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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Commission File Number: 1-10210
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eGLOBE, INC.
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(Exact name of registrant as specified in its charter)
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DELAWARE 13-3486421
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
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1250 24TH STREET, N.W. SUITE 725, WASHINGTON, DC 20037
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(Address of principal executive offices)
(Registrant's telephone number, including area code) (202) 822-8981
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK $.001 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for any shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the closing sale price of such stock as of April 3,
2000 amounted to $344,346,696.
The number of shares outstanding of each of the registrant's classes of
common stock as of April 3, 2000 was 89,340,516 shares, all of one class of
$.001 par value common stock.
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eGLOBE, INC.
FORM 10-K/A
FISCAL YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
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PART I
Item 1 Business ..................................................................... 3
Item 2 Properties ................................................................... 36
Item 3 Legal Proceedings ............................................................ 37
Item 4 Submission of Matters to a Vote of Security Holders .......................... 37
PART II
Item 5 Market for Registrant's Common Stock and Related Stockholder Matters ......... 38
Item 6 Selected Consolidated Financial Information .................................. 49
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations ................................................................... 50
Item 7A Quantitative and Qualitative Disclosure About Market Risk .................... 61
Item 8 Consolidated Financial Statements and Supplementary Data ..................... 61
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ................................................................... 62
PART III
Item 10 Directors and Executive Officers of the Registrant .......................... 63
Item 11 Executive Compensation ...................................................... 67
Item 12 Security Ownership of Certain Beneficial Owners and Management .............. 75
Item 13 Certain Relationships and Related Transactions .............................. 77
PART IV
Item 14 Exhibits, Financial Statements, Schedules and Reports on Form 8-K ........... IV-1
Signatures ............................................................................. IV-8
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eGLOBE, INC.
PART I
ITEM 1 -- BUSINESS (GENERAL)
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains certain forward-looking
statements that involve risks and uncertainties. In addition, members of our
senior management may, from time to time, make certain forward-looking
statements concerning our operations, performance and other developments. Our
actual results could differ materially from those anticipated in such
forward-looking statements as a result of various factors, including those set
forth under the caption "Risk Factors" and elsewhere in this annual report on
Form 10-K, as well as factors which may be identified from time to time in our
other filings with the Securities and Exchange Commission or in the documents
where such forward-looking statements appear. Unless the context suggests
otherwise, references in this annual report on Form 10-K to "we," "us" or the
"Company" mean eGlobe, Inc. and its subsidiaries.
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.
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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.
o In December 1999 we signed a definitive agreement to merge with Trans
Global Communications, Inc., a facilities-based international
telecommunications services provider. The merger closed in March 2000
following receipt of stockholder approval.
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. 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
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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.
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 principally 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
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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 business acquired as a part of the Coast
International acquisition.
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 -Year Ended
December 31, 1999 Compared to Nine Month Period Ended December 31, 1998 and the
Year Ended March 31, 1998."
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.
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.
TRANS GLOBAL'S NETWORK SERVICES. Our newly acquired subsidiary, Trans
Global, is a provider of reliable, low cost switched voice and data services to
U.S. and international long distance carriers. Trans Global provides
international long distance service through a flexible network comprised of
various foreign termination relationships, international gateway switches,
owned transmission facilities and resale arrangements with long distance and
Internet providers. Trans Global acts as a carrier's carrier, providing other
telecommunications companies with services at rates that typically are designed
to be lower than those offered by the larger telecommunications companies such
as AT&T, MCI WorldCom and Sprint. During fiscal 1999, network services/carrier
sales represented approximately 98% of Trans Global's total consolidated
revenues.
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Trans Global markets its services to large global telecommunications
carriers seeking lower rates and high quality overflow capacity, as well as to
small and medium sized long distance companies that do not have sufficient
traffic volume to invest in their own international transmission facilities or
to obtain volume discounts from the larger facilities-based carriers.
Trans Global markets its services in the U.S. and in approximately seven
foreign countries. Trans Global began to shift sales and managerial emphasis in
the third quarter of fiscal 1999 to the origination of traffic in foreign
markets rather than the U.S. based market. Trans Global has begun to target
international markets such as the Middle East with high volumes of traffic,
relatively high per-minute rates and favorable prospects for deregulation and
privatization. We believe that the ongoing trend toward deregulation and
privatization will create new opportunities for Trans Global to increase its
revenues and to reduce its termination costs.
Trans Global has also began to refocus its business to convert its network
to an IP-based network and to offer its customers the highest quality IP voice
transmission capabilities. An example of both of these strategies can be seen
in Egypt. Trans Global currently has an operating agreement with Telecom Egypt
that affords Trans Global the ability to terminate minutes in Egypt with a
proportional amount of traffic to be carried from Egypt to the U.S. Trans
Global 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.
Trans Global is in the process of expanding its coverage of such countries
and entering into similar arrangements in additional countries.We anticipate
that Trans Global's 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 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.
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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
$19.8 million for the year ended December 31, 1999, 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.
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.
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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 that includes both a domestic long distance business
and an Internet service provider. Both businesses currently target small to
mid-sized business. Besides generating positive cash flow, these groups will
also be used as a test bed for our new enhanced services and
marketing/promotional concepts.
See further discussion of segment information as contained in Note 12 to
the 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 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
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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 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.
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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.
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.
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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 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.
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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 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.
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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. (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%
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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.
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.
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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.
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
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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
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 outstanding. The terms of the Series D Preferred Stock and related
warrants are discussed in more detail in Note 10 to the 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
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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
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 will operate with its existing management and personnel in
existing facilities in Atlanta, Georgia.
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 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 materially increase when this contingency is resolved.
The shares of Series F Preferred Stock were converted into shares of our
common stock in January 2000. The terms of the Telekey acquisition and Series F
Preferred Stock are discussed in more detail in Notes 4 and 10 to the
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, is our 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 Consolidated Financial Statements.
CONNECTSOFT ACQUISITION. On June 17, 1999, we acquired substantially all
the assets and assumed certain liabilities of Connectsoft 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 as a service in the United States.
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.
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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 matures 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 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 of $7.5 million 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:
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 December 31, 1999, we have borrowed $1.1 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;
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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 payments and we have been in
default on other debt documents. However, each such default has been either
paid to date or waived through January 1, 2001.
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 installment of the purchase price,
we issued the Swiftcall Stockholder 526,063 shares of our common stock.
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.
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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. We may redeem the remaining
250,000 shares of Series I Preferred Stock through July 17, 2000, at a value of
$10 per preferred share plus an 8% annual interest rate from December 2, 1998.
