost transmission services by transmitting digitized
and compressed voice and data messages as Internet protocol packets over an
international packet-switched private network. Packet switching is a way of
transmitting digitally-encoded messages by splitting the data to be sent in
packets of a certain size.
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Our Internet protocol-based voice service and fax service allows
customers to make calls and send faxes over the Internet. We believe that when
these services are transmitted over the IP network, they provide significant
efficiencies to customers compared to more traditional public switched
telephone network transmission. Although a portion of the telephony connection
must be routed over the public switched telephone network, we expect to reduce
the portion of the call flowing over the public switched telephone network by
increasing the number of nodes on our IP network over time, as supported by
traffic flow. This should reduce cost and increase the network's efficiency,
since the call or fax can be delivered to the intended recipient from the
closest network node.
We believe that call quality is vital to consumers. Call quality
includes voice quality, the ability to connect easily and quickly, the lack of
delay in system interaction with the customer and ease of use of the service by
the customer. Consumers expect call quality when they pick up a telephone,
whether they are using a traditional telephone network or an Internet protocol
service. We believe that we offer telephone quality comparable to that of a
traditional phone call.
Our network services include several additional services, including
billing and report generation designed exclusively to support the Internet
protocol-based services. We believe that these features enhance the
attractiveness of our Internet protocol services to telephone companies and
Internet service providers. We are working with telephone companies and
Internet service providers to increase the use of our IP network and increase
the number of network nodes through which service can be delivered.
We are in the process of converting our network to an IP-based network
and to offer our customers the highest quality IP voice transmission
capabilities. An example of this strategy can be seen in Egypt. We currently
have an operating agreement with Telecom Egypt that affords us the ability to
terminate minutes in Egypt with a proportional amount of traffic to be carried
from Egypt to the U.S. We also recently began providing voice over IP services
in cooperation with Telecom Egypt, the government owned telecommunications
operator in Egypt. The new VoIP service provides an additional pathway for
calls in and out of Egypt.
We are in the process of expanding our coverage of such countries and
entering into similar arrangements in additional countries. We anticipate that
our presence and relationships in the Middle East and Latin America will
further our strategy to enter previously underserved markets.
ENHANCED SERVICES
UNIFIED MESSAGING SERVICES. We recently launched our new unified
messaging service, Vogo (Voice On the Go), through our subsidiary Vogo
Networks, acquired in mid-1999. This unified messaging service, in combination
with the voice and data access capabilities of our operating platforms,
provides global capability for an end user to dial up the Internet while
traveling, or dial into a corporate intranet, and retrieve and manage voice
mail, e-mail and faxes around the world through either a telephone or a
computer by simply making a local telephone call. Though our unified messaging
technology is primarily software-based, we have added servers to the operating
platform to support the messaging functionality.
We believe unified messaging services are attractive to customers
because they make communications readily available to the recipient in the most
convenient form. Unified messaging is beginning to be deployed by carriers and
mobile network operators. Although we are only in the first phase of offering
our unified messaging service, we believe early indications are positive with
regard to consumer response and acceptance.
Our initial version of Vogo enables end-users to use a telephone to:
o Check and listen to personal and corporate e-mail messages.
o Automatically reply to e-mail messages over the phone.
o Send voice messages to any e-mail address via an address book.
We intend to expand the first phase of the offering over the course of the next
year to add additional features and functionality.
This new offering is being developed in combination with key customers,
primarily a handful of national telephone companies with dominant local
telephone, mobile telephone and
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Internet businesses in their home markets. The service will be supplied to the
telephone company, which will in turn make it available to their telephone and
Internet customers. We are also offering the service in conjunction with
strategic partners, who are expected to add our unified messaging service to
their computer messaging offerings. The target audience is the early technology
adopter and the business executive and professional who needs telephone access
to the Internet and e-mail when away from home or office.
TELEPHONE PORTAL SERVICE. Through the use of the Vogo technology, in
September 1999, we introduced our telephone portal in a production environment
through Visto Corporation.
The telephone portal allows the users to access on a global basis all
information that resides on a subscriber's particular portal site or home page
through a telephone. For example, a Visto subscriber who keeps his electronic
briefcase resident at the Visto portal site can access any information on that
briefcase such as a particular address via a local call in any of approximately
30 countries on six continents. We recently began offering services in
conjunction with Paltalk Corporation and expect shortly to begin services with
several of our traditional national telephone company partners. Since its
introduction, our telephone portal service has been fully operational. This
service is the first in a line of services that we believe will ultimately
allow the user to globally access any information available on the Internet and
to conduct e-commerce through the use of a telephone.
INTERACTIVE VOICE AND DATA RESPONSE SERVICE. Through our acquisition of
Coast and its wholly owned subsidiary, Interactive Media Works, in December
1999, we have just begun offering an interactive response system which
interfaces with traditional voice telephone, with voice over IP transmission,
and with data access from the Internet and the World Wide Web. We believe this
dual telephone and Internet response platform is valuable in e-commerce and in
a variety of services that bridge between the telephone and Internet.
Interactive Media Works introduced a service using two platforms, one for voice
and one for the Internet, approximately one year ago, but has recently launched
its product combining these services on the one integrated platform. It has had
some success in selling to firms in the advertising, promotional and marketing
industries in a few markets in the United States. We believe that the new,
integrated platform will substantially enhance Interactive Media Work's
capabilities. We plan to offer this interactive response system on a global
basis to and through our existing customer base along with implementing this
technology as an integral part of Vogo.
CARD SERVICES. Until 1998, our entire focus was on supporting calling
card services. In 1998, that focus began to change. In 1998, we restructured
key portions of our operations and refocused our business. Card services
generated $6.3 million for the six months ended June 30, 2000 compared to $11.8
million for the six months ended June 30, 1999 representing 9.7% and 14.8%,
respectively of our total revenue for that period. For the year ended December
31, 1999, card services generated $19.8 million, representing approximately 47%
of our total revenue for that period. However, for the quarter ending December
31, 1999, card services generated approximately 23% of our total revenues.
Revenues from our global post paid calling card enhancement services for
national carriers remained steady during the fourth quarter of 1999. We
continue to believe that post paid card services are important to our customers
and intend to continue to offer these services as part of our service
offerings.
We provide our customers, such as telephone companies, Internet service
providers, specialized carriers and banks, with the ability to offer calling
card programs to their customers. These calling card enhancement services
include validation, routing, multi-currency billing and payments, in addition
to credit, prepaid and true debit functionality. Through our acquisition of
Telekey in February 1999, we have incorporated a range of card based services
including calling, e-mail, voice-mail and other features into our service
offerings.
Card Services are designed for telecommunications operators, including
integrated telephone companies, wholesale network providers, resale carriers
and Internet service providers. These customers want us to originate and
terminate calls domestically and internationally. Customers are billed for use
of the platform and transmission on a per minute basis. Contracts are
ordinarily multi-year, sometimes with minimum use requirements.
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CLEARINGHOUSE AND SETTLEMENT SERVICES. We recently began offering an
Internet protocol clearing and settlement service through a strategic alliance
with Cisco and TransNexus. This service enables Internet and circuit based
telephone companies to terminate calls anywhere in the world and settle
payments among other eGlobe clearinghouse members. The transition from circuit
switched networks to packet networks using Internet protocol has created a need
for alternative methods of efficiently clearing and settling revenue among
Internet protocol network operators. eGlobe's clearinghouse provides a solution
for billing Internet protocol traffic between networks that include both
Internet protocol and circuit-switched elements.
We offer standards-based, carrier-grade clearinghouse services for voice
over IP traffic that comply with the internationally accepted open settlement
protocol standard. After joining our clearinghouse, members can terminate calls
world wide using their own Internet access and other clearinghouse members'
voice over IP rate structure. Members can originate and terminate long distance
traffic at their option and control the rates they offer to other members.
CUSTOMER CARE SERVICES
With the acquisition of Oasis Reservations Services or ORS in September
1999, we now have a state-of-the art call center that provides customer care
services for both our operations and other e-commerce providers such as
lowestfare.com and cheaptickets.com. The customer care center operates 24 hours
a day, 7 days a week and services 12 different languages and multiple dialects
with most of the languages on a full-time basis. The customer care center also
supports approximately 8 other languages on a part-time basis. We have just
completed the process of moving our internal customer care center to the ORS
center. This allows us to change customer care, a service demanded by our
telephone company partners, from a cost center to a profit center, along with
giving us the expertise to professionally support our newest Internet based
enhanced services and e-commerce offerings.
We provide 24-hour operator assistance and other customer service
options. This assistance includes "default to operator" assistance for calls
from rotary and pulse-tone telephones. Our operating platforms divert calls
placed from such telephones to an operator who processes the call. The
default-to-operator feature enables access to our platforms from any telephone
in any country or territory in our network
RETAIL SERVICES
With the acquisition of Coast in December 1999, we now have a small
North American retail presence which includes both a domestic long distance
business and an Internet service provider ("ISP"). Besides generating positive
cash flow, these groups have also been used as a test bed for our new enhanced
services and marketing/promotional concepts. In August 2000, we sold the ISP
business to a related party. We are currently intending to sell our
long-distance business and have entered into a letter of intent with an
interested third party and are moving forward to complete a definite agreement.
See further discussion of segment information as contained in Note 12 to
the Unaudited Interim Consolidated Financial Statements and in Note 12 to the
Audited Consolidated Financial Statements.
STRATEGY
Our goal is to become a leading network-based global outsource provider
of services that interface the telephone with the Internet. To achieve this
goal, our present strategy includes:
BUILDING ON GLOBAL PRESENCE AND STRATEGIC RELATIONSHIPS. We believe that
international relationships and alliances are important in offering services
and that these relationships will be even more important as competition expands
globally. We have long-standing relationships with national telephone companies
and Internet service providers. We want to deepen our relationships with these
telecommunications companies and increase the number of services we provide to
them. We believe that we will have a competitive advantage to the extent that
we can maintain and further develop our existing relationships. Through our
recent acquisition of Trans Global, we have gained relationships with a number
of international telecommunications carriers, particularly in the Middle East
and Latin America.
EXPANDING SERVICE OFFERINGS AND FUNCTIONALITY. We believe that it will
be necessary to offer a suite of enhanced business
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communications services, and that the early providers of credible multi-service
offerings will have an advantage. We have introduced global IP voice and IP fax
services, Vogo, unified messaging services, and clearinghouse and settlement
services. We plan to introduce a broad range of other services that allow us to
become the interface between the telephone and the Internet for all sorts of
electronic transactions. We believe that new service offerings and increased
product diversification will make our suite of services attractive to
customers.
FOCUSING ON NATIONAL TELEPHONE COMPANIES AND INTERNET SERVICE PROVIDERS.
Many telecommunications companies market their services directly to businesses
and other end users. We offer our services principally to national telephone
companies, Internet service providers and portal providers, as well as to
competitive telecommunications companies in liberalized countries. These
companies, in turn, use our services to provide an enhanced service to their
customers. We believe that many of these providers will continue to outsource
the kind of services we offer and are increasingly seeking new revenue sources
by offering value-added services such as those we intend to offer. We also
believe that we provide a cost-efficient opportunity because of our existing
international network and low cost processing made possible by the network
operating platforms. We further believe that we derive a significant advantage
in marketing to these customers because of our independence from the major
global carriers, which allows national telephone companies, Internet service
providers and card issuers to do business with us without risking their
customer bases.
CONTINUING FOCUS ON THE BUSINESS TRAVELER. In identifying and offering
new services to support our customers, we will continue to pursue services
which build upon our strengths, particularly our global reach. As a result, we
have focused on providing services that will be valuable to the business or
professional user away from the office, either across the street or around the
world.
CONTINUE TO OFFER THE HIGHEST QUALITY SERVICE. For us, quality
encompasses customer care, voice quality and ease of use of our enhanced
services. With the acquisition of ORS, we believe that we have upgraded our
state-of-the-art call center to handle all of the needs of our customers for
both telephone and e-commerce capabilities. Voice quality and ease-of-use are
essential to our telephone company customers. National telephone companies will
not accept a service that is either difficult to use or does not offer
telephone quality voice. Although we will continue to seek to improve our
quality, we believe that our services are as good as anyone in the industry.
EXPANDING OUR IP NETWORK BY ENTERING PREVIOUSLY UNDERSERVED MARKETS. We
intend to pursue geographic markets which we believe are emerging and offer
opportunities for exploitation, but which have been underserved previously. We
have entered new markets within Asia, Latin America and the Middle East. Trans
Global currently has an operating agreement with Telecom Egypt that affords
Trans Global the ability to terminate Internet protocol voice in Egypt with a
proportional amount of traffic to be carried from Egypt to the U.S.
INDUSTRY BACKGROUND
During the last decade, due to changing regulatory environments and
numerous mergers, acquisitions and alliances among the major communications
providers, there has been a convergence in the services offered by
communications companies. The result has been increased globalization of
services, strong competition from new entrants into different communications
industry segments and the increasing need to differentiate services. In
addition, companies have been focusing on areas where they have expertise,
superior technology and cost advantages, and have sought to purchase or
outsource the portions of the service where they do not have such advantages.
We believe that this trend is precipitating the pursuit of new services and
expect that it will result in increased outsourcing of more complex value-added
services that are unrelated to the core expertise of an organization.
The evolving environment for communications has increased the number of
messages sent and received and the types and means of communications mobile
professionals use. Today, many companies are utilizing Internet-related
services as lower-cost alternatives to certain traditional telecommunications
services. The relatively low cost of the Internet has resulted in its
widespread use for certain applications, most notably Web access and e-mail.
Internet protocol has become the communications protocol of
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choice for the desktop, the local area network, the wide area network and the
world wide web. With advances in many areas of communications technology,
professionals and other travelers are demanding additional features from their
telephone and Internet providers, particularly ease of Internet access, true
global access and unified messaging.
INTERNET PROTOCOL (IP). Historically, the communications services
industry has transmitted voice and data over separate networks using different
technologies. Traditional voice carriers have typically built telephone
networks based on circuit switching technology, which is the basis of the
public switched telephone network. Circuit switching technology establishes and
maintains a dedicated connection for each telephone call, where voice and data
are transported in the form of relatively continuous analog and digital
signals. The circuit remains unavailable to transmit any other call until the
call is terminated.
Data networks, in contrast, typically divide information into packets
that are simultaneously routed over different channels to a final destination
where they are reassembled in the original order in which they were
transmitted. Unlike circuit switching technology, Internet protocol based
transmission over a data network transports voice and data in the form of data
packets which do not flow in a continuous channel. As a result of this
essentially "random" packet transport system, the information being transported
- whether voice, video, fax or other forms of messages or information - is much
more easily managed and manipulated. As a result of the ability to manage and
manipulate the information being transported, substantially greater traffic can
be transmitted over a packet-switched network, such as the Internet, than
circuit switched network.
Internet protocol networks are packet switched networks that use the
widely accepted Internet protocol for transmission. This enables easy
interconnection of multiple data networks and even combination of data networks
with traditional circuit switched networks. A computer server converts the
public switched telephone network voice into data packets and routes the data
over the Internet or another IP network. A second computer server in the
destination area converts the data back to analog form and switches it to the
local phone network as a local call.
Traditional telephone networks had the advantage of being ubiquitous.
However, with the increasing use of Internet protocol networks, and the ability
of Internet protocol to be combined with traditional networks to transmit
traffic, Internet protocol networks are achieving increased acceptance.
Internet protocol technology have the ability to simultaneously send
voice, fax and data transmissions over a single network. The relative ease of
data management and manipulation also leads to a wide range of new functions
and services, all of which are possible as a result of the underlying Internet
protocol capability. This has led to a proliferation of Internet protocol based
services, including shared and dedicated Web hosting and server co-location,
security services, and advanced applications such as Internet protocol-based
voice, fax and video services, and is rapidly making Internet protocol the
technical basis for many new value-added and enhanced services, including voice
(telephone) services. Indeed, our card services already rely on Internet
protocol capabilities in key billing and transaction management functions.
Early Internet voice transmission was of poor quality, but Internet
protocol transmission quality improved significantly with the development of an
Internet protocol "gateway" that connects telephone calls between Internet
protocol networks and public switched telephone network networks. Internet
protocol gateways have enabled IP telephony to evolve into numerous new
services and networks. Today a voice call placed over an Internet protocol
network can sound virtually indistinguishable from the same call made over the
traditional telephone system.
IP telephony offers many benefits:
o simplified management;
o use for both voice and data transmission allows consolidation of
traffic over a single network;
o reduction of overhead and maintenance costs for the Internet protocol
portion of the transmission; and
o use of applications such as video, voice mail, conferencing,
messaging, data-sharing, and directory services over the same
network.
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The communications industry requires large scale acceptance of new
technologies to justify the massive investment in infrastructure needed to
implement them. The universal access and critical mass that the Internet has
achieved has attracted significant investment and application development,
which also have promoted and developed Internet protocol transmission. In our
judgment, IP ultimately will become the dominant underlying service protocol.
That means that without regard to the type of information -- whether voice or
data, card service or messaging, the ability to call home or surf the web -- IP
will be a key building block for enhanced, value added, or intelligent network
services in the future.
SWITCHED LONG DISTANCE SERVICE. International long distance providers
can generally be categorized by the extent of their ownership and use of
switches and transmission facilities. Generally only a small number of carriers
are licensed by a foreign country for international long distance service, and
in many countries only the dominant carrier is licensed to provide
international long distance service. The largest U.S. carriers, AT&T, MCI
WorldCom and Sprint, primarily utilize owned U.S. transmission facilities and
tend to use other international long distance providers only to reach markets
where they do not own enough network, to take advantage of lower prices, and to
carry their overflow traffic. A group of long distance providers has emerged,
which own and operate their own switches but either rely solely on resale
agreements with other long distance carriers to terminate traffic or use a
combination of resale agreements and leased or owned facilities in order to
terminate their traffic.
A resale arrangement typically involves the wholesale purchase of
termination services on a variable, per-minute basis by one long distance
provider from another. A single international call may pass through the
facilities of several long distance resellers before it reaches the foreign
facilities-based carrier that ultimately terminates the call. Resale
arrangements set per-minute prices for different routes, which may be
guaranteed for a set time period or which may be subject to change. Price
fluctuations and the emergence of new long distance resellers characterize the
resale market for international transmission. In order to effectively manage
costs when utilizing resale arrangements, long distance providers need timely
access to changing market data and must quickly react to changes in costs
through pricing adjustments or routing decisions.
MARKET FOR TELECOMMUNICATIONS SERVICES
The global telecommunications services industry is growing
significantly. Two of the fastest growth areas have been mobile communication
related services and international telecommunications services.
We believe that demand for global telecommunications services, including
our offerings, will continue to grow substantially as a result of increased (1)
reliance by business users on telecommunications services; (2) globalization of
business; and (3) use of the Internet.
Changes in global telecommunications services have dramatically
increased both the number of messages and the form of media used. Messages are
increasingly taking electronic form as electronic mail and other electronic
communications tools usage has grown. Increased e-mail usage, in turn, has led
to increased demand for mobile, dial-up access to the Internet.
The growth in the global telecommunications market also reflects the
increasingly international nature of business, the significant growth of
emerging and newly industrialized economies and the increase in international
trade. We believe that as multinational corporations globalize, and expand into
new markets, their demand for diverse and customized telecommunications
services will continue to grow. Increased globalization will lead to increased
demand for products and services that address the communication and information
management needs of an increasingly mobile society. Growth in communication and
information demand on the part of travelers is further evidenced by the
proliferation of electronic devices (such as notebook computers and pagers with
modems, both wireline and wireless) and the explosive growth of the Internet,
corporate intranets and network services that allow travelers remote access to
their home offices. As business travel grows, the percentage of travelers who
have a need for remote office access to messaging and communication services
will increase.
The Internet continues to become a preferred solution to the increased
message and communication needs of mobile consumers. The worldwide commercial
Internet/intranet market
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has grown very rapidly, and this growth is expected to continue. Many factors
are driving this increase in demand for Internet access by an increasingly more
mobile group of end users. Strategic developments affecting this demand for
accessing the Internet from anywhere include:
o increasing deregulation and competition in telecommunications markets;
o growth of Internet usage to a critical mass to achieve near universal
acceptance;
o dramatic increase in the use of e-mail; and
o decreasing access costs to backbone providers and end users.
In addition to consumer use, corporations have been moving online. The
number of large companies with a Web presence continues to increase, as does
the number of registered commercial domains. This increase in corporate use
indicates how quickly the Internet has become a mainstream channel for
corporate marketing, communications and business transactions.
COMPETITION
Our industry is intensely competitive and rapidly evolving. We face
competition from a variety of sources, including some telecommunications
carriers that are much larger than us, with much greater name recognition, much
larger customer bases, more substantial economies of scale, and substantially
greater financial, personnel, marketing, engineering, technical and other
resources than we have. We also compete with several smaller companies that
focus primarily on Internet telephony.
The telecommunications industry is also experiencing change as a result
of rapid technological evolution. Large telecommunications carriers such as
AT&T Corp., British Telecom, Deutsche Telekom, MCI/WorldCom and Global One
either have deployed, or are in the process of developing, packet switched
networks to carry voice and fax traffic. These carriers have substantial
resources and large budgets available for research and development. Their
participation in the market might further enhance the quality and acceptance of
the transmission of voice over the Internet. We are unable to predict which of
many possible future products and service offerings will be important to
maintain our competitive position or what expenditures will be required to
develop and provide such products and services. The telecommunications industry
is also being affected by a large number of mergers and acquisitions, the
impact of which is yet to be assessed.
In addition, a number of smaller companies have started Internet
telephony operations in the last few years. ITXC Corp. and iBasis (formerly VIP
Calling) route voice and fax traffic over the Internet to destinations
worldwide and compete with us directly. ITXC and iBasis, along with JFAX.com
and Premiere Technologies, also offer, or plan to offer, messaging services
that will compete with our enhanced services.
We also compete indirectly with companies, like Net2Phone and Delta
Three.com, that focus principally on a retail customer base. Moreover, we
expect other parties to develop platform products and services similar to the
services we offer.
In our view, the principal factors affecting competition include price,
breadth of service offerings and features, customer service, geographic
coverage, quality, reliability of service and name recognition. We expect to
build upon our global network and operating platform by offering a broader
range of services, by expanding our relationships with national telephone
companies and other large companies that outsource business to us, and by
continuing to provide processing services efficiently. We believe we will be
able to compete effectively if we can successfully implement our competitive
strategy. However, to the extent other companies are successful in offering
superior enhanced communications services or introducing such services before
we do, we likely would be adversely affected and such effects could be
material, as discussed under the caption, "Risk Factors -- Rapid technological
and market changes create significant risks for us."
SALES AND MARKETING
We market our services to national telephone companies, Internet service
providers, specialized telecommunications companies which in turn provide our
services to their customers. During 1998, we established a direct sales force,
which has grown to approximately 32 people as of December 31, 1999, to focus on
sales to these customers. To be close to our customers, we have based much of
our direct sales force in Europe
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and Asia. During 1998, we established a marketing staff responsible primarily
for providing marketing support to the sales efforts at varying levels of
involvement. The marketing staff also promotes our corporate image in the
marketplace and provides marketing support to our customers to encourage their
customers to use our services. We pay sales commissions to our sales employees
and agents.
Additionally, Trans Global has a direct sales force of nine sales
personnel dedicated to marketing and maintaining its relationships with its
carrier customers. Trans Global initiates and maintains its relationships with
foreign carriers in its targeted markets through the combined efforts of its
senior management team. We believe that Trans Global's success in entering into
operating agreements with its foreign partners is due largely to its reputation
along with personal relationships which its senior management team have
developed with the appropriate officials at foreign carriers.
ENGINEERING
Our engineering personnel are responsible for provisioning and
implementing network upgrades and expansion and updating, testing and
supporting proprietary software applications, as well as creating and improving
enhanced system features and services. Our software engineering efforts include
(1) updating our proprietary network of operating platforms and integrating our
software with commercially available software and hardware when feasible and
(2) identifying and procuring improved services compatible with our existing
services and platforms.
TECHNOLOGY: INTELLECTUAL PROPERTY RIGHTS
We regard our operating platforms and our global IP voice, IP fax,
carrier billing system and other software as proprietary and have implemented
some protective measures of a legal and practical nature to ensure they retain
that status. We have filed a patent application relating to aspects of the
operating platform with the U.S. Patent and Trademark Office, and are taking
steps to extend our patent application to certain international jurisdictions.
We have also registered trade or service marks with the U.S. Patent and
Trademark Office, and applications for registration of additional marks are
currently pending. We have also registered trade or service marks in some
European and other countries, and applications for registration of additional
marks are pending. In addition to filing patents and registering marks in
various jurisdictions, we obtain contractual protection for our technology by
entering into confidentiality agreements with our employees and customers. We
also limit access to and distribution of our operating platforms, hardware,
carrier billing system, software, documentation and other proprietary
information.
There can be no assurance, however, the steps we have taken to protect
our proprietary rights will be adequate to deter misappropriation of our
technology. Despite these measures, competitors could copy certain aspects of
our operating platform and our global IP voice, IP fax, carrier billing system
and other software or obtain information which we regard as trade secrets.
Further, if challenged, there can be no assurance we can successfully defend
any patent issued to us or any marks registered by us. In any event, we believe
that such technological innovation and expertise and market responsiveness are
as (or more) important than the legal protections described above. We believe
it is likely our competitors will independently develop similar technology and
we will not have any rights under existing laws to prevent the introduction or
use of such technology.
CUSTOMERS
Our traditional customers are national telephone companies, primarily
PTTs and former PTTs, which are the dominant telephone company in their home
markets for both wired and cellular telephone and, in most cases, the dominant
Internet service provider in their home markets. These customers include
Chunghua (Taiwan), PLDT (Philippines), Shanghai Post and Telecommunications
(China), Telia (Sweden), Telstra (Australia), Telekom South Africa, CYTA
(Cyprus), CAT (Thailand) and others.
Our new customers include new telephone carriers liberalizing markets,
Internet service providers, e-commerce providers and portal service providers.
We have new carrier customers in the European Community, Brazil, Canada,
Greece, Guatemala, Mexico, Russia and the United States, and new Internet and
e-commerce providers in Scandinavia, Taiwan and the United States.
For the nine-month period ended December 31, 1998, Telefonos de Mexico,
S.A., de C.V. ("Telmex"), MCI/WorldCom, Inc.
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(primarily its subsidiaries, ATC and LDDS), and Telstra accounted for 19%, 16%
and 10%, respectively, of our revenues and were the only customers accounting
for 10% or more of our revenues. In the year ended December 31, 1999, none of
these customers generated 10% or more of revenue. An enhanced services customer
focusing on calling card services, American Prepaid, generated approximately
13% of our revenue during the year ended December 31, 1999. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
We also offer wholesale telecommunications services over the network we
acquired in the Trans Global merger to other international long distance
carriers in the U.S., Middle East and Europe. These carrier customers include
first- and second-tier long distance carriers seeking competitive rates and
high-quality transmission capacity. As of December 31, 1999, Trans Global had
50 carrier customers. In a number of cases, we provide services to carriers
that are also our suppliers. For the year ended December 31, 1998, each of
World Access, Inc., PT-1 Communications, Inc. and Teleglobe USA Inc. were at
least ten percent or more of Trans Global's net revenues. For the year ended
December 31, 1999, each of World Access and MCI/WorldCom Inc. were at least ten
percent or more of Trans Global's net revenues. For the year ended December 31,
1999, the only vendor that was ten percent or more of Trans Global's 1999
revenues was AT&T.
REGULATION
We are subject to regulation as a telecommunications service provider in
some jurisdictions in the United States and abroad. Applicable laws and
regulations, and the interpretation of such laws and regulations, differ
significantly in those jurisdictions. In addition, we or a local partner are
required to have licenses or approvals in those countries where we operate and
where equipment is installed. We may also be affected indirectly by the laws of
other jurisdictions that affect foreign carriers with which we do business.
UNITED STATES FEDERAL REGULATION. Pursuant to the Communications Act of
1934, as amended by the Telecommunications Act of 1996, the Federal
Communications Commission (FCC) regulates certain aspects of the
telecommunications industry in the United States. The FCC currently requires
common carriers providing international telecommunications services to obtain
authority under section 214 of the Communications Act. eGlobe and its
subsidiaries have section 214 authority and are regulated as non-dominant
providers of both international and domestic telecommunications services.
Any common carrier providing wireline domestic and international service
also must file a tariff with the FCC setting forth the terms and conditions
under which it provides those services. With few exceptions, common carriers
are prohibited from providing telecommunications services to customers under
rates, terms, or conditions different from those that appear in a tariff. The
FCC has determined that it no longer will require or allow non-dominant
providers of domestic services to file tariffs, but instead will require
carriers to make their rates publicly available, for example by posting the
information on the Internet. But because this so-called "detariffing" decision
has been stayed pending appeal to the U.S. Court of Appeals for the District of
Columbia Circuit, tariffs are still required. We have tariffs on file with the
FCC setting forth the rates, terms, and conditions under which we provide
domestic and international services.
In addition to these authorization and tariff requirements, the FCC
imposes a number of additional requirements on telecommunications common
carriers.
The FCC's international settlements policy places limits on the
arrangements that U.S. international carriers may enter into with foreign
carriers that have market power in foreign telecommunications markets. The
policy is primarily intended to prevent dominant foreign carriers from playing
U.S. carriers against each other to the disadvantage of U.S. carriers and U.S.
consumers. The international settlements policy provides that a U.S. carrier
that enters into an operating agreement for the exchange of public switched
traffic with a dominant foreign carrier must file a copy of that agreement with
the FCC. Any such agreement that is materially different from an agreement
filed by another carrier on the same international route must be approved by
the FCC. Absent FCC approval, no such agreement may provide for the U.S.
carrier to receive more than its proportionate share of inbound traffic.
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Certain competitive routes are exempt from the international settlements
policy. The FCC's policies also require U.S. international carriers to
negotiate and adopt settlement rates with foreign correspondents that are at or
below certain benchmark rates.
The FCC's rules also prohibit a U.S. carrier from accepting a "special
concession" from any dominant foreign carrier. The FCC defines a "special
concession" as an exclusive arrangement (i.e., one not offered to similarly
situated U.S. carriers) involving services, facilities, or functions on the
foreign end of a U.S. international route that are necessary for providing
basic telecommunications.
Another provision of the FCC's rules governs equity relationships with
foreign carriers. Before eGlobe could acquire a controlling interest in any
foreign carrier, or before any foreign carrier could acquire an over-25%
interest in eGlobe, we would be required to notify the FCC 60 days before
closing of the proposed transaction. We would also be required to notify the
FCC within 30 days after closing certain transactions involving smaller equity
interests. If we enter into an equity relationship with a foreign carrier that
the FCC finds has sufficient market power to affect competition adversely in
the U.S. market, the FCC could reclassify eGlobe as a "dominant" carrier on the
particular international route, which would subject us to additional regulation
in our provision of services on that route. As a dominant carrier, we might not
benefit from additional deregulatory initiatives that the FCC implements to
relieve burdens on non-dominant carriers. Although we currently have no plans
to enter into such a relationship, our future decisions may be affected by this
requirement.
The FCC's international service rules also require carriers to
periodically file a variety of reports regarding its international traffic
flows and use of international facilities.
The regulation of IP telephony in the United States is still evolving.
The FCC has stated that some forms of IP telephony appear to be similar to
"traditional" common carrier service and may be regulated as such, but the FCC
has not decided whether some other IP services are unregulated "information
services" or are subject to regulation. In addition, several efforts have been
made to enact U.S. federal legislation that would either regulate or exempt
from regulation services provided over the Internet. State public utility
commissions also may retain jurisdiction over intrastate IP services and could
initiate proceedings to regulate such services. As these decisions are made, we
could become subject to regulation that might eliminate some of the advantages
that we now enjoy as a provider of IP-based services.
The Communications Act and FCC rules impose certain fees on carriers
providing interstate and international telecommunications services. These fees
help defray the FCC's operating expenses, underwrite universal
telecommunications service, fund the Telecommunications Relay Service, and
support the administration of telephone numbering plans.
We believe that the regulatory requirements in force today in the United
States impose a relatively minimal burden on us. We also believe that some of
our network services are not subject to regulation by the FCC or any other
state or federal agency. There can be no assurance, however, that the current
regulatory environment and the present level of FCC regulation will continue.
We believe that some of our network services are not subject to FCC
regulation, but there is some risk that the FCC or a state regulator could
decide that our services should require specific authorization or be subject to
other regulations. If that were to occur, these regulatory requirements could
include prior-authorization requirements, tariffing requirements, or the
payment of contributions to federal and state subsidy mechanisms applicable to
providers of telecommunications services. Some of these contributions could be
required whether or not we would be subject to authorization or tariff
requirements.
UNITED KINGDOM. In the United Kingdom, telecommunications services that
have been offered by Trans Global through its affiliate, TGC UK Ltd., are
subject to regulation by various U.K. regulatory agencies. The United Kingdom
generally permits competition in all sectors of the telecommunications market,
subject to licensing requirements and license conditions. TGC UK has been
granted licenses to provide international traffic on a resale basis and over
its own facilities, which licenses are subject to a number of restrictions. Use
of these licenses has permitted Trans Global to engage in cost-effective
routing of traffic between the United States and the United Kingdom and beyond.
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OTHER COUNTRIES. Telecommunications activities are subject to government
regulation to varying degrees in every country throughout the world. In many
countries where we operate, equipment cannot be connected to the telephone
network without regulatory approval, and therefore installation and operation
of our operating platform or other equipment requires such approval. We have
licenses or other equipment approvals in the jurisdictions where we operate. In
most jurisdictions where we conduct business, we rely on our local partner to
obtain the requisite authority. In many countries our local partner is a
national telephone company, and in some jurisdictions also is (or is controlled
by) the regulatory authority itself.
As a result of relying on our local partners, we are dependent upon the
cooperation of the telephone utilities with which we have made arrangements for
our authority to conduct business, as well as for some of our operational and
administrative requirements. Our arrangements with these utilities are
nonexclusive and take various forms. Although some of these arrangements are
embodied in formal contracts, any telephone utility could cease to accommodate
our requirements at any time. Depending upon the location of the telephone
utility, such action could have a material adverse effect on our business and
prospects. In some cases, principally the United States and countries that are
members of the European Community, laws and regulations provide that the
arrangements necessary for us to conduct our service may not be arbitrarily
terminated. However, the time and cost of enforcing our rights may make legal
remedies impractical. We presently have good relations with most of the foreign
utilities with which we do business. There can be no assurance, however, that
such relationships will continue or that governmental authorities will not seek
to regulate aspects of our services or require us to obtain a license to
conduct our business.
Many aspects of our international operations and business expansion
plans are subject to foreign government regulations, including currency
regulations. Foreign governments may adopt regulations or take other actions
that would have a direct or indirect adverse impact on our business
opportunities. For example, the regulatory status of IP telephony in some
countries is uncertain. Some countries prohibit or regulate IP telephony, and
any of those policies may change at any time.
We are planning to expand or initiate services in certain Middle East
countries including Egypt and Kuwait. These services will include largely voice
services as regulatory liberalization in those countries permits. Although we
plan to obtain authority to provide service under current and future laws of
those countries (or, where permitted, to provide service without government
authorization), there can be no assurance that foreign laws will be adopted and
implemented providing us with effective practical opportunities to compete in
these countries. Our ability or inability to take advantage of such
liberalization could have a material adverse effect on our ability to expand
services as planned.
DEVELOPMENTS IN 1999 AND 2000
SERIES D PREFERRED STOCK. We concluded a private placement of $3.0
million in January 1999 and $2.0 million in June 1999 with Vintage Products
Ltd. We sold (1) 50 shares of our 8% Series D cumulative convertible preferred
stock (the "Series D Preferred Stock"), (2) warrants to purchase 187,500 shares
of common stock, with an exercise price of $.01 per share, and (3) warrants to
purchase 100,000 shares of common stock, with an exercise price of $1.60 per
share (subsequently lowered to $1.44 per share), to Vintage. In addition, we
agreed to issue to Vintage, for no additional consideration, additional
warrants to purchase the number of shares of common stock equal to $250,000
(based on the market price of the common stock on the last trading day prior to
June 1, 1999 or July 1, 2000, as the case may be), or pay $250,000 in cash, if
we do not (1) consummate a specified merger transaction by May 30, 1999, or (2)
achieve, in the fiscal quarter commencing July 1, 2000, an aggregate amount of
gross revenues equal to or in excess of 200% of the aggregate amount of gross
revenues we achieved in the fiscal quarter ended December 31, 1998. Our failure
to consummate the specified merger transaction by May 30, 1999 resulted in our
grant to Vintage of a warrant to purchase 76,923 shares of our common stock.
All of the shares of Series D Preferred Stock were converted into common
stock by January 26, 2000. Vintage exercised the warrants to purchase 251,923
shares of our common stock. Warrants to purchase 112,500 shares of our common
stock remain
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outstanding. The terms of the Series D Preferred Stock and related warrants are
discussed in more detail in Note 10 to the Audited Consolidated Financial
Statements.
SERIES E PREFERRED STOCK. In February 1999, contemporaneously with the
exchange of Mr. Jensen's Series C Preferred Stock for shares of common stock,
we concluded a private placement of $5.0 million with EXTL Investors. We sold
50 shares of our 8% Series E cumulative convertible redeemable preferred stock
(the "Series E Preferred Stock"), and warrants (the "Series E Warrants") to
purchase (1) 723,000 shares of common stock with an exercise price of $2.125
per share and (2) 277,000 shares of common stock with an exercise price of
$0.01 per share to EXTL Investors.
The shares of Series E Preferred Stock automatically converted into
shares of our common stock in January 2000. The terms of the Series E Preferred
Stock and Series E Warrants are discussed in more detail in Note 10 to the
Audited Consolidated Financial Statements.
TELEKEY ACQUISITION. On February 12, 1999, we acquired Telekey, a
privately held Georgia corporation. Telekey provides a range of card based
telecommunications services (calling, voice mail, e-mail and others) primarily
to foreign academic travelers (teachers and students) visiting the US and
Canada. Telekey operated with its existing management and personnel in existing
facilities in Atlanta, Georgia. As of August 1, 2000, we began migrating the
Telekey functions to Lenexa, Kansas to incorporate with the IMW business of
Coast.
As a result of the Telekey acquisition, all of the shares of common
stock of Telekey outstanding immediately prior to the effective time of the
Telekey acquisition were converted into, in the aggregate, (a) a base amount of
1,010,000 shares of our Series F convertible preferred stock ("Series F
Preferred Stock") at closing, (b) at least 505,000 and up to 1,010,000 shares
of Series F Preferred Stock two years later (or upon a change of control or
certain events of default if they occur before the end of two years), subject
to Telekey's meeting certain revenue and EBITDA tests, (c) $125,000 in cash at
closing, (d) a promissory note in the original principal amount of $150,000,
payable in equal monthly installments over one year, issued at closing and (e)
direct costs associated with the acquisition of approximately $200,000.
This acquisition was accounted for using the purchase method of
accounting. The final purchase price amount was to be determined when the
contingent purchase element related to Telekey's ability to achieve certain
revenue and EBITDA objectives was resolved and the additional shares were
issued.
The base amount of 1,010,000 shares of Series F Preferred Stock were
converted into shares of our common stock in January 2000. On May 24, 2000, we
entered into an agreement with the former Telekey stockholders pursuant to
which we issued the former Telekey stockholders a total of 757,500 shares of
our common stock in full satisfaction of the December 2000 earnout under the
original acquisition agreement. We eliminated the Series F Preferred Stock on
July 21, 2000. The terms of the Telekey acquisition and Series F Preferred
Stock are discussed in more detail in Notes 4 and 9 to the Unaudited Interim
Consolidated Financial Statements and Notes 4 and 10 to the Audited
Consolidated Financial Statements.
PRIVATE PLACEMENT OF UNSECURED NOTES AND WARRANTS. On April 9, 1999, we
and our wholly owned subsidiary, eGlobe Financing Corporation, entered into a
loan and note purchase agreement with EXTL Investors (which, together with its
affiliates was our then largest stockholder). eGlobe Financing initially
borrowed $7.0 million from EXTL Investors and we granted EXTL Investors
warrants (1/3 of which are presently exercisable) to purchase 1,500,000 shares
of our common stock at an exercise price of $0.01 per share. As a condition to
receiving this $7.0 million unsecured loan, we entered into a subscription
agreement with eGlobe Financing to subscribe for eGlobe Financing stock for an
aggregate subscription price of up to $7.5 million (the amount necessary to
repay the loan and accrued interest).
We used the proceeds of this financing to fund capital expenditures
relating to network enhancement of IP trunks and intelligent platforms for
calling card and unified messaging services, and for working capital and
general corporate purposes. See discussion under "Completion of $20 Million
Financing" below and Note 7 to the Audited Consolidated Financial Statements.
CONNECTSOFT ACQUISITION. On June 17, 1999, we acquired substantially all
the assets and assumed certain liabilities of Connectsoft
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Communications Corporation and Connectsoft Holding Corp. (collectively
"Connectsoft"). Connectsoft was engaged in the business of developing a
unified, intelligent communications system, which it is marketing as Vogo,
"Voice on the Go," and was transferred to us. Under our ownership, Vogo
continues to be enhanced. Vogo is a telephone portal that integrates messaging,
Internet access and content. The software is presently being marketed globally.
We have recently entered into agreements with two new customers, My Alert and
Europay to sell this service in Europe. The software is being introduced in
sixteen languages, only four of which are currently in production. Connectsoft
owned and operated a central telecommunications network center located in
Seattle, Washington, and the hardware networking equipment, computers and
software associated with such network center. The network center provides
Internet connectivity and co-location services to corporate customers in the
northwestern United States.
In June 1999, we issued American United Global, Inc. or AUGI, the
stockholder of Connectsoft, one share of the 6% Series G cumulative convertible
redeemable preferred stock (the "Series G Preferred Stock") with a liquidation
preference of $3.0 million, converted approximately $1.8 million in advances to
Connectsoft into part of the purchase price, and assumed approximately $5.0
million in liabilities of Connectsoft, consisting primarily of long-term lease
obligations. This acquisition was accounted for under the purchase method of
accounting. We also borrowed $500,000 from AUGI as evidenced by a promissory
note which bears interest at a variable rate. The note matured on the earliest
to occur of August 1, 2000, the date we receive $50 million in proceeds in an
equity or debt financing or Vogo receives $5 million in proceeds from an equity
or debt financing. The note was repaid in February 2000.
In August 1999, we issued 30 shares of 5% Series K cumulative
convertible preferred stock (the "Series K Preferred Stock") in exchange for
the then outstanding share of Series G Preferred Stock. The Series G Preferred
Stock was eliminated in December 1999.
COMPLETION OF $20 MILLION FINANCING. As of June 30, 1999, the loan and
note purchase agreement with EXTL Investors was amended to add two additional
borrowers (IDX Financing Corporation and Telekey Financing Corporation), each
of which is an indirect wholly owned subsidiary of us. Also effective as of
that date, EXTL Investors purchased $20 million of 5% secured notes from eGlobe
Financing, IDX Financing and Telekey Financing (collectively, the "Financing
Companies"). As required by the loan and note purchase agreement, eGlobe
Financing used proceeds of the $20 million financing to repay the $7 million
April 1999 loan from EXTL Investors and approximately $8 million of senior
indebtedness to IDT Corporation. We granted EXTL Investors warrants to purchase
5,000,000 shares of our common stock at an exercise price of $1.00 per share,
and 2/3 of the warrants to purchase 1,500,000 shares granted in connection with
the $7 million loan expired upon issuance of the secured notes. See discussion
under "Private Placement of Unsecured Notes and Warrants" above and "Issuance
of Preferred Stock to Prepay $4 Million of $20 Million Note" below and Note 7
to the Audited Consolidated Financial Statements.
The 5% secured notes must be repaid in 36 specified monthly installments
commencing on August 1, 1999, with all remaining unpaid principal and accrued
interest being due in a single balloon payment on the 36th payment date. The
entire amount becomes due earlier if we complete an offering of debt or equity
securities from which we receive net proceeds of at least $100 million (a
"Qualified Offering"). The principal and interest of the 5% secured notes may
be paid in cash. However, up to 50% of the original principal amount of the 5%
secured notes may be paid in our common stock at our option if:
o the closing price of our common stock on Nasdaq is $8.00 or more for
any 15 consecutive trading days;
o we close a public offering of equity securities at a price of at least
$5.00 per share and with gross proceeds to us of at least $30
million; or
o we close a Qualified Offering (at a price of at least $5.00 per share,
in the case of an offering of equity securities).
EXTL Investors also has agreed to make advances to the Financing
Companies from time to time based upon eligible accounts receivables. These
advances may not exceed the lesser of:
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o 50% of eligible accounts receivable; or
o the aggregate amount of principal payments made by the Financing
Companies under the 5% secured notes.
As of June 30, 2000, we have borrowed $1.75 million under the accounts
receivable facility.
The 5% secured notes and the accounts receivable revolving note are
secured by substantially all of our and our subsidiaries' equipment and other
personal property and our and IDX's accounts receivables. In order to provide
such security arrangements, we and each of our subsidiaries transferred
equipment and other personal property to the Financing Companies and we have
agreed that we will and will cause our subsidiaries to transfer equipment and
other personal property acquired after the closing date to the Financing
Companies. We and our operating subsidiaries have guaranteed payment of the
secured notes.
Our loan and note purchase agreement with EXTL Investors contains
several covenants which we believe are fairly customary, including prohibitions
on:
o mergers and sales of substantially all assets;
o sales of material assets other than on an arm's length basis and in
the ordinary course of business;
o encumbering any of our assets (except for certain permitted liens);
o incurring or having outstanding indebtedness other than certain
permitted debt (which includes certain existing debt and future
equipment and facilities financing), or prepaying any subordinated
indebtedness; or
o paying any dividends or distributions on any class of our capital
stock (other than any dividend on outstanding preferred stock or
additional preferred stock issued in the future) or repurchasing any
shares of our capital stock (subject to certain exceptions).
Our loan and note purchase agreement with EXTL Investors contains
several fairly standard events of default, including:
o non-payment of any principal or interest on the 5% secured notes, or
non-payment of $250,000 or more on any other indebtedness (other than
specified existing indebtedness, as to which a cross default has been
waived);
o failure to perform any obligation under the loan and note purchase
agreement or related documents;
o breach of any representation or warranty in the loan and note purchase
agreement;
o inability to pay our debts as they become due, or initiation or
consent to judicial proceedings relating to bankruptcy, insolvency or
reorganization;
o dissolution or winding up, unless approved by EXTL Investors; and
o final judgment ordering payment in excess of $250,000.
We have in the past been late in principal and interest payments and we
have been in default on other debt documents.
SWIFTCALL ACQUISITION. In July 1999, we acquired Swiftcall Equipment and
Services (USA) Inc., a privately-held Virginia corporation ("Swiftcall"), and
related switching and transmission facilities of Swiftcall USA, Inc. Among
Swiftcall's assets acquired in the acquisition is the network operating center
("NOC"). Combined with the operating facilities of our Network Services
division located in Reston, Virginia, the NOC gives us a gateway for our
growing Internet voice and fax business, as well as an enhanced facility for
circuit-switched telephone services.
As a result of the Swiftcall acquisition, we acquired all of the common
stock of Swiftcall outstanding immediately prior to the effective time in
exchange for $3,430,000, consisting of (1) $3,290,000 due in two equal payments
on December 3, 1999 and June 1, 2000 and (2) direct acquisition costs of
approximately $140,000. The payments may be made at our option, in whole or in
part, in cash or stock, by issuing to Swiftcall Holdings (USA) Ltd., the former
stockholder of Swiftcall, the number of shares of our common stock equal to the
first payment amount or the second payment amount, as the case may be, divided
by the 15 day average closing sales price of our common stock. On August 12,
1999, we elected to make payment on both notes by issuing common stock. On
December 12, 1999, as payment of the first
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installment of the purchase price, we issued the Swiftcall Stockholder 526,063
shares of our common stock. On July 12, 2000, as payment of the second
installment of the purchase price, we issued the Swiftcall Stockholder 371,675
shares of our common stock and issued into escrow 73,883 shares of our common
stock per the agreement. See next paragraph for further details.
As part of the transaction, Swiftcall Stockholder, which also owns VIP
Communications, Inc., a calling card company in Herndon, Virginia, has agreed
to cause VIP to purchase services from us, of the type previously being
purchased by VIP from our IDX subsidiary. The parties have agreed that the
arrangement with VIP will result in revenue to us of at least $500,000 during
the 12 months ending August 3, 2000. If we receive less than $500,000 under the
arrangement with VIP, any revenue shortfall will be paid by a reduction in the
number of shares of common stock issued to the Swiftcall Stockholder. We may
deposit the applicable portion of the second payment of the purchase price into
escrow on June 1, 2000 if it appears that there will be a revenue shortfall
under the arrangement with VIP.
The acquisition was accounted for using the purchase method of
accounting. The final allocation of the purchase price is based on appraisals
performed by a third-party. In August 1999, we borrowed the remaining $1.5
million under our $20.0 million loan and note agreement (as discussed above)
and used $1.1 million to prepay a certain Swiftcall lease.
RENEGOTIATION OF ARRANGEMENTS WITH FORMER IDX STOCKHOLDERS. In July
1999, we renegotiated the terms of the December 1998 IDX purchase agreement
with the former IDX stockholders. We reacquired:
o 500,000 shares of Series B convertible preferred stock in exchange for
500,000 shares of our Series H convertible preferred stock ("Series H
Preferred Stock");
o the original IDX Warrants in exchange for new warrants to acquire up
to 1,250,000 shares of our common stock, subject to IDX meeting
certain revenue, traffic and EBITDA levels at September 30, 2000 or
December 31, 2000 if not achieved by September 30, 2000; and
o the original convertible subordinated notes payable to the former IDX
stockholders of $1.5 million and $2.5 million (previously due in June
1999 and October 1999, respectively) in exchange for 400,000 shares
of Series I convertible optional redemption preferred stock ("Series
I Preferred Stock").
In addition, the maturity date of the convertible subordinated promissory note,
face value of $418,000, was extended to July 15, 1999 from May 31, 1999, and
subsequently paid by issuance of 140,599 shares of our common stock. We also
waived our right to reduce the principal balance of the $2.5 million note
payable by certain claims as provided for under the terms of the original IDX
purchase agreement.
In December 1999, we agreed to reduce the Series H Preferred Stock and
warrants consideration paid to the IDX stockholders by a value equivalent to
the consideration paid by us for 4,500 shares of IDX. In exchange we agreed to
issue eGlobe options to certain employees and others related to IDX, as well as
150,000 shares of our common stock as payment of the original consideration
allocated as purchase consideration for an acquisition of a subsidiary by IDX.
The shares of Series H Preferred Stock automatically converted into
3,262,500 shares of common stock on January 31, 2000 (reflecting the adjustment
negotiated in December 1999). In addition, if IDX satisfies all of the earnout
terms and conditions, the new warrants issued to the former IDX stockholders
will be exercisable for 1,087,500 shares of common stock.
On February 14, 2000, 150,000 shares of Series I Preferred Stock were
converted into 166,304 shares of our common stock. On July 11, 2000, we issued
938,210 shares of common stock to the former stockholders of IDX upon
conversion of the remaining shares of Series I Preferred Stock. We eliminated
the Series I Preferred Stock on July 21, 2000.
ISSUANCE OF PREFERRED STOCK TO PREPAY $4 MILLION OF $20 MILLION NOTE. In
November 1999, pursuant to an agreement reached in August 1999, we issued to
EXTL Investors 40 shares of our 5% Series J cumulative convertible preferred
stock (the "Series J Preferred Stock") valued at $4 million as prepayment of $4
million of the outstanding $20 million secured note issued to EXTL Investors.
The carrying value of the $4.0 million note, net of unamortized discount of
$1.9 million, was approximately $2.1 million. The excess of the fair value of
the Series J Preferred
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Stock over the carrying value of the note of $1.9 million was recorded as a
loss on early retirement of debt in November 1999. The $4.0 million prepayment
is not subject to redraw under the note. See discussion under "Completion of
$20 Million Financing" above and Notes 7 and 10 to the Audited Consolidated
Financial Statements. The shares of Series J Preferred Stock automatically
converted into 2,564,102 shares of common stock on January 31, 2000 because the
closing sales price of eGlobe common stock was over the required threshold for
the requisite number of trading days.
NASDAQ CONTINUED LISTING STATUS. We were notified by a letter from
Nasdaq at the end of the business day on August 17, 1999 that trading in our
common stock would be moved from the Nasdaq National Market to the OTC Bulletin
Board on Wednesday, August 18, 1999. We immediately requested reconsideration
of the decision, and our common stock resumed trading on the Nasdaq National
Market effective at the opening of trading on Monday, August 23, 1999. Our
continued listing on the Nasdaq National Market is subject to our maintaining
compliance with certain requirements imposed by Nasdaq that are related to the
amount of "net tangible assets" reported on our balance sheet.
As a result of the restructuring of eGlobe in 1998 and the initiation of
our growth plan at the beginning of 1999, our compliance with the net tangible
asset requirement of the Nasdaq National Market continued listing criteria
became an issue which needed to be resolved between Nasdaq and us. Net tangible
assets, as defined by Nasdaq, equals assets minus liabilities and minus
goodwill. Following an inquiry by Nasdaq to us, written submissions by us, and
a hearing before a Nasdaq listing qualifications panel, Nasdaq concluded in
July and advised us on August 10, 1999 that we had presented a plan which would
enable us to comply with all requirements for continued listing on an ongoing
basis. Accordingly, Nasdaq continued the listing of our common stock on the
Nasdaq National Market.
The August 10 determination required that we demonstrate that we were
implementing the plan by (1) reporting, on our 10-Q for the quarter ended June
30, a minimum of $9.9 million in net tangible assets, and (2) making a public
filing with the SEC by October 15, 1999 reporting $20 million in net tangible
assets.
On August 16, 1999, we filed our quarterly report on Form 10-Q
containing a June 30, 1999 balance sheet with pro forma adjustments. The Form
10-Q reported what we believed to be net tangible assets of $10.5 million.
However, on August 17, Nasdaq informed us that we failed to satisfy the $9.9
million net tangible asset requirement set by the panel. This decision resulted
from the treatment of $3 million of our redeemable Series G Preferred Stock by
Nasdaq as a liability; we (reflecting the reported balance sheet treatment
pursuant to generally accepted accounting principles) had not treated the
Series G Preferred Stock as a liability.
In seeking reconsideration and in discussions with Nasdaq relative to
the reconsideration, we recognized the need to further restructure our balance
sheet, in particular to reflect the Nasdaq treatment of redeemable stock. After
consultations with Nasdaq, we undertook several actions which resulted in a
positive decision on Friday, August 20, 1999, by Nasdaq to return us to
National Market Listing. In restoring us to listing status, Nasdaq required us
to meet two specific requirements for continued listing. We were required to
make a public filing with the SEC by September 3, 1999 which included a July
31, 1999 balance sheet evidencing a minimum of $9.9 million of net tangible
assets. In addition, we were required to make a further filing by October 15,
1999 which included an August 31, 1999 balance sheet evidencing a minimum of
$20.0 million of net tangible assets.
On September 3, 1999, we filed our Current Report on Form 8-K with the
SEC evidencing net tangible assets in excess of the minimum of $9.9 million
required by Nasdaq and on October 15, 1999, we filed our Current Report on Form
8-K with the SEC evidencing net tangible assets in excess of the minimum of $20
million required by Nasdaq. Nasdaq notified us by letters dated September 8,
1999 and November 17, 1999 that we had satisfied all the higher standards
imposed on us by Nasdaq.
On June 23, 2000, we received written notice from Nasdaq advising us
that we had failed to maintain a $5.00 bid price over the last 30 consecutive
trading days which is required for continued listing on the Nasdaq National
Market and that, if such problem was not remedied within 90 days, Nasdaq would
delist our common stock from the Nasdaq National Market. At a hearing before
the Nasdaq Listing Qualifications panel on
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October 26, 2000, we requested a transfer of our listing to the Nasdaq SmallCap
Market. Our request for such transfer remains pending.
EXCHANGE OF SERIES G PREFERRED STOCK. Pursuant to agreements reached in
August 1999, we issued 30 shares of the Series K Preferred Stock in exchange
for the share of our Series G Preferred Stock held by American United Global,
Inc. The exchange of the Series G Preferred Stock for the nonredeemable Series
K Preferred Stock permitted the Series K Preferred Stock to be classified as
equity rather than redeemable stock starting with our July 31, 1999 unaudited
condensed consolidated balance sheet. Nasdaq had previously determined that the
Series G Preferred Stock, which was valued at $3.0 million on our June 30, 1999
unaudited condensed consolidated balance sheet, should be treated as a
liability for the tangible net asset calculation which reduced our net tangible
asset calculation set forth in our quarterly report filed on August 16, 1999.
The shares of Series K Preferred Stock automatically converted into
1,923,077 shares of common stock on January 31, 2000 because the closing sales
price of eGlobe common stock was over the required threshold for the requisite
number of trading days.
SALE OF RESTRICTED STOCK. On August 25, 1999, we issued Seymour Gordon,
a long-time stockholder and a lender, 160,257 shares of our common stock and
warrants to purchase 60,000 additional shares of our common stock for an
aggregate purchase price of $250,000. Additionally, Mr. Gordon acquired an
option to exchange the principal of an existing note (up to a maximum of
$500,000) for (1) shares of our common stock at a price per share of $1.56 and
(2) warrants to purchase shares of our common stock at a price of $1.00 (60,000
shares per $250,000 of debt exchanged).
On December 16, 1999, Mr. Gordon agreed to extend the maturity date of
an existing note and, in return, we agreed that Mr. Gordon could convert an
additional $250,000 of debt into common stock at a conversion price of $1.56
per share and receive an additional warrant to purchase 60,000 shares of common
stock at an exercise price of $1.00 per share. On May 23, 2000, we issued
543,270 shares of common stock and warrants to purchase 180,000 shares of
common stock to Mr. Gordon and his affiliates upon conversion of such debt. On
July 19, 2000, we issued an additional 37,500 shares of common stock to reflect
an agreed adjustment to the original conversion price for the $250,000 of the
additional loan principal converted to stock. The value of the shares of 37,500
was recorded as additional interest expense in 2000.
IGLOBE ACQUISITION. Effective August 1, 1999, we assumed operational
control of Highpoint, owned by Highpoint Telecommunications, Inc.
("Highpoint"). In July 1999, pursuant to a Transition Services and Management
Agreement ("TSA"), we agreed with Highpoint that we would manage the business
of iGlobe, Inc., a California corporation and newly formed wholly owned
subsidiary of Highpoint ("iGlobe"), and take responsibility for the ongoing
financial condition of iGlobe from August 1, 1999. On October 14, 1999
substantially all of the operating assets of Highpoint were transferred to
iGlobe. Also on October 14, 1999, we closed on the acquisition of all of the
issued and outstanding common stock of iGlobe. iGlobe has created an
infrastructure supplying telecommunications services, including Internet
protocol services, particularly voice over Internet protocol ("VoIP"),
throughout Latin America. With this purchase we acquired:
o critical operating capabilities;
o licenses to operate in four Latin American countries;
o twelve reciprocal operating agreements with Latin American carriers;
o a teleport in Mountain View, California;
o a transponder lease with coverage of Latin America;
o long term leases for international fiber optic cable;
o international gateway switches located in New York, Los Angeles and
Denver; and
o a carrier billing system and Internet protocol operating systems
compatible with those we currently utilize.
iGlobe's network in Latin America complements the network we are building in
Asia and the rest of the world.
We acquired iGlobe for one share of our Series M cumulative convertible
preferred stock (the "Series M Preferred Stock") valued at $9.6
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million, direct acquisition costs of approximately $0.3 million, and Highpoint
received a non-voting beneficial twenty percent (20%) interest of the equity
interest subscribed or held by us in a yet to be completed joint venture
business currently known as IP Solutions, B.V. The final purchase price
allocation reflects the estimates of the fair value of the assets acquired and
liabilities assumed based on management's review and third-party appraisals.
On April 28, 2000, we issued 3,773,584 shares of common stock in
exchange for the outstanding share of Series M Preferred Stock. We eliminated
the Series M Preferred Stock on July 21, 2000.
TRANSACTION SUPPORT SERVICES AND CALL CENTER ACQUISITION. On September
20, 1999, we, acting through a newly formed subsidiary, acquired control of
Oasis Reservations Services, Inc. or ORS, a Miami-based transaction support
services and call center, from its sole stockholder, Outsourced Automated
Services and Integrated Solutions, Inc. or Oasis. ORS provides customer care
and transaction support services employing both Internet access and traditional
telephone access. ORS supplies outsource service to the travel industry and to
e-commerce providers. All of our customer service capabilities were moved from
Denver to ORS' Miami facility in early 2000.
Together with Oasis, we formed eGlobe/Oasis Reservations LLC, a limited
liability company, which is responsible for conducting ORS' business
operations. We managed and controlled eGlobe/Oasis LLC and received 90% of the
profits and losses from ORS' business.
eGlobe/Oasis LLC was funded by contributions effected by the members
under a contribution agreement, dated as of September 15, 1999, and related
documents. We issued 1.5 million shares of our common stock, valued at $3
million on the date of issuance, as our contribution to eGlobe/Oasis LLC. In
addition, we contributed warrants to purchase additional shares of our common
stock to eGlobe/Oasis LLC as follows:
o shares equal to the difference between $3 million and the value of our
1.5 million share contribution on the date that the shares of common
stock (including the shares underlying the warrants) contributed to
eGlobe/Oasis LLC are registered with the SEC (if the value of the 1.5
million shares on that date is less than $3 million);
o shares equal to $100,000 of our common stock for each 30-day period
from the date that is 90 days after the closing date (December 14,
1999) that the shares of common stock (including the shares
underlying the warrants) contributed to eGlobe/Oasis LLC remain
unregistered (as of September 1, 2000, shares equal to $800,000 are
issuable upon registration under the warrant.);
o 204,909 shares valued at $2.0 million became issuable January 31, 2000
based on ORS meeting certain defined performance objectives.
o additional shares based upon (a) ORS achieving revenue and EBITDA
targets, and (b) the market price of our common stock at the date of
registration of the shares contributed. Under certain circumstances,
these shares may be equal to the greater of (A) 50% of the
incremental revenue for the Second Measurement Period (as defined in
the agreements) over $9,000,000 or (B) four times the incremental
Adjusted EBITDA (as defined in the agreements) for the Second
Measurement Period over $1,000,000 provided, however, that such
number of shares shall not exceed the greater of (x) 1,000,000 shares
or (y) that number of shares determined by dividing $8,000,000 by the
Second Measurement Date Market Value (as defined in the agreements);
and provided further, that if the basis for the issuance of such
shares is incremental revenue over $9,000,000 then EBITDA for the
Second Measurement Period must be at least $1,000,000 for revenue
between $9,000,000 and $12,000,000 or at least $1,500,000 for revenue
above $12,000,000. Additionally eGlobe/Oasis LLC may receive 500,000
shares of our common stock if the revenue for the Second Measurement
Period is equal to or greater than $37,000,000 and the Adjusted
EBITDA for the Second Measurement Period is equal to or greater than
$5,000,000.
The exercise of the warrants is subject to compliance with SEC and Nasdaq
rules, including
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the approval of our stockholders with respect to the issuance of 20% or more of
our common stock outstanding on the date of contribution.
On May 12, 2000, Oasis exercised its option to exchange its interest in
the LLC for our common stock and warrants held by the LLC. The LLC recorded the
excess of the carrying value of the company's securities of $5.1 million over
the current fair value of the ORS stock as additional goodwill of $2.4 million.
As a result of this exchange, we now own 100% of the LLC.
In connection with the purchase and installation of equipment and
leasehold improvements at ORS' new facility in Miami, Oasis agreed to loan ORS
up to $451,000. The loan is due in six quarterly installments beginning
November 30, 1999. We guaranteed ORS' obligations under such loan and granted
Oasis a security interest in our ownership interest in eGlobe/Oasis LLC.
SERIES N PRIVATE PLACEMENT. We conducted a private placement to
accredited investors of shares of our Series N cumulative convertible preferred
stock (the "Series N Preferred Stock") and warrants to purchase shares of our
common stock. We have raised approximately $3.2 million from the sale of 3,195
shares of Series N Preferred Stock and warrants to purchase 347,092 shares of
common stock. Prior to January 28, 2000, holders of 1,685 shares of Series N
Preferred Stock opted to convert such shares into 621,759 shares of eGlobe
common stock. On January 28, 2000, the remaining shares of Series N Preferred
Stock automatically converted into 366,060 shares of eGlobe common stock
because the closing sales price of eGlobe common stock was over the required
threshold for the requisite number of trading days.
COAST ACQUISITION. On December 2, 1999, we acquired Coast International,
Inc., a provider of enhanced long-distance interactive voice and Internet
services. We acquired all of the common stock of Coast in exchange for 16,100
shares of our 10% Series O cumulative convertible preferred stock (the "Series
O Preferred Stock") valued at approximately $13.4 million and 882,904 shares of
our common stock valued at approximately $3.0 million. The acquisition was
accounted for using the purchase method of accounting. The purchase price
allocation reflects the final allocation of the fair value of the assets
acquired based on management's review and preliminary third-party appraisals.
The purchase price allocation resulted in goodwill of $14.3 million and
intangibles of $3.2 million related to the value of certain distribution
networks, certain long distance infrastructure, internally developed software
and assembled and trained workforce.
The shares of Series O Preferred Stock are convertible, at the holder's
option, into shares of our common stock at any time after the later of (A) one
year after the date of issuance and (B) the date we have received stockholder
approval for such conversion and the applicable Hart-Scott-Rodino ("HSR")
waiting period has expired or terminated (the "Clearance Date"), at a
conversion price equal to $5.00. The shares of Series O Preferred Stock will
automatically be converted into shares of our common stock, on the earliest to
occur of:
o the date that is five years after the date of issuance;
o the first date as of which the last reported sales price of our common
stock on Nasdaq is $6.00 or more for any 15 consecutive trading days
during any period in which Series O Preferred Stock is outstanding;
o the date that 80% or more of the Series O Preferred Stock we have
issued has been converted into our common stock; or
o we complete a public offering of equity securities at a price of at
least $5.00 per share and with gross proceeds to us of at least $25
million.
Notwithstanding the foregoing, the Series O Preferred Stock will not be
converted into our common stock prior to our receipt of stockholder approval
for such conversion, which was obtained at the March 23, 2000 stockholders'
meeting, and the expiration or termination of the applicable HSR waiting
period. If the events listed in the preceding sentence occur prior to the
Clearance Date, the automatic conversion will occur on the Clearance Date. On
January 26, 2000, the closing sales price of eGlobe common stock was over the
required threshold for the requisite number of trading days and accordingly, on
April 30, 2000, the Clearance Date, the outstanding Series O Preferred Stock
converted into 3,220,000 shares of our common stock.
Prior to closing, Coast incurred $3.25 million of unsecured debt. With
the consent of our existing lender, we and our operating subsidiaries have
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guaranteed the repayment of the $3.25 million debt and Coast has secured its
repayment obligation with its operating assets. The debt is evidenced by (i) a
promissory note in the original principal amount of $3 million which bears
interest at a variable rate and matures on July 1, 2000 and (ii) a promissory
note in the original principal amount of $250,000 which bears interest at 11%
per annum and matures on November 29, 2000.
SERIES P PRIVATE PLACEMENT. On January 27, 2000, we closed a $15.0
million equity private placement with RGC International Investors, LDC, a
company organized under the laws of the Cayman Islands ("Rose Glen"). Pursuant
to the terms of securities purchase agreement, we issued Rose Glen 15,000
shares of our Series P convertible preferred stock (the "Series P Preferred
Stock") and warrants to purchase 375,000 shares of our common stock with a per
share exercise price equal to $12.04, subject to adjustment for issuances of
shares of our common stock below market price. We used the proceeds of the
private placement to repay indebtedness, pay vendors and suppliers, pay
expenses related to the Trans Global acquisition (as discussed below) and for
general working capital.
The shares of Series P Preferred Stock carry an effective annual
interest rate of 5% and are convertible, at the holder's option, into shares of
common stock. The shares of Series P Preferred Stock will automatically be
converted into shares of common stock on January 26, 2003, subject to delay for
specified events. The conversion price for the Series P Preferred Stock is
$12.04 until April 27, 2000, and thereafter is equal to the lesser of:
o the five day average closing price of eGlobe common stock on Nasdaq
during the 22-day period prior to conversion, and
o $12.04.
We can force a conversion of the Series P Preferred Stock on any trading
day following a period in which the closing bid price of our common stock has
been greater than $24.08 for a period of at least 35 trading days after the
earlier of:
o the first anniversary of the date the common stock issuable upon
conversion of the Series P Preferred Stock and warrants is registered
for resale, and
o the completion of a firm commitment underwritten public offering with
gross proceeds to us of at least $45 million.
The Series P Preferred Stock (together with the Series Q Preferred Stock
and the related warrants) is convertible into a maximum of 7,157,063 shares of
our common stock unless we obtain stockholder approval of the issuance of 20%
or more of our common stock. No holder may convert the Series P Preferred Stock
or exercise the warrants it owns for any shares of common stock that would
cause it to own following such conversion or exercise in excess of 4.9% of the
shares of our common stock then outstanding.
Except in the event of a firm commitment underwritten public offering of
our securities or a sale of up to $15.0 million of common stock to a specified
investor, we may not obtain any additional equity financing without Rose Glen's
consent for a period of 120 days following the date the common stock issuable
upon conversion of the Series P Preferred Stock and warrants is registered for
resale. Rose Glen also has a right of first offer to provide any additional
equity financing that we need until the first anniversary of such registration.
We may be required to redeem the Series P Preferred Stock in the
following circumstances:
o if we fail to timely file all reports required to be filed with the
SEC in order to become eligible and maintain our eligibility for the
use of SEC Form S-3;
o if we fail to register the shares of common stock issuable upon
conversion of the Series P Preferred Stock and associated warrants
with the SEC by July 15, 2000;
o if we fail to timely honor conversions of the Series P Preferred
Stock;
o if we fail to use our best efforts to maintain at least 6,000,000
shares of common stock reserved for the issuance upon conversion of
the Series P Preferred Stock and associated warrants;
o if we fail to issue irrevocable instructions to our transfer agent to
issue common stock certificates for conversion shares and warrant
shares;
o if we or any of our subsidiaries make an assignment for the benefit of
creditors or
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become involved in bankruptcy, insolvency, reorganization or
liquidation proceedings;
o if we merge out of existence without the surviving company assuming
the obligations relating to the Series P Preferred Stock;
o if our common stock is no longer listed on the Nasdaq National Market,
which is where our common stock is listed at present, or if we cease
to be listed on the Nasdaq National Market, our common stock is not
alternatively listed on the Nasdaq SmallCap Market, the New York
Stock Exchange or the American Stock Exchange; or
o if the Series P Preferred Stock is no longer convertible into common
stock because it would result in an aggregate issuance of more than
7,157,063 shares of our common stock and we have not obtained
stockholder approval of a higher limit.
The holder of the Series P Preferred Stock has advised us that it has no
present intention to exercise its right to demand redemption by virtue of the
second circumstance described above so long as the registration statement of
which this prospectus is a part is declared effective by October 15, 2000.
RECENT PREFERRED STOCK CONVERSIONS. As of February 1, 2000, because the
closing sales price of our common stock was over the required threshold for the
requisite number of trading days, shares of Series D Preferred Stock, Series E
Preferred Stock, Series J Preferred Stock and Series K Preferred Stock
converted into shares of our common stock.
LOANS TO SENIOR EXECUTIVES. As of December 16, 1999, we loaned certain
of our senior executive officers an aggregate of $1,209,736 in connection with
their purchase of shares of our common stock. The loans are evidenced by
full-recourse promissory notes, which accrue interest at a rate of 6% per annum
and mature on the earliest to occur of (a) for $177,188 of the loans December
16, 2003 and for $1,032,548 of the loans December 16, 2004, (b) the date that
is 90 days after the date that the senior executive's employment with us
terminates, unless such termination occurs other than "for cause" (as defined
below), and (c) promptly after the date that an executive sells all or a
portion of the collateral under his note, in which case such executive must
repay the note in full or that portion of the note that can be repaid if only a
portion of the collateral is sold. The loans are secured by the shares of
common stock purchased and any cash, securities, dividends or rights received
upon sale of shares of such common stock.
One senior executive officer who has terminated employment with the
Company was granted an extension on his loan until the end of the fiscal year
and will continue making interest payments related to the loan.
"Termination for cause" means termination because of (i) the executive's
fraud or material misappropriation with respect to our business or assets; (ii)
the executive's persistent refusal or failure to materially perform his duties
and responsibilities, which continues after the executive receives notice of
such refusal or failure; (iii) conduct that constitutes disloyalty or
materially harms us; (iv) conviction of a felony or crime; (v) use of drugs or
alcohol which materially interferes with the executive's performance of his
duties; or (vi) material breach of any provision of the executive's employment
agreement.
SERIES Q PRIVATE PLACEMENT. On March 17, 2000, we closed a $4 million
equity private placement with Rose Glen, which made a $15 million investment in
us on January 26, 2000. Pursuant to the terms of a securities purchase
agreement, we issued Rose Glen 4,000 shares of our Series Q convertible
preferred stock (the "Series Q Preferred Stock") and warrants (the "Series Q
Warrants") to purchase 100,000 shares of our common stock with a per share
exercise price equal to $12.04, subject to adjustment for issuances of shares
of our common stock below market price. We intend to use the proceeds of the
private placement for general working capital.
The Series Q securities purchase agreement also provides that we may
issue up to 6,000 additional shares of our Series Q Preferred Stock and
warrants to purchase an additional 150,000 shares of our common stock to Rose
Glen for an additional $6.0 million at a second closing to be completed no
later than July 15, 2000. The primary condition to the second closing is the
effectiveness of a registration statement registering the resale of common
stock underlying the Series Q Preferred Stock and the Series Q Warrants and the
Series P Preferred
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Stock and the warrants granted in connection with the Series P Preferred Stock
issued in January, 2000.
The shares of Series Q Preferred Stock carry an effective annual yield
of 5% (payable in kind at the time of conversion) and are convertible, at the
holder's option, into shares of common stock. The shares of Series Q Preferred
Stock will automatically be converted into shares of common stock on March 15,
2003, subject to delay for specified events. The conversion price for the
Series Q Preferred Stock is $12.04 until April 26, 2000, and thereafter is
equal to the lesser of:
o the five day average closing price of our common stock on Nasdaq
during the 22-day period prior to conversion, and
o $12.04.
We can force a conversion of the Series Q Preferred Stock on any trading
day following a period in which the closing bid price of our common stock has
been greater than $24.08 for a period of at least 20 trading days after the
earlier of:
o the first anniversary of the date the common stock issuable upon
conversion of the Series Q Preferred Stock and Series Q Warrants is
registered for resale, and
o the completion of a firm commitment underwritten public offering with
gross proceeds to us of at least $45 million.
The Series Q Preferred Stock (together with the Series P Preferred Stock
and the related warrants) is convertible into a maximum of 7,157,063 shares of
common stock unless we obtain stockholder approval of the issuance of 20% or
more of our common stock. No holder may convert the Series Q Preferred Stock or
exercise the Series Q Warrants it owns for any shares of common stock that
would cause it to own following such conversion or exercise in excess of 4.9%
of the shares of our common stock then outstanding.
We may be required to redeem the Series Q Preferred Stock under certain
circumstances:
o if we fail to timely file all reports required to be filed with the
SEC in order to become eligible and maintain our eligibility for the
use of SEC Form S-3;
o if we fail to register the shares of common stock issuable upon
conversion of the Series Q Preferred Stock and associated warrants
with the SEC by July 15, 2000;
o if we fail to timely honor conversions of the Series Q Preferred
Stock;
o if we fail to use our best efforts to maintain at least 4,000,000
shares of common stock reserved for the issuance upon conversion of
the Series Q Preferred Stock and associated warrants;
o if we fail to issue irrevocable instructions to our transfer agent to
issue common stock certificates for conversion shares and warrant
shares;
o if we or any of our subsidiaries make an assignment for the benefit of
creditors or become involved in bankruptcy, insolvency,
reorganization or liquidation proceedings;
o if we merge out of existence without the surviving company assuming
the obligations relating to the Series Q Preferred Stock;
o if our common stock is no longer listed on the Nasdaq National Market,
which is where our common stock is listed at present, or if we cease
to be listed on the Nasdaq National Market, our common stock is not
alternatively listed on the Nasdaq SmallCap Market, the New York
Stock Exchange or the American Stock Exchange; or
o if the Series Q Preferred Stock is no longer convertible into common
stock because it would result in an aggregate issuance of more than
7,157,063 shares of our common stock and we have not obtained
stockholder approval of a higher limit.
The holder of the Series Q Preferred Stock has advised us that it has no
present intention to exercise its right to demand redemption by virtue of the
second circumstance described above so long as the registration statement of
which this prospectus is a part is declared effective by October 15, 2000.
I1.COM INVESTMENT. Along with Hsin Yen, the former chief executive of
IDX, we developed i1.com. i1.com is the e-commerce solutions
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company through which we are pursuing the development of e-commerce in Asia.
i1.com is developing a distributed network of e-commerce applications that will
allow small and medium-sized businesses to easily and cost-effectively transact
business over the Internet. It will provide complete back-office support for
companies seeking to expand their sales and distribution channels through a
presence on the world wide web. In exchange for stock of i1.com, we will
provide i1.com access to our IP-based network infrastructure, its transaction
processing technology, and its Internet-enabled applications, including
interactive web response services, IP voice and fax, and unified messaging.
i1.com expects to launch its new services in the second quarter of 2000.
i1.com recently completed a $14 million equity private placement. We now
retain a 35% equity interest and a 45% voting interest in i1.com. Christopher
J. Vizas, our Co-Chairman and Chief Executive Officer currently serves as
Chairman of i1.com.
As part of our license arrangement with i1.com, we have the right to
integrate the i1.com technology into our enhanced applications and to
exclusively market and provide services based around the i1.com technology in
all areas except Asia and the Pacific region.
ACQUISITION OF TRANS GLOBAL. On March 23, 2000 pursuant to an Agreement
and Plan of Merger (the "Trans Global Merger Agreement") entered into on
December 16, 1999, a wholly owned subsidiary of eGlobe merged with and into
Trans Global, with Trans Global continuing as the surviving corporation and
becoming a wholly owned subsidiary of eGlobe (the "Merger"). As part of the
Merger, the outstanding shares of Trans Global common stock were exchanged for
40,000,000 shares of eGlobe common stock.
The Merger was accounted for as a pooling of interests. We restated,
retroactively at the effective time of the Merger, our consolidated financial
statements to include the assets, liabilities, stockholders' equity and results
of operations of Trans Global, as if the companies had been combined at the
first date covered by the combined financial statements.
Pursuant to the Trans Global Merger Agreement, eGlobe withheld and
deposited into escrow 2,000,000 shares of the 40,000,000 shares of eGlobe
common stock issued to Trans Global stockholders in the Merger. These escrowed
shares will cover the indemnification obligations of the Trans Global
stockholders under the Trans Global Merger Agreement. Further, pursuant to the
Trans Global Merger Agreement, eGlobe has deposited an additional 2,000,000
shares of its common stock into escrow to cover its indemnification obligations
under the Trans Global Merger Agreement.
Promptly after the Merger closed, we appointed Arnold S. Gumowitz (Trans
Global's Chairman), Gary S. Gumowitz (Trans Global's President) and John W.
Hughes to our board of directors. We have also agreed to use our best
reasonable efforts to appoint Arnold Gumowitz to serve on the executive
committee. In addition, Arnold S. Gumowitz became Co-Chairman of eGlobe, Gary
Gumowitz was appointed President of eGlobe Development Corp., a wholly owned
subsidiary of eGlobe.
There can be no assurance that Trans Global will be successfully
integrated with the rest of the eGlobe organization, as discussed under the
caption "Risk Factors - We may not effectively manage Trans Global and we may
not successfully integrate the business of Trans Global into our organization."
SALE OF COAST INTERNET SERVICE PROVIDER BUSINESS. On August 23, 2000, we
entered into an agreement to sell certain assets acquired from Coast
International, Inc., including the Coast Internet service provider and help
desk businesses, to Information Management Solutions Consulting, L.L.C.
("IMS"). The purchase price of $700,000 is payable in $250,000 cash and a
promissory note of $450,000 secured by shares of our common stock owned by
Bijan Moaveni, our Chief Operating Officer, valued at $2.832 per share or a
price equal to the average market price of the last fifteen trading days prior
to the execution of the agreement, whichever is greater. This purchase includes
all related fixed assets as of July 31, 2000, including prepaid insurance and
software, security deposits and other related assets. IMS will also assume the
lease on the facility in Kansas and bandwith contracts from two customers.
SALE OF RESTRICTED STOCK. On August 25, 2000, we issued Tower Hill
Investments Limited 1,071,429 shares of our common stock and
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<PAGE>
warrants to purchase 160,714 shares of our common stock for an aggregate
purchase price of $1,500,000.
EXTL AMENDED AND RESTATED LOAN AND NOTE PURCHASE AGREEMENT.
On September 12, 2000 we entered into an agreement to amend and restate
the loan and note purchase agreement and the 5% secured notes (see Our Business
- Developments in 1999 and 2000 - "Completion of $20 Million Financing"). Prior
to the amendment, the total outstanding principal balance under the 5% secured
notes to EXTL Investors, which was recently renamed in connection with a merger
EXTL - Special Investment Risks, LLC, was $19,577,989, which includes interest
and penalties of $1,000,000. As amended, the 5% secured notes will be paid in
monthly principal installments of $50,000 beginning on October 15, 2000 with
the residual unpaid principal becoming due and payable on its July 1, 2002
maturity date. As amended, the 5% secured notes will bear interest at the prime
rate plus 2% and will accrue monthly on the unpaid principal and unpaid
interest and will be due at maturity. EXTL - Special Investments Risks waived
all past defaults and all violations of existing loan instruments were deemed
cured.
EXTL - Special Investment Risks, LLC exercised its warrant to purchase
5,000,000 shares of our common stock in connection with the amendment of the
loan and note purchase agreement by reducing the outstanding principal balance
under the 5% secured notes by $3,577,989, resulting in a remaining note
indebtedness of $15,000,000 plus interest of $1,000,000.
In connection with the amendment, we also have issued warrants to EXTL -
Special Investment Risks, LLC to purchase 1,000,000 shares of our common stock
at $1.94 per share expiring July 1, 2004.
EMPLOYEES
As of August 14, 2000, we employed, two hundred and thirty-seven (237)
employees, as follows: fifty-six (56) in Reston, Virginia, forty-nine (49) in
Kansas City, Missouri, thirty-two (32) in New York, New York, twenty-two (22)
in Denver, Colorado, thirteen (13) in Washington, D.C., nine (9) in Los
Angeles, California, five (5) in Seattle, Washington, seven (7) in Atlanta,
Georgia, three (3) in Miami, Florida, one (1) in Nyon, Switzerland, seven (7)
in Silkeborg, Denmark, ten (10) in Hong Kong, fifteen (15) in Taipei, Taiwan,
two (2) in Singapore, one (1) in Brussels, Belgium, four (4) in Godalming,
United Kingdom and one (1) in Limassol, Cyprus. We also engage a consultant to
manage our office in Cairo and a consultant in our London office. We are not
subject to any collective bargaining agreement and believe that our
relationships with our employees are good. Geographic business segment
information for the year ended December 31, 1999 can be found in Note 12 to the
Audited Consolidated Financial Statements.
PROPERTIES
Our corporate headquarters are located in Washington, D.C. in a leased
facility consisting of approximately 11,000 square feet. We also own a facility
at 4260 East Evans Avenue, Denver, Colorado, consisting of approximately 14,000
square feet, which we purchased in December 1992, and subsequent to June 30,
2000 is being held for sale. In addition, we lease office space for sales and
operations at the following locations: New York, New York; Tarrytown, New York;
London, England, Cairo, Egypt; Paris, France; Brussels, Belgium; Nyon,
Switzerland; Hong Kong, H.K.; Silkeborg, Denmark; Godalming, United Kingdom;
Washington, D.C.; Reston, Virginia; Atlanta, Georgia; Denver, Colorado; Miami,
Florida; Los Angeles and San Jose, California; Kansas City, Missouri;
Minneapolis, Minnesota; Seattle, Washington; Taipei, Taiwan; and Limassol,
Cyprus. The New York, New York facility is owned by Arnold Gumowitz, our
Co-Chairman of the Board, as discussed under the caption, "Certain
Relationships and Related Transactions." The London facility houses a Nokia
DX220 switch. We own a Gemini STM-1 IRU between our London, England and New
York, New York switching complexes. In addition, we lease cable facilities
between London, England and Cairo, Egypt and between New York, New York and Los
Angeles, California. We also have an office in Raleigh, North Carolina where
two employees are starting up a calling card operation. We believe that our
existing facilities are adequate for operations over the next year.
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LEGAL PROCEEDINGS
The following information sets forth information relating to material
legal proceedings involving us and certain of our executive officers and
directors. From time to time, we and our executive officers and directors
become subject to litigation which is incidental to and arises in the ordinary
course of business. Other than as set forth herein, there are no material
pending legal proceedings involving us or our executive officers and directors.
AMERICAN INTERNATIONAL TELEPHONE V. EXECUTIVE TELECARD, LTD. This suit
was filed in July 1999 in the Supreme Court of New York, New York County and
concerns a transmission vendor seeking to collect approximately $300,000. We,
as successor to Executive Telecard, Ltd., have substantial counterclaims and
are vigorously defending this suit.
MCI WORLDCOM, INC. LITIGATION. In October 1999, MCI WorldCom filed suit
against us in the District Court, City and County of Denver, Colorado seeking
in excess of $2,500,000 pursuant to various service contracts. We dispute the
amount allegedly owed based on erroneous invoices, the quality of service
provided and unfair and deceptive billing practices. Moreover, we have filed a
counterclaim alleging significant offsets, among other items. We will continue
to vigorously defend this suit and prosecute our counterclaims.
SWIFTCALL HOLDINGS (U.S.A.) LTD. V. EGLOBE, INC. Swiftcall Holdings
(U.S.A.) Ltd., the former stockholder of Swiftcall filed this lawsuit in May
2000 claiming damages on account of an alleged failure by us to file a
registration statement for resale of the shares of common stock received by the
plaintiff in connection with our acquisition of Swiftcall. This lawsuit was
brought in the United States District Court for the District of Columbia.
Plaintiff is seeking damages in excess of several million dollars. We have
filed an answer and intend to pursue settlement possibilities.
IDT CORP. V. EGLOBE, INC., CHRISTOPHER VIZAS AND DONALD SLEDGE. IDT
Corp. commenced this lawsuit in June 2000 in the United States District Court
for the District of Columbia claiming approximately $300,000 for amounts
allegedly past due under a Service Agreement and a Note and is claiming
approximately $5,500,000 in damages for the alleged failure to register shares
or release a restrictive legend on shares of our common stock so that IDT Corp.
could sell its shares in the market. IDT Corp. has moved for judgment on the
pleadings and we have moved to discuss the federal claims upon which
jurisdiction is based.
SPE OPERATIONS LTD. V. TGC TRANSGLOBAL COMMUNICATIONS (CANADA), LTD., ET
AL. This lawsuit was filed in June 2000 in the Ontario Superior Court of
Justice in Canada against one of our subsidiaries claiming indemnification in
the amount of approximately $25,000 for a default under an Offer to Lease Space
in a Toronto office building. We intend to pursue settlement possibilities.
AMERICAN UNITED GLOBAL, INC. V. EGLOBE, INC. American United Global,
Inc., the parent of Connectsoft Communications Corporation and Connectsoft
Holdings, Inc., filed suit in August 2000 in the New York Supreme Court, New
York County claiming $20 million in damages for breach of an alleged obligation
to register shares acquired by American United Global, Inc. under a
registration rights agreement.
NORTHWEST CONTRACT SERVICES, INC. V. VOGO NETWORKS LLC. Northwest
Contract Services, Inc. filed suit against one of our subsidiaries in the
Superior Court of Washington for Snohomish County alleging breach of a contract
involving employee referral services and seeking $22,500 in damages.
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MANAGEMENT
Shown below are the names of all our directors and executive officers, all
positions and offices held by each such person, the period during which each
person has served as such, and the principal occupations and employment of each
such person during the last five years:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------- ----- ---------------------------------------------
<S> <C> <C>
Christopher J. Vizas .......... 50 Chairman of the Board and Chief Executive
Officer and Class III Director
David W. Warnes ............... 53 Class I Director
Richard A. Krinsley ........... 70 Class III Director
James O. Howard ............... 57 Class III Director
Donald H. Sledge .............. 59 Class II Director
John H. Wall .................. 34 Class II Director
Bijan Moaveni ................. 54 Chief Operating Officer
David Skriloff ................ 34 Chief Financial and Administrative Officer
Anne Haas ..................... 50 Vice President, Chief Accounting Officer and
Treasurer
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
CHRISTOPHER J. VIZAS, age 50, has been a Director of eGlobe since
October 25, 1997 and the Chairman of the Board of Directors since November 10,
1997. Mr. Vizas served as eGlobe's acting Chief Executive Officer from November
10, 1997 to December 5, 1997, on which date he became eGlobe's Chief Executive
Officer. Before joining eGlobe, Mr. Vizas was a co-founder of, and since
October 1995, served as Chief Executive Officer of Quo Vadis International, an
investment and financial advisory firm. Before forming Quo Vadis International,
he was Chief Executive Officer of Millennium Capital Development, a merchant
banking firm, and of its predecessor Kouri Telecommunications & Technology from
1994 to 1995. Before joining Kouri, Mr. Vizas shared in the founding and
development of a series of technology companies, including Orion Network
Systems, Inc. of which he was a founder and a principal executive. From April
1987 to 1992, Mr. Vizas served as Vice Chairman of Orion, an international
satellite communications company, and served as a Director from 1982 until
1992. Mr. Vizas has also held various positions in the United States
government.
DAVID W. WARNES, age 53, has been a Director of eGlobe since June 30,
1995. Mr. Warnes has been the Chief Operating Officer of Global Light
Telecommunications Inc. since September 1997 and a Director since June 1997. He
has been the President and Chief Executive Officer of Vitacom, a subsidiary of
Highpoint Telecommunications Inc., a telecommunications company, since December
1995, and President and CEO of Highpoint since April 1998. Previously, Mr.
Warnes held various senior management and executive positions with Cable and
Wireless or its affiliated companies for two decades. From October 1992 through
October 1995, he was Vice President, Operations and Chief Operating Officer,
and from August 1994 through October 1995, he was Assistant Managing Director
of Tele 2, a telecommunications service provider in Sweden partially owned by
Cable and Wireless. From August 1988 through June 1992, he was a principal
consultant and General Manager, Business Development of IDC, an international
telecommunications service provider based in Japan and partially owned by Cable
and Wireless. Mr. Warnes is a Chartered Engineer, a Fellow of the Institution
of Electrical Engineers, and a graduate of the University of East London.
RICHARD A. KRINSLEY, age 70, has been a Director of eGlobe since June
30, 1995. Mr. Krinsley retired in 1991 as the Executive Vice President and
Publisher of Scholastic Corporation; a publicly held company traded on the
Nasdaq Stock Market. While employed by Scholastic between 1983 and 1991, Mr.
Krinsley, among many other duties, served on that company's management
committee. From 1961 to 1983, Mr. Krinsley was employed by Random House where
he held, among other positions, the post of Executive Vice President. At Random
House, Mr. Krinsley also served on that company's executive committee from 1971
to 1983.
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<PAGE>
JAMES O. HOWARD, age 57, has been a Director of eGlobe since January 16,
1998. Since 1990, Mr. Howard has served as the Chief Financial Officer and a
member of the management committee of Benton International, Inc., a wholly
owned subsidiary of Perot Systems Corporation. From 1981 to 1990, Mr. Howard
was employed by Benton International, Inc. as a consultant and sector manager.
Before joining Benton International, Inc., Mr. Howard held a number of legal
positions in the federal government, including General Counsel of the National
Commission on Electronic Fund Transfers from 1976 to 1978.
DONALD H. SLEDGE, age 60, has been a Director of eGlobe since November
10, 1997. Mr. Sledge has served as the Chief Executive Officer of RateXchange
Corporation, a telecommunications company since September 1999. Mr. Sledge
served as Vice Chairman, President and Chief Executive Officer of TeleHub
Communications Corp., a privately held technology development company, from
1996 to 1999. Mr. Sledge served as President and Chief Operating Officer of
West Coast Telecommunications, Inc., a long distance company, from 1994 to
1995. From 1993 to 1994, Mr. Sledge was employed by New T&T, a Hong Kong-based
company, as head of operations. Mr. Sledge was Chairman and Chief Executive
Officer of Telecom New Zealand International from 1991 to 1993 and the Managing
Director of Telecom New Zealand International's largest local carrier from 1988
to 1991. Mr. Sledge was Chairman of the Board of United Digital Network, a
small interexchange carrier that operates primarily in Texas, Oklahoma, Arizona
and California from 1996 to 1998. Mr. Sledge is a member of the Board of
Advisors of DataProse and serves as a director of TeleNetworks Inc. He also
serves as advisor and board member to several small technology-based start-up
companies.
JOHN H. WALL, age 35, has been a Director of eGlobe since June 16, 1999.
Mr. Wall has been the Vice President and Chief Technology Officer for Health
Axis, a healthcare technology solutions and services provider, since March
1998. Prior to joining Health Axis, Mr. Wall served as Chief Technical Officer
for BT Systems Integrators, a provider of imaging and information management
solutions from 1996 to 1998. Mr. Wall also was employed as an engineer and
technical analyst by Georgia Pacific and Dana Corporation from 1995 to 1996 and
1988 to 1995, respectively.
BIJAN MOAVENI, age 54, was appointed Chief Operating Officer of eGlobe
on December 3, 1999. Prior to joining eGlobe, Mr. Moaveni served as President
and Chief Executive Officer of Coast International, Inc., a private
telecommunications company from 1990 to 1999 which he founded and which was
acquired by eGlobe in December 1999. Before founding Coast, Mr. Moaveni held
various senior management positions with Sprint Corporation from 1979 to 1990,
including telecommunications networks, marketing and sales, customer service,
billing and business and system development.
DAVID SKRILOFF, age 34, was appointed Chief Financial and Administrative
Officer of eGlobe effective as of January 1, 2000. Prior to joining eGlobe, Mr.
Skriloff was employed by Gerard Klauer Mattison & Co., a registered investment
bank and eGlobe's financial banker, from 1993 to 1999 where he was a Senior
Associate before being promoted to Vice President, Corporate Finance. Mr.
Skriloff also worked as an Associate from June 1991 through September 1992 at
The American Acquisition Company, a venture capital group and from September
1987 through August 1990 was a co-founder and Senior Vice President of Sales
and Marketing at Performance Technologies, Inc., a computer software company.
ANNE HAAS, age 50, was appointed Vice President, Controller and
Treasurer of eGlobe on October 21, 1997. Ms. Haas served as the Vice President
of Finance of Centennial Communications Corp., a start-up multi-national two
way radio company, during 1996-97. From 1992 to 1996, Ms. Haas served as
Controller of Quark, Inc., a multi-national desk top publishing software
company. Before 1992, Ms. Haas worked for the accounting firm of Price
Waterhouse in San Jose, California and Denver, Colorado.
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<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation for the three most recent
fiscal periods ended December 31, 1999, December 31, 1998 and March 31, 1998 of
our Chief Executive Officer and the four most highly compensated other
executive officers whose total annual salary and bonus exceed $100,000 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
OTHER ANNUAL RESTRICTED SECURITIES
SALARY COMPENSATION STOCK UNDERLYING
NAME AND PRINCIPAL POSITION(1) YEAR ($) BONUS ($) ($) AWARDS ($) OPTIONS/SARS
-------------------------------- -------- ----------- ----------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Christopher J. Vizas 1999 $207,692 0 0 0 1,004,768
Chairman and Chief *1998 153,847 0 0 0 110,000
Executive Officer (2) ......... 1998 62,308 0 0 0 520,000
Ronald A. Fried 1999 $150,000 $28,077 0 0 247,200
Vice President, Business *1998 112,500 0 0 0 40,000
Development (3) ............... 1998 12,500 0 0 0 100,000
Anthony Balinger 1999 $150,000 0 $19,200 0 2,400
Senior Vice President and *1998 103,846 0 9,600 0 45,000
Vice Chairman (4) . 1998 150,000 0 0 $7,875 84,310
W.P. Colin Smith 1999 $127,884 $10,000 0 0 0
Vice President *1998 91,539 25,000 0 0 25,000
Legal Affairs (5) . 1998 11,538 0 0 0 100,000
Allen Mandel 1999 $137,730 0 0 0 101,800
Senior Vice President (6) . *1998 103,000 0 0 0 30,000
1998 90,077 0 0 0 87,676
</TABLE>
----------
* Nine month period ended December 31, 1998
(1) We no longer employ Messrs. Balinger and Smith, however, Mr. Smith
continues to provide consulting services to us. We hired Bijan Moaveni in
December 1999 to act as our Chief Operating Officer and David Skriloff to
act as our Chief Financial and Administrative Officer in January 2000.
Each of Messrs. Moaveni and Skriloff has base salaries in excess of
$100,000.
(2) Mr. Vizas has served as our Chief Executive Officer since December 5, 1997.
From November 10, 1997 to December 5, 1997, Mr. Vizas served as our acting
Chief Executive Officer. Mr. Vizas' employment agreement provides for a
base salary of $200,000, performance based bonuses of up to 50% of base
salary and options to purchase up to 500,000 shares, subject to various
performance criteria. See "Employment Agreements and Termination of
Employment and Change in Control Arrangements." Mr. Vizas' base salary for
2000 will increase to $300,000.
(3) Mr. Fried has served as our Vice President of Business Development since
February 20, 1998. Mr. Fried's employment agreement provides for a base
salary of $150,000, performance based bonuses of up to 50% of base salary
and options to purchase up to 100,000 shares, subject to various
performance criteria. See "Employment Agreements and Termination of
Employment and Change in Control Arrangements." Mr. Fried resigned
effective July 24, 2000.
(4) Mr. Balinger served as our President from April 1995 until November 10,
1997. Mr. Balinger served as Chief Executive Officer from January 3, 1997
through November 10, 1997. Mr. Balinger has served as our Senior Vice
President and Vice Chairman since November 6, 1997. Amounts shown as Other
Annual Compensation consist of an annual housing allowance paid to Mr.
Balinger while he resided in the United States and while he resided in
Hong Kong. See "Employment Agreements, Termination of Employment and
Change of Control Agreements."
(5) Mr. Smith served as our Vice President of Legal Affairs from February 1,
1998 until January 7, 2000. Mr. Smith's employment agreement provided for
a base salary of $135,000, performance based bonuses of up $50,000 and
options to purchase up to 100,000 shares, subject to various performance
criteria. See "Employment Agreements, Termination of Employment and Change
in Control Arrangements." Mr. Smith currently acts as our Senior
Litigation Counsel under a consulting arrangement.
(6) Mr. Mandel has served as our Senior Vice President since 1991.
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<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL PERIOD
The following table sets forth the information concerning individual
grants of stock options and stock appreciation rights ("SARs") during the last
period to each of the Named Executive Officers during such period. All of the
options granted in the year ended December 31, 1999 to the Named Executive
Officers have terms of between five (5) and ten (10) years. A total of
3,798,182 options were granted to our employees and directors in the 12-month
period ended December 31, 1999 under eGlobe's 1995 Employee Stock Option and
Appreciation Rights Plan (the "Employee Stock Option Plan") and outside of the
Employee Stock Option Plan.
OPTION/SAR GRANTS IN LAST FISCAL PERIOD
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS/SARS ANNUAL RATES OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE OR APPRECIATION FOR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------------------
NAME GRANTED (#) FISCAL PERIOD ($/SH) DATE 0%($)(1) 5% ($) 10% ($)
------------------------------ -------------- --------------- ------------ ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Christopher J. Vizas ......... 1,768 0% $ 0.01 06/25/04 $5,194 $ 6,636 $ 8,351
1,500 0% $ 1.69 06/25/04 $4,407 $ 3,110 $ 4,565
1,500 0% $ 1.46 06/25/04 $4,407 $ 3,455 $ 4,910
1,000,000 26.3% $ 2.8125 12/16/04 -- $787,500 $1,715,625
Ronald A. Fried .............. 20,000 0.5% $ 3.16 05/14/04 -- $ 16,006 $ 36,427
1,100 0% $ 1.69 06/25/04 $3,232 $ 2,281 $ 3,348
1,100 0% $ 1.46 06/25/04 $3,232 $ 2,534 $ 3,601
225,000 5.9% $ 2.8125 12/16/04 -- $177,188 $ 386,016
Anthony Balinger ............. 1,200 0% $ 1.69 06/25/04 $3,326 $ 2,488 $ 3,652
1,200 0% $ 1.46 06/25/04 $3,526 $ 2,897 $ 3,652
W.P. Colin Smith ............. -- -- -- -- -- -- --
Allen Mandel ................. 900 0% $ 1.69 06/25/04 $2,644 $ 1,866 $ 2,739
900 0% $ 1.46 06/25/04 $2,644 $ 2,073 $ 2,946
100,000 2.6% $ 2.8125 12/16/04 -- $ 78,750 $ 171,563
</TABLE>
----------
(1) For options granted below market, values were calculated by multiplying the
closing transaction price of the common stock as reported on the Nasdaq
National Market at date of grant by the number of options granted.
The following table sets forth information concerning each exercise of
stock options during the last fiscal period by each of the Named Executive
Officers during such fiscal period and the fiscal period end value of
unexercised options.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL PERIOD
AND FISCAL PERIOD-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
SHARES OPTIONS/SARS AT FP-END AT FP-END($)
ACQUIRED VALUE --------------------------- --------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
-------------------------- ------------- ------------ --------------------------- --------------------------
<S> <C> <C> <C> <C>
Christopher J. Vizas ..... 270,396 $497,220 204,372/933,334 $380,550/$1,304,960
Ronald A. Fried .......... 56,250 91,406 16,047/248,571 $ 45,522/$422,632
Anthony Balinger ......... 0 0 86,310/ 16,666 $ 169,085/$33,724
W.P. Colin Smith ......... 0 0 48,333/ 43,334 $ 86,762/$72,426
Allen Mandel ............. 25,000 40,625 76,911/117,565 $ 169,666/$207,940
</TABLE>
----------
(1) Values were calculated by multiplying the closing transaction price of the
common stock as reported on the Nasdaq National Market on December 31,
1999 of $4.4375 by the respective number of shares of common stock and
subtracting the exercise price per share, without any adjustment for any
termination or vesting contingencies.
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<PAGE>
COMPENSATION OF DIRECTORS
Effective November 10, 1997, and contingent upon eGlobe experiencing a
fiscal quarter of profitability, non-executive members of the Board receive a
Director's fee of $500 for each regular meeting and committee meeting attended.
Our directors are also reimbursed for expenses incurred in connection with
attendance at Board meetings.
During the fiscal periods ended 1995, 1996 and 1997, under our 1995
Directors Stock Option and Appreciation Rights Plan which then provided for
automatic annual grants, each non-executive Director received an annual grant
of ten year options to purchase 10,000 shares at an exercise price equal to the
fair market value of our common stock on the date of grant. Commencing with the
amendments to the Directors Stock Option Plan which were approved by our
stockholders at the 1997 annual meeting held on February 26, 1998, options to
directors may be made at the discretion of the Board of Directors or
Compensation Committee and there are no automatic grants.
On December 16, 1999, options to purchase 50,000 shares of our common
stock at an exercise price of $2.8125 per share were granted to each of Messrs.
Warnes, Krinsley, Howard, Sledge and Wall. Such options have a term of five
years and vested upon grant.
On December 16, 1999, Mr. Vizas was granted options to purchase 750,000
shares of common stock at an exercise price of $2.8125 per share. Such options
have a term of five years and vest in three annual installments of 250,000
shares beginning on December 16, 2000. In addition, Mr. Vizas was granted
options to purchase 250,000 shares of common stock, of which 239,628 options
were issued outside of our Employee Stock Option Plan. Such options vested upon
grant and were immediately exercised.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Effective December 5, 1997, we entered into a three year employment
agreement with Christopher J. Vizas, our Chief Executive Officer. Mr. Vizas'
employment agreement provides for a minimum salary of $200,000 per annum,
reimbursement of certain expenses, annual bonuses based on financial
performance targets to be adopted by eGlobe and Mr. Vizas, and the grant of
options to purchase an aggregate of 500,000 shares of common stock. The options
granted to Mr. Vizas pursuant to his employment agreement are comprised of:
- options to purchase 50,000 shares of common stock at an exercise price of
$2.32 which vested upon their grant;
- options to purchase 50,000 shares of common stock at an exercise price of
$2.32 which vested on December 5, 1998;
- options to purchase up to 100,000 shares of common stock at an exercise price
of $2.32 which expired due to our failure to achieve certain financial
performance targets;
- options to purchase 50,000 shares at an exercise price of $3.50 which vested
on December 5, 1999;
- options to purchase up to 100,000 shares of common stock at an exercise price
of $3.50 which expired due to our failure to achieve certain financial
performance targets;
- options to purchase 50,000 shares at an exercise price of $4.50 which vest on
December 5, 2000 (contingent upon Mr. Vizas' continued employment as of
such date); and
- options to purchase up to 100,000 shares of common stock at an exercise price
of $4.50 which vest on December 5, 2000 (contingent upon Mr. Vizas'
continued employment as of such date and the attainment of certain
financial performance targets).
Each option has a term of five years.
Mr. Vizas' employment agreement provides that, if we terminate Mr.
Vizas' employment other than for "cause," Mr. Vizas shall continue to receive,
for one year commencing on the date of such termination, his full base salary,
any bonus that is earned after the termination of employment, and all other
benefits and compensation that Mr. Vizas would have been entitled to under his
employment agreement in the absence of termination of employment (the "Vizas
Severance Amount"). Mr. Vizas may be terminated for cause if he engages in any
personal dishonesty, willful misconduct, breach of fiduciary duty involving
personal profit,
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intentional failure to perform stated duties, willful violation of any law,
rule, or regulation (other than traffic violations or similar offenses), or
material breach of any provision of his employment agreement.
If there is an early termination of Mr. Vizas' employment following a
"change of control," Mr. Vizas would be entitled to a lump cash payment equal
to the Vizas Severance Amount. Additionally, if during the term of Mr. Vizas'
employment agreement there is a "change in control" of eGlobe and in connection
with or within two years after such change of control we terminate Mr. Vizas'
employment other than "termination for cause," all of the options described
above will vest in full to the extent and at such time that such options would
have vested if Mr. Vizas had remained employed for the remainder of the term of
his employment agreement. A "change of control" means if (1) any person becomes
the beneficial owner of 20% or more of the total number of our voting shares;
(2) any person becomes the beneficial owner of 10% or more, but less than 20%,
of the total number of our voting shares, if the Board of Directors makes a
determination that such beneficial ownership constitutes or will constitute
control of eGlobe; or (3) as the result of any business combination, the
persons who were directors of eGlobe before such transaction shall cease to
constitute at least two-thirds of the Board of Directors.
On February 1, 1997, we entered into a new three year employment
agreement with Anthony Balinger. Pursuant to his new employment agreement, Mr.
Balinger served as eGlobe's President and Chief Executive Officer until
November 10, 1997 when he resigned that position and was appointed Senior Vice
President and Vice Chairman of eGlobe. Mr. Balinger's employment agreement
provides for a minimum salary of $150,000 per annum, reimbursement of certain
expenses, a $1,600 per month housing allowance, and payment for health, dental
and disability insurance and various other benefits.
Mr. Balinger's employment agreement also provides for payment of the
greater of $125,000 or the balance of the annual base salary to which Mr.
Balinger would be entitled at the end of the employment term, relocation to the
country of Mr. Balinger's choice, buy-out of his auto and residential leases
and a 90 day exercise period for his vested options after termination if we
terminate Mr. Balinger without "cause." "Cause" means any criminal conviction
for an offense by Mr. Balinger involving any misappropriation of our funds or
material property or a willful and repeated refusal to follow any careful
directive of our Board of Directors for the performance of material duties
which Mr. Balinger is required to perform under his employment agreement (after
cure period). This employment agreement superseded a prior employment
agreement.
If, during the term of Mr. Balinger's employment agreement, there is a
"change in control" of eGlobe, then the agreement shall be deemed to have been
terminated by us and we shall be obligated to pay Mr. Balinger a lump sum cash
payment equal to five times the "base amount" of Mr. Balinger's compensation,
as that term is defined by the Internal Revenue Code. A "change of control"
occurs if (i) we sell all or substantially all of our assets, (ii) we merge or
consolidate with or into another corporation such that our shareholders own 50%
or less of the combined corporation following the merger or consolidation,
(iii) a majority of our Board is replaced in a given year without approval of
the directors who constituted the board at the beginning of year, or (iv) any
person becomes the beneficial owner of 15% or more of the total number of our
voting shares. The employment agreement with Mr. Balinger terminated in January
2000.
On February 1, 1998, we entered into an employment agreement with W. P.
Colin Smith pursuant to which Mr. Smith agreed to serve as Vice President of
Legal Affairs and General Counsel of eGlobe through December 31, 2000. Mr.
Smith's employment agreement provides for a minimum salary of $125,000 per
annum, reimbursement of certain expenses, annual and quarterly bonuses based on
financial performance targets to be adopted by the Chairman and Chief Executive
and Mr. Smith, and the grant of options to purchase an aggregate of 100,000
shares of common stock. The options granted to Mr. Smith pursuant to his
employment agreement are comprised of options to purchase 33,333 shares of
common stock at an exercise price of $3.125 which vested on February 1, 1999
but which expired due to eGlobe's failure to achieve certain financial
performance targets, 33,333 shares of common stock at an exercise price of
$3.125 which vested on February 1, 2000 and 33,334 shares of common stock at an
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exercise price of $3.125 which will vest on February 1, 2001 (contingent upon
Mr. Smith's continued employment as of such date and the attainment of certain
financial performance targets). Each of the options have a term of five years.
Vesting of all options will accelerate in the event that the current Chairman
and Chief Executive Officer (Christopher J. Vizas) ceases to be the Chief
Executive Officer of eGlobe and Mr. Smith's employment terminates or reasonable
advance notice of such termination is given.
Mr. Smith's employment agreement provides that, if we terminate Mr.
Smith's employment other than "for cause" or after a material breach of the
employment agreement by eGlobe, Mr. Smith shall continue to receive, for six
months (in all cases thereafter) commencing on the date of such termination,
his full base salary, any annual or quarterly bonus that has been earned before
termination of employment or is earned after the termination of employment
(where Mr. Smith met the applicable performance goals prior to termination and
we meet the applicable corporate performance goals after termination), and all
other benefits and compensation that Mr. Smith would have been entitled to
under his employment agreement in the absence of termination of employment (the
"Smith Severance Amount"). "Termination for cause" means termination by eGlobe
because of Mr. Smith's (1) fraud or material misappropriation with respect to
our business or assets; (2) persistent refusal or willful failure materially to
perform his duties and responsibilities to us which continues after Mr. Smith
receives notice of such refusal or failure; (3) conduct that constitutes
disloyalty to eGlobe and which materially harms us or conduct that constitutes
breach of fiduciary duty involving personal profit; (4) conviction of a felony
or crime, or willful violation of any law, rule, or regulation, involving moral
turpitude; (5) the use of drugs or alcohol which interferes materially with Mr.
Smith's performance of his duties; or (6) material breach of any provision of
his employment agreement.
If, during the term of Mr. Smith's employment agreement, there is a
"change in control" of eGlobe and in connection with or within two years after
such change of control we terminate Mr. Smith's employment other than
"termination for cause" or Mr. Smith terminates with good reason, we shall be
obligated, concurrently with such termination, to pay the Smith Severance
Amount in a single lump sum cash payment to Mr. Smith. A "change of control"
occurs if (1) any person becomes the beneficial owner of 35% or more of the
total number of our voting shares, (2) we sell substantially all of assets, (3)
we merge or combine with another company and immediately following such
transaction the persons and entities who were stockholders of eGlobe before the
merger own less than 50% of the stock of the merged or combined entity, or (4)
the current Chairman and Chief Executive Officer (Christopher J. Vizas) ceases
to be the Chief Executive Officer of eGlobe. Mr. Smith's employment terminated
in January 2000. On January 15, 2000, we entered into a consulting arrangement
with Mr. Smith pursuant to which Mr. Smith will act as our Senior Litigation
Counsel until December 31, 2000. Under this new arrangement, the vesting
schedule for all of Mr. Smith's outstanding options (including options to
purchase 35,333 shares of common stock at an exercise price of $3.125 per share
and options to purchase 10,000 shares of common stock at an exercise price of
$1.57 per share) was accelerated and such options became immediately
exercisable. Mr. Smith will be entitled to be paid $5,000 per month for the
first 25 hours worked per month plus an additional hourly amount for hours
worked in excess of 25 hours per month and to receive health, dental and life
insurance benefits.
On February 20, 1998, we entered into an employment agreement with
Ronald A. Fried pursuant to which Mr. Fried agreed to serve as our Vice
President of Business Development through December 31, 2000. Mr. Fried's
employment agreement provides for a minimum salary of $150,000 per annum,
reimbursement of certain expenses, annual bonuses based on financial
performance targets to be adopted by the Chairman and Chief Executive and Mr.
Fried, and the grant of options to purchase an aggregate of 100,000 shares of
common stock. The options granted to Mr. Fried pursuant to his employment
agreement are comprised of options to purchase 33,333 shares of common stock at
an exercise price of $3.03 which vested on August 20, 1998, 33,333 shares of
common stock at an exercise price of $3.03 which vested on August 20, 1999 and
33,334 shares of common stock at an exercise price of $3.03 which will vest on
August 20, 2000 (contingent upon Mr. Fried's
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continued employment as of such date and the attainment of certain financial
performance targets). Each of the options has a term of five years.
Mr. Fried's employment agreement provides that, if we terminate Mr.
Fried's employment other than pursuant to a "termination for cause" or after a
material breach of the employment agreement by us, Mr. Fried shall continue to
receive, for one year commencing on the date of such termination, his full base
salary, any annual or quarterly bonus that has been earned before termination
of employment or is earned after the termination of employment (where Mr. Fried
meets the applicable performance goals prior to termination and we meet the
applicable Company performance goals after termination), and all other benefits
and compensation that Mr. Fried would have been entitled to under his
employment agreement in the absence of termination of employment (the "Fried
Severance Amount"). A "termination for cause" is defined as termination by us
because of Mr. Fried's personal dishonesty, willful misconduct, breach of
fiduciary duty involving personal profit, persistent refusal or willful failure
materially to perform his duties and responsibilities to us which continues
after Mr. Fried receives notice of such refusal or failure; willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses), or material breach of any provision of his employment agreement.
If during the term of Mr. Fried's employment agreement there is a
"change in control" of eGlobe and in connection with or within two years after
such change of control we terminate Mr. Fried's employment other than
"termination for cause" or Mr. Fried terminates with good reason, we shall be
obligated, concurrently with such termination, to pay the Fried Severance
Amount in a single lump sum cash payment to Mr. Fried. A "change of control" is
deemed to have taken place under Mr. Fried's employment agreement if any person
becomes the beneficial owner of 35% or more of the total number of our voting
shares.
On December 3, 1999, we entered into an employment agreement with Bijan
Moaveni pursuant to which Mr. Moaveni agreed to serve as Chief Operating
Officer of eGlobe through December 31, 2002. Mr. Moaveni's employment agreement
provides for a minimum salary of $180,000 per annum, reimbursement of certain
expenses, and annual bonuses based on performance goals to be adopted by the
Chairman and Chief Executive and Mr. Moaveni. On December 16, 1999 our Board of
Directors granted Mr. Moaveni options to purchase 150,000 shares of common
stock at an exercise price equal to $2.8125 which will vest upon achievement of
certain performance criteria. Mr. Moaveni was also granted options to purchase
75,000 shares of common stock which will vest in three equal annual
installments beginning on December 31, 2000. The vesting of options to purchase
an additional 75,000 shares was accelerated and such options were exercised
during March 2000.
Mr. Moaveni's employment agreement provides that, if we terminate Mr.
Moaveni's employment other than "for cause" or after a material breach of the
employment agreement by us, Mr. Moaveni shall continue to receive, for one year
commencing on the date of such termination, his full base salary, any annual or
quarterly bonus that has been accrued or earned prior to termination of
employment, and all other benefits and compensation that Mr. Moaveni would have
been entitled to under his employment agreement in the absence of termination
of employment (the "Moaveni Severance Amount"). "Termination for cause" means
termination by us because of Mr. Moaveni's (1) fraud or material
misrepresentation with respect to our business or assets; (2) persistent
refusal or failure to materially perform his duties and responsibilities to us
which continues after Mr. Moaveni receives notice of such refusal or failure;
(3) conduct that constitutes disloyalty to eGlobe and which materially harms
eGlobe or conduct that constitutes breach of fiduciary duty involving personal
profit; (4) conviction of a felony or crime, or willful violation of any law,
rule, or regulation, involving dishonesty or moral turpitude; (5) the use of
drugs or alcohol which interferes materially with Mr. Moaveni's performance of
his duties; or (6) material breach of any provision of his employment
agreement.
If, during the term of Mr. Moaveni's employment agreement, there is a
"change in control" of eGlobe and in connection with or within two years after
such change of control we terminate Mr. Moaveni's employment other than
termination for cause, or we reduce Mr. Moaveni's responsibility and authority
or takes
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steps which amount to a demotion of Mr. Moaveni, we shall be obligated,
concurrently with such termination, to pay the Moaveni Severance Amount in a
single lump sum cash payment to Mr. Moaveni. A "change of control" occurs if
(1) Christopher J. Vizas is terminated by eGlobe or is no longer the Chairman
or Chief Executive Officer; (2) more than half of the members of our Board of
Directors are replaced at one time; or (3) any person becomes the beneficial
owner of 35% or more of the total number of our voting shares.
Under a side letter to Mr. Moaveni's employment agreement, we were
obligated to repurchase at Mr. Moaveni's request the 247,213 shares of common
stock issued to Mr. Moaveni in our acquisition of Coast for $700,000 under
certain conditions. Subsequent to December 31, 1999, Mr. Moaveni waived his
rights to cause us to redeem such shares.
On January 1, 2000, we entered into an employment agreement with David
Skriloff pursuant to which Mr. Skriloff agreed to serve as Chief Financial
Officer of eGlobe through January 1, 2004.
Mr. Skriloff's employment agreement provides for a minimum salary of
$160,000 per annum, reimbursement of certain expenses, annual bonuses based on
performance goals to be adopted by the Chairman and Chief Executive and Mr.
Skriloff, the purchase of 36,000 shares of our common stock through a four year
loan from us to Mr. Skriloff at an interest rate of 8%, and the grant of
options to purchase an aggregate of 264,000 shares of our common stock. The
options granted to Mr. Skriloff pursuant to his employment agreement are
comprised of options to purchase 144,000 shares of common stock (the "Skriloff
Time-Vested Options") at an exercise price of $4.44 which vest in installments
of 36,000 shares each on December 31, 2000, 2001, 2002, and 2003 (contingent
upon Mr. Skriloff's continued employment as of such date) and 120,000 shares of
common stock (the "Skriloff Performance Options") at an exercise price of $4.44
which will vest in installments of 40,000 shares each on December 31, 2000,
2001, and 2002 (contingent upon Mr. Skriloff's continued employment as of such
date and certain performance goals). The Skriloff Time-Vested Options have a
term of five years from January 1, 2000. The Skriloff Performance Options have
a term of nine years from January 1, 2000.
Mr. Skriloff's employment agreement provides that, if we terminate Mr.
Skriloff's employment other than "for cause" or in the event of any
"resignation for good reason," Mr. Skriloff shall receive his Accrued Rights
and shall continue to receive, for one year commencing on the date of such
termination, his full base salary and all other benefits and compensation that
Mr. Skriloff would have been entitled to under his employment agreement in the
absence of termination of employment (the "Skriloff Severance Amount").
"Termination for cause" means termination by us because of Mr. Skriloff's (1)
fraud or material misrepresentation with respect to our business or assets; (2)
persistent refusal or failure to materially perform his duties and
responsibilities to eGlobe which continues after Mr. Skriloff receives notice
of such refusal or failure; (3) conduct that constitutes breach of a fiduciary
duty involving personal profit; (4) conviction or plea of nolo contendere of a
felony under the laws of the United States or any state thereof, or any
equivalent crime in any foreign jurisdiction, (5) willful violation of any law,
rule, or regulation, involving dishonesty or moral turpitude that is materially
detrimental to us; or (6) the use of illegal drugs or alcohol which interferes
materially with Mr. Skriloff's performance of his duties. "Resignation for good
reason" means a resignation following (1) material reduction, without Mr.
Skriloff's consent, of Mr. Skriloff's duties, titles, or reporting
relationships; (2) any reduction, without Mr. Skriloff's consent, of Mr.
Skriloff's base salary; (3) any involuntary relocation of Mr. Skriloff's
principal place of business; or (4) a material breach of Mr. Skriloff's
employment agreement by us.
If, during the term of Mr. Skriloff's employment agreement, there is a
"change in control" of eGlobe and in connection with or within two years after
such change of control we terminate Mr. Skriloff's employment other than
termination for cause or Mr. Skriloff resigns with good reason, we shall be
obligated, concurrently with such termination, to pay the Skriloff Severance
Amount in a single lump sum cash payment to Mr. Skriloff. A "change of control"
occurs if (1) eGlobe or its
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shareholders enter into an agreement to dispose of all or substantially all of
our assets or stock (other than any agreement of merger or reorganization where
the shareholders of eGlobe immediately before the consummation of the
transaction will own 50% or more of the fully diluted equity of the surviving
entity immediately after the consummation of the transaction); (2) during any
period of two consecutive years (not including any period prior to the date of
Mr. Skriloff's employment agreement), individuals who at the beginning of such
period constitute the Board of Directors (and any new directors whose election
by the Board of Directors or nomination for election by our shareholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was so approved) cease for any reason (except for
death, disability, or voluntary retirement) to constitute a majority thereof;
or (3) during any two consecutive years (not including any period prior to the
date of Mr. Skriloff's employment agreement), individuals who at the beginning
of such period constitute the senior management of eGlobe cease for any reason
(except for death, disability, or voluntary retirement) to constitute a
majority thereof.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Vizas, our Chief Executive Officer, serves as a member of the
Compensation Committee of the Board of Directors. Although Mr. Vizas makes
recommendations to the Compensation Committee of the Board of Directors with
regard to the other executive officers, including Named Executive Officers, he
did not participate in the Compensation Committee's deliberations with respect
to his own compensation.
Mr. Sledge, a member of our Board of Directors and Compensation
Committee, is the Chief Executive Officer of RateXchange Corporation, a
telecommunications company. Mr. Vizas serves on the Board of Directors of
RateXchange.
THE 1995 EMPLOYEE STOCK OPTION AND APPRECIATION RIGHTS PLAN
The Compensation Committee of our Board of Directors administers the
1995 Employee Stock Option and Appreciation Rights Plan (the "Employee Plan")
and may grant stock options and stock appreciation rights to our employees,
advisors and consultants.
Incentive stock options granted under the Employee Plan are intended to
qualify as incentive stock options under Section 422 of the Internal Revenue
Code, unless they exceed certain limitations or are specifically designated
otherwise, and, accordingly, may be granted to our employees only. All other
options granted under the Employee Plan are nonqualified stock options, meaning
an option not intended to qualify as an incentive stock option or an incentive
stock option which is converted into a nonqualified stock option under the
terms of the Employee Plan.
The option exercise price for incentive stock options granted under the
Employee Plan may not be less than 100% of the fair market value of our common
stock on the date of grant of the option (or 110% in the case of an incentive
stock option granted to an optionee beneficially owning more than 10% of our
common stock). For nonqualified stock options, the option price shall be equal
to the fair market value of our common stock on the date the option is granted.
The maximum option term is 10 years (or five years in the case of an incentive
stock option granted to an optionee beneficially owning more than 10% of the
outstanding common stock) and the options vest over periods determined by the
Compensation Committee.
The Compensation Committee has decided not to grant any more tandem
stock appreciation rights with stock options. However, the Compensation
Committee may award freestanding stock appreciation rights. The maximum number
of shares of common stock that may be issued upon exercise of stock options and
stock appreciation rights granted under the Employee Plan is 12,000,000 shares.
The Employee Plan will terminate on December 14, 2005, unless terminated
earlier by our Board of Directors.
THE DIRECTORS STOCK OPTION AND APPRECIATION RIGHTS PLAN
The 1995 Directors Stock Option and Appreciation Rights Plan (the
"Director Plan") is administered by our Compensation Committee.
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Effective June 16, 1999, the Director Plan was amended to reduce the number of
shares of common stock available for issuance thereunder to 437,000, the number
of shares underlying options then outstanding.
Options granted under the Director Plan expire ten (10) years from the
date of grant, or in the case of incentive stock options granted to Directors
who are employees holding more than 10% of the total combined voting power of
all classes of our stock, five (5) years from the date of grant. However, upon
a change of control of eGlobe as defined in the Director Plan, all options will
become fully exercisable. Unless terminated earlier by the Compensation
Committee, the Director Plan will terminate on December 14, 2005.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number and percentage of shares of our
common stock owned beneficially, as of November 1, 2000, by each director and
executive officer of eGlobe, and by all directors and executive officers of
eGlobe as a group. Information as to beneficial ownership is based upon
statements furnished to us by such persons. Unless otherwise indicated, the
address of each of the named individuals is c/o eGlobe, Inc., 1250 24th Street,
N.W., Suite 725, Washington, DC 20037.
<TABLE>
<CAPTION>
NAME OF NUMBER OF SHARES PERCENT OF COMMON
BENEFICIAL OWNER OWNED BENEFICIALLY (1) STOCK OUTSTANDING (2)
-------------------------------------------------------------------------- ------------------------ ----------------------
<S> <C> <C>
Christopher J. Vizas (3) ................................................ 447,536 *
David W. Warnes (4) ..................................................... 111,000 *
Richard A. Krinsley (5) ................................................. 180,182 *
Donald H. Sledge (6) .................................................... 98,000 *
James O. Howard (7) ..................................................... 105,000 *
John H. Wall (8) ........................................................ 50,000 *
Bijan Moaveni ........................................................... 1,138,814 1.2
David Skriloff (9) ...................................................... 50,061 *
Anne Haas (10) .......................................................... 45,617 *
All executive officers and directors as a Group (9 persons) (11) ........ 29,966,210 30.2%
</TABLE>
----------
* Less than 1%
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed
to be a "beneficial owner" of a security if he or she has or shares the
power to vote or direct the voting of such security or the power to
dispose or direct the disposition of such security. A person is also
deemed to be a beneficial owner of any securities of which that person has
the right to acquire beneficial ownership within 60 days from November 1,
2000. More than one person may be deemed to be a beneficial owner of the
same securities. All persons shown in the table above have sole voting and
investment power, except as otherwise indicated. This table includes
shares of common stock subject to outstanding options granted pursuant to
our option plans.
(2) For the purpose of computing the percentage ownership of each beneficial
owner, any securities which were not outstanding but which were subject to
options, warrants, rights or conversion privileges held by such beneficial
owner exercisable within 60 days were deemed to be outstanding in
determining the percentage owned by such person, but were deemed not to be
outstanding in determining the percentage owned by any other person.
(3) Includes options to purchase 130,372 shares of common stock exercisable
within 60 days from November 1, 2000. Does not include options to purchase
933,334 shares of common stock which are not exercisable within such
period.
(4) Consists solely of options to purchase common stock exercisable within 60
days from November 1, 2000.
(5) Includes options to purchase 96,000 shares of common stock exercisable
within 60 days from November 1, 2000.
(6) Consists solely of options to purchase common stock exercisable within 60
days from November 1, 2000.
(7) Includes options to purchase 85,000 shares of common stock exercisable
within 60 days from November 1, 2000.
(8) Includes options to purchase 50,000 shares of common stock exercisable
within 60 days from November 1, 2000. Does not include 15% interest in
warrants to purchase 18,000 shares of common stock which are not
exercisable within 60 days from November 1, 2000.
(9) Does not include (1) warrants to purchase 4,218 shares of common stock or
(2) options to purchase 264,000 shares of common stock which are not
exercisable within 60 days from November 1, 2000.
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(10) Includes options to purchase 33,950 shares of common stock exercisable
within 60 days from November 1, 2000. Does not include options to purchase
76,666 shares of common stock which are not exercisable within 60 days
from November 1, 2000.
(11) Includes (1) options to purchase 604,322 shares of common stock
exercisable within 60 days from November 1, 2000. Does not include (1)
options to purchase 1,274,000 shares of common stock or (2) warrants to
purchase 22,218 shares of common stock which are not exercisable within
such period.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the number and percentage of shares of our
common stock owned beneficially, as of November 1, 2000, by any person who is
known to us to be the beneficial owner of 5% or more of our common stock.
Information as to beneficial ownership is based upon statements furnished to us
by such persons.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS OWNED OF RECORD COMMON STOCK
OF BENEFICIAL OWNER AND BENEFICIALLY (1) OUTSTANDING (2)
-------------------------------------------------- ---------------------- ----------------
<S> <C> <C>
EXTL - Special Investment Risks, LLC (3) ......... 15,886,410 16.0%
850 Cannon, Suite 200
Hurst, Texas 76054
Gary Gumowitz .................................... 13,300,000 13.5%
c/o eGlobe, Inc.
1250 24th Street, N.W.,
Suite 725
Washington, D.C. 20037
Arnold Gumowitz .................................. 10,640,000 10.8%
c/o eGlobe, Inc.
1250 24th Street, N.W.,
Suite 725
Washington, D.C. 20037
</TABLE>
----------
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed
to be a "beneficial owner" of a security if he or she has or shares the
power to vote or direct the voting of such security or the power to
dispose or direct the disposition of such security. A person is also
deemed to be a beneficial owner of any securities of which that person has
the right to acquire beneficial ownership within sixty days from November
1, 2000. More than one person may be deemed to be a beneficial owner of
the same securities. All persons shown in the table above have sole voting
and investment power, except as otherwise indicated.
(2) For the purpose of computing the percentage ownership of each beneficial
owner, any securities which were not outstanding but which were subject to
options, warrants, rights or conversion privileges held by such beneficial
owner exercisable within 60 days were deemed to be outstanding in
determining the percentage owned by such person, but were not deemed
outstanding in determining the percentage owned by any other person.
(3) Includes warrants to purchase 1,000,000 shares of common stock exercisable
within sixty days from November 1, 2000. Gladys Jensen is the holder of
99% of the membership interest and the sole executive officer of EXTL -
Special Investment Risks, LLC and holds a proxy to vote the remaining 1%
membership interest held by her husband, Ronald Jensen. As such, Gladys
and Ronald Jensen may be deemed to be beneficial owners of the securities
held by EXTL - Special Investment Risks, LLC. However, Ronald Jensen
disclaims beneficial ownership of the shares held by EXTL - Special
Investment Risks, LLC.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 31, 1998, two officers of eGlobe each loaned $50,000 to us
for short term needs. The loans were repaid, including a 1% fee, in February,
1999.
In November 1998, we reached an agreement with Mr. Ronald Jensen, who,
at the time, was our largest stockholder. The agreement concerned settlement of
unreimbursed costs and potential claims. Mr. Jensen had purchased $7.5 million
of our common stock in a private placement in June 1997 and later was elected
Chairman of our Board of Directors. After approximately three months, Mr.
Jensen resigned his position, citing both other business demands and the
challenges of managing our business. During his tenure as Chairman, Mr. Jensen
incurred staff and other costs that were not billed to eGlobe. Also, Mr. Jensen
subsequently communicated with our current management, indicating there were a
number of issues raised during his involvement with eGlobe relating to the
provisions of his share purchase agreement which could result in claims against
us.
In December 1998, to resolve all current and potential issues, we
exchanged 75 shares of our 8% Series C cumulative convertible preferred stock
("Series C Preferred Stock"), which management estimated to have a fair market
value of approximately $3.4 million and a face value of $7.5 million, for Mr.
Jensen's then current holding of 1,425,000 shares of common stock. The terms of
the Series C Preferred Stock permitted Mr. Jensen to convert the Series C
Preferred Stock into the number of shares equal to the face value of the
preferred stock divided by 90% of the common stock market price, but with a
minimum conversion price of $4.00 per share and a maximum of $6.00 per share,
subject to adjustment if we issue common stock for less than the conversion
price. The difference between the estimated fair value of the Series C
Preferred Stock to be issued and the market value of the common stock
surrendered resulted in a one-time non-cash charge to our statement of
operations of $1.0 million in the quarter ended September 30, 1998 with a
corresponding credit to stockholders' equity.
In connection with subsequent issuances of securities which are
convertible into or exercisable for our common stock, we discussed with Mr.
Jensen the extent to which the conversion price of the Series C Preferred Stock
should be adjusted downward. On February 12, 1999 (1) Mr. Jensen exchanged 75
shares of Series C Preferred Stock (convertible into 1,875,000 shares of common
stock) for 3,000,000 shares of common stock, which exchange would have the same
economic effect as if the Series C Preferred Stock had been converted into
common stock with an effective conversion price of $2.50 per share and (2) Mr.
Jensen waived any rights to the warrants associated with the Series C Preferred
Stock. The market value of the 1,125,000 incremental shares of common stock
issued of approximately $2.2 million was recorded as a preferred stock dividend
in the quarter ended March 31, 1999. Mr. Jensen transferred all his interests
in the 3,000,000 shares of common stock he received in exchange for the Series
C Preferred Stock to EXTL Investors LLC, a limited liability company in which
Mr. Jensen and his wife are the sole members.
In February 1999, contemporaneously with the exchange of Mr. Jensen's
Series C Preferred Stock for shares of common stock, we concluded a private
placement of $5 million with EXTL Investors. We sold 50 shares of our 8% Series
E cumulative convertible redeemable preferred stock (the "Series E Preferred
Stock") and warrants (the "Series E Warrants") to purchase (1) 723,000 shares
of common stock with an exercise price of $2.125 per share and (2) 277,000
shares of common stock with an exercise price of $.01 per share to EXTL
Investors. The shares of Series E Preferred Stock will automatically be
converted into shares of our common stock, on the earliest to occur of (1) the
first date as of which the last reported sales price of our common stock on
Nasdaq is $5.00 or more for any 20 consecutive trading days during any period
in which Series E Preferred Stock is outstanding, (2) the date that 80% or more
of the Series E Preferred Stock we have issued has been converted into common
stock, or (3) we complete a public offering of equity securities at a price of
at least $3.00 per share and with gross proceeds to us of at least $20 million.
The initial conversion price for the Series E Preferred Stock is $2.125,
subject to adjustment if we issue common stock for less than the conversion
price. As of February 1, 2000, because the closing sales price of our common
stock was
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over the required threshold for the requisite number of trading days, the
shares of Series E Preferred Stock converted into shares of our common stock.
On April 9, 1999, we and our wholly owned subsidiary, eGlobe Financing
Corporation, entered into a loan and note purchase agreement with EXTL
Investors (which, together with its affiliates, was our then largest
stockholder). eGlobe Financing initially borrowed $7.0 million from EXTL
Investors and we granted EXTL Investors warrants (1/3 of which are presently
exercisable) to purchase 1,500,000 shares of our common stock at an exercise
price of $0.01 per share. As a condition to receiving this $7.0 million
unsecured loan, we entered into a subscription agreement with eGlobe Financing
to subscribe for eGlobe Financing stock for an aggregate subscription price of
up to $7.5 million (the amount necessary to repay the loan and accrued
interest). We used the proceeds of this financing to fund capital expenditures
relating to network enhancement of IP trunks and intelligent platforms for
calling card and unified messaging services, and for working capital and
general corporate purposes.
As of June 30, 1999, the loan and note purchase agreement with EXTL
Investors was amended to add two additional borrowers (IDX Financing
Corporation and Telekey Financing Corporation), each of which is an indirect
wholly owned subsidiary of us. Also effective as of that date, EXTL Investors
purchased $20 million of 5% secured notes from eGlobe Financing, IDX Financing
and Telekey Financing (collectively, the "Financing Companies"). As required by
the loan and note purchase agreement, eGlobe Financing used proceeds of such
financing to repay the $7 million April 1999 loan from EXTL Investors and
approximately $8 million of senior indebtedness to IDT Corporation. We granted
EXTL Investors warrants to purchase 5,000,000 shares of our common stock at an
exercise price of $1.00 per share, and 2/3 of the warrants to purchase
1,500,000 shares granted in connection with the $7 million loan expired upon
issuance of the secured notes. The 5% secured notes must be repaid in 36
specified monthly installments commencing on August 1, 1999, with the remaining
unpaid principal and accrued interest being due in a lump sum with the last
payment. The entire amount becomes due earlier if we complete an offering of
debt or equity securities from which we receive net proceeds of at least $100
million (a "Qualified Offering"). The principal and interest of the 5% secured
notes may be paid in cash. However, up to 50% of the original principal amount
of the 5% secured notes may be paid in our common stock at our option if:
- the closing price of our common stock on Nasdaq is $8.00 or
more for any 15 consecutive trading days;
- we close a public offering of equity securities at a price of
at least $5.00 per share and with gross proceeds to us of at
least $30 million; or
- we close a Qualified Offering (at a price of at least $5.00 per
share, in the case of an offering of equity securities).
EXTL Investors also has agreed to make advances to the Financing Companies from
time to time based upon eligible accounts receivables. These advances may not
exceed the lesser of:
- 50% of eligible accounts receivable; or
- the aggregate amount of principal payments made by the
Financing Companies under the 5% secured notes.
As of June 30, 2000, we have borrowed $1.75 million under the accounts
receivable facility. The 5% secured notes and the accounts receivable revolving
note are secured by substantially all of our and our subsidiaries' equipment
and other personal property and our and IDX's accounts receivables. In order to
provide such security arrangements, we and each of our subsidiaries transferred
equipment and other personal property to the Financing Companies and we have
agreed that we will and will cause our subsidiaries to transfer equipment and
other personal property acquired after the closing date to the Financing
Companies. We and our operating subsidiaries have guaranteed payment of the
secured notes.
In November 1999, we prepaid $4 million of the 5% secured notes with the
issuance of shares of Series J Preferred Stock. The shares of Series J
Preferred Stock automatically converted into 2,564,102 shares of common
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stock on January 31, 2000 because the closing sales price of our common stock
was over the required threshold for the requisite number of trading days. In
April 2000, we renegotiated the terms of the 5% secured notes to refinance all
past due principal and interest over the remaining life and within the
previously existing balloon payment terms of the note.
On September 12, 2000 we entered into an agreement to amend and restate
the loan and note purchase agreement dated April 9,1999 and related 5% secured
notes (see "Our Business - Developments in 1999 and 2000 Completion of $20
Million Financing"). Prior to the amendment, the total outstanding principal
balance under the 5% secured notes to EXTL Investors, which was recently
renamed in connection with a merger EXTL - Special Investment Risks, LLC, was
$19,577,989, which includes interest and penalties of $1,000,000. As amended,
the 5% secured notes will be paid in monthly principal installments of $50,000
beginning on October 15, 2000, with the residual unpaid principal becoming due
on July 1, 2002 maturity date. As amended, the 5% secured notes will bear
interest at the prime rate plus 2% and will accrue monthly on the unpaid
principal and unpaid interest and will be due at maturity.
EXTL--Special Investment Risks, LLC exercised its warrant to purchase
5,000,000 shares of our common stock in connection with the amendment of the
loan and note purchase agreement by reducing the outstanding principal under
the 5% secured notes by $3,577,989 resulting in a remaining note indebtedness
of $15,000,000 plus interest of $1,000,000. EXTL--Special Investment Risks, LLC
waived all past defaults and all violations of existing loan instruments were
deemed cured. In connection with the amendment, we issued warrants to EXTL -
Special Investment Risks, LLC to purchase 1,000,000 shares of our common stock
at $1.94 per share expiring July 1, 2004.
On October 14, 1999, we acquired iGlobe, Inc., a wholly owned subsidiary
of Highpoint Telecommunications, Inc. iGlobe has created an infrastructure
supplying telecommunications services, including Internet protocol services,
particularly voice over Internet protocol ("VoIP"), throughout Latin America.
iGlobe's network in Latin America complements the network we are building in
Asia and the rest of the world. David Warnes, an eGlobe Director, has been the
President and Chief Executive Officer of Highpoint since April 1998.
We acquired iGlobe for one share of our Series M cumulative convertible
preferred stock (the "Series M Preferred Stock") valued at $9.6 million, direct
acquisition costs of approximately $0.3 million, and Highpoint received a
non-voting beneficial twenty percent (20%) interest of the equity interest
subscribed or held by us in a yet to be completed joint venture business
currently known as IP Solutions, B.V. Pursuant to an agreement on April 28,
2000, we issued Highpoint 3,773,584 shares of common stock in exchange for the
outstanding share of Series M Preferred Stock.
On December 3, 1999, we acquired Coast International, Inc. Prior to our
acquisition of Coast, its majority stockholder was Ronald Jensen, a member of
EXTL Investors, our largest stockholder. We issued Mr. Jensen 11,270 shares of
our Series O Preferred Stock and 618,033 shares of our common stock. The Series
O Preferred Stock is convertible into 3,220,000 shares of our common stock, at
the holder's option, into shares of our common stock at any time after the
later of (A) one year after the date of issuance and (B) the date we have
received stockholder approval for such conversion and the applicable
Hart-Scott-Rodino waiting period has expired or terminated. Upon conversion of
the Series O Preferred Stock, the former Coast Stockholders will own
approximately 22.6% of our outstanding common stock on a fully diluted basis.
On January 26, 2000, the closing sales price of our common stock was over the
required threshold for the requisite number of trading days. Accordingly, on
April 30, 2000, following receipt of shareholder approval of our issuance of
more than 20% of our common stock upon conversion of the Series O Preferred
Stock to the former Coast stockholders, the outstanding Series O Preferred
Stock converted into 3,220,000 shares of common stock.
Our stockholders approved at the most recent annual meeting of
stockholders held on June 16, 1999 a proposal to allow EXTL Investors to own
20% or more of eGlobe common stock outstanding now or in the future and the
possible issuance of common stock upon the exercise of the warrants issued in
connection with the $20 million debt placement and the possible repayment of up
to 50% of the $20
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million debt using shares of common stock, where the number of shares issuable
may equal or exceed 20% of common stock outstanding.
As of December 16, 1999, we loaned certain of our senior executive
officers an aggregate of $1,209,736 in connection with their purchase of shares
of our common stock, including $673,954 to Christopher Vizas, $158,203 to
Ronald Fried and $70,313 to Allen Mandel. The loans are evidenced by
full-recourse promissory notes, which accrue interest at a rate of 6% per annum
and mature on the earliest to occur of (a) for $177,188 of the loans December
16, 2003 and for $1,032,548 of the loans December 16, 2004, (b) the date that
is 90 days after the date that the senior executive's employment with us
terminates, unless such termination occurs other than "for cause" (as defined
below), and (c) promptly after the date that an executive sells all or a
portion of the collateral under his note, in which case such executive must
repay the note in full or that portion of the note that can be repaid if only a
portion of the collateral is sold. The loans are secured by the shares of
common stock purchased and any cash, securities, dividends or rights received
upon any sale of such shares of common stock. In June 2000, pursuant to a
termination agreement, a certain employee's notes due date was extended to 120
days after the date of employment was terminated.
"Termination for cause" means termination because of (i) the executive's
fraud or material misappropriation with respect to our business of assets; (ii)
the executive's persistent refusal or failure to materially perform his duties
and responsibilities, which continues after the executive receives notice of
such refusal or failure; (iii) conduct that constitutes disloyalty or
materially harms us; (iv) conviction of felony or crime; (v) use of drugs or
alcohol which materially interferes with the executive's performance of his
duties; or (vi) material breach of any provision of the executive's employment
agreement.
On August 23, 2000, we entered into an agreement to sell certain assets
acquired from Coast International, Inc., including the Coast Internet service
provider and help desk businesses, to Information Management Solutions
Consulting, L.L.C. ("IMS"). IMS is owned by the wife and children of Bijan
Moaveni, our Chief Operating Officer. The purchase price of $700,000 is payable
in $250,000 cash and a promissory note of $450,000 secured by shares of our
common stock owned by Mr. Moaveni valued at $2.832 per share or a price equal
to the average market price of the last fifteen trading days prior to the
execution of the agreement, whichever is greater. This purchase includes all
related fixed assets as of July 31, 2000, including prepaid insurance and
software, security deposits and other related assets. IMS will also assume the
lease on the facility in Kansas and bandwith contracts from two customers.
Arnold Gumowitz, a significant stockholder owning more than 5% our
common stock, owns the building located at 421 Seventh Avenue, New York, New
York and leases space in this building to us for the executive offices and
telecommunications switching equipment of our Trans Global subsidiary. We lease
20,000 square feet at that location at an annual rate of $568,800, which
increases to $600,000 by the end of the lease term. The lease has recently been
reduced to reflect the fact that we have reduced our lease space. The lease
terminates on March 31, 2003.
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DESCRIPTION OF CAPITAL SECURITIES
The following summary description of our capital stock is not a complete
description and is subject to the provisions of our Restated Certificate of
Incorporation, as amended (the "Restated Charter"), and our Amended and
Restated Bylaws, as amended (the "Bylaws"), which are included as exhibits to
the Registration Statement of which this prospectus forms a part, and the
provisions of applicable law.
The conversion or sale of our outstanding preferred stock, convertible
debt, stock options and warrants will increase the number of outstanding shares
of our common stock and could result in a significant reduction in the
respective percentage interest of eGlobe, earnings per share and voting power
held by our stockholders.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
We have the authority to issue two hundred million (200,000,000) shares
of common stock of which ninety-eight million five hundred seventy thousand
eight hundred and fifty-seven (98,570,857) shares are issued and outstanding as
of November 1, 2000. In addition, our Board of Directors has authority (without
action by the stockholders) to issue ten million (10,000,000) shares of
preferred stock, par value $0.001 per share, in one or more classes or series
and, within certain limitations, to determine the voting rights (including the
right to vote as a series on particular matters), preferences as to dividends
and in liquidation, and conversion and other rights of each such series.
Various series of preferred stock have been authorized and issued, but many of
those series have converted into or been exchanged for common stock In many
cases, where no shares of a series of preferred stock are issued or
outstanding, the series has been eliminated and the shares returned to our
general pool of authorized but undesignated and unissued preferred stock. The
status of our series of preferred stock as of the date hereof is as follows:
o Series A Participation Preference Stock: eliminated in June 1999, no
shares authorized or outstanding;
o Series B Preferred Stock: eliminated in December 1999, no shares
authorized or outstanding;
o Series C Preferred Stock: eliminated in December 1999, no shares
authorized or outstanding;
o Series D Preferred Stock: eliminated in February 2000, no shares
authorized or outstanding;
o Series E Preferred Stock: 125 shares authorized and no shares issued
and outstanding;
o Series F Preferred Stock: eliminated in July 2000, no shares issued
and outstanding;
o Series G Preferred Stock: eliminated in December 1999, no shares
authorized or outstanding;
o Series H Preferred Stock: eliminated in February 2000, no shares
authorized or outstanding;
o Series I Preferred Stock: eliminated in July 2000, no shares issued
and outstanding;
o Series J Preferred Stock: 40 shares authorized and no shares issued
and outstanding;
o Series K Preferred Stock: eliminated in February 2000, no shares
authorized or outstanding;
o Series M Preferred Stock: eliminated in July 2000, no shares issued
and outstanding;
o Series N Preferred Stock: eliminated in February 2000, no shares
authorized or outstanding;
o Series O Preferred Stock: 16,100 shares authorized and no shares
issued and outstanding;
o Series P Preferred Stock: 15,000 shares authorized, issued and
outstanding; and
o Series Q Preferred Stock: 10,000 shares authorized and 4,000 shares
issued and outstanding.
The rights of the holders of common stock discussed below are subject to
rights the Board of Directors has granted and may in the future grant to the
holders of preferred stock. Rights granted to holders of preferred stock may
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adversely affect the rights of holders of common stock. Under certain
circumstances, the issuance of preferred stock may tend to discourage a merger,
tender offer or proxy contest, the assumption of control by a holder of a large
block of our securities or the removal of incumbent management.
COMMON STOCK
Voting Rights. Each holder of shares of common stock is entitled to
attend all special and annual meetings of our stockholders and, together with
the holders of all other classes of stock entitled to attend such meetings and
to vote (except any class or series of stock having special voting rights), to
cast one vote for each outstanding share of common stock upon any matter
(including, without limitation, the election of directors) acted upon by the
stockholders. The shares of common stock do not have cumulative voting rights
in the election of directors (which means each share gets one vote for each
director nominee, rather than an aggregate number of votes equal to the number
of nominees which can be cast for any one or more directors).
Holders of a majority of the common stock represented at a meeting may
approve most actions submitted to the stockholders. Certain matters require
different approvals: election of directors requires the approval of a plurality
of the votes cast, certain corporate actions such as mergers, sale of all or
substantially all of our assets and charter amendments require the approval of
holders of a majority of the total number of shares of common stock
outstanding.
Liquidation Rights. Upon our dissolution, liquidation, or winding up,
the holders of the common stock, and holders of any class or series of stock
entitled to participate in the distribution of assets in such event, will be
entitled to participate in the distribution of any assets remaining after we
have paid all of our debts and liabilities and after we have paid the holders
of classes of stock having preference over the common stock the full
preferential amounts to which they are entitled.
Dividends. Dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends but only when
and as declared by the Board of Directors.
Miscellaneous. Holders of common stock have no preemptive (right to buy
a pro rata share of new stock issuances), subscription, redemption or
conversion rights. All outstanding shares of common stock, including the shares
offered in this prospectus, are or upon issuance will be fully paid and
nonassessable.
PREFERRED STOCK
UNDESIGNATED PREFERRED STOCK. The Restated Charter authorizes our Board
of Directors, from time to time and without further stockholder action, to
issue additional preferred stock in one or more series, and to fix the relative
rights and preferences of the shares, including voting powers, dividend rights,
liquidation preferences, redemption rights and conversion privileges. The
Board's authority is limited by the terms of the series of preferred stock
which are currently designated. At present, 7,538,734 shares of additional
preferred stock can be issued with terms fixed by the Board. Because of its
broad discretion with respect to the creation and issuance of preferred stock
without stockholder approval, the Board of Directors could adversely affect the
voting power of the holders of common stock and, by issuing shares of preferred
stock with certain voting, conversion and/or redemption rights, could
discourage any attempt to obtain control of us by merger, tender offer or proxy
contest or the removal of incumbent management.
SERIES A PREFERRED STOCK. On February 28, 1997, we adopted a rights plan
and entered into a stockholder rights agreement with American Stock Transfer &
Trust Company, as rights agent (the "Rights Agreement"). The Rights Agreement
provided for the issuance of rights for each share of our common stock
outstanding on February 28, 1997 and each share of our common stock that we
issued since then representing the right to purchase one one-hundredth of a
share of the Series A Preferred Stock. On May 14, 1999, we repealed the Rights
Agreement. The Series A Preferred Stock has been eliminated as of June 1999.
SERIES B PREFERRED STOCK. As part of the consideration paid to the
former stockholders of IDX, we initially issued 500,000 shares of Series B
Preferred Stock. We subsequently issued 500,000 shares of Series H Preferred
Stock in exchange for such shares of Series B Preferred Stock. The Series B
Preferred Stock has been eliminated as of December 1999.
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SERIES C PREFERRED STOCK. We issued 75 shares of Series C Preferred
Stock to Mr. Jensen in a private offering pursuant to Regulation D of the
Securities Act of 1933. We exchanged 3,000,000 shares of our common stock which
are being registered for resale in this registration statement for all of the
outstanding Series C Preferred Stock in February 1999. The Series C Preferred
Stock has been eliminated as of December 1999.
SERIES D PREFERRED STOCK. We issued an aggregate of 50 shares of Series
D Preferred Stock to Vintage Products in January 1999 and May 1999 in a private
offering pursuant to Regulation S of the Securities Act of 1933. In December
1999 and January 2000, Vintage converted all shares of Series D Preferred Stock
into 3,625,000 shares of our common stock which are being registered for resale
in this registration statement. The Series D Preferred Stock was eliminated in
February 2000.
SERIES E PREFERRED STOCK. We issued 50 shares of Series E Preferred
Stock to EXTL Investors LLC in February 1999 in a private offering pursuant to
Regulation D of the Securities Act of 1933. On February 1, 2000, the closing
sales price of our common stock was over the required threshold for the
requisite number of trading days and, accordingly, the outstanding Series E
Preferred Stock converted into 2,352,941 shares of common stock which are being
registered for resale in this registration statement. We agreed not to issue
any additional shares of Series E Preferred Stock other than pursuant to the
initial investment document. We have agreed to eliminate this series of
preferred stock once it has been fully converted by the stockholders or
redeemed by us.
Voting Rights. The holders of the Series E Preferred Stock do not have
voting rights, unless otherwise provided by Delaware corporation law or
dividends payable on the Series E Preferred Stock are in arrears for six
quarters, at which time the Series E Preferred Stock would be entitled to vote
as a separate class (with any other preferred stock having similar voting
rights) to elect one director to our Board of Directors at the next
stockholders' meeting. The holders of the Series E Preferred Stock are entitled
to notice of all stockholder meetings in accordance with the Bylaws. The
affirmative vote of 66 2/3% of the holders of the Series E Preferred Stock is
required for the issuance of any class or series of stock of eGlobe ranking
senior to or on a parity with the Series E Preferred Stock as to dividends or
rights on liquidation, winding up and dissolution.
Liquidation Rights. Upon our dissolution, liquidation, or winding-up,
the holders of the Series E Preferred Stock are entitled on a parity basis with
any preferred stock ranking on a parity with the Series E Preferred Stock to a
liquidation preference over our common stock and any preferred stock ranking
junior to the Series E Preferred Stock, but after all preferential amounts due
holders of any class of stock having a preference over the Series E Preferred
Stock are paid in full, equal to $100,000 per share, plus any accrued and
unpaid dividends.
Dividends. The Series E Preferred Stock carries an annual dividend of
8%, which is payable quarterly, beginning December 31, 2000, if declared by our
Board of Directors. If the Board of Directors does not declare dividends, they
accrue and remain payable. All dividends that would accrue through December 31,
2000 on each share of Series E Preferred Stock, whether or not then accrued,
will be payable in full upon conversion of such share of Series E Preferred
Stock. No dividends may be granted on our common stock or any preferred stock
ranking junior to the Series E Preferred Stock until all accrued but unpaid
dividends on the Series E Preferred Stock are paid in full. Dividends on the
Series E Preferred Stock are not payable until all accrued but unpaid dividends
on preferred stock ranking senior to the Series E Preferred Stock are paid in
full.
Conversion. The Series E Preferred Stock is convertible into shares of
our common stock at any time after issuance. The shares of Series E Preferred
Stock are also convertible (one time right of holder) into our common stock
upon a change of control (as defined in the certificate of designations of the
Series E Preferred Stock) if the market price of our common stock on the date
immediately preceding the change of control is less than the conversion price.
In lieu of issuing the shares of our common stock issuable upon conversion in
the event of a change of control, we may, at our option, pay an amount equal to
the number of shares of our common stock to be converted multiplied by the
market price. The shares of Series E Preferred Stock will automatically be
converted into shares of our common stock, on the earliest to occur of
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o the first date as of which the last reported sales price of our common
stock on Nasdaq is $5.00 or more for any 20 consecutive trading days
during any period in which Series E Preferred Stock is outstanding,
o the date that 80% or more of the Series E Preferred Stock we have
issued has been converted into our common stock, or
o we complete a public offering of equity securities at a price of at
least $3.00 per share and with gross proceeds to eGlobe of at least
$20 million.
The initial conversion price for the Series E Preferred Stock is $2.125.
The Certificate of Designations of Series E Preferred Stock provides for
adjustments to the number of shares issuable upon conversion in the event of
certain dividends and distributions to holders of our common stock, certain
reclassifications of our common stock, stock splits, combinations and mergers
and similar transactions and certain changes of control. In addition, the
Certificate of Designations of the Series E Preferred Stock provides for
adjustment to the conversion price if we sell stock for less than the
conversion price.
SERIES F PREFERRED STOCK. We issued 1,010,000 shares of Series F
Preferred Stock in February 1999 as part of the consideration issued to the
former stockholders of Telekey. On January 3, 2000, the former stockholders of
Telekey converted such shares of Series F Preferred Stock into an aggregate of
1,209,584 shares of our common stock. We agreed to issue at least 505,000 and
up to an additional 1,010,000 shares of Series F Preferred Stock to the former
stockholders of Telekey if Telekey achieves certain revenue and EBITDA
objectives by December 2000. On May 24, 2000, we entered into an agreement with
the former Telekey stockholders pursuant to which we issued the former Telekey
stockholders a total of 757,500 shares of our common stock in full satisfaction
of the December 2000 earnout. The Series F Preferred Stock was eliminated in
July 2000.
SERIES G PREFERRED STOCK. We initially issued 1 share of Series G
Preferred Stock in June 1999 as part of the consideration paid to American
United Global, Inc., the stockholder of Connectsoft. We subsequently issued 30
shares of Series K Preferred Stock in exchange for such share of Series G
Preferred Stock. The Series G Preferred Stock was eliminated in December 1999.
SERIES H PREFERRED STOCK. We issued 500,000 shares of Series H Preferred
Stock as part of an exchange in August 1999 with former stockholders of IDX. On
January 31, 2000, the Series H Preferred Stock automatically converted into
3,262,500 shares of common stock which are being registered in this
registration statement. The Series H Preferred Stock was eliminated in February
2000.
SERIES I PREFERRED STOCK. We issued 400,000 shares of Series I Preferred
Stock as part of an exchange in August 1999 with former stockholders of IDX. On
February 14, 2000 and July 12, 2000, 400,000 shares of Series I Preferred Stock
were converted into an aggregate of 1,104,516 shares of our common stock which
are being registered in this registration statement. The Series I Preferred
Stock was eliminated in July 2000.
SERIES J PREFERRED STOCK. We issued 40 shares of Series J Preferred
Stock to EXTL Investors in November 1999 upon conversion of $4 million of the
$20 million secured debt. On January 31, 2000, the closing sales price of our
common stock was over the required threshold for the requisite number of
trading days and, accordingly, the outstanding Series J Preferred Stock
converted into 2,564,102 shares of common stock which are being registered in
this registration statement. We have agreed to eliminate this series of
preferred stock once it has been fully converted by the stockholders or
redeemed by us.
Voting Rights. The holders of the Series J Preferred Stock do not have
voting rights, unless otherwise provided by Delaware corporation law or
dividends payable on the Series J Preferred Stock are in arrears for six
quarters, at which time the Series J Preferred Stock would be entitled to vote
as a separate class (with any other preferred stock having similar voting
rights) to elect one director to our Board of Directors at the next
stockholders' meeting. The holders of the Series J Preferred Stock are entitled
to notice of all stockholder meetings in accordance with the Bylaws. The
affirmative vote of 66 2/3% of the holders of the Series J Preferred Stock is
required for the issuance of any class or
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series of stock of eGlobe ranking senior to or on a parity with the Series J
Preferred Stock as to dividends or rights on liquidation, winding up and
dissolution.
Liquidation Rights. Upon our dissolution, liquidation, or winding-up,
the holders of the Series J Preferred Stock are entitled on a parity basis with
any preferred stock ranking on a parity with the Series J Preferred Stock to a
liquidation preference over our common stock and any preferred stock ranking
junior to the Series J Preferred Stock, but after all preferential amounts due
holders of any class of stock having a preference over the Series J Preferred
Stock are paid in full, equal to $100,000 per share, plus any accrued and
unpaid dividends.
Dividends. The Series J Preferred Stock carries an annual dividend of
5%, which is payable quarterly, beginning December 31, 2000, if declared by our
Board of Directors. If the Board of Directors does not declare dividends, they
accrue and remain payable. All dividends that would accrue through December 31,
2000 on each share of Series J Preferred Stock, whether or not then accrued,
will be payable in full upon conversion of such share of Series J Preferred
Stock. No dividends may be granted on our common stock or any preferred stock
ranking junior to the Series J Preferred Stock until all accrued but unpaid
dividends on the Series J Preferred Stock are paid in full. Dividends on the
Series J Preferred Stock are not payable until all accrued but unpaid dividends
on preferred stock ranking senior to the Series J Preferred Stock are paid in
full.
Conversion. The shares of Series J Preferred Stock are convertible into
shares of our common stock at any time after issuance at a conversion price
equal to $1.56 per share. The shares of Series J Preferred Stock are also
convertible (one time right of holder) into our common stock upon a change of
control (as defined in the certificate of designations of the Series J
Preferred Stock) if the market price of our common stock on the date
immediately preceding the change of control is less than the conversion price.
In lieu of issuing the shares of our common stock issuable upon conversion in
the event of a change of control, we may, at our option, pay an amount equal to
the number of shares of our common stock to be converted multiplied by the
market price. The shares of Series J Preferred Stock will automatically be
converted into shares of our common stock, on the earliest to occur of
o the first date as of which the last reported sales price of our common
stock on Nasdaq is $5.00 or more for any 20 consecutive trading days
during any period in which Series J Preferred Stock is outstanding,
o the date that 80% or more of the Series J Preferred Stock we have
issued has been converted into our common stock, or
o we complete a public offering of equity securities at a price of at
least $3.00 per share and with gross proceeds to eGlobe of at least
$20 million.
The Certificate of Designations of Series J Preferred Stock provides for
adjustments to the number of shares issuable upon conversion in the event of
certain dividends and distributions to holders of our common stock, certain
reclassifications of our common stock, stock splits, combinations and mergers
and similar transactions and certain changes of control. In addition, the
Certificate of Designations of the Series J Preferred Stock provides for
adjustment to the conversion price if we sell stock for less than the
conversion price.
SERIES K PREFERRED STOCK. We issued 30 shares of Series K Preferred
Stock to American United Global, Inc. in September 1999 in exchange for the
sole share of Series G Preferred Stock. On January 31, 2000, the closing sales
price of our common stock was over the required threshold for the requisite
number of trading days and accordingly, the outstanding Series K Preferred
Stock converted into 1,923,077 shares of common stock which are being
registered in this registration statement. The Series K Preferred Stock was
eliminated in February 2000.
SERIES M PREFERRED STOCK. We issued one (1) share of Series M Preferred
Stock in connection with our acquisition of iGlobe. Pursuant to an agreement
dated April 17, 2000, we issued the Series M holder 3,773,584 shares of common
stock, which are being registered in this registration statement, in exchange
for one (1) share of Series M Preferred Stock. The Series M Preferred Stock was
eliminated in July 2000.
SERIES N PREFERRED STOCK. We issued 3,195 shares of Series N Preferred
Stock between October 1999 and January 2000 in connection
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with a private placement. Prior to February 1, 2000, holders of 1,685 shares of
Series N Preferred Stock opted to convert such shares into 607,888 shares of
common stock. On February 1, 2000, the remaining shares of Series N Preferred
Stock automatically converted into 366,060 shares of common stock, which are
being registered in this registration statement, because the closing sales
price of our common stock was over the required threshold for the requisite
number of days. The Series N Preferred Stock was eliminated in February 2000.
SERIES O PREFERRED STOCK. We issued 16,100 shares of Series O Preferred
Stock in connection with our acquisition of Coast. On January 26, 2000, the
closing sales price of our common stock was over the required threshold for the
requisite number of trading days. Accordingly, on April 30, 2000, following
receipt of stockholder approval of our issuance of more than 20% of our common
stock upon conversion of the Series O Preferred Stock, the outstanding Series O
Preferred Stock automatically converted into 3,220,000 shares of common stock
which are being registered in this registration statement. We have agreed to
eliminate this series of preferred stock once it has been fully converted by
the stockholders or redeemed by us.
SERIES P PREFERRED STOCK. We issued 15,000 shares of Series P Preferred
Stock in a private placement in January 2000.
Voting Rights. The holders of the Series P Preferred Stock do not have
voting rights, unless otherwise provided by Delaware corporation law.
Liquidation Rights. Upon our dissolution, liquidation, or winding-up,
the holders of the Series P Preferred Stock are entitled on a parity basis with
any preferred stock ranking on a parity with the Series P Preferred Stock to a
liquidation preference over the common stock and any preferred stock ranking
junior to the Series P Preferred Stock, but after all preferential amounts due
holders of any class of stock having a preference over the Series P Preferred
Stock are paid in full, equal to the sum of $1,000 plus an annual interest rate
of 5% on the $1,000 for the period the Series P Preferred Stock is outstanding
plus any default payments specified in the certificate of designations divided
by the number of shares of Series P Preferred Stock then outstanding.
Dividends. The Series P Preferred Stock does not bear any dividends. No
dividends may be granted on common stock or any preferred stock ranking junior
to the Series P Preferred Stock while the Series P Preferred Stock remains
outstanding.
Conversion. The Series P Preferred Stock is convertible, at the holder's
option, into shares of common stock. The shares of Series P Preferred Stock
will automatically be converted into shares of common stock on January 26,
2003, subject to delay for specified events. The conversion price for the
Series P Preferred Stock is equal to the lesser of the lowest five consecutive
day average closing price of our common stock on Nasdaq during the 22-day
period prior to conversion, and $12.04. We are registering in the registration
statement of which this prospectus is a part 5,625,000 shares of common stock.
Based on the conversion price of our common stock on November 1, 2000 ($0.45),
assuming receipt of stockholder approval, the Series P Preferred Stock would be
convertible into approximately 34,596,496 shares of common stock. If we issued
such maximum number of shares upon conversion of the Series P Preferred Stock
on November 1, 2000 it would have represented 35.1% of our outstanding common
stock on that date.
The following table shows the number of shares of common stock issuable
upon conversion of the Series P Preferred Stock and the percentage of our
common stock it would have represented on November 1, 2000 for the following
conversion prices:
<TABLE>
<CAPTION>
CONVERSION SHARES % OF
PRICE ISSUABLE SHARES O/S
-------------- ------------ -----------
<S> <C> <C>
$ 1.00 15,575,000 15.8%
$ 1.50 10,384,000 10.5%
$ 2.75 5,664,000 5.7%
$ 5.00 3,115,000 3.2%
$ 8.00 1,947,000 2.0%
$ 12.04 1,294,000 1.3%
</TABLE>
We can force a conversion of the Series P Preferred Stock on any trading
day following a period in which the closing bid price of our common stock has
been greater than $24.08 for a period of at least 35 trading days after the
earlier of (1) the first anniversary of the date the common stock issuable upon
conversion of the Series P Preferred Stock and warrants is
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registered for resale, and (2) the completion of a firm commitment underwritten
public offering with gross proceeds to us of at least $45 million.
The Series P Preferred Stock (together with the Series Q Preferred Stock
and related warrants) is convertible into a maximum of 7,157,063 shares of
common stock, unless we obtain stockholder approval of the issuance of more
shares. No holder may convert the Series P Preferred Stock or exercise the
warrants it owns for any shares of common stock that would cause it to own
following such conversion or exercise in excess of 4.9% of the shares of our
common stock then outstanding. In order for the holder to convert into or
exercise for additional shares, it will have to sell or otherwise dispose of
shares of common stock it already owns or wait for the number of shares that
are outstanding to increase.
Redemption. We may be required to redeem the Series P Preferred Stock in
the following circumstances:
o if we fail to timely file all reports required to be filed with the
SEC in order to become eligible and maintain our eligibility for the
use of SEC Form S-3;
o if we fail to register the shares of common stock issuable upon
conversion of the Series P Preferred Stock and associated warrants
with the SEC by July 15, 2000;
o if we fail to timely honor conversions of the Series P Preferred
Stock;
o if we fail to use our best efforts to maintain at least 6,000,000
shares of common stock reserved for the issuance upon conversion of
the Series P Preferred Stock and associated warrants;
o if we fail to issue irrevocable instructions to our transfer agent to
issue common stock certificates for conversion shares and warrant
shares;
o if we or any of our subsidiaries make an assignment for the benefit of
creditors or become involved in bankruptcy, insolvency,
reorganization or liquidation proceedings;
o if we merge out of existence without the surviving company assuming
the obligations relating to the Series P Preferred Stock;
o if our common stock is no longer listed on the Nasdaq National Market,
which is where our common stock is listed at present or, if we cease
to be listed on the Nasdaq National Market, our common stock is not
alternatively listed on the Nasdaq SmallCap Market, the New York
Stock Exchange or the American Stock Exchange; or
o if the Series P Preferred Stock is no longer convertible into common
stock because it would result in an aggregate issuance (taken
together with the shares issued upon conversion of the Series Q
Preferred Stock and exercise of related warrants) of more than
7,157,063 shares of our common stock and we have not obtained
stockholder approval of a higher limit.
The holder of the Series P Preferred Stock has advised us in writing
that it has no present intention to exercise its right to demand redemption by
virtue of the second circumstance described above so long as the registration
statement of which this prospectus is a part is declared effective by October
15, 2000.
If the Series P Preferred Stock is redeemed under any of the first eight
circumstances described above, the redemption value will be equal to the
greater of
o 120% multiplied by the sum of (1) the stated value ($1,000 per share),
(2) 5% per annum and (3) any penalties in arrears or
o the sum of (1) the stated value plus (2) 5% per annum, divided by the
then effective conversion rate multiplied by the highest closing
price for our common stock during the period from the date of the
first occurrence of the mandatory redemption event until one day
prior to the mandatory redemption date.
If the Series P Preferred Stock is redeemed under the last circumstance
described above, the redemption value will be equal to $1,000 per share plus 5%
per annum.
SERIES Q PREFERRED STOCK. We issued 4,000 shares of Series Q Preferred
Stock in a private placement in March 2000. Under the terms of the Series Q
securities purchase agreement, we are obligated to issue 6,000 additional
shares of Series Q Preferred Stock under the same terms
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upon registration of the shares of common stock underlying 15,000 Series P
Preferred Stock and associated warrants to purchase 375,000 shares of common
stock and 10,000 Series Q Preferred Stock and associated warrants to purchase
250,000 shares of common stock.
Voting Rights. The holders of the Series Q Preferred Stock do not have
voting rights, unless otherwise provided by Delaware corporation law.
Liquidation Rights. Upon our dissolution, liquidation, or winding-up,
the holders of the Series Q Preferred Stock are entitled on a parity basis with
any preferred stock ranking on a parity with the Series Q Preferred Stock to a
liquidation preference over the common stock and any preferred stock ranking
junior to the Series Q Preferred Stock, but after all preferential amounts due
holders of any class of stock having a preference over the Series Q Preferred
Stock are paid in full, equal to the sum of $1,000 plus an annual interest rate
of 5% on the $1,000 for the period the Series Q Preferred Stock is outstanding
plus any default payments specified in the certificate of designations divided
by the number of shares of Series Q Preferred Stock then outstanding.
Dividends. The Series Q Preferred Stock does not bear any dividends. No
dividends may be granted on common stock or any preferred stock ranking junior
to the Series Q Preferred Stock while the Series Q Preferred Stock remains
outstanding.
Conversion. The Series Q Preferred Stock is convertible, at the holder's
option, into shares of common stock. The shares of Series Q Preferred Stock
will automatically be converted into shares of common stock on March 15, 2003,
subject to delay for specified events. The conversion price for the Series Q
Preferred Stock is equal to the lesser of the lowest five consecutive day
average closing price of our common stock on Nasdaq during the 22-day period
prior to conversion, and $12.04. We are registering in the registration
statement of which this prospectus is a part 3,750,000 shares of common stock
(including the shares issuable upon conversion of 6,000 shares of Series Q
Preferred Stock to be issued in the second closing). Based on the conversion
price of our common stock on November 1, 2000 ($0.45), assuming receipt of
stockholder approval, the Series Q Preferred Stock would be convertible into
approximately 22,823,950 shares of common stock. If we issued such maximum
number of shares upon conversion of the Series Q Preferred Stock on November 1,
2000 it would have represented 23.2% of our outstanding common stock on that
date.
The following table shows the number of shares of common stock issuable
upon conversion of the shares of the Series Q Preferred Stock and the
percentage of our outstanding stock it would have represented on November 1,
2000 for the following conversion prices:
<TABLE>
<CAPTION>
CONVERSION SHARES % OF
PRICE ISSUABLE SHARES O/S
-------------- ------------ -----------
<S> <C> <C>
$ 1.00 10,275,000 10.4%
$ 1.50 6,850,000 6.9%
$ 2.75 3,736,000 3.8%
$ 5.00 2,055,000 2.1%
$ 8.00 1,284,000 1.3%
$ 12.04 853,000 0.9%
</TABLE>
We can force a conversion of the Series Q Preferred Stock on any trading
day following a period in which the closing bid price of our common stock has
been greater than $24.08 for a period of at least 35 trading days after the
earlier of (1) the first anniversary of the date the common stock issuable upon
conversion of the Series Q Preferred Stock and warrants is registered for
resale, and (2) the completion of a firm commitment underwritten public
offering with gross proceeds to us of at least $45 million.
The Series Q Preferred Stock (together with the Series P Preferred Stock
and the related warrants) is convertible into a maximum of 7,157,063 shares of
common stock, unless we obtain stockholder approval of the issuance of more
shares. No holder may convert the Series Q Preferred Stock or exercise the
Series Q Warrants it owns for any shares of common stock that would cause it to
own following such conversion or exercise in excess of 4.9% of the shares of
our common stock then outstanding. In order for the holder to convert into or
exercise for additional shares, it will have to sell or otherwise dispose of
shares of common stock it already owns or wait for the number of shares that
are outstanding to increase.
Redemption. We may be required to redeem the Series Q Preferred Stock in
the following circumstances:
o if we fail to timely file all reports required to be filed with the
SEC in order to become eligible and maintain our eligibility for the
use of SEC Form S-3;
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o if we fail to register the shares of common stock issuable upon
conversion of the Series Q Preferred Stock and associated warrants
with the SEC by July 15, 2000;
o if we fail to timely honor conversions of the Series Q Preferred
Stock;
o if we fail to use our best efforts to maintain at least 4,000,000
shares of common stock reserved for the issuance upon conversion of
the Series Q Preferred Stock and associated warrants;
o if we fail to issue irrevocable instructions to our transfer agent to
issue common stock certificate for conversion shares and warrant
shares;
o if we or any of our subsidiaries make an assignment for the benefit of
creditors or become involved in bankruptcy, insolvency,
reorganization or liquidation proceedings;
o if we merge out of existence without the surviving company assuming
the obligations relating to the Series P Preferred Stock;
o if our common stock is no longer listed on the Nasdaq National Market,
which is where our common stock is listed at present or, if we cease
to be listed on the Nasdaq National Market, our common stock is not
alternatively listed on the Nasdaq SmallCap Market, the New York
Stock Exchange or the American Stock Exchange; or
o if the Series Q Preferred Stock is no longer convertible into common
stock because it would result in an aggregate issuance (taken
together with the shares issued upon conversion of the Series P
Preferred Stock and related warrants) of more than 7,157,063 shares
of our common stock and we have not obtained stockholder approval of
a higher limit.
The holder of the Series Q Preferred Stock has advised us in writing
that it has no present intention to exercise its right to demand redemption by
virtue of the second circumstance described above so long as the registration
statement of which this prospectus is a part is declared effective by October
15, 2000.
If the Series Q Preferred Stock is redeemed under any of the first eight
circumstances described above, the redemption value will be equal to the
greater of
o 120% multiplied by the sum of (1) the stated value ($1,000 per share),
(2) 5% per annum and (3) any penalties in arrears or
o the sum of (1) the stated value plus (2) 5% per annum, divided by the
then effective conversion rate multiplied by the highest closing
price for our common stock during the period from the date of the
first occurrence of the mandatory redemption event until one day
prior to the mandatory redemption date.
If the Series Q Preferred Stock is redeemed under the last circumstance
described above, the redemption value will be equal to $1,000 per share
multiplied by 5% per annum.
STOCKHOLDER APPROVAL OF ISSUANCE IN EXCESS OF EXISTING CAPS ON SERIES P
PREFERRED STOCK AND SERIES Q PREFERRED STOCK
The Series P Preferred Stock and Series Q Preferred Stock (together with
the related warrants) are convertible into a maximum of 7,157,063 shares of
common stock unless we obtain stockholder approval of the issuance of more
shares as described below.
The conversion of the Series P Preferred Stock and the Series Q
Preferred Stock and the exercise of the warrants associated with both the
Series P Preferred Stock and Series Q Preferred Stock may not result in the
issuance of 20% or more of our common stock pursuant to Nasdaq rules unless we
obtain stockholder approval, which is being sought at a meeting of our
stockholders on November 16, 2000. The number of shares of common stock that
are issuable upon conversion and exercise of such securities are capped in
order to comply with the Nasdaq rule. We may issue 20% or more of our common
stock upon conversion of the Series P Preferred Stock and Series Q Preferred
Stock and exercise of the related warrants if stockholders owning a majority of
our common stock present in person or represented by proxy and entitled to vote
at the stockholders meeting (based on issued and outstanding stock on September
26, 2000 (the record date)) approve that proposal as required by Nasdaq.
We have included an aggregate of 10,000,000 shares of common stock on
the registration statement of which this propsectus is a part,
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which reflects a good faith estimate of the number of shares of common stock
that will be issuable upon conversion of the Series P Preferred Stock, the
Series Q Preferred Stock and the related warrants, which assumes that we will
receive stockholder approval of the issuance of 20% or more of our common stock
at our 2000 annual meeting. If we fail to receive such stockholder approval, we
will have registered more shares of common stock than will actually be issued
and we will have to redeem the excess shares of Series P Preferred Stock and
Series Q Preferred Stock.
WARRANTS
As of November 1, 2000, there are warrants to purchase an aggregate of
10,949,000 shares of common stock outstanding, all of which are being
registered pursuant to the registration statement of which this prospectus is a
part. Assuming all of the shares covered by the registration statement of which
this prospectus is a part are sold, there will be no shares subject to warrants
outstanding. The following descriptions of warrants issued by us pertains only
to warrants that have not been exercised as of November 1, 2000.
NEW IDX WARRANTS. As part of the consideration paid to the former
stockholders of IDX in the December 1998 merger, we issued warrants to purchase
up to 2,500,000 shares of our common stock, subject to adjustment. In July 1999
we reacquired the original IDX warrants in exchange for new warrants to acquire
up to 1,250,000 shares of our common stock. In December 1999 we agreed to
reduce the common stock issuable upon exercise of the warrants to 1,087,500,
subject to adjustment as described below, in return for extension of the
earn-out period. The new IDX warrants are exercisable only to the extent that
IDX (which is managed by former IDX executives for the earn-out period)
achieves certain revenue, EBITDA and traffic minutes goals over the three
months ending September 30, 2000 or December 31, 2000.