The redemption may be made in cash, shares of our common stock or a combination
of the two. Any Series I Preferred Stock not redeemed by July 17, 2000 will be
converted automatically into shares of our common stock based on a conversion
price equal to $10 per share plus 8% of the value of the Series I Preferred
Stock per annum from December 2, 1998 through the date of conversion divided by
the greater of $2.00 or the average closing price of the common stock over the
15 days immediately prior to conversion up to a maximum of 3.9 million shares
of common stock.
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 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 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.
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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.
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 a liability 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.
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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 may 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.
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 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 initial preliminary purchase price
allocation reflects the preliminary estimates of the fair value of the assets
acquired and liabilities assumed based on management's review and third-party
appraisals. The final purchase price allocation will be determined as
additional information becomes available.
The share of Series M Preferred Stock is convertible, at the holder's
option, into shares of eGlobe common stock beginning on October 15, 2000 at a
conversion price equal to $2.385. The share of Series M Preferred Stock will
automatically be converted into shares of eGlobe common stock, on the earliest
to occur of:
o the first date as of which the last reported sales price of eGlobe common
stock on Nasdaq is $5.00 or more for any 10 consecutive trading days
during any period in which Series M Preferred Stock is outstanding,
o the date that is seven years after the date of issuance, or
o we complete a public offering of equity securities at a price of at least
$4.00 per share and with gross proceeds to us of at least $20 million,
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but in no event shall the Series M Preferred Stock convert prior to the first
anniversary of the date of issuance. We may repurchase the Series M Preferred
Stock for $9 million plus any accrued but unpaid dividends on the Series M
Preferred Stock at any time prior to Highpoint's exercise of its conversion
rights.
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 will be moved from Denver
to ORS' Miami facility in early 2000. This is expected to generate substantial
cost savings, although there is no assurance of this.
Together with Oasis, we formed eGlobe/Oasis Reservations LLC, a limited
liability company, which is responsible for conducting ORS' business
operations. We manage and control eGlobe/Oasis LLC and receive 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
beyond December 14, 1999 that the shares of common stock (including the
shares underlying the warrants) contributed to eGlobe/Oasis LLC remain
unregistered;
o shares equal to up to $2 million of our common stock, subject to
adjustment based upon ORS achieving certain revenue and EBITDA targets;
and
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 the approval of our stockholders with respect to the issuance
of 20% or more of our common stock outstanding on the date of contribution.
Oasis contributed all of the issued and outstanding shares of ORS as its
contribution to eGlobe/Oasis LLC. If we declare bankruptcy, Oasis may
repurchase the ORS shares. eGlobe/Oasis LLC is an interim step to our full
ownership of ORS. Pursuant to the operating agreement of eGlobe/Oasis
Reservations
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LLC, once we have raised $10 million in new capital or generated three
consecutive months of positive cash flow and registered the common stock issued
in this transaction, eGlobe/Oasis LLC will be dissolved and ORS will become one
of our wholly owned subsidiaries. Under these circumstances, Oasis would
receive the common stock and warrants contributed to eGlobe/Oasis LLC by us.
Additionally, even if these conditions are not fulfilled, Oasis has the right
to redeem its interest in eGlobe/Oasis LLC in exchange for the shares of common
stock and warrants contributed to eGlobe/Oasis LLC by us. We have satisfied the
first condition to full ownership of ORS by completing a $15 million financing.
Accordingly, upon registration of the shares of stock issued and the shares of
stock issuable upon exercise of the warrants granted in this transaction,
eGlobe/Oasis LLC will be dissolved and ORS will become one of our wholly owned
subsidiaries. See "Series P Private Placement" for discussion of our recent $15
million financing.
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 preliminary purchase
price allocation reflects the preliminary estimates of the fair value of the
assets acquired based on management's review and preliminary third-party
appraisals. The final purchase price will be based on management's review and
completed third-party appraisals and will be allocated to goodwill and
intangibles 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.
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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 the
Clearance Date, the outstanding Series O Preferred Stock will be converted into
3,220,000 shares of eGlobe 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
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 120% of 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 is 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 our 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 our
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 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.
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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 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 is
declared effective by August 31, 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 exercise of employee stock options. 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 received upon exercise of the options and any cash, securities,
dividends or rights received upon sale of shares of such common stock.
"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.
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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
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 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 our 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 Series Q Warrants
is registered is less than $9.375, provided that under no circumstances will
the Series Q Preferred Stock be convertible into more than 7,157,063 shares of
our common stock. In addition, 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;
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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;
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 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 is
declared effective by August 31, 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 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 will restate,
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 has 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.
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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 (Trans Global's General Counsel) 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 and John W. Hughes became a Senior Vice
President and General Counsel.
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."
EMPLOYEES
As of March 24, 2000, we employed three hundred and sixteen (316)
employees, as follows: seventy-nine (79) in Denver, Colorado, two (2) in
Tarrytown, New York, nine (9) in Washington, D.C., twenty-eight (28) in Reston,
Virginia; eight (8) in Atlanta, Georgia, fourteen (14) in Seattle, Washington,
thirty-three (33) in San Jose and Los Angeles, California, fifty-nine (59) in
Kansas City, Missouri, and Minneapolis, Minnesota, three (3) in Miami, Florida,
two (2) in Raleigh, North Carolina, thirty-eight (38) in New York, New York,
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 Consolidated Financial Statements.
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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 Annual Report on Form 10-K or
otherwise.
WE HAVE INCURRED SIGNIFICANT LOSSES AND WE MAY NOT BE ABLE TO BECOME
PROFITABLE IN THE FUTURE.
LOSSES. We incurred a net loss of $51.5 million for the year ended
December 31, 1999 and a net loss of $7.1 million for the nine months ended
December 31, 1998, of which $25.7 million and $5.6 million, respectively, is
primarily due to increased costs and expenses related to growth, acquisition
costs and 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, as discussed in the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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 COULD BE REQUIRED TO CUT BACK OUR OPERATIONS IF WE ARE UNABLE TO OBTAIN
NEEDED FUNDING.
We estimate we will need to raise up to $66.0 million to have sufficient
working capital to run our business, acquire assets and technology, repay
indebtedness primarily incurred in connection with acquisitions, upgrade our
facilities, develop new services, continue to fund certain anticipated
operating losses and meet the cash obligations through the end of 2000. 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 will be required to curtail our expansion plans or
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.
WE HAVE BEEN, AND WILL CONTINUE TO BE, SUBJECT TO LARGE AND NON-CASH
ACCOUNTING CHARGES.
During the twelve months ended December 31, 1999, and nine months ended
December 31, 1998, we recorded significant charges totaling $25.7 million and
$5.6 million respectively; resulting from allowance for doubtful accounts
increase of $2.4 million and $0.8, amortization of goodwill and other
intangibles primarily related to acquisitions of $7.1 million and $0.2 million,
deferred compensation to employees of acquired companies of $1.6 million and
$0.4 million, depreciation and amortization of $5.1 million and $2.1 million,
amortization of debt discounts of $5.2 million and $0.3 million, settlements
costs of $0.0 million and $1.0 million, proxy-related litigation settlement
costs of $0.0 million and $0.1 million, loss on early retirement of debt of
$1.9 million and $0.0 million and interest expense, net of the amortization of
debt discounts related to debt, of $2.4 million and $0.7 million.
WE MAY NOT EFFECTIVELY MANAGE TRANS GLOBAL AND WE MAY NOT SUCCESSFULLY
INTEGRATE THE BUSINESS OF TRANS GLOBAL INTO OUR ORGANIZATION.
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.
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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;
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 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,
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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 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 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.
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DURING 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, eight of which remain 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 111.6 million shares as of April 3, 2000.
These figures exclude employee and director options and assume conversion of
all preferred stock and convertible debt, exercise of all options and warrants
and achievement of all earnout provisions related to acquisitions by companies
acquired as of February 1, 2000. This has resulted in a significant reduction
in the respective percentage interests of eGlobe and voting power held by our
stockholders other than those purchasing additional stock in the recent
financings. We expect to issue additional shares of capital stock in connection
with further financings, acquisitions and joint ventures.
THE CONVERSION OF OUTSTANDING PREFERRED STOCK MAY HAVE A SIGNIFICANT
NEGATIVE EFFECT ON THE PRICE OF OUR COMMON STOCK.
Each class of preferred stock we have issued is convertible into shares of
our common stock. The conversion prices at which the preferred stock converts
into common stock may adjust below the market price of our common stock in some
circumstances. The conversion price may adjust if we sell common stock or
securities convertible into common stock for less than the conversion price. To
the extent the preferred stockholders convert and then sell their common stock,
the common stock price may decrease due to the additional shares in the market.
The conversion of the convertible preferred stock may result in
substantial dilution to the interests of other holders of common stock since
each holder of convertible preferred stock may ultimately convert and sell the
full amount issuable on conversion.
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.
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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 continued
success will depend to a significant extent upon the efforts and abilities of
Christopher J. Vizas, our Co-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.
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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:
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.
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.
ITEM 2 - 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. 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,
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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.
ITEM 3 - 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.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 23, 2000, we held a special meeting of stockholders (the "Special
Meeting"). At the Special Meeting, our stockholders took the following actions:
1. SHARE ISSUANCE.
Our stockholders approved the issuance of up to 40,000,000 shares of
common stock, par value $0.01, to the stockholders of Trans Global in a merger
under which Trans Global became our wholly owned subsidiary and the deposit of
2,000,000 shares of common stock into escrow in relation to the merger.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
26,447,926 251,058 27,502
</TABLE>
2. AMENDMENT OF RESTATED CERTIFICATE OF RESTATED CERTIFICATE OF INCORPORATION.
Our stockholders adopted an amendment to our Restated Certificate of
Incorporation increasing the authorized number of shares of common stock
available for issuance from 100,000,000 to 200,000,000.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
26,269,703 425,912 30,871
</TABLE>
3. AMENDMENT OF EMPLOYEE STOCK OPTION AND APPRECIATION RIGHTS PLAN.
Our stockholders adopted an amendment to our 1995 Employee Stock Option
and Appreciation Rights Plan to increasing the number of shares authorized
under the plan from 3,250,000 to 7,000,000.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
25,876,407 744,965 105,114
</TABLE>
4. THE RIGHT TO CONVERT.
Our stockholders approved a proposal to allow the preferred stock issued
in our recent acquisition of Coast International, Inc. to become convertible
into up to 3,220,000 shares of eGlobe common stock.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
25,788,524 463,118 474,844
</TABLE>
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<PAGE>
eGLOBE, INC.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
A. MARKET INFORMATION
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
</TABLE>
B. RECENT SALES OF UNREGISTERED SECURITIES
During the twelve month period ended December 31, 1999, we offered and
sold the following equity securities that were not registered under the
Securities Act:
1. 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 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.
2. 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 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.
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<PAGE>
3. 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.
4. 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 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.
5. 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.
6. 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
39
<PAGE>
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.
7. 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.
8. On April 15, 1999, we granted Executive Lending LCC 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.
9. 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.
10. 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.
11. 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
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<PAGE>
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.
12. 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.
13. 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.
14. 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 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.
15. 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.
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<PAGE>
16. 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.
17. 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.
18. 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.
19. 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.
20. 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 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.
21. 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 eGlobel 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,
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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.
22. 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 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.
23. 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
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<PAGE>
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.
24. 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.
25. 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.
26. 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.
27. 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.
28. 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.
29. 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
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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.
30. 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
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.
31. 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.
32. 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.
33. On December 16, 1999, we granted options to purchase 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.
34. On December 16, 1999, we issued 430,128 shares of our common stock to
various members of our senior management team upon exercise of options
granted on December 16, 1999. The employees issued notes receivable to us
for the exercise of the options.
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35. 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.
36. 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.
37. 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.
38. 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.
39. 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.
40. 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.
41. 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.
42. 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.
43. 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;
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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.
44. 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.
45. 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.
46. 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.
47. 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.
48. 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.
49. 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
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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;
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.
50. 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.
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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C. HOLDERS
The approximate number of holders of our common stock as of March 24, 2000
was in excess of 17,000 record and beneficial owners.
D. DIVIDENDS
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%) stock split, effected in the form
of a stock dividend. Stockholders of record as of 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 M
Preferred Stock, the Series O Preferred Stock, the Series P Preferred Stock and
the Series Q Preferred Stock. Each of these series of our convertible preferred
stock accrues dividends. In all cases, the 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 are paid in full.
ITEM 6 -- SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following is a summary of selected consolidated financial data for the
periods ended as of the dates indicated. Effective with the period ended
December 31, 1998, we converted to a December 31 fiscal year end. Therefore,
the historical 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.
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The following financial information should be read in conjunction with,
and is qualified in its entirety by reference to, our Consolidated Financial
Statements and the related Notes, and the "Management's Discussion and Analysis
of the Financial Condition and Results of Operations" section appearing
elsewhere in this annual report on Form 10-K.