In March 1999 we issued additional warrants to purchase 43,173 shares of
our common stock to the former IDX stockholders in payment of the first
convertible subordinated promissory note in the original principal amount of
$1,000,000 issued in connection with our acquisition of IDX. Such warrants are
exercisable immediately and expire on March 23, 2002.
SERIES D WARRANTS. In connection with the closing of the Series D
Preferred Stock in January 1999, we issued warrants to purchase 112,500 shares
of our common stock, with an exercise price of $.01 per share to Vintage
(collectively, the "Series D Warrants"). The Series D Warrants are exercisable
for three years beginning March 13, 1999. The Series D Warrants provide for
adjustments to the exercise price and number of shares to be issued in the
event of certain dividends and distributions to holders of our common stock,
stock splits, combinations and mergers.
In addition, we agreed to issue additional warrants to purchase the
number of shares of our common stock equal to $250,000 (based on the market
price of our common stock on the last trading day prior to July 1, 2000) or pay
$250,000 in cash, if we do not achieve, in the fiscal quarter commencing July
1, 2000, an aggregate amount of gross revenues equal to or in excess of 200% of
the aggregate amount of gross revenues achieved by us in the fiscal quarter
ended December 31, 1998.
SERIES E WARRANTS. In connection with the issuance of the Series E
Preferred Stock in February 1999, we issued warrants to purchase 723,000 shares
of our common stock with an exercise price of $2.125 per share and 277,000
shares of our common stock with an exercise price of $.01 per share (the
"Series E Warrants"). The Series E Warrants are exercisable for three years
beginning April 17, 1999. The Series E Warrants provide for adjustments to the
exercise price and number of shares to be issued in the event of certain
dividends and distributions to holders of our common stock, stock splits,
combinations and mergers.
OASIS WARRANTS. In connection with our acquisition of control of ORS, we
contributed warrants to purchase additional shares of our common stock to the
eGlobe/Oasis Reservations LLC as follows:
o (i) shares equal to the difference between $3 million and the value of
our 1.5 million share contribution on the date that the shares of
common stock (including the shares underlying the warrants)
contributed to eGlobe/Oasis Reservations LLC are registered with the
SEC (if the value of the 1.5 million shares on that date is less than
$3 million); and (ii) shares
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equal to $100,000 of our common stock for each 30-day period beyond
90 days following the closing date (December 14, 1999) that the
shares of common stock (including the shares underlying the warrants)
contributed to eGlobe/Oasis Reservations LLC remain unregistered;
o 204,909 shares valued at $2.0 million became exercisable January 31,
2000 based on ORS meeting certain defined performance objectives;
o additional shares based upon ORS achieving revenue and EBITDA targets,
and the market price of our common stock at the date of registration
of the shares contributed. Under certain circumstances, these shares
may be equal to the greater of 50% of the incremental revenue for the
Second Measurement Period (as defined in the agreements) over
$9,000,000 or four times the incremental Adjusted EBITDA (as defined
in the agreements) for the Second Measurement Period over $1,000,000
provided, however, that such number of shares shall not exceed the
greater of (x) 1,000,000 shares or (y) that number of shares
determined by dividing $8,000,000 by the Second Measurement Date
Market Value (as defined in the agreements); and provided further,
that if the basis for the issuance of such shares is incremental
revenue over $9,000,000 then EBITDA for the Second Measurement Period
must be at least $1,000,000 for revenue between $9,000,000 and
$12,000,000 or at least $1,500,000 million for revenue above
$12,000,000. Additionally eGlobe/Oasis Reservations LLC may receive
500,000 shares of our common stock if the revenue for the Second
Measurement Period is equal to or greater than $37,000,000 and the
Adjusted EBITDA for the Second Measurement Period is equal to or
greater than $5,000,000. The measurement periods for determining the
number of shares issuable under this warrant have not yet expired.
Depending upon the number, if any, of shares issuable under this
warrant, the purchase amount and goodwill may increase.
On May 12, 2000, Oasis exercised its option under the eGlobe/Oasis
Reservations LLC operating agreement to exchange its interest in eGlobe/Oasis
Reservations LLC and exercise the shares of common stock and warrants
contributed to eGlobe/Oasis Reservations LLC by us.
SERIES N WARRANTS. In connection with the private placement of the
Series N Preferred Stock, we issued
o warrants to purchase 46,588 shares of our common stock with an
exercise price of $3.00 per share and 175,220 shares of our common
stock with an exercise price of $5.00 per share in October 1999,
o warrants to purchase 82,827 shares of our common stock with an
exercise price of $5.00 per share in November 1999,
o warrants to purchase 46,618 shares of our common stock with an
exercise price of $7.50 per share in January 2000 and
o warrants to purchase 200,000 shares of our common stock with an
exercise price of $7.50 per share in February 2000 (collectively, the
"Series N Warrants").
The Series N Warrants will be exercisable for three years beginning the date of
issuance of the warrants.
SERIES P WARRANTS. In connection with the private placement of the
Series P Preferred Stock in January 2000, we issued warrants to purchase
375,000 shares of our common stock with a per share exercise price equal to
$12.04, subject to adjustment for issuances of shares of our common stock below
market price. The warrants are exercisable for 5 years beginning January 27,
2000. We are registering such shares on the registration statement of which
this prospectus is a part.
SERIES Q WARRANTS. In connection with the private placement of the
Series Q Preferred Stock in March 2000, we issued warrants to purchase 100,000
shares of our common stock with a per share exercise price equal to $12.04,
subject to adjustment for issuances of shares of our common stock below market
price. The warrants are exercisable for 5 years beginning March 17, 2000. Under
the terms of the Series Q securities purchase agreement, we are obligated to
issue additional warrants to purchase an additional 150,000 shares of our
common stock according to the same terms upon effectiveness of the registration
statement of which this prospectus is a part.We are registering such shares on
the registration statement of which this prospectus is a part.
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BROOKSHIRE WARRANTS. In connection with services provided in connection
with our acquisition of Connectsoft in June 1999, we granted Brookshire
Securities warrants to purchase 2,500 shares of our common stock at an exercise
price of $2.00 per share. Such warrants are exercisable immediately and expire
on September 1, 2003.
UCI WARRANTS. In connection with our acquisition of UCI in December 1998
we granted United Communications International, LLC warrants to purchase 50,000
shares of our common stock at an exercise price of $1.63 per share. Such
warrants are exercisable immediately and expire on December 31, 2003.
GKM WARRANTS. In exchange for services provided in connection with
certain issuances of preferred stock and assistance relating to mergers and
acquisitions, we granted Gerard Klauer Mattison & Co., Inc. warrants to
purchase 400,000 shares of our common stock in December 1999 at an exercise
price of $1.50 per share, which are exercisable immediately and expire on
December 1, 2004.
VANE WARRANTS. In exchange for marketing services, we granted Penny Vane
warrants to purchase 8,250 shares of our common stock at an exercise price of
$.01 per share in February 2000. Such warrants are exercisable immediately and
expire on April 19, 2003.
SONI WARRANTS. In connection with a loan, we granted warrants to
purchase an aggregate of 60,000 shares of our common stock to Dr. Joginder
Soni. We granted Dr. Soni:
o warrants to purchase 25,000 shares of our common stock on September 1,
1998 at an exercise price of $2.82 per share, which are exercisable
immediately and expire on September 1, 2003;
o warrants to purchase 25,000 shares of our common stock on July 14,
1999 at an exercise price of $2.82 per share, which are exercisable
immediately and expire on September 1, 2003; and
o warrants to purchase 10,000 shares of our common stock on December 16,
1999 at an exercise price of $2.8125 per share, which are exercisable
immediately and expire on December 31, 2002.
EXECUTIVE LENDING WARRANTS. In connection with a loan, we granted
Executive Lending LLC warrants to purchase 10,000 shares of our common stock at
an exercise price of $2.18 on April 20, 1999. Such warrants became exercisable
five days after their issuance and expire on April 15, 2001.
WOLFE AXELROD WEINBERGER WARRANTS. In connection with investor relation
services provided beginning in May 2000, we granted Wolfe Axelrod Weinberger
Associates warrants to purchase 100,000 shares of our common stock at an
exercise price of $3.50 per share on May 20, 2000. Of the total warrants,
75,000 are not exercisable for six months. The remaining warrants are
exercisable immediately and expire on May 20, 2005.
GORDON WARRANTS. In connection with certain loans, we granted Seymour
Gordon and certain of his affiliates warrants to purchase 442,000 shares of our
common stock. We granted Seymour Gordon:
o warrants to purchase 55,000 shares of our common stock at an exercise
price of $1.5125 per share which became exercisable on January 31,
1999 and expire on January 31, 2002;
o warrants to purchase 40,000 shares of our common stock at an exercise
price of $1.60 per share on March 31, 1999, which are exercisable
immediately and expire on March 31, 2004;
o warrants to purchase 40,000 shares of our common stock at an exercise
price of $1.00 per share on March 31, 1999, which are exercisable
immediately and expire on March 31, 2004; and
o warrants to purchase 60,000 shares of our common stock at an exercise
price of $1.00 per share on August 25, 1999, which are exercisable
immediately and expire on August 25, 2004,
and we granted Seymour Gordon's three children, Nancy Lewis, Peter Gordon and
Robert Gordon:
o warrants to purchase 22,334, 22,333, and 22,333 shares of our common
stock, respectively, at an exercise price of $1.5125 per share which
became exercisable on January 31, 1999 and expire on January 31,
2002; and
o warrants to purchase 60,000, 60,000, and 60,000 shares of our common
stock, respectively, at an exercise price of $1.00
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<PAGE>
per share on May 23, 2000, which are exercisable immediately and
expire on May 23, 2005.
KATZ WARRANTS. In connection with the cancellation of certain options to
acquire equity interests in a wholly owned subsidiary of eGlobe, we granted
Howard Katz warrants to purchase 400,000 shares of our common stock at an
exercise price of $2.25 per share, which are exercisable immediately and expire
on May 22, 2003.
TOWER HILL WARRANTS. In connection with a sale of our common stock on
August 25, 2000, we granted Tower Hill Investments Limited warrants to purchase
160,714 shares of our common stock at an exercise price of $1.40 per share,
which are exercisable immediately and expire on August 24, 2005.
EXTL - SPECIAL INVESTMENT RISKS WARRANTS. In connection with the
amendment of a loan, we issued EXTL - Special Investment Risks, LLC warrants to
purchase 1,000,000 shares of our common stock at an exercise price of $1.94 per
share, which are exercisable immediately and expire on July 1, 2004.
OTHER WARRANTS. In connection with certain bridge loans and various
other transactions, as of November 1, 2000 we have issued warrants to purchase
4,841,201 shares of our common stock with exercise prices ranging from $.01 to
$7.50 per share. These warrants are exercisable for periods ending between July
6, 2000 and February 18, 2007.
OPTIONS
STRATEGIC GROWTH OPTIONS. In connection with consulting services
provided between November 1996 and May 1998, we granted Strategic Growth
options to purchase 318,000 shares of our common stock, of which options to
purchase 238,800 shares of our common stock were issued on November 22, 1996 at
an exercise price of $6.875 and options to purchase 79,200 shares of our common
stock were issued on May 23, 1997 at an exercise price of $6.983. Options to
purchase 26,600 shares of our common stock became exercisable each month for
six months beginning November 22, 1996 and options to purchase 13,200 shares of
our common stock became exercisable each month for twelve months beginning on
May 22, 1997.
OTHER OPTIONS. As of November 1, 2000 we have currently outstanding
options granted to employees and directors to purchase 5,387,137 shares of
common stock, of which 1,914,625 are exercisable as of November 1, 2000.
CERTAIN CHARTER AND STATUTORY PROVISIONS
The Restated Charter provides that any action required or permitted to
be taken by our stockholders must be effected at a duly called annual or
special meeting of stockholders and may not be taken or effected by a written
consent of stockholders in lieu thereof.
Under Section 145 of the Delaware Corporation Law, a corporation may
indemnify its directors, officers, employees and agents and its former
directors, officers, employees and agents and those who serve, at the
corporation's request, in such capacities with another enterprise, against
expenses (including attorneys' fees), as well as judgments, fines and
settlements in non derivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The Delaware
Corporation Law provides, however, that such person must have acted in good
faith and in a manner such person reasonably believed to be in (or not) the
best interests of the corporation and, in the case of a criminal action, such
person must have had no reasonable cause to believe his or her conduct was
unlawful. In addition, the Delaware Corporation Law does not permit
indemnification in an action or suit by or in the right of the corporation,
where such person has been adjudged liable to the corporation, unless, and only
to the extent that, a court determines that such person fairly and reasonably
is entitled to indemnity for costs the court deems proper in light of liability
adjudication. Indemnity is mandatory to the extent a claim, issue or matter has
been successfully defended. Our Restated Charter contains provisions that
provide that none of our directors shall be liable for breach of fiduciary duty
as a director except for
o any breach of the director's duty of loyalty to us or our
stockholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law;
o liability under Section 174 of the Delaware Corporation Law; or
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o any transaction from which the director derived an improper personal
benefit. Our Restated Certificate of Incorporation and our Bylaws
contain provisions that further provide for the indemnification of
directors and officers to the fullest extent permitted by the
Delaware Corporation Law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforcable.
We are subject to the provisions of Section 203 of the Delaware
Corporation Law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless
o prior to such date, the board approved either the business combination
or the transaction that resulted in the stockholder becoming an
interested stockholder,
o upon consummation of the transaction that resulted in such person
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at
the time the transaction commenced (excluding, for purposes of
determining the number of shares outstanding, shares owned by certain
directors or certain employee stock plans), or
o on or after the date the stockholder became an interested stockholder,
the business combination is approved by the Board of Directors and
authorized by the affirmative vote (and not by written consent) of at
least two-thirds of the outstanding voting stock excluding that stock
owned by the interested stockholder.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who (other than the corporation and any direct or
indirect majority-owned subsidiary of the corporation), together with
affiliates and associates, owns (or, as an affiliate or associate, within three
years prior, did own) 15% or more of the corporation's outstanding voting
stock.
In addition, our Restated Certificate prohibits the acquisition by any
person of more than 30% of the outstanding common stock or 40% of the common
stock outstanding on a fully diluted basis (as defined) except through a
"qualifying offer." If these limits are exceeded, in addition to our right to
pursue an injunction, the excess shares would not have voting rights and would
be subject to redemption on specified terms.
The term "qualifying offer" would mean any fully financed, all-cash
tender offer to purchase all of the outstanding shares of common stock, that is
subject to no condition other than the tender to the offeror of at least 85% of
the fully diluted shares of common stock and certain technical conditions.
The term "fully diluted basis" would refer to the total number of shares
of common stock outstanding assuming
o the conversion of all then outstanding convertible securities
(including preferred stock) where no price must be paid for
conversion or the price, if any, is less than the then market price
of our common stock,
o the exercise of any options, warrants or similar rights to acquire
common stock or other securities of eGlobe where the exercise price
is less than the then market price of our common stock, and
o the issuance of all securities (and the conversion of any convertible
securities or exercise of options or warrants in accordance with the
previous two bulleted items) which are subject to achievement of
performance criteria under a contract, the terms of preferred stock
or warrants, or other valid and binding arrangement.
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<PAGE>
SELLING STOCKHOLDERS
This prospectus relates to the possible offer and sale from time to time
of up to 99,143,825 shares of our common stock by various selling stockholders.
Certain selling stockholders have agreed not to directly or indirectly offer,
sell, offer to sell, contract to sell, or otherwise dispose of any shares of
common stock for a period of at least 180 days and up to one year beginning on
May 26, 2000. This lockup provision applies to common stock and to securities
convertible into or exercisable for common stock. Certain selling stockholders
are considered insiders, including employees and directors. Insiders who are
privy to information about us which would be important to an investor in
deciding whether to buy, sell or hold our securities, but has not been
disclosed by us to the investment public, are subject, based on company policy,
to limitations on buying and selling our securities. Shares owned by such
insiders may be sold in accordance with such company policy only during
specific intervals when all material information has been disclosed to the
public.
This prospectus relates to the possible offer and sale of 99,143,825
shares of common stock, but:
27,966,754 shares are subject to contractual restrictions on sale and
38,538,750 shares are subject to company policy restrictions on sale.
Accordingly, 32,638,321 shares will be available for offer and sale without
restriction.
The selling stockholders, each of whom purchased securities from us in
the ordinary course of business and none of whom, at the time of such purchase,
had any agreements or understandings, directly or indirectly, with any person
to distribute the securities, include:
o Former stockholders of IDX, who received Series H Preferred Stock,
Series I Preferred Stock and warrants to purchase common stock from
us in our acquisition of IDX in December 1998 and an exchange in
July 1999 (renegotiated in December 1999) and common stock and
warrants to purchase common stock upon conversion of certain
promissory notes;
o EXTL - Special Investment Risks, LLC and certain of its affiliates,
which received shares of Series C Preferred Stock in December 1999,
Series E Preferred Stock and warrants to purchase common stock in
February 1999, warrants to purchase common stock in April and June
1999, shares of Series J Preferred Stock in November 1999 and
warrants to purchase common stock in September 2000 principally
arising from investments in and loans to us;
o Vintage Products Ltd., which received Series D Preferred Stock and
warrants to purchase common stock from us in January and June 1999
arising from investments in us;
o United Communications International LLC, the former stockholder of UCI
Tele Networks, Ltd., which received common stock and promissory
notes from us in our acquisition of UCI in December 1998;
o Seymour Gordon and certain of his affiliates, who received common
stock and warrants to purchase common stock in connection with
certain loans in June 1998, received common stock and warrants to
purchase common stock as repayment of a certain loan in March 1999,
purchased common stock from us in a private sale in August 1999 and
received common stock and warrants to purchase common stock upon
conversion of a certain loan in April 2000;
o Affiliates of Connectsoft, which received Series K Preferred Stock
from us in connection with our acquisition of certain assets and
liabilities of Connectsoft in June 1999 and an exchange in
September 1999;
o Fleming Fogtmann, one of our former employees who received common
stock in connection with the settlement of certain claims in June
1999;
o Gerard Klauer Mattison & Co, which received warrants to purchase
common stock from us in connection with investment banking services
provided in January and February 1999 and as a retainer for
services to be provided between December 1999 and June 2000;
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<PAGE>
o Outsourced Automated Services, the former stockholder of ORS, or its
affiliate, which received common stock and warrants to purchase
common stock from us on May 12, 2000;
o Highpoint Telecommunications, Inc., the former stockholder of iGlobe,
which received Series M Preferred Stock from us in our acquisition
of iGlobe in October 1999;
o Certain investors, who received Series N Preferred Stock and warrants
to purchase common stock from us in October, November, and December
1999 and January and February 2000 arising from investments in us;
o Former stockholders of Coast, who received Series O Preferred Stock
and common stock from us in our acquisition of Coast in December
1999;
o Swiftcall Holdings (USA), Ltd., the former stockholder of Swiftcall,
which received common stock from us in our acquisition of Swiftcall
in July 1999;
o IDT Corporation, which received warrants to purchase common stock from
us in connection with a certain loan in February 1998;
o Executive Lending LLC, which received warrants to purchase common
stock from us in connection with a certain loan in December 1998;
o Strategic Growth, which received options to purchase common stock from
us in connection with consulting services provided between November
1996 and May 1998;
o RGC International Investors, LDC, which received Series P Preferred
Stock and warrants to purchase common stock from us in January 2000
and Series Q Preferred Stock and warrants to purchase common stock
from us in March 2000 arising from investments in us;
o Former stockholders of Trans Global, who received common stock from us
in our acquisition of Trans Global in March 2000;
o Dr. Joginder Soni, who received warrants to purchase common stock from
us in connection with a certain loan in September 1998;
o Penny Vane, who received warrants to purchase common stock from us
pursuant to an agreement to provide marketing services in February
1999;
o Certain of our employees, who purchased stock from us in December 1999
upon exercise of options;
o David Skriloff, who purchased shares of common stock in connection
with his hire in January 2000;
o Brookshire, which received common stock from us in connection with
services provided in our acquisition of Connectsoft in June 1999;
o Network Data Systems, which received warrants to purchase common stock
from us in connection with loans entered into in June 1996, April
1997 and August 1997;
o eGlobe No. 1 LLC, which intends to use shares of our common stock to
secure various equipment lease and loan arrangements that it may
enter into in the future;
o Wolfe Axelrod Weinberger, which received warrants to purchase common
stock from us in connection with investor relation services
provided beginning in May 2000;
o TI Partners, Inc., which received shares of common stock from us in
connection with sales and marketing services provided in Europe in
2000;
o Tower Hill Investments Limited, which received shares of common stock
and warrants to purchase common stock in a private placement in
August 2000; and
o Hao Li Lin, who received shares of common stock in connection with the
acquisition of Essiciency International Development Co., Ltd.
(Orlida) by our subsidiary IDX in 1998.
We are registering the shares under the Securities Act in accordance with
registration rights we granted to the selling stockholders when we conducted
these transactions. Our registration of the shares does not necessarily mean
that any selling stockholder will sell all or any of his shares.
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The following table sets forth certain information with respect to the
selling stockholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING OWNED AFTER OFFERING
------------------------- --------------------
NAME OF OWNER NUMBER PERCENTAGE SHARES OFFERED NUMBER PERCENTAGE
------------------------------------------------------------- ------------ ------------ ---------------- -------- -----------
<S> <C> <C> <C> <C> <C>
SHARES AVAILABLE FOR OFFER AND SALE WITHOUT RESTRICTION
Former IDX Stockholders (1)
Chadwick Investment, Ltd ................................... (See Shares Subject to Contractual Restrictions on Sale)
Tenrich Holdings Limited ................................... (See Shares Subject to Company Policy Restrictions on Sale)
Jeffey Gee ................................................. (See Shares Subject to Company Policy Restrictions on Sale)
HILK International Inc. .................................... 147,241 + 178,613 0 +
Dr. Yi-Shang Shen .......................................... 307,705 + 346,923 0 +
Dr. Michael Muntner ........................................ 184,624 + 208,156 0 +
Trylon Partners, Inc. ...................................... 325,705 + 364,923 0 +
Dr. Orville Greynolds ...................................... 123,078 + 138,766 0 +
Teknos Comunicaciones, S.A. ................................ 123,078 + 138,766 0 +
Telecommunications Development Corporation II, LDC ......... 548,511 666,590 0 +
Cheng Li-Yun Chang ......................................... 165,227 + 185,211 0 +
Silicon Application (B.V.I.) Corp. ......................... 99,702 + 111,691 0 +
Chih Hsian Chang ........................................... 99,702 + 111,691 0 +
Ming Yang Chang ............................................ 65,525 + 73,518 0 +
Kou Yuan Chen .............................................. 65,525 + 73,518 0 +
Tien Fu Jane ............................................... 46,401 + 52,397 0 +
Chuang Su Chen ............................................. 34,478 + 38,474 0 +
Hao Li Lin ................................................. 18,812 + 20,810 0 +
Flextech Holdings Limited .................................. 32,600 + 36,576 0 +
EXTL - Special Investment Risks, LLC Affiliates (2)
EXTL - Special Investment Risks, LLC ....................... (See Shares Subject to Contractual Restrictions on Sale)
Julie J. Jensen ............................................ 100,000 + 100,000 0 +
Jeffrey J. Jensen .......................................... 100,000 + 100,000 0 +
James J. Jensen ............................................ 100,000 + 100,000 0 +
Jami J. Jensen ............................................. 100,000 + 100,000 0 +
Janet J. Jensen ............................................ 100,000 + 100,000 0 +
Vintage Products Limited (3) ................................ 1,741,923 1.6 1,741,923 0 +
United Communications International LLC (4) ................. 125,000 + 125,000 0 +
James Critedes ............................................. 16,666 + 16,666 0 +
Christos Mouroutis ......................................... 16,666 + 16,666 0 +
Adamos Cidamidis ........................................... 16,668 + 16,668 0 +
Gordon Affiliates (5)
Seymour Gordon ............................................. (See Shares Subject to Company Policy Restrictions on Sale)
Nancy Lewis ................................................ 82,334 + 82,334 0 +
Robert Gordon .............................................. 82,333 + 82,333 0 +
Peter Gordon ............................................... 82,333 + 82,333 0 +
Connectsoft Affiliates (6)
American United Global, Inc. ............................... 1,923,077 2.0 1,923,077 0 +
Howard Katz ................................................ 400,000 + 400,000 0 +
Fleming Fogtmann (7) ........................................ 54,473 + 54,473 0 +
Gerard Klauer Mattison & Co., Inc. (8) ...................... 816,595 + 816,595 0 +
Oasis Affiliate (9)
Eastern Airlines, Inc. ..................................... 1,995,818 2.1 2,260,281 0 +
Highpoint Telecommunications, Inc. (10) ..................... (See Shares Subject to Contractual Restrictions on Sale)
Series N Preferred Stockholders (11)
David Skriloff ............................................. (See Shares Subject to Company Policy Restrictions on Sale)
Steven Chrust .............................................. 117,647 + 152,941 0 +
Noel and Pamela Kimmel ..................................... 14,118 + 18,353 0 +
Doreen Davidson ............................................ 23,529 + 30,588 0 +
Simon Strauss .............................................. 11,717 + 15,232 0 +
Safetynet Limited .......................................... 363,636 + 472,727 0 +
Brad Harries ............................................... 2,424 + 3,151 0 +
Empire CM .................................................. 147,248 + 191,422 0 +
Empire CP .................................................. 128,841 + 167,494 0 +
John Dyett ................................................. 9,203 + 11,964 0 +
Steve Prough ............................................... 7,114 + 9,248 0 +
Schow Family Trust ......................................... 148,280 + 192,764 0 +
</TABLE>
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<TABLE>
<CAPTION>
Former Coast Stockholders (12)
(See Shares Subject to Contractual
Ronald Jensen .................................................. Restrictions on Sale)
<S> <C> <C> <C> <C> <C>
Bijan Moaveni ................................................. (See Shares Subject to Company Policy
Restrictions on Sale)
Jose Valdez ................................................... 94,938 + 94,938 0 +
Swiftcall Holdings (USA), Ltd. (13) ............................ 971,621 + 971,621 0 +
IDT Corporation (14) ........................................... 500,000 + 500,000 0 +
Executive Lending LLC (15) ..................................... 10,000 + 10,000 0 +
Strategic Growth (16) .......................................... 318,000 + 318,000 0 +
RGC International Investors, LDC (17) .......................... 10,000,000 9.5 10,000,000 0 +
Former Trans Global Stockholders (18) ..........................
Gary Gumowitz ................................................. (See Shares Subject to Company Policy
Restrictions on Sale)
Arnold Gumowitz ............................................... (See Shares Subject to Company Policy
Restrictions on Sale)
John Hughes ................................................... (See Shares Subject to Company Policy
Restrictions on Sale)
Jonathan Lynn ................................................. (See Shares Subject to Company Policy
Restrictions on Sale)
Milton Gumowitz ............................................... (See Shares Subject to Company Policy
Restrictions on Sale)
Rich Patton ................................................... (See Shares Subject to Company Policy
Restrictions on Sale)
Joan Matthews ................................................. 2,000,000 2.1 2,000,000 0 +
Stephen Levy .................................................. 2,000,000 2.1 2,000,000 0 +
Grayson Family Trust .......................................... 2,000,000 2.1 2,000,000 0 +
Michael Gumowitz .............................................. 500,000 + 500,000 0 +
Jonathan Gumowitz ............................................. 500,000 + 500,000 0 +
Dr. Joginder Soni (19) ......................................... 60,000 + 60,000 0 +
Penny Vane (20) ................................................ 8,250 + 8,250 0 +
eGlobe Employees (21) ..........................................
Jeffey Gee .................................................... (See Shares Subject to Company Policy
Restrictions on Sale)
Anne Haas ..................................................... (See Shares Subject to Company Policy
Restrictions on Sale)
Allen Mandel .................................................. (See Shares Subject to Company Policy
Restrictions on Sale)
Ronald Fried .................................................. (See Shares Subject to Company Policy
Restrictions on Sale)
John Hammer ................................................... (See Shares Subject to Company Policy
Restrictions on Sale)
Christopher J. Vizas .......................................... (See Shares Subject to Company Policy
Restrictions on Sale)
George Schaad ................................................. (See Shares Subject to Company Policy
Restrictions on Sale)
David Skriloff (22) ............................................ (See Shares Subject to Company Policy
Restrictions on Sale)
Brookshire Securities (23) ..................................... 2,500 + 2,500 0 +
Network Data Systems (24) ...................................... 50,000 + 50,000 0 +
eGlobe No. 1 LLC (25) .......................................... (See Shares Subject to Contractual
Restrictions on Sale)
Wolfe Axelrod Weinberger Associates (26) ....................... 100,000 + 100,000 0 +
TI Partners, Inc. (27) ......................................... 10,013 + 10,013 0 +
Tower Hill Investments Limited (28) ............................ 1,232,143 + 1,232,143 0 +
Hao Li Lin (29) ................................................ 150,000 + 150,000 0 +
Total Shares for Offer and Sale Without Restriction ........... 31,723,022 30.58 32,638,321 0 +
SHARES SUBJECT TO CONTRACTUAL RESTRICTIONS ON SALE *
Chadwick Investment, Ltd (1) .................................. 2,714,051 2.4 3,153,294 0 +
EXTL - Special Investment Risks, LLC (2) ...................... 12,050,377 15.2 13,717,043 0 +
Highpoint Telecommunications, Inc. (10) ....................... 3,773,584 4.0 3,773,584 0 +
Ronald Jensen (12) ............................................ 3,322,833 3.0 3,322,833 0 +
eGlobe No. 1 LLC (25) ......................................... 4,000,000 4.2 4,000,000 0 +
Totals Shares Subject to Contractual Restrictions on Sale ..... 25,860,845 25.83 27,966,754 0 +
</TABLE>
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<TABLE>
<CAPTION>
SHARES SUBJECT TO COMPANY POLICY RESTRICTIONS ON SALE **
Tenrich Holdings Limited (1) .................................. 1,755,235 1.6 1,970,347 0 +
<S> <C> <C> <C> <C> <C>
Jeffey J. Gee (1)(21) ........................................ 671,900 + 750,086 0 +
Seymour Gordon (5) ........................................... 1,061,027 1.0 1,061,027 0 +
David Skriloff (11) (22) ..................................... 50,061 + 54,278 0 +
Bijan Moaveni (12) ........................................... 1,329,134 1.2 1,329,134 0 +
Gary Gumowitz (18) ........................................... 14,000,000 14.7 14,000,000 0 +
Arnold Gumowitz (18) ......................................... 11,200,000 11.8 11,200,000 0 +
John Hughes (18) ............................................. 4,000,000 4.2 4,000,000 0 +
Jonathan Lynn (18) ........................................... 2,000,000 2.1 2,000,000 0 +
Milton Gumowitz (18) ......................................... 1,000,000 1.1 1,000,000 0 +
Rich Patton (18) ............................................. 800,000 + 800,000 0 +
Anne Haas (21) ............................................... 20,000 + 20,000 0 +
Allen Mandel (21) ............................................ 25,000 + 25,000 0 +
Ronald Fried (21) ............................................ 56,250 + 56,250 0 +
John Hammer (21) ............................................. 15,000 + 15,000 0 +
Christopher J. Vizas (21) .................................... 239,628 + 239,628 0 +
George Schaad (21) ........................................... 18,000 + 18,000 0 +
Total Shares Subject to Company Restrictions on Sale ......... 38,241,235 38,538,750 0 +
</TABLE>
----------
* The following security holders, except for Highpoint Telecommunications,
have agreed not to directly or indirectly offer, sell, offer to sell,
contract to sell, or otherwise dispose of any shares of common stock,
including the shares listed above, beneficially owned by them for a period
of at least 180 days and up to one year beginning on May 26, 2000. The
shares owned by Highpoint Telecommunications are subject to our repurchase
under certain circumstances until October 31, 2000.
** The following security holders are insiders, including employees and
directors, who are privy to information about us which would be important
to an investor in deciding whether to buy, sell or hold our securities,
but has not been disclosed by us to the investment public, are subject,
based on company policy, to limitations on buying and selling our
securities. Accordingly, shares owned by such insiders may be sold in
accordance with such company policy only during specific intervals when
all material information has been disclosed to the investment public.
+ Less than one percent.
(1) Except for 56,250 shares owned and offered by Jeffey Gee, which are
discussed in footnote (21) below, the shares of common stock listed in the
table under the caption "Shares Beneficially Owned Prior to Offering"
represent (a) shares of common stock issued to the former IDX stockholders
in payment of the first convertible subordinated promissory note in March
1999, (b) shares of common stock issued to the former preferred
stockholders of IDX in payment of a convertible subordinated note in
August 1999, (c) shares of common stock issued to the former IDX
stockholders upon conversion of the Series H Preferred Stock in January
2000, (d) shares of common stock issued to the former IDX stockholders
upon conversion of the Series I Preferred Stock in February and July 2000
and (e) shares of common stock which are issuable upon exercise of
warrants to purchase 43,174 shares of common stock within sixty days of
November 1, 2000. The shares of common stock listed in the table under the
caption "Shares Offered" include all the shares listed in the table under
the caption "Shares Owned Prior to the Offering" plus shares of common
stock which are issuable upon exercise of warrants to purchase 1,087,500
shares of common stock which are contingent upon IDX meeting certain
performance tests through December 2000. Such stockholders intend to
convert and exercise such securities prior to the offer and sale of the
shares listed in the table under the caption "Shares Offered." For more
information, see the discussion under the caption "Description of Capital
Securities--New IDX Warrants." Richard Chiang may be deemed to have
control over the disposition of the securities owned by Tenrich Holdings
Limited. Michael Muntner may be deemed to have control over the
disposition of the securities owned by Trylon Partners. Hsin Yen may be
deemed to have control over the disposition of the securities owned by
HILK International. Lister Chiang may be deemed to have control over the
disposition of the
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securities owned by Chadwick Investment, Ltd. David Lee may be deemed to
have control over the disposition of the securities owned by
Telecommunications Development Corporation II, LDC. Teknos Comunicaciones,
S.A. is a Chilean corporation, Silicon Application (B.V.I.) Corp. is a
Taiwanese corporation, and Flextech Holdings Limited is a Singaporean
corporation and control of the disposition of the securities owned by each
of these corporations rests with their respective boards of directors.
(2) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent (a)
shares of common stock issued in exchange for the Series C Preferred Stock
in February 1999, (b) shares of common stock issued upon conversion of the
Series E Preferred Stock in January 2000, (c) shares of common stock
issued upon conversion of the Series J Preferred Stock in January 2000,
(d) shares of common stock issued upon exercise of certain warrants
granted in connection with a $7 million loan and a $20 million loan and
(e) shares of common stock issuable upon exercise of warrants to purchase
1,000,000 shares of common stock within sixty days of November 1, 2000.
The stockholders intend to convert and exercise such securities prior to
the offer and sale of the shares listed in the table under the caption
"Shares Offered." For more information, see the discussion under the
caption "Description of Capital Securities -- EXTL - Special Investment
Risks Warrants." Gladys Jensen is the holder of 99% of the membership
interest and the sole executive officer of EXTL - Special Investment
Risks, LLC and holds a proxy to vote the remaining 1% membership interest
held by her husband, Ronald Jensen. As such, Gladys and Ronald Jensen may
be deemed to be beneficial owners of the securities held by EXTL - Special
Investment Risks, LLC. However, Ronald Jensen disclaims beneficial
ownership of the shares held by EXTL - Special Investment Risks, LLC and
Ronald and Gladys Jensen disclaim beneficial ownership of the shares held
by their adult children.
(3) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent (a)
shares of common stock issued upon conversion of the Series D Preferred
Stock and exercise of related warrants and (b) shares of common stock
issuable upon exercise of warrants to purchase 112,500 shares of common
stock within sixty days of November 1, 2000. The stockholder intends to
convert and exercise such securities prior to the offer and sale of the
shares listed in the table under the caption "Shares Offered." For more
information, see the discussion under the caption "Description of Capital
Securities--Series D Warrants." Vintage Products Ltd. is an investment
fund, which is advised by Melco Advisors. Zev Saltsman, a principal in
Melco Advisors, may be deemed to have control over the disposition of the
securities owned by Vintage Products, Ltd., however Mr. Saltsman disclaims
beneficial ownership of the securities owned by Vintage Products, Ltd.
(4) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent (a)
125,000 shares of common stock and (b) shares of common stock issuable
upon exercise of warrants to purchase 50,000 shares of common stock within
sixty days of November 1, 2000. The stockholders intend to exercise such
securities prior to the offer and sale of the shares listed in the table
under the caption "Shares Offered." For more information, see the
discussion under the caption "Description of Capital Securities -- UCI
Warrants." James Critedes, Christos Mouroutis and Adamos Cidamidis, the
sole members in United Communications International LLC may be deemed to
have control over the disposition of shares owned by United Communications
International.
(5) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent (a)
shares issuable upon exercise of warrants to purchase 442,000 shares of
common stock within sixty days of November 1, 2000, (b) 705,770 shares of
common stock issued to Mr. Gordon in payment of certain loans to us and
(c) 160,257 shares of common stock issued to Mr. Gordon in a private sale.
The stockholders intend to exercise such securities prior to the offer and
sale of the shares listed in the table under the caption "Shares Offered."
For more information, see the discussion under the caption "Description of
Capital Securities -- Gordon Warrants."
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(6) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent
shares of common stock issued upon conversion of the Series K Preferred
Stock in January 2000 and shares of common stock which are issuable to
Howard Katz upon exercise of warrants to purchase 400,000 shares of common
stock which are exercisable within sixty days of November 1, 2000. For
more information, see the discussion under the caption "Description of
Capital Securities -- Katz Warrants." Robert M. Rubin, President of
American United Global Inc., may be deemed to have control of the
disposition of shares owned by American United Global Inc., however Mr.
Rubin disclaims beneficial ownership of shares owned by American United
Global Inc.
(7) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent
shares of common stock issued to Fleming Fogtmann in settlement of certain
claims.
(8) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent (a)
shares of common stock issued to Gerard Klauer Mattison & Co. upon
exercise of warrants and (b) shares of common stock which are issuable to
Gerard Klauer Mattison & Co. upon exercise of warrants to purchase 400,000
shares of common stock which are exercisable within sixty days of November
1, 2000. The stockholder intends to exercise such securities prior to the
offer and sale of the shares listed in the table under the caption "Shares
Offered." For more information, see the discussion under the caption
"Description of Capital Securities -- GKM Warrants." Gerard Klauer
Mattison is a broker dealer registered with the National Association of
Securities Dealers. No one person may be deemed to have control of the
disposition of shares owned by Gerard Klauer Mattison.
(9) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent (a)
1,704,909 shares of common stock and (b) shares of common stock which are
issuable upon exercise of certain warrants to purchase 290,909 shares
granted in connection with our acquisition of control of ORS. The shares
of common stock listed in the table under the caption "Shares Offered"
include all the shares listed in the table under the caption "Shares
Beneficially Owned Prior to the Offering" plus 264,463 shares which
represents a good faith estimate of the maximum number of shares of common
stock issuable to Outsourced Automated Services and Integrated Solutions
upon exercise of certain warrants granted in connection with our
acquisition of ORS. The actual number of shares of common stock issuable
upon exercise of the warrants is indeterminate, is subject to adjustment
and could be materially less or more than such estimated number depending
on factors which cannot be predicted by us at this time, including, among
others, ORS' achievement of certain revenue and EBITDA targets and the
market price of our common stock at the date the registration statement of
which this prospectus is a part is declared effective by the SEC. For more
information see the description of the terms of the warrants under the
caption "Description of Capital Securities--Oasis Warrants." The
stockholder intends to exercise such securities prior to the offer and
sale of the shares listed in the table under the caption "Shares Offered."
Outsourced Automated Services and Integrated Solutions is a wholly owned
subsidiary of Eastern Airlines. John J. Sicilian, President of Eastern
Airlines, may be deemed to have control over the disposition of shares
owned by Eastern Airlines, Inc.
(10) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent
shares of common stock issued upon exchange of the Series M Preferred
Stock. David Warnes may be deemed to have control over the disposition of
shares owned by Highpoint Telecommunications, however Mr. Warnes disclaims
beneficial ownership of the shares owned by Highpoint Telecommunications.
(11) Except for the shares of common stock discussed in footnote (22) below,
the shares of common stock listed in the table under the caption "Shares
Beneficially Owned Prior to Offering" represent shares of common stock
issued to the Series N investors upon the conversion of the
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Series N Preferred Stock. The shares of common stock listed in the table
under the caption "Shares Offered" include all the shares listed in the
table under the caption "Shares Owned Prior to the Offering" plus shares
of common stock which are issuable upon exercise of warrants to purchase
551,253 shares of common stock which are exercisable beginning in October
2000. The stockholders intend to exercise such securities prior to the
offer and sale of the shares listed in the table under the caption "Shares
Offered." For more information, see the discussion under the caption
"Description of Capital Securities -- Series N Warrants." Safetynet
Limited is an investment fund, which is advised by Melco Advisors. Zev
Saltsman, a principal in Melco Advisors, may be deemed to have control
over the disposition of the securities owned by Safetynet Limited, however
Mr. Saltsman disclaims beneficial ownership of the securities owned by
Safetynet Limited. Howard Schow is the trustee of the Schow Family Trust.
Empire CM and Empire CP are hedge funds, which are managed by Peter
Richards and Scott Fine. Messrs. Richards and Fine may be deemed to have
control over the disposition of the securities owned by Empire CM and
Empire CP, however Messrs. Richards and Fine disclaim beneficial ownership
of the securities owned by Empire CM and Empire CP.
(12) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent
shares of common stock issued to the former stockholders of Coast in
connection with our acquisition of Coast.
(13) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent
shares of common stock issued to Swiftcall Holdings (USA) in connection
with our acquisition of Swiftcall. Swiftcall Holdings (USA) is the wholly
owned subsidiary of Andville Equipment (UK) Ltd., a widely owned United
Kingdom company.
(14) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent
shares of common stock issued to IDT Corporation upon exercise of warrants
granted in connection with IDT's loan to us. IDT Corporation is a public
corporation which is listed on the Nasdaq National Market under the symbol
"IDTC".
(15) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent
shares of common stock which are issuable to Executive Lending LLC upon
exercise of warrants to purchase 10,000 shares of common stock within
sixty days of November 1, 2000. The stockholder intends to exercise such
securities prior to the offer and sale of the shares listed in the table
under the caption "Shares Offered." For more information, see the
discussion under the caption "Description of Capital Securities --
Executive Lending Warrants." Ronald W. Kuzon, Vice President of the
managing member of Executive Lending LLC, may be deemed to have control of
the disposition of shares owned by Executive Lending, however Mr. Kuzon
disclaims beneficial ownership of such shares.
(16) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent
shares of common stock which are issuable to Strategic Growth upon
exercise of options to purchase 318,000 shares of common stock within
sixty days of November 1, 2000. The stockholder intends to exercise such
securities prior to the offer and sale of the shares listed in the table
under the caption "Shares Offered." For more information, see the
discussion under the caption "Description of Capital Securities --
Strategic Growth Warrants." Richard E. Cooper, Chairman of Strategic
Growth, may be deemed to have control over the disposition of the
securities owned by Strategic Growth, however Mr. Cooper disclaims
beneficial ownership of such securities.
(17) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent a
good faith estimate of the number of shares of common stock issuable to
RGC International Investors upon conversion of Series P Preferred Stock
and Series Q Preferred Stock and exercise of warrants. The actual number
of shares of common stock issuable upon conversion of the Series P
Preferred Stock and Series Q Preferred Stock and exercise of the related
warrants is indeterminate, is subject to adjustment
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and could be materially less or more than such estimated number depending
on factors which cannot be predicted by us at this time, including, among
other factors, the future market price of our common stock. The actual
number of shares of common stock offered in this prospectus, and included
in the registration statement of which this prospectus is a part, includes
such additional number of shares of common stock as may be issued or
issuable upon conversion of the Series P Preferred Stock and Series Q
Preferred Stock and exercise of the related warrants by reason of any
stock split, stock dividend or similar transaction involving the common
stock, in accordance with Rule 416 under the Securities Act. Under the
terms of the Series P Preferred Stock, Series Q Preferred Stock and the
related warrants, the shares of Series P Preferred Stock and Series Q
Preferred Stock are convertible and the warrants are exercisable by any
holder only to the extent that the number of shares of common stock
issuable pursuant to such securities, together with the number of shares
of common stock owned by such holder and its affiliates (but not including
shares of common stock underlying unconverted Series P Preferred Stock,
Series Q Preferred Stock or unexercised portions of the warrants) would
not exceed 4.9% of the then outstanding common stock as determined in
accordance with Section 13(d) of the Exchange Act. Accordingly, the number
of shares of common stock set forth in the table for RGC International
Investors exceeds the number of shares of common stock that RGC
International Investors could own beneficially at any given time through
their ownership of Series P Preferred Stock, Series Q Preferred Stock and
the warrants. In that regard, the beneficial ownership of the common stock
by RGC International Investors set forth in the table is not determined in
accordance with Rule 13d-3 under the Exchange Act. See the description of
the terms of the Series P Preferred Stock, the Series Q Preferred Stock
and the related warrants under the caption "Description of Capital
Securities--Series P Preferred Stock --Series Q Preferred Stock, --Series
P Warrants and --Series Q Warrants." RGC International Investors, LDC is a
party to an investment management agreement with Rose Glen Capital
Management, L.P., a limited partnership of which the general partner is
RGC General Partner Corp. Messrs. Wayne Bloch, Gary Kaminsky and Steve
Katznelson own all of the outstanding capital stock of RGC General Partner
Corp., are the sole officers and directors of RGC General Partner Corp.
and are parties to a shareholders' agreement pursuant to which they
collectively control RGC General Partner Corp. Through RGC General Partner
Corp., such individuals control Rose Glen Capital Management, L.P. Such
individuals disclaim beneficial ownership of our common stock owned by RGC
International Investors, LDC.
(18) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent
shares of common stock issued to the former Trans Global stockholders upon
our acquisition of Trans Global. Robert and Suzanne Grayson are the
trustees of the Grayson Family Trust and may be deemed to be the
beneficial owners of the securities owned by the Grayson Family Trust.
(19) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent
shares of common stock which are issuable to Dr. Soni upon exercise of
warrants to purchase 60,000 shares of common stock which are issuable
within sixty days of November 1, 2000 granted in connection with Dr.
Soni's loan to us. The stockholder intends to exercise such securities
prior to the offer and sale of the shares listed in the table under the
caption "Shares Offered." For more information, see the discussion under
the caption "Description of Capital Securities -- Soni Warrants."
(20) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent
shares of common stock which are issuable to Penny Vane upon exercise of
warrants to purchase 8,250 shares of common stock within sixty days of
November 1, 2000. The stockholder intends to exercise such securities
prior to the offer and sale of the shares listed in the table under the
caption "Shares Offered." For more information, see the discussion under
the caption "Description of Capital Securities -- Vane Warrants."
(21) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered," including only
56,250 of the shares so listed for Jeffey Gee, represent shares of common
stock issued to certain of our employees.
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(22) 36,000 shares of common stock listed in the table under the captions
"Shares Beneficially Owned Prior to Offering" and "Shares Offered"
represent shares of common stock issued to our Chief Financial Officer in
connection with his hire.
(23) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent
warrants to purchase 2,500 shares of common stock which are issuable to
Brookshire within sixty days of November 1, 2000. For more information,
see the discussion under the caption "Description of Capital Securities --
Brookshire Warrants." Brookshire is a broker dealer registered with the
National Association of Securities Dealers. No one person may be deemed to
have control over the disposition of shares owned by Brookshire.
(24) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent
shares of common stock issued to Network Data Systems upon exercise of
warrants which are issuable within sixty days of November 1, 2000 granted
in connection with Network Data Systems' loan to us. William V. Moore,
President of Network Data Systems, may be deemed to have control over the
disposition of the securities owned by Network Data Systems, however Mr.
Moore disclaims beneficial ownership of the securities owned by Network
Data Systems.
(25) The shares of common stock listed in the table under the caption "Shares
Offered" represent shares of common stock that may be pledged by one of
our wholly owned subsidiaries, eGlobe No. 1 LLC, in connection with future
equipment lease and other loan arrangements. In the event that our
subsidiary defaults on its repayment obligations relating to these
potential loan arrangements, its lender may sell the shares securing the
loan.
(26) The shares of common stock listed in the table under the caption "Shares
Beneficially Owned Prior to Offering" represent shares of common stock
which are issuable upon exercise of warrants to purchase shares of common
stock which are exercisable within sixty days of November 1, 2000. The
shares of common stock listed in the table under the caption "Shares
Offered" include all the shares listed in the table under the caption
"Shares Owned Prior to the Offering" plus shares of common stock which are
issuable upon exercise of warrants to purchase shares of common stock
which are not exercisable within sixty days of November 1, 2000. For more
information, see the discussion under the caption "Description of Capital
Securities -- Wolfe Axelrod Weinberger Warrants." Messrs. Steven Axelrod,
Donald Weinberger and Jeffrey Volk have control over the disposition of
the securities owned by Wolfe Axelrod Weinberger Associates.
(27) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to Offering" and "Shares Offered" represent
shares of common stock issued to TI Partners, Inc. in connection with
sales and marketing services provided in Europe in 2000. Steven Wiell may
be deemed to have control over the disposition of securities owned by TI
Partners, however Mr. Wiell disclaims beneficial ownership of the
securities owned by TI Partners.
(28) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to the Offering" and "Shares Offered" represent
(a) shares of common stock issued and (b) shares of common stock issuable
upon exercise of warrants to purchase common stock which are exercisable
within sixty days of November 1, 2000. For more information, see the
discussion under the caption "Description of Capital Securities - Tower
Hill Warrants." Tower Hill Investments Limited is an investment fund,
which is advised by Melco Advisors. Zev Saltsman, a principal in Melco
Advisors, may be deemed to have control over the disposition of the
securities owned by Tower Hill Investments Limited, however Mr. Saltsman
disclaims beneficial ownership of the securities owned by Tower Hill
Investments Limited.
(29) The shares of common stock listed in the table under the captions "Shares
Beneficially Owned Prior to the Offering" and "Shares Offered" represent
shares of common stock issued in connection with the acquisition of
Essiciency International Development Co., Ltd. (Orlida) by our subsidiary
IDX in 1998.
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PLAN OF DISTRIBUTION
The shares may be sold or distributed from time to time by the selling
stockholders named in this prospectus, by their donees, pledgees, transferees
or other successors in interest. The selling stockholders may sell their shares
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at negotiated prices, or at fixed prices, which may
be changed. Each selling stockholder reserves the right to accept or reject, in
whole or in part, any proposed purchase of shares, whether the purchase is to
be made directly or through agents.
The selling stockholders may offer their shares at various times in one
or more of the following transactions, which may include block transactions:
o in ordinary brokers' transactions and transactions in which the broker
solicits purchasers;
o in transactions involving cross or block trades or otherwise on the
Nasdaq National Market or such other market on which the common stock
may from time to time be trading (including transactions in which
brokers or dealers may attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate
the transaction);
o in transactions in which brokers, dealers or underwriters purchase the
shares as principal and resell the shares for their own accounts
pursuant to this prospectus;
o in transactions "at the market" to or through market makers in our
common stock or into an existing market for the common stock;
o in other ways not involving market makers or established trading
markets, including direct sales of the shares to purchasers or sales
of the shares effected through agents;
o through transactions in options, swaps or other derivatives which may
or may not be listed on an exchange;
o in privately negotiated transactions;
o in short sales or transactions to cover short sales; or
o in a combination of any of the foregoing transactions.
The sale price to the public may be:
o the market price prevailing at the time of sale;
o a price related to such prevailing market price;
o at negotiated prices; or
o such other price as the selling stockholders determine from time to
time.
The selling stockholders shall have the sole and absolute discretion not to
accept any purchase offer or make any sale of shares if they deem the purchase
price to be unsatisfactory at any particular time.
The selling stockholders also may sell their shares in accordance with Rule 144
under the Securities Act, rather than pursuant to this prospectus.
From time to time, one or more of the selling stockholders may pledge or
grant a security interest in some or all of the shares owned by them. If the
selling stockholders default in performance of the secured obligations, the
pledgees or secured parties may offer and sell the shares from time to time.
The selling stockholders also may transfer and donate shares in other
circumstances. The number of shares beneficially owned by selling stockholders
who transfer, donate, pledge or grant a security interest in their shares will
decrease as and when the selling stockholders take these actions. The plan of
distribution for the shares offered and sold under this prospectus will
otherwise remain unchanged, except that the transferees, donees or other
successors in interest will be selling stockholders for purposes of this
prospectus.
A selling stockholder may sell short our common stock. The selling
stockholder may deliver this prospectus in connection with such short sales and
use the shares offered by this prospectus to cover such short sales.
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A selling stockholder or its pledgee, donee, transferee or other
successor in interest may enter into hedging transactions with broker-dealers.
The broker-dealers may engage in short sales of our common stock in the course
of hedging the positions they assume with the selling stockholders, including
positions assumed in connection with distributions of the shares by such
broker-dealers. A selling stockholder or its pledgee, donee, transferee or
other successor in interest also may enter into option or other transactions
with broker-dealers that involve the delivery of the shares to the
broker-dealers, who may then resell or otherwise transfer such shares. In
addition, a selling stockholder may loan or pledge shares to a broker-dealer,
which may sell the loaned shares or, upon a default by the selling stockholder
of the secured obligation, may sell or otherwise transfer the pledged shares.
A selling stockholder or its pledgee, donee, transferee or other
successor in interest may also sell the shares directly to market makers acting
as principals and/or broker-dealers acting as agents for themselves or their
customers or use brokers, dealers, underwriters or agents to sell their shares.
The broker-dealers acting as agents may receive compensation in the form of
commissions, discounts or concessions. This compensation may be paid by the
selling stockholders or the purchasers of the shares for whom such persons may
act as agent, or to whom they may sell as principal, or both. The compensation
as to a particular person may be less than or in excess of customary
commissions. The selling stockholders and any agents or broker-dealers that
participate with the selling stockholders in the offer and sale of the shares
may be deemed to be "underwriters" within the meaning of the Securities Act.
Any commissions they receive and any profit they realize on the resale of the
shares by them may be deemed to be underwriting discounts and commissions under
the Securities Act. Neither we nor any selling stockholders can presently
estimate the amount of such compensation.
The selling stockholders, alternatively, may sell all or any part of the
shares offered in this prospectus through an underwriter. No selling
stockholder has entered into any agreement with a prospective underwriter and
there is no assurance that any such agreement will be entered into. If a
selling stockholder enters into such an agreement or agreements, the relevant
details will be set forth in a supplement or revisions to this prospectus.
We have advised the selling stockholders that during such time as they
may be engaged in a distribution of the shares, they are required to comply
with Regulation M under the Exchange Act. With certain exceptions, Regulation M
prohibits any selling stockholder, any affiliated purchasers and any
broker-dealer or other person who participates in such distribution from
bidding for or purchasing, or attempting to induce any person to bid for or
purchase, any security which is the subject of the distribution until the
entire distribution is complete. Regulation M also prohibits any bids or
purchases made in order to stabilize the price of a security in connection with
the distribution of that security. The foregoing restrictions may affect the
marketability of the shares.
Under our registration rights agreements with the selling stockholders,
we are required to bear the expenses relating to this offering, excluding any
underwriting discounts or commissions, stock transfer taxes and fees of legal
counsel to the selling stockholders. We estimate these expenses will total
approximately $215,000.
We have agreed to indemnify the selling stockholders and any
underwriters, brokers, dealers or agents and their respective controlling
persons against certain liabilities, including certain liabilities under the
Securities Act.
It is possible that a significant number of shares could be sold at the
same time. Such sales, or the perception that such sales could occur, may
adversely affect prevailing market prices for our common stock.
This offering by any selling stockholder will terminate on the date
specified in the selling stockholder's registration rights agreement with
eGlobe or, if earlier, on the date on which the selling stockholder has sold
all of his shares.
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LEGAL MATTERS
Hogan & Hartson L.L.P., of Washington, D.C., will issue an opinion about
certain legal matters with respect to the common stock for eGlobe.
EXPERTS
The consolidated financial statements and schedule of eGlobe, Inc. and
subsidiaries (the report of which contains an explanatory paragraph regarding
the Company's ability to continue as a going concern), the combined financial
statements of Connectsoft Corporation, the combined financial statements of
Highpoint International Telecom, Inc. and affiliates and the financial
statements of Coast International, Inc. included in this Prospectus and in the
Registration Statement, have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing elsewhere herein and in the Registration Statement, and
are included in reliance upon such reports given upon the authority of said
firm as experts in auditing and accounting.
The consolidated financial statements of Trans Global Communications, Inc.
and subsidiaries as of December 31, 1999 and 1998, and for the three years in
the period ended December 31, 1999, incorporated by reference in this
Prospectus, and in the Registration Statement, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon (which
contains an explanatory paragraph describing conditions that raise substantial
doubt about the Company's ability to continue as a going concern). Such
consolidated financial statements are incorporated by reference in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
The financial statements of Oasis Reservations Services, Inc., included
in this Prospectus, have been so included in reliance upon the report of
Berkowitz, Dick, Pollack & Brant LLP independent auditors, given upon the
authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 (the "Exchange Act"). You may read and copy any
of the information we file with the SEC at the SEC's public reference rooms at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at 7 World Trade
Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can also obtain copies
of filed documents by mail from the Public Reference Section of the SEC at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. You
may call the SEC at 1-800-SEC-0330 for further information on the operation of
the public reference rooms. We file information electronically with the SEC.
Our SEC filings also are available from the SEC's Internet site at
http://www.sec.gov, which contains reports, proxy and information statements,
and other information regarding issuers that file electronically. Our common
stock is quoted on the Nasdaq National Market under the symbol "EGLO," and
reports, proxy statements and other information concerning eGlobe can also be
inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington,
D.C. 20006.
This prospectus is part of a registration statement we filed with the
SEC under the Securities Act of 1933 (the "Securities Act"). As permitted by
SEC rules, this prospectus omits certain information that is included in the
registration statement. For further information about us and our common stock,
you should refer to the registration statement and its exhibits. If we have
filed a contract, agreement or other document as an exhibit to the registration
statement, you may read the exhibit for a more complete understanding of the
document or matter involved. Each statement in this prospectus (including
statements incorporated by reference as discussed below) regarding a contract,
agreement or other document is qualified in its entirety by reference to the
actual document.
108
<PAGE>
EGLOBE, INC.
FINANCIAL STATEMENTS AND EXHIBITS
The following are the consolidated financial statements and exhibits of
eGlobe, Inc. and subsidiaries which are filed as part of this report:
<TABLE>
<S> <C>
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2000
Unaudited Consolidated Balance Sheets as of June 30, 2000 and 1999 .................. F-3 - F-4
Unaudited Consolidated Statements of Operations for the Six Months Ended June 30,
2000 and 1999 ..................................................................... F-5
Unaudited Consolidated Statements of Comprehensive Loss for the Six Months Ended
June 30, 2000 and 1999 ............................................................ F-6
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30,
2000 and 1999 ..................................................................... F-7 - F-8
Notes to the Unaudited Consolidated Financial Statements ............................ F-9 - F-32
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999:
Report of Independent Certified Public Accountants .................................. F-33
Report of Independent Auditors ...................................................... F-34
Consolidated Balance Sheets as of December 31, 1999 and 1998 ........................ F-35 - F-36
Consolidated Statements of Operations for the Year Ended December 31, 1999, the
Nine Months Ended December 31, 1998 and the Year Ended March 31, 1998 ............. F-37 - F-38
Consolidated Statements of Stockholders' Equity for the Year Ended December 31,
1999, the Nine Months Ended December 31, 1998 and the Year Ended March 31,
1998 .............................................................................. F-39 - F-40
Consolidated Statements of Comprehensive Loss for the Year Ended December 31,
1999, the Nine Months Ended December 31, 1998 and the Year Ended March 31,
1998 .............................................................................. F-41
Consolidated Statements of Cash Flows for the Year Ended December 31, 1999, the
Nine Months Ended December 31, 1998 and the Year Ended March 31, 1998 ............. F-42 - F-43
Summary of Accounting Policies ...................................................... F-44 - F-54
Notes to Consolidated Financial Statements .......................................... F-55 - F-101
SCHEDULE - II -- Valuation and Qualifying Accounts ................................... F-102
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS ................................ F-103 - F-108
CONNECTSOFT COMMUNICATIONS CORPORATION
Report of Independent Certified Public Accountants .................................. F-109
Combined Statements of Net Liabilities as of July 31, 1998 and May 31, 1998
(unaudited) ....................................................................... F-110
Combined Statements of Revenues and Expenses for the Year Ended
July 31, 1998 and for the Ten Months Ended May 31, 1999 and 1998 (unaudited) ...... F-111
Notes to Combined Financial Statements .............................................. F-112 - F-117
OASIS RESERVATIONS SERVICES, INC.
Independent Auditors' Report ........................................................ F-118
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Balance Sheets as of August 31, 1999 (unaudited) and May 31, 1999 ................ F-119
Statements of Operations for the Three Months Ended August 31, 1999 and 1998
(unaudited) and for the Year Ended May 31, 1999 ................................ F-120
Statements of Shareholder's Equity for the Three Months Ended August 31, 1999
(unaudited) and for the Year Ended May 31, 1999 ................................ F-121
Statements of Cash Flows for the Three Months Ended August 31, 1999 and
1998 unaudited) and for the Year Ended May 31, 1999 ............................ F-122 - F-123
Notes to Financial Statements .................................................... F-124 - F-129
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
Report of Independent Certified Public Accountants ............................... F-130
Combined Balance Sheet as of July 31, 1999 ....................................... F-131
Combined Statement of Operations for the Nine Months Ended July 31, 1999 ......... F-132
Combined Statement of Stockholder's and Affiliates' Equity for the Nine Months
Ended July 31, 1999 ............................................................ F-133
Combined Statement of Cash Flows for the Nine Months Ended July 31, 1999 ......... F-134
Notes to Combined Financial Statements ........................................... F-135 - F-139
COAST INTERNATIONAL, INC.
Report of Independent Certified Public Accountants ............................... F-140
Balance Sheet .................................................................... F-141 - F-142
Statement of Income .............................................................. F-143
Statement of Stockholders' Deficit ............................................... F-144
Statement of Cash Flows .......................................................... F-145
Summary of Accounting Policies ................................................... F-146 - F-147
Notes to Financial Statements .................................................... F-148 - F-150
</TABLE>
F-2
<PAGE>
EGLOBE, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999
<S> <C> <C>
--------------------------------------------------------------------------------
ASSETS
CURRENT:
Cash and cash equivalents ....................................................... $ 1,050,000 $ 2,659,000
Restricted cash ................................................................. 53,000 158,000
Restricted short-term investments ............................................... 3,042,000 1,492,000
Accounts receivable, less allowance of $5,868,000 and $3,206,000
for doubtful accounts ......................................................... 15,898,000 15,142,000
Other receivables ............................................................... 798,000 1,406,000
Prepaid expenses ................................................................ 1,525,000 1,584,000
Other current assets ............................................................ 330,000 639,000
--------------------------------------------------------------------------------
TOTAL CURRENT ASSETS ............................................................. 22,696,000 23,080,000
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization of $30,570,000 and $24,352,000...................................... 36,838,000 42,078,000
GOODWILL, net of accumulated amortization of $3,467,000 and
$1,572,000 (Note 4).............................................................. 25,370,000 24,904,000
OTHER INTANGIBLE ASSETS, net of accumulated amortization of
$10,311,000 and $6,466,000 (Note 4).............................................. 18,221,000 21,674,000
OTHER:
Deposits ........................................................................ 1,692,000 1,659,000
Investments (Note 5) ............................................................ 2,419,000 --
Other assets .................................................................... 149,000 400,000
--------------------------------------------------------------------------------
TOTAL OTHER ASSETS ............................................................... 4,260,000 2,059,000
--------------------------------------------------------------------------------
TOTAL ASSETS ..................................................................... $ 107,385,000 $ 113,795,000
--------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
<PAGE>
EGLOBE, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999
<S> <C> <C>
--------------------------------------------------------------------------------
LIABILITIES, MINORITY INTEREST, REDEEMABLE STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT:
Accounts payable (Note 6) ..................................................... $ 46,153,000 $ 41,558,000
Accrued expenses .............................................................. 12,982,000 10,992,000
Income taxes payable .......................................................... 422,000 560,000
Notes payable and current maturities of long-term debt (Note 7) ............... 7,743,000 7,868,000
Notes payable and current maturities of long-term debt-related
parties (Note 8) ............................................................ 6,281,000 4,676,000
Deferred revenue .............................................................. 983,000 1,331,000
Other liabilities ............................................................. 1,329,000 797,000
--------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES ...................................................... 75,893,000 67,782,000
--------------------------------------------------------------------------------
ACCOUNTS PAYABLE -- LONG-TERM .................................................. -- 1,000,000
LONG-TERM DEBT, NET OF CURRENT MATURITIES (NOTE 7) ............................. 2,351,000 5,194,000
LONG-TERM DEBT -- RELATED PARTIES, NET OF CURRENT MATURITIES (NOTE 8) .......... 9,267,000 8,301,000
--------------------------------------------------------------------------------
TOTAL LIABILITIES .............................................................. 87,511,000 82,277,000
--------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST (NOTE 4) ..................................................... -- 2,800,000
REDEEMABLE STOCK (NOTES 9 AND 11) .............................................. 23,255,000 700,000
--------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, all series, $.001 par value, 10,000,000 and 5,000,000
shares authorized, 250,000 and 1,927,791 shares outstanding ................. 1,000 2,000
Common stock, $.001 par value, 200,000,000 shares authorized,
90,905,990 and 69,580,604 shares outstanding ................................ 91,000 70,000
Stock to be issued ............................................................ 1,372,000 2,624,000
Notes receivable (Note 9) ..................................................... (1,369,000) (1,210,000)
Additional paid-in capital .................................................... 126,010,000 106,718,000
Accumulated deficit ........................................................... (130,327,000) (80,682,000)
Accumulated other comprehensive income ........................................ 841,000 496,000
--------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ........................................... (3,381,000) 28,018,000
--------------------------------------------------------------------------------
TOTAL LIABILITIES, MINORITY INTEREST, REDEEMABLE STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT) .............................................................. $ 107,385,000 $ 113,795,000
--------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
<PAGE>
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999
<S> <C> <C>
REVENUE (NOTES 2 AND 12) ....................................................... $ 65,041,000 $ 80,115,000
--------------------------------------------------------------------------------
COST OF REVENUE ................................................................ 59,372,000 77,056,000
--------------------------------------------------------------------------------
GROSS PROFIT ................................................................... 5,669,000 3,059,000
--------------------------------------------------------------------------------
COSTS AND EXPENSES:
Selling, general and administrative, exclusive of $8.4 million, $1.4
million and $0.9 million reported below of compensation related
to stock options and acquisitions ........................................... 29,257,000 13,720,000
Compensation related to stock options (Note 9) ................................ 8,439,000 --
Deferred compensation related to acquisitions (Note 4) ........................ 1,438,000 962,000
Depreciation and amortization ................................................. 6,141,000 2,832,000
Amortization of goodwill and other intangible assets .......................... 5,740,000 1,599,000
--------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES ....................................................... 51,015,000 19,113,000
--------------------------------------------------------------------------------
LOSS FROM OPERATIONS ........................................................... (45,346,000) (16,054,000)
--------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense .............................................................. (3,731,000) (4,083,000)
Interest income ............................................................... 179,000 531,000
Other income .................................................................. 89,000 --
Other expense ................................................................. (72,000) (41,000)
Loss on i1.com investment (Note 5) ............................................ (580,000) --
Loss on Unitel investment (Note 5) ............................................ (183,000) --
--------------------------------------------------------------------------------
TOTAL OTHER EXPENSE ............................................................ (4,298,000) (3,593,000)
--------------------------------------------------------------------------------
NET LOSS ....................................................................... (49,644,000) (19,647,000)
--------------------------------------------------------------------------------
PREFERRED STOCK DIVIDENDS (NOTES 9, 10 AND 11) ................................. (16,703,000) (4,329,000)
--------------------------------------------------------------------------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS ................................... $ (66,347,000) $ (23,976,000)
--------------------------------------------------------------------------------
NET LOSS PER SHARE (BASIC AND DILUTED) (NOTE 10) ............................... $ (0.78) $ (0.41)
--------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-5
<PAGE>
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999
<S> <C> <C>
--------------------------------------------------------------------------------
NET LOSS ......................................................................... $ (49,644,000) $ (19,647,000)
--------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ......................................... 345,000 262,000
--------------------------------------------------------------------------------
COMPREHENSIVE NET LOSS ........................................................... $ (49,299,000) $ (19,385,000)
--------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-6
<PAGE>
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999
<S> <C> <C>
--------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES:
Net loss ........................................................................ $ (49,644,000) $ (19,647,000)
Adjustments to reconcile net loss to cash used in operating
activities:
Depreciation and amortization ................................................. 11,881,000 4,431,000
Provision for bad debts ....................................................... 3,483,000 471,000
Non-cash interest expense ..................................................... -- 202,000
Minority interests in loss .................................................... (64,000) --
Loss on investments ........................................................... 763,000 --
Issuance of options and warrants for services ................................. 1,594,000 19,000
Issuance of common stock for services ......................................... 34,000 --
Deferred compensation costs related to acquisitions ........................... 1,438,000 962,000
Compensation costs related to stock options ................................... 8,439,000 --
Amortization of warrant value for services .................................... 945,000 --
Value of penalty warrants to be issued (Note 4) ............................... 650,000 --
Amortization of debt discounts ................................................ 1,563,000 3,020,000
Changes in operating assets and liabilities (net of changes from
acquisitions):
Accounts receivable ........................................................... (4,239,000) (7,732,000)
Other receivables ............................................................. 608,000 (665,000)
Prepaid expenses .............................................................. (843,000) (359,000)
Other current assets .......................................................... 309,000 (759,000)
Other assets .................................................................. 286,000 76,000
Accounts payable .............................................................. 3,595,000 6,510,000
Income taxes payable .......................................................... (138,000) (595,000)
Accrued expenses .............................................................. 2,335,000 (734,000)
Deferred revenue .............................................................. (348,000) (100,000)
Other liabilities ............................................................. 532,000 333,000
--------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES ................................................ (16,821,000) (14,567,000)
--------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment ............................................. (791,000) (10,588,000)
Purchase of intangibles ......................................................... (137,000) --
Net sales (purchases) of short-term investments ................................. (1,550,000) 7,717,000
Acquisition of companies, net of cash acquired (Note 4) ......................... -- (1,641,000)
(Increase) decrease in restricted cash .......................................... 105,000 (2,000)
Other assets .................................................................... (33,000) (159,000)
--------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES ................................................ (2,406,000) (4,673,000)
--------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE>
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999
<S> <C> <C>
--------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from notes payable (Note 7) ............................................ -- 500,000
Proceeds from notes payable-related parties (Note 8) ............................ 692,000 7,000,000
Proceeds from issuance of preferred stock ....................................... 19,525,000 10,000,000
Stock issuance costs ............................................................ (1,114,000) (704,000)
Proceeds from exercise of warrants (Note 9) ..................................... 755,000 --
Proceeds from capital leases .................................................... -- 3,749,000
Proceeds from exercise of options (Note 9) ...................................... 1,912,000 --
Deferred financing and acquisition costs ........................................ -- (87,000)
Payments on capital leases ...................................................... (754,000) (395,000)
Payments on notes payable (Note 7) .............................................. (2,714,000) (230,000)
Payments on notes payable -- related parties (Note 8) ........................... (684,000) (100,000)
--------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES ............................................ 17,618,000 19,733,000
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................. (1,609,000) 493,000
--------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................... 2,659,000 4,031,000
--------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................................... $ 1,050,000 $ 4,524,000
--------------------------------------------------------------------------------
</TABLE>
See Note 14 for Supplemental Information to Consolidated Statements of Cash
Flows.
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-8
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 1 -- BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
eGlobe, Inc. and its wholly owned subsidiaries ("the Company") and have been
prepared in accordance with United States generally accepted accounting
principles for interim financial information. Pursuant to Rule 10-01 of
Regulation S-X, these consolidated financial statements do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included
consisting only of normal recurring accruals. Operating results for the three
and six months ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000.
The consolidated financial statements of the Company for the six months
ended June 30, 2000 and June 30, 1999 have been restated to give retroactive
effect to the merger with Trans Global Communications, Inc. ("Trans Global")
effective March 23, 2000, which has been accounted for using the pooling of
interests method of accounting. As a result, the financial position, results of
operations, and cash flows are presented as if the combining companies had been
consolidated for all periods presented. Trans Global is a leading provider of
international voice and data services to carriers in several markets around the
world.
It is suggested that these consolidated financial statements be read in
conjunction with the audited consolidated financial statements and notes
thereto included elsewhere in this Registration Statement. See Note 2 for
further information.
The Company completed the following acquisitions in 1999 that were
accounted for under the purchase method of accounting. In February 1999, the
Company completed the acquisition of Telekey, Inc. ("Telekey"), a provider of
card-based telecommunications services. In June 1999, the Company, through its
newly formed subsidiary, Vogo Networks, LLC ("Vogo"), purchased substantially
all of the assets and assumed certain liabilities of Connectsoft Communications
Corporation and Connectsoft Holdings, Corp. (collectively "Connectsoft"), which
developed and continues to enhance a server based communication system that
integrates various forms of messaging, Internet and web content, personal
services, and provides telephone access to Internet content (including email
and e-commerce functions). In July 1999, the Company completed the acquisition
of Swiftcall Equipment and Services (USA) Inc., ("Swiftcall"), a
telecommunications company, and certain network operating equipment held by an
affiliate of Swiftcall. Effective August 1, 1999, the Company assumed
operational control of Highpoint International Telecom, Inc. and certain assets
and operations of Highpoint Carrier Services, Inc. and Vitacom, Inc.
(collectively "Highpoint"). The three entities were majority owned subsidiaries
of Highpoint Telecommunications Inc. ("HGP"), a publicly traded company on the
Canadian Venture Exchange. On October 14, 1999, substantially all of the
operating assets of Highpoint were transferred to iGlobe, Inc. ("iGlobe"), a
newly formed subsidiary of HGP, and the Company concurrently acquired all of
the issued and outstanding common stock of iGlobe. iGlobe possesses an
infrastructure supplying Internet Protocol ("IP") services, particularly voice
over IP, throughout Latin America. In September 1999, the Company, acting
through a newly formed subsidiary, acquired control of Oasis Reservations
Services, Inc. ("ORS"), a Miami based transaction support services and call
center to the travel industry, from its sole stockholder, Outsourced Automated
Services and Integrated Solutions, Inc. ("Oasis"). The Company and Oasis formed
eGlobe/Oasis Reservations LLC ("LLC") which is responsible for conducting ORS'
operations. The Company managed and controlled the operations of the LLC and
accordingly included the LLC in its consolidated financial statements.
Effective May 12, 2000, the Company became the sole member of the LLC. In
December 1999, the Company completed the acquisition of Coast International,
Inc. ("Coast"), a provider of enhanced long-distance interactive voice and
internet services. See Notes 4, 7, 8 and 9 for further discussion.
F-9
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 1 -- BASIS OF PRESENTATION - (CONTINUED)
In December 1998, the Company acquired IDX International, Inc. ("IDX"), a
supplier of IP transmission services, principally to telecommunications
carriers, in 14 countries. Also, in December 1998, the Company acquired UCI
Tele Network, Ltd. ("UCI"), a development stage calling card business, with
contracts to provide calling card services in Cyprus and Greece. These
acquisitions were also accounted for under the purchase accounting method.
The Company invested in i1.com, an e-commerce, network transaction company
that was founded by the Company and a former IDX executive. It is accounted for
as an equity investment in the consolidated financial statements of the Company
since the Company does not have a "controlling financial interest" in i1.com.
See Note 5 for further discussion.
The Company has an investment in Unitel, a company functioning as a
communications carrier of PSTN traffic including voice, data and Internet. It
is accounted for as an equity investment in the consolidated financial
statements of the Company since the Company does not have a "controlling
financial interest" in Unitel. See Note 5 for further discussion.
In December 1999, the U.S. Securities and Exchange Commission ("SEC")
released Staff Accounting Bulletin No. 101, " Revenue Recognition in Financial
Statements" ("SAB" 101), which clarifies the SEC's views on revenue
recognition. The Company believes its existing revenue recognition policies and
procedures are in compliance with SAB 101 and therefore, SAB 101's adoption
will not have a material impact on the Company's financial condition, results
of operations or cash flows.
In March 2000, the FASB issued Emerging Issues Task Force Issue No 00-2,
"Accounting for Web Site Development Costs" ("EITF 00-2"), which is effective
for all such costs incurred for fiscal quarters beginning after June 30, 2000.
This Issue establishes accounting and reporting standards for costs incurred to
develop a web site based on the nature of each cost. Currently, as the Company
has no web site development costs, the adoption of EITF 00-2 would have no
impact on the Company's financial condition or results of operations. To the
extent the Company begins to enter into such transactions in the future, the
Company will adopt the Issue's disclosure requirements in the quarterly and
annual financial statements for the year ending December 31, 2000.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN 44"), which is
effective July 1, 2000, except that certain conclusions in this Interpretation
which cover specific events that occur after either December 15, 1998, or
January 12, 2000 are recognized on a prospective basis from July 1, 2000. This
Interpretation clarifies the application of APB Opinion 25 for certain issues
related to stock issued to employees. The Company believes its existing stock
based compensation policies and procedures are in compliance with FIN 44 and
therefore, the adoption of FIN 44 will have no material impact on the Company's
financial condition, results of operations or cash flows.
NOTE 2 -- MERGER WITH TRANS GLOBAL
Pursuant to an Agreement and Plan of Merger entered into on December 16,
1999, and effective March 23, 2000, a wholly-owned subsidiary of eGlobe merged
with and into Trans Global, with Trans Global continuing as the surviving
corporation and becoming a wholly-owned subsidiary of eGlobe (the "Merger").
The Merger provided for the issuance of 40,000,000 shares of the eGlobe common
stock in exchange for all of the outstanding common stock of Trans Global. The
Merger has been accounted for as a pooling of interests. In addition, eGlobe
issued 2,000,000 shares of its common stock into escrow to cover its potential
indemnification obligations under the Merger agreement. Revenue, net loss, net
loss attributable to common stockholders, and net loss per share of eGlobe and
Trans Global as consolidated for the periods presented are as follows:
F-10
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 2 -- MERGER WITH TRANS GLOBAL - (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------------------------
1999
2000 RESTATED
------------------ -----------------
<S> <C> <C>
REVENUE:
eGlobe ...................................... $ 25,840,000 $ 17,501,000
Trans Global ................................ 43,057,000 62,614,000
Elimination of intercompany revenue ......... (3,856,000) --
-------------- -------------
eGlobe, consolidated ........................ $ 65,041,000 $ 80,115,000
-------------- -------------
NET LOSS:
eGlobe ...................................... $ (46,438,000) $ (18,750,000)
Trans Global ................................ (3,206,000) (897,000)
-------------- -------------
eGlobe, consolidated ........................ $ (49,644,000) $ (19,647,000)
-------------- -------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS:
eGlobe ...................................... $ (63,141,000) $ (23,079,000)
Trans Global ................................ (3,206,000) (897,000)
-------------- -------------
eGlobe, consolidated ........................ $ (66,347,000) $ (23,976,000)
-------------- -------------
NET LOSS PER SHARE (BASIC AND DILUTED)
As previously reported ...................... $ -- $ (1.22)
eGlobe, consolidated ........................ $ (0.78) $ (0.41)
-------------- -------------
</TABLE>
NOTE 3 -- MANAGEMENT'S PLAN
As of June 30, 2000, the Company had a net working capital deficiency of
$53.2 million. This net working capital deficiency resulted principally from a
loss from operations of $45.3 million (including deferred compensation,
depreciation, amortization and other non-cash charges which totaled $21.7
million for the six months ended June 30, 2000). Also contributing to the
working capital deficiency were $7.7 million in notes payable and current
maturities of long-term debt, $6.3 million in notes payable and current
maturities of long-term debt due to related parties, and $61.9 million in
accounts payable, accrued expenses, other liabilities and deferred revenue.
Accounts payable includes approximately $10.5 million of payables which are
being renegotiated with AT&T. The current maturities of $7.7 million consists
of $3.3 million primarily related to acquisition/merger debt and $4.4 million
related to capital lease payments due over the one year period ending June 30,
2001. The current maturities of $9.2 million due to related parties, net of
unamortized discount of $2.9 million, consists of term payments of $3.9
million, net of unamortized discount of $2.9 million, due to EXTL Investors,
the Company's third largest stockholder, notes payable of $3.3 million due to
an affiliate of EXTL Investors and a note payable of $2.0 million due to an
affiliate of i1.com. As disclosed in Notes 6, 7 and 8 certain of these payments
are in arrears on June 30, 2000.
On an operating level, the Company is continuing to try to negotiate
certain contract and payment terms with an Enhanced Services customer that has
a significant outstanding balance due to the Company. The Company has recorded
significant reserves to cover this outstanding balance. The Company has not
been able to work out a resolution with this customer. The Company may have to
take a more aggressive course of action to resolve this matter and is
considering all alternatives at this time.
Thus far in 2000, the Company has met its cash requirements from (1)
proceeds from the exercise of options and warrants of $2.7 million, primarily
as a result of the improvement in the Company's stock price during the month of
January 2000 and as sustained through the end of the first quarter, (2)
proceeds of $0.5 million from the sale of Series N Convertible Preferred Stock
F-11
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 3 -- MANAGEMENT'S PLAN - (CONTINUED)
("Series N Preferred"), (3) proceeds of $15.0 million from the sale of Series P
Redeemable Convertible Preferred Stock ("Series P Preferred") and (4) proceeds
of $4.0 million from the sale of Series Q Redeemable Convertible Preferred
Stock ("Series Q Preferred). These capital transactions are discussed in Notes
7 and 9.
If the Company meets its projections for reaching breakeven on an
operating cash basis during the third quarter of 2000, the Company will still
have additional capital requirements through June 2001 of up to $43.1 million.
The Company will need to fund pre-existing liabilities, note payable
obligations and the purchase of capital equipment.
The Company will receive $6.0 million in proceeds from the sale of
additional shares of Series Q Preferred Stock immediately upon the
effectiveness of the registration of the common stock underlying this preferred
stock. In August 2000, the Company received $1.5 million from a private sale of
securities and $250,000 from the sale of the Coast internet service provider
business. The Company also expects to receive approximately $1.2 million from a
tax refund, $650,000 from the sale of the Evans building in Denver, Co, and
$575,000 from the sale of the long distance business. See Note 13 to the
Unaudited Consolidated Financial Statements for further discussion. The Company
anticipates that the additional capital needed will come from a combination of
financings that could consist of debt, private equity, a public follow-on
offering, or a line of credit facility during the twelve-month period from July
2000 through June 2001. There is the possibility that the amount of financing
required could be diminished by secured equipment-based financings.
In addition to the firm commitment discussed previously, the Company is
proceeding with other financing opportunities, which have not been finalized.
The Company has a variety of opportunities in both the debt and equity markets
to raise the necessary funds, which it needs to achieve its growth plan through
the end of the quarter ended June 30, 2001.
The Company anticipates that increased sales in the international market
with higher margins will reduce its net working capital deficiency and
contribute to its funding requirements through the second quarter of 2001.
On December 14, 1999, Trans Global entered into a letter agreement with
AT&T, Trans Global's largest supplier at that time, regarding the payment of
various past due 1999 switch and circuit costs. Pursuant to that agreement,
Trans Global agreed to pay AT&T approximately $13.8 million in consecutive
monthly installments at 9% interest through January 1, 2001. The payable is
secured by certain assets of Trans Global. As of June 30, 2000, the remaining
balance due to AT&T was $10.5 million. Trans Global, as of August 11, 2000, has
not paid $5.5 million of scheduled payments that were due in April, May, and
June 2000. In addition, approximately $3.8 million of payables for current
usage are in arrears. Trans Global is currently in discussions with AT&T
regarding alternative arrangements for settlement of the outstanding
obligations, and believes that conclusion of an arrangement that is not
materially adverse to the immediate or long-term future operations of the
Company, is possible. There can be no assurance that Trans Global will be able
to satisfactorily resolve this matter. Should this not be resolved and should
AT&T take action to take possession of the assets held as security, Trans
Global believes that business will not be adversely impacted. There is no
guarantee that Trans Global and therefore the Company will not have its
operations affected adversely should a satisfactory resolution between the
parties not be reached. The Company is in default on certain notes payable,
however the Company obtained the necessary waivers from the respective lenders.
The Company is obligated under certain conditions to redeem the shares of
Series P Preferred Stock and Series Q Preferred Stock. On July 15, 2000, the
Company failed to register the shares of common stock issuable upon conversion
of the Series P and Q Preferred Stock and associated
F-12
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 3 -- MANAGEMENT'S PLAN - (CONTINUED)
warrants with the SEC, however the holder of the Series P and Q Preferred Stock
has advised the Company in writing that it has no present intention to exercise
its right to demand redemption, so long as the common stock and associated
warrants are registered and declared effective by October 15, 2000.
In order to be able to continue to pursue its growth plans, the Company
believes that it needs to conclude a significant financing, in the second half
of 2000. Without such a financing, the Company will have to sharply curtail its
activities, specifically development of its enhanced IP services.
NOTE 4 -- ACQUISITIONS
As discussed previously, the Company acquired IDX and UCI in December 1998
and Telekey, Connectsoft, Swiftcall, iGlobe, ORS and Coast in 1999. The results
of operations of the acquired businesses are included in the consolidated
financial statements from the date of acquisition. These acquisitions were
accounted for using the purchase method of accounting. There are certain
contingent purchase elements in some of these acquisitions as discussed below.
IDX and UCI
The Company may issue additional purchase consideration if IDX and UCI
meet certain defined performance objectives. The Company is currently
renegotiating UCI's original agreement and timing of the performance
measurement. The Company will determine the final goodwill amounts when the
contingent purchase elements are resolved and the contingent purchase
consideration is issued. Goodwill may materially increase when these
contingencies are resolved.
At the acquisition date, the stockholders of IDX originally received
preferred stock and warrants which were ultimately convertible into common
stock subject to IDX meeting certain performance objectives. These stockholders
in turn granted preferred stock and warrants, each of which were convertible
into a maximum of 240,000 shares of the Company's common stock, to certain
employees. The stock grants were performance based and were adjusted each
reporting period (but not less than zero) for the changes in the stock price
until the shares and/or warrants (if and when) issued were converted into
common stock. In December 1999, the IDX stockholders agreed not to issue
preferred stock and warrants to the employees or other parties. In exchange,
the Company agreed to issue eGlobe options to these employees and others
related to IDX. The options have an exercise price of $1.20 and a three-year
term. The options vested 75% at March 31, 2000 and the other 25% will vest on
an accelerated basis if IDX meets its earn out or in three years if it does
not. These options were granted in the first quarter of 2000. The increase in
market price of the underlying common stock granted by the IDX stockholders to
certain employees resulted in a charge to income of $0.1 million for the three
months ended June 30, 1999 and $1.3 million and $0.4 million for the six months
ended June 30, 2000 and 1999, respectively. See Note 9 for further discussion.
Telekey
As part of the purchase consideration, stockholders of Telekey received
1,010,000 shares of Series F Preferred Stock which were converted into common
stock on January 3, 2000. In addition, under the original purchase agreement,
the stockholders were to receive at least 505,000 and up to an additional
1,010,000 shares of Series F Preferred Stock two years from the date of closing
subject to Telekey meeting certain revenue and EBITDA objectives. The value of
$979,000 for the minimum 505,000 shares of Series F Preferred Stock to be
issued was included in the purchase consideration. These stockholders in turn
agreed to grant upon conversion of the Series F Preferred Stock a total of
240,000 shares of the Company's common stock to certain Telekey employees. Of
this total, 60,000 shares were
F-13
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 4 -- ACQUISITIONS - (CONTINUED)
to be issued only if Telekey met certain performance objectives. As of June 30,
2000 and 1999, the value of the underlying non-contingent 180,000 shares of
common stock granted by the Telekey stockholders to certain employees resulted
in a charge to income of $0.1 million and $0.5 million, respectively. The stock
grants were performance based and were to be adjusted each reporting period
(but not less than zero) for the changes in the stock price until the shares
were issued to the employees. As the Telekey stockholders converted their
shares of Series F Preferred Stock on January 3, 2000, no additional
compensation expense will be recorded for the 120,000 shares issued by the
Telekey stockholders at this date.
The remaining 60,000 non-contingent shares plus an additional 30,000
contingent shares were issued to employees in May 2000 pursuant to the
restructuring agreement discussed below. A charge to income for the six months
ended June 30, 2000 for the incremental value of the underlying 90,000 shares
of common stock was insignificant.