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31, FOR THE YEARS ENDED MARCH 31,
---------------- -------------- ------------------------------------------------
1999(1) 1998(2) 1998 1997 1996
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net Revenues ............................... $ 42,002,000 $ 22,491,000 $ 33,123,000 $ 33,994,000 $ 30,298,000
Income (Loss) from Operations .............. (41,955,000) (5,939,000) (5,701,000) 2,423,000 3,098,000
Other Income (Expense) ..................... (7,612,000) (1,151,000) (5,949,000) (1,401,000) 70,000
Net Income (Loss) Before Extraordinary Item. (49,567,000) (7,090,000) (13,290,000) 774,000 2,853,000
Loss on Early Retirement of Debt ........... (1,901,000) -- -- -- --
Net Income (Loss) .......................... (51,468,000) (7,090,000) (13,290,000) 774,000 2,853,000
Preferred Stock Dividends .................. (11,930,000) -- -- -- --
Net Income (Loss) Attributable to
Common Stockholders ....................... (63,398,000) (7,090,000) (13,290,000) 774,000 2,853,000
Weighted Average Shares Outstanding
Basic ..................................... 20,611,000 17,737,000 17,082,000 15,861,000 15,850,000
Diluted ................................... 20,611,000 17,737,000 17,082,000 16,159,000 15,850,000
Net Earnings (Loss) per Common Share (Basic
and Diluted);(3)(4)
Net Earnings (Loss) Before
Extraordinary Item ....................... $ (2.99) $ (0.40) $ (0.78) $ 0.05 $ 0.18
Loss on Early Retirement of Debt .......... $ (0.09) $ -- $ -- $ -- $ --
Net Earnings (Loss) Per Share ............. $ (3.08) $ (0.40) $ (0.78) $ 0.05 $ 0.18
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, DECEMBER 31, AS OF MARCH 31,
-------------- -------------- ---------------------------------------------
1999(1) 1998(2) 1998 1997 1996
-------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash and Cash Equivalents .............. $ 1,093,000 $ 1,508,000 $ 2,391,000 $ 2,172,000 $ 950,000
Total Assets ........................... 86,615,000 36,388,000 22,900,000 23,680,000 16,732,000
Long-Term Obligations .................. 11,830,000 1,237,000 7,736,000 9,738,000 2,151,000
Total Liabilities, Minority Interest and
Redeemable Common Stock ............... 58,140,000 31,045,000 15,780,000 15,720,000 9,692,000
Total Stockholders' Equity ............. 28,475,000 5,343,000 7,120,000 7,960,000 7,040,000
</TABLE>
------------------
(1) 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.
(2) 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.
(3) 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.
(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.
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 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 to assist us in achieving our goal of becoming a premier outsource
50
<PAGE>
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 our restructuring and our acquisitions, we
believe that we are reaching our goal and can now offer services such as
Internet protocol transmission services, telephone portal services 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. The following highlights significant business events for us
primarily as a result of these acquisitions.
o In 1998 and 1999, we extended our global technology platforms to enable us
to offer multiple products that allow the customer 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 companies 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 acquired a specialty calling card business in early 1999.
o We acquired operations 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 We signed a definitive purchase agreement for an acquisition that closed
at the end of March 2000 and 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.
Prior to January 1999, we had one business segment, Card Services. As a
result of the above acquisitions, we have added several new segments: Network
Services, Enhanced Services, Customer Care, Retail Services and have rolled
Card Services into Enhanced Services. We are reporting these as business
segments for 1999. Network Services includes our IP 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.
Our first acquisitions occurred in December of 1998, and our legacy
domestic long-distance business had minimal activity in 1998. Therefore only
one business segment, Card Services, was reported prior to 1999.
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 and the raising of new financing discussed below and
rate changes have caused our financial information to no longer be comparable
to the prior periods. The following table lists the acquisitions in
chronological order, by acquisition date. This table also identifies the
acquisition with a segment or segments and provides revenue comparisons 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.
51
<PAGE>
<TABLE>
<CAPTION>
REVENUE
-------------------------------------------
FOR THE
FOR THE YEAR NINE MONTHS FOR THE YEAR
ENDED ENDED ENDED
(IN THOUSANDS) DATE OF BUSINESS DECEMBER 31, DECEMBER 31, MARCH 31,
ACQUIRED COMPANY ACQUISITION SEGMENT 1999 1998 1998
---------------------------------- ------------- --------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
eGlobe -- Card Services .......... Legacy Enhanced $16,840 $21,360 $31,819
Executive TeleCard, Inc. Legacy Retail 394 553 1,304
(TeleCall) ......................
IDX International, Inc. .......... Dec.-98 Network (a) 15,690 578 --
UCI .............................. Dec.-98 Enhanced -- -- --
Telekey, Inc. .................... Feb.-99 Enhanced (b) 2,968 -- --
Connectsoft (Vogo) ............... June-99 Enhanced (c) 125 -- --
Swiftcall ........................ July-99 Network -- -- --
iGlobe, Inc. ..................... August-99 Network (d) 3,608 -- --
Oasis Reservations Services Sept.-99 Customer Care 1,637 -- --
(ORS) ...........................
Interactive Media Works Dec.-99 Enhanced 133 -- --
(IMW) ...........................
Coast International, Inc ......... Dec.-99 Retail 607 -- --
------- ------- -------
Total Revenue for the period ..... $42,002 $22,491 $33,123
<CAPTION>
(IN THOUSANDS)
ACQUIRED COMPANY DESCRIPTION OF SERVICES
---------------------------------- ----------------------------------------
<S> <C>
eGlobe -- Card Services .......... Pre Paid and Global Post Paid Card
Services
Executive TeleCard, Inc. Domestic long-distance services
(TeleCall) ......................
IDX International, Inc. .......... Internet protocol
transmission services
UCI .............................. Development stage company in
Mediterranean region
Telekey, Inc. .................... Specialty calling card services
Connectsoft (Vogo) ............... Global unified messaging,
telephone portal services and a
technology license for unified
messaging technology
Swiftcall ........................ Network operating center
iGlobe, Inc. ..................... Latin American Internet protocol
transmission operations
Oasis Reservations Services Support services and call center
(ORS) ...........................
Interactive Media Works Interactive voice and Internet services
(IMW) ...........................
Coast International, Inc ......... Enhanced long-distance services
Total Revenue for the period .....
</TABLE>
a.) i.) IDX Series B Convertible Preferred Stock and warrants were exchanged
for Series H Convertible Preferred Stock and new warrants on July 1,
1999. This exchange was related to a renegotiation of the IDX purchase
agreement to reduce the potential dilution for other eGlobe
shareholders and extend certain debt payments by up to one year.
ii.) An election was made to pay off the first IDX convertible subordinated
promissory note with common stock and warrants on March 23, 1999. The
issuance of shares of common stock and additional warrants to satisfy
the debt with IDX shareholders is a reflection of the Company's cash
position in the middle of 1999. Cash constraints have resulted in the
Company issuing additional warrants and renegotiating and extending
terms on debt financings or converting debt into common stock. In this
case the original note was convertible into common stock in order to
allow for the possible conservation of working capital and cash flow
and the conversion was done per the terms of the original agreement.
iii.) The IDX $1.0 million Promissory Note was converted to common stock on
July 1, 1999, to conserve cash.
iv.) In December 1999, eGlobe Stock Options were granted to IDX employees
to replace eGlobe shares and warrants previously granted to them at
the December 1998 IDX acquisition date. Subsequent to the acquisition
date in December 1998, on or about March 1999, eGlobe began
negotiations with the former IDX stockholders to modify certain terms
of the agreement which occurred when IDX shareholders granted their
eGlobe stock to their employees. Such reduction in the Series H
preferred stock and related warrants and the granting of new eGlobe
options was done to reach a satisfactory negotiated resolution by
which the IDX employees and other parties would receive certain equity
interests comparable to the preferred stock and warrants previously
granted to them at the acquisition date by the former IDX
stockholders.
b.) The original acquisition agreement was restructured on May 24, 1999. This
agreement allowed eGlobe 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.
c.) Series G Cumulative Convertible Redeemable Preferred Stock was exchanged
for Series K Cumulative Convertible Preferred Stock on August 1, 1999, to
eliminate the redemption feature of the Series G preferred stock.
d.) The acquisition agreement was renegotiated and the Series M stock was
converted to common stock on April 17, 2000 to conserve potential negative
cash flow impacts by eliminating the penalty warrant feature and slowing
the rate at which shares would be released for sale into the market.
For a detailed discussion of each acquisition and segment information, see
Notes 4 and 12 to the Consolidated Financial Statements.
52
<PAGE>
In addition to the eight acquisitions completed in 1999 and 1998, we also
completed several debt and equity financings during 1999 from which we received
approximately $35.4 million in gross proceeds. In addition we received
approximately $1.0 million from the exercise of options and warrants and stock
purchases. These proceeds, which total approximately $36.4 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 Payable and
Long-Term Debt" and Note 7, "Related Party Transactions" to the Consolidated
Financial Statements. For further discussion of the various equity financings,
the exercise of warrants and the purchase of the common stock by an existing
investor, see Note 10, "Stockholders' Equity" to the Consolidated Financial
Statements. In January 2000, we completed a $15.0 million equity financing with
Rose Glen and in March 2000 we completed $4 million of an additional $10
million in equity financing from Rose Glen. We have received $19.0 million of
the total financing. The balance will be made available upon the registration
of the underlying stock. See Note 16, "Subsequent Events" to the Consolidated
Financial Statements.
OVERVIEW
We incurred a net loss of $51.5 million, $7.1 million and $13.3 million
for the year ended December 31, 1999, the nine months ended December 31, 1998
and the year ended March 31, 1998, respectively, of which $25.7 million, $5.6
million and $15.0 is attributable to the following charges to income:
<TABLE>
<CAPTION>
DECEMBER 31,1999
------------------
<S> <C>
Additional allowance for doubtful accounts ................................ $ 2.4
Amortization of goodwill and other intangibles (primarily related to
acquisitions) ............................................................ 7.1
Deferred compensation to employees of acquired companies .................. 1.6
Depreciation and amortization ............................................. 5.1
Interest expense net of the amortization of debt discounts related to debt 2.4
Amortization of debt discounts ............................................ 5.2
Loss on early retirement of debt .......................................... 1.9
Settlement costs .......................................................... --
Proxy-related litigation settlement costs ................................. --
Corporate realignment costs ............................................... --
Additional provision for income taxes ..................................... --
Other items ............................................................... --
-------
Total ................................................................... $ 25.7
=======
<CAPTION>
(NINE MONTHS)DECEMBER 31,1998 MARCH 31,1998
------------------------------- --------------
<S> <C> <C>
Additional allowance for doubtful accounts ................................ $ 0.8 $ 1.4
Amortization of goodwill and other intangibles (primarily related to
acquisitions) ............................................................ 0.2 0.2
Deferred compensation to employees of acquired companies .................. 0.4 --
Depreciation and amortization ............................................. 2.1 2.6
Interest expense net of the amortization of debt discounts related to debt 0.7 1.2
Amortization of debt discounts ............................................ 0.3 0.5
Loss on early retirement of debt .......................................... -- --
Settlement costs .......................................................... 1.0 --
Proxy-related litigation settlement costs ................................. 0.1 3.9
Corporate realignment costs ............................................... -- 3.1
Additional provision for income taxes ..................................... -- 1.5
Other items ............................................................... -- 0.6
------- -------
Total ................................................................... $ 5.6 $ 15.0
======= =======
</TABLE>
53
<PAGE>
After deducting these items, the loss for the year ended December 31, 1999
was $25.8 million, compared to the loss of $1.5 million for the nine months
ended December 31, 1998, and net income of $1.7 million for the year ended
March 31, 1998.
The principal factors for the losses incurred for 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 acquisition, (2) the costs of integrating our acquisitions,
(3) headcount increases, and (4) legal and administrative charges principally
incurred to support the acquisition operations.
REVENUE
During 1999, 48% of our revenue was generated from Enhanced Services and
46% from Network Services. The predominant contributors to revenue for 1999
were card enhancement services in Enhanced Services and voice over Internet
protocol transport services in Network Services. Most of our Enhanced Services
revenue is generated principally 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 is substantially similar to that of card services. However, some
contracts call for monthly minimums to be paid for the monthly services to be
provided. In prior years we also generated revenue from other sources,
generally sales of billing and platform systems and non-recurring special
projects.
54
<PAGE>
As of year-end, December 31, 1999, Network Services and Enhanced Services
have generated equal amounts of 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 and other Enhanced Services contributions.