In May 2000, the Company reached a final agreement with the former
stockholders of Telekey which restructured certain terms of the original
purchase agreement. This new agreement allowed the Company to integrate the
Telekey operations, (prior to this time, Telekey's operations had to be kept
separate in order to determine whether the earn-out criteria would be met) to
improve the synergies and technological advancements realized from the merger
and to allow for a change to the general management team of Telekey. The
Company issued 757,500 shares of common stock, of which the value of 505,000
shares was included in the initial purchase consideration, in return for an
acceleration of the original earn-out provisions as well as the termination
dates of certain employment agreements. The issuance of these shares
represented consideration for the earnings contingency under the original
purchase agreement. As such, goodwill was increased by approximately $1.0
million for the additional 252,500 shares of common stock.
iGlobe
The initial preliminary purchase price allocation reflected in the
consolidated financial statements as of December 31, 1999 included goodwill of
$1.8 million and acquired intangibles of $2.4 million related to a customer
base, licenses and operating agreements, a sales agreement and an assembled
workforce. During the six months ended June 30, 2000, based on further
management review, $0.7 million and $0.3 million were reclassified from
goodwill to intangibles and fixed assets, respectively and $1.0 million was
reclassified from fixed assets to investments (see Note 5 for further
discussion of Investment in Unitel). The consolidated financial statements of
the Company as of June 30, 2000 reflect the final allocation of the purchase
price based on the completion of the management review. On April 17, 2000, the
Company renegotiated certain elements of the iGlobe purchase agreement as
discussed in Note 9.
ORS
The LLC was initially funded by contributions effected by the members
under a contribution agreement. Oasis contributed all the outstanding shares of
ORS valued at approximately $2.3 million and the Company contributed 1.5
million shares of its common stock valued at $3.0 million on the date of
issuance and warrants to purchase additional shares of its common stock to the
LLC.
The warrants are exercisable at a price of $.001 per share for the shares
of common stock as discussed below:
(a) Shares equal to the difference between $3.0 million and the value of
the Company's 1.5 million share contribution on the date that the shares
of common stock (including the shares underlying the warrants) contributed
to the LLC are registered with the SEC if the value of the 1.5 million
shares on that date is less than $3.0 million;
F-14
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 4 -- ACQUISITIONS - (CONTINUED)
(b) Shares equal to $100,000 of the Company's common stock for each
30-day period beyond 90 days following the date of contribution that the
shares of the Company's common stock (including the shares underlying the
warrants) contributed to the LLC remain unregistered (as of August 20,
2000, shares equal to $800,000 are issuable upon registration under the
warrant);
(c) 204,909 shares valued at $ 2.0 million became exercisable January
31, 2000 based on ORS meeting certain defined performance objectives;
(d) Shares based upon (1) ORS achieving certain revenue and EBITDA
targets, and (2) the Company's share price at the date of registration of
the shares for this transaction. Under certain circumstances, these shares
may be equal to the greater of (A) 50% of the incremental revenue for the
Second Measurement Period (as defined in the agreements) over $9.0 million
or (B) four times the incremental Adjusted EBITDA (as defined in the
agreements) for the Second Measurement Period over $1.0 million provided,
however, that such number of shares shall not exceed the greater of; (i)
1,000,000 shares of the Company's common stock or (ii) that the number of
shares of the Company's common stock determined by dividing $8.0 million by
the Second Measurement Period Date Market Value (as defined in the
agreements); and provided further, that if the basis for issuance of such
shares is incremental revenue over $9.0 million then EBITDA for the Second
Measurement Period must be at least $1.0 million for the revenue between
$9.0 million and $12.0 million or at least $1.5 million for revenue above
$12.0 million. In addition, the warrant holder may receive 0.5 million
shares of the Company's common stock if the revenue for the Second
Measurement Period is equal to or greater than $37.0 million and the
Adjusted EBITDA for the Second Measurement Period is equal to or greater
than $5.0 million.
On May 12, 2000, Oasis exercised its option to exchange its interest in
the LLC for the Company's common stock and warrants held by the LLC. The LLC
recorded the excess of the carrying value of the Company's securities of $5.1
million over the current fair value of the ORS stock as additional goodwill of
$2.4 million. As a result of this exchange, the Company now owns 100% of the
LLC.
The remaining contingent consideration is based on ORS meeting defined
levels of performance objectives as discussed earlier and is issuable at a
future measurement date. As the contingent consideration is based on an
earnings contingency, it will be recorded as a purchase price adjustment at the
time that the contingency is resolved.
Coast
The consolidated financial statements of the Company as of June 30, 2000
reflect the final allocation of the purchase price based on management's review
and final third party appraisals. The purchase price allocation resulted in
goodwill of $14.3 million and intangibles of $3.2 million related to the value
of certain distribution networks, certain long distance infrastructure,
internally developed software and assembled and trained workforce. On August
23, 2000 the Company sold the ISP business and are planning on selling the long
distance business. The Company entered into a letter of intent with an
interested third party and is moving forward to complete a definitive agreement
to sell that business.
NOTE 5 -- INVESTMENTS
Investment in i1.COM
The Company's investment in i1.com is accounted for under the equity
method. i1.com was founded by the Company and a former IDX executive, and is a
distribution network of e-commerce applications that allows small and
medium-sized businesses to transact business over the Internet.
F-15
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 5 -- INVESTMENTS - (CONTINUED)
Initially the Company received a 75% ownership interest in i1.com in exchange
for providing i1.com access to the Company's IP-based network infrastructure.
As of June 30, 2000, the Company retained a 35% ownership interest with a
carrying value of $1.4 million. The Company was also awarded 500,000 warrants
at a price of $2.50 per share in exchange for the Company surrendering a
technology right which i1.com originally granted to the Company. See Note 8 for
further discussion.
Investment in UNITEL
The Company has an investment in Unitel, a Guatemalan company functioning
as a communications carrier of PSTN traffic including voice, data, and
Internet. The investment is accounted for under the equity method. As of June
30, 2000, the carrying value of the investment is $1.0 million. See Note 4 for
further discussion.
NOTE 6 -- COLLATERALIZED ACCOUNTS PAYABLE
As of June 30, 2000, Trans Global has secured accounts payable with AT&T
Corp. ("AT&T") for approximately $10.5 million. The agreement is collateralized
by certain fixed assets of Trans Global's with a net book value of $8.5 million
at June 30, 2000. Since April 2,2000, Trans Global has been in arrears on its
scheduled payments to AT&T and is currently in negotiations with AT&T to
restructure this payable. See Note 3 for further discussion.
NOTE 7 -- NOTES PAYABLE AND LONG-TERM DEBT
At June 30, 2000 and December 31, 1999, notes payable and long-term debt
consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999
--------------- -------------
<S> <C> <C>
8% unsecured promissory note for acquisition of UCI (1) ............. $ 500,000 $ 500,000
8% mortgage note, payable monthly, including interest through
March 2010, with an April 2010 balloon payment; secured by deed of
trust on the related land and building ............................. 295,000 299,000
Promissory note of Telekey payable to a telcommunications company
(2) ................................................................ 75,000 454,000
Promissory note due to seller of iGlobe (3) ......................... 1,129,000 1,831,000
Promissory note due to seller of ORS (4) ............................ 395,000 451,000
Promissory note secured by certain equipment (5) .................... 2,203,000 2,720,000
Certain promissory notes to an investor and for certain acquisitions,
repaid in January and February 2000 ............................... -- 1,057,000
Capitalized lease obligations (6) ................................... 5,497,000 5,750,000
----------- ----------
Total ............................................................... 10,094,000 13,062,000
Less current maturities ............................................. 7,743,000 7,868,000
----------- ----------
Total notes payable and long-term debt .............................. $ 2,351,000 $5,194,000
----------- ----------
</TABLE>
----------
(1) In connection with the UCI acquisition, the Company issued a $0.5 million
unsecured promissory note with 8% interest payable monthly due no later
than September 30, 2000.
(2) Telekey has an outstanding promissory note issued in the original amount of
$454,000 bearing interest, payable quarterly at 10% with principal due on
December 31, 2000. The note is secured by certain assets of the previous
stockholders of Telekey.
F-16
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 7 -- NOTES PAYABLE AND LONG-TERM DEBT - (CONTINUED)
(3) In connection with the acquisition of iGlobe, HGP financed working capital
for iGlobe through the closing date for which the Company issued an
unsecured note payable for approximately $1.8 million which was subject to
adjustment. The outstanding past due balance bears interest at 15% per
annum. As of June 30, 2000, the Company has repaid $713,000 of the note.
The remaining balance of the note was due on June 1, 2000, and the parties
are currently negotiating payment terms on the remaining balance.
(4) The note payable to Oasis bears interest at 7% and principal and interest
are due in six equal quarterly installments beginning November 30, 1999.
The Company guaranteed ORS' obligations under this loan and granted the
seller a security interest in its ownership interest in the LLC. As of
June 30, 2000, $75,000 in debt payments was in arrears.
(5) Effective June 11, 1999, Trans Global entered into a financing agreement
for a total of $3.3 million secured by certain switch hardware and
software. The note is payable in 36 consecutive monthly installments of
approximately $105,000 (principal and interest) at a fixed interest rate
of 8.88%.
(6) The Company is committed under various capital leases for certain property
and equipment. These leases are for terms of 18 months to 36 months and
bear interest ranging from 8.5% to 28.0%. Accumulated depreciation on
equipment held under capital leases was $1,936,000 and $1,395,000 at June
30, 2000 and December 31, 1999, respectively. As of June 30, 2000,
$466,000 in debt payments was in arrears.
F-17
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- NOTES PAYABLE AND LONG-TERM DEBT -- RELATED PARTIES
As of June 30, 2000 and December 31, 1999, notes payable and long-term
debt with related parties consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
--------------- ------------------
(UNAUDITED)
<S> <C> <C>
Accounts receivable revolving credit note (1) .............. $ 1,750,000 $ 1,058,000
Secured notes, net of unamortized discount of $5,702,000 and
$7,128,000 (1)............................................ 8,548,000 7,806,000
Promissory note of Coast (2) ............................... 3,000,000 3,000,000
Promissory note of Coast (2) ............................... 250,000 250,000
Promissory note to i1.com (3) .............................. 2,000,000 --
Promissory note payable to a stockholder, net of
unamortized discount of $0 and $137,000 (4)............... -- 863,000
----------- -----------
Total, net of unamortized discount of $ 5,702,000 and
$7,265,000................................................ 15,548,000 12,977,000
Less current maturities, net of unamortized discount of
$2,851,000 and $2,988,000................................. 6,281,000 4,676,000
----------- -----------
Total long-term debt, net of unamortized discount of
$2,851,000 and $4,277,000................................. $ 9,267,000 $ 8,301,000
</TABLE>
(1) In April 1999, the Company entered into a loan and note purchase agreement
with EXTL Investors ("EXTL"), which together with its affiliates was the
Company's largest stockholder at the time. Under the terms of this Loan
and Note Purchase Agreement ("Agreement"), in April 1999, the Company
initially received an unsecured loan of $7.0 million bearing interest at
8%. As additional consideration, EXTL received 500,000 warrants valued at
approximately $2.9 million.
Under the Agreement, in July 1999, EXTL purchased $20.0 million of 5% Secured
Notes ("Notes") following approval by the Company's stockholders. The
initial $7.0 million note was repaid from the proceeds of the Notes along
with accrued interest. As additional consideration for the Notes, EXTL was
granted warrants vesting over two years expiring in three years, to
purchase 5,000,000 shares of the Company's common stock at an exercise
price of $1.00 per share. The value assigned such warrants of approximately
$10.7 million was recorded as a discount to the Notes and is being
amortized over the term of the Notes as additional interest expense.
Principal and interest on the Notes are payable over three years in monthly
installments commencing August 1, 1999 with a balloon payment for the
remaining balance due on the earlier to occur of (i) June 30, 2002, or (ii)
the date of closing of an offering ("Qualified Offering") by the Company of
debt or equity securities, in a single transaction or series of related
transactions, from which the Company receives net proceeds of $100.0
million or more. Alternatively, the Company may elect to pay up to 50% of
the original principal amount of the Notes in shares of the Company's
common stock, at its option, if: (i) the closing price of the Company's
common stock is $8.00 or more per share for more than 15 consecutive
trading days; (ii) the Company completes a public offering of equity
securities at a price of at least $5.00 per share and with proceeds of at
least $30.0 million; or (iii) the Company completes an offering of
securities with proceeds in excess of $100.0 million.
Also, under the Agreement, EXTL agreed to make advances to the Company under
a 5% Accounts Receivable Revolving Credit Note ("Revolver") for an amount
up to the lesser of (1) 50% of eligible receivables (as defined) or (2) the
aggregate amount of principal that has been repaid to date ($1,750,000 as
of June 30, 2000). Interest payments are due monthly with the unpaid
principal and interest on the Revolver due on the earliest to occur of (i)
June 30, 2002, or (ii) the date of closing of a Qualified Offering as
defined above.
In August 1999, the Company and EXTL agreed to exchange $4.0 million of the
Notes for 40 shares of Series J Cumulative Convertible Preferred Stock
("Series J Preferred"). The excess of the fair value of the Series J
Preferred Stock of $4.0 million over the carrying value of the Notes (net
of the unamortized discount of approximately $1.9 million) of $2.1 million
was recorded as an extraordinary loss of $2.1 million on early retirement
of debt. As a result of this agreement, the $4.0 million is not subject to
redraw under the Revolver.
These Notes and Revolver are secured by substantially all of the Company's
existing unencumbered operating assets and the Company's accounts
receivable although the Company can pursue certain additional permitted
financing, including equipment and facilities financing, for certain
capital expenditures. The Agreement contains certain debt covenants and
restrictions by and on the Company, as defined. The Company was in arrears
on scheduled principal and interest
F-18
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- NOTES PAYABLE AND LONG-TERM DEBT -- RELATED PARTIES - (CONTINUED)
payments under this debt facility as of June 30, 2000 for which it received
a waiver from EXTL through July 1, 2001. In addition, the Company was in
default under certain of its other debt agreements as a result of
non-payments of scheduled payments at June 30, 2000 and obtained a waiver
through July 1, 2000 from EXTL.
In April 2000, the Agreement was amended and EXTL consented to the Company's
(1) assumption of the Coast notes payable, (2) guarantee of these Coast
notes and (3) the granting of a security interest in the assets currently
securing the Notes as well as the Coast assets to the Coast note holder.
(2) Coast has two outstanding unsecured promissory notes with an affiliate of
EXTL for $3.0 million and $250,000, bearing interest at an 11% rate.
Interest on both notes is payable monthly with the principal due July 1,
2000 and November 29, 2000, respectively. In April 2000, the agreement was
amended and the note holder consented to permit Coast to guarantee the
EXTL Notes and Revolver and to secure such guarantee, and revise the debt
covenants to be consistent with those in the EXTL Notes. The Company
agreed to guarantee these notes and granted a security interest in the
assets securing the EXTL Notes as well as the Coast assets to the Coast
note holder. The Company obtained a waiver from the EXTL affiliate through
July 1, 2001 for the $3.3 million debt payments in arrears as of July 1,
2000 see (1) above.
(3) The Company has an outstanding 6% unsecured note with affiliate i1.com for
$2.0 million, which matures on February 1, 2001. The note was used to
purchase 800,000 shares of i1.com's Class B stock. See Note 5 for further
discussion of this investment.
(4) The Company had an outstanding 14% unsecured $1.0 million note with an
existing stockholder. The lender had the option to exchange the principal
of the note (up to a maximum amount of $750,000) for: (1) shares of common
stock of the Company at a price per share of $1.56 and (2) warrants to
purchase shares of common stock of the Company at a price of $1.00 (60,000
shares per $250,000 of debt exchanged). On April 17, 2000, this note was
exchanged for 543,270 shares of common stock and warrants to purchase
180,000 shares of common stock, with an exercise price of $1.00 per share.
The additional $250,000 of loan principal converted at a rate of $4.00 per
share, the closing price of the Company's common stock on the date of the
transaction. On July 19, 2000, the Company issued an additional 37,500
shares of common stock to reflect an agreed adjustment to the original
conversion price for the $250,000 of the additional loan principal
converted to stock. The value of these 37,500 shares were recorded as
additional interest expense in 2000.
NOTE 9 -- STOCKHOLDERS' EQUITY
Preferred Stock
The following is a summary of the Company's series of Preferred Stock and
the amounts authorized and outstanding as of June 30, 2000 and December 31,
1999. See Note 11 for further discussion of redeemable preferred stock.
8% Series D Cumulative Convertible Preferred Stock, 0 and 125 shares
authorized, 0 and 35 shares, respectively, issued and outstanding ($3.5 million
aggregate liquidation preference) (converted in January 2000 into 2,537,500
shares of common stock, including payment of dividends) (Series eliminated in
February 2000).
8% Series E Cumulative Convertible Redeemable Preferred Stock, 125 shares
authorized, 0 and 50 shares, respectively, issued and outstanding (converted on
January 31, 2000 into 2,352,941 shares of common stock).
Series F Convertible Preferred Stock, 2,020,000 shares authorized, 0 and
1,010,000 shares, respectively, issued and outstanding (converted on January 3,
2000 into 1,209,584 shares of common stock) (Series eliminated in July 2000)
(See Note 4).
Series H Convertible Preferred Stock, 0 and 500,000 shares authorized, 0
and 500,000 shares, respectively, issued and outstanding (converted on January
31, 2000 into 3,262,500 shares of common stock) (Series eliminated in February
2000).
Series I Convertible Optional Redemption Preferred Stock, 400,000 shares
authorized, 250,000 and 400,000 shares, respectively, issued and outstanding
(150,000 shares plus the 8% premium converted on February 14, 2000 into 166,304
shares of common stock) (Series eliminated in July 2000).
F-19
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- STOCKHOLDERS' EQUITY - (CONTINUED)
5% Series J Cumulative Convertible Preferred Stock, 40 shares authorized,
0 and 40 shares, respectively, issued and outstanding ($4.0 million aggregate
liquidation preference) (converted on January 31, 2000 into 2,564,102 shares of
common stock).
5% Series K Cumulative Convertible Preferred Stock, 0 and 30 shares
authorized, 0 and 30 shares, respectively, issued and outstanding ($3.0 million
aggregate liquidation preference) (converted on January 31, 2000 into 1,923,077
shares of common stock) (Series eliminated in February 2000).
20% Series M Convertible Preferred Stock, 1 share authorized, 0 and 1
share, respectively, issued and outstanding ($9.0 million aggregate liquidation
preference) (converted on April 17, 2000 into 3,773,584 shares of common stock)
(Series eliminated in July 2000).
8% Series N Cumulative Convertible Preferred Stock, 0 and 20,000 shares
authorized, 0 and 1,535 shares, respectively, issued and outstanding ($1.5
million liquidation preference) (converted during January 2000 into 530,656
shares of common stock) (Series eliminated in February 2000).
Series O Convertible Preferred Stock, 16,100 shares authorized, 0 and
16,100 shares, respectively, issued and outstanding ($16.0 million aggregate
liquidation preference) (converted on April 30, 2000 into 3,220,000 shares of
common stock).
The following is a detailed discussion of certain series of preferred
stock outstanding during the six months ended June 30, 2000.
Series I Convertible Preferred Stock
On February 14, 2000, 150,000 shares of the Series I Preferred Stock plus
the 8% accrued premium automatically converted into 166,304 shares of common
stock pursuant to the terms of the stock agreement.
The Company had an option to redeem the remaining 250,000 shares of Series
I Preferred Stock prior to July 17, 2000 at a price of $10.00 per share plus 8%
of the value of Series I Preferred Stock per annum from December 2, 1998
through the date of redemption for cash, common stock or a combination of the
two. Any Series I Preferred Stock not redeemed by July 17, 2000 as discussed
above automatically converts into common stock based on a conversion price of
$10.00 per share plus 8% per annum of the value of the Series I Preferred Stock
from December 2, 1998 through the date of conversion divided by the greater of
the average closing price of common stock over the 15 days immediately prior to
conversion or $2.00 up to a maximum (considering the shares issued in February
2000) of 2.4 million shares of common stock. The Company made a written
election in August 1999 to pay the 8% premium in shares of common stock upon
redemption or conversion.
On July 17, 2000, the remaining 250,000 shares of Series I Preferred Stock
plus the 8% accrued premium automatically converted into 938,210 shares of
common stock.
Series M Convertible Preferred Stock
The share of Series M Preferred Stock carried an annual cumulative
dividend of 20% which would accrue and be payable annually or at conversion in
cash or shares of common stock, at the option of the Company. The above market
dividend resulted in a premium of $643,000 which was being amortized as a
deemed preferred stock dividend over the one-year period from the issuance
date. The Series M Preferred Stock was convertible, at the option of the
holder, one year after the issue date at a conversion price of $2.385. The
Company recorded a dividend on the Series M Preferred Stock of approximately
$1.4 million for the beneficial conversion feature based on the
F-20
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- STOCKHOLDERS' EQUITY - (CONTINUED)
excess of the common stock closing price on the effective date of the
acquisition over the conversion price. The dividend was being amortized as a
deemed preferred dividend over the one-year period from the date of issuance.
On April 17, 2000, the Company and HGP entered into a renegotiation
agreement which is summarized as follows:
(1) The one share of Series M Preferred Stock was converted into 3,773,584
shares of common stock and HGP waived all rights to accrued Series M
Preferred Stock dividends. The $5.5 million difference between the fair
value of the common stock issued and the carrying value of the Series M
Preferred Stock (net of any unamortized premium or discount and the
accrued Series M dividends that were waived) was recorded as a dividend in
April 2000. The dividend amount is being reflected in the Company's
statement of operations for the six months ended June 30, 2000 as an
increase in the net loss attributable to common stockholders.
HGP has agreed in the event it wishes to sell all or part of the Company's
common stock, it will notify the Company ("Revelant Date") at least 30 days
prior to the sale. The Company shall have the right, by notice to the HGP,
to repurchase or place with a third party the stock proposed to be sold at
a price equal to (i) 20% less than the average closing price of the
Company's common stock over the ten trading days prior to the Relevant
Date, if such average is $8 or less; (ii) 15% less than the average closing
price of the Company's common stock over the ten trading days prior to the
Relevant Date, if such price is $8.00 or more but less than $14.00; and
(iii) 10% less than the average closing price of the Company's common stock
over the ten trading days prior to the Relevant Date, if such average price
is $14.00 or more. If the Company does not exercise its repurchase rights,
HGP is free to sell the stock, provided it agrees to use reasonable efforts
to avoid events significantly and adversely affecting the market price of
the Company's common stock. This repurchase agreement expires October 31,
2000;
(2) The Company agreed to file a registration statement to register the
3,773,584 shares of common stock prior to May 31, 2000. If the
registration statement is not filed by May 31, 2000, the Company agreed to
pay a penalty of $40,000 for each 30-day period that such registration
statement has not been filed.
(3) The Company agreed to pay the amounts in arrears under the note owed in
connection with the acquisition prior to June 1, 2000. (See Note 7 for
discussion of note)
Series N Cumulative Convertible Preferred Stock
During January 2000, the shares of Series N Preferred Stock outstanding at
December 31, 1999 were converted into 375,262 shares of common stock.
In January 2000, the Company sold an additional 525 shares of Series N
Preferred Stock and warrants to purchase 42,457 shares of common stock for
proceeds of $0.5 million. These shares of Series N Preferred Stock were
converted, at the holders' option, into 155,394 shares of the Company's common
stock at conversion prices between $3.37 and $3.51. The warrants are
exercisable one year from issuance and expire three years from issuance with an
exercise price of $7.50 per share. In addition, the holders may elect to make a
cash-less exercise. The values of the warrants totaling $157,000 were recorded
as dividends at the issuance dates because the Series N Preferred Stock was
immediately convertible.
In February 2000, the Company issued warrants to a certain Series N
Preferred stockholder to purchase 200,000 shares of the Company's common stock
at a price per share equal to $7.50. The warrants are exercisable in whole or
in part at any time beginning on the date that is one year after the
F-21
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- STOCKHOLDERS' EQUITY - (CONTINUED)
date of issuance until the third anniversary of the date of issuance. These
warrants were issued due to a delay in registering shares of the Company's
common stock, accordingly, the value of these warrants of $1.6 million was
included in selling, general and administrative expense for the six months
ended June 30, 2000.
Series O Convertible Preferred Stock
In December 1999, the Company issued 16,100 shares of Series O Preferred
Stock in connection with the acquisition of Coast. See Note 4 for further
discussion. The estimated value of the Series O Preferred Stock of $13.4
million was based upon a third party appraisal. The Series O Preferred Stock
carried an annual dividend of 10% and all dividends that would accrue through
November 30, 2001 on each share of Series O Preferred Stock were payable in
full upon conversion of such shares. The final appraisal included a present
value of $2.5 million for dividends through November 30, 2001. The difference
between the undiscounted value of the dividends and $2.5 million was being
accrued as a dividend over the period from the issuance date to the date that
the Series O Preferred Stock could first be converted by the holder.
The shares of Series O Preferred Stock had a liquidation value of $16.1
million and were convertible, at the holder's option, into a maximum 3,220,000
shares of common stock at any time after the later of (a) one year after the
date of issuance and (b) the date the Company had received stockholder approval
for such conversion (received March 23, 2000) and the applicable
Hart-Scott-Rodino waiting period has expired or terminated (the "Clearance
Date"), at a conversion price equal to $5.00. The shares of Series O Preferred
Stock automatically convert into shares of common stock, on the occurrence of
certain events including the first date as of which the last reported sales
price of the Company's common stock on Nasdaq is $6.00 or more for any 15
consecutive trading days during any period in which Series O Preferred Stock
was outstanding.
On January 26, 2000, the closing sales price of the Company's common stock
was $6.00 or more for 15 consecutive trading days and accordingly, on the
Clearance Date, April 30, 2000, the outstanding Series O Preferred Stock
converted into 3,220,000 shares of common stock. On this date the remaining
unamortized dividend of $0.4 million was recorded.
Common Stock
During the six months ended June 30, 2000, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock, Series H Preferred Stock,
150,000 shares plus the 8% value Series I Preferred Stock, Series J Preferred
Stock, Series K Preferred Stock, Series N Preferred Stock and Series O
Preferred Stock converted into shares of common stock. See above discussion.
Upon the execution of the Coast merger agreement, one of the Coast
stockholders signed an employment agreement with the Company. Under a side
letter to the employment agreement, the Company was obligated to repurchase the
247,213 shares of common stock issued to this employee in the Coast acquisition
for $700,000 under certain conditions. Accordingly, the redemption value of
$700,000 for these shares was reflected as Redeemable Common Stock at December
31, 1999. In January 2000, this employee waived the redemption feature and this
amount was reclassified to Stockholders' Equity.
In December 1999, the Company entered into a promissory note with a bank,
as amended on February 1, 2000, for a principal amount of $14.0 million. In
connection with the note agreement, a security and pledge agreement was signed
whereby the Company assigned all of its rights to 4,961,000
F-22
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- STOCKHOLDERS' EQUITY - (CONTINUED)
shares of eGlobe common stock to the lender. However, the lender failed to fund
the note on a timely basis and in March 2000, the Company advised the lender
that they were terminating the agreement and demanded the lender return
eGlobe's stock certificates. The lender returned the certificates on April 17,
2000.
On April 17, 2000, an existing stockholder exchanged his loan of
$1,000,000 for 543,270 shares of the Company's common stock and warrants to
purchase 180,000 shares of common stock. See Note 8 for further discussion.
Also on April 17, 2000, the one share of Series M Preferred Stock was
converted into 3,773,584 shares of common stock and the holder waived all
rights to Series M dividends. The $5.5 million difference between the fair
value of common stock issued and the carrying value of the Series M Preferred
Stock (net of any unamortized premium or discount and the accrued dividends
that were waived) was recorded as a dividend in April 2000. See Series M
Preferred Stock above.
On May 12, 2000 Oasis exchanged its interest in the LLC for 1,500,000
shares of the Company's common stock, warrants to purchase 204,909 shares of
common stock and contingent warrants based on performance held by the LLC. See
Note 4 for further discussion.
In May 2000, the Company issued 757,500 shares of the Company's common
stock as a result of the Company's final agreement with the former stockholders
of Telekey to restructure certain elements of the original purchase agreement.
See Note 4 for further discussion.
During the six months ended June 30, 2000, the Company received proceeds
of approximately $1.9 million from the exercise of options to acquire 763,015
shares of common stock.
During the six months ended June 30, 2000, the Company received proceeds
of approximately $0.8 million from the exercise of warrants to acquire 704,909
shares of common stock. In addition, there was a cash-less exercise of warrants
to purchase 306,667 shares of common stock for which 184,218 shares were
issued.
The Company loaned certain of its executive officers money in connection
with their exercise of non-qualified stock options in December 1999. These
options were not granted under the Employee Stock Option and Appreciation
Rights Plan (the "Employee Plan") discussed below. The notes receivable of
$1,210,000 are full recourse promissory notes bearing interest at 6% and are
collateralized by the 430,128 shares of stock issued upon exercise of the stock
options. Interest is payable quarterly in arrears and principal is due the
earlier of (a) for $177,000 of the notes December 16, 2003 and for $1,033,000
of the notes December 16, 2004 or (b) the date that is 90 days after the date
that the employee's employment terminates, unless such termination occurs other
than "for cause" (as defined). In June 2000, pursuant to a termination
agreement, a certain employee's notes due date was extended to 120 days after
the date of employment was terminated. The employees also agreed to promptly
redeem the outstanding note balances upon the sale of the underlying stock. The
notes receivable are shown in the consolidated balance sheet as a reduction to
stockholders' equity.
On January 1, 2000, the Company loaned an executive of the Company money
in connection with the executive's purchase of 36,000 shares of common stock.
The note receivable of $159,000 is a full recourse promissory note bearing
interest at 8% and is collateralized by the 36,000 shares of stock issued.
Interest in arrears and principal are due the earlier of (a) January 1, 2004 or
(b) the date that is 90 days after the date that the employee's employment
terminates, unless such termination occurs other than "for cause" (as defined).
Options
As of December 31, 1999, options outstanding under the Employee Plan
exceeded the shares available for grant by 1,995,468 shares. The Board of
Directors granted these options to certain executive officers and directors
subject to stockholder approval of the increase in the number of shares
F-23
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- STOCKHOLDERS' EQUITY - (CONTINUED)
available under the Employee Plan. The stockholders approved the increase of
the number of shares available under the Employee Plan from 3,250,000 to
7,000,000 shares on March 23, 2000. During the period from January 1, 2000
through March 23, 2000, an additional 567,070 options were granted that
exceeded the shares available under the Employee Plan. This amount excludes the
532,163 options granted to certain IDX employees and others as discussed below.
The excess of the market price of $9.94 on March 23, 2000 (stockholder approval
date) and the option exercise price for these options was $15.2 million and is
being recorded as compensation expense over the vesting period of the options.
For the six months ended June 30, 2000, a $6.1 million has been recorded as
compensation expense.
As discussed in Note 4, the Company granted 532,163 options on January 7,
2000 to certain IDX employees and others. These options exceeded the shares
available for grant under the Employee Plan. The excess of (1) the excess of
the market price of the Company's common stock on March 23, 2000 over the
exercise price of the options granted to current IDX employees over (2) the
carrying value as of March 23, 2000 of the original grants to these employees,
was $1.2 million.
This amount is being recorded as compensation expense over the vesting
period of the options and $0.9 million was recorded for the six months ended
June 30, 2000. The 244,673 options granted to non-employees were valued using
the Black Scholes option-pricing model. The $1.1 million excess value of the
fair value of these options over the carrying value of the original grants was
recorded as compensation expense for the six months ended June 30, 2000.
In the six months ended June 30, 2000, pursuant to a termination
agreement, the Company accelerated the vesting of certain options issued to an
employee. The intrinsic value of these options on this date of $0.3 million was
recorded as compensation expense for the six months ended June 30, 2000.
NOTE 10 -- EARNINGS (LOSS) PER SHARE
Earnings (loss) per share are calculated in accordance with SFAS No. 128,
"Earnings Per Share". The net loss of $66.3 million and $24.0 million
attributable to common stockholders for the six months ended June 30, 2000 and
1999 includes preferred stock dividends of $16.7 million and $4.3 million,
respectively. The weighted average shares outstanding for calculating basic
earnings (loss) per share were 84,596,873 and 58,904,001 for the six months
ended June 30, 2000 and 1999, respectively. Common stock options and warrants
of 5,735,114 and 8,175,514 outstanding at June 30, 2000 and 2,106,083 and
3,115,763 outstanding at June 30,1999 were not included in diluted earnings
(loss) per share as the effect was antidilutive due to the Company recording a
loss in the periods presented. Contingent warrants of 1,162,500 and 2,500,000
were not included in diluted earnings (loss) per share for the six months ended
June 30, 2000 and 1999 as conditions for inclusion had not been met.
In addition, convertible preferred stock, stock to be issued, and debt
convertible into 7.7 million and 12.0 million shares of common stock for the
three and six months ended June 30, 2000 and 1999, respectively, were not
included in diluted earnings (loss) per share due to the losses for the
respective periods.
The shares of common stock held in escrow to cover eGlobe's potential
indemnification obligations under the Trans Global merger agreement, are not
included in the computation of basic and diluted loss per share.
F-24
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- EARNINGS (LOSS) PER SHARE - (CONTINUED)
The following table lists preferred dividends by preferred stock series
for the six months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
SIX SIX
MONTHS ENDED MONTHS ENDED
PREFERRED STOCK SERIES JUNE 30, 2000 JUNE 30, 1999
------------------------ --------------- --------------
<S> <C> <C>
C .................... $ -- $ 2,215,000
D .................... -- 1,497,000
E .................... 33,000 595,000
I .................... 327,000 22,000
J .................... 17,000 --
K .................... 13,000 --
M .................... 6,292,000 --
N .................... 571,000 --
O .................... 643,000 --
P .................... 6,889,000 --
Q .................... 1,918,000 --
------------ -----------
TOTAL ................ $ 16,703,000 $ 4,329,000
============ ===========
</TABLE>
NOTE 11 -- REDEEMABLE CONVERTIBLE PREFERRED STOCK
The following is a summary of the Company's series of redeemable preferred
stock and the amounts authorized and outstanding as of June 30, 2000 and
December 31, 1999.
Series P Redeemable Convertible Preferred Stock, 15,000 and 0 shares
authorized, 15,000 and 0 shares, respectively, issued and outstanding ($15.0
million plus 5% per annum aggregate liquidation preference).
Series Q Redeemable Convertible Preferred Stock, 10,000 and 0 shares
authorized, 4,000 and 0 shares, respectively, issued and outstanding ($4.0
million plus 5% per annum aggregate liquidation preference).
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
--------------- ------------------
(UNAUDITED)
<S> <C> <C>
Series P Convertible Preferred Stock ......... $ 18,385,000 $ --
Series Q Convertible Preferred Stock ......... 4,870,000 --
------------ ----
Total ........................................ $ 23,255,000 $ --
============ ====
</TABLE>
Following is a detailed discussion of each series of redeemable
convertible preferred stock outstanding at June 30, 2000.
Series P Convertible Preferred Stock
On January 27, 2000, the Company issued 15,000 shares of Series P
Redeemable Convertible Preferred Stock ("Series P Preferred Stock") and
warrants to purchase 375,000 shares of common stock with an exercise price of
$12.04 per share for proceeds of $15.0 million to RGC International Investors,
LDC ("RGC"). The Series P Preferred Stock is classified as redeemable stock on
the balance sheet at the redemption value. The shares of Series P Preferred
Stock carry an effective annual yield of 5% (payable in kind at the time of
conversion) and are convertible, at the holder's option, into shares of common
stock. The shares of Series P Preferred Stock will automatically be
F-25
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- REDEEMABLE CONVERTIBLE PREFERRED STOCK - (CONTINUED)
converted into shares of common stock on January 26, 2003, subject to delay for
specified events. The conversion price for the Series P Preferred Stock was
$12.04 until April 26, 2000, and thereafter is equal to the lesser of: (i) the
average closing price of the Company's common stock on Nasdaq for any five
consecutive trading days during the 22 trading days prior to conversion, or
(ii) $12.04. The Company can force a conversion of the Series P Preferred Stock
on any trading day following a period in which the closing bid price of the
Company's common stock has been greater than $24.08 for a period of at least 35
trading days after the earlier of (1) the first anniversary of the date the
common stock issuable upon conversion of the Series P Preferred Stock and
warrants are registered for resale, or (2) the completion of a firm commitment
underwritten public offering with gross proceeds to the Company of at least
$45.0 million provided that shares issuable upon conversion and warrants have
been registered for resale for at least 45 days.
The shares of Series P Preferred Stock are convertible into a maximum of
5,151,871 shares of common stock. This maximum share amount is subject to
increase if the average closing bid prices of the Company's common stock for
the 20 trading days ending on the later of June 30, 2000 and the 60th calendar
day after the common stock issuable upon conversion of the Series P Preferred
Stock and warrants is registered is less than $9.375, provided that under no
circumstances will the Series P Preferred Stock (together with the Series Q
Preferred Stock and related warrants) be convertible into more than 7,157,063
shares of the Company's common stock unless the Company obtains stockholder
approval of the issuance of more shares. In addition, no holder may convert the
Series P Preferred Stock or exercise the warrants it owns for any shares of
common stock that would cause it to own following such conversion or exercise
in excess of 4.9% of the shares of the Company's common stock then outstanding.
Except in the event of a firm commitment underwritten public offering of
eGlobe's securities, the issuance of securities in connection with a merger,
acquisition or purchase of assets or a sale of up $15.0 million of common stock
to a specified investor, the Company may not obtain any additional equity
financing without the Series P Preferred holder's consent for a period of 120
days following the date the common stock issuable upon conversion of the Series
P Preferred Stock and warrants is registered for resale. The holder also has a
right of first offer to provide any additional equity financing that the
Company needs until the first anniversary of such registration.
The Company may be required to redeem the Series P Preferred Stock in the
following circumstances:
(a) if the Company fails to perform specified obligations under the securities
purchase agreement or related agreements;
(b) if the Company or any of its subsidiaries make an assignment for the
benefit of creditors or becomes involved in bankruptcy, insolvency,
reorganization or liquidation proceedings;
(c) if the Company merges out of existence without the surviving company
assuming the obligations relating to the Series P Preferred Stock;
(d) if the Company's common stock is no longer listed on the Nasdaq National
Market, the Nasdaq SmallCap Market, the NYSE or the AMEX;
(e) if the Series P Preferred Stock is no longer convertible into common stock
because it would result in an aggregate issuance of more than 5,151,871
shares of common stock, as such number may be adjusted, and the Company
has not waived such limit or obtained stockholder approval of a higher
limit; or
(f) if, assuming the criteria are met for issuance of more than 5,151,871
shares, the Series P Preferred Stock is no longer convertible into common
stock because it would result in an aggregate issuance of more than
7,157,063 shares of the Company's common stock and the Company has not
obtained stockholder approval of a higher limit.
F-26
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- REDEEMABLE CONVERTIBLE PREFERRED STOCK - (CONTINUED)
If the Series P Preferred Stock is redeemed under situations (a), (b), (c)
or (d) above, the redemption value is equal to the greater of (a) 120%
multiplied by the sum of (i) the stated value ($1,000 per share) plus (ii) 5%
per annum plus (iii) any penalties in arrears (as defined in the agreement) and
(b) the sum of (i) the stated value plus (ii) 5% per annum, divided by the then
effective conversion rate (as defined above) multiplied by the highest closing
price for the common stock during the period from the date of the first
occurrence of the mandatory redemption event until one day prior to the
mandatory redemption date.
If the Series P Preferred Stock is redeemed under situation (e) and (f)
above, the redemption value is equal to $1,000 per share multiplied by 5% per
annum.
On July 15, 2000, the Company failed to register the shares of common
stock issuable upon conversion of the Series P Preferred Stock and associated
warrants with the SEC, however the holder of the Series P Preferred Stock has
advised the Company in writing that it has no present intention to exercise its
right to demand redemption described in (a) above, so long as the common stock
and associated warrants are registered and declared effective by October 15,
2000.
The warrants valued at $2.6 million are exercisable from issuance and
expire five years from issuance. The exercise price is $12.04 per share.
The Series P Preferred Stock has been recorded at the maximum redemption
value of $18.4 million as of June 30, 2000. The difference of $6.9 million
between the redemption value and the fair value at issuance, including offering
costs of $0.9 million and the warrant value of $2.6 million, was recorded as a
dividend because the Series P Preferred Stock is redeemable upon the occurrence
of any of the above events.
Series Q Convertible Preferred Stock
On March 15, 2000, the Company issued 4,000 shares of Series Q Redeemable
Convertible Preferred Stock ("Series Q Preferred Stock") and warrants to
purchase 100,000 shares of eGlobe common stock with an exercise price per share
equal to $12.04, subject to adjustment for issuances of shares of common stock
below market price, for proceeds of $4.0 million to RGC.
The Series Q Preferred Stock agreement also provides that the Company may
issue up to 6,000 additional shares of Series Q Preferred Stock and warrants to
purchase an additional 150,000 shares of common stock to RGC for an additional
$6.0 million at a second closing to be completed no later than July 15, 2000.
The primary condition to the second closing is the effectiveness of a
registration statement registering the resale of common stock underlying the
Series Q Preferred Stock and the warrants and the Series P Preferred Stock and
warrants issued in January 2000 to RGC (see above discussion "Series P
Convertible Preferred Stock"). The Series Q Preferred Stock is classified as
redeemable stock on the balance sheet at the redemption value.
The shares of Series Q Preferred Stock carry an effective annual yield of
5% (payable in kind at the time of conversion) and are convertible, at the
holder's option, into shares of common stock. The shares of Series Q Preferred
Stock will automatically be converted into shares of common stock on March 15,
2003, subject to delay for specified events. The conversion price for the
Series Q Preferred Stock was $12.04 until April 26, 2000, and thereafter is
equal to the lesser of: (i) the average closing price of the Company's common
stock on Nasdaq for any five consecutive trading days during the 22-trading
days prior to conversion, or (ii) $12.04.
The Company can force a conversion of the Series Q Preferred Stock on any
trading day following a period in which the closing bid price of the Company's
common stock has been greater than $24.08 for a period of at least 35 trading
days after the earlier of (1) the first anniversary of the date the common
stock issuable upon conversion of the Series Q Preferred Stock and warrants is
F-27
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- REDEEMABLE CONVERTIBLE PREFERRED STOCK - (CONTINUED)
registered for resale, or (2) the completion of a firm commitment underwritten
public offering with gross proceeds to the Company of at least $45.0 million
provided that shares issuable upon conversion and warrants have been registered
for resale for at least 45 days.
The Series Q Preferred Stock is convertible into a maximum of 3,434,581
shares of common stock. This maximum share amount is subject to increase if the
average closing bid prices of the Company's common stock for the 20 trading
days ending on the later of June 30, 2000 and the 60th calendar day after the
common stock issuable upon conversion of the Series Q Preferred Stock and
warrants is registered is less than $9.375, provided that under no
circumstances will the Series Q Preferred Stock (together with the Series P
Preferred Stock and related warrants) be converted into more than 7,157,063
shares of common stock (unless the Company obtains stockholder approval of the
issuance of more shares).
In addition, no holder may convert the Series Q Preferred Stock or
exercise the warrants it owns for any shares of common stock that would cause
it to own following such conversion or exercise in excess of 4.9% of the shares
of the Company's common stock then outstanding.
The Company may be required to redeem the Series Q Preferred Stock in the
following circumstances:
(a) if the Company fails to perform specified obligations under the securities
purchase agreement or related agreements;
(b) if the Company or any of its subsidiaries makes an assignment for the
benefit of creditors or become involved in bankruptcy insolvency,
reorganization or liquidation proceedings;
(c) if the Company's common stock is no longer listed on the Nasdaq National
Market, the Nasdaq SmallCap Market, the NYSE or the AMEX;
(d) if the Series Q Preferred Stock is no longer convertible into common stock
because it would result in an aggregate issuance of more than 3,434,581
shares of common stock, as such number may be adjusted, and the Company
has not waived such limit or obtained stockholder approval of a higher
limit; or
(e) if, assuming the criteria are met for issuance of more than 3,434,581
shares, the Series Q Preferred Stock is no longer convertible into common
stock because it would result in an aggregate issuance of more than
7,157,063 shares of the Company's common stock and the Company has not
obtained stockholder approval of a higher limit.
If the Series Q Preferred Stock is redeemed under situations (a), (b) or
(c) above, the redemption value is equal to the greater of (a) 120% multiplied
by the sum of (i) the stated value ($1,000 per share) plus (ii) 5% per annum
plus (iii) any penalties in arrears (as defined in the agreement) and (b) the
sum of (i) the stated value plus (ii) 5% per annum, divided by the then
effective conversion rate (as defined above) multiplied by the highest closing
price for the common stock during the period from the date of the first
occurrence of the mandatory redemption event until one day prior to the
mandatory redemption date.
If the Series Q Preferred Stock is redeemed under situation (d) or (e)
above, the redemption value is equal to $1,000 per share multiplied by 5% per
annum.
The warrants, valued at $0.8 million, are exercisable from issuance and
expire five years from issuance. The exercise price is $12.04 per share.
On July 15, 2000, the Company failed to register the shares of common
stock issuable upon conversion of the Series Q Preferred Stock and associated
warrants with the SEC, however the holder of the Series Q Preferred Stock has
advised the Company in writing that it has no present intention to exercise its
right to demand redemption described in (a) above, so long as the common stock
and associated warrants are registered and declared effective by October 15,
2000.
F-28
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- REDEEMABLE CONVERTIBLE PREFERRED STOCK - (CONTINUED)
The Series Q Preferred Stock has been recorded at the maximum redemption
value of $4.9 million as of June 30, 2000. The difference of $1.9 million
between the redemption value and the fair value at issuance, including offering
costs of $0.2 million and the warrant value of $0.8 million, was recorded as a
dividend because the Series Q Preferred Stock is redeemable upon the occurrence
of any of the above events.
NOTE 12 -- OPERATING SEGMENT INFORMATION
The Company has four operating reporting segments consisting of Enhanced
Services Network Services, Customer Care and Retail Services. The Company's
basis for determining the segments relates to the type of services each segment
provides. Enhanced Services includes the unified messaging services, telephone
portal services, interactive voice and data services and the card services.
Network Services includes low-cost transmission services, voice services
(CyberCall and CyberFax) and several other additional services including
billing and report generation designed exclusively to support CyberCall and
CyberFax. Customer Care Services includes the state-of-art call center, which
was part of the Company's acquisition of ORS. Retail Services primarily
includes a small North American retail center. Segment results reviewed by the
Company decision makers do not include general and administrative expenses,
interest, depreciation and amortization and other miscellaneous income and
expense items. All material intercompany transactions have been eliminated in
consolidation.
The following unaudited table presents operating segment information:
<TABLE>
<CAPTION>
ENHANCED NETWORK CUSTOMER RETAIL
SERVICES SERVICES CARE SERVICES TOTAL
---------------- ---------------- -------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDING
JUNE 30, 2000
Revenue ..................... $ 7,225,000 $ 58,560,000 $ 2,675,000 $ 3,486,000 $ 71,946,000
Inter-Segment ............... (3,000) (6,592,000) (310,000) -- (6,905,000)
------------ ------------ ----------- ------------ -------------
Total Revenue ............... $ 7,222,000 $ 51,968,000 $ 2,365,000 $ 3,486,000 $ 65,041,000
Gross Profit ................ $ 1,608,000 $ 2,140,000 $ 83,000 $ 1,838,000 $ 5,669,000
Total Assets ................ $ 33,403,000 $ 50,084,000 $ 5,853,000 $ 18,045,000 $ 107,385,000
FOR THE SIX MONTHS ENDING
JUNE 30, 1999
Revenue ..................... $ 11,786,000 $ 68,630,000 $ -- $ 235,000 $ 80,651,000
Inter-Segment ............... -- (536,000) -- -- (536,000)
------------ ------------ ----------- ------------ -------------
Total Revenue ............... $ 11,786,000 $ 68,094,000 $ -- $ 235,000 $ 80,115,000
Gross Profit (Loss) ......... $ 1,465,000 $ 1,727,000 $ -- $ (133,000) $ 3,059,000
Total Assets ................ $ 39,896,000 $ 49,381,000 $ -- $ 791,000 $ 90,068,000
</TABLE>
NOTE 13 -- SUBSEQUENT EVENTS
Sale of Coast Assets
Subsequent to June 30, 2000 the Company signed a letter of intent with a
third party to purchase certain long-distance assets of Coast, excluding the
intellectual software property, the Internet service provider business and help
desk business. The Board of Directors approved the potential sale. The
estimated purchase price is approximately $575,000 pending final third party
appraisals and completion of management's review. A formal plan to sell any of
the Coast International long-distance assets has not been finalized.
F-29
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- SUBSEQUENT EVENTS - (CONTINUED)
On August 23, 2000, the Company entered into an agreement to sell the
remaining Coast assets, the Internet service provider business and help desk
business, to Information Management Solutions Consulting, L.L.C., ("IMS"). IMS
is owned by relatives of Mr. Moaveni, the Chief Operating Officer of the
Company. The purchase price of $700,000 is payable to the Company in $250,000
cash and a promissory note of $450,000 secured by common stock of the Company
owned by Mr. Moaveni valued at $2.832 per share or a price equal to the average
market price of the last fifteen trading days prior to the execution of the
agreement, whichever is greater. This purchase includes all related fixed
assets as of July 31, 2000, including prepaid insurance and software, security
deposits and other related assets. IMS will also assume the lease on the
facility in Kansas and bandwidth contracts from two customers.
Sale of the Evans Building
The Evans building, which is located in Denver, CO was subsequently
reclassed as an asset held for sale. The Company is currently in negotiations
with an interested third party and expects to receive approximately $650,000,
pending final third party appraisals and completion of management's review.
Tower Hill Investments Limited
On August 25, 2000, the Company issued Tower Hill Investments Limited
1,071,429 shares of its common stock and warrants to purchase 160,714 shares of
its common stock in a private placement for an aggregate purchase price of $1.5
million. The warrants have an exercise price of $1.40 per share and are
exercisable immediately and expire on August 24, 2005.
EXTL Amended and Restated Loan and Note Purchase Agreement
On September 12, 2000 the Company entered into an agreement to amend and
restate the loan and note purchase agreement and the 5% secured notes Prior to
the amendment, the total outstanding principal balance under the 5% secured
notes to EXTL Investors, which was recently renamed in connection with a merger
EXTL - Special Investment Risks, LLC, was $19,577,989, which includes interest
and penalties of $1,000,000. As amended, the 5% secured notes will be paid in
monthly principal installments of $50,000 beginning on October 15, 2000 with
the residual unpaid principal becoming due and payable on its July 1, 2002
maturity date. As amended, the 5% secured notes will bear interest at the prime
rate plus 2% and will accrue monthly on the unpaid principal and unpaid
interest and will be due at maturity. EXTL - Special Investments Risks waived
all past defaults and all violations of existing loan instruments were deemed
cured.
EXTL - Special Investment Risks, LLC exercised its warrant to purchase
5,000,000 shares of the Company's common stock in connection with the amendment
of the loan and note purchase agreement by reducing the outstanding principal
balance under the 5% secured notes by $3,577,989, resulting in a remaining note
indebtedness of $15,000,000 plus interest of $1,000,000.
In connection with the amendment, the Company also have issued warrants to
EXTL - Special Investment Risks, LLC to purchase 1,000,000 shares of the
Company's common stock at $1.94 per share expiring July 1, 2004.
F-30
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- SUPPLEMENTAL INFORMATION TO CONSOLIDATED STATEMENTS OF CASH FLOWS
AND NON-CASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999
----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash paid during the period for:
Interest ................................................................... $ 2,168,000 $ 321,000
Income taxes ............................................................... $ 151,000 $ 265,000
Non-cash investing and financing activities:
Equipment acquired under capital lease obligations ......................... $ 502,000 $ 400,000
Unamortized debt discount related to warrants .............................. $ 5,702,000 $ 428,000
Common stock issued as prepayment of debt .................................. $ -- $ 1,223,000
Preferred stock dividends .................................................. $ 16,703,000 $ 4,329,000
Value of warrants issued and reflected as debt discount ..................... $ -- $ 2,871,000
Increase in value of preferred stock as a result of changes in conversion
feature .................................................................... $ -- $ 1,485,000
Increase in value of investment and common stock pursuant to Oasis
exchange of interest in LLC (Note 4) ....................................... $ 5,050,000 $ --
Issuance of note payable for investment in i1.com (Note 5) .................. $ 2,000,000 $ --
Allocation of final iGlobe purchase consideration (Note 4):
Decrease in Property and Equipment ......................................... $ (700,000) $ --
Increase in Investment ..................................................... $ 1,000,000 $ --
Decrease in Purchase Price in excess of the net assets acquired ............ $ (1,000,000) $ --
Increase in Intangible Assets .............................................. $ 700,000 $ --
CONNECTSOFT
Working capital deficit, other than cash acquired .......................... $ -- $ (2,118,000)
Property and equipment ..................................................... -- 514,000
Intangible assets .......................................................... -- 9,120,000
Purchase price in excess of the net assets acquired ........................ -- 993,000
Acquired debt .............................................................. -- (2,992,000)
Advances to Connectsoft prior to beginning of the period ................... -- (971,000)
Issuance of Series G Cumulative Convertible Redeembable Preferred
Stock .................................................................... -- (3,000,000)
TELEKEY
Working capital deficit, other than cash acquired .......................... (1,284,000)
Property and equipment ..................................................... -- 481,000
Intangible assets .......................................................... -- 1,500,000
Purchase price in excess of the net assets acquired ........................ 971,000 3,500,000
Acquired debt .............................................................. -- (1,016,000)
Notes payable issued in acquisition ........................................ -- (150,000)
Issuance of Series F Convertible Preferred Stock ........................... -- (1,000)
Additional paid-in capital ................................................. (1,950,000) (1,956,000)
Stock to be issued ......................................................... 979,000 (979,000)
------------- -------------
Net cash used to acquire companies ......................................... $ -- $ 1,641,000
============= =============
</TABLE>
15. EVENTS SUBSEQUENT TO OCTOBER 25, 2000
The Company held its annual shareholders meeting on October 25, 2000,
where one of the proposals to be voted on required shareholder approval of the
issuance of common stock upon the conversion of the Series P Convertible
Preferred Stock and Series Q Convertible Preferred Stock and
F-31
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. EVENTS SUBSEQUENT TO OCTOBER 25, 2000 - (CONTINUED)
the exercise of certain warrants. The Company deferred the vote on this
proposal until November 16, 2000 in order to permit the Company to obtain
additional responses from stockholders holding their shares in street name. As
noted in Note 11 to the unaudited consolidated financial statements, if the
Series P and Series Q Preferred Stock is no longer convertible into common
stock, the Company may be required to redeem the preferred stock. If the
Company is forced to redeem the outstanding Series P and Series Q Preferred
Stock, it is currently unable to immediately pay the redemption value. Further,
the Series Q Preferred Stock agreement also provides that the Company may issue
up to 6,000 additional shares of Series Q preferred Stock and warrants to
purchase an additional 150,000 shares of common stock to RGC for $6.0 million
at a second closing to be completed no later than July 15, 2000. The Company
has only been able to obtain a waiver of their current default through October
15, 2000. The Company believes that if it is able to obtain additional votes
from its shareholders it will be able to obtain the $6.0 million in additional
funding.
F-32
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
eGlobe, Inc.
Washington, D.C.
We have audited the accompanying consolidated balance sheets of eGlobe,
Inc. and subsidiaries as of December 31, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity, comprehensive loss
and cash flows for the year ended December 31, 1999, the nine months ended
December 31, 1998 and the year ended March 31, 1998. The consolidated financial
statements give retroactive effect to the merger of eGlobe, Inc. and Trans
Global Communications, Inc. on March 23, 2000, which has been accounted for as
a pooling of interests as described in the Summary of Accounting Policies to
the consolidated financial statements. These financial statements and schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did
not audit the financial statements of Trans Global Communications, Inc., which
financial statements reflect total assets of approximately $27,988,000 and
$28,087,000 as of December 31, 1999 and 1998, respectively, and total revenues
of approximately $100,445,000, $85,119,000 and $46,473,000 for each of three
years in the period ended December 31, 1999, respectively. Those financial
statements were audited by another auditor whose report has been furnished to
us, and our opinion, insofar as it relates to the amounts included for Trans
Global Communications, Inc., is based solely on the report of the other
auditor.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our
audits and the report of the other auditor provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of the other auditor,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of eGlobe, Inc. and subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for the year ended December 31, 1999, the nine months ended December 31,
1998 and the year ended March 31, 1998, after giving retroactive effect to the
merger referred to above, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that eGlobe, Inc. will continue as a going concern. The potential
redemption of Series P and Q Convertible Preferred stock discussed in Note 19 to
the consolidated financial statements, coupled with the fact that eGlobe, Inc.
has suffered significant recurring losses from operations, has a net capital
deficiency, has significant short-term cash commitments and does not presently
have sufficient firm commitments from outside sources to finance its growth
plan, combine to raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are described in
the Summary of Accounting Policies accompanying the consolidated financial
statements. The financial statements do not contain any adjustments that might
result from the outcome of these uncertainties.
/s/ BDO SEIDMAN, LLP
March 24, 2000, except for Notes 10 and 18,
which are as of April 6, 2000, and Note 19, which is as of October 25, 2000
Denver, Colorado
F-33
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Trans Global Communications, Inc.
New York, New York
We have audited the consolidated balance sheets of Trans Global
Communications, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of the Company at December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States.
The consolidated financial statements of TransGlobal Communications were
prepared assuming that the Company would continue as a going concern. In March
2000 TransGlobal Communications merged with eGlobe, Inc. which merger was
accounted for as a pooling of interests. As discussed in Note 19 to the
accompanying financial statements of eGlobe, Inc. events have occurred that
raise substantial doubt about the combined Company's ability to continue as a
going concern. The financial statements of TransGlobal Communications do not
contain any adjustments that might result from the outcome of these
uncertainties.
/s/ Ernst & Young LLP
February 25, 2000, except for the information in Note 19 to eGlobe, Inc's
financial statements as to which the date is October 25, 2000.
New York, New York
F-34
<PAGE>
EGLOBE, INC.
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
<S> <C> <C>
--------------------------------------------------------------------------------
ASSETS (NOTES 7 AND 13)
CURRENT:
Cash and cash equivalents ....................................................... $ 2,659,000 $ 4,031,000
Restricted cash ................................................................. 158,000 101,000
Short-term investments .......................................................... -- 11,167,000
Restricted short-term investments ............................................... 1,492,000 1,131,000
Accounts receivable, less allowance of $3,206,000 and
$1,216,000 for doubtful accounts............................................... 15,142,000 10,226,000
Other receivables ............................................................... 1,406,000 651,000
Prepaid expenses ................................................................ 1,584,000 1,628,000
Other current assets ............................................................ 639,000 245,000
--------------------------------------------------------------------------------
TOTAL CURRENT ASSETS ............................................................. 23,080,000 29,180,000
--------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization (Notes 1, 5 and 13) ................................................ 42,078,000 20,198,000
GOODWILL, net of accumulated amortization of $1,572,000 and
$140,000 (Note 4)................................................................ 24,904,000 11,865,000
OTHER INTANGIBLE ASSETS, net of accumulated amortization of
$6,466,000 and $786,000 (Note 2)................................................. 21,674,000 241,000
OTHER:
Advances to non-affiliate, subsequently acquired (Note 4) ....................... -- 971,000
Deposits ........................................................................ 1,659,000 519,000
Other assets .................................................................... 400,000 1,405,000
--------------------------------------------------------------------------------
TOTAL OTHER ASSETS ............................................................... 2,059,000 2,895,000
--------------------------------------------------------------------------------
TOTAL ASSETS ..................................................................... $113,795,000 $64,379,000
--------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-35
<PAGE>
EGLOBE, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
<S> <C> <C>
--------------------------------------------------------------------------------
LIABILITIES, MINORITY INTEREST, REDEEMABLE
COMMON STOCK AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable (Note 13) ...................................................... $ 41,558,000 $ 29,913,000
Accrued expenses (Note 3) ....................................................... 10,992,000 6,915,000
Income taxes payable (Note 11) .................................................. 560,000 1,915,000
Notes payable and current maturities of long- term debt
(Note 5) ...................................................................... 7,868,000 13,685,000
Notes payable and current maturities of long- term debt-related
parties (Note 7) .............................................................. 4,676,000 1,154,000
Deferred revenue ................................................................ 1,331,000 486,000
Other liabilities ............................................................... 797,000 567,000
--------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES ........................................................ 67,782,000 54,635,000
--------------------------------------------------------------------------------
ACCOUNTS PAYABLE -- LONG-TERM (NOTE 13) .......................................... 1,000,000 --
LONG-TERM DEBT, NET OF CURRENT MATURITIES (NOTE 5) ............................... 5,194,000 1,237,000
LONG-TERM DEBT -- RELATED PARTIES, NET OF CURRENT MATURITIES
(NOTE 7) ........................................................................ 8,301,000 --
--------------------------------------------------------------------------------
TOTAL LIABILITIES ................................................................ 82,277,000 55,872,000
--------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 3, 4, 9, 10, 11, 13, 14 AND 16)
MINORITY INTEREST (NOTE 4) ....................................................... 2,800,000 --
REDEEMABLE COMMON STOCK (NOTE 7) ................................................. 700,000 --
--------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (NOTE 10):
Preferred stock, all series, $.001 par value, 10,000,000 and
5,000,000 shares authorized, 1,927,791 and 500,075 shares
outstanding ................................................................... 2,000 1,000
Common stock, $.001 par value, 100,000,000 shares authorized,
69,580,604 and 56,362,966 shares outstanding .................................. 70,000 56,000
Stock to be issued .............................................................. 2,624,000 --
Notes receivable ................................................................ (1,210,000) --
Additional paid-in capital ...................................................... 106,718,000 34,117,000
Accumulated deficit ............................................................. (80,682,000) (25,578,000)
Accumulated other comprehensive income (loss) ................................... 496,000 (89,000)
--------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY ....................................................... 28,018,000 8,507,000
--------------------------------------------------------------------------------
TOTAL LIABILITIES, MINORITY INTEREST, REDEEMABLE COMMON STOCK AND
STOCKHOLDERS' EQUITY ............................................................ $ 113,795,000 $ 64,379,000
--------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-36
<PAGE>
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR
ENDED
DECEMBER 31,
1999
<S> <C>
--------------------------------------------------------------------------------
REVENUE (NOTE 12) ................................................................ $ 141,948,000
--------------------------------------------------------------------------------
COST OF REVENUE .................................................................. 136,941,000
--------------------------------------------------------------------------------
GROSS PROFIT ..................................................................... 5,007,000
--------------------------------------------------------------------------------
COSTS AND EXPENSES:
Selling, general and administrative, exclusive of $1.5
million and $0.4 million reported below of deferred
compensation related to acquisitions. ......................................... 34,967,000
Deferred compensation related to acquisitions (Note 4). 1,485,000
Depreciation and amortization ................................................... 8,356,000
Amortization of goodwill and other intangible assets ............................ 7,112,000
Settlement costs (Note 7) ....................................................... --
Corporate realignment expense (Note 3) .......................................... --
--------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES ......................................................... 51,920,000
--------------------------------------------------------------------------------
LOSS FROM OPERATIONS ............................................................. (46,913,000)
--------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense ................................................................ (7,733,000)
Interest income ................................................................. 686,000
Foreign currency transaction loss ............................................... (99,000)
Minority interest in income (Note 4) ............................................ (78,000)
Proxy related litigation expense (Note 8) ....................................... --
Other income .................................................................... 2,000
Other expense ................................................................... (30,000)
--------------------------------------------------------------------------------
TOTAL OTHER EXPENSE .............................................................. (7,252,000)
--------------------------------------------------------------------------------
LOSS BEFORE TAXES (BENEFIT) ON INCOME AND EXTRAORDINARY
ITEM ............................................................................ (54,165,000)
--------------------------------------------------------------------------------
TAXES (BENEFIT) ON INCOME (LOSS) (NOTE 11) ....................................... (962,000)
--------------------------------------------------------------------------------
NET LOSS BEFORE EXTRAORDINARY ITEM ............................................... (53,203,000)
--------------------------------------------------------------------------------
<CAPTION>
NINE MONTHS YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1998
<S> <C> <C>
--------------------------------------------------------------------------------
REVENUE (NOTE 12) ................................................................ $ 90,420,000 $ 79,596,000
--------------------------------------------------------------------------------
COST OF REVENUE .................................................................. 73,929,000 58,751,000
--------------------------------------------------------------------------------
GROSS PROFIT ..................................................................... 16,491,000 20,845,000
--------------------------------------------------------------------------------
COSTS AND EXPENSES:
Selling, general and administrative, exclusive of $1.5
million and $0.4 million reported below of deferred
compensation related to acquisitions. ......................................... 16,333,000 17,255,000
Deferred compensation related to acquisitions (Note 4). 420,000 --
Depreciation and amortization ................................................... 3,196,000 3,342,000
Amortization of goodwill and other intangible assets ............................ 201,000 186,000
Settlement costs (Note 7) ....................................................... 996,000 --
Corporate realignment expense (Note 3) .......................................... -- 3,139,000
--------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES ......................................................... 21,146,000 23,922,000
--------------------------------------------------------------------------------
LOSS FROM OPERATIONS ............................................................. (4,655,000) (3,077,000)
--------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense ................................................................ (1,039,000) (1,818,000)
Interest income ................................................................. 482,000 247,000
Foreign currency transaction loss ............................................... (131,000) (410,000)
Minority interest in income (Note 4) ............................................ -- --
Proxy related litigation expense (Note 8) ....................................... (119,000) (3,901,000)
Other income .................................................................... 95,000 6,000
Other expense ................................................................... (13,000) (343,000)
--------------------------------------------------------------------------------
TOTAL OTHER EXPENSE .............................................................. (725,000) (6,219,000)
--------------------------------------------------------------------------------
LOSS BEFORE TAXES (BENEFIT) ON INCOME AND EXTRAORDINARY
ITEM ............................................................................ (5,380,000) (9,296,000)
--------------------------------------------------------------------------------
TAXES (BENEFIT) ON INCOME (LOSS) (NOTE 11) ....................................... 578,000 1,961,000
--------------------------------------------------------------------------------
NET LOSS BEFORE EXTRAORDINARY ITEM ............................................... (5,958,000) (11,257,000)
--------------------------------------------------------------------------------
</TABLE>
F-37
<PAGE>
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR
ENDED
DECEMBER 31,
1999
<S> <C>
--------------------------------------------------------------------------------
LOSS ON EARLY RETIREMENT OF DEBT (NOTE 7) ........................................ (1,901,000)
--------------------------------------------------------------------------------
NET LOSS ......................................................................... (55,104,000)
--------------------------------------------------------------------------------
PREFERRED STOCK DIVIDENDS (NOTE 10) .............................................. (11,930,000)
--------------------------------------------------------------------------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS ..................................... $ (67,034,000)
--------------------------------------------------------------------------------
NET LOSS PER SHARE (BASIC AND DILUTED) (NOTE 6):
Net loss before extraordinary item .............................................. $ (1.08)
Loss on early retirement of debt ................................................ (0.03)
--------------------------------------------------------------------------------
NET LOSS PER SHARE (NOTE 6) ...................................................... $ (1.11)
--------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING (NOTE 6) ..................................... 60,610,548
--------------------------------------------------------------------------------
<CAPTION>
NINE MONTHS YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1998
<S> <C> <C>
--------------------------------------------------------------------------------
LOSS ON EARLY RETIREMENT OF DEBT (NOTE 7) ........................................ -- --
--------------------------------------------------------------------------------
NET LOSS ......................................................................... (5,958,000) (11,257,000)
--------------------------------------------------------------------------------
PREFERRED STOCK DIVIDENDS (NOTE 10) .............................................. -- --
--------------------------------------------------------------------------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS ..................................... $ (5,958,000) $ (11,257,000)
--------------------------------------------------------------------------------
NET LOSS PER SHARE (BASIC AND DILUTED) (NOTE 6):
Net loss before extraordinary item .............................................. $ (0.10) $ (0.20)
Loss on early retirement of debt ................................................ -- --
--------------------------------------------------------------------------------
NET LOSS PER SHARE (NOTE 6) ...................................................... $ (0.10) $ (0.20)
--------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING (NOTE 6) ..................................... 57,736,654 57,082,495
--------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-38
<PAGE>
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999, THE NINE MONTHS ENDED DECEMBER 31, 1998
AND THE YEAR ENDED MARCH 31, 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREFERRED STOCK
--------------------
SHARES AMOUNT
<S> <C> <C>
--------------------------------------------------------------------------------
BALANCE AT BEGINNING OF PERIOD ................................................... -- $ --
Stock issued in lieu of cash payments ............................................ -- --
Stock issued in connection with private placement, net (Notes
7 and 10) ....................................................................... -- --
Stock to be issued (Note 8) ...................................................... -- --
Exercise of stock appreciation rights ............................................ -- --
Issuance of warrants to purchase stock (Note 10) ................................. -- --
Foreign currency translation adjustment .......................................... -- --
Net loss for the year ............................................................ -- --
Trans Global net income for the three months ended
March 31, 1998 .................................................................. -- --
--------------------------------------------------------------------------------
BALANCE, MARCH 31, 1998 .......................................................... -- --
Stock issued in connection with litigation settlement (Note 8). -- --
Stock issued to common escrow (Note 8) ........................................... -- --
Issuance of warrants to purchase stock (Note 7) .................................. -- --
Stock issued in connection with acquisitions (Notes 4 and 10). 500,000 1,000
Exchange of common stock for Series C Preferred Stock
(Notes 7 and 10) ................................................................ 75 --
Deferred compensation costs (Note 4) ............................................. -- --
Foreign currency translation adjustment .......................................... -- --
Net loss for the period .......................................................... -- --
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 ....................................................... 500,075 1,000
--------------------------------------------------------------------------------
<CAPTION>
COMMON STOCK
--------------------------
STOCK TO BE
SHARES AMOUNT ISSUED
<S> <C> <C> <C>
--------------------------------------------------------------------------------
BALANCE AT BEGINNING OF PERIOD ................................................... 55,861,240 $ 56,000 $ --
Stock issued in lieu of cash payments ............................................ 42,178 -- --
Stock issued in connection with private placement, net (Notes
7 and 10) ....................................................................... 1,425,000 1,000 --
Stock to be issued (Note 8) ...................................................... -- -- 3,500,000
Exercise of stock appreciation rights ............................................ 18,348 -- --
Issuance of warrants to purchase stock (Note 10) ................................. -- -- --
Foreign currency translation adjustment .......................................... -- -- --
Net loss for the year ............................................................ -- -- --
Trans Global net income for the three months ended
March 31, 1998 .................................................................. -- -- --
--------------------------------------------------------------------------------
BALANCE, MARCH 31, 1998 .......................................................... 57,346,766 57,000 3,500,000
Stock issued in connection with litigation settlement (Note 8). 28,700 -- --
Stock issued to common escrow (Note 8) ........................................... 350,000 -- (3,500,000)
Issuance of warrants to purchase stock (Note 7) .................................. -- -- --
Stock issued in connection with acquisitions (Notes 4 and 10). 62,500 -- --
Exchange of common stock for Series C Preferred Stock
(Notes 7 and 10) ................................................................ (1,425,000) (1,000) --
Deferred compensation costs (Note 4) ............................................. -- -- --
Foreign currency translation adjustment .......................................... -- -- --
Net loss for the period .......................................................... -- -- --
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 ....................................................... 56,362,966 56,000 --
--------------------------------------------------------------------------------
<CAPTION>
ADDITIONAL
NOTES PAID-IN ACCUMULATED
RECEIVABLE CAPITAL DEFICIT
<S> <C> <C> <C>
--------------------------------------------------------------------------------
BALANCE AT BEGINNING OF PERIOD ................................................... $-- $16,190,000 $ (8,779,000)
Stock issued in lieu of cash payments ............................................ -- 244,000 --
Stock issued in connection with private placement, net (Notes
7 and 10) ....................................................................... -- 7,481,000 --
Stock to be issued (Note 8) ...................................................... -- -- --
Exercise of stock appreciation rights ............................................ -- 138,000 --
Issuance of warrants to purchase stock (Note 10) ................................. -- 1,136,000 --
Foreign currency translation adjustment .......................................... -- -- --
Net loss for the year ............................................................ -- -- (11,257,000)
Trans Global net income for the three months ended
March 31, 1998 .................................................................. -- -- 416,000
--------------------------------------------------------------------------------
BALANCE, MARCH 31, 1998 .......................................................... -- 25,189,000 (19,620,000)
Stock issued in connection with litigation settlement (Note 8). -- 81,000 --
Stock issued to common escrow (Note 8) ........................................... -- 3,500,000 --
Issuance of warrants to purchase stock (Note 7) .................................. -- 328,000 --
Stock issued in connection with acquisitions (Notes 4 and 10). -- 3,601,000 --
Exchange of common stock for Series C Preferred Stock
(Notes 7 and 10) ................................................................ -- 998,000 --
Deferred compensation costs (Note 4) ............................................. -- 420,000 --
Foreign currency translation adjustment .......................................... -- -- --
Net loss for the period .......................................................... -- -- (5,958,000)
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 ....................................................... -- 34,117,000 (25,578,000)
--------------------------------------------------------------------------------
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE STOCKHOLDERS'
INCOME (LOSS) EQUITY
<S> <C> <C>
--------------------------------------------------------------------------------
BALANCE AT BEGINNING OF PERIOD ................................................... $ 82,000 $ 7,549,000
Stock issued in lieu of cash payments ............................................ -- 244,000
Stock issued in connection with private placement, net (Notes
7 and 10) ....................................................................... -- 7,482,000
Stock to be issued (Note 8) ...................................................... -- 3,500,000
Exercise of stock appreciation rights ............................................ -- 138,000
Issuance of warrants to purchase stock (Note 10) ................................. -- 1,136,000
Foreign currency translation adjustment .......................................... (50,000) (50,000)
Net loss for the year ............................................................ -- (11,257,000)
Trans Global net income for the three months ended
March 31, 1998 .................................................................. -- 416,000
--------------------------------------------------------------------------------
BALANCE, MARCH 31, 1998 .......................................................... 32,000 9,158,000
Stock issued in connection with litigation settlement (Note 8). -- 81,000
Stock issued to common escrow (Note 8) ........................................... -- --
Issuance of warrants to purchase stock (Note 7) .................................. -- 328,000
Stock issued in connection with acquisitions (Notes 4 and 10). -- 3,602,000
Exchange of common stock for Series C Preferred Stock
(Notes 7 and 10) ................................................................ -- 997,000
Deferred compensation costs (Note 4) ............................................. -- 420,000
Foreign currency translation adjustment .......................................... (121,000) (121,000)
Net loss for the period .......................................................... -- (5,958,000)
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 ....................................................... (89,000) 8,507,000
--------------------------------------------------------------------------------
</TABLE>
F-39
<PAGE>
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999, THE NINE MONTHS ENDED
DECEMBER 31, 1998 AND THE YEAR ENDED MARCH 31, 1998 (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 ............................................. 500,075 $1,000 56,362,966 $56,000
Issuance of warrants to purchase stock (Notes 4, 5, 7 and 10) .......... -- -- -- --
Stock issued in connection with acquisitions, net of $135,000
premium amortization (Note 4) ......................................... 1,026,101 1,000 1,161,755 1,000
Stock to be issued in connection with acquisitions (Note 4) ............ -- -- -- --
Stock issued in connection with debt repayments, net of cost of
$40,000 (Notes 5 and 7)................................................ 40 -- 697,328 1,000
Stock issued in connection with private placements, net of costs of
$2,084,000 (Note 10)................................................... 2,770 -- 160,257 --
Value of beneficial conversion feature on Preferred Stocks and debt,
net of unamoritized portion of $1,085,000 (Notes 7 and 10)............. -- -- -- --
Value of increase in conversion feature of Series B Preferred (Note
4) .................................................................... -- -- -- --
Exchange of Series C Preferred for common stock, net of dividend of
$2,215,000 and costs of $118,000 (Note 7).............................. (75) -- 3,000,000 3,000
Exchange of Series G Preferred for Series K Preferred (Note 4 and
10) ................................................................... 30 -- -- --
Exchange of Series B Preferred and Notes for Series H and I
Preferred, net of dividends of $4,600,000 and $18,000 (Note 4)......... 400,000 -- -- --
Deferred compensation costs (Notes 4 and 10) ........................... -- -- -- --
Exercise of stock options and warrants (Note 10) ....................... -- -- 1,638,163 2,000
Conversion of Series D and N Preferred into common stock,
including coversion of dividends of $240,000 (Note 10)................. (1,150) -- 1,544,662 2,000
Stock to be issued for dividends ....................................... -- -- -- --
Cumulative Preferred Stock dividends ................................... -- -- -- --
Amortization of discounts (premium) on Preferred Stocks ................ -- -- -- --
Other issuances and registration costs ................................. -- -- 5,015,473 5,000
Foreign currency translation adjustment ................................ -- -- -- --
Net loss for the year .................................................. -- -- -- --
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 ............................................. 1,927,791 $2,000 69,580,604 $70,000
--------------------------------------------------------------------------------
<CAPTION>
ADDITIONAL
STOCK TO BE NOTES PAID-IN
ISSUED RECEIVABLE CAPITAL
<S> <C> <C> <C>
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 ............................................. $ -- $ -- $ 34,117,000
Issuance of warrants to purchase stock (Notes 4, 5, 7 and 10) .......... -- -- 18,474,000
Stock issued in connection with acquisitions, net of $135,000
premium amortization (Note 4) ......................................... -- -- 28,788,000
Stock to be issued in connection with acquisitions (Note 4) ............ 2,624,000 -- --
Stock issued in connection with debt repayments, net of cost of
$40,000 (Notes 5 and 7)................................................ -- -- 5,615,000
Stock issued in connection with private placements, net of costs of
$2,084,000 (Note 10)................................................... -- -- 10,836,000
Value of beneficial conversion feature on Preferred Stocks and debt,
net of unamoritized portion of $1,085,000 (Notes 7 and 10)............. -- -- 835,000
Value of increase in conversion feature of Series B Preferred (Note
4) .................................................................... -- -- 1,485,000
Exchange of Series C Preferred for common stock, net of dividend of
$2,215,000 and costs of $118,000 (Note 7).............................. -- -- (121,000)
Exchange of Series G Preferred for Series K Preferred (Note 4 and
10) ................................................................... -- -- 3,000,000
Exchange of Series B Preferred and Notes for Series H and I
Preferred, net of dividends of $4,600,000 and $18,000 (Note 4)......... -- -- 3,982,000
Deferred compensation costs (Notes 4 and 10) ........................... -- -- 1,485,000
Exercise of stock options and warrants (Note 10) ....................... -- (1,210,000) 1,990,000
Conversion of Series D and N Preferred into common stock,
including coversion of dividends of $240,000 (Note 10)................. -- -- 238,000
Stock to be issued for dividends ....................................... -- -- 1,043,000
Cumulative Preferred Stock dividends ................................... -- -- (2,300,000)
Amortization of discounts (premium) on Preferred Stocks ................ -- -- (2,797,000)
Other issuances and registration costs ................................. -- -- 48,000
Foreign currency translation adjustment ................................ -- -- --
Net loss for the year .................................................. -- -- --
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 ............................................. $2,624,000 $ (1,210,000) $106,718,000
--------------------------------------------------------------------------------
<CAPTION>
ACCUMULATED
OTHER TOTAL
ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
DEFICIT INCOME (LOSS) EQUITY
<S> <C> <C> <C>
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 ............................................. $ (25,578,000) $ (89,000) $ 8,507,000
Issuance of warrants to purchase stock (Notes 4, 5, 7 and 10) .......... -- -- 18,474,000
Stock issued in connection with acquisitions, net of $135,000
premium amortization (Note 4) ......................................... -- -- 28,790,000
Stock to be issued in connection with acquisitions (Note 4) ............ -- -- 2,624,000
Stock issued in connection with debt repayments, net of cost of
$40,000 (Notes 5 and 7)................................................ -- -- 5,616,000
Stock issued in connection with private placements, net of costs of
$2,084,000 (Note 10)................................................... -- -- 10,836,000
Value of beneficial conversion feature on Preferred Stocks and debt,
net of unamoritized portion of $1,085,000 (Notes 7 and 10)............. -- -- 835,000
Value of increase in conversion feature of Series B Preferred (Note
4) .................................................................... -- -- 1,485,000
Exchange of Series C Preferred for common stock, net of dividend of
$2,215,000 and costs of $118,000 (Note 7).............................. -- -- (118,000)
Exchange of Series G Preferred for Series K Preferred (Note 4 and
10) ................................................................... -- -- 3,000,000
Exchange of Series B Preferred and Notes for Series H and I
Preferred, net of dividends of $4,600,000 and $18,000 (Note 4)......... -- -- 3,982,000
Deferred compensation costs (Notes 4 and 10) ........................... -- -- 1,485,000
Exercise of stock options and warrants (Note 10) ....................... -- -- 782,000
Conversion of Series D and N Preferred into common stock,
including coversion of dividends of $240,000 (Note 10)................. -- -- 240,000
Stock to be issued for dividends ....................................... -- -- 1,043,000
Cumulative Preferred Stock dividends ................................... -- -- (2,300,000)
Amortization of discounts (premium) on Preferred Stocks ................ -- -- (2,797,000)
Other issuances and registration costs ................................. -- -- 53,000
Foreign currency translation adjustment ................................ -- 585,000 585,000
Net loss for the year .................................................. (55,104,000) -- (55,104,000)
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 ............................................. $ (80,682,000) $ 496,000 $ 28,018,000
--------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements
F-40
<PAGE>
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEAR ENDED DECEMBER 31, 1999, THE NINE MONTHS ENDED
DECEMBER 31, 1998 AND THE YEAR ENDED MARCH 31, 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR
ENDED
DECEMBER 31,
1999
<S> <C>
--------------------------------------------------------------------------------
NET LOSS ......................................................................... $ (55,104,000)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ......................................... 585,000
--------------------------------------------------------------------------------
COMPREHENSIVE NET LOSS ........................................................... $ (54,519,000)
--------------------------------------------------------------------------------
<CAPTION>
NINE MONTHS YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1998
<S> <C> <C>
--------------------------------------------------------------------------------
NET LOSS ......................................................................... $ (5,958,000) $ (11,257,000)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ......................................... (121,000) (50,000)
--------------------------------------------------------------------------------
COMPREHENSIVE NET LOSS ........................................................... $ (6,079,000) $ (11,307,000)
--------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-41
<PAGE>
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR
ENDED
DECEMBER 31,
1999
<S> <C>
--------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES:
Net loss ........................................................................ $ (55,104,000)
Adjustments to reconcile net loss to cash provided by
(used in) operating activities:
Depreciation and amortization ................................................. 15,468,000
Provision for bad debts ....................................................... 2,528,000
Non-cash interest expense ..................................................... 889,000
Minority interest in income ................................................... 78,000
Settlement costs (Note 7) ..................................................... --
Common stock issued in lieu of cash payments .................................. --
Issuance of options and warrants for services
(Note 10) .................................................................... 181,000
Compensation costs related to acquisitions (Note 4). 1,485,000
Amortization of debt discounts (Notes 5 and 7) ................................ 5,182,000
Proxy related litigation expense (Note 8) ..................................... --
Loss on early retirement of debt (Note 7) ..................................... 1,901,000
Gain on sale of property and equipment ........................................ --
Write off on non-producing internet assets .................................... --
Write down of building to market value ........................................ --
Changes in operating assets and liabilities (net of
changes from acquisitions -- Note 4):
Accounts receivable .......................................................... (5,445,000)
Other receivables ............................................................ (755,000)
Prepaid expenses ............................................................. 946,000
Other current assets ......................................................... (37,000)
Other assets ................................................................. 303,000
Accounts payable ............................................................. 10,750,000
Income tax payable ........................................................... (815,000)
Accrued expenses ............................................................. (1,193,000)
Deferred revenue ............................................................. (153,000)
Other liabilities ............................................................ 87,000
--------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES .................................. (23,704,000)
--------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment ............................................. (13,203,000)
Net sales (purchases) of short-term investments ................................. 10,806,000
Proceeds from sale of property and equipment .................................... --
Advances to non-affiliate, subsequently acquired (Note
4) ............................................................................ --
Purchase of intangibles ......................................................... (299,000)
Acquisitions of companies, net of cash acquired (Notes
4 and 17) ..................................................................... (2,799,000)
Increase in restricted cash ..................................................... (4,000)
Other assets .................................................................... (224,000)
------------------------------------------------------------------------------
<CAPTION>
NINE MONTHS YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1998
<S> <C> <C>
--------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES:
Net loss ........................................................................ $ (5,958,000) $ (11,257,000)
Adjustments to reconcile net loss to cash provided by
(used in) operating activities:
Depreciation and amortization ................................................. 3,397,000 3,528,000
Provision for bad debts ....................................................... 1,018,000 1,564,000
Non-cash interest expense ..................................................... -- --
Minority interest in income ................................................... -- --
Settlement costs (Note 7) ..................................................... 996,000 --
Common stock issued in lieu of cash payments .................................. -- 144,000
Issuance of options and warrants for services
(Note 10) .................................................................... 190,000 357,000
Compensation costs related to acquisitions (Note 4). 420,000 --
Amortization of debt discounts (Notes 5 and 7) ................................ 255,000 479,000
Proxy related litigation expense (Note 8) ..................................... 81,000 3,500,000
Loss on early retirement of debt (Note 7) ..................................... -- --
Gain on sale of property and equipment ........................................ (57,000) --
Write off on non-producing internet assets .................................... -- 89,000
Write down of building to market value ........................................ -- 55,000
Changes in operating assets and liabilities (net of
changes from acquisitions -- Note 4):
Accounts receivable .......................................................... (1,202,000) (1,716,000)
Other receivables ............................................................ (350,000) (159,000)
Prepaid expenses ............................................................. (216,000) (206,000)
Other current assets ......................................................... (611,000) (351,000)
Other assets ................................................................. 407,000 (10,000)
Accounts payable ............................................................. 14,447,000 5,011,000
Income tax payable ........................................................... (90,000) 1,500,000
Accrued expenses ............................................................. 1,035,000 2,635,000
Deferred revenue ............................................................. 311,000 19,000
Other liabilities ............................................................ 26,000 (89,000)
--------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES .................................. 14,099,000 5,093,000
--------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment ............................................. (5,044,000) (6,131,000)
Net sales (purchases) of short-term investments ................................. (6,677,000) (2,275,000)
Proceeds from sale of property and equipment .................................... 126,000 --
Advances to non-affiliate, subsequently acquired (Note
4) ............................................................................ (971,000) --
Purchase of intangibles ......................................................... -- --
Acquisitions of companies, net of cash acquired (Notes
4 and 17) ..................................................................... (2,207,000) --
Increase in restricted cash ..................................................... (100,000) --
Other assets .................................................................... (109,000) 26,000
------------------------------------------------------------------------------
</TABLE>
F-42
<PAGE>
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR
ENDED
DECEMBER 31,
1999
<S> <C>
--------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES ................................................ (5,723,000)
--------------------------------------------------------------------------------
FINANCING ACTIVITIES: ............................................................
Proceeds from notes payable (Notes 4 and 5) ..................................... 6,835,000
Proceeds from notes payable-related party (Note 7) .............................. 28,258,000
Proceeds from issuance of preferred stock ....................................... 12,670,000
Stock issuance costs ............................................................ (1,582,000)
Proceeds from exercise of warrants .............................................. 721,000
Proceeds from exercise of options ............................................... 61,000
Proceeds from issuance of common stock .......................................... 250,000
Deferred financing and acquisition costs ........................................ --
Distribution to minority interest holder ........................................ (52,000)
Payments on capital leases ...................................................... (860,000)
Payments on notes payable ....................................................... (10,180,000)
Payments on notes payable -- related party (Note 7).............................. (8,066,000)
--------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES ............................................ 28,055,000
NET INCREASE (DECREASE) IN CASH .................................................. (1,372,000)
TRANS GLOBAL CASH ACTIVITY FOR THE THREE MONTHS ENDED
MARCH 31, 1998 .................................................................. --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................... 4,031,000
--------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................................... $ 2,659,000
--------------------------------------------------------------------------------
<CAPTION>
NINE MONTHS YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1998
<S> <C> <C>
--------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES ................................................ (14,982,000) (8,380,000)
--------------------------------------------------------------------------------
FINANCING ACTIVITIES: ............................................................
Proceeds from notes payable (Notes 4 and 5) ..................................... 250,000 7,810,000
Proceeds from notes payable-related party (Note 7) .............................. 1,200,000 --
Proceeds from issuance of preferred stock ....................................... -- --
Stock issuance costs ............................................................ -- --
Proceeds from exercise of warrants .............................................. -- --
Proceeds from exercise of options ............................................... -- 138,000
Proceeds from issuance of common stock .......................................... -- 7,345,000
Deferred financing and acquisition costs ........................................ (524,000) --
Distribution to minority interest holder ........................................ -- --
Payments on capital leases ...................................................... (198,000) (448,000)
Payments on notes payable ....................................................... (716,000) (10,864,000)
Payments on notes payable -- related party (Note 7).............................. -- --
--------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES ............................................ 12,000 3,981,000
NET INCREASE (DECREASE) IN CASH .................................................. (871,000) 694,000
TRANS GLOBAL CASH ACTIVITY FOR THE THREE MONTHS ENDED
MARCH 31, 1998 .................................................................. -- 1,466,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................... 4,902,000 2,742,000
--------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................................... $ 4,031,000 $ 4,902,000
--------------------------------------------------------------------------------
</TABLE>
See Note 17 for Supplemental Cash Flow Information.
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-43
<PAGE>
EGLOBE, INC.
SUMMARY OF ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
eGlobe, Inc. and subsidiaries, (collectively, the "Company") is a global
supplier of enhanced telecommunications and information services, including
Internet Protocol ("IP") transmission services, international and domestic long
distance telephone services, switching services, co-location services,
telephone portal, unified messaging services and international voice and data
services. The Company operates in partnership with telephone companies and
Internet service providers around the world. Through the Company's World Direct
network, the Company originates traffic in 90 territories and countries and
terminates traffic anywhere in the world and through its IP network, the
Company can originate and terminate IP-based telecommunication services in 30
countries and 5 continents. In addition, the Company can transport and
terminate voice, fax or data calls to any country with a hard wire or
cell-based communications system. The Company provides its services principally
to large national telecommunications companies, card providers, Internet
service providers and financial institutions around the world.
In December 1998, the Company acquired IDX International, Inc. ("IDX"), a
supplier of IP transmission services, principally to telecommunications
carriers, in 14 countries. This acquisition allows the Company to offer two
additional services, IP voice and IP fax, to its customer base. Also, in
December 1998, the Company acquired UCI Tele Network, Ltd. ("UCI"), a
development stage calling card business, with contracts to provide calling card
services in Cyprus and Greece (See Note 4 for further discussion).
In February 1999, the Company completed the acquisition of Telekey, Inc.
("Telekey"), a provider of card-based telecommunications services. In June
1999, the Company, through its newly formed subsidiary, Vogo Networks, LLC
("Vogo"), purchased substantially all of the assets and assumed certain
liabilities of Connectsoft Communications Corporation and Connectsoft Holdings,
Corp. (collectively "Connectsoft"), which developed and continues to enhance a
server based communication system that integrates various forms of messaging,
Internet and web content, personal services, and provides telephone access to
Internet content (including email and e-commerce functions). In July 1999, the
Company completed the acquisition of Swiftcall Equipment and Services (USA)
Inc., ("Swiftcall"), a telecommunications company, and certain network
operating equipment held by an affiliate of Swiftcall. Effective August 1,
1999, the Company assumed operational control of Highpoint International
Telecom, Inc. and certain assets and operations of Highpoint Carrier Services,
Inc. and Vitacom, Inc. (collectively "Highpoint"). The three entities were
majority owned subsidiaries of Highpoint Telecommunications Inc. ("HGP"), a
publicly traded company on the Canadian Venture Exchange. On October 14, 1999,
substantially all of the operating assets of Highpoint were transferred to
iGlobe, Inc. ("iGlobe"), a newly formed subsidiary of HGP, and the Company
concurrently acquired all of the issued and outstanding common stock of iGlobe.
iGlobe possesses an infrastructure supplying IP services, particularly voice
over IP, throughout Latin America. In September 1999, the Company, acting
through a newly formed subsidiary, acquired control of Oasis Reservations
Services, Inc. ("ORS"), a Miami based transaction support services and call
center to the travel industry, from its sole stockholder, Outsourced Automated
Services and Integrated Solutions, Inc. ("Oasis"). The Company and Oasis formed
eGlobe/Oasis Reservations LLC ("LLC") which is responsible for conducting ORS'
operations. The Company manages and controls the LLC. In December 1999, the
Company completed the acquisition of Coast International, Inc. ("Coast"), a
provider of enhanced long-distance interactive voice and internet services. See
Notes 4, 5, 7 and 10 for further discussion.
Pursuant to an Agreement and Plan of Merger entered into on December 16,
1999, and effective March 23, 2000, a wholly-owned subsidiary of eGlobe merged
with and into Trans Global Communications, Inc. ("Trans Global"), with Trans
Global continuing as the surviving corporation and becoming a wholly-owned
subsidiary of eGlobe (the "Merger"). Trans Global is a provider of
facilities-based, direct connection and resale network services. The Merger
provided
F-44
<PAGE>
EGLOBE, INC.
SUMMARY OF ACCOUNTING POLICIES - (CONTINUED )
for the issuance of 40,000,000 shares of the eGlobe common stock in exchange
for all of the outstanding common stock of Trans Global. Pursuant to the merger
agreement, the Company withheld and deposited into escrow 2,000,000 shares of
the 40,000,000 shares of its common stock issued to the Trans Global
stockholders in the Merger. These escrowed shares cover the indemnification
obligations of the Trans Global stockholders under the merger agreement. The
Company deposited an additional 2,000,000 shares of its common stock into
escrow to cover its indemnification obligations under the merger agreement. The
contingency periods for both of the 2,000,000 share escrows expire on March 23,
2001. The merger was accounted for as a pooling of interests, and as such, the
40,000,000 shares of common stock have been treated as if outstanding for all
periods presented in the consolidated financial statements.
The Company's consolidated financial statements have been retroactively
restated as of December 31, 1999 and December 31, 1998 and for the year ended
December 31, 1999, the nine months ended December 31, 1998 and the year ended
March 31, 1998, to reflect the consummation of the Trans Global merger. The
consolidated financial statements included herein give retroactive effect to
the Trans Global merger, which was accounted for using the pooling of interests
method. As a result, the financial position, results of operations, and
statements of comprehensive income (loss) and cash flows are presented as if
Trans Global had been consolidated for all periods presented. The consolidated
statements of stockholders' equity reflect the accounts of eGlobe as if the
common stock issued in connection with the Trans Global merger had been issued
for all periods presented.
In the consolidated balance sheets, the balance sheets of eGlobe as of
December 31, 1999 and 1998 have been combined with those of Trans Global as of
December 31, 1999 and 1998. The consolidated statements of operations combine
the results of eGlobe for the year ended December 31, 1999 and the nine months
ended December 31, 1998 with those of Trans Global for the same periods. The
results of operations for the year ended March 31, 1998 include the combined
results of eGlobe's results for the twelve months ended March 31, 1998 and
Trans Global's results for the year ended December 31, 1997. Trans Global's net
income of $416,000 for the three months ended March 31, 1998 has been reflected
in the consolidated statements of stockholders' equity as an adjustment to
accumulated deficit. In addition, the cash activity during the three months
ended March 31, 1998 has been reflected as an adjustment in the year ended
March 31, 1998 consolidated statement of cash flows. There were no seasonal
trends in operations during the three months ended March 31, 1998.
Information for the Trans Global's three month period ended March 31, 1998
is summarized below (unaudited):
<TABLE>
<S> <C>
Revenue ............ $17,190,000
Expenses ........... $16,774,000
Net Income ......... $ 416,000
</TABLE>
The consolidated financial statements, including the notes thereto, should
be read in conjunction with eGlobe's historical consolidated financial
statements included in its Annual Report on Form 10-K for the year ended
December 31, 1999 and the financial statements of Trans Global included in the
Company's Current Report on Form 8-K/A dated March 23, 2000 and filed on May
22, 2000.
F-45
<PAGE>
EGLOBE, INC.
SUMMARY OF ACCOUNTING POLICIES - (CONTINUED )
Revenue, extraordinary loss on early retirement of debt, net income
(loss), net loss attributable to common stockholders and net loss per common
share previously reported by eGlobe and Trans Global and the combined amounts
presented in the accompanying consolidated financial statements for the year
ended December 31, 1999, the nine months ended December 31, 1998 and the year
ended March 31, 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 1998
---------------- ---------------- -----------------
<S> <C> <C> <C>
REVENUE:
eGlobe as previously presented in Form 10-K ........... $ 42,002,000 $ 22,491,000 $ 33,123,000
Trans Global as previously presented in Form 8-K/A..... 100,445,000 85,119,000 46,473,000
Adjustments:
Intercompany revenue ................................ (499,000) -- --
Trans Global revenue for the three months ended
March 31, 1998 ..................................... -- (17,190,000) --
------------- ------------- -------------
eGlobe, as restated combined .......................... $ 141,948,000 $ 90,420,000 $ 79,596,000
============= ============= =============
EXTRAORDINARY LOSS ON EARLY RETIREMENT OF DEBT:
eGlobe, as previously presented in Form 10-K .......... $ (1,901,000) $ -- $ --
Trans Global as previously reported in Form 8-K/A ..... -- -- --
------------- ------------- -------------
eGlobe, as restated combined .......................... $ (1,901,000) $ -- $ --
============= ============= =============
NET INCOME (LOSS):
eGlobe as previously presented in Form 10-K ........... $ (51,468,000) $ (7,090,000) $ (13,290,000)
Trans Global as previously presented in Form 8-K/A..... (3,383,000) 1,406,000 1,565,000
Adjustments:
Deferred tax adjustment ............................. (253,000) 142,000 468,000
Trans Global net income for the three months ended
March 31, 1998 ..................................... -- (416,000) --
------------- ------------- -------------
eGlobe, as restated combined .......................... $ (55,104,000) $ (5,958,000) $ (11,257,000)
============= ============= =============
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS:
eGlobe net loss, as restated combined ................. $ (55,104,000) $ (5,958,000) $ (11,257,000)
eGlobe preferred stock dividends as previously
reported in Form 10-K ............................... (11,930,000) -- --
------------- ------------- -------------
eGlobe, as restated combined .......................... $ (67,034,000) $ (5,958,000) $ (11,257,000)
============= ============= =============
NET LOSS PER SHARE:
As previously presented in Form 10-K:
Basic and diluted ................................... $ (3.08) $ (0.40) $ (0.78)
Restated combined:
Basic and diluted ................................... $ (1.11) $ (0.10) $ (0.20)
</TABLE>
Adjustments were made to reflect deferred income taxes on a combined basis
in the consolidated results of operations for the year ended December 31, 1999,
the nine months ended December 31, 1998 and the year ended March 31, 1998.
An adjustment was made to decrease consolidated stockholders' equity as of
the beginning of the periods presented of $183,000 to record the deferred
income tax adjustment for the previous periods. An adjustment of $416,000 was
also made to increase consolidated stockholders' equity as of March 31, 1998 to
reflect Trans Global's net income for the three months ended March 31, 1998.
F-46
<PAGE>
EGLOBE, INC.
SUMMARY OF ACCOUNTING POLICIES - (CONTINUED )
MANAGEMENT'S PLAN
As of December 31, 1999, the Company had a net working capital deficiency
of $44.7 million. This net working capital deficiency resulted principally from
a loss from operations of $46.9 million (including depreciation, amortization
and other non-cash charges) for the year ended December 31, 1999. Also
contributing to the working capital deficiency was $7.9 million in notes
payable and current maturities of long-term debt, $4.7 million in notes payable
and current maturities of long-term debt due to related parties, and $53.9
million in accounts payable, accrued expenses and deferred revenue. The $7.9
million current maturities consists of $4.2 million primarily related to
acquisition debt, $1.1 million related to a note collatoralized by equipment
and $2.6 million related to capital lease payments due over the one year period
ending December 31, 2000. The $4.7 million current maturities due to a related
parties, net of unamortized discount of $3.0 million, consists of a $0.9
million note, net of unamortized discount of $0.1 million, due to a stockholder
on April 18, 2000, term payments of $3.5 million, net of unamortized discount
of $2.9 million, due to EXTL Investors, the Company's largest stockholder, and
notes payable of $3.2 million due to an affiliate of EXTL Investors.
On an operating level, the Company is continuing to renegotiate its
relationship with an entity that was formerly one of the Company's largest
customers. At December 31, 1999, 7.7% of the Company's net accounts receivable
of $15.1 million was due from this entity to which extended credit terms have
been granted. The new arrangement, once finalized, will establish payment terms
and sales growth, which will assure more effective and timely collection of
receivables from the customer and will permit renewed growth in the customer's
business. This arrangement will also assist in the collection of certain
amounts due to the Company under the extended credit terms.
If the Company meets its projections for reaching breakeven at the end of
the second quarter of 2000, the Company will still have additional capital
requirements through December 2000 of up to $66.0 million. The Company will
need to fund pre-existing liabilities and note payable obligations and the
purchase of capital equipment, along with financing the Company's growth plans.
Thus far in 2000, the Company has met its initial cash requirements from
(1) proceeds from the exercise of options and warrants of $2.4 million,
primarily as a result of the improvement in the Company's stock price during
the month of January 2000 and as sustained thereafter, (2) proceeds of $0.5
million from the sale of Series N Convertible Preferred Stock ("Series N
Preferred"), (3) proceeds of $15.0 million from the sale of Series P
Convertible Preferred Stock ("Series P Preferred"), (4) proceeds of $4.0
million from the sale of Series Q Convertible Preferred Stock ("Series Q
Preferred") with an additional $6.0 million to be received upon registration of
the underlying shares of common stock. These capital transactions are discussed
in Note 16.
In addition to the firm commitments discussed previously, the Company is
proceeding with other financing opportunities, which have not been finalized.
The Company is working on several different debt and equity fund raising
efforts to raise the funds that the Company will require to achieve its growth
plan through the end of the year 2000.
There is some risk that the Company will not reach breakeven as projected
and will continue to incur operating losses. If this occurs and should the
Company be unsuccessful in its efforts to raise additional funds to cover such
losses, then its growth plans would have to be sharply curtailed and its
business would be adversely affected.
As discussed in Note 13, in December 1999, Trans Global entered into an
agreement with AT&T, Trans Global's largest supplier, regarding the payment of
various past due 1999 switch and circuit costs. Pursuant to that agreement,
Trans Global has agreed to pay AT&T approximately $13.8 million in consecutive
monthly installments at 9% interest through January 1, 2001. As of December 31,
1999, the remaining balance due to AT&T was $13.5 million. As part of the
agreement with AT&T, Trans Global entered into a security agreement (Security
Agreement) granting AT&T a
F-47
<PAGE>
EGLOBE, INC.
SUMMARY OF ACCOUNTING POLICIES - (CONTINUED )
security interest in certain fixed assets owned by Trans Global as of December
14, 1999. As of April 6, 2000, Trans Global has not paid $1.5 million of
scheduled payments that were due in April 2000. Trans Global is currently in
discussions with AT&T regarding alternative options for settlement of the
outstanding obligation. There can be no assurances that Trans Global will be
able to satisfactorily resolve this matter. Should this not be resolved and
should AT&T take possession of the assets held as security, Trans Global
believes that their business will not be adversely impacted. There is no
guarantee that Trans Global and therefore the Company's business will not have
its operations affected adversely should a satisfactory resolution between the
parties not be reached.
FISCAL YEAR
Effective with the period ended December 31, 1998, the stockholders of the
Company approved the change of the fiscal year to a December 31 fiscal year
end. Therefore, the period ended December 31, 1998 represents a nine-month
period as compared to a twelve month period for fiscal years ended December 31,
1999 and March 31, 1998.
Information for the comparable nine month period ended December 31, 1997
is summarized below (unaudited):
<TABLE>
<S> <C>
Revenue ..................... $ 63,102,000
Gross profit ................ $ 16,746,000
Taxes on income ............. $ 436,000
Net loss .................... $ (3,352,000)
Net loss per common share-
Basic and diluted ................. $ (0.06)
</TABLE>
CHANGE OF COMPANY NAME
At the annual meeting of the stockholders of the Company on June 16, 1999,
the stockholders approved and adopted a proposal for amending the Certificate
of Incorporation to change the name of the Company from Executive TeleCard,
Ltd. to eGlobe, Inc. The amended Certificate of Incorporation has been filed
with and accepted by the State of Delaware.
BASIS OF PRESENTATION AND CONSOLIDATION
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and include the accounts of the
Company, its wholly-owned subsidiaries, and its controlling interest in a
limited liability company ("LLC"). All material intercompany transactions and
balances have been eliminated in consolidation. As the Company controls the
operations of the LLC, the LLC has been included in the supplemental,
consolidated financial statements with the other member's interests recorded as
Minority Interest.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
For subsidiaries whose functional currency is the local currency and which
do not operate in highly inflationary economies, all net monetary and
non-monetary assets and liabilities are translated into U.S. dollars at current
exchange rates and translation adjustments are included in stockholders'
F-48
<PAGE>
EGLOBE, INC.
SUMMARY OF ACCOUNTING POLICIES - (CONTINUED )
equity. Revenues and expenses are translated at the weighted average rate for
the period. Foreign currency gains and losses resulting from transactions are
included in the results of operations in the period in which the transactions
occurred. Cumulative translation gains and losses are reported as accumulated
other comprehensive income (loss) in the consolidated statements of
stockholders' equity and are included in comprehensive loss.
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments and trade accounts receivable.
The Company places its cash and temporary cash investments with quality
financial institutions. At times, these amounts may exceed federally insured
limits.
Concentrations of credit risk with respect to trade accounts receivable
are generally limited due to the variety of customers and markets which
comprise the Company's customer base, as well as the geographic diversification
of the customer base. In certain circumstances, the Company has purchased
credit insurance on its accounts receivables.
The Company routinely assesses the financial strength of its customers
and, as a consequence, believes that its trade accounts receivable credit risk
exposure is limited. In certain circumstances the Company will require security
deposits; however, generally, the Company does not require collateral or other
security to support customer receivables. As of December 31, 1999, the Company
had approximately 16.2% and 7.7% in net trade accounts receivable from two
customers. The Company is negotiating with the one customer whose account is
7.7% of net trade accounts receivable for a long-term payment agreement. There
is no assurance the Company will receive full payment of this receivable.
Some of the Company's customers are permitted to choose the currency in
which they pay for calling services from among several different currencies
determined by the Company. Thus, the Company's earnings may be materially
affected by movements in the exchange rate between the U.S. dollar and such
other currencies. The Company does not engage in the practice of entering into
foreign currency contracts in order to hedge the effects of foreign currency
fluctuations. The majority of the Company's largest customers settle their
accounts in U.S. Dollars.
The carrying amounts of financial instruments, including cash and cash
equivalents, short-term investments, accounts receivable, accounts payable and
accrued expenses approximated fair value because of the immediate or short-term
maturity of these instruments. The difference between the carrying amount and
fair value of the Company's notes payable and long-term debt is not
significant.
RESTRICTED CASH
Restricted cash consists of deposits with a financial institution to
secure a letter of credit issued to a transmission vendor related to an
agreement whereby the Company will perform platform and transmission services.
In addition, a credit card processing company requires that cash balances be
deposited with the processor in order to ensure that any disputed claims by the
credit card customers can be readily settled.
RESTRICTED SHORT-TERM INVESTMENTS
Restricted short-term investments consist of certificates of deposits with
a financial institution to secure letters of credit issued to transmission
vendors related to an agreement whereby the vendors will perform transmission
services.
F-49
<PAGE>
EGLOBE, INC.
SUMMARY OF ACCOUNTING POLICIES - (CONTINUED )
PROPERTY, EQUIPMENT, DEPRECIATION AND AMORTIZATION
Property and equipment are recorded at the lower of cost or fair market
value. Additions, installation costs and major improvements of property and
equipment are capitalized. Expenditures for maintenance and repairs are
expensed as incurred. The cost of property and equipment retired or sold,
together with the related accumulated depreciation or amortization, are removed
from the appropriate accounts and the resulting gain or loss is included in the
consolidated statement of operations.
Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the related assets ranging from three to
twenty years. Leasehold improvements are amortized over the terms of the
respective leases and/or service lives of the improvements, whichever is
shorter. See discussion of impairment policy under "Long-Lived Assets".
SOFTWARE DEVELOPMENT COSTS
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed",
requires the capitalization of certain software development costs incurred
subsequent to the date when technological feasibility is established and prior
to the date when the product is generally available for licensing. The Company
defines technological feasibility as being attained at the time a working model
of a software product is completed.
The Company expenses all costs incurred to establish technological
feasibility of computer software products to be sold or leased or otherwise
marketed. Upon establishing technological feasibility of a software product,
the Company capitalizes direct and indirect costs related to the product up to
the time the product is available for sale to customers. Capitalized software
development costs are generally amortized on a product-by-product basis each
year based upon the greater of: (1) the amount computed using the ratio of
current year gross revenue to the sum of current and anticipated future gross
revenue for that product, or (2) five year straight-line amortization. The
Company acquired $8.4 million of software development costs for which
technological feasibility had already been established in connection with the
acquisition of Connectsoft as discussed in Note 4. Additional software
development costs of $573,000 were capitalized during 1999.
Under the provisions of the American Institute of Certified Public
Accountants' ("AICPA") Statement of Position ("SOP") 98-1, "Accouting for the
Costs of Computer Software Developed or Obtained for Internal Use", the Company
expenses cost incurred in the preliminary project stage and, thereafter,
capitalizes costs incurred in the developing or obtaining of internal use
software. Certain costs, such as maintenance and training, are expensed as
incurred. Capitalized costs are amortized over a period of not more than five
years. The Company acquired $2.9 million of internally developed software in
connection with the acquisition of Telekey, Connectsoft and Coasts discussed in
Note 4. These amounts are included in other intangible assets in the
supplemental consolidated balance sheet as of December 31, 1999. The Company
recorded amortization expense related to software development costs of $1.1
million during 1999. No related amortization expense was recorded in the
December 1998 and March 1998 periods. The Company assesses the carrying amount
of capitalized costs for impairment based upon the impairment policy as
discussed under "Long-Lived Assets".
RESEARCH AND DEVELOPMENT
Research and development costs and costs related to significant
improvements and refinements of existing products are expensed as incurred. For
the year ended December 31, 1999, the nine month period ended December 31, 1998
and the year ended March 31, 1998 the Company's expensed research and
development costs were nominal.
F-50
<PAGE>
EGLOBE, INC.
SUMMARY OF ACCOUNTING POLICIES - (CONTINUED )
GOODWILL AND OTHER INTANGIBLE ASSETS
As of December 31, 1999 and 1998, the Company has recorded goodwill in
connection with certain acquisitions, as discussed in Note 4, of $26.5 million
and $12.0 million, respectively. Certain goodwill amounts recorded in 1998 were
based upon preliminary information and during 1999 goodwill adjustments were
recorded to reflect the final asset appraisal information. In addition, as
discussed in Note 4, an adjustment was recorded in 1999 to increase the
goodwill related to the IDX acquisition as a result of an increase in the value
of the purchase consideration. Amortization of goodwill is provided over seven
years on a straight-line method. Goodwill amortization expense for the year
ended December 31, 1999 and the nine months ended December 31, 1998 was $1.4
million and $0.1 million, respectively. There was no goodwill recorded prior to
March 31, 1998.
As of December 31, 1998, the Company had recorded $1.0 million in other
intangible assets, consisting primarily of licenses and trademarks. During
1999, intangible assets of $26.4 million were recorded in connection with the
acquisitions discussed in Note 4. These intangible assets were recorded based
on third party appraisals and consist of the value related to assembled and
trained work forces, customer contract bases, distribution partnership network,
non-compete agreements, internally developed software, long distance
infrastructure, licenses and existing technologies. Intangibles are being
amortized on a straight-line basis over the estimated useful lives from one to
ten years.
The carrying value of goodwill and other intangibles are reviewed on a
periodic basis for recoverability based on the undiscounted cash flows of the
businesses acquired over the remaining amortization period. Should the review
indicate that these amounts are not recoverable, the Company's carrying value
of the goodwill and/or other intangibles would be reduced by the estimated
shortfall of the cash flows. In addition, the Company assesses the carrying
amount of these intangible assets for impairment based upon the policy
discussed under "Long-Lived Assets" below. No reduction of goodwill or
intangibles for impairment was necessary in 1999 or 1998.
LONG-LIVED ASSETS
The Company follows the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed Of" for long-lived assets and
certain identifiable intangibles to be held and used by the Company. These
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If the
fair value is less than the carrying amount of the asset, a loss is recognized
for the difference.
DEPOSITS
The Company provides long-term cash deposits to certain vendors to secure
contracts for telecommunications services.
DEFERRED FINANCING AND ACQUISITION COSTS
Deferred financing and acquisition costs included in other assets in the
accompanying supplemental consolidated balance sheets represent third party
costs and expenses incurred which are directly traceable to pending
acquisitions and financing efforts. The costs and expenses will be matched with
completed financings and acquisitions and accounted for according to the
underlying transaction. The costs and expenses associated with unsuccessful
efforts will be expensed in the period in which the acquisition or financing
has been deemed to be unsuccessful. The Company evaluates all pending
acquisition and financing costs quarterly to determine if any deferred costs
should be expensed in the period.
REVENUE RECOGNITION
The Company recognizes revenue when persuasive evidence of an agreement
exists, the terms are fixed or determinable, services are performed, and
collection is probable. Revenue and related direct costs from customer
contracts for Enhanced, Network, Customer Care and Retail services are
F-51
<PAGE>
EGLOBE, INC.
SUMMARY OF ACCOUNTING POLICIES - (CONTINUED )
recognized over the terms of the contracts, which are generally one year. Cash
received in advance of revenue earned is recorded as deferred revenue,
including monthly subscriber charges and monthly minimum payments, which are
subsequently recognized as revenue when the services are performed. Revenue is
reported on a gross basis with separate display of cost of revenue to arrive at
gross profit as the Company acts as principal and has the risks and rewards of
ownership in each transaction. The Company has not currently entered into any
barter transactions.
Revenue for all services is recognized on an individual service basis as
provided to each customer. Billings to customers are based upon established
tariffs filed with the United States Federal Communications Commission, or for
usage outside of the tariff requirements, at rates established by the Company.
Revenues from the Company's card services business (Enhanced Services)
comes mainly from providing various card services to customers under contracted
terms who are charged on a per call basis. Certain new offerings such as
unified messaging, telephone portal, interactive voice and Internet services,
often have monthly subscriber charges in addition to per transaction charges.
Revenues and direct costs from such services are recognized as the cards are
used and the related service is provided. When a card for which service has
been contracted expires without being fully used (cards generally have
effective lives of up to one year), then the remaining deferred revenue is
referred to as breakage and recorded as revenue at the date of expiration in
accordance with the terms of the contract.
For Vogo (Enhanced Services), the Company's provider of software products
and related services, revenue is recognized from the license of its proprietary
software and related services in accordance with the provisions of SOP 97-2,
"Software Revenue Recognition." SOP 97-2 requires, among other things, the
individual elements of a contract for the sale of software products to be
identified and accounted for separately. To date, revenue earned under software
products contracts has been insignificant.
IDX (Network Services) provides Internet protocol transmission technology.
Revenue and direct costs from such services, mainly from routing charges for
voice and fax traffic through the network, are recognized as the service is
provided. Some Network Services contracts require monthly minimum payments to
be paid, which are reported as deferred revenue and recognized as the services
are performed.
The Company, following its recent acquisition of ORS (Customer Care
Services), has recorded deferred revenue related to certain reservations
service contracts paid in advance, based on forecasted amounts, which will be
recognized as revenue as the services are provided.
Coast (Retail Services) recognizes revenue upon completion of telephone
calls by the end users. All of the Company's remaining subsidiaries recognize
revenue as service is provided.
TAXES ON INCOME
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes". Under SFAS No. 109, deferred tax assets and liabilities are
determined based on the temporary differences between the tax basis of assets
and liabilities and their reported amounts in the financial statements using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
NET EARNINGS (LOSS) PER SHARE
The Company applies SFAS No. 128, "Earnings Per Share" for the calculation
of "Basic" and "Diluted" earnings (loss) per share. Basic earnings (loss) per
share includes no dilution and is computed by dividing income (loss) available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings (loss) per share reflects the
potential dilution of securities that could share in the earnings (loss) of an
entity.
F-52
<PAGE>
EGLOBE, INC.
SUMMARY OF ACCOUNTING POLICIES - (CONTINUED )
STOCK OPTIONS
The Company applies Accounting Principles Board ("APB") Opinion 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for all stock option plans. Compensation cost of stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of grant over the option exercise price and is charged to
operations over the vesting period.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
Company to provide pro forma information regarding net income (loss) as if
compensation cost for the Company's stock option plans had been determined in
accordance with the fair value based method prescribed in SFAS No. 123. To
provide the required pro forma information, the Company estimates the fair
value of each stock option at the grant date by using the Black-Scholes
option-pricing model. See Note 10 for required disclosures.
Under SFAS No. 123, compensation cost is recognized for stock options
granted to non-employees at the grant date by using the Black-Scholes
option-pricing model.
CASH EQUIVALENTS
The Company considers cash and all highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents.
SHORT-TERM INVESTMENTS
Short-term investments include funds invested in a money market fund which
invests in a broad range of money market securities, including, but not limited
to, short-term U.S. government and agency securities, bank certificates of
deposit and corporate commercial paper. Short-term investments are carried at
amortized cost, which approximates fair value.
COMPREHENSIVE INCOME (LOSS)
The Company applies SFAS No. 130, "Reporting Comprehensive Income".
Comprehensive income (loss) is comprised of net income (loss) and all changes
to stockholders' equity, except those due to investments by stockholders,
changes in paid-in capital and distributions to stockholders. The Company has
elected to report comprehensive net loss in a separate consolidated statement
of comprehensive loss.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined
using available market information or other appropriate valuation
methodologies. However, considerable judgment is required in interpreting
market data to develop estimates of fair value. Consequently, the estimates are
not necessarily indicative of the amounts that could be realized or would be
paid in a current market exchange. The carrying amounts reported on the
consolidated balance sheets approximate their respective fair values.
SEGMENT INFORMATION
The Company follows the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". This statement establishes
standards for the reporting of information about operating segments in annual
and interim financial statements. Operating segments are defined as components
of an enterprise for which separate financial information is available that is
evaluated regularly by the chief operating decision maker(s) in deciding how to
allocate resources
F-53
<PAGE>
EGLOBE, INC.
SUMMARY OF ACCOUNTING POLICIES - (CONTINUED )
and in assessing performance. SFAS No. 131 also requires disclosures about
products and services, geographic areas and major customers. The Company has
four operating reporting segments consisting of Enhanced Services, Network
Services, Customer Care and Retail Services.
RECENT ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board ("FASB") has recently issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 requires companies to record derivatives on the balance sheet as assets
or liabilities, measured at fair market value. Gains or losses resulting from
changes in the values of those derivatives are accounted for depending on the
use of the derivative and whether it qualifies for hedge accounting. The key
criterion for hedge accounting is that the hedging relationship must be highly
effective in achieving offsetting changes in fair value or cash flows. SFAS No.
133, as extended by SFAS No. 137, is effective for fiscal years beginning after
June 15, 2000 and is currently not applicable to the Company.
In December 1999, the U.S. Securities and Exchange Commission ("SEC")
released Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), which clarifies the SEC's views on revenue
recognition. The Company believes its existing revenue recognition policies and
procedures are in compliance with SAB 101 and therefore, SAB 101's adoption
will not have a material impact on the Company's financial condition, results
of operations or cash flows.
In March 2000, the FASB issued Emerging Issues Task Force Issue No. 00-2,
"Accounting for Web Site Development Costs" ("EITF 00-2"), which is effective
for all such costs incurred for fiscal quarters beginning after June 30, 2000.
This Issue establishes accounting and reporting standards for costs incurred to
develop a web site based on the nature of each cost. Currently, as the Company
has no web site development costs, the adoption of EITF 00-2 would have no
impact on the Company's financial condition or results of operations. To the
extent the Company begins to enter into such transactions in the future, the
Company will adopt the Issue's disclosure requirements in the quarterly and
annual financial statements for the year ending December 31, 2000.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN 44"), which is
effective July 1, 2000, except that certain conclusions in this Interpretation
which cover specific events that occur after either December 15, 1998, or
January 12, 2000 are recognized on a prospective basis from July 1, 2000. This
Interpretation clarifies the application of APB Opinion 25 for certain issues
related to stock issued to employees. The Company believes its existing stock
based compensation policies and procedures are in compliance with FIN 44 and
therefore, the adoption of FIN 44 will have no material impact on the Company's
financial condition, results of operations or cash flows.
RECLASSIFICATIONS
Certain consolidated financial amounts have been reclassified for
consistent presentation.
F-54
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
LIFE
1999 1998 IN YEARS
------------- ------------- -----------
<S> <C> <C> <C>
Land ................................................... $ 122,000 $ 122,000 --
Buildings and improvements ............................. 1,985,000 1,920,000 5-20
Calling card platform equipment ........................ 14,722,000 13,480,000 5
Telecom equipment ...................................... 8,628,000 1,140,000 5
IP transmission equipment .............................. 4,229,000 888,000 5
Operations center equipment and furniture .............. 13,255,000 8,789,000 3-5
Call diverters ......................................... 18,016,000 8,175,000 5
Equipment under capital leases (Note 5) ................ 4,910,000 1,279,000 Lease Term
Internet communications equipment ...................... 563,000 562,000 5
----------- -----------
66,430,000 36,355,000
Less accumulated depreciation and amortization ......... 24,352,000 16,157,000
----------- -----------
$42,078,000 $20,198,000
=========== ===========
</TABLE>
Depreciation expense for the year ended December 31, 1999, the nine months
ended December 31, 1998 and the year ended March 31, 1998 was $8.4 million,
$3.2 million and $3.3 million, respectively.
2. OTHER INTANGIBLE ASSETS
Other intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
LIFE
1999 1998 IN YEARS
------------- ------------ ---------
<S> <C> <C> <C>
Existing technology ...................... $ 8,400,000 $ -- 5
Distribution partnership network ......... 5,290,000 -- 4-7
Assembled and trained workforce .......... 4,391,000 -- 3
Internally developed software ............ 3,488,000 -- 3-5
Long distance infrastructure ............. 1,580,000 -- 5
Non-compete agreements ................... 1,540,000 -- 1
Customer contract base ................... 1,343,000 -- 2-3
Licenses ................................. 1,143,000 433,000 3-5
Trademarks ............................... 549,000 518,000 10
Other .................................... 416,000 76,000 4-5
----------- ---------
28,140,000 1,027,000
Less accumulated amortization ............ 6,466,000 786,000
----------- ---------
$21,674,000 $ 241,000
=========== =========
</TABLE>
Intangible assets amortization expense for the year ended December 31,
1999, the nine month period ended December 31, 1998 and the year ended March
31, 1998 was $5.7 million, $0.1 million and $0.2 million, respectively.
Included in internally developed software is approximately $0.6 million of
additional software development costs capitalized in 1999 related to
enhancements for the existing technology acquired in the Connectsoft
acquisition.
F-55
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
3. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
Telephone carriers ......................... $ 2,658,000 $3,091,000
Accrued telecom taxes ...................... 1,930,000 --
External development costs ................. 1,582,000 --
Dividends on preferred stock ............... 1,277,000 --
Legal and professional fees ................ 1,165,000 479,000
Salaries and benefits ...................... 895,000 737,000
Interest ................................... 313,000 647,000
Costs associated with acquisitions ......... 296,000 697,000
Other ...................................... 876,000 1,264,000
----------- ----------
$10,992,000 $6,915,000
=========== ==========
</TABLE>
The Company incurred $3.1 million of various realignment expenses,
including primarily employee severance, legal and consulting fees and the write
down of certain investments during the year ended March 31, 1998. As of
December 31, 1999, there was a remaining accrual of $281,000 included in other
accrued expenses related to litigation with a former employee that was settled
in October 1999. Final payment to the former employee was made subsequent to
December 31, 1999.
4. BUSINESS ACQUISITIONS
As discussed previously, the Company acquired IDX and UCI in December 1998
and Telekey, Connectsoft, Swiftcall, iGlobe, ORS and Coast in 1999. The results
of operations of the acquired businesses are included in the consolidated
financial statements from the date of acquisition.
IDX
On December 2, 1998, the Company acquired all of the common and preferred
stock of IDX, for an original value of approximately $10.8 million consisting
of (a) 500,000 shares of the Company's Series B Convertible Preferred Stock
("Series B Preferred") originally valued at $3.5 million which were convertible
into 2,500,000 shares (2,000,000 shares until stockholder approval was obtained
on June 16, 1999 and subject to adjustment as described below) of common stock;
(b) warrants ("IDX Warrants") to purchase up to an additional 2,500,000 shares
of common stock (subject to stockholder approval which was obtained on June 16,
1999 and an adjustment as described below); (c) $5.0 million in 7.75%
convertible subordinated promissory notes ("IDX Notes") (subject to adjustment
as described below); (d) $1.5 million in bridge loan advances to IDX made by
the Company prior to the acquisition which were converted into part of the
purchase price plus associated accrued interest of $40,000; (e) $418,000
convertible subordinated promissory note for IDX dividends accrued and unpaid
on IDX's Preferred Stock and (f) direct costs associated with the acquisition
of $0.4 million (another $0.3 million of direct costs were recorded in 1999).
See Note 10 for a detailed description of terms of the IDX Notes and the Series
B Preferred Stock and IDX Warrants. This acquisition was accounted for using
the purchase method of accounting. The shares of Series B Preferred Stock, IDX
Warrants and IDX Notes were subject to certain adjustments related to IDX's
ability to achieve certain performance criteria, working capital levels and
price guarantees for the Series B Preferred Stock and IDX Warrants providing
IDX met its performance objectives.
The Company's common stock is currently listed on the Nasdaq National
Market and as such the rules of the National Association of Securities Dealers,
Inc. ("NASD") require stockholder approval of issuances of shares of common
stock (or securities convertible into common stock) in acquisition
F-56
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. BUSINESS ACQUISITIONS- (CONTINUED)
transactions where the present or potential issuance of securities could result
in an increase in the voting power or outstanding common shares of 20% or more.
As a result of NASD rules, the initial issuance of Series B Preferred Stock
provided for a conversion into 2,000,000 shares until such time that
stockholder approval was obtained to increase the convertibility into 2,500,000
shares and allow for the issuance of common stock related to the IDX Warrants.
At the annual meeting in June 1999, the stockholders approved the increase of
the convertibility of the Series B Preferred Stock to 2,500,000 shares and IDX
warrants to purchase up to 2,500,000 shares contingent on IDX meeting certain
performance objectives, as discussed in (a) and (b) above, respectively. The
fair value of the increase of 500,000 convertible shares was recorded as
additional purchase consideration. As a result, the acquired goodwill
associated with the IDX purchase was increased by approximately $1.5 million in
the second quarter to reflect the higher conversion feature approved in June
1999.
The Company obtained a final appraisal of IDX's assets from independent
appraisers in the third quarter of 1999. This appraisal resulted in a gross
reclassification of approximately $6.5 million of IDX's goodwill to other
identifiable intangibles as of December 31, 1999. As a result, the purchase
allocation as of December 31, 1999 resulted in goodwill of $6.4 million
(including final allocations of other acquired assets of $0.2 million) and
other intangibles of $6.5 million. These other identifiable intangibles consist
of assembled and trained workforce, partnership network and non-compete
agreements and are being amortized on a straight-line basis from one to four
years. Goodwill is being amortized on a straight-line basis over seven years.
In July 1999, the Company renegotiated the terms of the IDX purchase
agreement with the IDX stockholders as follows:
(a) The 500,000 shares of Series B Preferred Stock were reacquired by the
Company in exchange for 500,000 shares of Series H Convertible Preferred
Stock ("Series H Preferred").
(b) The Company reacquired the original IDX Warrants in exchange for new
warrants to acquire up to 1,250,000 shares of the Company's common
stock, subject to IDX meeting certain revenue, traffic and EBITDA
("Earnings Before Interest, Taxes, Depreciation and Amortization")
levels at either September 30, 2000 or December 31, 2000 if not achieved
by September 30, 2000.
(c) The Company reacquired the outstanding IDX Notes of $4.0 million in
exchange for 400,000 shares of Series I Convertible Optional Redemption
Preferred Stock ("Series I Preferred"). (See Note 10 for further
discussion).
(d) The maturity date of the convertible subordinated promissory note, face
value of $418,000, was extended to July 15, 1999 from May 31, 1999, and
subsequently paid by issuance of 140,599 shares of common stock.
(e) The Company waived its right to reduce the principal balance of the
$2.5 million note payable by certain claims as provided for under the
terms of the original IDX purchase agreement.
As a result of the July 1999 exchange agreement, the Company recorded the
excess of the fair market value of the new preferred stock issuances and the
warrants over the carrying value of the reacquired preferred stock, warrants
and notes payable as a dividend to Series B Preferred Stock stockholders of
approximately $6.0 million (subsequently reduced by $1.4 million, see
discussion below).
The Company will determine the final goodwill amount when the contingent
purchase element is resolved and the contingent warrants are exercised.
Goodwill may materially increase when this contingency is resolved.
F-57
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. BUSINESS ACQUISITIONS- (CONTINUED)
At the acquisition date, the stockholders of IDX originally received
Series B Preferred Stock and warrants as discussed above, which were ultimately
convertible into common stock subject to IDX meeting its performance
objectives. These stockholders in turn granted preferred stock and warrants,
each of which was convertible into a maximum of 240,000 shares of the Company's
common stock, to certain IDX employees. The increase in the market price during
the year ended December 31, 1999 and the nine months ended December 31, 1998 of
the underlying common stock granted by the IDX stockholders to certain
employees resulted in a charge to income of $0.6 million and $0.4 million,
respectively. The stock grants were performance based and were adjusted each
reporting period (but not below zero) for the changes in the stock price until
the shares and/or warrants (if and when) issued were converted to common stock.
In December 1999, the Company and the IDX stockholders agreed to reduce
the Series H Preferred Stock and warrant consideration paid by the Company by a
value equivalent to the consideration paid by the Company for 4,500 shares of
IDX. In exchange, the IDX stockholders will not issue the original preferred
stock and warrants to the above IDX employees or other parties. The Company
agreed to issue eGlobe options to these employees and others related to IDX.
The options will have an exercise price of $1.20 and a three year term. The
options will vest 75% at March 31, 2000 and the other 25% will vest on an
accelerated basis if IDX meets its earn out or in three years if it does not.
These options were granted by eGlobe on January 7, 2000. The Company also
agreed to issue 150,000 shares of common stock as payment of the original
consideration allocated as purchase consideration for an acquisition of a
subsidiary by IDX prior to the Company's purchase of IDX.
As a result of the above renegotiation, which resulted in the reduction of
the fair value of the Series H Preferred Stock and the new warrants and the
issuance of eGlobe's options, the Company recorded the reduction in
consideration of approximately $1.4 million to be paid to the IDX stockholders
as a negative dividend (offsetting the dividend recorded from the July
renegotiation) and reduced the net loss attributable to common stockholders in
the fourth quarter of 1999.
UCI
On December 31, 1998, the Company acquired all of the common stock issued
and outstanding of UCI, a privately-held corporation established under the laws
of the Republic of Cyprus, for a value of approximately $1.2 million for
125,000 shares of common stock (50% delivered at the acquisition date (valued
at $102,000) and 50% to be delivered February 1, 2000, subject to adjustment),
and $2.1 million payable as follows: (a) $75,000 paid in cash in January 1999;
(b) $1.0 million in the form of two notes; (c) $1.0 million in the form of a
non-interest bearing note payable only depending on the percentage of projected
revenue achieved, subject to adjustment; and (d) warrants to purchase 50,000
shares of common stock with an exercise price of $1.63 per share. See Note 5
for description of the terms and conditions of the warrants. This acquisition
has been accounted for under the purchase method of accounting.
In 1999, the Company obtained a final appraisal of UCI's assets from
independent appraisers which resulted in acquired goodwill of $0.5 million and
an acquired intangible of $0.7 million related to customer contracts. Goodwill
is being amortized on a straight-line basis over seven years and the acquired
intangible is being amortized on a straight-line basis over two years. The
Company may issue additional purchase consideration (see discussion above of
$1.0 million note) if UCI meets certain defined revenue targets. The Company is
currently renegotiating the original agreement and timing of the performance
measurement. The goodwill amount will be finalized pending resolution of these
purchase price contingencies. As a result, goodwill may increase when these
contingencies are resolved.
Telekey
On February 12, 1999, the Company completed the acquisition of Telekey for
a value of approximately $3.4 million for which it: (i) paid $0.1 million at
closing; (ii) issued a promissory note for $150,000 payable in equal monthly
installments over one year; (iii) issued 1,010,000 shares of
F-58
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. BUSINESS ACQUISITIONS- (CONTINUED)
Series F Convertible Preferred Stock ("Series F Preferred") valued at $2.0
million; and (iv) agreed to issue at least 505,000 and up to an additional
1,010,000 shares of Series F Preferred Stock two years from the date of closing
(or upon a change of control or certain events of default if they occur before
the end of two years), subject to Telekey meeting certain revenue and EBITDA
objectives; and (v) direct costs associated with the acquisition of $0.2
million. See Note 10 for detailed description of terms and conditions of the
Series F Preferred Stock. The value of $979,000 for the above 505,000 shares of
Series F Preferred Stock has been included in the purchase consideration.
This acquisition was accounted for using the purchase method of
accounting. The purchase price allocation based on management's review and
third party appraisals resulted in goodwill of $2.1 million and acquired
intangibles of approximately $3.0 million related to the value of certain
distribution networks, internally developed software and assembled and trained
workforce. Goodwill is being amortized on a straight-line basis over seven
years. The acquired intangibles are being amortized on a straight-line basis
over the useful lives of three to seven years. The final purchase amount will
be determined when the contingent purchase element related to Telekey's ability
to achieve certain revenue and EBITDA objectives is resolved and the additional
shares are issued. Goodwill may increase when this contingency is resolved.
At the acquisition date, the stockholders of Telekey received Series F
Preferred Stock as discussed above, which is ultimately convertible into common
stock. In addition, the stockholders may receive additional shares of Series F
Preferred Stock subject to Telekey meeting its performance objectives. These
stockholders in turn agreed to grant upon conversion of the Series F Preferred
Stock a total of 240,000 shares of the Company's common stock to certain
Telekey employees. Of this total, 60,000 shares will be issued only if Telekey
meets certain performance objectives. As of December 31, 1999, the value of the
underlying non-contingent 180,000 shares of common stock granted by the Telekey
stockholders to certain employees has resulted in a charge to income of $0.8
million. The stock grants are performance based and will be adjusted each
reporting period (but not less than zero) for the changes in the stock price
until the shares are issued to the employees. As discussed in Note 10, the
Telekey stockholders converted their shares of Series F Preferred Stock on
January 3, 2000; therefore, no additional compensation expense will be recorded
for the non-contingent shares after this date.
In February 2000, the Company reached a preliminary agreement with the
former stockholders of Telekey to restructure certain terms of the original
acquisition agreement. Such restructuring, which is subject to completion of
final documentation, includes an acceleration of the original earn out
provisions as well as the termination dates of certain employment agreements.
Connectsoft
In June 1999, the Company, through its subsidiary Vogo, purchased
substantially all the assets of Connectsoft, for a value of approximately $5.3
million consisting of the following: (a) one share of the Company's 6% Series G
Cumulative Convertible Redeemable Preferred Stock ("Series G Preferred") valued
at $3.0 million; (b) $1.8 million in advances (includes $971,000 in 1998) to
Connectsoft made by the Company prior to the acquisition which were converted
into part of the purchase price and (c) direct costs associated with the
acquisition of $0.5 million. See Note 10 for detailed description of terms of
the Series G Preferred Stock. This acquisition was accounted for under the
purchase method of accounting and the financial statements of the Company
reflect the final allocation of the purchase price based on appraisals
performed by a third party. The final allocation resulted in goodwill of $1.0
million and acquired intangibles of $9.1 million. The acquired intangibles
consist of internally developed software, existing technology, assembled
workforce and customer base. Intangibles are being amortized on a straight-line
basis over useful lives of three to five years. Goodwill is being amortized on
a straight-line basis over seven years.
F-59
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. BUSINESS ACQUISITIONS- (CONTINUED)
The Company also borrowed $0.5 million from the seller which bears
interest at a variable rate (8.5% at December 31, 1999). Principal and interest
payments are due in twelve (12) equal monthly payments commencing on September
1, 1999. The remaining principal and accrued interest also become due on the
first date on which (i) the Company receives in any transaction or series of
transactions any equity or debt financing of at least $50.0 million or (ii)
Vogo receives in any transaction or series of transactions any equity or debt
financing of at least $5.0 million. See Note 5 for further discussion.
In August 1999, the Company issued 30 shares of Series K Cumulative
Convertible Preferred Stock ("Series K Preferred Stock") in exchange for its
Series G Preferred Stock held by the seller of Connectsoft. (See Note 10 for
further discussion).
Swiftcall
In July 1999, the Company acquired all the common stock of Swiftcall, a
privately-held telecommunications company, and certain network operating
equipment held by an affiliate of Swiftcall. The aggregate purchase price
equaled $3.3 million, due in two equal payments on December 3, 1999 and June 1,
2000. The agreement provided that payments could be made at the option of the
Company, in whole or in part, (i) in cash or (ii) in stock, by issuing to the
stockholder of Swiftcall the number of shares of common stock of the Company
equal to the first payment amount or the second payment amount, as the case may
be, divided by the market price as defined. On August 12, 1999, the Company
elected to make both payments by issuing common stock. In December 1999, the
Company issued 526,063 shares of common stock valued at $1,645,000 as payment
for the first of the two installment payments. The final payment is payable
June 1, 2000 in shares of common stock.
As part of the transaction, the former stockholder of Swiftcall, who also
owns VIP Communications, Inc., ("VIP") a calling card company in Herndon,
Virginia, agreed to cause VIP to purchase services from the Company's IDX
subsidiary, of the type presently being purchased by VIP from the Company's IDX
subsidiary, which results in revenue to the Company of at least $500,000 during
the 12 months ending August 3, 2000. Any revenue shortfall will be paid by a
reduction in the number of shares of common stock issued to the former
stockholder of Swiftcall. The Company may deposit the applicable portion of the
second payment of the purchase price of shares of common stock into escrow on
June 1, 2000 if it appears that there will be a revenue shortfall under the
arrangement with VIP.
The acquisition was accounted for using the purchase method of accounting.
The financial statements of the Company reflect the final allocation of the
purchase price based on appraisals performed by a third party. The final
allocation resulted in acquired property and equipment valued at approximately
$5.1 million that is being depreciated on a straight-line basis over seven
years.
iGlobe
Effective August 1, 1999, the Company assumed operational control of
Highpoint, owned by Highpoint Telecommunications, Inc. ("HGP"). On October 14,
1999, substantially all of the operating assets of Highpoint were transferred
to iGlobe, a newly formed subsidiary of HGP, and the Company acquired all of
the issued and outstanding common stock of iGlobe for a value of approximately
$9.9 million.. In July 1999, the Company and Highpoint agreed that the Company
would manage the business of iGlobe and would take responsibility for the
ongoing financial condition of iGlobe from August 1, 1999, pursuant to a
Transition Services and Management Agreement ("TSA"). Pursuant to this
agreement, HGP financed working capital through the closing date to iGlobe for
which the Company issued a short-term note payable of $1.8 million (see Note
5). The acquisition closed
F-60
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. BUSINESS ACQUISITIONS- (CONTINUED)
October 14, 1999. The purchase price consisted of (i) one share of 20% Series M
Convertible Preferred Stock ("Series M Preferred Stock") valued at $9.6 million
(see Note 10 for further discussion), (ii) direct acquisition costs of
approximately $0.3 million; and (iii) HGP was given a non-voting beneficial 20%
interest of the equity interest subscribed or held by the Company in a
yet-to-be-completed joint venture known as IP Solutions B.V. See Note 10 for
detailed description of the Series M Preferred Stock.
The acquisition was accounted for using the purchase method of accounting.
This initial preliminary purchase price allocation based on management's review
and third party appraisals has resulted in goodwill of $1.8 million and
acquired intangibles of $2.4 million related to a customer base, licenses and
operating agreements, a sales agreement and an assembled workforce. Goodwill is
being amortized on a straight-line basis over seven years. The acquired
intangibles are being amortized on a straight-line basis over the estimated
useful lives of three years. The Company will determine the final purchase
price allocation based on completion of management's review.
ORS
In September 1999, the Company acquired control of ORS from its sole
stockholder, Oasis. The Company and Oasis formed eGlobe/Oasis Reservations LLC,
("LLC"), which is responsible for conducting the business operations of ORS.
The Company manages and controls the LLC and receives 90% of the profits and
losses from ORS' business. The LLC was funded by contributions effected by the
members under a Contribution Agreement ("Contribution Agreement"). Oasis
contributed all the outstanding shares of ORS valued at approximately $2.3
million as its contribution to the LLC. The Company contributed 1.5 million
shares of its common stock valued at $3.0 million on the date of issuance and
warrants to purchase additional shares of its common stock to the LLC. The
warrants are exercisable for the shares of common stock as discussed below:
(a) shares equal to the difference between $3.0 million and the value of
the Company's 1.5 million share contribution on the date that the shares
of common stock (including the shares underlying the warrants)
contributed to the LLC are registered with the SEC if the value of the
1.5 million shares on that date is less than $3.0 million;
(b) shares equal to $100,000 of the Company's common stock for each 30-day
period beyond 90 days following the date of contribution that the shares
of the Company's common stock (including the shares underlying the
warrants) contributed to the LLC remain unregistered;
(c) shares up to $2.0 million of the Company's common stock, subject to
adjustment based upon ORS achieving certain revenue and EBITDA targets
during the measurement period of August 1, 1999 to January 31, 2000:
provided however, that Oasis may select a different period if: (i) ORS
obtains a new customer contract at any time between the closing date and
March 31, 2000, and (ii) the Company enters into a new contract with a
specific customer at any time between the closing date and March 31,
2000. If either of these events occur, then Oasis may select as the
measurement period, in its discretion, any of the following; (x) the
period from August 1, 1999 to January 31, 2000, (y) the period from
September 1, 1999 to February 29, 2000 or (z) the period from October 1,
1999 to March 31, 2000;
(d) additional shares based upon (1) ORS achieving certain revenue and
EBITDA targets, and (2) the Company's share price at the date of
registration of the shares for this transaction. Under certain
circumstances, these shares may be equal to the greater of (A) 50% of
the incremental revenue for the Second Measurement Period (as defined in
the agreements) over $9.0 million or (B) four times the incremental
Adjusted EBITDA (as defined in the agreements) for the Second
Measurement Period over $1.0 million provided, however, that
F-61
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. BUSINESS ACQUISITIONS- (CONTINUED)
such number of shares shall not exceed the greater of; (i) 1,000,000
shares of the Company's common stock or (ii) that the number of shares of
the Company's common stock determined by dividing $8.0 million by the
Second Measurement Period Date Market Value (as defined in the
agreements); and provided further, that if the basis for issuance of such
shares is incremental revenue over $9.0 million then EBITDA for the
Second Measurement Period must be at least $1.0 million for the revenue
between $9.0 million and $12.0 million or at least $1.5 million for
revenue above $12.0 million. In addition, the LLC may receive 0.5 million
shares of the Company's common stock if the revenue for the Second
Measurement Period is equal to or greater than $37.0 million and the
Adjusted EBITDA for the Second Measurement Period is equal to or greater
than $5.0 million.
According to the Operating Agreement, the net profits and net losses of
the LLC are allocated 90% to the Company and 10% to Oasis. Proceeds from the
sale of the Company's common stock or warrants would be allocated 90% to the
Company and 10% to Oasis. Proceeds from the sale of the ORS stock or its assets
will be allocated 100% to Oasis until Oasis has received distributions of at
least $9.0 million and then 90% to Oasis and 10% to the Company. Pursuant to
the LLC's Operating Agreement, the LLC is an interim step to full ownership of
ORS by the Company. Once the Company has either raised $10.0 million in new
capital or generated three consecutive months of positive cash flow and
registered the shares issued in this transaction, the LLC will be dissolved and
ORS will become a wholly-owned subsidiary of the Company. Under these
circumstances, Oasis would receive the shares of common stock and warrants
contributed to the LLC by the Company. Additionally, even if these conditions
are not fulfilled, Oasis has the right to redeem its interest in the LLC at any
time in exchange for the shares of common stock and the warrants issued to the
LLC by eGlobe.
In January 2000, the Company raised more than $10.0 million in new
capital. Once the Company registers the shares issued in this transaction, the
LLC will be dissolved and ORS will become a wholly-owned subsidiary of the
Company.
This acquisition was accounted for using the purchase method of
accounting. The purchase allocation based on management's review and third
party appraisals resulted in goodwill of $0.4 million and acquired intangibles
of $1.6 million related to assembled and trained workforce and customer
contracts. The goodwill is being amortized on a straight-line basis over seven
years. The acquired intangibles are being amortized on a straight-line basis
over the estimated useful lives of three to five years. The Company has not
determined at this time if certain performance measures have been met. The
purchase amount may increase upon resolution of the contingencies discussed
earlier.
As the Company controls the operations of the LLC, the LLC has been
included in the consolidated financial statements with Oasis' interest in the
LLC recorded as Minority Interest.
In connection with the purchase and installation of equipment and
leasehold improvements at ORS' new facility in Miami, Florida, Oasis agreed to
loan ORS up to $451,000. The loan is required to be repaid in six equal
quarterly principal installments beginning November 30, 1999. The Company
guaranteed ORS' obligations under this loan and granted Oasis a security
interest in its ownership interest in the LLC. As of December 31, 1999, there
was $451,000 outstanding under this commitment. See Note 5 for further
discussion.
Subsequent to the acquisition, $1.0 million of costs were incurred related
to the purchase and installation of equipment and leasehold improvements at
this new facility. Of these costs, $0.6 million was paid by Oasis and
contributed to the LLC resulting in an increase in the Minority Interest.
Coast
On December 2, 1999, the Company acquired all the common shares of Coast
which was majority owned by the Company's largest stockholder (See Note 7). The
purchase consideration valued at approximately $16.7 million consisted of: (a)
16,100 shares of Series O Convertible
F-62
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. BUSINESS ACQUISITIONS- (CONTINUED)
Preferred Stock ("Series O Preferred Stock") valued at approximately $13.4
million; (b) 882,904 shares of common stock valued at approximately $3.0
million; and (c) direct costs associated with the acquisition of approximately
$0.3 million. The Series O Preferred Stock is convertible into a maximum of
3,220,000 shares of common stock. See Note 10 for a detailed description of the
Series O Preferred Stock and common stock.
The acquisition was accounted for using the purchase method of accounting.
The financial statements of the Company reflect the preliminary allocation of
the purchase price based on management's review and preliminary third party
appraisals. The preliminary purchase price allocation resulted in goodwill of
$14.3 million and intangibles of $3.2 million related to the value of certain
distribution networks, certain long distance infrastructure, internally
developed software and assembled and trained workforce. Goodwill is being
amortized on a straight-line basis over seven years, and the acquired
intangibles are being amortized on a straight-line basis over the estimated
useful lives of five years. The final purchase price allocation has not been
finalized pending final third party appraisals and completion of management's
review.
Pro Forma Results of Operations
The IDX and UCI acquisitions as well as the subsequent increase in the
preferred conversion factor for preferred shares originally issued to IDX
stockholders, the renegotiations of the terms of the IDX purchase agreement and
the 1999 reclassification of acquired goodwill to other identifiable
intangibles, are reflected in the following unaudited pro forma consolidated
results of operations assuming the acquisitions had occurred at the beginning
of the year ended March 31, 1998. The Telekey, Connectsoft, Swiftcall, iGlobe,
ORS, and Coast acquisitions, as well as the exchange of the Series G Preferred
Stock for the Series K Preferred Stock, are reflected in the following
unaudited pro forma consolidated results of operations assuming the
acquisitions had occurred at the beginning of the nine month period ended
December 31, 1998.
The unaudited pro forma consolidated results of operations for the year
ended March 31, 1998 include IDX's results of operations for the year ended
December 31, 1997 and eGlobe's results of operations for the year ended March
31, 1998. IDX, UCI, Telekey, Connectsoft, Swiftcall, iGlobe, ORS and Coast
present the results of operations for the nine months ended December 31, 1998.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA RESULTS
----------------------------------------------------------
YEAR ENDED NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 1998
---------------- ------------------- -----------------
<S> <C> <C> <C>
Revenue .............................................. $ 163,103,000 $ 116,630,000 $ 80,164,000
Net loss before extraordinary item ................... $ (66,533,000) $ (22,085,000) $ (19,615,000)
Net loss ............................................. $ (68,434,000) $ (22,085,000) $ (19,615,000)
Net loss attributable to common stockholders ......... $ (77,215,000) $ (24,764,000) $ (24,527,000)
Basic and diluted net loss per share ................. $ (1.20) $ (0.40) $ (0.43)
</TABLE>
In management's opinion, these unaudited pro forma amounts are not
necessarily indicative of what the actual combined results of operations might
have been if the acquisitions had been effective at the beginning of each
respective period, as presented above.
F-63
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Promissory note to a telecommunications company, net of unamortized
discount of $0 and $206,000 (1) ........................................ $ -- $ 7,294,000
Promissory notes for acquisition of IDX (2) ............................. -- 5,418,000
Promissory note for acquisition of UCI, net of unamortized discount of
$0 and $43,000 (3) ..................................................... 250,000 457,000
Promissory note for acquisition of UCI (4) .............................. 500,000 500,000
Promissory note to an investor, net of unamortized discount of $0 and
$26,000 (5) ............................................................ 282,000 224,000
8% mortgage note, payable monthly, including interest through March
2010, with an April 2010 balloon payment; secured by deed of trust on
the related land and building .......................................... 299,000 305,000
Promissory note of Telekey payable to a telecommunication company
(6) .................................................................... 454,000 --
Promissory note for acquisition of Connectsoft (7) ...................... 500,000 --
Promissory note for acquisition of Telekey (8) .......................... 25,000 --
Promissory note due to seller of iGlobe (9) ............................. 1,831,000 --
Promissory note due to seller of ORS (10) ............................... 451,000 --
Promissory note secured by certain equipment (11) ....................... 2,720,000 --
Capitalized lease obligations (12) ...................................... 5,750,000 724,000
---------- -----------
Total ................................................................... 13,062,000 14,922,000
Less current maturities, net of unamortized discount of $0 and $275,000 7,868,000 13,685,000
---------- -----------
Total notes payable and long-term debt .................................. $5,194,000 $ 1,237,000
========== ===========
</TABLE>
----------
(1) In February 1998, the Company borrowed $7.5 million from a
telecommunications company. The note was unsecured and bore interest at
8.875%. In connection with this transaction, the lender was granted
warrants expiring February 23, 2001 to purchase 500,000 shares of the
Company's common stock at a price of $3.03 per share. The value of
approximately $0.5 million assigned to such warrants when granted in
connection with the above note agreement was recorded as a discount to
long-term debt and amortized over the term of the note as interest
expense. In January 1999, pursuant to the anti-dilution provisions of the
loan agreement, the exercise price of the warrants was adjusted to $1.5125
per share, resulting in additional debt discount of $0.2 million. This
amount was amortized over the remaining term of the note. In July 1999,
this note plus accrued interest was repaid and the remaining unamortized
discount was recorded as interest expense.
(2) In connection with the IDX acquisition, the Company originally issued $5.0
million unsecured convertible subordinated promissory notes and a $418,000
convertible subordinated promissory note for accrued but unpaid dividends
owed by IDX. The notes bore interest at LIBOR plus 2.5%. Each of the
notes, plus accrued interest, could be paid in cash or shares of the
Company's common stock, at the sole discretion of the Company. In March
1999, the Company elected to pay the first note, which had a face value of
$1.0 million, plus accrued interest, in shares of common stock and issued
431,729 shares of common stock to discharge this indebtedness. In
connection with the discharge of this indebtedness, the IDX stockholders
were granted warrants expiring March 23, 2002 to purchase 43,173 shares of
the Company's common stock at a price of $2.37 per share. The value
assigned to the warrants of $62,000 was recorded as interest expense in
March 1999.
In July 1999, the Company renegotiated the terms of the purchase agreement
with the IDX stockholders. As a result of the renegotiations, the Company
exchanged the remaining notes payable totaling $4.0 million for 400,000
shares of Series I Preferred Stock valued at $4.0 million. In addition, the
maturity date of the $418,000 note was extended and repaid in August 1999
with 140,599 shares of common stock. See Notes 4 and 10 for further
discussion.
(3) On December 31, 1998, the Company acquired UCI. In connection with this
transaction, the Company issued a $0.5 million unsecured promissory note
bearing interest at 8% with principal and interest originally due June 27,
1999. In connection with the note, UCI was granted warrants expiring in
December 31, 2003 to purchase 50,000 shares of the
F-64
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. NOTES PAYABLE AND LONG-TERM DEBT - (CONTINUED)
Company's common stock at a price of $1.63 per share. The value assigned to
the warrants of $43,000 was recorded as a discount to the note and was
amortized through June 1999 as additional interest expense. In August 1999,
the Company completed renegotiation of the terms of this note pursuant to
which the Company paid $250,000 in November 1999 with the remaining
$250,000 plus accrued interest payable on December 31, 1999. The remaining
note was paid in full subsequent to year end.
(4) In connection with the UCI acquisition, the Company issued a $0.5 million
unsecured promissory note with 8% interest payable monthly due no later
than September 30, 2000.
(5) In September 1998, a subsidiary of the Company entered into a 12%
unsecured bridge loan agreement with an investor for $250,000 and the
proceeds were advanced to Connectsoft, a company acquired in September
1999 as discussed in Note 4. In connection with this transaction, the
lender was granted warrants to purchase 25,000 shares of the Company's
common stock at a price of $2.00 per share. The value assigned to the
warrants of $34,000 was recorded as a discount to the note and has been
fully amortized as of December 31, 1999 as additional interest expense. As
part of the acquisition of Connectsoft, the Company renegotiated the terms
of this note with the investor in July 1999. Pursuant to the
renegotiations, the original note was replaced with a new note due
September 12, 1999 representing principal plus accrued interest due on the
original note. In connection with this new note, the lender was granted
warrants to purchase 25,000 shares of the Company's common stock at a
price of $2.82 per share. The value of $34,000 assigned to the warrants
was recorded as a discount to the note and amortized over the term of the
loan. In December 1999, the lender extended the note and was granted
warrants to purchase 10,000 shares of the Company's common stock at a
price of $2.82 per share. The value of $15,000 was recorded as interest
expense in December 1999. On January 28, 2000, the Company paid the
principal and interest in full.
(6) Telekey has an outstanding promissory note for $454,000 bearing interest,
payable quarterly at 10% with principal due on December 31, 2000. The note
is secured by certain assets of the previous stockholders of Telekey.
(7) In connection with the acquisition of Connectsoft, the Company issued a
$0.5 million note to the seller. The note bears interest at a variable
rate (8.5% at December 31, 1999) and principal and interest payments are
due in twelve equal monthly payments commencing on September 1, 1999. The
remaining principal and accrued interest also become due on the first date
on which (i) the Company receives in any transaction or series of
transactions any equity or debt financing of at least $50.0 million or
(ii) Vogo receives in any transaction or series of transactions any equity
or debt financing of at least $5.0 million. The note is secured by all the
acquired assets and property of Connectsoft. The Company repaid the note
and accrued interest subsequent to December 31, 1999.
(8) In connection with the acquisition of Telekey, the Company issued an
unsecured, non-interest-bearing note for $150,000. Principal payments are
due in equal monthly payments through February 2000. Telekey also had a
$1.0 million line of credit due on demand and bearing interest at a
variable rate to facilitate operational financing needs. The line of
credit was personally guaranteed by previous stockholders of Telekey and
was due on demand. This line of credit expired in October 1999 and the
balance was repaid on November 2, 1999.
(9) Effective August 1, 1999, the Company acquired iGlobe. In connection with
this transaction, Highpoint financed working capital for iGlobe through
the closing date for which the Company has issued an unsecured note
payable for approximately $1.8 million which was subject to adjustment.
The outstanding past due balance bears interest at 15% per annum. As of
March 24, 2000, the Company has repaid $713,000 of the note and the
parties are currently negotiating payment terms on the remaining balance.
(10) In connection with the purchase of ORS, the seller loaned ORS up to
$451,000 which was used to purchase and install equipment and leasehold
improvements at ORS' new facility in Miami, Florida. The note bears
interest at 7% and principal and interest are due in six equal quarterly
installments beginning November 30, 1999. The Company guaranteed ORS'
obligations under this loan and granted the seller a security interest in
its ownership interest in the LLC.
(11) Effective June 11, 1999, Trans Global entered into a financing agreement
to fund the purchase of certain switch hardware and software. The note is
payable for a total of $3.3 million in 36 consecutive monthly installments
of approximately $105,000 (principal and interest) at a fixed interest
rate of 8.88%. The note is collateralized by the equipment which has a net
carrying value of $2.9 million at December 31, 1999.
(12) During 1999, the Company acquired certain capital lease obligations of
approximately $5.0 million through its acquisitions of Telekey,
Connectsoft, iGlobe and Coast as discussed in Note 4. The Company is
committed under various capital leases for certain property and equipment.
These leases are for terms of 18 months to 36 months and bear interest
ranging from 8.52% to 28.0%. Accumulated depreciation on equipment held
under capital leases was $1,395,000 and $150,000 at December 31, 1999 and
1998, respectively.
F-65
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. NOTES PAYABLE AND LONG-TERM DEBT - (CONTINUED)
Notes payable, future maturities of long-term debt and future minimum
lease payments under capital lease obligations at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
NOTES PAYABLE
AND
LONG-TERM CAPITAL
YEARS ENDING DECEMBER 31, DEBT LEASES TOTAL
-------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
2000 ....................................... $ 5,280,000 $ 3,252,000 $ 8,532,000
2001 ....................................... 1,237,000 2,427,000 3,664,000
2002 ....................................... 521,000 915,000 1,436,000
2003 ....................................... 9,000 -- 9,000
2004 ....................................... 10,000 -- 10,000
Thereafter ................................. 255,000 -- 255,000
----------- ----------- -----------
Total payments ............................. 7,312,000 6,594,000 13,906,000
Less amounts representing interest ......... -- 844,000 844,000
----------- ----------- -----------
Principal payments ......................... 7,312,000 5,750,000 13,062,000
Less current maturities .................... 5,280,000 2,588,000 7,868,000
----------- ----------- -----------
Total long-term debt ....................... $ 2,032,000 $ 3,162,000 $ 5,194,000
=========== =========== ===========
</TABLE>
6. EARNINGS (LOSS) PER SHARE
Earnings per share are calculated in accordance with SFAS No. 128,
"Earnings Per Share". Under SFAS No. 128, basic earnings (loss) per share is
calculated as income (loss) available to common stockholders divided by the
weighted average number of common shares outstanding. Diluted earnings per
share are calculated as net income (loss) divided by the diluted weighted
average number of common shares. The diluted weighted average number of common
shares is calculated using the treasury stock method for common stock issuable
pursuant to outstanding stock options and common stock warrants. Common stock
options of 5,245,468, 2,538,159 and 2,020,822 and warrants of 8,101,474,
1,218,167 and 1,391,667 were not included in diluted earning (loss) per share
for the year ended December 31, 1999, the nine months ended December 31, 1998
and the year ended March 31, 1998, respectively, as the effect was antidilutive
due to the Company recording a loss for these periods. Contingent warrants of
1,087,500 and 2,875,000 were not included in diluted earnings (loss) per share
for the year ended December 31, 1999 and the nine months ended December 31,
1998, respectively, as conditions for inclusion had not been met. In addition,
convertible preferred stock, including dividends payable in shares of common
stock, stock to be issued, and convertible subordinated promissory notes
convertible into 26,223,940 and 5,323,926 shares of common stock were not
included in diluted earnings (loss) per share for the year ended December 31,
1999 and for the nine month period ended December 31, 1998, respectively, due
to the loss for the periods. There was no convertible preferred stock or
convertible debt outstanding at March 31, 1998.
Subsequent to December 31, 1999, the Company issued additional preferred
stock and warrants convertible into shares of common stock. See Note 10 for
discussion. Also, the Company renegotiated the terms of a preferred stock
issuance and certain preferred stock was converted into common stock. (See Note
16 for discussion). The shares of common stock and the contingent warrants held
by the LLC and the 2,000,000 shares of common stock held in escrow to cover
eGlobe's potential indemnification obligations under the Trans Global merger
agreement, are not included in the computation of basic and diluted loss per
share.
F-66
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. EARNINGS (LOSS) PER SHARE - (CONTINUED)
<TABLE>
<CAPTION>
YEAR NINE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 1998
----------------- ----------------- ------------------
<S> <C> <C> <C>
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
NUMERATOR
Net loss before extraordinary item ................... $ (53,203,000) $ (5,958,000) $ (11,257,000)
Preferred stock dividends ............................ (11,930,000) -- --
------------- ------------- --------------
Net loss before extraordinary item attributable to
common stockholders ................................. $ (65,133,000) $ (5,958,000) $ (11,257,000)
Loss on early retirement of debt ..................... (1,901,000) -- --
------------- ------------- --------------
Net loss attributable to common stockholders ......... (67,034,000) (5,958,000) (11,257,000)
------------- ------------- --------------
DENOMINATOR
Weighted average shares outstanding .................. 60,610,548 57,736,654 57,082,495
------------- ------------- --------------
PER SHARE AMOUNTS (BASIC AND DILUTED)
Net loss before extraordinary item ................... $ (1.08) $ (0.10) $ (0.20)
Loss on early retirement of debt ..................... ( 0.03) -- --
============= ============= ==============
Net loss per share ................................... $ (1.11) $ (0.10) $ (0.20)
============= ============= ==============
</TABLE>
The following table lists preferred dividends by preferred stock series
for the year ended December 31, 1999. There were no preferred dividends for the
nine months ended December 31, 1998 and for the twelve months ended March 31,
1998.
<TABLE>
<CAPTION>
PREFERRED STOCK YEAR ENDED
SERIES DECEMBER 31, 1999
----------------- ------------------
<S> <C>
B $ 4,601,000
C 2,215,000
D 1,608,000
E 1,847,000
F --
G --
H --
I 139,000
J 29,000
K 200,000
M 537,000
N 697,000
O 57,000
-----------
Total $11,930,000
===========
</TABLE>
F-67
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. RELATED PARTY TRANSACTIONS
Notes Payable and Long-Term Debt
Notes payable and long-term debt with related parties consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
------------- ------------
<S> <C> <C>
Accounts receivable revolving credit note (1) ........................... $1,058,000 $ --
Secured notes, net of unamortized discount of $7,128,000 and $0 (1) ..... 7,806,000 --
Promissory note of Coast (2) ............................................ 3,000,000 --
Promissory note of Coast (2) ............................................ 250,000 --
Promissory note payable to a stockholder, net of unamoritized discount
of $137,000 and $46,000 (3) ............................................ 863,000 954,000
Short-term loan from two officers and an investor (4) ................... -- 200,000
---------- ---------
Total, net of unamortized discount of $7,265,000 and $46,000 ............ 12,977,000 1,154,000
Less current maturities, net of unamortized discount of $2,988,000 and
$46,000. ............................................................... 4,676,000 1,154,000
---------- ---------
Total long-term debt, net of unamortized discount of $4,277,000 and $0 $8,301,000 $ --
========== =========
</TABLE>
----------
(1) In April 1999, the Company entered into a loan and note purchase agreement
with EXTL Investors ("EXTL"), which together with its affiliates was the
Company's largest stockholder. Under the terms of this Loan and Note
Purchase Agreement ("Agreement"), in April 1999, the Company initially
received an unsecured loan ("Loan") of $7.0 million bearing interest at 8%
payable monthly with principal and remaining interest due on the earlier
of (i) April 2000, (ii) the date of closing of an offering by the Company
from which the Company received net proceeds of $30.0 million or more, or
(iii) the closing of the $20.0 million purchase of the Company's 5%
Secured Notes. As additional consideration, EXTL received warrants to
purchase 1,500,000 shares of the Company's common stock at an exercise
price of $0.01 per share, of which 500,000 warrants were immediately
exercisable and 1,000,000 warrants were exercisable only in the event that
the stockholders did not approve the repayment of the $20.0 million credit
facility committed by EXTL in shares of the Company's common stock and
grant of warrants to purchase 5,000,000 shares of the Company's common
stock or the Company elected not to draw it down. The 1,000,000 warrants
did not become exercisable because both the stockholder approval was
received and the Company elected to draw down the funds as discussed
below.
The value of approximately $2.9 million assigned to the 500,000 warrants
was recorded as a discount to the note payable and amortized through July
1999 when the note was repaid.
Under the Agreement, in July 1999, EXTL purchased $20.0 million of 5%
Secured Notes ("Notes") dated June 30, 1999 at the Company's request. The
transactions contemplated by the Agreement were approved by the Company's
stockholders at the annual stockholders meeting in June 1999. The initial
$7.0 million note was repaid from the proceeds of the Notes along with
accrued interest of $0.1 million.
As additional consideration for the Notes, EXTL was granted warrants
vesting over two years expiring in three years, to purchase 5,000,000
shares of the Company's common stock at an exercise price of $1.00 per
share. The value assigned such warrants of approximately $10.7 million was
recorded as a discount to the Notes and is being amortized over the term of
the Notes as additional interest expense.
Principal and interest on the Notes are payable over three years in monthly
installments commencing August 1, 1999 with a balloon payment for the
remaining balance due on the earlier to occur of (i) June 30, 2002, or (ii)
the date of closing of an offering ("Qualified Offering") by the Company of
debt or equity securities, in a single transaction or series of related
transactions, from which the Company receives net proceeds of $100.0
million or more. Alternatively, the Company may elect to pay up to 50% of
the original principal amount of the Notes in shares of the Company's
common stock, at its option, if: (i) the closing price of the Company's
common stock is $8.00 or more per share for more than 15 consecutive
trading days; (ii) the Company completes a public offering of equity
securities at a price of at least $5.00 per share and with proceeds of at
least $30.0 million; or (iii) the Company completes an offering of
securities with proceeds in excess of $100.0 million.
Also, under the Agreement, EXTL agreed to make advances to the Company
under a 5% Accounts Receivable Revolving Credit Note ("Revolver") for an
amount up to the lesser of (1) 50% of eligible receivables (as defined) or
(2) the aggregate amount of principal that has been repaid to date
($1,066,000 as of December 31, 1999). Interest payments are due monthly
with the unpaid principal and interest on the Revolver due on the earliest
to occur of (i) the third anniversary of the agreement, June 30, 2002, or
(ii) the date of closing of a Qualified Offering as defined above.
F-68
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. RELATED PARTY TRANSACTIONS - (CONTINUED)
In August 1999, the Company and EXTL agreed to exchange $4.0 million of the
Notes for 40 shares of Series J Cumulative Convertible Preferred Stock
("Series J Preferred"). At the date of exchange, the carrying value of the
$4.0 million Notes, net of the unamortized discount of approximately $1.9
million, was approximately $2.1 million. The excess of the fair value of
the Series J Preferred Stock of $4.0 million over the carrying value of the
Notes of $1.9 million was recorded as an extraordinary loss on early
retirement of debt. The transaction does not result in a tax benefit to the
Company. As a result of this agreement, the $4.0 million is not subject to
redraw under the Revolver. (See Note 10 for further discussion.)
These Notes and Revolver are secured by substantially all of eGlobe's
existing operating assets (excluding Trans Global) and eGlobe's and IDX's
accounts receivables, although the Company can pursue certain additional
permitted financing, including equipment and facilities financing, for
certain capital expenditures. The Agreement contains certain debt covenants
and restrictions by and on the Company, as defined. The Company was in
arrears on a scheduled principal payment under this debt facility as of
December 31, 1999 for which it received a waiver from EXTL through January
1, 2001. In addition the Company was in default under certain of its other
debt agreements as a result of non-payments of scheduled payments at
December 31, 1999 and obtained a waiver through February 14, 2000 from
EXTL. The Company repaid these other notes by February 14, 2000. The
Company was technically in default under the Notes due to the Company's
assumption of the Coast notes, as discussed below in (2). However, in April
2000, the Agreement was amended and this event of default was permanently
cured as discussed in Note 18.
(2) Coast, acquired in December 1999, has two outstanding unsecured promissory
notes with an affiliate of EXTL for $3.0 million and $250,000. The notes
bear interest at a variable rate (10% at December 31, 1999) and 11%,
respectively. Interest on both notes is payable monthly with the principal
due July 1, 2000 and November 29, 2000, respectively. A change of control
is considered an event of default under the existing $3.0 million note. In
April 2000, the agreement was amended and the event of default was
permanently cured as discussed in Note 18.
(3) In June 1998, the Company borrowed $1.0 million from an existing
stockholder under an 8.875% unsecured note. In connection with this
transaction, the lender was granted warrants expiring September 2001 to
purchase 67,000 shares of the Company's common stock at a price of $3.03
per share. The stockholder also received as consideration for the loan,
the repricing and extension of an existing warrant for 55,000 shares
exercisable before February 2001 at a price of $3.75 per share. The value
assigned to such warrants, including the revision of terms, of
approximately $69,000, was recorded as a discount to the note payable and
was amortized over the term of the note as interest expense through
December 31, 1999. In January 1999, the exercise price of the 122,000
warrants was lowered to $1.5125 per share and the expiration dates were
extended through January 31, 2002. The value of $57,000 assigned to the
revision in terms was recorded as additional debt discount and was
amortized as interest expense through December 31, 1999.
In August 1999, the Company entered into a stock purchase agreement with
the lender. Under this agreement, the lender agreed to purchase 160,257
shares of common stock of the Company at a price per share of $1.56 and
received a warrant to purchase 60,000 shares of common stock of the Company
at a price per share of $1.00. Additionally, the lender acquired an option
to exchange the principal of the note (up to a maximum amount of $500,000)
for: (1) shares of common stock of the Company at a price per share of
$1.56 and (2) warrants to purchase shares of common stock of the Company at
a price of $1.00 (60,000 shares per $250,000 of debt exchanged). The value
of the maximum number of warrants that would be issued upon exercise of the
option of approximately $71,000 was recorded as additional debt discount
and was amortized as interest expense through December 31, 1999.
Effective December 16, 1999 the Company and the lender extended the
maturity date of the note to April 18, 2000 and increased the interest rate
on the balance outstanding from December 18, 1999 to maturity to 14%.
Additionally, the option to exchange up to 50% of the principal balance for
shares of common stock was increased to 75% under the same terms as
discussed earlier. As a result, the value of the additional 60,000 warrants
that would be issued upon exercise of the option of $137,000 was recorded
as additional debt discount and will be amortized as interest expense
through April 18, 2000. The value of $313,000 related to the excess of the
market value of the Company's common stock over the conversion price under
the option was recorded as interest expense because the debt is convertible
at the election of the lender until April 2000.
During 1999, the same stockholder loaned $0.2 million to the Company for
short term needs. This note was converted into 125,000 shares of common
stock during 1999. Upon conversion, the stockholder was issued warrants to
purchase 40,000 shares of common stock at an exercise price of $1.60 per
share and warrants to purchase 40,000 shares of common stock at an exercise
price of $1.00 per share. The value of $102,000 related to these warrants
was recorded as interest expense.
(4) On December 31, 1998, two officers of the Company each loaned $50,000 and
an investor loaned $100,000 to the Company for short-term needs. The loans
were repaid in 1999.
F-69
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. RELATED PARTY TRANSACTIONS - (CONTINUED)
Future maturities of notes payable and long-term debt with related parties
at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, TOTAL
----------------------------------------------------------------- -------------
<S> <C>
2000 .................................................. $7,664,000
2001 .................................................. 3,076,000
2002 .................................................. 9,502,000
----------
Total principal payments .............................. 20,242,000
Less unamortized discount ............................. 7,265,000
----------
Total debt ............................................ 12,977,000
Less current maturities, net of unamortized discount of
$2,988,000 .......................................... 4,676,000
----------
Total long-term debt, net of unamortized discount of
$4,277,000 .......................................... $8,301,000
==========
</TABLE>
Settlement With Principal Stockholder
In November 1998, the Company reached an agreement with its former
chairman, Mr. Ronald Jensen, who at the time was also the Company's largest
stockholder. Mr. Jensen is also a member of EXTL, the Company's current largest
stockholder. The agreement concerned settlement of his unreimbursed costs and
other potential claims.
Mr. Jensen had purchased $7.5 million of eGlobe's common stock in a
private placement in June 1997 and later was elected Chairman of the Board of
Directors. After approximately three months, Mr. Jensen resigned his position
citing both other business demands and the demands presented by the challenges
of the Company. During his tenure as Chairman, Mr. Jensen incurred staff and
other costs, which were not billed to the Company. Also, Mr. Jensen
subsequently communicated with the Company's current management indicating that
there were a number of issues raised during his involvement with the Company
relating to the provisions of his share purchase agreement which could result
in claims against the Company.
In order to resolve all current and potential issues, Mr. Jensen and the
Company agreed to exchange his current holding of 1,425,000 shares of common
stock for 75 shares of 8% Series C Cumulative Convertible Preferred Stock
("Series C Preferred Stock"), which management estimated to have a fair market
value of approximately $3.4 million and a face value of $7.5 million. The terms
of the Series C Preferred Stock permitted Mr. Jensen to convert the face value
of the preferred stock to common stock at 90% of the market price, subject to a
minimum conversion price of $4.00 per share and a maximum of $6.00 per share.
The difference between the estimated fair value of the preferred stock issued
and the market value of the common stock surrendered resulted in a non-cash
charge to the Company's statement of operations of approximately $1.0 million
in the nine months ended December 31, 1998.
In February 1999, contemporaneous with the Company's issuance of Series E
Cumulative Convertible Redeemable Preferred Stock ("Series E Preferred Stock")
to EXTL which is discussed below, the terms of the Series C Preferred Stock
were amended and the Company issued 3,000,000 shares of common stock in
exchange for the 75 shares of outstanding Series C Preferred Stock (convertible
into 1,875,000 shares of common stock on the exchange date). The market value
of the 1,125,000 incremental shares of common stock issued was recorded as a
preferred stock dividend of approximately $2.2 million. See Note 10 for further
discussion.
F-70
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. RELATED PARTY TRANSACTIONS - (CONTINUED)
Preferred Stock Issuances
In February 1999, the Company issued 50 shares of Series E Preferred Stock
to the Company's largest stockholder for $5.0 million. See Note 10 for further
discussion.
As discussed earlier, in August 1999, the Company issued 40 shares of
Series J Preferred Stock as prepayment of $4.0 million of the Secured Notes.
See Note 10 for further discussion.
Acquisition of Companies
In December 1999, the Company acquired Coast, which was majority owned by
Mr. Jensen. See Note 4 for further discussion. In addition, Coast has
outstanding promissory notes with an affiliate of EXTL as discussed above.
Effective August 1, 1999, the Company acquired iGlobe, a wholly-owned
subsidiary of HGP. An eGlobe director is the president and chief executive
officer of HGP. See Note 4 for further discussion.
Redeemable Common Stock
Upon the execution of the Coast merger agreement, one of the Coast
stockholders signed an employment agreement with the Company. Under a side
letter to the employment agreement, the Company was obligated to repurchase the
247,213 shares of common stock issued this employee in the Coast acquisition
for $700,000 under certain conditions. The Company shall, within 180 days of
the date of the Coast stockholder's employment, provided that the Company has
raised at least $15.0 million in equity through a public or private placement,
purchase 247,213 shares of the Company's common shares at $2.83 per share. If
the conditions mentioned above do not occur within 120 days of the date of
employment, the shareholder has the option to withdraw the redemption feature.
The Company may purchase up to 50,000 shares of common stock of the Company
from the Coast stockholder at a price per share of $2.83. At any time after the
date that is 120 days after the date of the Coast stockholders employment, they
may elect not to have any portion or all of these Company common shares
purchased by providing written notice of such election to the Company.
Accordingly, the redemption value of $700,000 for these shares was reclassified
and reflected as Redeemable Common Stock at December 31, 1999. Subsequent to
December 31, 1999, this employee waived the redemption feature. As a result,
this amount will be reclassified to stockholders' equity in the first quarter
of 2000.
Office Leases
A company owned by the Co-Chairman, director and significant stockholder
of eGlobe leases certain offices to the Company. The monthly rent of these
office leases approximates $50,000 through March 31, 2003. Rent expense paid to
companies owned by the stockholder was approximately $573,000, $197,000 and
$209,000 for the year ended December 31, 1999, the nine months ended December
31, 1998 and the year ended March 31, 1998, respectively.
8. PROXY RELATED LITIGATION AND SETTLEMENT COSTS
The Company, its former auditors, certain of its present and former
directors and others were defendants in a consolidated securities class action
which alleged that certain public filings and reports made by the Company,
including its Forms 10-K for the 1991, 1992, 1993 and 1994 fiscal years (i) did
not present fairly the financial condition of the Company and its earnings; and
(ii) failed to disclose the role of a consultant to the Company. The Company
and its former auditors vigorously opposed the action; however, the Company
decided it was in the stockholders' best interest to curtail costly legal
proceedings and settle the case.
F-71
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. PROXY RELATED LITIGATION AND SETTLEMENT COSTS - (CONTINUED)
Under an Order and Final Judgment entered in this action on September 21,
1998 pursuant to the Stipulation of Settlement dated April 2, 1998, the Company
issued 350,000 shares of its common stock into a Settlement Fund that was
distributed as of October 1999 among the Class on whose behalf the action was
brought.
As a result of the above action and related matters, the Company recorded
$0.1 million and $3.9 million in costs and expenses during the nine months
ended December 31, 1998 and the year ended March 31, 1998. Included in the
March 31, 1998 amount, is a charge of $3.5 million which represented the value
assigned to the 350,000 shares of common stock referred to above, which were
valued at $10.00 per share pursuant to the terms of the settlement agreement.