COSTS
The principal component of the cost of revenue is transmission costs. 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
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
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 follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 MARCH 31, 1998
----------------------- ----------------------- -----------------------
(IN MILLIONS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Enhanced Services $ 20.1 47.9% $ 21.4 95.1% $ 31.8 96.1%
Network Services 19.3 45.9% 0.6 2.7% -- --
Customer Care 1.6 3.8% -- -- -- --
Retail Services 1.0 2.4% 0.5 2.2% 1.3 3.9%
Total by operation $ 42.0 100.0% $ 22.5 100.0% $ 33.1 100.0%
Europe $ 1.5 3.6% $ 2.0 8.9% $ 3.5 10.6%
Asia Pacific 7.9 18.8% 6.0 26.7% 10.3 31.1%
North America 28.8 68.6% 9.0 40.0% 10.1 30.5%
Latin America 3.5 8.3% 5.2 23.1% 8.2 24.8%
Other 0.3 0.7% 0.3 1.3% 1.0 3.0%
Total by geography $ 42.0 100.0% $ 22.5 100.0% $ 33.1 100.0%
</TABLE>
55
<PAGE>
Our revenues for 1999 have increased to $42.0 million as compared to $22.5
million for the nine months ended December 31, 1998 with Network Services and
Enhanced Services being the primary contributing business segment as discussed
above under "Overview, Revenue." In contrast, our revenues decreased to $22.5
million for the nine months ended December 31, 1998 as compared to $33.1
million of the year ended March 31, 1998. The increase in revenue for 1999, as
compared to the prior periods, is primarily due to the addition of the Network
Services segment. Part of the 1999 Network Services revenue growth of $18.7
million can be attributed to the fact that the network has continued to expand
and is now in 30 countries. Approximately $3.0 million of the revenue for
Enhanced Services is attributable to Telekey, which was acquired in February
1999. Our call center operations since being acquired in September 1999 have
contributed $1.6 million in revenue. 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. Offsetting a portion of the increase in the 1999
revenue is 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 10% decline 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 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 year ended December 31, 1999, the nine-month period
ended December 31, 1998, and the year ended March 31, 1998, gross profit was
$0.1 million (representing less than 1% of sales), $9.9 million (representing
44% of sales) and $14.3 million (representing 43% of sales), respectively. 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
those new routes and services was the key element behind this margin decline.
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 threefold
increase in traffic from the Trans Global acquisition and the need to build out
routes for Latin America to grow iGlobe routes and services will contribute
negatively to gross margins through the first quarter 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. We believe margins will improve as we more efficiently fill
our routes and obtain additional owned capacity through the Trans Global
merger.
Selling, General and Administrative Expenses, exclusive of $1.6 million
and $0.4 million reported below of deferred compensation related to
acquisitions. Selling, general and administrative expenses, exclusive of $1.6
million and $0.4 million reported below of deferred compensation related to
acquisitions, totaled $28.2 million, $12.1 million and $14.0 million for the
year ended December 31, 1999, the nine months ended December 31, 1998 and the
year ended March 31, 1998, respectively. Included in these costs is a $2.4
million provision for doubtful accounts, compared to a $0.8 million provision
for the nine months ended December 31, 1998 and a $1.4 million provision for
the year ended March 31, 1998. The 200% increase in the reserve for doubtful
accounts from March 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 $6.5 million per quarter for the
year ended December 31, 1999, $3.8 million per quarter for the nine months
ended December 31, 1998 and $3.2 million per quarter for the year ended March
31, 1998. The principal factors for the 1999 increase of 71% in the quarterly
average, as compared to the nine month period ended December 31, 1998 are the
incurrence of higher personnel costs resulting from recruiting and upgrading
management and additions to the marketing staff in the 1998 period. Headcount
increased from 199 employees in the beginning of the year to 276 at the end of
the year, and is principally due to acquisition activity. Of the employees
added in 1999 and before departures and/or terminations, 81% were added in the
third and fourth quarters of 1999 as the result of the iGlobe (33 employees)
and ORS (3 full time employees) acquisitions in the third quarter and the Coast
(59 employees) acquisition in the fourth quarter of 1999. As the operations of
these acquired companies are integrated, these costs as a percentage of revenue
are expected to continue to decrease.
56
<PAGE>
Settlement Costs. As described in Note 7 to the Consolidated Financial
Statements for the year ended December 31, 1999, the nine months ended December
31, 1998, and the year ended March 31, 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 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 nor for the year ended December 31, 1999.
Depreciation and Amortization Expense. These expenses increased to $12.2
million from $2.3 million and $2.8 million for the year ended December 31,
1999, the nine months ended December 31, 1998 and the year ended March 31,
1998, respectively. The increase 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
attributable to increases in the fixed assets of acquired companies.
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 the Company's obligation
under the Stipulation of Settlement to issue additional stock if the market
price of 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. 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, 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.
Interest Expense. Interest expense totaled $7.6 million for the year ended
December 31, 1999 as compared to $1.0 million for the nine months ended
December 31, 1998 and $1.7 million for the year ended March 31, 1998. The
increase was primarily due to amortization of the debt discounts related to the
value of the warrants associated with acquisitions and financings and in part
due to an increase in debt.
Other Expense. We recorded a foreign currency transaction loss of $0.1
million during the year ended December 31, 1999 and the same amount for the
nine months ended December 31, 1998. For both periods these losses arose from
foreign currency cash and accounts receivable balances we maintained during the
period in which the U.S. dollar strengthened. For the year ended March 31,
1998, this charge was $0.4 million. 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. In
addition, the majority of our largest customers settle their accounts in U.S.
dollars.
Taxes on Income. No tax provision has been recorded for the year ended
December 31, 1999 nor for the nine months ended December 31, 1998 due to the
operating losses incurred. For the year ended March 31, 1998, we recorded a
$1.6 million provision for income taxes 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 $0.6 million as of December 31, 1999. We
continue to work with various jurisdictions to settle outstanding tax
obligations for prior years.
57
<PAGE>
Loss on Early Retirement of Debt. In August 1999, we repaid $4.0 million
under the $20 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 over the carrying value of the notes of $1.9 million was
recorded as an extraordinary loss on early retirement of debt during 1999.
Deferred Compensation. These non-cash credits/charges totaled $1.6 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. Accordingly, deferred compensation in future reporting periods
will be reported based on changes in the market price of our common stock. See
Note 4 to the Consolidated Financial Statements for further discussion of
subsequent renegotiations of certain of these issuances.
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
As we continue our aggressive growth plan into the year 2000 and we intend
to pursue that plan into the foreseeable future, it will require large cash
demands and aggressive cash management. In meeting our objectives, we have
raised significant financing through a combination of issuances of preferred
stock, proceeds from the exercise of warrants and options and a significant
debt placement with EXTL Investors at an interest rate of 5% per annum. Cash
and cash equivalents were $0.9 million at December 31, 1999 compared to $1.4
million at December 31, 1998. Accounts receivable, net, increased by $2.4
million to $9.3 million at December 31, 1999 from $6.9 million at December 31,
1998, mainly due to higher revenues and acquisitions. Accounts payable and
accrued expenses totaled $28.7 million at December 31, 1999 (as compared to
$12.0 million at December 31, 1998) resulting principally from liabilities
assumed through acquisitions for which the outstanding balances as of the year
ended December 31, 1999 approximate $14.7 million. In addition, the increase
was in part due to deferrals of payments to certain vendors. Cash outflows from
operating activities for the year ended December 31, 1999 totaled $21.7
million, compared to cash inflows of $3.6 million for the nine month period
ended December 31, 1998, and was due primarily to our growth through
acquisitions and the effect that the acquisition activity had on operating
losses, resulting in overall lower gross margins and higher selling, general
and administrative expenses.