Such value related to the Company's obligation under the Stipulation of
Settlement to issue additional stock if the market price of the Company's stock
was less than $10.00 per share during the defined periods. The Company had no
obligation to issue additional stock if its share price is above $10.00 per
share for fifteen consecutive days during the two year period after all shares
have been distributed to the Class. In March 2000, that condition was satisfied
and the Company has no further obligations under the Stipulation of Settlement.
Additionally, the Company settled with another stockholder related to the
same securities class action in May 1998 and issued that stockholder 28,700
shares of common stock at the market price at the date of settlement for a
total value of $81,000.
9. OTHER LITIGATION
In October 1999, a major telecommunications carrier filed suit against the
Company seeking approximately $2.5 million pursuant to various service
contracts. The Company disputes the amounts allegedly owed based on erroneous
invoices, the quality of service provided and unfair and deceptive billing
practices. The Company believes it has substantial counterclaims and is
vigorously defending this suit. The ultimate outcome of this litigation is
unknown at this time.
In July 1999, a certain transmission vendor filed suit against the
Company, seeking to collect approximately $300,000. The Company believes it has
substantial counterclaims and is vigorously defending this suit based upon
breach of contract.
The Company and its subsidiaries are also parties to various other legal
actions and various claims arising in the ordinary course of business.
Management of the Company believes that the disposition of the items discussed
above and such other actions and claims will not have a material effect on the
financial position, operating results or cash flows of the Company.
10. STOCKHOLDERS' EQUITY
Preferred Stock and Redeemable Preferred Stock
At the June 16, 1999 annual stockholder meeting, a proposal to amend the
Company's Certificate of Incorporation to increase the Company's authorized
preferred stock to 10,000,000 was approved and adopted. Par value for all
preferred stock remained at $.001 per share. In addition, the stockholders also
approved and adopted a prohibition on stockholders increasing their percentage
of ownership of the Company above 30% of the outstanding stock or 40% on a
fully diluted basis other than by a tender offer resulting in the stockholder
owning 85% or more of the outstanding common stock. The following is a summary
of the Company's series of preferred stock and the amounts authorized and
outstanding at December 31, 1999 and 1998:
Series B Convertible Preferred Stock, 500,000 shares authorized, and 0 and
500,000 shares, respectively, issued and outstanding (series eliminated in
December 1999).
F-72
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. STOCKHOLDERS' EQUITY - (CONTINUED)
8% Series C Cumulative Convertible Preferred Stock, 275 shares authorized,
0 and 75 shares, respectively, issued and outstanding (series eliminated in
December 1999).
8% Series D Cumulative Convertible Preferred Stock, 125 shares authorized,
35 and 0 shares, respectively, issued and outstanding ($3.5 million aggregate
liquidation preference) (converted in January 2000).
8% Series E Cumulative Convertible Preferred Stock, 125 shares authorized,
50 and 0 shares, respectively, issued and outstanding (converted on January 31,
2000).
Series F Convertible Preferred Stock, 2,020,000 authorized, 1,010,000 and
0 shares, respectively, issued and outstanding (converted on January 3, 2000).
6% Series G Cumulative Convertible Redeemable Preferred Stock, 1 share
authorized, no shares issued and outstanding (series eliminated in December
1999).
Series H Convertible Preferred Stock, 500,000 shares authorized, 500,000
and 0 shares, respectively, issued and outstanding (converted on January 31,
2000).
Series I Convertible Optional Redemption Preferred Stock, 400,000 shares
authorized, 400,000 and 0 shares, respectively, issued and outstanding (150,000
shares converted on February 14, 2000).
5% Series J Cumulative Convertible Preferred Stock, 40 shares authorized,
40 and 0 shares, respectively, issued and outstanding ($4.0 million aggregate
liquidation preference) (converted on January 31, 2000).
5% Series K Cumulative Convertible Preferred Stock, 30 shares authorized,
30 and 0 shares, respectively, issued and outstanding ($3.0 million aggregate
liquidation preference) (converted on January 31, 2000).
20% Series M Convertible Preferred Stock, 1 share authorized, 1 and 0
share, respectively, issued and outstanding ($9.0 million aggregate liquidation
preference).
8% Series N Cumulative Convertible Preferred Stock, 20,000 shares
authorized, 1,535 and 0 shares, respectively, issued and outstanding ($1.5
million liquidation preference) (converted during January 2000).
Series O Convertible Preferred Stock, 16,100 shares authorized, 16,100 and
0 shares, respectively, issued and outstanding ($16.0 million aggregate
liquidation preference).
Following is a detailed discussion of each series of preferred stock
outstanding at December 31, 1999 and 1998:
Series B Convertible Preferred Stock
On December 2, 1998, the Company issued 500,000 shares of Series B
Preferred Stock valued
at $3.5 million (value increased an additional $1.5 million in June 1999) in
connection with the acquisition of IDX. The shares of Series B Preferred Stock
were convertible at the holders' option at any time at the conversion rate (of
a 5 to 1 ratio of common stock to preferred). The shares of Series B Preferred
Stock automatically convert into shares of common stock on the earlier to occur
of (a) the first date that the 15 day average closing sales price of common
stock is equal to or greater than $8.00 or (b) 30 days after December 2, 1999.
The Series B Preferred Stock had no stated liquidation preferences, was not
redeemable and the holders were not entitled to dividends unless declared by
the Board of Directors.
F-73
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. STOCKHOLDERS' EQUITY - (CONTINUED)
In July 1999, the Company renegotiated the terms of the IDX purchase
agreement with the IDX stockholders. Pursuant to the renegotiations, the Series
B Preferred Stock was reacquired by the Company in exchange for 500,000 shares
of Series H Preferred Stock. As a result of the exchange agreement, the Company
recorded the excess of the fair market value of the new preferred stock over
the carrying value of the reacquired preferred stock, as a dividend to the
Series B stockholders of approximately $6.0 million. Pursuant to further
renegotiations in December 1999, this dividend was reduced by approximately
$1.4 million. (See Note 4 for further discussion).
Series B stockholders are entitled to vote with shares of the common
stock, not as a separate class, at any annual or special meeting of
stockholders of the Company, and could act by written consent in the same
manner as the common stock in either case upon the following basis: each holder
of shares of the Series B Preferred Stock shall be entitled to such number of
votes as shall be equal to 25% of the number of shares of common stock into
which the holder's aggregate number of shares are convertible.
8% Series C Cumulative Convertible Preferred Stock
In November 1998, in connection with a settlement with the Company's
largest stockholder (see Note 7), 75 shares of Series C Preferred Stock were
issued to Mr. Ronald Jensen in exchange for 1,425,000 shares of common stock.
The terms of the Series C Preferred Stock permitted the holders to convert the
Series C Preferred Stock into the number of common shares equal to the face
value of the preferred stock divided by 90% of the market price, but with a
minimum conversion price of $4.00 per share and a maximum conversion price of
$6.00 per share, subject to adjustment if the Company issued common stock for
less than the conversion price.
Series C stockholders had no voting rights unless dividends payable on the
shares of Series C Preferred Stock were in arrears for six quarterly periods in
which case Series C stockholders would vote separately as a class with the
shares of any other preferred stock having similar voting rights. They would be
entitled at the next regular or special meeting of stockholders of the Company
to elect one director. Such voting rights would continue until such time as the
dividend arrearage on Series C Preferred Stock were paid in full. The
affirmative vote of the holder of the Series C Preferred Stock was required for
the issuance of any class or series of stock of the Company ranking senior to
or equal to the Series C Preferred Stock as to dividends or rights on
liquidation, winding up and dissolution.
In February 1999, the Company issued 3,000,000 shares of common stock in
exchange for the 75 shares of outstanding Series C Preferred Stock. This
transaction was contemporaneous with the Company's issuance of Series E
Preferred Stock to EXTL, an affiliate of Mr. Jensen, which is discussed below.
See Note 7 for discussion of this transaction.
Series D Cumulative Convertible Preferred Stock
In January 1999, the Company issued 30 shares of Series Preferred Stock
("Series D Preferred Stock") to a private investment firm for gross proceeds of
$3.0 million. The holder agreed to purchase for $2.0 million 20 additional
shares of Series D Preferred Stock upon registration of the common stock
issuable upon conversion of this preferred stock. In connection with this
transaction, the Company issued warrants to purchase 112,500 shares of common
stock with an exercise price of $0.01 per share and warrants to purchase 60,000
shares of common stock with an exercise price of $1.60 per share.
Upon the Company's registration in May 1999 of the common stock issuable
upon the conversion of the Series D Preferred Stock, the investor purchased 20
additional shares of Series D Preferred Stock and warrants for $2.0 million to
purchase 75,000 shares of common stock with an exercise price of $0.01 per
share and warrants to purchase 40,000 shares of common stock with an exercise
price of $1.60.
F-74
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. STOCKHOLDERS' EQUITY - (CONTINUED)
The value of approximately $634,000 assigned to these warrants when
granted was originally recorded as a discount to the Series D Preferred Stock.
These discounts were amortized as deemed preferred stock dividends over the
periods from the dates of the grants to the dates that the Series D Preferred
Stock could first be converted into common stock defined as 90 days from
issuance. On August 20, 1999, the exercise price of $1.60 for 100,000 warrants
was lowered to $1.44 per share. The value assigned to this revision in terms
was recorded as a preferred stock dividend. In connection with the revision in
terms, the investor exercised the warrants to purchase 100,000 shares at a
price of $1.44 per share and warrants to purchase 75,000 shares at $0.01 per
share. As of December 31, 1999, warrants to purchase 112,500 shares at $0.01
per share were outstanding.
Due to the Company's failure to consummate a specific merger transaction
by May 30, 1999, the Company issued to the investor a warrant exercisable
beginning August 1999 to purchase 76,923 shares of common stock with an
exercise price of $.01 per share. The value of $250,000 assigned to the warrant
was recorded as a preferred stock dividend. The warrant is exercisable for
three years. In August 1999, the investor exercised these warrants.
The Series D Preferred Stock carried an annual dividend of 8%, payable
quarterly beginning December 31, 1999. All dividends that would accrue through
December 31, 2000 on each share of Series D Preferred Stock are payable in full
upon conversion of such share. As a result, dividends through December 31, 2000
were accrued over the period from the issuance date to the date that the Series
D Preferred Stock could first be converted by the holder. The Company accrued
approximately $477,000 (net of $240,000 included in the 1999 conversion) in
cumulative Series D Preferred Stock dividends as of December 31, 1999. The
shares of Series D Preferred Stock were convertible, at the holder's option,
into shares of the Company's common stock any time after 90 days from issuance
at a conversion price equal to $1.60. The shares of Series D Preferred Stock
automatically convert into common stock upon the earliest of (i) the first date
on which the market price of the common stock is $5.00 or more per share for
any 20 consecutive trading days, (ii) the date on which 80% or more of the
Series D Preferred Stock has been converted into common stock, or (iii) the
date the Company closes a public offering of equity securities at a price of at
least $3.00 per share with gross proceeds of at least $20.0 million.
Series D stockholders have no voting rights unless dividends payable on
the shares of Series D Preferred Stock are in arrears for 6 quarterly periods
in which case Series D stockholders will vote separately as a class with the
shares of any other preferred stock having similar voting rights. They will be
entitled at the next regular or special meeting of stockholders of the Company
to elect one director. Such voting rights will continue until such time as the
dividend arrearage on Series D Preferred Stock has been paid in full. The
affirmative vote of at least 66 2/3% of the holders of the Series D Preferred
Stock is required for the issuance of any class or series of stock of the
Company ranking senior to or equal with the Series D Preferred Stock as to
dividends or rights on liquidation, winding up and dissolution.
In December 1999, 15 shares of Series D Preferred Stock were converted
into 1,087,500 shares of common stock. Subsequent to December 31, 1999, the
remaining 35 shares of Series D Preferred Stock were converted into 2,537,500
shares of common stock. The shares of common stock issued upon conversion of
the 50 shares of Series D Preferred Stock included payment for dividends
through December 31, 2000.
Series E Cumulative Convertible Preferred Stock
In February 1999, the Company issued 50 shares of Series E Preferred Stock
to the Company's largest stockholder, for gross proceeds of $5.0 million. The
Series E Preferred Stock carried an annual dividend of 8%, payable quarterly
beginning December 31, 2000. All dividends that would accrue through December
31, 2000 on each share of Series E Preferred Stock are payable in full upon
conversion of such share. As a result, dividends through December 31, 2000 were
accrued over the period from the issuance
F-75
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. STOCKHOLDERS' EQUITY - (CONTINUED)
date to the date that the Series E Preferred Stock could first be converted by
the holder. The Company accrued approximately $750,000 in Series E Preferred
Stock dividends as of December 31, 1999. As additional consideration, the
Company issued to the holder three year warrants to purchase 723,000 shares of
common stock at $2.125 per share and 277,000 shares of common stock at $0.01
per share. The value of $1.1 million assigned to such warrants was recorded as
a deemed dividend when granted because the Series E Preferred Stock was
convertible at the election of the holder at the issuance date. In connection
with a debt placement concluded in April 1999 (see Note 7), the Series E
Preferred Stockholder elected to make such shares convertible; accordingly,
such shares were no longer redeemable.
The shares of Series E Preferred Stock automatically convert into shares
of the Company's common stock, on the earliest to occur of (a) the first date
as of which the last reported sales price of the Company's common stock on
Nasdaq is $5.00 or more for any 20 consecutive trading days during any period
in which the Series E Preferred Stock is outstanding, (b) the date that 80% or
more of the Series E Preferred Stock has been converted into common stock, or
(c) the Company completes a public offering of equity securities at a price of
at least $3.00 per share and with gross proceeds to the Company of at least
$20.0 million. The initial conversion price for the Series E Preferred Stock is
$2.125, subject to adjustment if the Company issues common stock for less than
the conversion price.
On January 31, 2000, the Series E Preferred Stock automatically converted
into 2,352,941 shares of common stock because the last reported closing sales
price of the Company's common stock was over the required threshold for the
requisite number of trading days.
Series E stockholders have no voting rights unless dividends payable on
the shares of Series E Preferred Stock are in arrears for 6 quarterly periods
in which case Series E Preferred stockholders will vote separately as a class
with the shares of any other preferred stock having similar voting rights. They
will be entitled at the next regular or special meeting of stockholders of the
Company to elect one director. Such voting rights will continue until such time
as the dividend arrearage on Series E Preferred Stock has been paid in full.
The affirmative vote of at least 66 2/3% of the holders of the Series E
Preferred Stock is required for the issuance of any class or series of stock of
the Company ranking senior to or equal to the Series E Preferred Stock as to
dividends or rights on liquidation, winding up and dissolution.
Series F Convertible Preferred Stock
As discussed in Note 4, in February 1999, the Company completed the
acquisition of Telekey. The purchase consideration included the issuance of
1,010,000 shares of Series F Preferred Stock valued at $1,957,000. The Company
originally agreed to issue at least 505,000 and up to an additional 1,010,000
shares of Series F Preferred Stock two years from the date of closing (or upon
a change of control or certain events of default if they occur before the end
of two years), subject to Telekey meeting certain revenue and EBITDA
objectives. The 505,000 shares valued at $979,000 are included in stock to be
issued in the accompanying supplemental consolidated balance sheet.
The Series F Preferred Stock can be converted at the option of the holder
at any time after issuance. The Series F Preferred Stock conversion rate is
equal to the quotient obtained by dividing $4.00 by the applicable Series F
Market Factor. The Series F Market Factor is equal to $4.00 if the Series F
Preferred Stock converts prior to December 31, 1999. After such date the Series
F Market Factor is equal to (i) $2.50 if the Market Price (equal to the average
closing price of the Company's common stock over the 15 trading days prior to
the conversion date) is less than or equal to $2.50; (ii) the Market Price if
the Market Price is greater than $2.50 but less than $4.00; or (iii) $4.00 if
the Market Price is greater than or equal to $4.00. The shares of Series F
Preferred Stock initially issued automatically convert into shares of common
stock on the earlier to occur of (a) the first date as of which the market
price is $4.00 or more for any 15 consecutive trading days during any period
that the Series F Preferred Stock is outstanding, or
F-76
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. STOCKHOLDERS' EQUITY - (CONTINUED)
(b) July 1, 2001. The Company guaranteed a price of $4.00 per share at December
31, 1999 to recipients of the common stock issuable upon the conversion of the
Series F Preferred Stock, subject to Telekey's achievement of certain defined
revenue and EBITDA objectives. The Series F Preferred Stock carries no dividend
obligation.
On December 31, 1999, the market price of the Company's common stock
exceeded $4.00; therefore, no additional shares were issuable. On January 3,
2000, the former stockholders of Telekey converted their combined 1,010,000
shares of Series F Preferred Stock into a total of 1,209,584 shares of common
stock.
Series F stockholders are entitled to vote with shares of the common stock
and not as a separate class, at any annual or special meeting of stockholders
of the Company, and may act by written consent in the same manner as the common
stock in either case upon the following basis: each holder of shares of the
Series F Preferred Stock shall be entitled to such number of votes as shall be
equal to 25% of the number of shares of common stock into which the holder's
aggregate number of shares are convertible.
In February 2000, the Company reached a preliminary agreement with the
former stockholders of Telekey to restructure certain terms of the original
acquisition agreement. Such restructuring, which is subject to completion of
final documentation, includes an acceleration of the original earn-out
provision. See Note 4.
Series G Cumulative Convertible Redeemable Preferred Stock
In connection with the purchase of substantially all of the assets of
Connectsoft in June 1999, as discussed in Note 4, the Company issued one share
of Series G Preferred Stock valued at $3.0 million. The Series G Preferred
Stock carried an annual dividend of 6%, payable annually beginning September
30, 2000. The one share of Series G Preferred Stock was convertible, at the
holder's option, into shares of the Company's common stock any time after
October 1, 1999 at a conversion price equal to the greater of (i) 75% of the
market price of the common stock on the date the conversion notification is
received by the Company and (ii) a minimum purchase price of $3.00. The Series
G Preferred Stock was redeemable by the Company upon the first to occur of the
following dates (a) on the first day on which the Company received in any
transaction or series of transactions any equity financing of at least $25.0
million or (b) on June 14, 2004. In August 1999, the Company issued 30 shares
of Series K Preferred Stock in exchange for the one share of Series G Preferred
Stock. This exchange is discussed in more detail below.
Series G stockholders have no voting rights unless dividends payable on
the shares of Series G Preferred Stock are in arrears for 6 quarterly periods
in which case Series G stockholders would vote separately as a class with the
shares of any other preferred stock having similar voting rights. They would be
entitled at the next regular or special meeting of stockholders of the Company
to elect one director. Such voting rights would continue until such time as the
dividend arrearage on Series G Preferred Stock were paid in full. The
affirmative vote of at least 66 2/3% of the holders of the Series G Preferred
Stock was required for the issuance of any class or series of stock of the
Company ranking senior to or equal with the Series G Preferred Stock as to
dividends or rights on liquidation, winding up and dissolution.
Series H Convertible Preferred Stock
In July 1999, the Company issued 500,000 shares of Series H Preferred
Stock originally valued at approximately $11.0 million in exchange for 500,000
shares of Series B Preferred. See Note 4 for discussion of the exchange
agreement. The shares of Series H Preferred Stock convert automatically into a
maximum of 3,750,000 shares of common stock, subject to adjustment as described
below, on January 31, 2000 or earlier if the closing sale price of the common
stock is equal to or greater than $6.00 for 15 consecutive trading days.
Providing the Series H Preferred Stock had not converted, the Company
guaranteed a price of $6.00 per share on January 31, 2000.
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EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. STOCKHOLDERS' EQUITY - (CONTINUED)
In December 1999, the Company and the IDX stockholders agreed to reduce
the preferred stock and warrants consideration paid to the IDX stockholders as
discussed in Note 4. As a result of this renegotiation, the value of the shares
of Series H Preferred Stock was reduced by $1.4 million. As a result, the
shares were convertible into a maximum of 3,262,500 shares at December 31,
1999.
Series H stockholders may vote with shares of the common stock, not as a
separate class, at any annual or special meeting of stockholders of the
Company, and may act by written consent in the same manner as the common stock
in either case upon the following basis: each holder of shares of the Series H
Preferred Stock shall be entitled to such number of votes as shall be equal to
25% of the number of shares of Common Stock into which the holder's aggregate
number of shares are convertible.
On January 31, 2000, the shares of Series H Preferred Stock automatically
converted into 3,262,500 shares of common stock (reflecting the above
adjustment negotiated in December 1999).
Series I Convertible Optional Redemption Preferred Stock
In July 1999, the Company issued 400,000 shares of Series I Preferred
Stock in exchange for notes payable of $4.0 million due to the IDX
stockholders. See Note 4 for discussion of renegotiations. The Company had the
option, which the Company did not exercise, to redeem 150,000 shares of the
Series I Preferred Stock prior to February 14, 2000 at a price of $10.00 per
share plus 8% of the value of Series I Preferred Stock per annum from December
2, 1998 through the date of redemption. The Company still has an option to
redeem 250,000 shares of Series I Preferred Stock prior to July 17, 2000 at a
price of $10.00 per share plus 8% of the value of Series I Preferred Stock per
annum from December 2, 1998 through the date of redemption for cash, common
stock or a combination of the two. Any Series I Preferred Stock not redeemed by
the applicable dates discussed above automatically converts into common stock
based on a conversion price of $10.00 per share plus 8% per annum of the value
of the Series I Preferred Stock from December 2, 1998 through the date of
conversion divided by the greater of the average closing price of common stock
over the 15 days immediately prior to conversion or $2.00 up to a maximum of
3.9 million shares of common stock. The Company made a written election in
August 1999 to pay the 8% of the value in shares of common stock upon
redemption or conversion.
Series I stockholders have no voting rights, unless otherwise provided by
Delaware corporation law.
On February 14, 2000, 150,000 shares of the Series I Preferred Stock plus
the 8% accrual of the value automatically converted into 166,304 shares of
common stock.
Series J Cumulative Convertible Preferred Stock
In August 1999, the Company reached an agreement with EXTL which was
finalized in November 1999 whereby the Company issued to EXTL 40 shares of
Series J Preferred Stock valued at $4.0 million as prepayment of $4.0 million
of the outstanding $20.0 million Secured Notes issued to EXTL. (See Note 7 for
discussion).
The Series J Preferred Stock carries an annual dividend of 5% which is
payable quarterly, beginning December 31, 2000. The Company has accrued
approximately $29,000 in cumulative Series J Preferred Stock dividends as of
December 31, 1999. The shares of Series J Preferred Stock are convertible, at
the holder's option, into shares of the Company's common stock at any time at a
conversion price, subject to adjustment for certain defined events, equal to
$1.56. The shares of Series J Preferred Stock automatically converts into the
Company's common stock, on the earliest to occur of (i) the first date as of
which the last reported sales price of the Company's common stock on Nasdaq is
$5.00 or more for any 20 consecutive trading days during any period in which
Series J Preferred Stock is outstanding, (ii) the date that 80% or more of the
Series J Preferred Stock the
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EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. STOCKHOLDERS' EQUITY - (CONTINUED)
Company has issued has been converted into the Company's common stock, or (iii)
the Company completes a public offering of equity securities at a price of at
least $3.00 per share and with gross proceeds to the Company of at least $20.0
million.
Series J stockholders have no voting rights unless dividends payable on
the shares of Series J Preferred Stock are in arrears for 6 quarterly periods
in which case Series J stockholders will vote separately as a class with the
shares of any other preferred stock having similar voting rights. They will be
entitled at the next regular or special meeting of stockholders of the Company
to elect one director. Such voting rights will continue until such time as the
dividend arrearage on Series J Preferred Stock has been paid in full. The
affirmative vote of at least 66 2/3% of the holders of the Series J Preferred
Stock is required for the issuance of any class or series of stock of the
Company ranking senior to or equal to the Series J Preferred Stock as to
dividends or rights on liquidation, winding up and dissolution.
On January 31, 2000, the Series J Preferred Stock automatically converted
into 2,564,102 shares of common stock because the last reported closing sales
price of the Company's common stock was over the required threshold for the
requisite number of trading days.
Series K Cumulative Convertible Preferred Stock
In August 1999, the Company reached an agreement under which it issued 30
shares of Series K Preferred Stock valued at $3.0 million in exchange for the
one share of its Series G Preferred Stock. The carrying value of the Series G
Preferred Stock exceeded the fair value of the Series K Preferred Stock because
of accrued dividends that were not paid pursuant to the exchange. The excess of
$36,000 reduced the loss attributable to common stockholders.
The Series K Preferred Stock carries an annual dividend of 5% which is
payable quarterly, beginning December 31, 2000. All dividends that would accrue
through December 31, 2000 on each share of Series K Preferred Stock are payable
in full upon conversion of such share. As a result, dividends through December
31, 2000 were accrued over the period from the issuance date to the date that
the Series K Preferred Stock could first be converted by the holder. The
Company accrued approximately $200,000 in Series K Preferred Stock cumulative
dividends as of December 31, 1999. The shares of Series K Preferred Stock are
convertible, at the holder's option, into shares of the Company's common stock
at any time at a conversion price equal to $1.56, subject to adjustment for
certain defined events. The shares of Series K Preferred Stock automatically
convert into the Company's common stock, on the earliest to occur of (i) the
first date as of which the last reported sales price of the Company's common
stock on Nasdaq is $5.00 or more for any 20 consecutive trading days during any
period in which Series K Preferred Stock is outstanding, (ii) the date that 80%
or more of the Series K Preferred Stock the Company has issued has been
converted into the Company's common stock, or (iii) the Company completes a
public offering of equity securities at a price of at least $3.00 per share and
with gross proceeds to the Company of at least $20.0 million.
Series K stockholders have no voting rights unless dividends payable on
the shares of Series K Preferred Stock are in arrears for 6 quarterly periods
in which case Series K stockholders will vote separately as a class with the
shares of any other preferred stock having similar voting rights. They will be
entitled at the next regular or special meeting of stockholders of the Company
to elect one director. Such voting rights will continue until such time as the
dividend arrearage on Series K Preferred Stock has been paid in full. The
affirmative vote of at least 66 2/3% of the holders of the Series K Preferred
Stock is required for the issuance of any class or series of stock of the
Company ranking senior to or equal with the Series K Preferred Stock as to
dividends or rights on liquidation, winding up and dissolution.
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EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. STOCKHOLDERS' EQUITY - (CONTINUED)
On January 31, 2000, the Series K Preferred Stock automatically converted
into 1,923,077 shares of common stock because the closing price of the
Company's common stock was over the required threshold for the requisite number
of trading days.
Series M Convertible Preferred Stock
In October 1999, the Company issued one share of Series M Preferred Stock
valued at $9.6 million in connection with the acquisition of iGlobe. The one
share of Series M Preferred Stock has a liquidation value of $9.0 million and
carries an annual cumulative dividend of 20% which will accrue and be payable
annually or at conversion in cash or shares of common stock, at the option of
the Company. The Company accrued $380,000 in Series M Preferred Stock dividends
as of December 31, 1999. The above market dividend resulted in a premium of
$643,000 which will be amortized as a deemed preferred dividend stock over the
one year period from the issuance date through October 2000. The Series M
Preferred Stock is convertible, at the option of the holder, one year after the
issue date at a conversion price of $2.385. The Company recorded a dividend on
the Series M Preferred Stock of approximately $1.4 million for the beneficial
conversion feature based on the excess of the common stock closing price on the
effective date of the acquisition over the conversion price. This dividend will
be amortized as a deemed preferred dividend over the one year period from the
date of issuance.
The Company has the right, at any time prior to the holder's exercise of
its conversion rights, to repurchase the Series M Preferred Stock for cash upon
a determination by eGlobe's Board that it has sufficient cash to fund
operations and make the purchase. The share of Series M Preferred Stock shall
automatically be converted into shares of common stock, based on the
then-effective conversion rate, on the earliest to occur of (but no earlier
than one year from issuance) (i) the first date as of which the last reported
sales price of the common stock is $5.00 or more for any 10 consecutive trading
days during any period in which Series M Preferred Stock is outstanding, (ii)
the date that is seven years after the issue date, or (iii) the date upon which
the Company closes a public offering of equity securities of the Company at a
price of at least $4.00 per share and with gross proceeds of at least $20.0
million.
Series M stockholders have no voting rights unless dividends payable on
the shares of Series M Preferred Stock are in arrears for 6 quarterly periods
in which case Series M Preferred stockholders will vote separately as a class
with the shares of any other preferred stock having similar voting rights. They
will be entitled at the next regular or special meeting of stockholders of the
Company to elect one director. Such voting rights will continue until such time
as the dividend arrearage on Series M Preferred Stock has been paid in full.
The affirmative vote or consent of the holder of the outstanding share of
Series M Preferred Stock is required for the issuance of any class or series of
stock of the Company ranking senior to or equal to the shares of the Series M
Preferred Stock as to dividends or rights on liquidation, winding up and
dissolution.
Series N Cumulative Convertible Preferred Stock
During the fourth quarter of 1999, the Company sold 2,670 shares of 8%
Series N Preferred Stock and 304,636 warrants for gross proceeds of $2.7
million. The Series N Preferred Stock carries an 8% annual dividend payable in
cash or common stock at the holder's option, or in the absence of an election
of the holder, at the election of the Company. The Company accrued $45,000 in
Series N Preferred Stock dividends as of December 31, 1999.
The shares of Series N Preferred Stock are immediately convertible, at the
holder's option, into shares of the Company's common stock at a conversion
price equal to the greater of $2.125 and 101% of the average closing market
price per share of common stock for the 15 trading days prior to the binding
commitment of the holder to invest (provided however that no shares of Series N
Preferred Stock sold after the first issuance shall have an initial conversion
price below the initial
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EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. STOCKHOLDERS' EQUITY - (CONTINUED)
conversion of the shares sold at first issuance) or 85% of the market price per
share of common stock, computing the market price per share for the purpose of
such conversion as equal to the average closing market price per share for the
five trading days immediately prior to the conversion date, provided however
that the conversion price shall not be greater than the greater of $3.25 or
150% of the initial conversion price. The Company recorded dividends at
issuance of approximately $230,000 for the beneficial conversion feature based
on the excess of the common stock market price on the date of the issuance over
the conversion price.
The Series N Preferred Stock automatically converts into shares of common
stock on the earliest to occur of: (i) the date that is the fifth anniversary
of the issuance of Series N Preferred Stock; (ii) the first date as of which
the last reported sales price of the common stock on Nasdaq is $6.00 or more
for any 15 consecutive trading days during any period in which Series N
Preferred Stock is outstanding; (iii) the date that 80% or more of the Series N
Preferred issued by the Company has been converted into common stock, the
holders thereof have agreed with the Company in writing to convert such Series
N Preferred Stock into common stock or a combination of the foregoing; or (iv)
the Company closes a public offering of equity securities of the Company with
gross proceeds of at least $25.0 million.
Series N stockholders have no voting rights.
The warrants are exercisable one year from issuance and expire three years
from issuance. The exercise prices vary from $3 to $5 per share. In addition,
the holders may elect to make a cash-less exercise. The value of the warrants
of $423,000 was recorded as a dividend at the issuance date because the Series
N Preferred Stock is immediately convertible.
During the fourth quarter of 1999, 1,135 shares of Series N Preferred
Stock were converted into 457,162 shares of common stock. Subsequent to
December 31, 1999, the remaining shares of Series N Preferred Stock outstanding
at December 31, 1999 were converted into 375,263 shares of common stock.
See Note 16 for a discussion of additional shares of Series N Preferred
Stock sold and converted subsequent to year end.
Due to a delay in registering shares of the Company's common stock, in
February 2000, the Company issued warrants to certain Series N Preferred
Stockholders to purchase 200,000 shares of the Company's common stock at a
price per share equal to $7.50. The warrants are exercisable in whole or in
part at any time beginning on the date that is one year after the date of
issuance until the third anniversary of the date of issuance.
Series O Convertible Preferred Stock
In December 1999, the Company issued 16,100 shares of Series O Preferred
Stock in connection with the acquisition of Coast. See Note 4 for further
discussion. The estimated value of the Series O Preferred Stock of $13.4
million is based upon a preliminary appraisal. The Series O Preferred Stock
carries an annual dividend of 10%. All dividends that would accrue through
November 30, 2001 on each share of Series O Preferred Stock are payable in full
upon conversion of such share. The preliminary appraisal includes a present
value of $2.5 million for dividends through November 30, 2001. The difference
between the undiscounted value of the dividends and $2.5 million is being
accrued as a dividend over the period that the Series O Preferred Stock could
first be converted by the holder.
The shares of Series O Preferred Stock have a liquidation value of $16.1
million and are convertible, at the holder's option, into a maximum 3,220,000
shares of common stock at any time after the later of (a) one year after the
date of issuance and (b) the date the Company has received stockholder approval
for such conversion and the applicable Hart-Scott-Rodino waiting period has
expired or terminated (the "Clearance Date"), at a conversion price equal to
$5.00. The shares of
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EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. STOCKHOLDERS' EQUITY - (CONTINUED)
Series O Preferred Stock will automatically be converted into shares of common
stock, on the earliest to occur of (i) the fifth anniversary of the first
issuance of Series O Preferred Stock, (ii) the first date as of which the last
reported sales price of common stock on Nasdaq is $6.00 or more for any 15
consecutive trading days during any period in which Series O Preferred Stock is
outstanding, (iii) the date that 80% or more of the Series O Preferred Stock
the Company issued has been converted into common stock, or (iv) the Company
completes a public offering of equity securities with gross proceeds to the
Company of at least $25.0 million at a price per share of $5.00.
Notwithstanding the foregoing, the Series O Preferred Stock will not be
converted into the Company's common stock prior to the Company's receipt of
stockholder approval for such conversion, which was obtained at the March 23,
2000 stockholders' meeting, and the expiration or termination of the applicable
Hart-Scott-Rodino waiting period. If the events discussed above occur prior to
the Clearance Date, the automatic conversion will occur on the Clearance Date.
Series O stockholders have no voting rights. The holders of the Series O
Preferred Stock are entitled to notice of all stockholder meetings in
accordance with Bylaws. The affirmative vote of 66 2/3% of the holders of the
Series O Preferred Stock is required for the issuance of any class or series of
stock of eGlobe ranking senior to or on a parity with the Series O Preferred
Stock as to dividends or rights on liquidation, winding up and dissolution.
On January 26, 2000, the closing sales price of the Company's common stock
was $6.00 or more for 15 consecutive trading days and accordingly, on the
Clearance Date, the outstanding Series O Preferred Stock will be converted into
3,220,000 shares of common stock.
Common Stock
At the March 23, 2000 stockholders' meeting, a proposal to amend the
Company's Restated Certificate of Incorporation to increase the Company's
authorized number of shares of common stock available to 200,000,000 was
approved and adopted.
In November 1998, the Company agreed to issue 75 shares of Series C
Preferred Stock in exchange for the 1,425,000 shares of common stock originally
valued at $7.5 million as described above. As discussed earlier, in February
1999, the Company issued 3,000,000 shares of common stock in exchange for these
outstanding shares of Series C Preferred Stock.
During the nine months ended December 31, 1998 and the year ended March
31, 1998, the Company agreed to issue 28,700 shares valued at $81,000 and
350,000 shares of common stock valued at $3.5 million in connection with the
settlement of litigation. See Note 8 for further discussion. Additionally, in
June 1999, the Company issued to a former employee 54,473 shares of the
Company's common stock valued at $99,000 in settlement of certain potential
claims.
In December 1998, the Company issued 62,500 shares of common stock valued
at $102,000 in the UCI acquisition. During 1999, the Company issued 526,063
shares of common stock amounting to $1,645,000 as payment of the first of two
installments under the Swiftcall acquisition agreement, 1.5 million shares of
common stock and warrants to purchase additional shares of common stock in
connection with its acquisition of control of ORS and 882,904 shares (prior to
the reclassification of the value of 247,213 shares reclassified to Redeemable
Common Stock valued at $0.7 million as discussed in Note 7) of common stock
valued at $2,980,000 in connection with the acquisition of Coast. See Notes 4
and 7 for discussion of acquisitions.
In March 1999, the Company elected to pay the IDX $1.0 million promissory
note and accrued interest with shares of common stock. The Company issued
431,729 shares of common stock and warrants to purchase 43,173 shares of common
stock valued at $1,023,000 to discharge this indebtedness. In July 1999, the
Company issued 140,599 shares of common stock valued at $433,000
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EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. STOCKHOLDERS' EQUITY - (CONTINUED)
in repayment of the $418,000 note and related accrued interest related to the
IDX acquisition. In addition, in July 1999, the Company repaid a $200,000 note
payable with 125,000 shares of common stock valued at $200,000. In connection
with this transaction, the Company also issued warrants to purchase 40,000
common shares at an exercise price of $1.60 and a warrant to purchase 40,000
common shares at an exercise price of $1.00 per share. See Notes 4 and 7 for
discussion.
In August 1999, the Company entered into a stock purchase agreement with a
long time stockholder and a lender. Under this agreement, for $250,000, the
investor purchased 160,257 shares of common stock and warrants to purchase
60,000 shares of common stock at an exercise price of $1.00 per share and the
option to exchange the principal of an existing note (up to a maximum amount of
$500,000) for shares of common stock at a price per share of $1.56 and a
warrant to purchase shares of common stock at a price of $1.00 (60,000 per
$250,000 of debt exchanged). On December 16, 1999, the lender's option to
convert the loan principal outstanding into common stock was increased from a
maximum of $500,000 to $750,000 and therefore a maximum of 180,000 warrants can
now be issued. (See Note 7 for further discussion).
On December 23, 1999, the Company entered into a promissory note with a
bank, as amended on February 1, 2000, for a principal amount of $14.0 million.
In connection with the note agreement, a security and pledge agreement was
signed whereby the Company assigned all of its rights to 4,961,000 shares of
eGlobe common stock to the lender. The Company and the lender concurrently
entered into a stock purchase agreement whereby the lender purchased the shares
in exchange for a $30.0 million stock purchase note. However, the lender failed
to fund the note on a timely basis and in March 2000, eGlobe advised the lender
that they were terminating the agreement and demanded the lender return
eGlobe's stock certificates. As of March 24, 2000, the lender has not returned
the certificates. Such shares of common stock are included in the outstanding
shares at December 31, 1999 at par value.
In the year ended December 31, 1999, the Company received proceeds of
approximately $721,000 from the exercise of warrants to acquire 1,168,518
shares of common stock. No warrants were exercised in the nine months ended
December 31, 1998 and the year ended March 31, 1998.
In the year ended December 31, 1999, and the year ended March 31, 1998,
the Company received proceeds of approximately $61,000 and $138,000 from the
exercise of options and stock appreciation rights to acquire 39,517 and 18,348
shares of common stock, respectively. No proceeds were received during the nine
months ended December 31, 1998.
Notes Receivable from Stock Sales
The Company loaned certain of its executive officers money in connection
with their exercise of non-qualified stock options in December 1999. The notes
receivable of $1,210,000 are full recourse promissory notes bearing interest at
6% and are collateralized by the 430,128 shares of stock issued upon exercise
of the stock options. Interest is payable quarterly in arrears and principal is
due the earlier of (a) for $177,000 of the notes December 16, 2003 and for
$1,033,000 of the notes December 16, 2004 and (b) the date that is 90 days
after the date that the employee's employment terminates, unless such
termination occurs other than "for cause" (as defined). The employee also
agrees to promptly redeem the outstanding note balances upon the sale of the
underlying stock. The notes receivable are shown on the supplemental
consolidated balance sheet as a reduction to stockholders' equity. These
options were not granted under the Employee Stock Option and Appreciation
Rights Plan (the "Employee Plan") discussed below.
Employee Stock Option and Appreciation Rights Plan
On December 14, 1995, the Board of Directors adopted the Employee Plan,
expiring December 15, 2005, reserving for issuance 1,000,000 shares of the
Company's common stock. The Employee Plan was amended and restated in its
entirety during the year ended March 31, 1998, including an increase in the
number of shares available for grant to 1,750,000 representing an increase of
750,000 shares.
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EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. STOCKHOLDERS' EQUITY - (CONTINUED)
On June 16, 1999, the Company's stockholders adopted an amendment to
increase the number of shares of the Company's common stock available for grant
to 3,250,000. This increase included the reduction of the number of shares
available for issuance under the Company's 1995 Director Stock Option and
Appreciation Rights Plan by 400,000 shares. On March 23, 2000, the Company's
stockholders adopted an amendment to increase the number of shares of the
Company's common stock available for grant to 7,000,000 shares.
As of December 31, 1999, options outstanding under this Employee Plan
exceeded the shares available for grant by 1,995,468 shares. The Board of
Directors granted these options to certain executive officers and directors
subject to stockholder approval of the increase in the number of shares
available under the Employee Plan. As discussed earlier, stockholder approval
was obtained March 23, 2000.
The Employee Plan provides for grants to key employees, advisors or
consultants to the Company at the discretion of the Compensation Committee of
the Board of Directors, of stock options to purchase common stock of the
Company. The Employee Plan provides for the grant of both "incentive stock
options," as defined in the Internal Revenue Code of 1986, as amended, and
nonqualified stock options. Options that are granted under the Employee Plan
that are incentive stock options may only be granted to employees (including
employee-directors) of the Company.
Stock options granted under the Employee Plan must have an exercise price
equal in value to the fair market value, as defined, of the Company's common
stock on the date of grant. Any options granted under the Employee Plan must be
exercised within ten years of the date they were granted. Under the Employee
Plan, Stock Appreciation Rights ("SAR's") may also be granted in connection
with the granting of an option and may be exercised in lieu of the exercise of
the option. A SAR is exercisable at the same time or times that the related
option is exercisable. The Company will pay the SAR in shares of common stock
equal in value to the excess of the fair market value, at the date of exercise,
of a share of common stock over the exercise price of the related option. The
exercise of a SAR automatically results in the cancellation of the related
option on a share-for-share basis.
During the year ended December 31,1999, the nine months ended December 31,
1998 and the year ended March 31, 1998, the Compensation Committee of the Board
of Directors granted options to purchase an aggregate of 3,068,054, 996,941 and
1,677,229, respectively, shares of common stock to its employees under the
Employee Plan at exercise prices ranging from $0.01 to $7.67 per share for the
year ended December 31,1999, $1.47 to $3.81 per share for the nine months ended
December 31, 1998 and $2.32 to $3.12 per share for the year ended March 31,
1998. The employees were also granted SAR's in tandem with the options granted
to them in connection with grants prior to December 5, 1997.
Directors Stock Option and Appreciation Rights Plan
On December 14, 1995, the Board of Directors adopted the Directors Stock
Option and Appreciation Rights Plan (the "Director Plan"), expiring December
14, 2005. There were originally 870,000 shares of the Company's common stock
reserved for issuance under the Director Plan. The Director Plan was amended
and restated in its entirety during the year ended March 31, 1998 so that it
now closely resembles the Employee Plan. In the nine month period ended
December 31, 1998, the Director Plan was amended so that grants of options to
directors are at the discretion of the Board of Directors or the Compensation
Committee. On June 16, 1999, the Company's stockholders approved a transfer of
437,000 shares of common stock previously available for grant under the
Director Plan to the Employee Plan. As a result, the number of shares of the
Company's common stock available for grant under the Director Plan was reduced
to 433,000.
In November 1997 and April 1998, each director (other than members of the
Compensation Committee) was granted an option under the Director Plan, each to
purchase 10,000 shares of common stock, with each option being effective for
five years commencing on April 1, 1998 and 1999, respectively, and with each
option vesting only upon the achievement of certain corporate economic and
financial goals.
F-84
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. STOCKHOLDERS' EQUITY - (CONTINUED)
By December 31, 1998, all of these options, totaling 120,000 options, were
forfeited because not all of the corporate and financial goals were met. Prior
to the amendments to the Director Plan, each director received an automatic
grant of ten year options and a corresponding SAR to purchase 10,000 shares of
common stock on the third Friday in December in each calendar year. During the
year ended December 31, 1999, the nine months ended December 31, 1998 and the
year ended March 31, 1998, the Compensation Committee of the Board of Directors
confirmed the grant of total options (including options with vesting
contingencies) to purchase 300,000, 240,000 and 85,000, respectively, shares of
common stock to its directors pursuant to the Company's Director Plan at an
exercise price of $2.8125 per share for the year ended December 31, 1999, $1.81
to $3.19 per share for the nine month period ended December 31, 1998 and $2.63
to $2.69 per share for the year ended March 31, 1998. These exercise prices
were equal to the fair market value of the shares on the date of grants.
Warrants
In connection with the issuance of preferred stock, the Board of Directors
granted warrants valued at $2,403,000 to purchase an aggregate of 1,669,058
shares of common stock during the year ended December 31, 1999 with exercise
prices between $0.001 and $5.00 per share. During the nine months ended
December 31, 1998, 375,000 contingent warrants were granted. See the above
discussion of preferred stock for further information.
In connection with the issuance of debt, the Board of Directors granted
warrants to purchase an aggregate of 5,658,173, 142,000 and 856,667 shares of
common stock, respectively, during the year ended December 31, 1999, the nine
months ended December 31, 1998 and the year ended March 31, 1998, at exercise
prices ranging from $0.01 to $2.82 per share for the year ended December 31,
1999, $2.00 to $3.03 per share for the nine months ended December 31, 1998 and
$0.01 to $6.61 per share for year ended March 31, 1998. For the year ended
December 31, 1999, the nine months ended December 31, 1998 and the year ended
March 31, 1998, the fair value for these warrants of $14,277,000, $325,000 and
$923,000, respectively, at the grant date was originally recorded as a discount
to the related debt. These discounts are being amortized as additional interest
expense over the term of the respective debt using the effective interest
method. Additional interest expense relating to these warrants for the year
ended December 31, 1999, the nine months ended December 31, 1998 and the year
ended March 31, 1998 was $5,182,000, $255,000 and $479,000, respectively. See
Notes 5 and 7 for discussion of certain significant transactions.
During the year ended December 31, 1999, the nine months ended December
31, 1998 and the year ended March 31, 1998, the Board of Directors granted
warrants to purchase an aggregate of 826,594, 2,500 and 91,200 shares of common
stock, respectively, to non-affiliates at exercise prices ranging from $1.37 to
$2.18 per share for the year ended December 31, 1999, $2.00 per share for the
nine month period ended December 31, 1998 and $2.75 per share for the year
ended March 31, 1998. For the year ended December 31, 1999, the nine months
ended December 31, 1998 and the year ended March 31, 1998, the fair value for
these warrants of $1,794,000, $3,000 and $213,000, respectively, at the date of
grant was recorded based on the underlying transactions. The warrants are
exercisable for periods ranging from 12 to 60 months.
During the year ended December 31, 1999 and the nine months ended December
31, 1998, 3,037,000 and 318,000 of the warrants granted above expired.
During 1999, in connection with the stock purchase agreement with an
existing stockholder and lender, the Company granted warrants to purchase an
aggregate of 60,000 shares of common stock during the fiscal year December 31,
1999 with an exercise price of $1.00 per share.
During the nine months ended December 31, 1998, the Board of Directors
granted warrants to purchase an aggregate of 2,500,000 (2,000,000 until
stockholder approval) shares of common stock to the stockholders or owners of
companies acquired as an element of the purchase price at exercise prices of
$0.01 to $1.63. During 1999, the Company renegotiated the IDX purchase
agreement
F-85
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. STOCKHOLDERS' EQUITY - (CONTINUED)
whereby the Company reacquired the warrant for 2,500,000 shares of common stock
issued in 1998 and granted new warrants to purchase an aggregate of 1,087,500
shares of common stock to the stockholders of IDX at an exercise price of
$0.001. These warrants are exercisable contingent upon IDX meeting certain
revenue and EBITDA objectives at September 30, 2000 or December 31, 2000. See
Note 4 for further information.
During 1999, the Board of Directors also issued warrants in connection
with the purchase of ORS. The warrants are exercisable for shares of common
stock as discussed further in Note 4.
SFAS No. 123, "Accounting for Stock-Based Compensation" requires the
Company to provide pro forma information regarding net income (loss) and net
earnings (loss) per share as if compensation costs for the Company's stock
option plans and other stock awards had been determined in accordance with the
fair value based method prescribed in SFAS No. 123. The Company estimates the
fair value of each stock award by using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for grants in the year
ended December 31, 1999, the nine months ended December 31, 1998 and the year
ended March 31, 1998, respectively: no expected dividend yields for all
periods; expected volatility of 55% for the first three quarters of 1999 and
75% for the fourth quarter of 1999, 55% and 55%; risk-free interest rates of
6.00%, 4.51% and 5.82%; and expected lives of 3 years, 3.65 years and 2 years
for the Plans and stock awards.
Under the accounting provisions for SFAS No. 123, the Company's net loss
and loss per share would have been increased by the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 MARCH 31, 1998
------------------- ------------------- -----------------
<S> <C> <C> <C>
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
AS REPORTED ............................... $ (67,034,000) $ (5,958,000) $ (11,257,000)
PRO FORMA ................................. $ (68,717,000) $ (6,308,000) $ (11,425,000)
LOSS PER SHARE -- BASIC AND DILUTED
AS REPORTED ............................... $ (1.11) $ (0.10) $ (0.20)
PRO FORMA ................................. $ (1.13) $ (0.10) $ (0.20)
</TABLE>
A summary of the status of the Company's stock option plans and options
issued outside of these plans as of December 31, 1999 and 1998 and March 31,
1998, and changes during the periods are presented below:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998 MARCH 31, 1998
------------------------ ------------------------ -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------------- ---------- ------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
OUTSTANDING, BEGINNING OF PERIOD ....... 2,538,159 $ 3.55 2,020,822 $ 3.93 1,263,032 $ 6.70
GRANTED ............................... 3,798,182 $ 2.93 1,236,941 $ 2.39 1,762,229 $ 1.85
EXPIRED ............................... (621,228) $ 2.85 (719,604) $ 2.91 (986,091) $ 6.87
EXERCISED ............................. (469,645) $ 2.71 -- -- (18,348) $ 5.75
--------- ------ --------- ------ --------- ------
OUTSTANDING, END OF PERIOD ............. 5,245,468 $ 2.93 2,538,159 $ 3.55 2,020,822 $ 3.93
--------- ------ --------- ------ --------- ------
EXERCISABLE, END OF PERIOD ............. 1,881,788 $ 3.02 773,049 $ 5.14 484,193 $ 7.95
========= ====== ========= ====== ========= ======
WEIGHTED AVERAGE FAIR VALUE OF OPTIONS
GRANTED DURING THE PERIOD AT MARKET ... $ 1.41 $ 0.83 $ 0.99
========== ========== ==========
WEIGHTED AVERAGE FAIR VALUE OF OPTIONS
GRANTED DURING THE PERIOD BELOW MARKET $ 3.10 $ -- $ --
========== ========== ==========
</TABLE>
F-86
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. STOCKHOLDERS' EQUITY - (CONTINUED)
Included in the above table are certain options for which vesting is
contingent based on various future performance measures. See earlier discussion
under "Employee Stock Option and Appreciation Rights Plan".
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------------------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
PRICES SHARES LIFE (YEARS) PRICE SHARES PRICE
------------------- ----------- -------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.01 9,885 2.41 $ .01 9,885 $ .01
$ 1.46-2.00 589,833 3.96 $ 1.67 371,858 $ 1.69
$ 2.25-3.16 4,065,135 4.38 $ 2.82 1,104,760 $ 2.66
$ 3.50-4.50 279,666 2.89 $ 4.13 94,336 $ 3.71
$ 5.45-7.67 300,949 2.55 $ 5.89 300,949 $ 5.89
------------- --------- ---- ------ --------- ------
$ 0.01-7.67 5,245,468 4.14 $ 2.93 1,881,788 $ 3.02
============= ========= ==== ====== ========= ======
</TABLE>
A summary of the status of the Company's outstanding warrants as of
December 31, 1999 and 1998, and March 31, 1998, and changes during the periods
are presented below:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 1998
---------------------------- -------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER EXERCISE
SHARES PRICE SHARES PRICE OF SHARES PRICE
--------------- ---------- ------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
OUTSTANDING, BEGINNING OF PERIOD 4,093,167 $ 0.91 1,391,667 $ 4.00 443,800 $ 6.31
GRANTED ............................ 9,301,325 $ 1.04 3,019,500 $ 0.12 947,867 $ 2.61
EXPIRED ............................ (3,037,000) $ 0.32 (318,000) $ 6.90 -- $ --
EXERCISED .......................... (1,168,518) $ 0.62 -- $ -- -- $ --
---------- ------ --------- ------ ------- ------
OUTSTANDING, END OF PERIOD ......... 9,188,974 $ 1.35 4,093,167 $ 0.91 1,391,667 $ 4.00
========== ====== ========= ====== ========= ======
EXERCISABLE, END OF PERIOD ......... 4,463,507 $ 1.71 1,218,167 $ 3.05 1,391,667 $ 4.00
========== ====== ========= ====== ========= ======
</TABLE>
<TABLE>
<S> <C> <C> <C>
Weighted average fair value of warrants
granted during the period above
market ...................................... $ 0.92 $ 1.03 $ 0.47
====== ====== ======
Weighted average fair value of warrants
granted during the period at market ......... $ 1.39 $ 1.63 $ 2.24
====== ====== ======
Weighted average fair value of warrants
granted during the period below
market ...................................... $ 2.47 $ 1.70 $ 0.98
====== ====== ======
</TABLE>
Included in the above table are certain warrants that are contingent based
on various future performance measures. (See Note 4).
F-87
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. STOCKHOLDERS' EQUITY - (CONTINUED)
The following table summarizes information about warrants outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------------------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
PRICES SHARES LIFE (YEARS) PRICE SHARES PRICE
------------------- ----------- -------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ .001 1,087,500 1.00 $ .001 -- $ --
$ .01 404,500 2.29 $ .01 404,500 $ .01
$ 1.00-1.50 5,499,999 2.75 $ 1.04 2,166,667 $ 1.09
$ 1.51-2.18 1,472,500 2.05 $ 1.92 1,472,500 $ 1.92
$ 2.37-3.00 124,761 2.84 $ 2.73 78,173 $ 2.57
$ 5.00 258,047 2.88 $ 5.00 -- $ --
$ 6.00-6.61 341,667 5.76 $ 6.52 341,667 $ 6.52
============ ========= ==== ======== ========= ======
$0.001-6.61 9,188,974 2.53 $ 1.35 4,463,507 $ 1.71
============ ========= ==== ======== ========= ======
</TABLE>
The Company may be required to issue additional warrants under the
following circumstances:
(a) During 1999, the Company entered into a stock agreement with a
lender pursuant to which the lender may elect to convert debt in exchange
for shares of common stock and warrants to purchase 60,000 shares of common
stock at a price per share of $1.00 for each $250,000 (up to a maximum
amount of $750,000) of debt exchanged. See Note 7 for further discussion.
(b) As discussed in Note 4, the Company issued contingent warrants to
purchase common stock in the ORS acquisition. These warrants are not
included in the outstanding warrants because the Company includes the
operations of ORS in its supplemental consolidated financial statements.
Upon the exchange by Oasis of its interest in the LLC for the eGlobe common
stock and warrants, these warrants will be included.
11. TAXES (BENEFIT) OF INCOME (LOSS)
Taxes (benefit) on income (loss) for the year ended December 31, 1999, the
nine months ended December 31, 1998 and the year ended March 31, 1998,
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 1998
---------------- -------------- ---------------
<S> <C> <C> <C>
Current:
Federal ............................... $ (962,000) $ 578,000 $ 321,000
Foreign ............................... -- -- 140,000
State ................................. -- -- --
Other ................................. -- -- 1,500,000
------------- ---------- ------------
Total Current .......................... (962,000) 578,000 1,961,000
------------- ---------- ------------
Deferred:
Federal ............................... (17,132,000) (286,000) (1,568,000)
State ................................. (1,520,000) (25,000) (140,000)
------------- ---------- ------------
(18,652,000) (311,000) (1,708,000)
Change in valuation allowance ......... 18,652,000 311,000 1,708,000
------------- ---------- ------------
Total ................................. $ (962,000) $ 578,000 $ 1,961,000
============= ========== ============
</TABLE>
F-88
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. TAXES (BENEFIT) OF INCOME (LOSS) - (CONTINUED)
During the year ended December 31, 1999, Trans Global elected to carryback
approximately $2.8 million of taxable losses, resulting in a receivable and tax
benefit of approximately $962,000.
During the year ended March 31, 1998, eGlobe undertook a study to simplify
its organizational and tax structure and identified potential international tax
issues. eGlobe determined that it had potential tax liabilities and recorded an
additional tax provision of $1.5 million to reserve against liabilities. In
early 1999, eGlobe filed with the Internal Revenue Service ("IRS") amended
returns for the years ended March 31, 1991 through 1998. In May 1999, eGlobe
was informed by the IRS that all amended returns had been accepted as filed.
The eventual outcome of discussions with State Tax Authorities and of any other
issues cannot be predicted with certainty.
As of December 31, 1999 and 1998 and March 31, 1998, the net deferred tax
asset recorded and its approximate tax effect consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 1998
---------------- -------------- --------------
<S> <C> <C> <C>
Net operating loss carry- forwards ............... $ 21,290,000 $ 6,041,000 $ 3,496,000
Expense accruals ................................. 618,000 1,098,000 1,010,000
Goodwill and intangible amortization ............. 3,626,000 -- --
Foreign net operating loss carryforwards ......... 762,000 260,000 --
Other ............................................ 186,000 431,000 269,000
------------- ------------ ------------
26,482,000 7,830,000 4,775,000
Valuation allowance .............................. (26,482,000) (7,830,000) (4,775,000)
------------- ------------ ------------
Net deferred tax asset ........................... $ -- $ -- $ --
============= ============ ============
</TABLE>
The acquisition of IDX in December 1998 included a net deferred tax asset
of $2.7 million. This net deferred tax asset consists primarily of U.S. and
foreign net operating losses. The acquisition also included a valuation
allowance equal to the net deferred tax asset acquired.
For the year ended December 31, 1999, the nine months ended December 31,
1998 and the year ended March 31, 1988, a reconciliation of the United States
Federal statutory rate to the effective rate is shown below:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 1998
-------------- -------------- -------------
<S> <C> <C> <C>
Federal tax (benefit), computed at statutory rate ......... (34.0)% (34.0)% (34.0)%
State tax (benefit), net of federal tax benefit ........... ( 0.9) ( 1.3) ( 1.2)
Effect of foreign operations .............................. 1.1 37.7 23.9
Amendment to prior year net operating loss
carryforwards ............................................ ( 4.9) -- --
Additional taxes .......................................... -- -- 16.1
Change in valuation allowance ............................. 35.2 5.8 18.4
Other ..................................................... 1.7 2.5 ( 2.1)
----- ----- -----
Total ..................................................... ( 1.8)% 10.7 % 21.1 %
===== ======== ========
</TABLE>
F-89
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. TAXES (BENEFIT) OF INCOME (LOSS) - (CONTINUED)
As of December 31, 1999, the Company has net operating loss carryforwards
available of approximately $57.7 million, which can offset future years' U.S.
taxable income. Such carryforwards expire in various years through 2019 and are
subject, as a result of change in ownership, to limitation under the Internal
Revenue Code of 1986, as amended. The Company also has foreign net operating
loss carryforwards in various jurisdictions of approximately $2.0 million,
which can offset future year's foreign taxable income. Such carryforwards
expire in various years through 2004 and are subject to local limitations on
use.
12. SEGMENT INFORMATION
Operating Segment Information
The Company has four operating reporting segments consisting of Enhanced
Services, Network Services, Customer Care and Retail Services. The Company's
basis for determining the segments relates to the type of services each segment
provides. Enhanced Services includes the unified messaging services, telephone
portal services, interactive voice and data services and the card services.
Network Services includes low-cost transmission services, voice services
(CyberCall and CyberFax) and several other additional services including
billing and report generation designed exclusively to support CyberCall and
CyberFax. Customer Care Services includes the state-of-art call center, which
was part of the Company's acquisition of ORS. Retail Services primarily
includes a small North American retail center, which was part of the Company's
acquisition of Coast, which was effective December 2, 1999. Segment results
reviewed by the Company decision makers do not include general and
administrative expenses, interest, depreciation and amortization and other
miscellaneous income and expense items. All material intercompany transactions
have been eliminated in consolidation. The following table presents operating
segment information:
<TABLE>
<CAPTION>
ENHANCED NETWORK CUSTOMER RETAIL
SERVICES SERVICES CARE SERVICES TOTAL
--------------- --------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDING
DECEMBER 31, 1999
------------------------------
Revenue ...................... $ 20,088,000 $120,918,000 $ 1,637,000 $ 1,001,000 $ 143,644,000
Inter-segment ................ (22,000) (1,674,000) -- -- (1,696,000)
------------ ------------ ----------- ----------- -------------
Total revenue ................ $ 20,066,000 $119,244,000 $ 1,637,000 $ 1,001,000 $ 141,948,000
Gross profit ................. $ 2,946,000 $ 1,688,000 $ 308,000 $ 65,000 $ 5,007,000
Total assets ................. $ 38,063,000 $ 51,031,000 $ 3,736,000 $20,965,000 $ 113,795,000
------------ ------------ ----------- ----------- -------------
FOR THE NINE MONTHS ENDING
DECEMBER 31, 1998
-------------------------------
Revenue ...................... $ 21,360,000 $ 68,507,000 $ -- $ 553,000 $ 90,420,000
Gross profit (loss) .......... $ 10,064,000 $ 6,469,000 $ -- $ (42,000) $ 16,491,000
Total assets ................. $ 21,697,000 $ 41,775,000 $ -- $ 907,000 $ 64,379,000
------------ ------------ ----------- ----------- -------------
FOR THE YEAR ENDING
MARCH 31, 1998
-------------------------------
Revenue ...................... $ 31,819,000 $ 46,473,000 $ -- $ 1,304,000 $ 79,596,000
Gross profit ................. $ 13,667,000 $ 6,588,000 $ -- $ 590,000 $ 20,845,000
Total assets ................. $ 21,797,000 $ 12,125,000 $ -- $ 1,103,000 $ 35,025,000
------------ ------------ ----------- ----------- -------------
</TABLE>
(a) In 1998, IDX was included in Enhanced Services (formerly Telecommunication
Services).
F-90
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. SEGMENT INFORMATION - (CONTINUED)
Geographic Information
For purposes of allocating revenues by country, the Company uses the
physical location of its customers as its basis. Identifiable Long-Lived Assets
include only the tangible assets of the Company. The following table presents
information about the Company by geographic area:
<TABLE>
<CAPTION>
ASIA
EUROPE PACIFIC
---------------- ----------------
<S> <C> <C>
FOR THE YEAR ENDING
DECEMBER 31, 1999
-----------------------------------
Revenue ........................... $ 7,364,000 $ 7,873,000
Operating loss .................... $ (3,074,000) $ (6,993,000)
Identifiable long-lived assets..... $ 8,243,000 $ 3,846,000
------------ ------------
FOR THE NINE MONTHS ENDING
DECEMBER 31, 1998
------------------------------------
Revenue ........................... $ 2,241,000 $ 5,949,000
Operating loss .................... $ (1,373,000) $ (1,460,000)
Identifiable long-lived assets..... $ 6,060,000 $ 4,076,000
------------ ------------
FOR THE YEAR ENDING
MARCH 31, 1998
------------------------------------
Revenue ........................... $ 3,468,000 $ 10,295,000
Operating income (loss) ........... $ (759,000) $ (1,772,000)
Identifiable long-lived assets..... $ 3,150,000 $ 4,138,000
------------ ------------
<CAPTION>
NORTH
AMERICA
(EXCLUDING LATIN
MEXICO) AMERICA OTHER TOTALS
----------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDING
DECEMBER 31, 1999
------------------------------------
Revenue ........................... $ 121,709,000 $ 3,485,000 $ 1,517,000 $ 141,948,000
Operating loss .................... $ (32,053,000) $ (4,374,000) $ (419,000) $ (46,913,000)
Identifiable long-lived assets..... $ 24,813,000 $ 2,035,000 $ 3,141,000 $ 42,078,000
------------- ------------ ----------- -------------
FOR THE NINE MONTHS ENDING
DECEMBER 31, 1998
------------------------------------
Revenue ........................... $ 76,664,000 $ 5,244,000 $ 322,000 $ 90,420,000
Operating loss .................... $ (456,000) $ (1,287,000) $ (79,000) $ (4,655,000)
Identifiable long-lived assets..... $ 7,568,000 $ 1,571,000 $ 923,000 $ 20,198,000
------------- ------------ ----------- -------------
FOR THE YEAR ENDING
MARCH 31, 1998
------------------------------------
Revenue ........................... $ 56,535,000 $ 8,248,000 $ 1,050,000 $ 79,596,000
Operating income (loss) ........... $ 1,054,000 $ (1,419,000) $ (181,000) $ (3,077,000)
Identifiable long-lived assets..... $ 9,530,000 $ 440,000 $ -- $ 17,258,000
------------- ------------ ----------- -------------
</TABLE>
For the year ended December 31, 1999, the nine months ended December 31,
1998 and the year ended March 31, 1998 revenues from significant customers
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998 MARCH 31, 1998
------------------- ------------------- ---------------
<S> <C> <C> <C>
Customer:
A ......... 4% 21% 25%
B ......... 21% 7% 6%
C ......... 7% 16% --
D ......... 23% 15% --
</TABLE>
13. COMMITMENTS EMPLOYMENT AGREEMENTS AND CONTINGENCIES
Payment Agreements
The Company and certain of its subsidiaries have agreements with certain
key employees expiring at varying times over the next three years. The
Company's remaining aggregate commitment at December 31, 1999 under such
agreements is approximately $3.9 million. The Company is also currently
negotiating employment agreements with two officers who were former owners of
Trans Global.
Carrier Arrangements
The Company has entered into agreements with certain long-distance
carriers in the United States and with telephone utilities in various foreign
countries to transmit telephone signals domestically and internationally. The
Company is entirely dependent upon the cooperation of the telephone utilities
with which it has made arrangements for its operational and certain of its
administrative requirements. The Company's arrangements are nonexclusive and
take various forms.
F-91
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
13. COMMITMENTS EMPLOYMENT AGREEMENTS AND CONTINGENCIES - (CONTINUED)
Although some of these arrangements are embodied in formal contracts, a
telephone utility could cease to accommodate the Company's arrangements at any
time. The Company does not foresee any threat to existing arrangements with
these utilities; however, depending upon the location of the telephone utility,
such action could have a material adverse affect on the Company's financial
position, operating results or cash flows.
Usage Commitment
The Company has a contract with a long-distance telecommunications company
to provide telecommunications services for the Company's customers. Under the
terms of the agreement, the Company has a minimum usage commitment of $125,000
per month through September 30, 2000. The minimum usage commitment may be
decreased in the second and third year of the agreement if the cumulative usage
is achieved in the first year of the agreement.
Reservation Services
The Company has entered into reservation services contracts with its
customers which provide for, among other things, assigning agents to handle
reservation call volume. These contracts have initial terms ranging from three
months to one year. Either party can terminate the contracts after the initial
term, subject to certain conditions contained in the contracts.
International Regulations
In certain countries where the Company has current or planned operations,
the Company may not have the necessary regulatory approvals to conduct all or
part of its voice and fax store-and-forward services. In these jurisdictions,
the requirements and level of telecommunications' deregulation is varied,
including Internet protocol telephony. Management believes that the degree of
active monitoring and enforcement of such regulations is limited. Statutory
provisions for penalties vary, but could include fines and/or termination of
the Company's operations in the associated jurisdiction. To date, the Company
has not been required to comply or been notified that it cannot comply with any
material international regulations in order to pursue its existing business
activities. In consultation with legal counsel, management has concluded that
the likelihood of significant penalties or injunctive relief is remote. There
can be no assurance, however, that regulatory action against the Company will
not occur.
Telecommunication Lines
In its normal course of business, the Company enters into agreements for
the use of long distance telecommunication lines. As of December 31, 1999,
future minimum annual payments under such agreements are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, TOTAL
--------------------------- -------------
<S> <C>
2000 .................... $ 8,488,000
2001 .................... 5,373,000
2002 .................... 1,827,000
2003 .................... 157,000
2004 .................... 75,000
-----------
$15,920,000
===========
</TABLE>
F-92
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
13. COMMITMENTS EMPLOYMENT AGREEMENTS AND CONTINGENCIES - (CONTINUED)
Lease Agreements
The Company leases office space and equipment under various operating
leases. The Company has subleased some office space to third parties. Future
minimum lease payments under the non-cancelable leases and future minimum
rentals receivable under the subleases, including the related party office
leases discussed in Note 7, are as follows:
<TABLE>
<CAPTION>
MINIMUM
MINIMUM LEASE SUBLEASE
LEASE PAYMENTS TO RENTAL
YEARS ENDING DECEMBER 31, PAYMENTS RELATED PARTY INCOME TOTAL
--------------------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
2000 .................... $ 1,679,000 $ 569,000 $ (551,000) $ 1,697,000
2001 .................... 1,105,000 581,000 (227,000) 1,459,000
2002 .................... 835,000 596,000 -- 1,431,000
2003 .................... 740,000 150,000 -- 890,000
2004 .................... 421,000 -- -- 421,000
Thereafter .............. 343,000 -- -- 343,000
----------- ----------- ----------- -----------
$ 5,123,000 $ 1,896,000 $ (778,000) $ 6,241,000
----------- ----------- ----------- -----------
</TABLE>
Rent expense for the year ended December 31, 1999, the nine months ended
December 31, 1998 and the year ended March 31, 1998 was approximately $2.3
million, $0.8 million, and $0.9 million, respectively. Rent expense for 1999
includes sublease rental income of $0.2 million.
As a result of the ORS acquisition, the Company leases certain employees
from a professional employment organization, which also performs human resource
and payroll functions. Total employment lease expense incurred by the Company
related to this contract amounted to approximately $1.5 million for the period
from acquisition through December 31, 1999.
Letters of Credit
Outstanding letters of credit issued as security as required by certain
telecommunications vendors, amounted to approximately $1,464,000 and $1,100,000
at December 31, 1999 and 1998, respectively. Such amounts were secured by
restricted short-term investments.
Financial Advisory Agreement
On December 1, 1999, the Company entered into an agreement with an outside
investment banking firm to provide financial advisory services. The term of the
agreement is for six months, however, it is automatically renewed for an
additional six months unless written notice of termination is given. Warrants
valued at $1.1 million to purchase common stock were issued as a retainer in
January 2000 (See Note 10). Under the agreement, cash fees are payable by the
Company for acquisition or disposition transactions, and are based on certain
calculated percentages. The Company shall also reimburse the investment banking
firm for reasonable out-of-pocket expenses incurred in connection with its
services, up to a maximum amount per month.
Secured Accounts Payable
Approximately $9.9 million of Tran Global's capital assets are subject to
security interests in favor of its major supplier, AT&T Corp. ("AT&T").
Effective December 10, 1999, Trans Global entered into an agreement with AT&T
regarding the payment of approximately $13.8 million in past due 1999 switch
and circuit costs. Pursuant to the agreement, Trans Global has agreed to repay
AT&T in roughly equal monthly installments, which include interest at 9%,
through January 1, 2001. See Note 18 for further discussions.
F-93
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. GOVERNMENT REGULATIONS
The Company is subject to regulation as a telecommunications service
provider in some jurisdictions in the United States and abroad. Applicable laws
and regulations, and the interpretation of such laws and regulations, differ
significantly in those jurisdictions. In addition, the Company or a local
partner is required to have licenses or approvals in those countries where it
operates and where equipment is installed. The Company may also be affected
indirectly by the laws of other jurisdictions that affect foreign carriers with
which it does business.
United States Federal Regulation
Pursuant to the Communications Act of 1934, as amended by the
Telecommunications Act of 1996, the Federal Communications Commission ("FCC")
regulates certain aspects of the telecommunications industry in the United
States. The FCC currently requires common carriers providing international
telecommunications services to obtain authority under section 214 of the
Communications Act. eGlobe and its subsidiaries have section 214 authority and
are regulated as non-dominant providers of both international and domestic
telecommunications services.
Any common carrier providing wireline domestic and international service
also must file a tariff with the FCC setting forth the terms and conditions
under which it provides those services. With few exceptions, common carriers
are prohibited from providing telecommunications services to customers under
rates, terms, or conditions different from those that appear in a tariff. The
FCC has determined that it no longer will require or allow non-dominant
providers of domestic services to file tariffs, but instead will require
carriers to make their rates publicly available, for example by posting the
information on the Internet. Because this FCC order has only recently been
affirmed by the U.S. Court of Appeals for the District of Columbia Circuit, it
is presently being phased in, and carriers are permitted to have tariffs on
file for their domestic services. The Company has tariffs on file with the FCC
setting forth the rates, terms and conditions under which it provides domestic
and international services.
In addition to these authorization and tariff requirements, the FCC
imposes a number of additional requirements on telecommunications common
carriers.
The FCC's international settlements policy places limits on the
arrangements that U.S. international carriers may enter into with foreign
carriers that have market power in foreign telecommunications markets. The
policy is primarily intended to prevent dominant foreign carriers from playing
U.S. carriers against each other to the disadvantage of U.S. carriers and U.S.
consumers. The international settlements policy provides that a U.S. carrier
that enters into an operating agreement for the exchange of public switched
traffic with a dominant foreign carrier must file a copy of that agreement with
the FCC. Any such agreement that is materially different from an agreement
filed by another carrier on the same international route must be approved by
the FCC. Absent FCC approval, no such agreement may provide for the U.S.
carrier to receive more than its proportionate share of inbound traffic.
Certain competitive routes are exempt from the international settlements
policy. The FCC's policies also require U.S. international carriers to
negotiate and adopt settlement rates with foreign correspondents that are at or
below certain benchmark rates.
The FCC's rules also prohibit a U.S. carrier from accepting a "special
concession" from any dominant foreign carrier. The FCC defines a "special
concession" as an exclusive arrangement (i.e., one not offered to similarly
situated U.S. carriers) involving services, facilities, or functions on the
foreign end of a U.S. international route that are necessary for providing
basic telecommunications.
The regulation of IP telephony in the United States is still evolving. The
FCC has stated that some forms of IP telephony appear to be similar to
"traditional" common carrier service and may be regulated as such, but the FCC
has not decided whether some other IP services are unregulated "information
services" or are subject to regulation. In addition, several efforts have been
made to enact U.S. federal legislation that would either regulate or exempt
from regulation services provided over the Internet. State public utility
commissions also may retain jurisdiction over intrastate IP services and could
initiate proceedings to regulate such services. As these decisions are made,
the Company could become subject to regulation that might eliminate some of the
advantages that it now enjoys as a provider of IP-based services.
F-94
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. GOVERNMENT REGULATIONS- (CONTINUED)
Management believes that the regulatory requirements in force today in the
United States impose a relatively minimal burden on the Company. Management
also believes that some of its network services are not subject to regulation
by the FCC or any other state or federal agency; however, there is some risk
that the FCC or a state regulator could decide that certain services should
require specific authorization or be subject to other regulations. If that were
to occur, these regulatory requirements could include prior authorization
requirements, tariffing requirements, or the payment of contributions to
federal and state subsidy mechanisms applicable to providers of
telecommunications services. Some of these contributions could be required
whether or not the Company is subject to authorization or tariff requirements.
United Kingdom. In the United Kingdom, telecommunications services that
have been offered by Trans Global through its affiliate, TGC UK Ltd., are
subject to regulation by various U.K. regulatory agencies. The United Kingdom
generally permits competition in all sectors of the telecommunications market,
subject to licensing requirements and license conditions. TGC UK has been
granted licenses to provide international traffic on a resale basis and over
its own facilities, which licenses are subject to a number of restrictions. Use
of these licenses has permitted Trans Global to engage in cost-effective
routing of traffic between the United States and the United Kingdom and beyond.
Other Countries
Telecommunications activities are subject to government regulation to
varying degrees in every country throughout the world. In many countries where
the Company operates, equipment cannot be connected to the telephone network
without regulatory approval, and therefore installation and operation of the
Company's operating platform or other equipment requires such approval. The
Company has licenses or other equipment approvals in the jurisdictions where it
operates. In most jurisdictions where the Company conducts business, the
Company relies on its local partner to obtain the requisite authority. In many
countries the Company's local partner is a national telephone company, and in
some jurisdictions also is (or is controlled by) the regulatory authority
itself.
As a result of relying on our local partners, we are dependent upon the
cooperation of the telephone utilities with which we have made arrangements for
our authority to conduct business, as well as for some of our operational and
administrative requirements. Our arrangements with these utilities are
nonexclusive and take various forms. Although some of these arrangements are
embodied in formal contracts, any telephone utility could cease to accommodate
our requirements at any time. Depending upon the location of the telephone
utility, such action could have a material adverse affect on our business and
prospects. In some cases, principally the United States and countries that are
members of the European Community, laws and regulations provide that the
arrangements necessary for us to conduct our service may not be arbitrarily
terminated. However, the time and cost of enforcing our rights may make legal
remedies impractical. We presently have good relations with most of the foreign
utilities with which we do business. There can be no assurance, however, that
such relationships will continue or that governmental authorities will not seek
to regulate aspects of our services or require us to obtain a license to
conduct our business.
Many aspects of the Company's international operations and business
expansion plans are subject to foreign government regulations, including
currency regulations. Foreign governments may adopt regulations or take other
actions that would have a direct or indirect adverse impact on the Company's
business opportunities. For example, the regulatory status of IP telephony in
some countries is uncertain. Some countries prohibit or regulate IP telephony,
and any of those policies may change at any time.
The Company is planning to expand or initiate services in certain Middle
East countries including Egypt and Kuwait. These services will include largely
voice services as regulatory liberalization in those countries permits.
Although the Company plans to obtain authority to provide service under current
and future laws of those countries (or, where permitted, to provide service
without government authorization), there can be no assurance that foreign laws
will be adopted and implemented providing the Company with effective practical
opportunities to compete in these countries. The Company's ability or inability
to take advantage of such liberalization could have a material adverse effect
on its ability to expand services as planned.
F-95
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. FOURTH QUARTER ADJUSTMENTS
In the fourth quarter of the year ended December 31, 1999, certain
adjustments related to an increase in the accounts receivable reserve
allowance, accrued dividends for certain series of Preferred Stock that are
entitled to receive dividends for specified periods regardless of the
conversation date, capitalized software development costs related to Vogo and
accrued excise and sales and use taxes which in total amounts to an aggregate
of approximately $1.5 million were recorded and are discussed in "Summary of
Accounting Policies" and Note 10 to the supplemental consolidated financial
statements.
16. SUBSEQUENT EVENTS
Series N Cumulative Convertible Preferred Stock
In January 2000, the Company sold an additional 525 shares of Series N
Preferred Stock and 42,457 warrants for proceeds of $0.5 million. These shares
of Series N Preferred Stock were immediately converted, at the holders' option,
into 155,394 shares of the Company's common stock at conversion prices from
$3.51 to $3.72.
The warrants are exercisable one year from issuance and expire three years
from issuance. The exercise prices vary from $3.00 to $7.50 per share. In
addition, the holders may elect to make a cash-less exercise. The value of the
warrants will be recorded as a dividend at the issuance dates because the
Series N Preferred Stock is immediately convertible. See Note 10 for further
discussion of Series N Preferred Stock.
Series P Convertible Preferred Stock
On January 27, 2000, the Company issued 15,000 shares of Series P
Convertible Preferred Stock ("Series P Preferred Stock") and warrants to
purchase 375,000 shares of common stock with an exercise price of $12.04 per
share for proceeds of $15.0 million to Rose Glen ("RGC"). The shares of Series
P Preferred Stock carry an effective annual interest rate of 5% and are
convertible, at the holder's option, into shares of common stock. The shares of
Series P Preferred Stock will automatically be converted into shares of common
stock on January 26, 2003, subject to delay for specified events. The
conversion price for the Series P Preferred Stock is $12.04 until April 27,
2000, and thereafter is equal to the lesser of 120% of the five day average
closing price of the Company's common stock on Nasdaq during the 22-day period
prior to conversion, and $12.04. The Company can force a conversion of the
Series P Preferred Stock on any trading day following a period in which the
closing bid price of the Company's common stock has been greater than $24.08
for a period of at least 35 trading days after the earlier of (1) the first
anniversary of the date the common stock issuable upon conversion of the Series
P Preferred Stock and warrants are registered for resale, and (2) the
completion of a firm commitment underwritten public offering with gross
proceeds to the Company of at least $45.0 million.
The shares of Series P Preferred Stock are convertible into a maximum of
5,151,871 shares of common stock. This maximum share amount is subject to
increase if the average closing bid prices of the Company's common stock for
the 20 trading days ending on the later of June 30, 2000 and the 60th calendar
day after the common stock issuable upon conversion of the Series P Preferred
Stock and warrants is registered is less than $9.375, provided that under no
circumstances will the Series P Preferred Stock be convertible into more than
7,157,063 shares of the Company's common stock. In addition, no holder may
convert the Series P Preferred Stock or exercise the warrants it owns for any
shares of common stock that would cause it to own following such conversion or
exercise in excess of 4.9% of the shares of the Company's common stock then
outstanding.
Except in the event of a firm commitment underwritten public offering of
eGlobe's securities or a sale of up to $15.0 million of common stock to a
specified investor, the Company may not obtain any additional equity financing
without the Series P Preferred holder's consent for a period of 120 days
following the date the common stock issuable upon conversion of the Series P
Preferred Stock and warrants is registered for resale. The holder also has a
right of first offer to provide any additional equity financing that the
Company needs until the first anniversary of such registration.
F-96
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
16. SUBSEQUENT EVENTS - (CONTINUED)
The Company may be required to redeem the Series P Preferred Stock in the
following circumstances:
(a) if the Company fails to perform specified obligations under the
securities purchase agreement or related agreements;
(b) if the Company or any of its subsidiaries make an assignment for the
benefit of creditors or becomes involved in bankruptcy, insolvency,
reorganization or liquidation proceedings;
(c) if the Company merges out of existence without the surviving company
assuming the obligations relating to the Series P Preferred Stock;
(d) if the Company's common stock is no longer listed on the Nasdaq
National Market, the Nasdaq Small Cap Market, the NYSE or the AMEX;
(e) if the Series P Preferred Stock is no longer convertible into common
stock because it would result in an aggregate issuance of more than
5,151,871 shares of common stock, as such number may be adjusted, and
the Company has not waived such limit or obtained stockholder approval
of a higher limit; or
(f) if the Series P Preferred Stock is no longer convertible into common
stock because it would result in an aggregate issuance of more than
7,157,063 shares of the Company's common stock and the Company has not
obtained stockholder approval of a higher limit.
Series Q Convertible Preferred Stock
On March 17, 2000, the Company issued 4,000 shares of Series Q Convertible
Preferred Stock ("Series Q Preferred Stock") and warrants to purchase 100,000
shares of eGlobe common stock with an exercise price per share equal to $12.04,
subject to adjustment for issuances of shares of common stock below market
price for proceeds of $4.0 million to RGC.
The Series Q Preferred Stock agreement also provides that the Company may
issue up to 6,000 additional shares of Series Q Preferred Stock and warrants to
purchase an additional 150,000 shares of common stock to RGC for an additional
$6.0 million at a second closing to be completed no later than July 15, 2000.
The primary condition to the second closing is the effectiveness of a
registration statement registering the resale of common stock underlying the
Series Q Preferred Stock and the warrants and the Series P Preferred Stock and
warrants issued in January 2000 to RGC (see above discussion "Series P
Convertible Preferred Stock").
The shares of Series Q Preferred Stock carry an effective annual yield of
5% (payable in kind at the time of conversion) and are convertible, at the
holder's option, into shares of common stock. The shares of Series Q Preferred
Stock will automatically be converted into shares of common stock on March 15,
2003, subject to delay for specified events. The conversion price for the
Series Q Preferred Stock is $12.04 until April 26, 2000, and thereafter is
equal to the lesser of: (i) the five day average closing price of the Company's
common stock on Nasdaq during the 22-day period prior to conversion, and (ii)
$12.04.
The Company can force a conversion of the Series Q Preferred Stock on any
trading day following a period in which the closing bid price of the Company's
common stock has been greater than $24.08 for a period of at least 20 trading
days after the earlier of (1) the first anniversary of the date the common
stock issuable upon conversion of the Series Q Preferred Stock and warrants is
registered for resale, and (2) the completion of a firm commitment underwritten
public offering with gross proceeds to us of at least $45.0 million.
The Series Q Preferred Stock is convertible into a maximum of 3,434,581
shares of common stock. This maximum share amount is subject to increase if the
average closing bid prices of the Company's common stock for the 20 trading
days ending on the later of June 30, 2000 and the 60th calendar day
F-97
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
16. SUBSEQUENT EVENTS - (CONTINUED)
after the common stock issuable upon conversion of the Series Q Preferred Stock
and warrants is registered is less than $9.375, provided that under no
circumstances will the Series Q Preferred Stock be converted into more than
7,157,063 shares of common stock (the maximum share amount will increase to
9,365,463 shares of the Company's common stock if the Company receives written
guidance from Nasdaq that the issuance of the Series Q Preferred Stock and the
warrants will not be integrated with the issuances of the Series P Preferred
Stock and related warrants. In addition, no holder may convert the Series Q
Preferred Stock or exercise the warrants it owns for any shares of common stock
that would cause it to own following such conversion or exercise in excess of
4.9% of the shares of the Company's common stock then outstanding.
The Company may be required to redeem the Series Q Preferred Stock in the
following circumstances:
(a) if the Company fails to perform specified obligations under the
securities purchase agreement or related agreements;
(b) if the Company or any of its subsidiaries makes an assignment for the
benefit of creditors or become involved in bankruptcy insolvency,
reorganization or liquidation proceedings;
(c) if the Company merges out of existence without the surviving company
assuming the obligations relating to the Series Q Preferred Stock;
(d) if the Company's common stock is no longer listed on the Nasdaq
National Market, the Nasdaq SmallCap Market, the NYSE or the AMEX;
(e) if the Series Q Preferred Stock is no longer convertible into common
stock because it would result in an aggregate issuance of more than
3,434,581 shares of common stock, as such number may be adjusted, and
the Company has not waived such limit or obtained stockholder approval
of a higher limit; or
(f) if the Series Q Preferred Stock is no longer convertible into common
stock because it would result in an aggregate issuance of more than
7,157,063 shares of the Company's common stock (the maximum share
amount will increase to 9,365,463 shares of common stock if the Company
receives written guidance from Nasdaq that the issuance of the Series Q
Preferred Stock and the warrants will not be integrated with the
issuances of the Series P Preferred Stock and related warrants) and the
Company has not obtained stockholder approval of a higher limit.
i1.com
On December 31, 1999, the Company along with a former IDX executive formed
i1.com. i1.com is developing a distributed network of e-commerce applications
that will allow small and medium-sized businesses to transact business over the
Internet. The Company initially received a 75% interest in i1.com in exchange
for providing i1.com access to the Company's IP-based network infrastructure.
i1.com recently completed a $14.0 million equity private placement. The
Company now retains a 35% equity interest and 45% voting interest in i1.com.
Conversion of Preferred Stock into Common Stock
Subsequent to December 31, 1999, the remaining Series D Preferred Stock
plus accrued dividends through December 31, 2000, all of Series E Preferred
Stock, Series F Preferred Stock, Series H Preferred Stock, 150,000 shares of
the Series I Preferred Stock plus 8% accrued value, Series J Preferred Stock,
Series K Preferred Stock and the remaining Series N Preferred Stock converted
into 14,391,271 shares of the Company's common stock. See Note 10 for further
discussion.
F-98
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS AND NON-CASH INVESTING
AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
YEAR NINE MONTHS YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Cash paid during the period for:
Interest .................................................... $ 1,368,000 $ 208,000 $ 1,465,000
Income taxes ................................................ 696,000 665,000 1,006,000
Non-cash investing and financing activities:
Equipment acquired under capital lease obligations .......... 1,036,000 329,000 312,000
Common stock issued for acquisition of equipment ............ -- -- 100,000
Exercise of stock options for notes receivable .............. 1,210,000 -- --
Value of warrants issued and reflected as debt discount ..... 14,026,000 -- --
Value of warrants issued and reflected as stock offering
cost ...................................................... 706,000 -- --
Unamortized debt discount related to warrants ............... 7,265,000 321,000 438,000
Stock issued as prepayment of debt .......................... 5,616,000 -- --
Exchange of Notes for Series I Preferred Stock .............. 3,982,000 -- --
Preferred stock dividends ................................... 7,330,000 -- --
Preferred stock dividend related to exchange of Series B
Preferred Stock for Series H Preferred Stock .............. 4,600,000 -- --
ACQUISITIONS, NET OF CASH ACQUIRED (NOTE 4):
IDX:
Working capital deficit, other than cash acquired ......... $ (197,000) $ (931,000) $ --
Property and equipment .................................... -- 975,000 --
Intangible assets ......................................... 6,510,000 -- --
Purchase price in excess of the net assets acquired ....... (4,536,000) 10,918,000 --
Other assets .............................................. -- 163,000 --
Notes payable issued in acquisition ....................... -- (5,418,000) --
Series B Convertible Preferred Stock ...................... -- (1,000) --
Additional paid-in capital ................................ (1,485,000) (3,499,000) --
UCI:
Intangible assets ......................................... 655,000 -- --
Purchase price in excess of the net assets acquired ....... (698,000) 1,177,000 --
Accrued cash payment paid in 1999 ......................... -- (75,000) --
Note payable issued in acquisition ........................ -- (1,000,000) --
Common stock issued for acquisition ....................... -- (102,000) --
TELEKEY:
Working capital deficit, other than cash acquired ......... (1,281,000) -- --
Property and equipment .................................... 481,000 -- --
Intangible assets ......................................... 2,975,000 -- --
Purchase price in excess of the net assets acquired ....... 2,131,000 -- --
Acquired debt ............................................. (1,015,000) -- --
Notes payable issued in acquisition ....................... (150,000) -- --
Issuance of Series F Convertible Preferred Stock .......... (1,000) -- --
Additional paid-in capital ................................ (1,956,000) -- --
Stock to be issued ........................................ (979,000) -- --
</TABLE>
F-99
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS AND NON-CASH INVESTING
AND FINANCING ACTIVITIES - (CONTINUED)
<TABLE>
<CAPTION>
YEAR NINE MONTHS YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 1998
---------------- -------------- ----------
<S> <C> <C> <C>
ACQUISITIONS, NET OF CASH ACQUIRED (NOTE 4): (CON'T)
CONNECTSOFT:
Working capital deficit, other than cash acquired ........... (2,142,000) -- --
Property and equipment ...................................... 514,000 -- --
Intangible assets ........................................... 9,120,000 -- --
Purchase price in excess of the net asset acquired .......... 1,017,000 -- --
Acquired debt ............................................... (2,992,000) -- --
Advances to Connectsoft prior to acquisition by eGlobe (971,000) -- --
Issuance of Series G Preferred Stock exchanged for
Series K Preferred Stock ................................... -- -- --
Additional paid-in capital .................................. (3,000,000) -- --
SWIFTCALL:
Working capital deficit, other than cash acquired ........... (1,699,000) -- --
Property and equipment ...................................... 5,144,000 -- --
Common stock ................................................ (1,000) -- --
Additional paid-in capital .................................. (1,644,000) -- --
Stock to be issued .......................................... (1,645,000) -- --
IGLOBE:
Property and equipment ...................................... 6,686,000 -- --
Intangible assets ........................................... 2,383,000 -- --
Purchase price in excess of net assets acquired ............. 1,760,000 -- --
Deposits .................................................... 900,000 -- --
Acquired debt ............................................... (1,786,000) -- --
Issuance of Series M Preferred Stock ........................ -- -- --
Additional paid-in capital .................................. (9,643,000) -- --
ORS:
Working capital surplus, other than cash acquired ........... 36,000 -- --
Property and equipment ...................................... 671,000 -- --
Intangible assets in LLC .................................... 1,580,000 -- --
Other assets ................................................ 40,000 -- --
Purchase price in excess of the net assets acquired ......... 363,000 -- --
Minority interest ........................................... (2,330,000) -- --
COAST:
Working capital surplus, other than cash acquired ........... 938,000 -- --
Property and equipment ...................................... 1,415,000 -- --
Deposits .................................................... 16,000 -- --
Intangible assets ........................................... 3,190,000 -- --
Purchase price in excess of net assets acquired ............. 14,344,000 -- --
Acquired debt ............................................... (3,539,000) -- --
Common stock ................................................ (1,000) -- --
Issuance of Series O Convertible Preferred Stock ............ -- -- --
Additional paid-in capital .................................. (16,379,000) -- --
----------- -- --
Net cash used to acquire companies ............................ $ 2,799,000 $ 2,207,000 $ --
------------- ----------- ----
</TABLE>
F-100
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
18. EVENTS SUBSEQUENT TO MARCH 24, 2000
Debt Renegotiations
On April 5, 2000, the EXTL Note Agreement was amended and EXTL consented
to the Company's (1) assumption of the Coast notes payable, (2) guarantee of
these Coast notes and (3) granting of a security interest in the assets
currently securing the Notes as well as the Coast assets to the Coast
noteholder. The Coast notes payable were also amended on this date and the
noteholder consented to (1) waive any event of default that may have occurred
as a result of the Coast merger, (2) permit Coast to guarantee the EXTL Notes
and Revolver and to secure such guarantee, and (3) revise the debt covenants to
be consistent with those in the EXTL Notes. See Note 7 for further discussion.
Secured Accounts Payable
As of April 6, 2000, the Company's subsidiary, Trans Global, is in arrears
on its scheduled payments to AT&T and is currently in negotiations with AT&T to
restructure this payable. See Note 13 for further discussion.
19. EVENTS SUBSEQUENT TO OCTOBER 25, 2000
The Company held its annual shareholders meeting on October 25, 2000,
where one of the proposals to be voted on required shareholder approval of the
issuance of common stock upon the conversion of the Series P Convertible
Preferred Stock and Series Q Convertible Preferred Stock and the exercise of
certain warrants. The Company deferred the vote on this proposal until November
16, 2000 in order to permit the Company to obtain additional responses from
stockholders holding their shares in street name. As noted in Note 16 to the
consolidated financial statements, if the Series P and Series Q Preferred Stock
is no longer convertible into common stock, the Company may be required to
redeem the preferred stock. If the Company is forced to redeem the outstanding
Series P and Series Q Preferred Stock, it is currently unable to immediately
pay the redemption value. Further, the Series Q Preferred Stock agreement also
provides that the Company may issue up to 6,000 additional shares of Series Q
preferred Stock and warrants to purchase an additional 150,000 shares of common
stock to RGC for $6.0 million at a second closing to be completed no later than
July 15, 2000. The Company has only been able to obtain a waiver of their
current default through October 15, 2000. The Company believes that if it is
able to obtain the additional votes from its shareholders it will be able to
obtain the $6.0 million in additional funding.
F-101
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND AT END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
---------------------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1999 ........... $ 986,000 $ 2,434,000 $ 419,000 $ 3,001,000
Nine Months Ended December 31, 1998..... $ 1,472,000 $ 789,000 $ 1,275,000 $ 986,000
Year Ended March 31, 1998 .............. $ 373,000 $ 1,434,000 $ 335,000 $ 1,472,000
</TABLE>
F-102
<PAGE>
EGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
The Unaudited Pro Forma Condensed Statement of Operations for the year
ended December 31, 1999 includes the operating results of the Company, Telekey,
Connectsoft, iGlobe, ORS and Coast assuming the acquisitions had been
consummated at January 1, 1999. Also, the reclassification of acquired goodwill
to other identifiable intangibles for Telekey and the exchange of the Series G
Preferred Stock for the Series K Preferred Stock were assumed to have occurred
on January 1, 1999. The acquisitions of UCI and IDX, along with the subsequent
reclassification of acquired goodwill to other identifiable intangibles, the
increase in the convertibility of the preferred stock issued to the IDX
stockholders and the subsequent renegotiations of the IDX purchase agreement
are reflected in the Company's historical Consolidated Statement of Operations
for the year ended December 31, 1999 contained elsewhere herein.
The following Unaudited Pro Forma Condensed Statement of Operations gives
effect to the acquisitions by the Company of the entities detailed above, using
the purchase method of accounting, and is based on the estimates and
assumptions set forth herein and in the notes to such Pro Forma Condensed
Statement of Operations. This pro forma presentation has been prepared
utilizing historical financial statements and notes thereto as well as pro
forma adjustments as described in the Notes to Unaudited Pro Forma Condensed
Statement of Operations.
The Unaudited Pro Forma Condensed Statement of Operations is presented for
illustrative purposes only and does not purport to represent what the Company's
results of operations or financial position would have been had the
acquisitions described herein occurred on the dates indicated for any future
period or at any future date, and are therefore qualified in their entirety by
reference to and should be read in conjunction with the historical consolidated
financial statements and notes thereto of the Company and the historical
financial statements of Connectsoft, iGlobe, ORS and Coast, contained elsewhere
herein.
The acquisitions of IDX, Telekey, Connectsoft, iGlobe, ORS, and Coast, as
well as the subsequent increase in the preferred conversion factor for
preferred shares originally issued to IDX stockholders, the July 1999 and
December 1999 renegotiations of the terms of the IDX purchase agreement, the
reclassification of acquired goodwill to other identifiable intangibles and the
exchange of the Series G Preferred Stock for the Series K Preferred Stock are
reflected in the Company's historical Consolidated Balance Sheet as of December
31, 1999 contained elsewhere herein.
F-103
<PAGE>
EGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EGLOBE TELEKEY
TWELVE MONTHS ONE MONTH
ENDED ENDED
12/31/99 1/31/99
<S> <C> <C>
--------------------------------------------------------------------------------
REVENUE ........................................................................ $ 141,948 $ 190
COST OF REVENUE ................................................................ 136,941 59
--------------------------------------------------------------------------------
GROSS PROFIT (LOSS) ............................................................ 5,007 131
--------------------------------------------------------------------------------
COSTS AND EXPENSES:
Selling, general and
administrative ............................................................... 36,395 141
Research and development ...................................................... 57 --
Depreciation and
amortization ................................................................. 15,468 16
--------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES ....................................................... 51,920 157
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (46,913) (26)
OTHER INCOME (EXPENSE) ......................................................... (7,252) (6)
--------------------------------------------------------------------------------
LOSS BEFORE (TAXES) BENEFIT ON
INCOME (LOSS) AND
EXTRAORDINARY ITEM ............................................................ (54,165) (32)
(TAXES) BENEFIT ON INCOME
(LOSS) ........................................................................ 962 --
--------------------------------------------------------------------------------
NET LOSS BEFORE EXTRAORDINARY
ITEM .......................................................................... (53,203) (32)
PREFERRED STOCK DIVIDENDS ...................................................... (11,930) --
--------------------------------------------------------------------------------
NET LOSS BEFORE EXTRAORDINARY
ITEM ATTRIBUTABLE TO
COMMON STOCKHOLDERS ........................................................... $ (65,133) $ (32)
--------------------------------------------------------------------------------
NET LOSS PER SHARE BEFORE
EXTRAORDINARY ITEM (BASIC
AND DILUTED) .................................................................. $ (1.08) $ --
--------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES
OUTSTANDING ................................................................... 60,611 --
<CAPTION>
CONNECTSOFT IGLOBE ORS
FIVE MONTHS SEVEN MONTHS EIGHT MONTHS
ENDED ENDED ENDED
5/31/99 7/31/99 8/31/99
<S> <C> <C> <C>
--------------------------------------------------------------------------------
REVENUE ........................................................................ $ 73 $ 5,067 $ 4,055
COST OF REVENUE ................................................................ 65 5,220 3,746
--------------------------------------------------------------------------------
GROSS PROFIT (LOSS) ............................................................ 8 (153) 309
--------------------------------------------------------------------------------
COSTS AND EXPENSES:
Selling, general and
administrative ............................................................... 436 4,794 253
Research and development . 1,092 -- --
Depreciation and
amortization ................................................................. 129 1,411 160
--------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES ....................................................... 1,657 6,205 413
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (1,649) (6,358) (104)
OTHER INCOME (EXPENSE) ......................................................... (162) (182) (4)
--------------------------------------------------------------------------------
LOSS BEFORE (TAXES) BENEFIT ON
INCOME (LOSS) AND
EXTRAORDINARY ITEM ............................................................ (1,811) (6,540) (108)
(TAXES) BENEFIT ON INCOME
(LOSS) ........................................................................ -- -- --
--------------------------------------------------------------------------------
NET LOSS BEFORE EXTRAORDINARY
ITEM .......................................................................... (1,811) (6,540) (108)
PREFERRED STOCK DIVIDENDS ...................................................... -- -- --
--------------------------------------------------------------------------------
NET LOSS BEFORE EXTRAORDINARY
ITEM ATTRIBUTABLE TO
COMMON STOCKHOLDERS ........................................................... $ (1,811) $ (6,540) $ (108)
--------------------------------------------------------------------------------
NET LOSS PER SHARE BEFORE
EXTRAORDINARY ITEM (BASIC
AND DILUTED) .................................................................. $ -- $ -- $ --
--------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES
OUTSTANDING ................................................................... -- -- --
<CAPTION>
COAST
ELEVEN
MONTHS
ENDED ADJUSTMENTS
11/30/99 (NOTE A)
<S> <C> <C>
--------------------------------------------------------------------------------
REVENUE ........................................................................ $ 11,624 $ (214) (1)
COST OF REVENUE ................................................................ 5,649 (214) (2)
--------------------------------------------------------------------------------
GROSS PROFIT (LOSS) ............................................................ 5,975 --
--------------------------------------------------------------------------------
COSTS AND EXPENSES:
Selling, general and
administrative ............................................................... 5,307 221 (3)
Research and development . -- --
Depreciation and
amortization ................................................................. 463 4,790 (4)
--------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES ....................................................... 5,770 5,011
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 205 (5,011)
OTHER INCOME (EXPENSE) ......................................................... (256) 6 (5)
--------------------------------------------------------------------------------
LOSS BEFORE (TAXES) BENEFIT ON
INCOME (LOSS) AND
EXTRAORDINARY ITEM ............................................................ (51) (5,005)
(TAXES) BENEFIT ON INCOME
(LOSS) ........................................................................ -- --
--------------------------------------------------------------------------------
NET LOSS BEFORE EXTRAORDINARY
ITEM .......................................................................... (51) (5,005)
PREFERRED STOCK DIVIDENDS ...................................................... -- 2,658 (6)
--------------------------------------------------------------------------------
NET LOSS BEFORE EXTRAORDINARY
ITEM ATTRIBUTABLE TO
COMMON STOCKHOLDERS ........................................................... $ (51) $ (7,663)
--------------------------------------------------------------------------------
NET LOSS PER SHARE BEFORE
EXTRAORDINARY ITEM (BASIC
AND DILUTED) .................................................................. $ -- $ --
--------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES
OUTSTANDING ................................................................... -- 810 (7)
</TABLE>
See notes to unaudited pro forma condensed Statement of Operations.
F-104
<PAGE>
EGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
PRO FORMA
--------------------------------------------------------------------------------
<S> <C>
REVENUE $ 162,743
COST OF REVENUE ................................................................ 151,466
--------------------------------------------------------------------------------
GROSS PROFIT (LOSS) ............................................................ 11,277
--------------------------------------------------------------------------------
COSTS AND EXPENSES:
Selling, general and administrative ........................................... 47,547
Research and development ...................................................... 1,149
Depreciation and amortization ................................................. 22,437
--------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES ....................................................... 71,133
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS .................................................. (59,856)
OTHER INCOME (EXPENSE) ......................................................... (7,856)
--------------------------------------------------------------------------------
LOSS BEFORE (TAXES) BENEFIT ON INCOME (LOSS) AND EXTRAORDINARY ITEM ............ (67,712)
(TAXES) BENEFIT ON INCOME (LOSS) ............................................... 962
--------------------------------------------------------------------------------
NET LOSS BEFORE EXTRAORDINARY ITEM ............................................. (66,750)
PREFERRED STOCK DIVIDENDS ...................................................... 14,588
--------------------------------------------------------------------------------
NET LOSS BEFORE EXTRAORDINARY ITEM ATTRIBUTABLE TO COMMON STOCKHOLDERS ......... $ (81,338)
--------------------------------------------------------------------------------
NET LOSS PER SHARE BEFORE EXTRAORDINARY ITEM (BASIC AND DILUTED) ............... $ (1.32)
--------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING ............................................ 61,421
</TABLE>
See notes to unaudited pro forma condensed Statement of Operations.
F-105
<PAGE>
EGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
NOTE A. UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1999
The following pro forma adjustments to the unaudited pro forma condensed
statement of operations are as if the acquisitions and related transactions had
been completed at the beginning of the fiscal period presented are not
indicative of what would have occurred had the acquisitions actually been made
as of such dates. Coast was acquired in December 1999, ORS was acquired in
September 1999, iGlobe was acquired effective August 1999, Connectsoft was
acquired in June 1999 and Telekey was acquired in February 1999; therefore, the
results of operations of Coast for December 1999, ORS for September through
December 1999, iGlobe for August through December 1999, Connectsoft for June
through December 1999 and Telekey for February through December 1999 are
included in the historical results of operations for the Company for the year
ended December 31, 1999.
<TABLE>
<S> <C>
(1) Adjustment to revenue:
Elimination of iGlobe billings to the Company ....................................... $ (214)
=======
(2) Adjustment to cost of revenue:
Elimination of iGlobe billings to the Company ....................................... $ (214)
=======
(3) Adjustment to selling, general and administrative expenses:
Adjustment for the incremental increase in Connectsoft management compensation ...... $ 72
Adjustment for various general and administrative services provided by Oasis to
ORS not reflected in statement of operations ...................................... 76
Adjustment for the incremental increase in Coast management compensation ............ 73
-------
$ 221
=======
(4) Adjustments to depreciation and amortization expenses:
One month of amortization of identifiable intangibles acquired in the Telekey
purchase (3-7 year straight-line amortization) .................................... $ 47
One month of amortization of costs in excess of net assets acquired in the Telekey
purchase (7 year straight-line amortization) ...................................... 25
Five months of amortization of identifiable intangibles acquired in the Connectsoft
purchase (3-5 year straight-line amortization) .................................... 779
Five months of amortization of costs in excess of net assets acquired in the
Connectsoft purchase (7 year straight-line amortization) .......................... 62
Seven months of amortization of identifiable intangibles acquired in the iGlobe
purchase (3 year straight-line amortization) ...................................... 893
Seven months of amortization of costs in excess of net assets acquired in the iGlobe
purchase (7 year straight-line amortization) ...................................... 147
Eight months of amortization of identifiable intangibles acquired in the ORS
purchase (3-5 year straight-line amortization) .................................... 339
Eight months of amortization of costs in excess of net assets acquired in the ORS
purchase (7 year straight-line amortization) ...................................... 35
Eleven months of amortization of identifiable intangibles acquired in the Coast
purchase (5 year straight-line amortization) ...................................... 585
Eleven months of amortization of costs in excess of net assets acquired in the Coast
purchase (7 year straight-line amortization) ...................................... 1,878
-------
$ 4,790
=======
</TABLE>
F-106
<PAGE>
<TABLE>
<S> <C>
EGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)(CONTINUED)
--------------------------------------------------------------------------------
(5) Adjustment to other income (expense):
Interest on $0.5 million note payable to seller of Connectsoft ........................ $ (30)
Interest on $0.451 million Oasis note ................................................. (22)
Adjustment to record 10% minority interest in LLC's loss owned by Oasis ............... 58
-------
$ 6
=======
(6) Adjustment to preferred stock dividends:
Eight months dividend on 5% Series K Preferred Stock (exchanged for 6% Series G
Preferred Stock issued in Connectsoft acquisition) .................................. $ 100
Nine months dividend on 20% Series M Preferred Stock .................................. 1,350
Nine months amortization of premium on Series M Preferred Stock ....................... (507)
Nine months amortization of discount on Series M Preferred Stock ...................... 1,085
Eleven months dividend on 10% Series O Preferred Stock ................................ 630
-------
$ 2,658
=======
(7) Adjustment to the basic weighted average number of shares outstanding of 20,611
shares (in thousands) as if the Coast acquisition had been completed at the
beginning of the period presented .................................................... 810
=======
(8) Convertible preferred stock was not included in diluted loss per share before
extraordinary item due to the Company recording a loss for the period presented.
The following table reflects the shares (in thousands) of common stock that would
have been issuable upon conversion as of December 31, 1999. Subsequent to
December 31, 1999, the Series F, H, K, I, M and O Preferred Stock converted into
common stock
Series F Preferred Stock .............................................................. 1,814
Series H Preferred Stock .............................................................. 3,263
Series I Preferred Stock, including payment of accrued dividends ...................... 1,293
Series K Preferred Stock .............................................................. 1,923
Series M Preferred Stock .............................................................. 3,774
Series O Preferred Stock .............................................................. 3,220
-------
15,287
=======
</TABLE>
F-107
<PAGE>
EGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)(CONTINUED)
--------------------------------------------------------------------------------
NOTE B. CONTINGENCIES
The following adjustments to the unaudited pro forma basic net loss per
share before extraordinary item for the year ended December 31, 1999 are to
reflect the following: (1) the issuance of additional shares of Series F
Preferred Stock and IDX warrants which would have occurred if Telekey and IDX,
respectively, had met their earn-out formulas at the beginning of the period
presented; (2) the additional shares of common stock to be issued to UCI
shareholders assuming UCI had met its earn-out provision; (3) the estimated
additional compensation expense related to the Telekey stockholders' grant of
shares under the original agreements; (4) the assumption that the Company's
common stock met the guaranteed trading price of $8.00 per share for UCI
related shares and (5) the assumption that ORS met its earn-out formulas and
Oasis exchanged its ownership in the LLC for the Company's common stock and
warrants at the beginning of the period presented. The increase in goodwill
amortization expense is the result of the additional goodwill recorded as a
result of the above issuances amortized over 7 years using straight-line
amortization. It is assumed that the warrants related to the IDX and ORS
earn-outs are exercised at the beginning of the period presented. In addition,
if the Company's common stock does not trade at the guaranteed trading prices
for UCI related shares, and subject to UCI meeting its earn-out objectives, the
Company will be required to issue additional shares of common stock and the
estimated goodwill amortization reflected below will change.
The final purchase price allocations will be determined when certain
contingencies are resolved as discussed earlier and additional information
becomes available. This is not indicative of what would have occurred had the
acquisitions actually been made as of such date.
The adjusted pro forma weighted average shares outstanding do not include
the 2,000,000 shares of common stock held in escrow to cover eGlobe's potential
indemnification obligations under the merger agreement with Trans Global.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31, 1999
--------------------
<S> <C>
PRO FORMA COMBINED BASIC AND DILUTED LOSS PER SHARE:
NUMERATOR
Pro forma net loss before extraordinary item attributable to common stockholders ........ $ (81,338)
Increase in goodwill amortization expense for earn-out formulas (7 year straight-line
amortization) ......................................................................... (3,292)
Estimated compensation adjustment related to stock granted to Telekey employees by
Telekey stockholders after the Company's purchase of Telekey .......................... (266)
Reversal of minority interest in loss of ORS due to Oasis's exchange of its interest in
the
LLC ................................................................................... (84)
---------
Adjusted pro forma net loss before extraordinary item attributable to common
stockholders ........................................................................ $ (84,980)
DENOMINATOR
Pro forma weighted average shares outstanding ........................................... 61,421
Number of shares of common stock issuable under earn-out formulas:
UCI (contingent earn-out stock) ....................................................... 63
IDX warrants .......................................................................... 1,088
Number of shares of common stock issuable to Oasis for its ownership in LLC
(assuming exercise of warrants) ...................................................... 4,000
---------
Adjusted pro forma basic weighted average shares outstanding ......................... 66,572
---------
PER SHARE AMOUNTS
Adjusted pro forma basic and diluted loan per share before extraordinary item ........... $ (1.28)
</TABLE>
The diluted loss per share before extraordinary item for the year ended
December 31, 1999 in the above table does not reflect the 15,287 shares (in
thousands) of common stock that would be issuable upon the conversion of the
preferred stock as discussed in Note A (8). As the Company reported a loss in
the period, the effects of these transactions are antidilutive.
Subsequent to December 31, 1999 the Telekey earn-out was renegotiated and
a portion of the ORS earn-out was determined. See Note 4 from our Unaudited
Interim Financial Statements.
F-108
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Connectsoft Communications Corporation
Bellevue, Washington
We have audited the accompanying combined statement of net liabilities of
Connectsoft Communications Corporation (the "Company") and the related combined
statement of revenues and expenses for the year ended July 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined net liabilities of Connectsoft
Communications Corporation as of July 31, 1998 and the results of their
operations for the year ended July 31, 1998, in conformity with generally
accepted accounting principles.
The accompanying combined financial statements have been prepared assuming that
Connectsoft Communications Corporation will continue as a going concern. As
discussed in Note 1 to the combined financial statements, Connectsoft
Communications Corporation has suffered from recurring net losses and negative
cash flow from operations that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The combined financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ BDO Seidman, LLP
Denver, Colorado
July 21, 1999
F-109
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
COMBINED STATEMENTS OF NET LIABILITIES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 31, MAY 31,
1998 1999
(UNAUDITED)
<S> <C> <C>
--------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS ...................................................................
Cash ............................................................................ $ 116,000 $ 35,000
Trade accounts receivable ....................................................... 28,000 --
Other assets .................................................................... 16,000 20,000
--------------------------------------------------------------------------------
TOTAL CURRENT ASSETS ............................................................. 160,000 55,000
PROPERTY AND EQUIPMENT, NET (NOTE 4) ............................................. 865,000 513,000
--------------------------------------------------------------------------------
TOTAL ASSETS ..................................................................... 1,025,000 568,000
--------------------------------------------------------------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable ................................................................ 312,000 292,000
Accrued liabilities ............................................................. 629,000 1,322,000
Advances from eGlobe (Note 3) ................................................... 550,000 1,867,000
Capital lease obligations (Note 5) .............................................. 2,808,000 2,943,000
--------------------------------------------------------------------------------
TOTAL LIABILITIES ................................................................ 4,299,000 6,424,000
--------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 3, 5, 6, 7 and 8)
NET LIABILITIES (NOTE 3) ......................................................... $ (3,274,000) $ (5,856,000)
--------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
F-110
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
COMBINED STATEMENTS OF REVENUES AND EXPENSES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1998
--------------------------------------------------------------------------------
<S> <C>
REVENUES ....................................................................... $ 373,000
COST OF REVENUES ............................................................... 287,000
--------------------------------------------------------------------------------
GROSS PROFIT ................................................................... 86,000
--------------------------------------------------------------------------------
OPERATING EXPENSES:
Research and development expenses ............................................. 2,771,000
Selling, general and administrative expenses .................................. 1,774,000
--------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES ....................................................... 4,545,000
--------------------------------------------------------------------------------
OPERATING LOSS ................................................................. (4,459,000)
Interest expense .............................................................. 464,000
--------------------------------------------------------------------------------
EXCESS OF EXPENSES OVER REVENUES ............................................... $ (4,923,000)
--------------------------------------------------------------------------------
<CAPTION>
TEN MONTHS ENDED MAY 31,
1999 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES ....................................................................... $ 176,000 $ 311,000
COST OF REVENUES ............................................................... 157,000 239,000
--------------------------------------------------------------------------------
GROSS PROFIT ................................................................... 19,000 72,000
--------------------------------------------------------------------------------
OPERATING EXPENSES:
Research and development expenses ............................................. 2,622,000 2,309,000
Selling, general and administrative expenses .................................. 1,189,000 1,478,000
--------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES ....................................................... 3,811,000 3,787,000
--------------------------------------------------------------------------------
OPERATING LOSS ................................................................. (3,792,000) (3,715,000)
Interest expense .............................................................. 387,000 387,000
--------------------------------------------------------------------------------
EXCESS OF EXPENSES OVER REVENUES ............................................... $ (4,179,000) $ (4,102,000)
--------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
F-111
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO MAY 31, 1999 AND 1998 IS UNAUDITED
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The accompanying statements of net liabilities and revenues and expenses
relate to the assets and operations of Connectsoft Communications Corporation
("CCC") and the network operations center of Connectsoft Holding Corp. ("NOC")
(collectively, "Connectsoft" or "the Company"). Both entities are wholly owned
subsidiaries of American United Global, Inc. ("AUGI"). The combined statements
of net liabilities include those assets to be acquired and liabilities to be
assumed under an Asset Purchase Agreement by eGlobe, Inc., formerly known as
Executive TeleCard, Ltd., ("eGlobe"), a public company with complimentary
technologies and customers, through its newly formed subsidiary, Vogo Networks,
LLC (see Note 3). The combined statements of net liabilities do not include
assets and liabilities of the business that are not intended to be transferred
to or assumed by eGlobe under the terms of the Asset Purchase Agreement.
Accordingly, the statement of cash flows is not included or applicable to the
business being sold.
Connectsoft has developed, and continues to enhance a server based
integrated communication system which it is marketing as Vogo. Vogo is a phone
portal that integrates messaging, internet applications, content and personal
services. The software is presently being marketed as a service in the United
States, with the introduction scheduled for August 1999. The NOC provides
internet connectivity and co-location services to corporate customers in the
northwestern United States.
During the periods reflected in the financial statements, the operations
of CCC were maintained as a separate entity. The operations of the NOC were
incorporated into the financial statements of AUGI and Connectsoft Holding
Corp. and include allocations of expenses which management believes represents
a reasonable allocation of such costs to present the net liabilities and
revenues and expenses of Connectsoft on a standalone basis. These allocations
consist of salary and benefit expenses for operations personnel related to the
NOC, depreciation expense, communications expenses and interest expense on
liabilities assumed in the purchase. All material intercompany accounts and
transactions have been eliminated.
The financial statements have been prepared to substantially comply with
the rules and regulations of the Securities and Exchange Commission for
businesses acquired. The financial information presented does not necessarily
reflect what the financial position and results of operations of Connectsoft
would have been had it operated as a standalone entity during the periods
presented and may not be indicative of future results.
Liquidity and Capital Resources
Per the requirements of the Securities and Exchange Commission for
businesses acquired, although Connectsoft has been funded to date by its former
parent company and by eGlobe, Connectsoft's combined financial statements are
presented on a standalone, going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. Connectsoft's ability to generate sufficient revenues and
ultimately achieve profitable operations as a standalone entity is uncertain,
since the financial statements assume no funding by the former parent company
or by eGlobe. Ultimately, Connectsoft's ability to continue as a going concern
is dependent upon its ability to demonstrate sustained commercial viability of
its service and to obtain sufficient working capital, both of which are
uncertain at this time.
During the twelve-month period ended July 31, 1998, Connectsoft incurred a
net loss of $4.9 million and had negative working capital of $4.1 million. At
July 31, 1998 and May 31, 1999, Connectsoft's total liabilities exceeded its
total assets by $3.3 million and $5.9 million. Connectsoft plans to operate in
a fashion to generate both increased revenues and cash flows through the
introduction of its phone portal technology scheduled for August 1999. However,
no assurance can be given that Connectsoft will, in fact, be able to improve
operating results.
F-112
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED )
As discussed in Notes 3 and 5, in connection with the purchase
transaction, eGlobe has advanced Connectsoft through May 31, 1999, $1,867,000,
and has successfully refinanced Connectsoft's equipment leases. Connectsoft's
management believes that eGlobe will provide Connectsoft with financial and
operational support which, together with existing cash and anticipated cash
flows from operations, should enable Connectsoft to continue operations.
However, the financial statements assume no additional funding by eGlobe. In
the absence of such financing, since Connectsoft does not have significant cash
resources, there is substantial doubt about Connectsoft's ability to continue
as a going concern on a standalone basis. The combined financial statements do
not include any adjustments to reflect the possible future effects on May 31,
1999 related to the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability
of Connectsoft to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. The Company assesses the
recoverability of its property and equipment at each fiscal year end to
determine if an asset impairment has occurred using a cash flow model. No
impairments have been recorded to date. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Furniture and fixtures ......... 5 years
Computer equipment ............. 3 years
</TABLE>
Software Development Costs
Software development costs incurred in connection with product development
are charged to research and development expense until technological feasibility
is established. Thereafter, through general release of the product, all
software development costs are capitalized and reported at the lower of
unamortized cost or net realizable value. The establishment of technological
feasibility and the ongoing assessment of the recoverability of costs require
considerable judgment by the Company with respect to certain external factors,
including, but not limited to, anticipated future gross product sales,
estimated economic life, and changes in software and hardware technology.
Through May 31, 1999 the Company has not developed software to be sold or
leased for which technological feasibility has been established and accordingly
all software costs have been expensed.
Income Taxes
The Company accounts for income taxes using an asset and liability
approach which requires the recognition of deferred tax assets and liabilities
for the expected future consequences of temporary differences between the
carrying amounts for financial reporting purposes and the tax bases of assets
and liabilities.
The Company has incurred net losses for financial reporting and tax
purposes since inception. As a result of the sale of assets of the Company, net
operating losses generated through June 17, 1999, the date of acquisition by
eGlobe will remain with AUGI.
Revenue Recognition
The Company recognizes revenue from the license of its proprietary
software in accordance with the provisions of Statement of Position ("SOP")
97-2 "Software Revenue Recognition." SOP 97-2 provides guidelines concerning
the recognition of revenue of software products. This statement requires, among
other things, the individual elements of a contract for the sale of software
products to be identified and accounted for separately.
F-113
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED )
Service revenues for the use of the Company's Vogo service and the NOC are
recognized when the service is provided.
Research and Development
Expenditures relating to the development of new products and processes,
including significant improvements and refinements of existing products, are
expensed as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the periods
presented. Actual results could differ from those estimates.
Interim Financial Information
The financial information as of May 31, 1999 and for the ten month periods
ended May 31, 1999 and 1998 is unaudited but includes all adjustments
(consisting only of normal recurring accruals) that management considers
necessary for a fair presentation of the financial position at such date and
the results of operations for those periods. Operating results for the ten
months ended May 31, 1999 and 1998 are not necessarily indicative of the
results that may be expected for the entire fiscal year.
3. ACQUISITION OF NET LIABILITIES
On June 17, 1999 (the "Closing Date"), eGlobe, Inc., through its new
subsidiary Vogo Networks, LLC ("Vogo"), acquired substantially all of the
assets of CCC and NOC. In the transaction, eGlobe acquired software and related
technology and intellectual property, as well as a talented and dedicated
development team and a half million dollars in cash. The purchase price
consisted of preferred stock of eGlobe and the assumption of debt by eGlobe and
Vogo totaling approximately $8 million: (1)Vogo has assumed approximately $5
million in liabilities of CCC and NOC, consisting primarily of refinanced
long-term lease obligations (Note 5) and non-interest bearing advances from
eGlobe totaling $550,000 and $1,867,000 at July 31, 1998 and May 31, 1999; (2)
eGlobe has issued to AUGI its 6% Series G Cumulative Convertible Redeemable
Preferred Stock (the "Series G Preferred Stock"), having a liquidation value of
$3 million (the "Liquidation Preference"); and (3) eGlobe has issued a note
(the "eGlobe Note") to AUGI in the amount of $500,000.
The Series G Preferred Stock shall be redeemed by eGlobe for cash in an
amount equal to the Liquidation Preference on the earlier to occur of five
years from the Closing Date or the first date that eGlobe receives in any
transaction or series of transactions any equity financing of at least $25
million. The Series G Preferred Stock is convertible from and after October 1,
1999 at the option of the holder, with a conversion price equal to 75% of the
market price of eGlobe stock at the time of conversion (but not less than $3.00
per share). The holders of the Series G Preferred Stock are entitled to receive
cumulative annual dividends of 6.0% of the Liquidation Preference payable, at
the option of eGlobe, in cash, in shares of eGlobe common stock, or a
combination of cash and eGlobe common stock.
The acquisition was effected under an Asset Purchase Agreement, dated as
of July 10, 1998, as amended, most recently by an amendment dated June 17, 1999
(the "Purchase Agreement") and related documents.
F-114
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED )
4. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
JULY 31, MAY 31,
1998 1999
------------ -------------
<S> <C> <C>
Furniture ........................... $ 112,000 $ 25,000
Computer equipment .................. 1,130,000 961,000
--------- ----------
1,242,000 986,000
Accumulated depreciation ............ (377,000) (473,000)
--------- ----------
Property and equipment, net ......... $865,000 $ 513,000
========= ==========
</TABLE>
Total depreciation expense was $377,000 for the year ended July 31, 1998,
and $310,000 and $314,000 for the ten months ended May 31, 1999 and 1998,
respectively. Substantially all of the fixed assets have been pledged as
collateral under capital lease obligations (Note 5).
5. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company has facilities in Bellevue and Seattle, Washington under
operating leases for office space. Future minimum lease payments under
non-cancellable leases as of the statement of net liabilities dates are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING
JULY 31,
---------------------
<S> <C>
1999 .............. $20,000 (two months)
2000 .............. 88,000
2001 .............. 4,000
</TABLE>
In addition to the above, the leases generally contain requirements for
the payment of property taxes, maintenance and insurance expenses. Total rent
expense was $209,000 for the year ended July 31, 1999, and $170,000 and
$174,000 for the 10 months ended May 31, 1999 and 1998, respectively.
In August 1998, the Company sublet a portion of its office space to an
unrelated third party on terms similar to its own lease. In February 1999 the
Company terminated its lease with its landlord and, in a concurrent
transaction, sublet a smaller space from the incoming tenant.
Capital Lease Obligations
The Company is committed under capital leases for furniture and computer
equipment. These leases are for 3 years, bear interest at the rates ranging
from 10.48% to 16.5%, are collateralized by furniture and computer equipment
and contain buyout clauses at the end of the lease term. Certain of these
leases are guaranteed by AUGI. Subsequent to year end, the Company defaulted on
these lease payments and thus has recorded the obligations as current. Future
minimum lease payments as of the statement of net liabilities date are as
follows:
<TABLE>
<CAPTION>
JULY 31, MAY 31,
1998 1999
------------- -------------
<S> <C> <C>
Total lease payments ......................... $3,329,000 $3,481,000
Less amount representing interest ............ 521,000 538,000
---------- ----------
Present value of future minimum lease payments $2,808,000 $2,943,000
========== ==========
</TABLE>
F-115
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED )
In July 1999, as a part of the purchase transaction, eGlobe successfully
refinanced leases. The total amount refinanced was $2,992,000. The new leases
are for a term of 36 months, bear interest at rates ranging from 10.24% to
11.40% and contain buyout options at the end of the lease terms. The revised
payment schedule as of July 31, 1999 is as follows:
<TABLE>
<S> <C>
1999 ................................................... $ 52,000 (one month)
2000 ................................................... 1,169,000
2001 ................................................... 1,169,000
2002 ................................................... 1,072,000
-------------
Total annual lease payments ............................ 3,462,000
Less amounts representing interest ..................... 470,000
-------------
Present value of future minimum lease payments ......... $ 2,992,000
=============
</TABLE>
Telecommunications Lines
In the normal course of business, the Company enters into agreements for
the use of telecommunications lines for network and internet connectivity for
its customers. Future minimum payments under such agreements are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
JULY 31,
---------------------
<S> <C>
1999 .............. $18,000 (two months)
2000 .............. 54,000
</TABLE>
Legal Proceedings
The Company is involved in certain legal proceedings that have arisen in
the normal course of business. Based on the advice of legal counsel, management
does not anticipate that these matters will have a material effect on the
Company's combined statements of net liabilities or statements of revenues and
expenses.
Employee Savings Plan
The Company has a voluntary savings plan pursuant to Section 401(k) of the
Internal Revenue Code, whereby eligible participants may contribute a
percentage of compensation subject to certain limitations. The Company has the
option to make discretionary qualified contributions to the plan, however, no
Company contributions were made for the year ended July 31, 1998 and the ten
months ended May 31, 1999 and 1998.
6. THIRD PARTY LICENSE AGREEMENTS
In July 1997 the Company entered into a software license agreement with
Data Connection Limited ("DCL") to incorporate DCL's proprietary technology
into the Vogo service. The obligations under this agreement, as amended, are
comprised of initial development and minimum royalty fees totaling $1,300,000.
The agreement calls for additional royalty payments of 5.0% of revenues as
defined in the agreement. The term of the agreement is perpetual, but may be
terminated by either party upon the other party's material breach, bankruptcy
or insolvency. Development and royalty Ffees incurred under this agreement
totaled $875,000 for the year ended July 31, 1998 and $606,000 and $275,000 for
the ten months ended May 31, 1999 and 1998, respectively. Such costs are
included in research and development expenses in the accompanying combined
statement of revenues and expenses.
F-116
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED )
7. JOINT MARKETING AND REVENUE SHARING AGREEMENT
On May 7, 1999, the Company entered into a non-exclusive Joint Marketing
and Revenue Sharing Agreement with a company that provides complimentary
services. The two companies will jointly market and share the subscription and
net usage revenues from a joint service offering. Costs incurred by each of the
respective companies are their own to bear. The agreement expires in two years
with a possible one-year extension.
8. YEAR 2000 ISSUE (UNAUDITED)
The Company could be adversely affected if its computer systems, the
software it has developed or the computer systems its suppliers or customers
use do not properly process and calculate date related information and data
from the period surrounding and including January 1, 2000. Additionally, this
issue could impact non-computer system devices. The Company believes that its
internal systems and its software are Year 2000 compliant. However, it cannot
provide assurances as to the readiness of its suppliers or customers computer
systems. At this time, because of the complexities involved in the issue,
management cannot provide assurances that the Year 2000 issue will not have an
impact on the Company's operations.
F-117
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Oasis Reservations Services, Inc.
We have audited the accompanying balance sheet of Oasis Reservations
Services, Inc. as of May 31, 1999, and the related statements of operations,
shareholder's equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Oasis Reservations
Services, Inc. as of May 31, 1999, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
Oasis Reservations Services, Inc. will continue as a going concern. Since the
Company does not have significant cash resources, there is substantial doubt
about the Company's ability to continue as a going concern. This matter is more
fully discussed in Note G. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Berkowitz Dick Pollack & Brant LLP
November 4, 1999
Miami, Florida
F-118
<PAGE>
OASIS RESERVATIONS SERVICES, INC.
A WHOLLY-OWNED SUBSIDIARY OF OUTSOURCED AUTOMATED SERVICES AND
INTEGRATED SOLUTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1999 1999
------------ --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash ............................................................ $ 2,610 $ 2,944
Accounts receivable -- trade .................................... 94,629 62,715
Prepaid expenses ................................................ 152,348 6,391
--------- -----------
TOTAL CURRENT ASSETS ............................................. 249,587 72,050
PROPERTY AND EQUIPMENT, net ...................................... 671,244 992,448
OTHER ASSETS ..................................................... -- 7,990
--------- -----------
TOTAL ASSETS ..................................................... $ 920,831 $ 1,072,488
========= ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable ................................................ $ 115,088 $ 243,670
Accrued expenses ................................................ 328,544 250,956
Deferred revenue ................................................ -- 216,218
Deposit ......................................................... 20,000 20,000
--------- -----------
TOTAL CURRENT LIABILITIES ........................................ 463,632 730,844
ALLOCATED DEFERRED INCOME TAXES .................................. 63,000 17,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY
Common Stock, $.01 par value; 1,000 shares authorized, issued and
outstanding ................................................... 10 10
Additional paid-in capital ...................................... 469,314 441,064
Accumulated deficit ............................................. (75,125) (116,430)
--------- -----------
TOTAL SHAREHOLDER'S EQUITY ...................................... 394,199 324,644
--------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY ....................... $ 920,831 $ 1,072,488
========= ===========
</TABLE>
See accompanying independent auditors' report and notes to financial
statements.
F-119
<PAGE>
OASIS RESERVATIONS SERVICES, INC.
A WHOLLY-OWNED SUBSIDIARY OF OUTSOURCED AUTOMATED SERVICES AND
INTEGRATED SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEAR
ENDED AUGUST 31, ENDED MAY 31,
--------------------------- --------------
1999 1998 1999
------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Net Revenues ......................................... $1,455,198 $ 905,572 $4,655,785
Revenues from affiliates ............................. 275,119 -- 541,444
---------- ---------- ----------
1,730,317 905,572 5,197,229
---------- ---------- ----------
Cost of revenues:
Employee leasing costs .............................. 1,310,203 893,252 4,302,196
Telephone expenses .................................. 124,316 44,592 333,132
---------- ---------- ----------
1,434,519 937,844 4,635,328
---------- ---------- ----------
GROSS PROFIT (LOSS) ............................... 295,798 (32,272) 561,901
Selling, general and administrative expenses ......... 209,154 235,144 929,946
---------- ---------- ----------
INCOME (LOSS) FROM
OPERATIONS ....................................... 86,644 (267,416) (368,045)
Other income (expense):
Interest income ..................................... 1,297 430 4,785
Interest expense .................................... (636) -- (8,478)
Other income ........................................ -- 181,308 181,308
---------- ---------- ----------
INCOME (LOSS) BEFORE PROVISION FOR ALLOCATED
INCOME TAXES ..................................... 87,305 (85,678) (190,430)
ALLOCATED INCOME
TAX (EXPENSE) BENEFIT ............................. (46,000) 35,000 74,000
---------- ---------- ----------
NET INCOME (LOSS) ................................. $ 41,305 $ (50,678) $ (116,430)
========== ========== ==========
</TABLE>
See accompanying independent auditors' report and notes to financial
statements.
F-120
<PAGE>
OASIS RESERVATIONS SERVICES, INC.
A WHOLLY-OWNED SUBSIDIARY OF OUTSOURCED AUTOMATED SERVICES AND
INTEGRATED SOLUTIONS, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Balances -
June 1, 1998 ............................... $-- $ -- $ -- $ --
Contribution of net assets .................. 2,723,618 2,723,618
Issuance of Common stock .................... 1,000 10 990 1,000
Contribution of capital ..................... 1,236,969 1,236,969
Return of capital -
Pan American Air Lines, Inc. ............... (2,161,589) (2,161,589)
Return of capital -
Foregone income ............................ (181,308) (181,308)
Return of capital -
World Technology Systems, Inc. ............. (700,794) (700,794)
Return of capital -
Sun Airways ................................ (79,755) (79,755)
Return of capital -
A Bargain Airfare .......................... (397,067) (397,067)
Net loss .................................... (116,430) (116,430)
---------- ------------
Balances at May 31, 1999 .................... 1,000 10 441,064 (116,430) 324,644
Return of capital -
A Bargain Airfare (unaudited) .............. (190,225) (190,225)
Contribution of capital (unaudited) ......... 553,835 553,835
Return of capital -
Ft. Lauderdale Call Center (unaudited) . (335,360) (335,360)
Net income (unaudited) ...................... 41,305 41,305
---------- ------------
Balances at August 31, 1999 (unaudited) ..... 1,000 $10 $ 469,314 $ (75,125) $ 394,199
===== === ============ ========== ============
</TABLE>
See accompanying independent auditors' report and notes to financial statements
F-121
<PAGE>
OASIS RESERVATIONS SERVICES, INC.
A WHOLLY-OWNED SUBSIDIARY OF OUTSOURCED AUTOMATED SERVICES AND
INTEGRATED SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED AUGUST 31, FOR THE YEAR
------------------------------ ENDED
1999 1998 MAY 31, 1999
------------- -------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ..................................... $ 41,305 $ (50,678) $ (116,430)
---------- ---------- ------------
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation ....................................... 79,676 67,446 313,314
Allocated deferred tax expense (benefit) ........... 46,000 (35,000) (74,000)
Changes in assets and liabilities:
Increase in accounts receivable ................. (222,139) (301,085) (1,398,504)
Increase in prepaid expenses .................... (145,957) (24,325) (4,597)
Decrease(increase) in other assets .............. 7,990 (6,290) (7,990)
(Decrease) increase in accounts payable ......... (128,582) (63,640) 142,633
(Decrease) increase in accrued expenses ......... 77,588 (22,134) 97,044
Increase (decrease) in deferred revenue ......... (216,218) (27,992) 160,668
Increase in deposit ............................. -- -- 20,000
---------- ---------- ------------
Total adjustments ............................ (501,642) (413,020) (751,432)
---------- ---------- ------------
NET CASH USED IN OPERATING
ACTIVITIES .................................... (460,337) (463,698) (867,862)
---------- ---------- ------------
Cash flows from investing activities:
Purchases of equipment ................................ (33,749) (75,317) (367,163)
---------- ---------- ------------
NET CASH USED IN INVESTING
ACTIVITIES .................................... (33,749) (75,317) (367,163)
---------- ---------- ------------
Cash flows from financing activities:
Contribution of capital ............................... 493,752 554,926 1,236,969
Issuance of common stock .............................. -- 1,000 1,000
---------- ---------- ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES .......................... 493,752 555,926 1,237,969
---------- ---------- ------------
(Decrease) increase in cash ..................... (334) 16,911 2,944
Cash: beginning of period ....................... 2,944 -- --
---------- ---------- ------------
Cash: end of period ............................. $ 2,610 $ 16,911 $ 2,944
========== ========== ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest ............................................ $ 636 $ -- $ 8,478
========== ========== ============
Income taxes ........................................ $ -- $ -- $ --
========== ========== ============
</TABLE>
F-122
<PAGE>
OASIS RESERVATIONS SERVICES, INC.
A WHOLLY-OWNED SUBSIDIARY OF OUTSOURCED AUTOMATED SERVICES AND
INTEGRATED SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS - (CONTINUED )
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Effective June 1, 1998, Outsourced Automated Services and Integrated
Solutions, Inc. contributed net assets of $2,723,618 to the Company as
described below:
<TABLE>
<S> <C>
Accounts receivable -- trade ............ $ 2,184,724
Property and equipment .................. 938,599
Other assets ............................ 1,794
-----------
Total assets contributed ....................... 3,125,117
-----------
Accounts payable ........................ 101,037
Accrued expenses ........................ 153,912
Deferred income ......................... 55,550
Allocated deferred income taxes ......... 91,000
-----------
Total liabilities assumed ............... 401,499
-----------
Net assets contributed .................. $ 2,723,618
===========
</TABLE>
For the year ended May 31, 1999, the Company distributed receivables with
a carrying value of approximately $3,520,513 to Outsourced Automated Services
and Integrated Solutions, Inc. in the form of capital distributions.
See accompanying independent auditors' report and notes to financial
statements.
F-123
<PAGE>
OASIS RESERVATIONS SERVICES, INC.
A WHOLLY-OWNED SUBSIDIARY OF OUTSOURCED AUTOMATED SERVICES AND
INTEGRATED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1999 AND FOR THE THREE MONTHS ENDED
AUGUST 31, 1999 AND 1998 IS UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUTING POLICIES
The Company: Oasis Reservations Services, Inc. (the "Company") operates
two telephone call centers that provide reservations and information services
to customers of several commercial air lines and travel distributors.
The Company is a wholly-owned subsidiary of Outsourced Automated Services
and Integrated Solutions, Inc. ("Oasis"), which is a wholly-owned subsidiary of
Eastern Automated Services Corporation (EASC), which is a wholly-owned
subsidiary of Eastern Air Lines, Inc., ("EAL") (Note H). EAL operated as a
debtor-in-possession under Chapter 11 of the Bankruptcy Code from March 9, 1989
until April 18, 1990, at which date the Bankruptcy Court appointed a Trustee to
replace the debtor-in-possession. On January 19, 1991, EAL ceased operations
and commenced an orderly liquidation of its assets under Chapter 11 of the
Bankruptcy Code.
On September 23, 1994, EAL and Ionosphere Clubs, Inc., a wholly-owned
subsidiary of EAL, filed a joint Chapter 11 Plan of Reorganization (the "Plan")
and a Disclosure Statement with the Bankruptcy Court. On October 25, 1994, the
Bankruptcy Court approved the Disclosure Statement. On December 22, 1994, the
proposed Plan was confirmed, and on February 6, 1995, the Plan became
effective. On the effective date a reorganized corporation, "Eastern", was
established by restating and amending the by-laws and Certificate of
Incorporation of Eastern Air Lines, Inc., a Delaware corporation.
The Company was incorporated in June of 1998 in the State of Delaware. In
June 1998, Oasis contributed certain assets and liabilities to the capital of
the Company and transferred all reservation services contracts, collection
rights and obligations previously entered into by Oasis to the Company.
Unaudited Interim Financial Information: The interim financial information
at August 31, 1999 and for the three months ended August 31, 1999 and 1998 is
unaudited but includes all adjustments (consisting of normal recurring
accruals) which, in the opinion of management, are necessary for a fair
presentation of the financial position, results of operations and cash flows
for the interim periods. Results for the interim period ended August 31, 1999
are not necessarily indicative of results for the entire year.
Property and Equipment: Property and equipment, including improvements,
are recorded at cost. The cost of maintenance and repairs is charged against
results of operations as incurred.
Depreciation and amortization is charged against results of operations
over the following estimated service lives: Computer equipment, furniture, and
telecommunication equipment, five years; improvements to leased property are
amortized over the life of the lease or the life of the improvement, whichever
is shorter. For financial reporting purposes, the Company principally uses the
straight-line method of depreciation. Depreciation and amortization expense
totaled approximately $80,000 and $67,500 for the three months ended August 31,
1999 and 1998, respectively, and $313,300 for the year ended May 31, 1999.
Comprehensive Income: The Company has no components of other comprehensive
income. Accordingly, net income equals comprehensive income for all periods
presented.
Allocated Income Taxes: The Company files a consolidated income tax return
with its ultimate Parent EAL. Income taxes are provided for as if the Company
were a separate taxpayer.
F-124
<PAGE>
OASIS RESERVATIONS SERVICES, INC.
A WHOLLY-OWNED SUBSIDIARY OF OUTSOURCED AUTOMATED SERVICES AND
INTEGRATED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
Allocated deferred income taxes are recorded based on the future tax
effects of the difference between the tax and financial reporting bases of the
Company's assets and liabilities. In estimating future tax consequences,
expected future events are considered except for potential income tax law or
rate changes.
Deferred Revenue: In accordance with certain reservation service
contracts, customers are required to pay the Company for reservation services
in advance based on forecasted amounts. These advance payments are recorded by
the Company as deferred revenue, which is subsequently recognized as revenue
when the related services are performed.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
Cash and Cash Equivalents: For purposes of the cash flow statement, cash
equivalents includes time deposits, certificates of deposit and all highly
liquid debt investments with original maturities of three months or less.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1999 1999
------------ -------------
<S> <C> <C>
Computer and telecommunications equipment ......... $ 764,136 $1,035,850
Furniture and equipment ........................... 116,822 137,452
Leasehold improvements ............................ 90,804 96,500
Other ............................................. 35,960 35,960
--------- ----------
1,007,722 1,305,762
Less: accumulated depreciation and amortization (336,478) (313,314)
--------- ----------
$671,244 $ 992,448
========= ==========
</TABLE>
NOTE C -- MAJOR CUSTOMERS
For the three months ended August 31, 1999 and 1998, the Company had three
and four customers which accounted for 79% and 91% of the Company's total
revenue for the respective periods then ended. For the three months ended
August 31, 1999, revenues from affiliated companies totaled approximately 16%
of the Company's total revenues.
For the year ended May 31, 1999, the Company had four customers which
accounted for 81% of the Company's total revenue. Revenue from affiliated
companies totaled approximately 10% of the Company's total revenue.
NOTE D -- COMMITMENTS AND CONTINGENCIES
Leases: The Company occupied office space related to a call center which
was provided by EAL on a rent-free basis. The Company vacated this office space
as of August 1, 1999. The Company entered into a lease for similar space that
commenced August 1, 1999 and expires on July 31, 2004. The lease provides for
monthly lease payments of approximately $17,000 in the initial year, which
escalate to approximately $22,500 per month in the final year.
F-125
<PAGE>
OASIS RESERVATIONS SERVICES, INC.
A WHOLLY-OWNED SUBSIDIARY OF OUTSOURCED AUTOMATED SERVICES AND
INTEGRATED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
As of August 31, 1999, the Company has prepaid rent in the amount of
approximately $111,000.
In June 1998, the Company assumed a former customer's rights and interest
in two lease agreements related to a call center location in Dania, Florida
(the "Fort Lauderdale call center"). These leases expire on September 30, 2000
and May 31, 2001 and require monthly payments amounting to $1,500 and $9,500,
respectively. The leases provide for, among other things, annual cost of living
increases amounting to 4% of the annual Base Rental, as defined, commencing
with the second year of the lease agreements (Note H).
In addition, the Company has various operating lease agreements primarily
involving office copiers. These leases are non-cancelable and expire at various
dates through 2003.
Rent expense under all operating leases charged to operations totaled
$28,595 and $34,813 for the three months ended August 31, 1999 and 1998,
respectively, and $139,993 for the year ended May 31, 1999.
Minimum lease commitments under all non-cancelable operating leases for
each of the twelve month periods subsequent to May 31, 1999 and thereafter are
as follows:
<TABLE>
<S> <C>
2000 ........................ $ 152,033
2001 ........................ 220,225
2002 ........................ 237,069
2003 ........................ 251,545
2004 ........................ 266,697
Thereafter .................. 44,917
----------
$1,172,486
==========
</TABLE>
The Company leases its employees from a professional employment
organization, which also performs the Company's human resource and payroll
functions. Total employment lease expense incurred by the Company related to
this contract amounted to approximately $1,310,200 and $893,300 for the three
month period ended August 31, 1999 and 1998, respectively, and $4,302,000 for
the year ended May 31, 1999.
Reservation Services Contracts: The Company has entered into reservation
services contracts with its customers which provide for, among other things,
assigning agents to handle reservation call volume. These contracts have
initial terms ranging from three months to one year. Either party can terminate
the contracts after the initial term, subject to certain conditions contained
in the contracts.
Cash Concentration: The Company maintains its cash balances at a bank
located in Florida. Each bank account balance is insured by the Federal Deposit
Insurance Corporation up to $100,000. The Company has not experienced any
losses in such accounts. The Company believes it is not exposed to any
significant credit risks on cash and cash equivalents.
NOTE E -- RELATED PARTY TRANSACTIONS
Included in net assets contributed to the capital of the Company at June
1, 1998, was a receivable relating to reservations operations from a former
customer of Oasis that had ceased operations and declared bankruptcy. The
collection of this receivable balance, amounting to approximately $2,162,000,
was guaranteed by EAL as part of a Guaranty Agreement entered into by Oasis and
EAL. In July 1998, the Company demanded payment of the receivable balance from
EAL. EAL satisfied its obligations to the Company under the Guaranty Agreement
by requiring Oasis to effect a capital distribution of the receivable balance
from the Company to Oasis.
F-126
<PAGE>
OASIS RESERVATIONS SERVICES, INC.
A WHOLLY-OWNED SUBSIDIARY OF OUTSOURCED AUTOMATED SERVICES AND
INTEGRATED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
In August 1998, EAL owed the Company approximately $181,000 pursuant to
the Company's rights under an agreement between Oasis and EAL whereby EAL had
guaranteed any and all income foregone by Oasis as a result of Oasis agreeing
to provide reservations services to a certain customer. This amount is included
in other income in the accompanying statement of operations for the year ended
May 31, 1999 and the three months ended August 31, 1998. EAL satisfied its
obligations to the Company relating to this receivable by requiring Oasis to
effect a capital distribution of this receivable balance from the Company to
Oasis.
During the year ended May 31, 1999, the Company provided reservations
services pursuant to reservations contracts with certain customers amounting to
approximately $700,000, $79,755 and $397,067 for which no payments have been
received by the Company. The payment for services provided under these
reservations contracts was guaranteed by EAL. During the year ended May 31,
1999, the Company demanded payment on these receivable balances from EAL. EAL
satisfied its obligations to the Company by requiring Oasis to effect capital
distributions of these receivable balances from the Company to Oasis.
The Company provides reservation call services for A Bargain Airfare, a
wholly-owned subsidiary of EAL. Revenues from this affiliate for the three
months ended August 31, 1999 and for the year ended May 31, 1999 totaled
$275,119 and $541,444, respectively.
Oasis provides certain management and accounting services to the Company.
For the three months ended August 31, 1999 and 1998, management and accounting
services fees charged to the Company amounted to approximately $25,000 and
$44,000, respectively, For the year ended May 31, 1999, these charges amounted
to approximately $158,000.
For the period from June 1, 1998 (Inception) to May 31, 1999, EAL provided
the Company with certain executive office space with an estimated fair value
amounting to approximately $214,000. No liability or expense related to this
executive office space has been recorded in the accompanying financial
statements.
For the year ended May 31, 1999, EAL and/or Oasis paid for all insurance
coverage maintained by the Company. The total cost of this insurance coverage
was approximately $82,000. No liability or expense relating to this insurance
coverage has been recorded in the accompanying financial statements.
NOTE F -- ALLOCATED INCOME TAXES
The components of allocated income tax (expense) benefit are as follows:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED AUGUST 31, MAY 31,
------------------------ -----------
1999 1998 1999
------------ --------- -----------
<S> <C> <C> <C>
Current:
Federal ............... $ -- $ -- $ --
State ................. -- -- --
--------- ------- -------
-- -- --
--------- ------- -------
Deferred:
Federal ............... (39,000) 30,000 63,000
State ................. (7,000) 5,000 11,000
--------- ------- -------
(46,000) 35,000 74,000
--------- ------- -------
Total ................. $ (46,000) $35,000 $74,000
========= ======= =======
</TABLE>
F-127
<PAGE>
OASIS RESERVATIONS SERVICES, INC.
A WHOLLY-OWNED SUBSIDIARY OF OUTSOURCED AUTOMATED SERVICES AND
INTEGRATED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1999 1999
------------ -------------
<S> <C> <C>
Net operating loss carryforward ......... $ 33,000 $ 87,000
--------- ----------
Deferred tax assets ..................... 33,000 87,000
--------- ----------
Depreciation ............................ (96,000) (104,000)
--------- ----------
Deferred tax liabilities ................ (96,000) (104,000)
--------- ----------
Net deferred tax liabilities ............ $ (63,000) $ (17,000)
========= ==========
</TABLE>
The provision for income taxes differs from the amount computed by
applying the Federal Statutory rate as follows:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED AUGUST 31, MAY 31,
-------------------------- -------------
1999 1998 1999
---------- ------------- -------------
<S> <C> <C> <C>
U.S. Federal Statutory rate applied to
pretax loss ......................... $30,000 $ (30,000) $ (65,000)
State taxes .......................... 5,000 (5,000) (11,000)
Depreciation ......................... 11,000 -- 2,000
------- --------- ---------
$46,000 $ (35,000) $ (74,000)
======= ========= =========
</TABLE>
As of May 31, 1999, the Company has a net operating loss carryforward for
income tax purposes of approximately $87,000 which expires in 2019.
NOTE G -- CAPITAL RESOURCES
Per the requirements of the Securities and Exchange Commission for
businesses acquired, although the Company has been funded to date by EAL, the
Company's financial statements are presented on a standalone, going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company's ability to generate
sufficient revenues and ultimately achieve profitable operations as a
standalone entity is uncertain, since the financial statements assume no
funding by EAL or by eGlobe (Note H). Ultimately, the Company's ability to
continue as a going concern is dependent upon its ability to demonstrate
sustained commercial viability of its service and to obtain sufficient working
capital, both of which are uncertain at this time.
The Company's management believes that eGlobe will provide the Company
with financial and operational support which, together with existing cash and
anticipated cash flows from operations, should enable the Company to continue
operations. However, the financial statements assume no additional funding by
eGlobe. In the absence of such financing, since the Company does not have
significant cash resources, there is substantial doubt about the Company's
ability to continue as a going concern on a standalone basis. The financial
statements do not include any adjustments to reflect the possible future
effects related to the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
F-128
<PAGE>
OASIS RESERVATIONS SERVICES, INC.
A WHOLLY-OWNED SUBSIDIARY OF OUTSOURCED AUTOMATED SERVICES AND
INTEGRATED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
NOTE H -- SUBSEQUENT EVENTS
On September 15, 1999, eGlobe, a publicly-traded telecommunications and
related services corporation ("eGlobe") acting through a newly formed
subsidiary, acquired control of the Company from Oasis. eGlobe and Oasis formed
eGlobe/Oasis Reservations LLC, a limited liability company ("LLC"), which is
responsible for conducting the business operations of the Company. eGlobe
manages and controls the LLC. The LLC was funded by contributions effected by
the members under a Contribution Agreement ("Contribution Agreement"). Oasis
contributed all the shares of the Company's stock as its contribution to the
LLC. eGlobe contributed 1.5 million shares of its common stock and warrants to
purchase additional shares of its common stock to the LLC.
According to the Operating Agreement, the net profits and net losses of
the LLC will be allocated 90% to eGlobe and 10% to Oasis. Proceeds from the
sales of the Company's stock or its assets will be allocated 100% to Oasis
until Oasis has received distributions of at least $9 million and then 90% to
Oasis and 10% to eGlobe. Pursuant to the LLC's Operating Agreement, the LLC is
an interim step to full ownership of the Company by eGlobe. Once eGlobe has
either raised $10 million in new capital or generated three consecutive months
of positive cash flow and registered the shares issued in this transaction, the
LLC will be dissolved and the Company will become a wholly-owned subsidiary of
eGlobe. Under these circumstances, Oasis would receive the shares of common
stock and warrants contributed to the LLC by eGlobe. Additionally, even if
these conditions are not fulfilled, Oasis has the right to redeem its interest
in the LLC at any time in exchange for the shares of common stock and the
warrants issued to the LLC by eGlobe.
In connection with the purchase and installation of equipment and
leasehold improvements at the Company's new facility in Miami, Florida, on
September 15, 1999, Oasis agreed to loan the Company $451,400. Interest will
accrue on the unpaid principal balance at the rate of 7% per annum. The loan is
required to be repaid in six equal quarterly principal installments of $75,233
beginning November 30, 1999 with a maturity date of January 31, 2001. eGlobe
has guaranteed the Company's obligations under this loan and granted Oasis a
security interest in eGlobe's ownership interest in the LLC. As of November 4,
1999, the outstanding principal and accrued interest totaled approximately
$451,400 and $4,000, respectively.
On July 15, 1999, the Company made a capital distribution having an
approximate net book value of $335,000, to Oasis consisting of all assets,
liquidations, rights and obligations of its Fort Lauderdale call center.
F-129
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Highpoint International Telecom, Inc. and affiliates
Mountain View, California
We have audited the accompanying combined balance sheet of Highpoint
International Telecom, Inc. and affiliates and the related combined statements
of operations, stockholder's and affiliates' equity and cash flows for the nine
months ended July 31, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined balance sheet of
Highpoint International Telecom, Inc. and affiliates as of July 31, 1999 and
the results of their operations and their cash flows for the nine months ended
July 31, 1999, in conformity with generally accepted accounting principles.
The accompanying combined financial statements have been prepared assuming
that Highpoint International Telecom, Inc. and affiliates will continue as a
going concern. As discussed in Note 1 to the combined financial statements,
Highpoint International Telecom, Inc. and affiliates have suffered from
recurring net losses and negative cash flow from operations which raise
substantial doubt about their ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
combined financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ BDO Seidman, LLP
Denver, Colorado
December 16, 1999
F-130
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
COMBINED BALANCE SHEET
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 31,
1999
<S> <C>
--------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash ............................................................................ $ 900,000
Trade accounts receivable, net of allowance for doubtful accounts of $599,000.... 822,000
--------------------------------------------------------------------------------
TOTAL CURRENT ASSETS ............................................................. 1,722,000
--------------------------------------------------------------------------------
LONG-TERM ASSETS
PROPERTY AND EQUIPMENT, net ...................................................... 5,482,000
DEPOSITS ......................................................................... 900,000
GOODWILL, NET OF ACCUMULATED AMORTIZATION OF $35,000.............................. 114,000
--------------------------------------------------------------------------------
TOTAL LONG TERM ASSETS ........................................................... 6,496,000
--------------------------------------------------------------------------------
$ 8,218,000
--------------------------------------------------------------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable ................................................................ $ 1,640,000
Accrued liabilities ............................................................. 614,000
Athena purchase obligation ...................................................... 799,000
Current maturities of capital lease obligations ................................. 715,000
--------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES ........................................................ 3,768,000
LONG TERM LIABILITIES
CAPITAL LEASE OBLIGATIONS ........................................................ 1,071,000
--------------------------------------------------------------------------------
TOTAL LIABILITIES ................................................................ 4,839,000
--------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
--------------------------------------------------------------------------------
STOCKHOLDERS' AND AFFILIATES' EQUITY
Common stock, no par value, 100,000 shares authorized, 1,000 shares issued and
outstanding ................................................................... 10,000
Accumulated deficit and net equity of affiliates ................................ 3,369,000
--------------------------------------------------------------------------------
TOTAL EQUITY ..................................................................... 3,379,000
--------------------------------------------------------------------------------
$ 8,218,000
--------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements
F-131
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
COMBINED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
JULY 31,
1999
<S> <C>
--------------------------------------------------------------------------------
REVENUES ......................................................................... $ 5,823,000
COST OF REVENUES ................................................................. 5,768,000
--------------------------------------------------------------------------------
GROSS PROFIT ..................................................................... 55,000
OPERATING EXPENSES
Selling, general and administrative expenses .................................... 4,924,000
Depreciation and amortization ................................................... 1,877,000
--------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES ......................................................... 6,801,000
--------------------------------------------------------------------------------
OPERATING LOSS ................................................................... (6,746,000)
Interest expense ................................................................ (251,000)
--------------------------------------------------------------------------------
NET LOSS ......................................................................... $ (6,997,000)
--------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements
F-132
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
COMBINED STATEMENT OF STOCKHOLDER'S AND AFFILIATES' EQUITY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------
NUMBER OF
SHARES AMOUNT
<S> <C> <C>
--------------------------------------------------------------------------------
BALANCE AT NOVEMBER 1, 1998 ...................................................... 1,000 $ 10,000
--------------------------------------------------------------------------------
Contributions from parent ....................................................... -- --
Net loss for the period ......................................................... -- --
--------------------------------------------------------------------------------
BALANCE AT JULY 31, 1999 ......................................................... 1,000 $ 10,000
--------------------------------------------------------------------------------
<CAPTION>
CONTRIBUTIONS
ACCUMULATED AND NET EQUITY
DEFICIT OF AFFILIATES
<S> <C> <C>
--------------------------------------------------------------------------------
BALANCE AT NOVEMBER 1, 1998 ...................................................... $ -- $ 3,473,000
--------------------------------------------------------------------------------
Contributions from parent ....................................................... -- 6,893,000
Net loss for the period ......................................................... (5,462,000) (1,535,000)
--------------------------------------------------------------------------------
BALANCE AT JULY 31, 1999 ......................................................... $ (5,462,000) $ 8,831,000
--------------------------------------------------------------------------------
<CAPTION>
TOTAL
<S> <C>
--------------------------------------------------------------------------------
BALANCE AT NOVEMBER 1, 1998 ...................................................... $ 3,483,000
--------------------------------------------------------------------------------
Contributions from parent ....................................................... 6,893,000
Net loss for the period ......................................................... (6,997,000)
--------------------------------------------------------------------------------
BALANCE AT JULY 31, 1999 ......................................................... $ 3,379,000
--------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements
F-133
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
JULY 31,
1999
<S> <C>
--------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net loss ........................................................................ $ (6,997,000)
Adjustments to reconcile net loss to net cash used by operating activities:
Bad debt expense .............................................................. 277,000
Depreciation and amortization ................................................. 1,877,000
Changes in operating assets and liabilities:
Accounts receivable ........................................................... (951,000)
Accounts payable .............................................................. 1,383,000
Accrued liabilities ........................................................... 423,000
--------------------------------------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES ............................................ (3,988,000)
--------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of property and equipment .............................................. (1,411,000)
Deposits ........................................................................ (35,000)
--------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES ............................................ (1,446,000)
--------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Payments on capital lease obligations ........................................... (559,000)
Contributions from parent ....................................................... 6,893,000
--------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........................................ 6,334,000
--------------------------------------------------------------------------------
Net increase in cash ............................................................. 900,000
Cash, beginning of period ........................................................ --
--------------------------------------------------------------------------------
CASH, END OF PERIOD .............................................................. $ 900,000
--------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ........................................................... $ 251,000
--------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements
F-134
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The accompanying financial statements include the assets and operations of
Highpoint International Telecom, Inc. ("HIT") and certain assets and operations
of Highpoint Carrier Services, Inc. ("HCS") and Vitacom Corporation ("VIT")
(collectively, the "Company" or "Highpoint"). The three entities are majority
owned subsidiaries of Highpoint Telecommunications, Inc. ("HGP"), a publicly
traded company on the Canadian Venture Exchange. On October 14, 1999
substantially all of the operating assets of the Company were transferred to
iGlobe, Inc. ("iGlobe"), a newly formed subsidiary of HGP. Effective August 1,
1999, eGlobe, Inc. ("eGlobe") assumed operational control of the Company and on
October 14, 1999 eGlobe acquired all of the issued and outstanding common stock
of iGlobe. The Company has created an infrastructure supplying Internet
Protocol ("IP") services, particularly Voice over IP ("VoIP") throughout Latin
America.
During the nine months ended July 31, 1999 the operations of HIT were
maintained as a separate entity. The operations of HCS and VIT purchased by
eGlobe were divisions within their respective corporations and include
allocations of expenses which management believes represent a reasonable
allocation of such expenses to present the divisions on a standalone basis.
These allocations consist of salary and benefit expenses for operations
personnel related to the Space Segment Satellite operations of VIT and the
telecommunications business of HCS, depreciation expense, communications
expenses and interest expense. The financial information presented does not
necessarily reflect what the financial position and results of operations of
the Company would have been had it operated as a standalone entity during the
period presented and may not be indicative of future results. The financial
statements have been prepared to substantially comply with the rules and
regulations of the Securities and Exchange Commission for businesses acquired.
The combined financial statements include the accounts of HIT, HCS and VIT
as described above. All material inter-company accounts and transactions have
been eliminated.
Liquidity and Capital Resources
Highpoint has been funded to date by HGP. The combined financial
statements are presented as a standalone, going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. Highpoint's ability to generate sufficient
revenues and ultimately achieve profitable operations as a standalone entity is
uncertain. Ultimately, Highpoint's ability to continue as a going concern is
dependent on its ability to generate sufficient, profitable traffic on its
network infrastructure and to obtain sufficient working capital, both of which
are uncertain at this time. As such, there is substantial doubt about
Highpoint's ability to continue as a going concern. The combined financial
statements do not include any adjustments to reflect the possible future
effects on July 31, 1999 related to the recoverability and classification of
assets or the amounts and classification of liabilities that may result from
the possible inability of Highpoint to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period
presented. Actual results could differ from those estimates.
Goodwill
Goodwill is being amortized over a three year period using the straight
line method. Total amortization expense for the nine months ended July 31, 1999
was $35,000.
F-135
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED )
Property and Equipment
Property and equipment is recorded at cost. The Company assesses the
recoverability of its property and equipment to determine if an asset
impairment has occurred using a cash flow model. No impairments have been
recorded to date. Depreciation is computed over the estimated useful lives of
three to five years using the straight-line method.
Deposits
The Company provides long-term cash deposits to certain vendors to secure
contracts for telecommunications services.
Income Taxes
The Company accounts for income taxes using an asset and liability
approach which requires the recognition of deferred tax assets and liabilities
for the expected future consequences of temporary differences between the
carrying amounts for financial reporting purposes and the tax bases of assets
and liabilities.
The Company has incurred net losses for financial reporting and tax
purposes since inception. As a result of the transfer of the assets of the
Company to iGlobe, net operating losses generated through August 1, 1999, the
effective date that control of the Company was transferred to eGlobe, will
remain with HGP.
Revenue Recognition
Revenues from telecommunications services are recognized when the service
is provided.
3. ACQUISITION OF STOCK OF IGLOBE
As discussed in Note 1 to the combined financial statement, on October 14,
1999 eGlobe acquired all of the outstanding common stock of iGlobe. The
purchase price consisted of preferred stock of eGlobe with a liquidation value
of $9.0 million and assumed liabilities, primarily capital lease obligations of
$1.5 million.
The Series M Preferred Stock carries an annual cumulative dividend of
twenty percent, which will accrue and be paid annually or at conversion in cash
or eGlobe common stock, at the option of eGlobe, and is convertible into common
stock of eGlobe one year after the date of closing of October 14, 1999 at the
conversion price of $2.385 or 3,772,003 shares of eGlobe common stock.
Additionally, HGP received a non-voting beneficial interest in a joint
venture business currently known as IP Solutions, B.V. (The "Carried
Interest"). The Carried Interest will be equal to twenty percent of the equity
interest subscribed to or held by iGlobe in IP Solutions B.V. at October 14,
1999, subject to certain adjustments.
The purchase price, with the exception of the Carried Interest was paid in
full at closing, however, the number of shares of Series M Preferred Stock
equal to twenty five percent of the total value of the Preferred Stock will
serve as collateral for a period of one year following the closing for the
payment of any indemnifiable claim identified in the Stock Purchase Agreement.
The acquisition was effected under a Stock Purchase Agreement, dated as of
October 14, 1999 (the "Purchase Agreement") and related documents.
F-136
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED )
4. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
JULY 31,
1999
---------------
<S> <C>
Transmission equipment .............. $ 6,617,000
Billing System ...................... 2,049,000
Leasehold Improvements .............. 415,000
------------
9,081,000
Accumulated depreciation ............ (3,599,000)
------------
Property and equipment, net ......... $ 5,482,000
============
</TABLE>
Total depreciation expense was $1,842,000 for the nine months ended July
31, 1999. Transmission equipment with a cost of approximately $1,997,000 and
related accumulated amortization of $632,000 has been pledged as collateral
under capital lease obligations (Note 5).
5. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its facilities in Mountain View and Los Angeles,
California and Denver, Colorado under the terms of operating leases. Future
minimum lease payments under non-cancelable leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
JULY 31,
------------------------------
<S> <C>
2000 ....................... $ 811,000
2001 ....................... 720,000
2002 ....................... 89,000
2003 ....................... 80,000
2004 ....................... 81,000
Thereafter ................. 377,000
----------
Total ...................... $2,158,000
==========
</TABLE>
In addition to the above, the leases generally contain requirements for
the payment of property taxes, maintenance and insurance expenses. Total rent
expense was $158,000, net of sublease payments for the nine months ended July
31, 1999.
The Company subleases certain office space at its Mountain View,
California location under non-cancelable subleases. Future sublease payments
due to the Company under said subleases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
JULY 31,
-----------------
<S> <C>
2000 .......... $524,000
2001 .......... 433,000
--------
Total ......... $957,000
========
</TABLE>
F-137
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED )
Capital Lease Obligations
The Company is committed under capital leases for certain transmission
equipment. These leases are for terms ranging from 1.5 to 3 years, bear
interest at the rate of 14% and are collateralized by the underlying equipment
as defined in the lease. Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
JULY 31,
----------------------------------------------------------
<S> <C>
2000 ................................................... $ 916,000
2001 ................................................... 793,000
2002 ................................................... 386,000
2003 ................................................... 19,000
----------
Total annual lease payments ............................ 2,114,000
Amounts representing interest .......................... (328,000)
----------
Present value of future minimum lease payments ......... 1,786,000
Current portion ........................................ (715,000)
----------
$1,071,000
==========
</TABLE>
Telecommunications Lines
In the normal course of business, the Company enters into agreements for
the use of satellite communications and telecommunications lines for telephone,
network and internet connectivity for its customers. Future minimum payments
under such agreements are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
JULY 31,
-------------------------
<S> <C>
2000 .................. $2,671,000
2001 .................. 2,826,000
2002 .................. 1,454,000
----------
Total ................. $6,951,000
==========
</TABLE>
Legal Proceedings
The Company is involved in certain legal proceedings that have arisen in
the normal course of business. Based on the advice of legal counsel, management
does not anticipate that these matters will have a material effect on the
Company's financial position, results of operations or cash flows.
6. EMPLOYEE SAVINGS PLAN
The Company has a voluntary savings plan pursuant to Section 401(k) of the
Internal Revenue Code, whereby eligible participants may contribute a
percentage of compensation subject to certain limitations. The Company matches
employee contributions to the extent of 1% of the employees' contribution and
has the option to make discretionary qualified contributions to the plan. No
discretionary Company contributions were made for the nine months ended July
31, 1999.
7. ACQUISITION OF ATHENA INTERNATIONAL, LLC
Effective November 1, 1998, HGP acquired certain assets of Athena
International, LLC, via an asset purchase agreement by and among HGP and
Advantage Capital Partners II Limited Partnership and affiliated entities.
Consideration for the assets of $2,199,000 consisted of 140,144 shares of HGP
common stock valued at $776,000, cash of $624,000 and $799,000 of purchase
consideration due 60
F-138
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED )
days after the one year anniversary of the closing date. Additional
consideration of $200,000 became payable based on certain earn-out targets
which were not achieved. Accordingly, the purchase price does not include the
earn-out amount.
The acquisition has been accounted for using the purchase method of
accounting. The assets purchased consisted of a telecommunications billing
software system valued at $2,050,000, equipment under capital leases of
$1,997,000 and related capital lease obligations of $1,997,000. Goodwill of
$149,000 was recorded as a result of the purchase.
HGP assigned its rights and obligations acquired as a result of the Athena
transaction to HIT.
8. RELATED PARTY TRANSACTIONS
For the nine months ended July 31, 1999, VIT sold telecommunications
services totaling $268,000 to Vitacom de Columbia Ltda, a wholly owned
subsidiary of VIT. VIT purchased $400,000 of telecommunications services from
Vitacom de Mexico SA de CV, another wholly owned subsidiary of VIT. HIT
purchased telecommunications services totaling $160,000 from Vitacom de Mexico
SA de CV, a sister company of HIT.
9. YEAR 2000 ISSUE (UNAUDITED)
The Company could be adversely affected if its computer systems or the
computer systems its suppliers or customers use do not properly process and
calculate date related information and data from the period surrounding and
including January 1, 2000. Additionally, this issue could impact non-computer
system devices. The Company believes that its internal systems and its software
are Year 2000 compliant. However, it cannot provide assurances as to the
readiness of its suppliers or customers computer systems. At this time, because
of the complexities involved in the issue, management cannot provide assurances
that the Year 2000 issue will not have an impact on the Company's operations.
F-139
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Coast International, Inc.
Lenexa, Kansas
We have audited the accompanying balance sheet of Coast International,
Inc. as of September 30, 1999 and the related statements of income,
stockholders' deficit and cash flows for the nine month period then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Coast International, Inc.
at September 30, 1999 and the results of its operations and its cash flows for
the nine month period then ended in conformity with generally accepted
accounting principles.
/s/ BDO Seidman, LLP
February 3, 2000
F-140
<PAGE>
COAST INTERNATIONAL, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
SEPTEMBER 30,
1999
<S> <C>
-----------------------------------------------------------------------------------------------
ASSETS (NOTE 2)
CURRENT:
Cash ............................................................................ $ 426,000
Trade accounts receivable, less allowance ....................................... 2,122,000
Other current assets ............................................................ 4,000
--------------------------------------------------------------------------------
Total current assets ............................................................. 2,552,000
--------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT (NOTE 1),
net of accumulated depreciation and amortization ................................ 1,091,000
DEPOSITS ......................................................................... 13,000
--------------------------------------------------------------------------------
$3,656,000
--------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-141
<PAGE>
COAST INTERNATIONAL, INC.
BALANCE SHEET - (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
<S> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT:
Notes payable to stockholder/affiliate (Note 2) .............................. $ 2,499,000
Accounts payable ............................................................. 519,000
Accrued expenses ............................................................. 582,000
Installment obligation ....................................................... 272,000
Current maturities of capital lease obligations (Note 5) ..................... 92,000
--------------------------------------------------------------------------------
Total current liabilities ..................................................... 3,964,000
Capital lease obligations, less current maturities (Note 5) .................. 196,000
--------------------------------------------------------------------------------
Total liabilities ............................................................. 4,160,000
COMMITMENTS AND CONTINGENCY (NOTES 3, 4, 5 AND 9)
STOCKHOLDERS' DEFICIT:
Common stock, no par value, 2,500 shares authorized, 1,846 shares issued and
outstanding ............................................................... 412,000
Accumulated deficit ........................................................ (916,000)
--------------------------------------------------------------------------------
Total stockholders' deficit ................................................... (504,000)
$ 3,656,000
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-142
<PAGE>
COAST INTERNATIONAL, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999
<S> <C>
NET REVENUE ................................................... $10,371,000
COST OF REVENUE ............................................... 4,574,000
GROSS PROFIT .................................................. 5,797,000
Selling, general and administrative expenses (Note 4) ......... 5,275,000
Income from operations ........................................ 522,000
Interest expense (Note 2) ..................................... 207,000
NET INCOME .................................................... $ 315,000
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-143
<PAGE>
COAST INTERNATIONAL, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
COMMON STOCK
---------------------
NINE MONTHS ENDED SEPTEMBER 30, 1999 SHARES AMOUNT
--------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, JANUARY 1, 1999 ....................................................... 1,846 $ 412,000
Distributions to stockholders ................................................. -- --
Net income for the period ..................................................... -- --
--------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1999 .................................................... 1,846 $ 412,000
--------------------------------------------------------------------------------
<CAPTION>
ACCUMULATED
NINE MONTHS ENDED SEPTEMBER 30, 1999 DEFICIT TOTAL
<S> <C> <C>
BALANCE, JANUARY 1, 1999 ....................................................... $ (928,000) $ (516,000)
Distributions to stockholders ................................................. (303,000) (303,000)
Net income for the period ..................................................... 315,000 315,000
--------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1999 .................................................... $ (916,000) $ (504,000)
--------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-144
<PAGE>
COAST INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
NINE MONTHS ENDED
INCREASE (DECREASE) IN CASH SEPTEMBER 30, 1999
<S> <C>
--------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income ...................................................................... $ 315,000
Adjustments to reconcile net income to
Depreciation and amortization ................................................... 375,000
Provision for bad debts ......................................................... 715,000
Changes in operating assets and liabilities:
Trade accounts receivable ..................................................... 413,000
Other assets .................................................................. (3,000)
Accounts payable .............................................................. (143,000)
Accrued expenses .............................................................. (773,000)
--------------------------------------------------------------------------------
Cash provided by operating activities ............................................ 899,000
--------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Acquisitions of property and equipment .......................................... (211,000)
Proceeds from sale of fixed assets .............................................. 46,000
--------------------------------------------------------------------------------
Cash used in investing activities ................................................ (165,000)
--------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net proceeds from notes payable to stockholder .................................. 100,000
Payments on notes payable to stockholder ........................................ (252,000)
Principal payments on installment obligation .................................... (677,000)
Distributions to stockholders ................................................... (303,000)
--------------------------------------------------------------------------------
Cash used in financing activities ................................................ (1,132,000)
--------------------------------------------------------------------------------
Net decrease in cash ............................................................. (398,000)
CASH, beginning of period ........................................................ 824,000
--------------------------------------------------------------------------------
CASH, end of period .............................................................. $ 426,000
--------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-145
<PAGE>
COAST INTERNATIONAL, INC.
SUMMARY OF ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Coast International, Inc. ("Coast") is a provider of domestic and
international long distance telephone and internet services. Coast offers
competitive discounted calling plans which are available to customers in the
United States.
Coast is a non-facilities based inter-exchange carrier that routes
customers' calls over a transmission network consisting primarily of dedicated
long-distance lines secured by Coast from other carriers. One of these carriers
provides the call record information from which Coast bills substantially all
of its customer base. Management believes other carriers could provide the same
service at comparable terms.
On April 1, 1999, Coast acquired certain assets of ISPN, Inc. ("ISPN"), an
entity under common control, for $1,000,000. ISPN is a large scale provider of
internet services to the rural and local telephone company markets across the
United States as well as a provider of technical help-desk services to
telephone companies and other service-oriented companies. The purchase price
was payable $200,000 at closing and $100,000 monthly thereafter without
interest through December 1999. The deferred payments have been discounted to
reflect an effective interest rate of 10%. As of September 30, 1999 the
installment obligation totaled $272,000, net of the remaining $5,000 discount.
The net assets received have been accounted for at the lower of ISPN's
historical net book value or estimated fair market value totaling $284,000. The
consideration paid in excess of the historical cost of $689,000 was charged to
stockholders' equity as a deemed dividend.
On April 26, 1999, Coast acquired all of the outstanding common stock of
Interactive Media Works ("IMW"), an entity under common control, in exchange
for 646 shares of common stock of Coast. IMW is an interactive voice response
service bureau providing 1-800 toll free and internet based promotions,
sweepstakes, contests and surveys for large national brands and media
stimulated programs or events within the United States.
Prior to Coast's April 1999 acquisitions of ISPN and IMW all three
companies were under common control through majority ownership. Accordingly,
the accompanying financial statements include the accounts of Coast, ISPN and
IMW (collectively the "Company") for the full nine month period ended September
30, 1999 as if the companies combined on January 1, 1999. All material
intercompany accounts and transactions are eliminated.
Additionally, on December 2, 1999, the Company was acquired by eGlobe,
Inc. ("eGlobe") (see Note 6).
The accompanying financial statements for the nine month period ended
September 30, 1999 may not necessarily be indicative of the results to be
expected for the year ending December 31, 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and trade accounts
receivable.
The Company places its cash and temporary cash investments with quality
financial institutions. At times, such investments may be in excess of
Governmental insured limits.
F-146
<PAGE>
COAST INTERNATIONAL, INC.
SUMMARY OF ACCOUNTING POLICIES - (CONTINUED )
Concentrations of credit risk with respect to trade accounts receivable
are limited due to the wide variety of customers and markets which comprise the
Company's customer base, as well as their dispersion across many different
geographic areas. Generally, the Company does not require collateral or other
security to support customer receivables.
PROPERTY, EQUIPMENT DEPRECIATION AND AMORTIZATION
Property and equipment are recorded at cost. Depreciation is calculated
using, straight-line and accelerated methods over the estimated useful lives of
the assets ranging from five to seven years. Leasehold improvements are
amortized over a lease term of three years.
REVENUE RECOGNITION
Coast recognizes revenue upon completion of telephone calls by the end
users. IMW and ISPN recognize revenue as services are provided. Allowances are
provided for estimated uncollectible accounts.
INCOME TAXES
The Company,with the consent of their stockholders, has elected under the
Internal Revenue Code to be an S-corporation. In lieu of corporate income
taxes, the stockholders are taxed on their proportional share of the Company's
taxable income. Therefore, no provision or liability for income taxes is
included in the financial statements.
ADVERTISING
The Company expenses advertising costs as they are incurred. Advertising
expense was $114,000 for the nine months ended September 30, 1999.
CASH EQUIVALENTS
The Company considers cash and all highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents.
CASH FLOWS
For the nine month period ended September 30, 1999 cash paid for interest
approximated interest expense.
LONG-LIVED ASSETS
Long-Lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. If
the expected future cash flow from the use of the assets and its eventual
disposition is less than the carrying amount of the assets, an impairment loss
is recognized and measured using the asset's fair value.