There was a net working capital deficiency of $30.5 million at December
31, 1999 compared to a deficiency of $21.0 million at December 31, 1998.
Cash outflows for investing activities during the year ended December 31,
1999 totaled $4.2 million, which was $1.1 million less than the cash outflow
for the nine months ended December 31, 1998. This decrease was due to lower
1999 purchases of property and equipment and no 1999 advances to non-affiliates
subsequently acquired as compared to 1998. This decrease was offset by our 1999
purchases of Telekey, Connectsoft, Swiftcall, iGlobe, ORS and Coast which
required approximately $2.8 million, as compared to $2.2 million required to
purchase IDX in 1998. See Note 4, "Business Acquisitions," to the Consolidated
Financial Statements for further discussion regarding these acquisitions.
Cash generated from financing activities totaled $25.4 million during the
year ended December 31, 1999 compared to $0.7 million during the nine months
ended December 31, 1998. This increase of $24.7 million was primarily due to
our receiving a financing commitment of $20.0 million in the form of long-term
debt with our largest stockholder ("Lender"). Under this arrangement, we
initially received an unsecured loan of $7.0 million until stockholder approval
was received. Upon stockholder approval in June 1999, the Lender purchased
$20.0 million in secured notes with which we repaid the initial $7.0 million
loan. Under this agreement, we could borrow up to $20.0 million with monthly
principal and interest payments of $377,000 with a balloon payment of $8.6
million due in June 2002. Also, under the agreement, the Lender provided an
accounts receivable revolver 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. Principal and interest on the
Revolver are payable on the earliest to occur of (i) the third anniversary of
the agreement,
58
<PAGE>
June 30, 2002, or (ii) the date of closing of a Qualified Offering as defined
in the agreement. In August, we agreed to issue to the Lender 40 shares of
Series J Preferred Stock as prepayment of $4.0 million of the outstanding $20.0
million. The exchange was finalized in November 1999. Pursuant to the exchange
agreement, the $4.0 million is not subject to redraw under the Revolver. We
also received proceeds of $0.7 million from the exercise of warrants and $0.2
million from the sale of common stock. These proceeds were offset by principal
payments of $16.6 million on notes payable primarily consisting of the payment
of $7.0 million on the unsecured loan, as discussed earlier, and payment of
$7.5 million on an unsecured note due to a telecommunications company as well
as payments of $0.9 million on capital leases. See Notes 5 and 7 to the
Consolidated Financial Statements for further discussion.
In the nine month period ended December 31, 1998, in addition to the $2.2
million paid in connection with the acquisition of IDX, the Company purchased
property and equipment of approximately $2.0 million and made other
investments, principally advances totaling $1.0 million to Connectsoft prior to
acquisition. The property and equipment expenditures were principally for
upgrades and additions to the global network of operating platforms. Cash
generated from financing activities totaled $0.7 million during the nine month
period ended December 31, 1998, mainly due to proceeds from a $1.0 million loan
from an existing stockholder received in June 1998, which was payable in
December 1999 and subsequently extended to April 2000.
On an operating level we are continuing to renegotiate our relationship
with an entity that was formerly one of our largest customers. As of December
31, 1999, 9.1% of our net accounts receivable of $9.3 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 us under the
extended credit terms.
Current Funding Requirements. Current funds will not permit us to achieve
the growth, both short and long-term, that management is targeting. That growth
will require additional capital. The plan under which we are currently
operating requires substantial additional funding from April 2000 through the
end of the year 2000 of up to $66.0 million. We anticipate that this capital
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
year, with the possibility that the amount of financing could be diminished by
secured equipment-based financings. The funding requirements as discussed below
do account for some anticipated synergies as the result of the recently
completed acquisition of Trans Global.
Even if we meet our projections for becoming EBITDA (Earnings Before
Interest, Taxes, Depreciation and Amortization) positive at the end of second
quarter of 2000, we will still have capital requirements through December 2000.
We need to fund the pre-existing liabilities and note payable obligations and
the purchase of capital equipment, along with financing our growth plans to
meet the needs of our announced acquisition program, including the Trans Global
merger.
For the first quarter of 2000, we have met our initial cash requirements
from (1) proceeds from the exercise of options and warrants of $2.4 million,
(2) proceeds of $0.5 million from the sale of Series N Preferred Stock, (3)
proceeds of $15.0 million from the sale of Series P Convertible Preferred
Stock, and (4) proceeds of $4.0 million from the sale of Series Q Convertible
Preferred Stock. These capital transactions are discussed below.
o During January 2000 and thereafter, we have received proceeds, totaling
$2.4 million, from the exercise of various options and warrants. These
exercises occurred primarily as a result of the improvement in our stock
price during the month of January 2000 and as sustained thereafter.
o In January 2000, we have received proceeds of approximately $0.5 million
from the sale of Series N Preferred Stock. See Note 16 to the Consolidated
Financial Statements for further discussion.
o On January 27, 2000, we received proceeds of $15.0 million from the sale
of Series P Convertible Preferred Stock. See Note 16 to the Consolidated
Financial Statements for further discussion.
o On March 17, 2000, we receive proceeds of $4.0 million from the sale of
Series Q Convertible Preferred Stock. We will receive an addition $6.0
million in proceeds immediately upon the effectiveness of the registration
of the common stock underlying the Series Q Preferred Stock.
59
<PAGE>
In addition to the firm commitments 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 market to raise
the necessary funds which we need to achieve our growth plan through the end of
the year 2000.
There is a risk that we will not reach breakeven as projected and will
continue to incur operating losses. If this occurs and should we be
unsuccessful in our efforts to raise additional funds to cover such losses,
then our growth plans would have to be sharply curtailed and our business would
be adversely affected.
Taxes. During 1998, we undertook a study to simplify our 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 $1.6 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 filed with the IRS returns for eGlobe for the years ended March 31, 1991
through 1998 reflecting these 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
$26.7 million and have approximately $57.9 million of U.S. and 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. Such
carryforwards expire in various years through 2019 and are subject to
limitation under the Internal Revenue Code of 1986, as amended and are subject
to foreign local limitations. See Note 11 to the 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.