F-147
<PAGE>
COAST INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
--------------
<S> <C>
Office and computer equipment .......................... $3,268,000
Leasehold improvements ................................. 170,000
Furniture and equipment ................................ 71,000
Software ............................................... 51,000
----------
3,560,000
Less accumulated depreciation and amortization ......... 2,469,000
----------
$1,091,000
----------
</TABLE>
Total depreciation and amortization expense for the nine months ended
September 30, 1999 was approximately $375,000. Office and computer equipment
with a total cost and accumulated depreciation of $304,000 and $76,000 has been
pledged as collateral under capital lease obligations (Note 5).
2. NOTES PAYABLE TO STOCKHOLDER/AFFILIATE
On April 1, 1999 and March 5, 1999, respectively, the Company entered into
two new revolving line of credit agreements of $300,000 and $3,000,000 with a
stockholder and with a corporation affiliated with a stockholder. Both
agreements expire July 1, 2000, bear interest at a bank's prime rate plus 1.5%
(9.75% at September 30, 1999) and are secured by substantially all of the
assets of the Company. These agreements also require a monthly commitment fee
equal to 0.10% of the available line of credit balances. For the nine month
period ended September 30, 1999 total interest and fees paid to the stockholder
and the affiliate under these agreements were approximately $112,000. In
connection with these agreements, the stockholder and affiliate have agreed to
continue to advance to the Company, on an ongoing basis, the necessary working
capital funds required for its operations. At September 30, 1999, $260,000 and
$1,880,000 were outstanding under these line of credit agreements. On November
29, 1999, the stockholder line of credit was paid in full and the Company
increased its outstanding affiliate line of credit balance to $3,000,000. See
Note 7 for discussion of these subsequent events and Note 4 for additional
related party transactions.
In connection with the merger with IMW, the Company assumed a note payable
to a corporation affiliated with a stockholder which bears interest at a bank's
prime rate plus 2.5% (10.75% at September 30, 1999). The note is secured by
substantially all of the assets of the Company. At September 30, 1999,
approximately $359,000 was outstanding on the note, which was also subsequently
paid in full on November 29, 1999 (see Note 7).
3. OPERATING LEASES
The Company leases office space under noncancelable operating leases in
Lenexa, Kansas, Minneapolis, Minnesota and Overland Park, Kansas. The Overland
Park office space is being subleased to a third party. Future minimum lease
payments under the leases and future minimum rentals receivable under the
sublease are as follows:
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30,
------------------------------------------------------
2000 2001 2002 TOTAL
------------ ----------- ---------- ------------
<S> <C> <C> <C> <C>
Minimum rentals ................ $ 201,000 $ 75,000 $ 8,000 $ 284,000
Sublease rental income ......... (41,000) (17,000) -- (58,000)
--------- --------- ------- ---------
Total ......................... $ 160,000 $ 58,000 $ 8,000 $ 226,000
========= ========= ======= =========
</TABLE>
F-148
<PAGE>
COAST INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
3. OPERATING LEASES - (CONTINUED)
For the nine month period ended September 30, 1999 rent expense was
approximately $114,000.
4. RELATED PARTY TRANSACTIONS
For the nine month period ended September 30, 1999, included in selling,
general and administrative expenses in the accompanying statement of income
were bonuses and fees paid to the Company's three stockholders totaling
approximately $32,000.
The Company has an agreement with an employee leasing services corporation
affiliated with a stockholder under which the Company leases substantially all
of its employees. Under the terms of the agreement, in exchange for the
services of such employees, the Company pays the leasing services corporation a
leasing services fee equal to the aggregate gross pay, payroll taxes, related
benefits and an appropriate portion of the costs incurred and attributable to
the employees, as defined.
As part of the related benefits payable under this agreement, the Company
makes matching contributions to a long-term savings plan maintained by the
employee leasing company for eligible employees equal to 50% of the employee's
contributions up to 6% of the employee's compensation as defined.
Approximate costs incurred under the leasing services agreement for the
nine month period ended September 30, 1999 are summarized as follows:
<TABLE>
<S> <C>
Payroll, payroll taxes and related benefits ......... $ 1,941,000
Savings plan matching contributions ................. 44,000
Cost attributable to employees ...................... 6,000
-----------
$ 1,991,000
-----------
</TABLE>
5. COMMITMENTS
The Company has a contract with a long-distance telecommunications company
to provide telecommunications services for the Company's customers. The
agreement covers the pricing of services for a term of 36 months beginning
October 1, 1999. Under the terms of the agreement, the Company has a minimum
usage commitment of $125,000 per month through September 30, 2000. The minimum
usage commitment may be decreased in the second and third year of the agreement
if the cumulative usage is achieved in the first year of the agreement.
The Company is committed under a capital lease for certain transmission
equipment. This lease is for a term of three years and bears interest at the
rate of 8.5% and is collateralized by the underlying equipment as defined in
the lease. Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
SEPTEMBER 30
--------------------------------------------------
<S> <C>
2000 ...................................... $116,000
2001 ...................................... 116,000
2002 ...................................... 97,000
--------
Total ..................................... 329,000
Less amount representing interest ......... 41,000
--------
288,000
Less current maturities ................... 92,000
--------
$196,000
--------
</TABLE>
F-149
<PAGE>
COAST INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED )
6. ACQUISITION OF COAST BY EGLOBE
Effective December 2, 1999, eGlobe, Inc. ("eGlobe"), through its new
subsidiary, eGlobe/Coast, Inc., acquired all the outstanding common stock of
Coast. The purchase price of $19.4 million consisted of 882,904 shares of
eGlobe's common stock and 16,100 shares of eGlobe's Series O Convertible
Preferred Stock ("Series O Preferred"). The Series O Preferred Stock is
convertible into a maximum of 3,220,000 shares of common stock and has a
liquidation value of $16.1 million.
7. SUBSEQUENT EVENTS
On November 29, 1999, the Company increased its existing line of credit
with the affiliated corporation to the maximum $3,000,000 and entered into a
note agreement with that affiliate for $250,000. The additional funds received,
totaling $1,370,000, were used to pay down the $260,000 outstanding stockholder
line of credit and the $359,000 outstanding loan held by IMW with a corporation
affiliated with a stockholder and to pay distributions to the existing
stockholders of the Company totaling $575,000.
8. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information and non-cash investing
and financing activities follow:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999
------------------
<S> <C>
Cash paid for interest .................................. $ 226,000
Property and equipment acquired in acquisition of
ISPN in exchange for installment obligation ............ 284,000
Equipment obtained under a capital lease obligation ..... 288,000
</TABLE>
9. YEAR 2000 ISSUES (UNAUDITED)
Like other companies, Coast International, Inc. could be adversely
affected if the computer systems the Company, its suppliers or customers use do
not properly process and calculate date-related information and data from the
period surrounding and including January 1, 2000. This is commonly known as the
"Year 2000" ("Y2K") issue. Additionally, this issue could impact non-computer
systems and devices such as production equipment, elevators, etc. While the
Company's project to assess and correct Y2K related issues regarding the year
2000 has been completed, and the Company has not experienced any significant
Y2K related events, interactions with other companies' systems make it
difficult to conclude there will not be future effects. Consequently, at this
time, management cannot provide assurances that the Year 2000 issue will not
have an impact on the Company's operations.
F-150
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
issuance and distribution of the securities being registered hereby, other than
underwriting discounts and commissions. All amounts are estimated.
<TABLE>
<S> <C>
Blue Sky Fees and Expenses .............. $ 0
Accounting Fees and Expenses ............ $200,000
Legal Fees and Expenses ................. $175,000
Printing and Engraving Expenses ......... $ 70,000
--------
Total .......................................... $445,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware corporation law, a corporation may
indemnify its directors, officers, employees and agents and its former
directors, officers, employees and agents and those who serve, at the
corporation's request, in such capacities with another enterprise, against
expenses (including attorneys' fees), as well as judgments, fines and
settlements in non derivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The Delaware
Corporation Law provides, however, that such person must have acted in good
faith and in a manner such person reasonably believed to be in (or not) the
best interests of the corporation and, in the case of a criminal action, such
person must have had no reasonable cause to believe his or her conduct was
unlawful. In addition, the Delaware corporation law does not permit
indemnification in an action or suit by or in the right of the corporation,
where such person has been adjudged liable to the corporation, unless, and only
to the extent that, a court determines that such person fairly and reasonably
is entitled to indemnity for costs the court deems proper in light of liability
adjudication. Indemnity is mandatory to the extent a claim, issue or matter has
been successfully defended. Our Restated Charter contains provisions that
provide that no director of eGlobe shall be liable for breach of fiduciary duty
as a director except for
o any breach of the director's duty of loyalty to eGlobe or our
stockholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law;
o liability under Section 174 of the Delaware Corporation Law; or
o any transaction from which the director derived an improper personal
benefit.Our Restated Certificate of Incorporation and our Bylaws contains
provisions that further provide for the indemnification of directors and
officers to the fullest extent permitted by the Delaware Corporation Law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since August 1, 1997, we offered and sold the following equity securities
that were not registered under the Securities Act:
1. On January 1, 1998, we issued warrants to purchase 15,000 shares of our
common stock at an exercise price of $.01 per share to ING in connection
with an extension of its $6.0 million loan to us. The warrant is
exercisable at anytime until February 18, 2007. The securities issued in
such private placement were exempt from the registration requirements of
the Securities Act under Rule 506 of Regulation D because the sole
purchaser was an accredited investor.
II-1
<PAGE>
2. On January 1, 1998, we issued warrants to purchase 12,000 shares of our
common stock at an exercise price of $2.75 per share to AIM in exchange
for public relations services rendered to us. The warrant is exercisable
at anytime until January 1, 1999. The securities issued in such private
placement were exempt from the registration requirements of the Securities
Act under Rule 506 of Regulation D because the sole purchaser was an
accredited investor.
3. On February 23, 1998, we issued warrants to purchase 500,000 shares of our
common stock at an exercise price of $3.03 per share to IDT Corporation in
connection with its $7.5 million loan to us. The warrant is exercisable at
anytime until February 23, 2001. The securities issued in such private
placement were exempt from the registration requirements of the Securities
Act under Rule 506 of Regulation D because the sole purchaser was an
accredited investor.
4. On June 18, 1998, we issued to an existing stockholder in connection with
his $1 million loan to us warrants to purchase 67,000 shares of our common
stock at an exercise price of $3.03125 per share, and we repriced to $3.75
and extended existing warrants for 55,000 shares of common stock.
Subsequent to December 31, 1998, the exercise price of the 122,000
warrants was lowered to $1.5125 per share and the expiration dates were
extended through January 31, 2002. The securities issued in such private
placement were exempt from the registration requirements of the Securities
Act under Rule 506 of Regulation D because the sole purchaser was an
accredited investor.
5. On July 9, 1998, we issued 28,700 shares of our common stock to an existing
stockholder in connection with a price guarantee relating to the
securities litigation. The securities issued in such private placement
were exempt from the registration requirements of the Securities Act under
Rule 506 of Regulation D because the sole purchaser was an accredited
investor.
6. On September 1, 1998, we issued a warrant to purchase 25,000 shares of our
common stock at an exercise price of $2.00 per share to Joginder Soni in
connection with his $250,000 loan to a subsidiary of ours. The warrant is
exercisable at any time until September 1, 2003. We advanced the proceeds
to a software company that we were negotiating to acquire for development
of unified messaging software. The securities issued in such private
placement were exempt from the registration requirements of the Securities
Act under Rule 506 of Regulation D because the sole purchaser was an
accredited investor.
7. On September 2, 1998, we issued a warrant to purchase 2,500 shares of our
common stock at an exercise price of $2.00 per share to Brookshire
Securities in exchange for services rendered to us. The warrant is
exercisable at anytime until September 1, 2003. The securities issued in
such private placement were exempt from the registration requirements of
the Securities Act under Rule 506 of Regulation D because the sole
purchaser was an accredited investor.
8. On December 2, 1998, we issued (a) 500,000 shares of Series B Preferred
Stock, which are convertible into up to 2,500,000 shares (2,000,000 shares
until stockholder approval is obtained) of common stock, subject to
adjustment as described below, (b) the IDX Warrants, subject to IDX's
achievement of certain revenue and EBITDA objectives, at an exercise price
of $.001 per share, if stockholder approval is obtained, and (c) $5.4
million, which amount is subject to decrease, in interest bearing
convertible subordinated promissory notes in exchange for all of the stock
of IDX. The shares of Series B Preferred Stock are convertible at the
holders option at any time at the then current conversion rate. The shares
of Series B Preferred Stock will automatically convert into shares of our
common stock on the earlier to occur of (a) the first date that the 15 day
average closing sales price of our common stock is equal to or greater
than $8.00 or (b) 30 days after the later to occur of (1) December 2, 1999
or (2) the receipt of any necessary stockholder approval relating to the
issuance of the common stock upon such conversion, subject to IDX's
achievement of certain revenue and EBITDA objectives. The IDX Warrants are
exercisable only to the extent that IDX achieves certain revenue and
EBITDA goals over the twelve months ending December 2, 1999 and
stockholder approval is received. We have "guaranteed" a price of $8.00
per share at December 2, 1999 to recipients of the common stock issuable
upon the conversion or exercise, as the case may be, of the Series B
Preferred Stock and IDX Warrants, subject to IDX's achievement of certain
revenue
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and EBITDA objectives. If the market price is less than $8.00 on December
2, 1999, subject to IDX's achievement of certain revenue and EBITDA
objectives, we will issue additional shares of common stock upon conversion
of the Series B Preferred Stock and exercise of the IDX Warrants (subject
to the receipt of any necessary stockholder approval) based on the ratio of
$8.00 to the market price, but not more than an aggregate of 7 million
additional shares of common stock. The securities issued in such private
placement were exempt from the registration requirements of the Securities
Act under Rule 506 of Regulation D because there were fewer than 35
purchasers, each purchaser was an accredited investor or with his purchaser
representative has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of the
prospective investment or we reasonably believed immediately prior to
making any sale that such purchaser fell within this description and we
satisfied the information delivery requirements of Rule 502.
9. On December 28, 1998, we exchanged Mr. Jensen's holding of 1,425,000 shares
of common stock for 75 shares of Series C Preferred Stock convertible into
1,875,000 shares of common stock at such date based on the terms of the
Series C Preferred Stock. The shares of Series C Preferred Stock are
convertible, at the holders' option, into shares of our common stock at
any time after 180 days following the closing at a conversion price, which
is subject to adjustment if we issue our common stock for less than the
conversion price, equal to 90% of the ten day average of the market price
prior to the conversion date but not less than $4 nor greater than $6 per
share. On February 16, 1999, we exchanged the outstanding shares of Series
C Preferred Stock for 3,000,000 shares of our common stock. The securities
issued in such private placement were exempt from the registration
requirements of the Securities Act under Rule 506 of Regulation D because
the sole purchaser was an accredited investor.
10. On December 31, 1998, we issued an aggregate of 62,500 shares of our common
stock and a warrant to purchase 50,000 shares of our common stock at an
exercise price of $1.63 per share along with other consideration of $2.1
million, $1.1 million, subject to adjustment, in exchange for all of the
stock of UCI. In addition, we agreed to issue an additional 62,500 shares
of common stock on February 1, 2000 subject to adjustment based on UCI
meeting certain revenue targets. We also agreed to issue additional shares
of common stock if the market price of our common stock on February 1,
2000 is less than $8.00 per share, subject to adjustment, based on UCI
meeting its revenue targets. The warrants are exercisable immediately and
expire on December 31, 2003. The securities issued in such private
placement were exempt from the registration requirements of the Securities
Act under Rule 506 of Regulation D because each of the purchasers were
accredited investors.
11. On January 12, 1999, we concluded a $3 million private placement with
Vintage Products Ltd. pursuant to which we sold 30 shares ($100,000 per
share value) of our Series D Preferred Stock and granted warrants valued
at $343,000 to purchase (a) 112,500 shares of our common stock at an
exercise price of $.01 per share and (b) 60,000 shares of our common stock
at an exercise price of $1.44 per share. These warrants are immediately
exercisable and have an expiration date of January 12, 2002. The shares of
Series D Preferred Stock were convertible, at the holder's option, into
shares of our common stock any time after 90 days from issuance at a
conversion price equal to $1.60. The shares of Series D Preferred Stock
automatically convert into common stock upon the earliest of (i) the first
date on which the market price of the common stock is $5.00 or more per
share for any 20 consecutive trading days, (ii) the date on which 80% or
more of the Series D Preferred Stock has been converted into common stock,
or (iii) the date we close a public offering of equity securities at a
price of at least $3.00 per share with gross proceeds of at least $20.0
million. The securities issued in such private placement were exempt from
the registration requirements of the Securities Act under Regulation S
because the sale was made in an offshore transaction, no directed selling
efforts were made in the United States by us, a distributor, any of our
affiliates or those of a distributor or any person acting on our behalf or
on behalf of a distributor and we satisfied the requirements of Rule 903
(b) (3) (as to the shares issued pursuant to the Series D Preferred Stock)
and the requirements of 903 (b) (5) (as to the shares issued pursuant to
the warrants). Gerard Klauer Mattison acted as the broker in
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this transaction and was paid a 5.25% commission. We used the proceeds of
such private placement for general corporate purposes and/or working
capital expenses incurred in the ordinary course of business.
12. On January 12, 1999, we granted Gerard Klauer Mattison & Co., Inc. warrants
valued at $650,000 to purchase 331,125 shares of common stock as
consideration for services provided as described in 1 above. The warrants
have an exercise price of $1.51, are immediately exercisable, and have an
expiration date of January 12, 2004. The securities issued in such private
placement were exempt from the registration requirements of the Securities
Act under Rule 506 of Regulation D because the sole purchaser was an
accredited investor.
13. On February 12, 1999, we issued 1,010,000 shares of our Series F Preferred
Stock valued at $2.0 million (per share value of $1.937), and paid
$125,000 in cash and $150,000 in promissory notes in exchange for all of
the stock of Telekey to the former stockholders of Telekey. In addition,
we agreed to issue at least 505,000 and up to 1,010,000 shares of our
Series F Preferred Stock two years later, subject to Telekey's meeting
certain revenue and EBITDA tests. The minimum of 505,000 shares were
valued at $979,000 (per share value of $1.937). The Series F Preferred
Stock can be converted at the option of the holder at any time after
issuance. The Series F Preferred Stock conversion rate is equal to the
quotient obtained by dividing $4.00 by the applicable Series F Market
Factor. The Series F Market Factor is equal to $4.00 if the Series F
Preferred Stock converts prior to December 31, 1999. After such date the
Series F Market Factor is equal to (i) $2.50 if the market price (equal to
the average closing price of our common stock over the 15 trading days
prior to the conversion date) is less than or equal to $2.50; (ii) the
market price if the market price is greater than $2.50 but less than
$4.00; or (iii) $4.00 if the market price is greater than or equal to
$4.00. The shares of Series F Preferred Stock automatically convert into
shares of common stock on the earlier to occur of (a) the first date as of
which the market price is $4.00 or more for any 15 consecutive trading
days during any period that the Series F Preferred Stock is outstanding,
or (b) July 1, 2001. We guaranteed a price of $4.00 per share at December
31, 1999 to recipients of the common stock issuable upon the conversion of
the Series F Preferred Stock, subject to Telekey's achievement of certain
defined revenue and EBITDA objectives. If the market price is less that
$4.00 on December 31, 1999, we will issue additional shares of common
stock upon conversion of the Series F Preferred Stock based on the ratio
of $4.00 to the market price, but not more than an aggregate of 600,000
additional shares of common stock. The shares issued in such private
placement were exempt from the registration requirements of the Securities
Act under Rule 506 of Regulation D because each purchaser was an
accredited investor.
14. On February 16, 1999, we concluded a $5 million private placement (per
share value of $100,000) with EXTL Investors pursuant to which we sold 50
shares of our Series E Preferred Stock that was convertible at the
election of the holder at the issuance date and granted warrants valued at
$1.1 million to purchase (a) 723,000 shares of our common stock at an
exercise price of $2.125 per share and (b) 277,000 shares of our common
stock at an exercise price of $.01 per share. The warrants are exercisable
immediately and have an expiration date of February 16, 2002. . The shares
of Series E Preferred Stock automatically convert into shares of our
common stock, on the earliest to occur of (a) the first date as of which
the last reported sales price of our common stock on Nasdaq is $5.00 or
more for any 20 consecutive trading days during any period in which the
Series E Preferred Stock is outstanding, (b) the date that 80% or more of
the Series E Preferred Stock has been converted into common stock, or (c)
we complete a public offering of equity securities at a price of at least
$3.00 per share and with gross proceeds to us of at least $20.0 million.
The initial conversion price for the Series E Preferred Stock is $2.125,
subject to adjustment if we issue common stock for less than the
conversion price. The securities issued in such private placement were
exempt from the registration requirements of the Securities Act under Rule
506 of Regulation D because the sole purchaser was an accredited investor.
Gerard Klauer Mattison acted as the broker in this
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transaction and was paid a 5.25% commission. We used the proceeds of such
private placement for general corporate purposes and/or working capital
expenses incurred in the ordinary course of business.
15. On March 23, 1999, we issued 431,729 shares of our common stock (per share
value of $2.375) and granted warrants valued at $62,000 to purchase 43,173
shares of our common stock at an exercise price of $.01 per share to the
former IDX stockholders in payment of the first convertible subordinated
promissory note in the original principal amount of $1,000,000 issued in
connection with our acquisition of IDX. The warrants are immediately
exercisable and expire on March 23, 2002.
16. On March 31, 1999, we issued 125,000 shares of our common stock valued at
$200,000 (per share value of $1.60) and granted warrants valued at
$102,000 to purchase (a) 40,000 shares of our common stock at an exercise
price of $1.00 per share and (b) 40,000 shares of our common stock at an
exercise price of $1.60 per share to Seymour Gordon, an existing
stockholder, in payment of a promissory note in the original principal
amount of $200,000. The warrants are immediately exercisable and expire on
January 31, 2004. The securities issued in such private placement were
exempt from the registration requirements of the Securities Act under Rule
506 of Regulation D because the sole purchaser was an accredited investor.
17. In April 1999, we granted warrants valued at $2.9 million to purchase
1,500,000 shares (1,000,000 of which have expired) of our common stock at
an exercise price of $.01 per share to EXTL Investors LLC in connection
with a $7 million loan to our wholly owned subsidiary, eGlobe Financing
Corporation. The warrants are immediately exercisable, and the remaining
warrants expire on April 9, 2002. The securities issued in such private
placement were exempt from the registration requirements of the Securities
Act under Rule 506 of Regulation D because the sole purchaser was an
accredited investor.
18. On April 15, 1999, we granted Executive Lending LLC warrants valued at
$23,496 to purchase 10,000 shares of our common stock at an exercise price
of $2.18 in connection with a loan. Such shares became exercisable 5 days
after their issuance and expire on April 15, 2001. The warrants issued in
such private placement are exempt from the registration requirements of
the Securities Act under Rule 506 of Regulation D because the sole
purchaser was an accredited investor.
19. In May 1999, we concluded a private placement of $2 million with an
existing shareholder pursuant to which we sold 20 shares of our Series D
Preferred Stock (per share value of $100,000) and granted warrants valued
at $540,000 to purchase (a) 75,000 shares of our common stock at an
exercise price of $.01 per share that expire June 2, 2002, (b) 40,000
shares of our common stock at an exercise price of $1.60 per share that
expire June 2, 2002 and (c) 76,923 shares of our common stock at an
exercise price of $.01 per share that expire May 30, 2002. The warrants
were immediately exercisable. The shares of Series D Preferred Stock were
convertible, at the holder's option, into shares of our common stock any
time after 90 days from issuance at a conversion price equal to $1.60. The
shares of Series D Preferred Stock automatically convert into common stock
upon the earliest of (i) the first date on which the market price of the
common stock is $5.00 or more per share for any 20 consecutive trading
days, (ii) the date on which 80% or more of the Series D Preferred Stock
has been converted into common stock, or (iii) the date we close a public
offering of equity securities at a price of at least $3.00 per share with
gross proceeds of at least $20.0 million. The shares issued in such
private placement were exempt from the registration requirements of the
Securities Act under Regulation S because the sale was made in an offshore
transaction, no directed selling efforts were made in the United States by
us, a distributor, any of our affiliates or those of a distributor or any
person acting on our behalf or on behalf of a distributor and we satisfied
the requirements of Rule 903 (b) (3) (as to the shares issued pursuant to
the Series D Preferred Stock) and the requirements of 903 (b) (5) (as to
the shares issued pursuant to the warrants). Gerard Klauer Mattison acted
as the broker in this transaction and was paid a 5.25% commission. We used
the proceeds of such private placement for general corporate purposes
and/or working capital expenses incurred in the ordinary course of
business.
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20. On June 2, 1999, we granted Gerard Klauer Mattison & Co., Inc. warrants for
an aggregate value of $168,000 that are exercisable beginning June 20,
2000 (subsequently renegotiated and exercised in August 1999) to purchase
85,470 shares of common stock as consideration for services provided as
described in 8 above. The warrants have an exercise price of $1.37 and
expire January 12, 2004. The shares issued in such private placement were
exempt from the registration requirements of the Securities Act under Rule
506 of Regulation D because the sole purchaser was an accredited investor.
21. On June 17, 1999, we issued one share of Series G Preferred Stock valued at
$3.0 million as part of the consideration for certain assets of
Connectsoft Communications Corporation and Connectsoft Holding Corp. to
American United Global, Inc. The Series G Preferred Stock holder may elect
to make the shares of Series G Preferred Stock convertible into shares of
our common stock at any time from and after October 1, 1999, with a
conversion price equal to 75% of the market price of our common stock at
the time of conversion. The minimum conversion price for the Series G
Preferred Stock is $3.00, subject to adjustment if we issue common stock
for less than the conversion price. We will automatically redeem the
Series G Preferred Stock at a price equal to the face value plus accrued
and unpaid dividends of Series G Preferred Stock, in cash, upon the first
to occur of the following dates: (1) on the first date on which we receive
in any transaction or series of transactions, any equity financing of at
least $25 million or (2) at any time following the date that is five years
after we issue the Series G Preferred Stock. Additionally, the Series G
Preferred Stock is redeemable by us at any time upon 30 days notice. Such
security subsequently has been exchanged for a different security. The
shares issued in such private placement were exempt from the registration
requirements of the Securities Act under Rule 506 of Regulation D because
the sole purchaser was an accredited investor.
22. In June 1999, we issued 54,473 shares of our common stock for an aggregate
value of $99,000 (per share value of $1.81) to Fleming Fogtmann in
connection with the settlement of certain claims. The shares issued in
such private placement were exempt from the registration requirements of
the Securities Act under Rule 506 of Regulation D because the sole
purchaser was an accredited investor.
23. In July 1999, we issued 140,599 shares of our common stock (per share value
of $3.07) to the former IDX preferred stockholders in payment of the
convertible subordinated promissory note in the original principal amount
of $418,024 plus accrued interest issued in connection with our
acquisition of IDX.
24. In July 1999, we issued (a) 500,000 shares of Series H Preferred Stock in
exchange for 500,000 shares of Series B Preferred Stock, (b) new warrants
to purchase up to 1,250,000 (subsequently renegotiated to 1,087,500)
shares of common stock subject to IDX meeting certain revenue, traffic and
EBITDA levels on September 30, 2000 or December 31, 2000 (if the levels
are not met on September 30, 2000) in exchange for the IDX Warrants, and
(c) 400,000 shares of Series I Preferred Stock valued at $4.0 million (per
share value of $10.00) in exchange for $4.0 million in interest bearing
convertible subordinated promissory notes to the former stockholders of
IDX. The shares of Series H Preferred Stock convert automatically into a
maximum of 3,750,000 shares of common stock, subject to adjustment as
described below, on January 31, 2000 or earlier if the closing sale price
of the common stock is equal to or greater than $6.00 for 15 consecutive
trading days. Providing the Series H Preferred Stock had not converted, we
guaranteed a price of $6.00 per share on January 31, 2000. The warrants
have an exercise price of $0.001 and expire December 31, 2000. We had the
option, to redeem 150,000 shares of the Series I Preferred Stock prior to
February 14, 2000 at a price of $10.00 per share plus 8% of the value of
Series I Preferred Stock per annum from December 2, 1998 through the date
of redemption. We had the option to redeem 250,000 shares of Series I
Preferred Stock prior to July 17, 2000 at a price of $10.00 per share plus
8% of the value of Series I Preferred Stock per annum from December 2,
1998 through the date of redemption for cash, common stock or a
combination of the two. Any Series I Preferred Stock not redeemed by the
applicable dates discussed above automatically converts into common stock
based on a conversion price of $10.00
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per share plus 8% per annum of the value of the Series I Preferred Stock
from December 2, 1998 through the date of conversion divided by the greater
of the average closing price of common stock over the 15 days immediately
prior to conversion or $2.00 up to a maximum of 3.9 million shares of
common stock. We made a written election in August 1999 to pay the 8% of
the value in shares of common stock upon redemption or conversion. The
securities issued in such private placement were exempt from the
registration requirements of the Securities Act under Rule 506 of
Regulation D because there were fewer than 35 purchasers, each purchaser
was an accredited investor or with his purchaser representative has such
knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the prospective investment or
we reasonably believed immediately prior to making any sale that such
purchaser fell within this description and we satisfied the information
delivery requirements of Rule 502.
25. On July 14, 1999, we granted Dr. Joginder Soni warrants valued at $33,979
to purchase 25,000 shares of our common stock at an exercise price of
$2.82 per share. Such warrants are exercisable immediately and expire on
July 14, 2003. The warrants issued in such private placement are exempt
from the registration requirements of the Securities Act under Rule 506 of
Regulation D because the sole purchaser was an accredited investor.
26. On August 25, 1999, we concluded a $250,000 private placement with an
existing stockholder, Seymour Gordon, pursuant to which we sold 160,257
shares of our common stock and granted warrants to purchase 60,000 shares
of our common stock at an exercise price of $1.00 per share. The warrants
are exercisable immediately and have an expiration date of August 25,
2004. The securities issued in such private placement were exempt from the
registration requirements of the Securities Act under Rule 506 of
Regulation D because each purchaser was an accredited investor. We used
the proceeds of such private placement for general corporate purposes
and/or working capital expenses incurred in the ordinary course of
business.
27. On August 30, 1999, we issued (a) 416,595 shares of our common stock to
Gerard Klauer Mattison & Co., Inc. upon its exercise of warrants granted
in January 1999 and June 1999 and (b) 100,000 shares of our common stock
to Vintage Products, Ltd. upon its exercise of warrants granted in January
1999 and June 1999. We used the proceeds of such warrant exercise for
general corporate purposes and/or working capital expenses incurred in the
ordinary course of business.
28. In August 1999, we issued 30 shares of Series K Preferred Stock for an
aggregate value of $3.0 million (per share value of $100,000) to American
United Global, Inc. in exchange for its holding of 1 share of our Series G
Preferred Stock. The shares of Series K Preferred Stock are convertible,
at the holder's option, into shares of our common stock at any time at a
conversion price equal to $1.56, subject to adjustment for certain defined
events. The shares of Series K Preferred Stock automatically convert into
shares of our common stock, on the earliest to occur of (i) the first date
as of which the last reported sales price of our common stock on Nasdaq is
$5.00 or more for any 20 consecutive trading days during any period in
which Series K Preferred Stock is outstanding, (ii) the date that 80% or
more of the Series K Preferred Stock we have issued has been converted
into shares of our common stock, or (iii) we complete a public offering of
equity securities at a price of at least $3.00 per share and with gross
proceeds to us of at least $20.0 million. The shares issued in such
private placement were exempt from the registration requirements of the
Securities Act under Rule 506 of Regulation D because the sole purchaser
was an accredited investor.
29. On September 9, 1999, we issued 151,923 shares of our common stock to
Vintage Products, Ltd. upon its exercise of warrants granted in January
1999 and June 1999. We used the proceeds of such warrant exercise for
general corporate purposes and/or working capital expenses incurred in the
ordinary course of business.
30. On September 3, 1999, we issued an aggregate of 500,000 shares of our
common stock to Julie, Jeffrey, James, Jami and Janet Jensen upon their
exercise of warrants granted to EXTL
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Investors on April 9, 1999. We used the proceeds of such warrant exercise
for general corporate purposes and/or working capital expenses incurred in
the ordinary course of business.
31. On September 20, 1999, as a contribution to eGlobe/Oasis LLC, and in
connection with our acquisition of control of ORS we issued (a) 1,500,000
shares of our common stock valued at $3.0 million (per share value of
$2.00) and (b) warrants to purchase an indefinite number of shares of
common stock, subject to ORS meeting certain revenue and EBITDA tests. The
warrants are exercisable for the shares of common stock at an exercise
price of $0.01 as discussed below:
(a) shares equal to the difference between $3.0 million and the value of
our 1.5 million share contribution on the date that the shares of
common stock (including the shares underlying the warrants) contributed
to eGlobe/Oasis LLC are registered with the SEC if the value of the 1.5
million shares on that date is less than $3.0 million;
(b) shares equal to $100,000 of our common stock for each 30-day period
beyond 90 days following the date of contribution that the shares of
our common stock (including the shares underlying the warrants)
contributed to eGlobe/Oasis LLC remain unregistered;
(c) shares up to $2.0 million of our common stock, subject to adjustment
based upon ORS achieving certain revenue and EBITDA targets during the
measurement period of August 1, 1999 to January 31, 2000, provided
however, that Oasis may select a different period if: (i) ORS obtains a
new customer contract at any time between the closing date and March
31, 2000 and (ii) we enter into a new contract with a specific customer
at any time between the closing date and March 31, 2000. If either of
these events occur, then Oasis may select as the measurement period, in
its discretion, any of the following; (x) the period from August 1,
1999 to January 31, 2000, (y) the period from September 1, 1999 to
February 29, 2000 or (z) the period from October 1, 1999 to March 31,
2000;
(d) additional shares based upon (1) ORS achieving certain revenue and
EBITDA targets, and (2) the share price of our common stock at the date
of registration of the shares for this transaction. Under certain
circumstances, these shares may be equal to the greater of (A) 50% of
the incremental revenue for the Second Measurement Period (as defined
in the agreements) over $9.0 million or (B) four times the incremental
Adjusted EBITDA (as defined in the agreements) for the Second
Measurement Period over $1.0 million provided, however, that such
number of shares shall not exceed the greater of; (i) 1,000,000 shares
of our common stock or (ii) that the number of shares of our common
stock determined by dividing $8.0 million by the Second Measurement
Period Date Market Value (as defined in the agreements); and provided
further, that if the basis for issuance of such shares is incremental
revenue over $9.0 million then EBITDA for the Second Measurement Period
must be at least $1.0 million for the revenue between $9.0 million and
$12.0 million or at least $1.5 million for revenue above $12.0 million.
In addition, eGlobel Oasis LLC may receive 500,000 shares of our common
stock if the revenue for the Second Measurement Period is equal to or
greater than $37.0 million and the Adjusted EBITDA for the Second
Measurement Period is equal to or greater than $5.0 million.
The shares issued in such private placement were exempt from the registration
requirements of the Securities Act under Rule 506 of Regulation D because
the sole purchaser was an accredited investor.
32. On October 14, 1999, we issued one share of our Series M Preferred Stock
valued at $9.6 million to Highpoint, and assumed $2.8 million of
liabilities in exchange for all of the stock of iGlobe. The Series M
Preferred Stock is convertible, at the option of the holder, one year
after the issue date at a conversion price of $2.385. We have the right,
at any time prior to the holder's exercise of its conversion rights, to
repurchase the Series M Preferred Stock for cash upon a determination by
our board that it has sufficient cash to fund operations and make the
purchase. The share of Series M Preferred Stock shall automatically be
converted into shares of common stock, based on the then-effective
conversion rate, on the earliest to occur of (but no earlier than one year
from issuance) (i) the first date as of which the last reported sales
price of the common stock is $5.00 or
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more for any 10 consecutive trading days during any period in which Series
M Preferred Stock is outstanding, (ii) the date that is seven years after
the issue date, or (iii) the date upon which we close a public offering of
equity securities at a price of at least $4.00 per share and with gross
proceeds of at least $20.0 million. The shares issued in such private
placement were exempt from the registration requirements of the Securities
Act under Rule 506 of Regulation D because the sole purchaser was an
accredited investor.
33. On October 15, 1999, we closed a private placement of $1.9 million with
Safetynet Holdings, David Skriloff, Simon Strauss, Noel Kimmel, Steven
Chrust and Doreen Davidson pursuant to which we issued 1,895 shares of our
Series N Preferred Stock (per share value of $1,000) and granted warrants
valued at $308,000 to purchase (a) 46,588 shares of our common stock at an
exercise price of $3 per share and (b) 172,460 shares of our common stock
at an exercise price of $5 per share. The shares of Series N Preferred
Stock are immediately convertible, at the holder's option, into shares of
our common stock at a conversion price equal to the greater of $2.125 and
101% of the average closing market price per commitment of the holder to
invest (provided however that no shares of Series N Preferred Stock sold
after the first issuance shall have an initial conversion price below the
initial conversion of the shares sold at first issuance) or 85% of the
market price per share of common stock, computing the market price per
share for the purpose of such conversion as equal to the average closing
market price per share for the five trading days immediately prior to the
conversion date, provided however that the conversion price shall not be
greater than the greater of $3.25 or 150% of the initial conversion price.
The Series N Preferred Stock automatically converts into shares of common
stock on the earliest to occur of: (i) the date that is the fifth
anniversary of the issuance of Series N Preferred Stock; (ii) the first
date as of which the last reported sales price of the common stock on
Nasdaq is $6.00 or more for any 15 consecutive trading days during any
period in which Series N Preferred Stock is outstanding; (iii) the date
that 80% or more of the Series N Preferred Stock issued by us has been
converted into common stock, the holders thereof have agreed with us in
writing to convert such Series N Preferred Stock into common stock or a
combination of the foregoing; or (iv) we close a public offering of equity
securities with gross proceeds of at least $25.0 million. The warrants are
exercisable one year from issuance and expire three years from issuance.
The exercise prices vary from $3 to $5 per share. In addition, the holders
may elect to make a cash-less exercise. The Series N Preferred Stock is
immediately convertible. The shares issued in such private placement were
exempt from the registration requirements of the Securities Act under Rule
506 of Regulation D because each purchaser was an accredited investor.
Gerard Klauer Mattison acted as the broker in this transaction and was
paid a 5.25% commission. We used the proceeds of such private placement
for general corporate purposes and/or working capital expenses incurred in
the ordinary course of business.
34. On October 15, 1999, we issued an aggregate of 25,778 shares of our common
stock to David Skriloff and Simon Strauss upon their conversion of shares
of Series N Preferred Stock issued to them on October 15, 1999.
35. In November 1999 we issued 40 shares of our Series J Preferred Stock (per
share value of $100,000) to EXTL Investors as prepayment of $4.0 million
of senior secured notes. The shares of Series J Preferred Stock are
convertible, at the holder's option, into shares of our common stock at
any time at a conversion price, subject to adjustment for certain defined
events, equal to $1.56. The shares of Series J Preferred Stock
automatically convert into our common stock, on the earliest to occur of
(i) the first date as of which the last reported sales price of our common
stock on Nasdaq is $5.00 or more for any 20 consecutive trading days
during any period in which Series J Preferred Stock is outstanding, (ii)
the date that 80% or more of the Series J Preferred Stock we have issued
has been converted into shares of our common stock, or (iii) we complete a
public offering of equity securities at a price of at least $3.00 per
share and with gross proceeds to us of at least $20.0 million. The
securities issued in such private placement were exempt from the
registration requirements of the Securities Act under Rule Regulation D
because the sole purchaser was an accredited investor.
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<PAGE>
36. On November 24, 1999, we closed a $750,000 private placement with Empire CM
and Empire CP pursuant to which we issued 750 shares of our Series N
Preferred Stock (per share value of $1,000) and granted warrants valued at
$111,000 to purchase 82,831 shares of our common stock at an exercise
price of $5 per share. The shares issued in such private placement were
exempt from the registration requirements of the Securities Act under Rule
506 of Regulation D because each purchaser was an accredited investor.
Gerard Klauer Mattison acted as the broker in this transaction and was
paid a 5.25% commission. We used the proceeds of such private placement
for general corporate purposes and/or working capital expenses incurred in
the ordinary course of business. See discussion above at 21 for details
about the convertibility features of the Series N Preferred Stock and the
related warrants.
37. On November 26, 1999, we issued an aggregate of 276,090 shares of our
common stock to Empire CM and Empire CP upon their conversion of shares of
Series N Preferred Stock issued to them on November 24, 1999.
38. On December 1, 1999 we granted warrants valued at $1,082,706 to purchase
400,000 shares of common stock at an exercise price of $1.50 per share to
Gerard Klauer Mattison in exchange for investment services. The warrants
were immediately exercisable and expire on December 4, 2004. The
securities issued were exempt from the registration requirements of the
Securities Act under Rule 506 of Regulation D because each purchaser was
an accredited investor.
39. On December 3, 1999, we issued 16,100 shares of our Series O Preferred
Stock for an aggregate value of $13.4 million (per share value of $832.30)
and 882,904 shares of our common stock for an aggregate value of $3.0
million (per share value of $3.375) to the former stockholders of Coast in
exchange for all of the stock of Coast. The shares of Series O Preferred
Stock are convertible, at the holder's option, into a maximum of 3,220,000
shares of common stock at any time after the later of (a) one year after
the date of issuance and (b) the date we have received stockholder
approval for such conversion and the applicable Hart-Scott-Rodino waiting
period has expired or terminated (the "Clearance Date"), at a conversion
price equal to $5.00. The shares of Series O Preferred Stock will
automatically be converted into shares of common stock, on the earliest to
occur of (i) the fifth anniversary of the first issuance of Series O
Preferred Stock, (ii) the first date as of which the last reported sales
price of common stock on Nasdaq is $6.00 or more for any 15 consecutive
trading days during any period in which Series O Preferred Stock is
outstanding, (iii) the date that 80% or more of the Series O Preferred
Stock we issued has been converted into common stock, or (iv) we complete
a public offering of equity securities with gross proceeds to us of at
least $25.0 million at a price per share of $5.00. Notwithstanding the
foregoing, the Series O Preferred Stock will not be converted into common
stock prior to our receipt of stockholder approval for such conversion,
which was obtained at the March 23, 2000 stockholders' meeting, and the
expiration or termination of the applicable Hart-Scott-Rodino waiting
period. If the events discussed above occur prior to the Clearance Date,
the automatic conversion will occur on the Clearance Date. The shares
issued in such private placement were exempt from the registration
requirements of the Securities Act under Rule 506 of Regulation D because
there were fewer than 35 purchasers, each purchaser was an accredited
investor or with his purchaser representative has such knowledge and
experience in financial and business matters that he is capable of
evaluating the merits and risks of the prospective investment or we
reasonably believed immediately prior to making any sale that such
purchaser fell within this description and we satisfied the information
delivery requirements of Rule 502.
40. On December 10, 1999, we closed a $25,000 private placement with John Dyett
pursuant to which we issued 25 shares of our Series N Preferred Stock (per
share value of $1,000) and granted warrants valued at $4,000 to purchase
2,761 shares of common stock at an exercise price of $5 per share. See
discussion above at 21 for details about the convertibility features of
the Series N Preferred Stock and the related warrants. The securities
issued in such private placement were exempt from the registration
requirements of the Securities Act under Rule 506 of Regulation D because
the sole purchaser was an accredited investor. Gerard Klauer Mattison
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acted as the broker in this transaction and was paid a 5.25% commission. We
used the proceeds of such private placement for general corporate purposes
and/or working capital expenses incurred in the ordinary course.
41. On December 12, 1999, we issued 526,063 shares of our common stock for an
aggregate value of $1.6 million (per share price of $3.125) to Swiftcall
Holding (USA), Ltd., the former stockholder of Swiftcall, as payment of
the first purchase price installment under the Swiftcall purchase
agreement. The shares issued in such private placement were exempt from
the registration requirements of the Securities Act under Rule 506 of
Regulation D because the sole purchaser was an accredited investor.
42. On December 16, 1999 we granted warrants valued at $14,700 to purchase
10,000 shares of common stock at an exercise price of $2.813 per share to
Dr. Joginder Soni in exchange for an extension of a note held by Dr. Soni.
The warrants are immediately exercisable and expire on December 31, 2002.
The securities issued were exempt from the registration requirements of
the Securities Act under Rule 506 of Regulation D because the sole
purchaser was an accredited investor.
43. On December 16, 1999, we issued 430,128 shares of our common stock to
various members of our senior management team. The securities issued in
such private placement were exempt from the registration requirements of
the Securities Act under Rule 506 of Regulation D because there were fewer
than 35 purchasers, each purchaser was an accredited investor or with his
purchaser representative has such knowledge and experience in financial
and business matters that he is capable of evaluating the merits and risks
of the prospective investment or we reasonably believed immediately prior
to making any sale that such purchaser fell within this description and we
satisfied the information delivery requirements of Rule 502. The employees
issued notes receivable to us for the purchase of the shares.
44. On December 29, 1999, we issued 1,087,500 shares of our common stock to
Vintage Products, Ltd. upon its conversion of 15 shares of Series D
Preferred Stock plus accrued dividends.
45. In January 2000 we closed a $525,000 private placement with the Schow
Family Trust and Stephen Prough, pursuant to which we issued 525 shares of
our Series N Preferred Stock (per share value of $1,000) and granted
warrants valued at $157,000 to purchase 46,618 shares of common stock at
an exercise price of $7.50 per share. See discussion above at 21 for
details about the convertibility and conversion features of Series N
Preferred Stock and the related warrants. The securities issued in such
private placement were exempt from the registration requirements of the
Securities Act under Rule 506 of Regulation D because each purchaser was
an accredited investor. Gerard Klauer Mattison acted as the broker in this
transaction and was paid a 5.25% commission. We used the proceeds of such
private placement for general corporate purposes and/or working capital
expenses incurred in the ordinary course of business.
46. On January 3, 2000, we issued an aggregate of 1,209,584 shares of our
common stock to the former stockholders of Telekey upon their conversion
of shares of Series F Preferred Stock.
47. On January 12, 2000, we issued 500,000 shares of our common stock to IDT
Corporation upon its exercise of warrants granted in connection with its
$7,500,000 loan in February 1998. We used the proceeds of such warrant
exercise for general corporate purposes and/or working capital expenses
incurred in the ordinary course of business.
48. On January 13, 2000, we issued 150,726 shares of our common stock to
current Series N stockholders upon their conversion of shares of Series N
Preferred Stock.
49. On January 14, 2000, we issued 1,087,500 shares of our common stock to
Vintage Products Ltd. upon its conversion of 15 shares of Series D
Preferred Stock plus accrued dividends.
50. On January 19, 2000, we issued 1,450,000 shares of our common stock to
Vintage Products Ltd. upon its conversion of 20 shares of Series D
Preferred Stock plus accrued dividends.
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51. On January 26, 2000, we issued 390,302 shares of our common stock to
current Series N stockholders upon their conversion of shares of Series N
Preferred Stock.
52. On January 28, 2000, we concluded a $15 million private placement with RGC
International Investors, LDC pursuant to which we issued 15,000 shares of
our Series P Preferred Stock (per share value of $1,000) and warrants
valued at $2.3 million to purchase 375,000 shares of our common stock with
an exercise price of $12.04 per share. The warrants are exercisable after
January 27, 2000 and expire on January 27, 2005. The Series P Preferred
Stock is convertible, at the holder's option, into shares of common stock.
The shares of Series P Preferred Stock will automatically be converted
into shares of common stock on January 26, 2003, subject to delay for
specified events. The conversion price for the Series P Preferred Stock is
$12.04 until April 27, 2000, and thereafter is equal to the lesser of the
five day average closing price of our common stock on Nasdaq during the
22-day period prior to conversion, and $12.04. We can force a conversion
of the Series P Preferred Stock on any trading day following a period in
which the closing bid price of our common stock has been greater than
$24.08 for a period of at least 35 trading days after the earlier of (1)
the first anniversary of the date the common stock issuable upon
conversion of the Series P Preferred Stock and warrants are registered for
resale, and (2) the completion of a firm commitment underwritten public
offering with gross proceeds to us of at least $45.0 million. We may be
required to redeem the Series P Preferred Stock in the following
circumstances:
o if we fail to timely file all reports required to be filed with the SEC
in order to become eligible and maintain our eligibility for the use of
SEC Form S-3;
o if we fail to register the shares of common stock issuable upon
conversion of the Series P Preferred Stock and associated warrants with
the SEC by July 15, 2000;
o if we fail to timely honor conversions of the Series P Preferred Stock;
o if we fail to use our best efforts to maintain at least 6,000,000 shares
of common stock reserved for the issuance upon conversion of the Series
P Preferred Stock and associated warrants;
o if we fail to issue irrevocable instructions to our transfer agent to
issue common stock certificates for conversion shares and warrant
shares;
o if we or any of our subsidiaries make an assignment for the benefit of
creditors or become involved in bankruptcy, insolvency, reorganization
or liquidation proceedings;
o if we merge out of existence without the surviving company assuming the
obligations relating to the Series P Preferred Stock;
o if our common stock is no longer listed on the Nasdaq National Market,
which is where our common stock is listed at present or, if we cease to
be listed on the Nasdaq National Market, our common stock is not
alternatively listed on the Nasdaq SmallCap Market, the New York Stock
Exchange or the American Stock Exchange;
o if the Series P Preferred Stock is no longer convertible into common
stock because it would result in an aggregate issuance of more than
5,151,871 shares of common stock, as such number may be adjusted, and we
have not waived such limit; or
o if, assuming we have waived the 5,151,871 limit above, the Series P
Preferred Stock is no longer convertible into common stock because it
would result in an aggregate issuance of more than 7,157,063 shares of
our common stock and we have not obtained stockholder approval of a
higher limit.
The securities issued in such private placement were exempt from the
registration requirements of the Securities Act under Rule 506 of
Regulation D because each purchaser was an accredited investor. Gerard
Klauer Mattison acted as the broker in this transaction and was paid a
5.25% commission. We used the proceeds of such private placement for
working capital purposes and the integration of Trans Global.
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53. On January 31, 2000, we issued 2,352,941 shares of common stock to EXTL
Investors upon the automatic conversion of the Series E Preferred Stock.
54. On January 31, 2000, we issued 3,262,500 shares of our common stock to the
former IDX stockholders upon the automatic conversion of the Series H
Preferred Stock.
55. On January 31, 2000, we issued 1,923,077 shares of our common stock to
American United Global, Inc. upon the automatic conversion of the Series K
Preferred Stock.
56. On January 31, 2000, we issued 2,564,102 shares of common stock to EXTL
Investors upon the automatic conversion of the Series J Preferred Stock.
57. On February 14, 2000, we issued 166,304 shares of common stock upon
conversion of the Series I Preferred Stock to the former stockholders of
IDX.
58. On March 17, 2000, we concluded a $10 million private placement with RGC
International Investors, LDC pursuant to which (a) we issued 4,000 shares
of our Series Q Preferred Stock and warrants to purchase 100,000 shares of
common stock valued at $739,000 for $4 million and (b) will issue an
additional 6,000 shares of Series Q Preferred Stock and warrants to
purchase 150,000 shares of common stock for $6 million upon effectiveness
of the registration statement covering such shares. The warrants have an
exercise price of $12.04 per share, are exercisable after March 17, 2000
and expire on March 17, 2005. The shares of Series Q Preferred Stock are
convertible, at the holder's option, into shares of common stock. The
shares of Series Q Preferred Stock will automatically be converted into
shares of common stock on March 15, 2003, subject to delay for specified
events. The conversion price for the Series Q Preferred Stock is $12.04
until April 26, 2000, and thereafter is equal to the lesser of the five
day average closing price of our common stock on Nasdaq during the 22-day
period prior to conversion, and $12.04. We can force a conversion of the
Series Q Preferred Stock on any trading day following a period in which
the closing bid price of our common stock has been greater than $24.08 for
a period of at least 20 trading days after the earlier of (1) the first
anniversary of the date the common stock issuable upon conversion of the
Series Q Preferred Stock and warrants is registered for resale, and (2)
the completion of a firm commitment underwritten public offering with
gross proceeds to us of at least $45.0 million. We may be required to
redeem the Series Q Preferred Stock in the following circumstances:
o if we fail to timely file all reports required to be filed with the SEC
in order to become eligible and maintain our eligibility for the use of
SEC Form S-3;
o if we fail to register the shares of common stock issuable upon
conversion of the Series Q Preferred Stock and associated warrants with
the SEC by July 15, 2000;
o if we fail to timely honor conversions of the Series Q Preferred Stock;
o if we fail to use our best efforts to maintain at least 4,000,000 shares
of common stock reserved for the issuance upon conversion of the Series
Q Preferred Stock and associated warrants;
o if we fail to issue irrevocable instructions to our transfer agent to
issue common stock certificates for conversion shares and warrant
shares;
o if we or any of our subsidiaries make an assignment for the benefit of
creditors or become involved in bankruptcy insolvency, reorganization or
liquidation proceedings;
o if we merge out of existence without the surviving company assuming the
obligations relating to the Series Q Preferred Stock;
o if our common stock is no longer listed on the Nasdaq National Market,
which is where our common stock is listed at present or, if we cease to
be listed on the Nasdaq National Market, our common stock is not
alternatively listed on the Nasdaq SmallCap Market, the New York Stock
Exchange or the American Stock Exchange;
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o if the Series Q Preferred Stock is no longer convertible into common
stock because it would result in an aggregate issuance of more than
3,434,581 shares of common stock, as such number may be adjusted, and we
have not waived such limit; or
o if, assuming we have waived the 3,434,581 limit above, the Series Q
Preferred Stock is no longer convertible into common stock because it
would result in an aggregate issuance of more than 7,157,063 shares of
our common stock and we have not waived such limit or obtained
stockholder approval at a higher limit.
The securities issued in such private placement were exempt from the
registration requirements of the Securities Act under Rule 506 of
Regulation D because the sole purchaser was an accredited investor. Gerard
Klauer Mattison acted as the broker in this transaction and was paid a
5.25% commission. We used the proceeds from such private placement for
working capital purposes.
59. On March 23, 2000, we issued 40,000,000 shares of our common stock to the
stockholders of Trans Global in exchange for all of the outstanding stock
of Trans Global, 2,000,000 of which were placed in escrow. We issued
another 2,000,000 shares that were placed in escrow in connection with the
same transaction. The shares issued in such private placement were exempt
from the registration requirements of the Securities Act under Rule 506 of
Regulation D because the sole purchaser was an accredited investor. Gerard
Klauer Mattison acted as the broker in this transaction and was paid a
5.25% commission.
60. On April 19, 2000, we issued warrants to purchase 8,259 shares of common
stock to Penny Vane for marketing services. The securities issued in such
private placement were exempt from the registration requirements of the
Securities Act under Rule 506 of Regulation D because the purchaser was an
accredited investor or with her purchaser representative has such
knowledge and experience in financial and business matters that she is
capable of evaluating the merits and risks of the prospective investment
or we resonably believed immediately prior to making any sale that such
purchase fell within this description and we satisfied the information
delivery requirements of Rule 502.
61. On April 26, 2000, we issued 4,000,000 shares of common stock to eGlobe No.
1 LLC as our capital contribution in the single member limited liability
company. The shares issued in such private placement were exempt from the
registration requirements of the Securities Act under Rule 506 of
Regulation D because the purchaser was an accredited investor.
62. On April 28, 2000, we issued 3,773,584 shares of common stock in exchange
for the outstanding share of Series M Preferred Stock. The shares issued
in such private placement were exempt from the registration requirements
of the Securities Act under Rule 506 of Regulation D because the purchaser
was an accredited investor.
63. On April 30, 2000, we issued 3,220,000 shares of common stock to former
stockholders of Coast upon conversion of the Series O Preferred Stock.
64. On May 15, 2000, we issued warrants to purchase 100,000 shares of common
stock to Wolfe Axelrod Weinberger as a retainer for investment consulting
services. The securities issued in such private placement were exempt from
the registration requirements of the Securities Act under Rule 506 of
Regulation D because the purchaser was an accredited investor.
65. On May 22, 2000, we issued warrants to purchase 204,909 shares of common
stock to Oasis as part of an earnout. The warrants were exercised upon
issuance. We used the proceeds of such warrant exercise for general
corporate purposes and/or working capital expenses incurred in the
ordinary course of business.
66. On May 22, 2000, we issued warrants to purchase 400,000 shares of common
stock to Howard Katz in exchange for his cancellation of certain options
to acquire an equity interest in one of our wholly owned subsidiaries. The
warrants have an exercise price of $2.25 per share and are
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exercisable immediately and expire on May 22, 2003. The securities issued
in such private placement were exempt from the registration requirements of
the Securities Act under Rule 506 of Regulation D because the sole
purchaser was an accredited investor.
67. On May 23, 2000, we issued 543,270 shares of common stock and warrants to
purchase 180,000 shares of common stock to Seymour Gordon and his
affiliates upon conversion of a loan to Mr. Gordon. The securities issued
in such private placement were exempt from the registration requirements
of the Securities Act under Rule 506 of Regulation D because each
purchaser was an accredited investor.
68. On May 24, 2000, we issued 757,500 shares of common stock to the former
Telekey stockholders in payment of an earnout. The shares issued in such
private placement were exempt from the registration requirements of the
Securities Act under Rule 506 of Regulation D because each purchaser was
an accredited investor.
69. On June 28, 2000, we issued 10,013 shares of common stock to TI Partners as
payment for investment services. The shares issued in such private
placement were exempt from the registration requirements of the Securities
Act under Rule 506 of Regulation D because the purchaser was an accredited
investor.
70. On July 11, 2000, we issued 938,210 shares of common stock to the former
stockholders of IDX upon conversion of the Series I Preferred Stock.
71. On July 12, 2000, we issued 37,500 shares of common stock to Seymour
Gordon. The shares issued in such private placement were exempt from the
registration requirements of the Securities Act under Rule 506 of
Regulation D because the purchaser was an accredited investor.
72. On July 12, 2000, we issued 371,675 shares of common stock to Swiftcall
Holding (USA), Ltd., the former stockholder of Swiftcall, as payment of
the second purchase price installment under the Swiftcall purchase
agreement and 73,883 shares as common stock into escrow pursuant to the
same agreement. The shares issued in such private placement were exempt
from the registration requirements of the Securities Act under Rule 506 of
Regulation D because the purchaser was an accredited investor.
73. On August 25, 2000, we issued Tower Hill Investments Limited 1,071,429
shares of our common stock and warrants to purchase 160,714 shares of our
common stock in a private placement for an aggregate purchase price of
$1,500,000. The warrants have an exercise price of $1.40 per share and are
exercisable immediately and expire on August 24, 2005. The securities
issued in such private placement were exempt from the registration
requirements of the Securities Act under Rule 506 of Regulation D because
the purchaser was an accredited investor. We used the proceeds of such
private placement for general corporate purposes and/or working capital
expenses incurred in the ordinary course of business.
74. On September 12, 2000, we issued EXTL-Special Investment Risks, LLC
warrants to purchase 1,000,000 shares of our common stock in connection
with the amendment of a loan agreement. The warrants have an exercise
price of $1.94 per share and are exercisable immediately and expire on
July 1, 2004. The securities issued in such private placement were exempt
from the registration requirements of the Securities Act under Rule 506 of
Regulation D because the purchaser was an accredited investor.
See "Executive Compensation" for information regarding the grant of
options to purchase shares of Common Stock to some of our employees under our
1995 Employee Stock Option and Appreciation Rights Plan as partial
consideration for the execution of employment, confidentiality and
non-competition agreements and to our directors under the Director Stock Option
Plan as consideration for services provided.
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
--------- ---------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger, dated February 3, 1999, by and among Executive TeleCard,
Ltd., Telekey, Inc., eGlobe Merger Sub No. 2, Inc. and the stockholders of Telekey, Inc.
(Incorporated by reference to Exhibit 2.1 in Current Report on Form 8-K of Executive
TeleCard, Ltd., dated March 1, 1999).
2.2 Asset Purchase Agreement, dated July 10, 1998, by and among Executive TeleCard, Ltd.,
American United Global, Inc., Connectsoft Communications Corporation, Connectsoft
Holding Corp., and C-Soft Acquisition Corp. (Incorporated by reference to Exhibit 2.1 in
Current Report on Form 8-K filed on July 2, 1999).
2.3 Amendment No. 1 to Asset Purchase Agreement, dated July 30, 1998, by and among
Executive TeleCard, Ltd., American United Global, Inc., Connectsoft Communications
Corporation, Connectsoft Holding Corp., and C-Soft Acquisition Corp. (Incorporated by
reference to Exhibit 2.2 in Current Report on Form 8-K filed on July 2, 1999).
2.4 Amendment No. 2 to Asset Purchase Agreement, dated August _, 1998, by and among
Executive TeleCard, Ltd., American United Global, Inc., Connectsoft Communications
Corporation, Connectsoft Holding Corp., and C-Soft Acquisition Corp. (Incorporated by
reference to Exhibit 2.3 in Current Report on Form 8-K filed on July 2, 1999).
2.5 Amendment No. 3 to Asset Purchase Agreement, dated June 17, 1999, by and among
Executive TeleCard, Ltd., American United Global, Inc., Connectsoft Communications
Corporation, Connectsoft Holding Corp., and C-Soft Acquisition Corp. (Incorporated by
reference to Exhibit 2.4 in Current Report on Form 8-K filed on July 2, 1999).
2.6 Assignment and Assumption Agreement, dated as of June 17, 1999, by and among Vogo
Networks, LLC, Connectsoft Communications Corporation, and Connectsoft Holding Corp.
(Incorporated by reference to Exhibit 2.5 in Current Report on Form 8-K filed on July 2,
1999).
2.7 Exchange Agreement dated July 26, 1999, by and between the former stockholders of IDX
International, Inc. and eGlobe, Inc. (Incorporated by reference to Exhibit 2.1 in Current
Report on Form 8-K/A filed on August 31, 1999).
2.8 Exchange Agreement dated as of September 3, 1999 by and between eGlobe, Inc. and
American United Global, Inc. (Incorporated by reference to Exhibit 2.1 in Current Report
on Form 8-K filed on September 3, 1999).
2.9 Contribution Agreement by and among eGlobe, Inc., eGlobe/OASIS, Inc., OASIS
Reservation Services, Inc., Outsourced Automated Services and Integrated Solutions, Inc.
and eGlobe/Oasis Reservations LLC, dated as September 15, 1999. (Incorporated by
reference to Exhibit 2.1 in Current Report on Form 8-K filed on October 5, 1999).
2.10 Stock Purchase Agreement dated as of October 4, 1999 by and among eGlobe, Inc., iGlobe,
Inc. and Highpoint Telecommunications, Inc. (Incorporated by reference to Exhibit 2.1 in
Current Report on Form 8-K filed on October 29, 1999).
2.11 Agreement and Plan of Merger dated as of November 29, 1999 by and among eGlobe, Inc.,
eGlobe Merger Sub No. 5, Inc., Coast International, Inc. and the Stockholders of Coast
International, Inc. (Incorporated by reference to Exhibit 2.1 in Current Report on Form 8-K
of eGlobe, Inc., dated December 17, 1999).
2.12 Agreement and Plan of Merger dated as of December 16, 1999 by and among eGlobe, Inc.,
eGlobe, Merger Sub No. 6, Inc., Trans Global Communications, Inc., and the Stockholders
of Trans Global Communications, Inc. (Incorporated by reference to Exhibit 2.1 in Current
Report on Form 8-K of eGlobe, Inc., dated December 30, 1999).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
--------- -------------------------------------------------------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation as amended June 16, 1999 (Incorporated by reference
to Exhibit 3.1 in Quarterly Report on Form 10-Q of eGlobe, Inc., for the period ended
June 30, 1999).
3.2 Certificate of Amendment of Restated Certificate of Incorporation, dated July 8, 1999
(Incorporated by reference to Exhibit 3.2 in Annual Report on Form 10-K of eGlobe, Inc.
filed April 7, 2000).
3.3 Certificate of Amendment of Restated Certificate of Incorporation, dated March 23, 2000
(Incorporated by reference to Exhibit 3.3 in Annual Report on Form 10-K of eGlobe, Inc.
filed April 7, 2000).
3.4 Certificate of Elimination to Certificate of Designations, Rights and Preferences of Series A
Convertible Preferred Stock of eGlobe, Inc. (Incorporated by reference to Exhibit 3.4 in
Annual Report on Form 10-K of eGlobe, Inc. filed April 7, 2000).
3.5 Certificate of Elimination to Certificate of Designations, Rights and Preferences of Series B
Convertible Preferred Stock of eGlobe, Inc. (Incorporated by reference to Exhibit 3.5 in
Annual Report on Form 10-K of eGlobe, Inc. filed April 7, 2000).
3.6 Certificate of Elimination to Certificate of Designations, Rights and Preferences of 8%
Series C Cumulative Convertible Preferred Stock of eGlobe, Inc. (Incorporated by reference
to Exhibit 3.6 in Annual Report on Form 10-K of eGlobe, Inc. filed April 7, 2000).
3.7 Certificate of Elimination to Certificate of Designations, Rights and Preferences of 8%
Series D Cumulative Convertible Preferred Stock of eGlobe, Inc. (Incorporated by reference
to Exhibit 3.7 in Annual Report on Form 10-K of eGlobe, Inc. filed April 7, 2000).
3.8 Certificate of Designations, Rights and Preferences of 8% Series E Cumulative Convertible
Redeemable Preferred Stock of eGlobe, Inc. (filed as part of the Restated Certificate of
Incorporation at Exhibit 3.1).
3.9 Certificate of Elimination to Certificate of Designations, Rights and Preferences of Series F
Convertible Preferred Stock of eGlobe, Inc. (Incorporated by reference to Exhibit 3.9 in
Annual Report on Form 10-K/A of eGlobe, Inc. filed September 13, 2000).
3.10 Certificate of Elimination to Certificate of Designations, Rights and Preferences of 6% Series G
Cumulative Convertible Redeemable Preferred Stock of eGlobe, Inc. (Incorporated by
reference to Exhibit 3.10 in Annual Report on Form 10-K of eGlobe, Inc. filed April 7, 2000).
3.11 Certificate of Elimination to Certificate of Designations, Rights and Preferences of Series H
Convertible Preferred Stock of eGlobe, Inc. (Incorporated by reference to Exhibit 3.11 in
Annual Report on Form 10-K of eGlobe, Inc. filed April 7, 2000).
3.12 Certificate of Elimination to Certificate of Designations, Rights and Preferences of Series I
Convertible Optional Redeemable Preferred Stock of eGlobe, Inc. (Incorporated by reference
to Exhibit 3.12 in Annual Report on Form 10-K/A of eGlobe, Inc., dated September 13, 2000).
3.13 Certificate of Elimination to Certificate of Designations, Rights and Preferences of 5% Series J
Cumulative Convertible Preferred Stock of eGlobe, Inc. (Incorporated by reference to
Exhibit 3.13 in Annual Report on Form 10-K of eGlobe, Inc. filed April 7, 2000).
3.14 Certificate of Elimination to Certificate of Designations, Rights and Preferences of 5% Series K
Cumulative Convertible Preferred Stock of eGlobe, Inc. (Incorporated by reference to
Exhibit 3.14 in Annual Report on Form 10-K of eGlobe, Inc. filed April 7, 2000).
3.15 Certificate of Elimination to Certificate of Designations, Rights and Preferences of 20% Series
M Cumulative Convertible Preferred Stock of eGlobe, Inc. (Incorporated by reference to
Exhibit 3.15 in Annual Report on Form 10-K/A of eGlobe, Inc. filed September 13, 2000).
3.16 Certificate of Elimination to Certificate of Designations, Rights and Preferences of 8% Series N
Cumulative Convertible Preferred Stock of eGlobe, Inc. (Incorporated by reference to
Exhibit 3.16 in Annual Report on Form 10-K of eGlobe, Inc. filed April 7, 2000).
</TABLE>
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3.17 Certificate of Designations, Rights, Preferences and Restrictions of 10% Series O
Cumulative Convertible Preferred Stock of eGlobe, Inc. (Incorporated by reference to
Exhibit 2.1 in Current Report on Form 8-K of eGlobe, Inc., dated December 17, 1999).
3.18 Certificate of Designations, Rights, Preferences and Restrictions of Series P Convertible
Preferred Stock of eGlobe, Inc. (Incorporated by reference to Exhibit 4.1 in Current Report
on Form 8-K of eGlobe, Inc. filed February 15, 2000).
3.19 Certificate of Designations, Rights, Preferences and Restrictions of Series Q Convertible
Preferred Stock of eGlobe, Inc. (Incorporated by reference to Exhibit 4.1 in Current Report
on Form 8-K of eGlobe, Inc. filed March 23, 2000).
3.20 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.4 in Annual Report
on Form 10-K of eGlobe, Inc. for the fiscal year ended March 31, 1998).
3.21 Amendment to Bylaws (Incorporated by reference to Exhibit 3.4 in Annual Report on
Form 10-K of eGlobe, Inc., for the period ended December 31, 1998).
4.1 Forms of Warrant to purchase shares of common stock of eGlobe, Inc. (Incorporated by
reference to Exhibit 4.8 in Annual Report on Form 10-K of eGlobe, Inc., for the period
ended December 31, 1998).
4.2 Compensation Agreement, dated September 2, 1998, between eGlobe, Inc., C-Soft
Acquisition Corp. and Brookshire Securities Corp., providing a warrant to purchase 2,500
shares of common stock of eGlobe, Inc. (Incorporated by reference to Exhibit 4.13 in
Annual Report on Form 10-K of eGlobe, Inc., for the period ended December 31, 1998).
4.3 Agreement, dated June 18, 1998, by and between eGlobe, Inc. and Seymour Gordon
(Incorporated by reference to Exhibit 4.14 in Annual Report on Form 10-K of eGlobe, Inc.,
for the period ended December 31, 1998).
4.4 Promissory Note in the original principal amount of $1,000,000 dated June 18, 1998, between
eGlobe, Inc. and Seymour Gordon (Incorporated by reference to Exhibit 4.15 in Annual
Report on Form 10-K of eGlobe, Inc., for the period ended December 31, 1998).
4.5 Promissory Note of C-Soft Acquisition Corp., as maker, and eGlobe, Inc., as guarantor,
payable to Dr. J. Soni in the original principal amount of $250,000, dated September 1,
1998, providing a warrant to purchase 25,000 shares of common stock of eGlobe, Inc.
(Incorporated by reference to Exhibit 4.17 in Annual Report on Form 10-K of eGlobe, Inc.,
for the period ended December 31, 1998).
4.6 Form of Warrant to purchase 5,000,000 shares of common stock of eGlobe, Inc. issued to
EXTL Investors LLC (Incorporated by reference to Exhibit 4.1 in Current Report on Form
8-K of eGlobe filed July 19, 1999).
4.7 Form of Warrants to purchase up to 1,250,000 shares of common stock of eGlobe, Inc.
(Incorporated by reference to Exhibit 4.7 in Current Report on Form 8-K/A of eGlobe, Inc.,
dated August 31, 1999).
4.8 Form of Warrants to purchase shares of common stock of eGlobe, Inc. dated as of
September 15,1999 (Incorporated by reference to Exhibit 4.1 in Current Report on Form
8-K of eGlobe filed October 5, 1999).
4.9 Form of Warrants to purchase shares of common stock of eGlobe, Inc. dated as of
October 15, 1999. (Incorporated by reference to Exhibit 4.6 in Quarterly Report on Form
10-Q of eGlobe, Inc., for the period ended September 30, 1999).
4.10 Form of Warrants to purchase 375,000 shares of common stock of eGlobe, Inc. dated as of
January 26, 2000 (Incorporated by reference to Exhibit 4.2 in Current Report on Form 8-K
of eGlobe, Inc. filed February 15, 2000).
</TABLE>
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4.11 Form of Warrants to purchase 100,000 shares of common stock of eGlobe, Inc. dated as of
March 15, 2000 (Incorporated by reference to Exhibit 4.2 in Current Report on Form 8-K of
eGlobe, Inc. filed March 23, 2000).
4.12 Form of Warrants to purchase 60,000 shares of common stock of eGlobe, Inc. dated as of
August 25, 1999 (Incorporated by reference to Exhibit 4.12 in Annual Report on Form 10-K
of eGlobe, Inc. filed April 7, 2000).
4.13 Securities Purchase Agreement, dated March 15, 2000, between eGlobe, Inc. and RGC
International Investors, LDC (Incorporated by reference to Exhibit 10.1 in Current Report
on Form 8-K of eGlobe, Inc. filed March 23, 2000).
4.14 Form of Warrants to purchase 100,000 shares of common stock of eGlobe, Inc. dated as of
August 17, 2000.
4.15 Form of Warrants to purchase 160,714 shares of common stock of eGlobe, Inc. dated as of
August 25, 2000.
4.16 Form of Warrants to purchase 1,000,000 shares of common stock of eGlobe, Inc. dated as of
September 12, 2000.
5.1 Opinion of Hogan & Hartson.
10.1 Promissory Note and Stock Option Agreement between Executive TeleCard, Ltd. and
World Wide Export, Ltd., dated February 28, 1996 (Incorporated by reference to Exhibit
10.20 in Form 10-K of Executive TeleCard, Ltd., for the fiscal year ended March 31, 1996).
10.2 Promissory Note and Stock Option Agreement between Executive TeleCard, Ltd. and
Seymour Gordon, dated February 28, 1996 (Incorporated by reference to Exhibit 10.21 in
Form 10-K of Executive TeleCard, Ltd., for the fiscal year ended March 31, 1996).
10.3 Promissory Note and Stock Option Agreement between Executive TeleCard, Ltd. and
Network Data Systems, Limited, dated June 27, 1996 (Incorporated by reference to Exhibit
10.2 in Quarterly Report on Form 10-Q of Executive TeleCard, Ltd., for the period ended
June 30, 1996).
10.4 Settlement Agreement, dated April 2, 1998, between Executive TeleCard, Ltd. and parties
to In re: Executive TeleCard, Ltd. Securities Litigation, Case No. 94 Civ. 7846 (CLB),
U.S.D.C., S.D.N.Y. (Incorporated by reference to Exhibit 10.8 in Annual Report on Form
10-K of Executive TeleCard, Ltd., for the fiscal year ended March 31, 1998).
10.5 1995 Employee Stock Option and Appreciation Rights Plan, as amended and restated.
10.6 Employment Agreement for Christopher J. Vizas, dated December 5, 1997 (Incorporated by
reference to Exhibit 10 to Quarterly Report on Form 10-Q of Executive TeleCard, Ltd., for
the period ended December 31, 1997).
10.7 Employment Agreement for Bijan Moaveni, dated December 3, 1999. (Incorporated by
reference to Exhibit 10.7 in Annual Report on Form 10-K of eGlobe, Inc. filed on
April 7, 2000).
10.8 Employment Agreement for David Skriloff, dated January 1, 2000. (Incorporated by
reference to Exhibit 10.8 in Annual Report on Form 10-K of eGlobe, Inc. filed on
April 7, 2000).
10.9 Employment Agreement for Ronald A. Fried, dated February 20, 1998. (Incorporated by
reference to Exhibit 10.9 in Annual Report on Form 10-K of eGlobe, Inc. filed on
April 7, 2000).
10.10 Security Agreement, dated as of June 17, 1999, by and between American United Global,
Inc. and Vogo Networks, LLC. (Incorporated by reference to Exhibit 10.1 in Current
Report on Form 8-K of eGlobe filed July 2, 1999).
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10.11 Side Letter, dated June 16, 1999, between EXTL Investors LLC and eGlobe, Inc.
(Incorporated by reference to Exhibit 10.2 in Current Report on Form 8-K of eGlobe filed
July 19, 1999).
10.12 Amendment No. 1 to Loan and Note Purchase Agreement, dated June 30, 1999, between
EXTL Investors LLC, eGlobe Financing Corporation, IDX Financing Corporation and
Telekey Financing Corporation and eGlobe, Inc. (Incorporated by reference to Exhibit 10.3
in Current Report on Form 8-K of eGlobe filed July 19, 1999).
10.13 Form of Secured Promissory Note in the original principal amount of $20,000,000, dated
June 30, 1999, of eGlobe Financing Corporation, IDX Financing Corporation and Telekey
Financing Corporation payable to EXTL Investors LLC (Incorporated by reference to
Exhibit 10.4 in Current Report on Form 8-K of eGlobe filed July 19, 1999).
10.14 Subscription Agreement, dated April 9, 1999, between Executive TeleCard, Ltd. and eGlobe
Financing Corporation (Incorporated by reference to Exhibit 10.18 in Annual Report on
Form 10-K of Executive Telecard, Ltd., for the period ended December 31, 1998).
10.15 Security Agreement, dated June 30, 1999, among eGlobe Financing Corporation, IDX
Financing Corporation, Telekey Financing Corporation and EXTL Investors LLC
(Incorporated by reference to Exhibit 10.5 in Current Report on Form 8-K of eGlobe filed
July 19, 1999).
10.16 Security Agreement, dated June 30, 1999, among eGlobe, Inc., IDX International, Inc. and
EXTL Investors LLC (Incorporated by reference to Exhibit 10.6 in Current Report on
Form 8-K of eGlobe filed July 19, 1999).
10.17 Guaranty, dated June 30, 1999, among eGlobe, Inc., IDX International, Inc. and EXTL
Investors LLC (Incorporated by reference to Exhibit 10.7 in Current Report on Form 8-K
of eGlobe filed July 19, 1999).
10.18 Form of Accounts Receivable Revolving Credit Note in the original principal amount of up
to $20,000,000, dated June 30, 1999, of eGlobe Financing Corporation, IDX Financing
Corporation and Telekey Financing Corporation payable to EXTL Investors LLC
(Incorporated by reference to Exhibit 10.8 in Current Report on Form 8-K of eGlobe filed
July 19, 1999).
10.19 Operating Agreement of eGlobe/Oasis Reservations LLC by and among eGlobe/OASIS, Inc.
and Outsourced Automated Services and Integrated Solutions, Inc., dated as September 15,
1999. (Incorporated by reference to Exhibit 10.8 in Current Report on Form 8-K of eGlobe
filed July 19, 1999).
10.20 Guaranty by and between eGlobe, Inc. and Outsourced Automated Services and Integrated
Solutions, Inc. (Incorporated by reference to Exhibit 10.8 in Current Report on Form 8-K of
eGlobe filed July 19, 1999).
10.21 Pledge Agreement by and between eGlobe, Inc. and Outsourced Automated Services and
Integrated Solutions, Inc. (Incorporated by reference to Exhibit 10.8 in Current Report on
Form 8-K of eGlobe filed July 19, 1999).
10.22 Guaranty by and between eGlobe, Inc. and Outsourced Automated Services and Integrated
Solutions, Inc. (Incorporated by reference to Exhibit 10.1 in Current Report on Form 8-K of
eGlobe filed October 5, 1999).
10.23 Pledge Agreement by and between eGlobe, Inc. and Outsourced Automated Services and
Integrated Solutions, Inc. (Incorporated by reference to Exhibit 10.2 in Current Report on
Form 8-K of eGlobe filed October 5, 1999).
10.24 Transition Management & Services Agreement between eGlobe, Inc. and Highpoint
Telecommunications Inc. dated as of August 1, 1999 (Incorporated by reference to Exhibit
10.1 in Current Report on Form 8-K of eGlobe filed October 29, 1999).
</TABLE>
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10.25 1995 Directors Stock Option and Appreciation Rights Plan, as amended and restated.
(Incorporated by reference to Exhibit 10.10 Annual Report on Form 10-K of Executive
Telecard, Ltd., for the fiscal year ended March 31, 1998).
10.26 Stock Purchase Agreement, dated August 25, 1999, between eGlobe, Inc. and Seymour
Gordon. (Incorporated by reference to Exhibit 10.26 in Annual Report on Form 10-K of
eGlobe, Inc. filed on April 7, 2000).
10.27 Promissory Note in original amount of $310,000 dated March 21, 1998 of eGlobe, Inc.
payable to Commercial Federal Bank. (Incorporated by reference to Exhibit 10.27 in
Annual Report on Form 10-K of eGlobe, Inc. filed on April 7, 2000).
10.28 Agreement for Provision of Calling Card Services, dated August __, 1998, between eGlobe,
Inc. (formerly known as Executive TeleCard Ltd.) and American Prepaid. (Incorporated by
reference to Exhibit 10.28 in Annual Report on Form 10-K of eGlobe, Inc. filed on April 7,
2000).
10.29 Telecommunications Services Agreement, dated July 30, 1999, between IDX International,
Inc. and Destia Communications Services, Inc. (Incorporated by reference to Exhibit 10.29
in Annual Report on Form 10-K of eGlobe, Inc. filed on April 7, 2000).
10.30 Reciprocal Telecommunications Services Agreement, dated June 23, 1998, between IDX
International, Inc. and Teleglobe USA Inc. (Incorporated by reference to Exhibit 10.30 in
Annual Report on Form 10-K of eGlobe, Inc. filed on April 7, 2000).
10.31 Telecommunications Services Agreement, dated September 1, 1999, between IDX
International, Inc. and TeleDenmark USA, Inc. (Incorporated by reference to Exhibit 10.31
in Annual Report on Form 10-K of eGlobe, Inc. filed on April 7, 2000).
10.32 Reciprocal Telecommunications Services Agreement, dated October 29, 1999, between IDX
International, Inc. and Trans Global Communications, Inc. (Incorporated by reference to
Exhibit 10.32 in Annual Report on Form 10-K of eGlobe, Inc. filed on April 7, 2000).
10.33 Amendment to Lease Agreement, dated October 31, 1996, between Telecommunications
Finance Group and Athena International Ltd. Liability Co. (to be amended to replace
Athena with iGlobe, Inc.). (Incorporated by reference to Exhibit 10.33 in Annual Report on
Form 10-K of eGlobe, Inc. filed on April 7, 2000).
10.34 Carrier Service Agreement, dated June 30, 1998, between IDX International, Inc. and
Frontier Communications of the West, Inc. (Incorporated by reference to Exhibit 10.34 in
Annual Report on Form 10-K of eGlobe, Inc. filed on April 7, 2000).
10.35 Carrier Service Agreement, dated February 15, 1999, between Vitacom Corporation
(predecessor to iGlobe, Inc.) and Satelites Mexicanos, S.A. de C.V. (Incorporated by reference
to Exhibit 10.35 in Annual Report on Form 10-K of eGlobe, Inc. filed on April 7, 2000).
10.36 Securities Purchase Agreement between eGlobe, Inc. and RGC International Investors LDC
dated as of January 26, 2000 (Incorporated by reference to Exhibit 10.1 in Current Report
on Form 8-K of eGlobe, Inc. filed February 15, 2000).
10.37 Securities Purchase Agreement between eGlobe, Inc. and RGC International Investors LDC
dated as of March 15, 2000 (Incorporated by reference to Exhibit 4.2 in Current Report on
Form 8-K of eGlobe, Inc. filed March 23, 2000).
10.38 Amendment No. 2 to loan and Note Purchase Agreement, dated April 5, 2000, between
and among eGlobe, Inc., eGlobe Financing Corporation, IDX Financing Corporation,
Telekey Financing Corporation, eGlobe/Coast, Inc., and EXTL Investors, LLC.
(Incorporated by reference to Exhibit 10.38 in Annual Report on Form 10-K of eGlobe,
Inc. filed on April 7, 2000).
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10.39 Consent and Agreement, dated April 5, 2000, between eGlobe, Inc. and Special Investment
Risks, LLC. (Incorporated by reference to Exhibit 10.39 in Annual Report on Form 10-K of
eGlobe, Inc. filed on April 7, 2000).
10.40 Security Agreement, dated April 5, 2000, between and among eGlobe/Coast, Inc., EXTL
Investors, LLC, and Special Investment Risks, LLC. (Incorporated by reference to Exhibit
10.40 in Annual Report on Form 10-K of eGlobe, Inc. filed on April 7, 2000).
10.41 Amended and Restated Security Agreement, dated April 5, 2000, between and among eGlobe
Financing Corporation, IDX Financing Corporation, and Telekey Financing Corporation,
EXTL Investors, LLC and Special Investment Risks, LLC. (Incorporated by reference to
Exhibit 10.41 in Annual Report on Form 10-K of eGlobe, Inc. filed on April 7, 2000).
10.42 Guaranty, dated April 5, 2000, made by eGlobe, Inc., eGlobe Financing Corporation, IDX
Financing Corporation, and Telekey Financing Corporation, in favor of Special Investment
Risks, LLC. (Incorporated by reference to Exhibit 10.42 in Annual Report on Form 10-K of
eGlobe, Inc. filed on April 7, 2000).
10.43 Guaranty, dated April 5, 2000, made by eGlobe/Coast, Inc. in favor of EXTL Investors, LLC.
(Incorporated by reference to Exhibit 10.43 in Annual Report on Form 10-K of eGlobe, Inc.
filed on April 7, 2000).
10.44 Revolving Credit Note, dated March 5, 1999, between Coast International, Inc. and Special
Investment Risks, LLC. (Incorporated by reference to Exhibit 10.44 in Annual Report on
Form 10-K of eGlobe, Inc. filed on April 7, 2000).
10.45 Promissory Note, dated November 29, 1999, between Coast International, Inc. and Special
Investment Risks, LLC. (Incorporated by reference to Exhibit 10.45 in Annual Report on
Form 10-K of eGlobe, Inc. filed on April 7, 2000).
10.46 International Interconnection Memorandum of Understanding, dated September 6, 1998,
between Trans Global Communications, Inc. and Telecom Egypt Co. (Incorporated by
reference to Exhibit 10.46 in Annual Report on Form 10-K/A of eGlobe, Inc. filed
September 13, 2000).
10.47 Memorandum of Mutual Agreement (English translation of Arabic language document), dated
, 2000, between The Egyptian Communications Company and Trans Global
Communications, Inc. (Incorporated by reference to Exhibit 10.47 in Annual Report on Form
10-K/A of eGlobe, Inc. filed September 13, 2000).
10.48 Agreement for Provision of Services, dated March 23, 2000, between Vogo Networks L.L.C.
and ETN, Italia. (Incorporated by reference to Exhibit 10.48 in Annual Report on
Form 10-K/A of eGlobe, Inc. filed September 13, 2000).
10.49 Registration Rights Agreement, dated January 26, 2000, between eGlobe, Inc. and RCG
International Investors LDC. (Incorporated by reference to Exhibit 10.49 in Annual Report
on Form 10-K/A of eGlobe, Inc. filed September 13, 2000).
10.50 Registration Rights Agreement, dated March 15, 2000, between eGlobe, Inc and RGC
International Investors LDC. (Incorporated by reference to Exhibit 10.50 in Annual Report
on Form 10-K/A of eGlobe, Inc. filed September 13, 2000).
10.51 Letter of Forbearance and Term Sheet, dated September 12, 2000, between eGlobe, Inc. and
EXTL-Special Investment Risks, LLC.
10.52 Amendment No. 3 to Loan and Note Purchase Agreement, dated September 12, 2000, by and
among eGlobe, Inc., eGlobe Financing Corporation, IDX Financing Corporation, Telekey
Financing Corporation, eGlobe/Coast, Inc., and EXTL - Special Investment Risks, LLC.
10.53 Amended and Restated Secured Note, dated September 12, 2000, between eGlobe, Inc.,
eGlobe/Coast, Inc., eGlobe Financing Corporation, IDX Financing Corporation and Telekey
Financing Corporation and EXTL - Special Investment Risks, LLC.
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21 Subsidiaries of eGlobe, Inc.
23.1 Consent of BDO Seidman, LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Berkowitz Dick Pollack & Brant LLP
24 Power of Attorney (executed on May 26, 2000).
</TABLE>
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ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)3 of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the General Corporation Law of the State of
Delaware, the Restated Certificate of Incorporation, as amended, or the Amended
and Restated Bylaws of registrant, indemnification agreements entered into
between registrant and its officers and directors, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-24
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized.
EGLOBE, INC.
Dated: November 3 , 2000
By: /s/ David Skriloff
----------------------------------
David Skriloff
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirement of the Securities Act of 1934, this amendment to
the registration statement has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
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Dated: November 3, 2000 By: *
--------------------------------------
Christopher J. Vizas
Chairman of the Board of Directors, and Chief
Executive Officer (Principal Executive Officer)
Dated: November 3, 2000 By: /s/ David Skriloff
--------------------------------------
David Skriloff
Chief Financial Officer
(Principal Financial Officer)
Dated: November 3, 2000 By: *
--------------------------------------
Bijan Moaveni
Chief Operating Officer
(Principal Operating Officer)
Dated: November 3, 2000 By: *
--------------------------------------
Anne E. Haas
Chief Accounting Officer and Treasurer
(Principal Accounting Officer)
Dated: November 3, 2000 By: *
--------------------------------------
David W. Warnes, Director
Dated: November 3, 2000 By: *
--------------------------------------
Richard A. Krinsley, Director
</TABLE>
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Dated: November 3, 2000 By: *
--------------------------------------
Donald H. Sledge, Director
Dated: November 3, 2000 By: *
--------------------------------------
James O. Howard, Director
Dated: November 3, 2000 By: *
--------------------------------------
John H. Wall, Director
*By: /s/ David Skriloff
-------------------
Attorney-in-fact
David Skriloff
Chief Financial Officer
</TABLE>
II-26