60
<PAGE>
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.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
At December 31, 1999 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 December 31, 1999, the carrying value of our debt
obligations, excluding capital lease obligations, was $17.6 million (net of
unamortized discount of $7.3 million) which also approximates fair value. The
weighted-average interest rate of our debt obligations, excluding capital lease
obligations, at December 31, 1999 was 6.9%. At December 31, 1999, $0.2 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 December 31, 1999, we were exposed to some market risk
through interest rates on our long-term debt and preferred stock and foreign
currency. At December 31, 1999, our exposure to market risk was not material.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of eGlobe, Inc., including our
consolidated balance sheets as of December 31, 1999 and 1998, and consolidated
statements of operations, stockholders' equity, comprehensive loss and cash
flows for the year ended December 31, 1999, for the nine months ended December
31, 1998, and for the fiscal year ended March 31, 1998, and notes to
consolidated financial statements, together with a report thereon of BDO
Seidman, LLP, dated March 24, 2000, except for information included in Notes 10
and 18, which are as of April 6, 2000 are attached hereto as pages F-1 through
F-58.
61
<PAGE>
eGLOBE, INC.
ITEM 8 - FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants ...................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 ............................ F-3
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-4
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-5
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-6
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-7
Summary of Accounting Policies .......................................................... F-8 - F-16
Notes to Consolidated Financial Statements .............................................. F-17 - F-61
SCHEDULE --
II -- Valuation and Qualifying Accounts .................................................. F-62
</TABLE>
F-1
<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. We have also audited the schedule
listed in the accompanying index. These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements 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 provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of 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, in conformity with
generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
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 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-2
<PAGE>
eGLOBE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------------
ASSETS (Note 7)
CURRENT:
Cash and cash equivalents ............................................................... $ 935,000 $ 1,407,000
Restricted cash ......................................................................... 158,000 101,000
Accounts receivable, less allowance of $3,001,000 and $986,000 for doubtful accounts..... 9,290,000 6,851,000
Prepaid expenses ........................................................................ 1,356,000 249,000
Other current assets .................................................................... 639,000 245,000
-------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS ..................................................................... 12,378,000 8,853,000
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization (Notes 1 and 5) . 25,919,000 13,152,000
GOODWILL, net of accumulated amortizationof $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 ............................................................................ 81,000 787,000
-------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS ....................................................................... 1,740,000 2,277,000
-------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ............................................................................. $ 86,615,000 $ 36,388,000
-------------------------------------------------------------------------------------------------------------------------
LIABILITIES, MINORITY INTEREST IN LLC, REDEEMABLE COMMON STOCK AND
STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable ........................................................................ $ 18,029,000 $ 5,798,000
Accrued expenses (Note 3) ............................................................... 10,657,000 6,203,000
Income taxes payable (Note 11) .......................................................... 560,000 1,915,000
Notes payable and current maturities of long-term debt (Note 5) ......................... 6,813,000 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 ....................................................................... 796,000 567,000
-------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES ................................................................ 42,862,000 29,808,000
LONG-TERM DEBT, net of current maturities (Note 5) ....................................... 3,529,000 1,237,000
LONG-TERM DEBT -- RELATED PARTIES, net of current maturities (Note 7) .................... 8,301,000 --
-------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES ........................................................................ 54,692,000 31,045,000
-------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 3, 4, 9, 10, 11, 13, 14 and 16)
MINORITY INTEREST IN LLC (Note 4) ........................................................ 2,748,000 --
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, 29,580,604 and 16,362,966
shares outstanding ..................................................................... 30,000 16,000
Stock to be issued ...................................................................... 2,624,000 --
Notes receivable ........................................................................ (1,210,000) --
Additional paid-in capital .............................................................. 106,576,000 33,975,000
Accumulated deficit ..................................................................... (80,034,000) (28,566,000)
Accumulated other comprehensive income (loss) ........................................... 487,000 (83,000)
-------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY ............................................................... 28,475,000 5,343,000
-------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, MINORITY INTEREST IN LLC, REDEEMABLE COMMON STOCK AND STOCKHOLDERS'
EQUITY.................................................................................. $ 86,615,000 $ 36,388,000
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
<PAGE>
eGLOBE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
--------------------------------------------------------------------------------
<S> <C>
REVENUE (Note 12) .......................................... $ 42,002,000
COST OF REVENUE ............................................ 41,911,000
--------------------------------------------------------------------------------
GROSS PROFIT ............................................... 91,000
--------------------------------------------------------------------------------
COSTS AND EXPENSES:
Selling, general and administrative, exclusive of $1.6
million and $0.4 million reported below of deferred
compensation related to acquisitions .................... 28,235,000
Deferred compensation related to acquisitions (Note 4)..... 1,566,000
Depreciation and amortization ............................. 5,133,000
Amortization of goodwill and other intangible assets ...... 7,112,000
Settlement costs (Note 7) ................................. --
Corporate realignment expense (Note 3) .................... --
--------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES ................................... 42,046,000
--------------------------------------------------------------------------------
LOSS FROM OPERATIONS ....................................... (41,955,000)
--------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense .......................................... (7,561,000)
Interest income ........................................... 52,000
Foreign currency transaction loss ......................... (99,000)
Minority interest in loss (Note 4) ........................ 26,000
Proxy related litigation expense (Note 8) ................. --
Other income .............................................. --
Other expense ............................................. (30,000)
--------------------------------------------------------------------------------
TOTAL OTHER EXPENSE ........................................ (7,612,000)
--------------------------------------------------------------------------------
LOSS BEFORE TAXES ON INCOME AND EXTRAORDINARY ITEM ......... (49,567,000)
TAXES ON INCOME (Note 11) .................................. --
--------------------------------------------------------------------------------
NET LOSS BEFORE EXTRAORDINARY ITEM ......................... (49,567,000)
LOSS ON EARLY RETIREMENT OF DEBT (Note 7) .................. (1,901,000)
--------------------------------------------------------------------------------
NET LOSS ................................................... (51,468,000)
PREFERRED STOCK DIVIDENDS (Note 10) ........................ (11,930,000)
--------------------------------------------------------------------------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS ............... $ (63,398,000)
--------------------------------------------------------------------------------
NET LOSS PER SHARE (BASIC AND DILUTED) (Note 6):
Net loss before extraordinary item ........................ $ (2.99)
Loss on early retirement of debt .......................... ( 0.09)
--------------------------------------------------------------------------------
NET LOSS PER SHARE (Note 6) ................................ $ (3.08)
--------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING (Note 6) ............... 20,610,548
--------------------------------------------------------------------------------
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
DECEMBER 31, MARCH 31,
1998 1998
<S> <C> <C>
REVENUE (Note 12) .......................................... $ 22,491,000 $ 33,123,000
COST OF REVENUE ............................................ 12,619,000 18,866,000
---------------------------------------------------------------------------------------------
GROSS PROFIT ............................................... 9,872,000 14,257,000
---------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Selling, general and administrative, exclusive of $1.6
million and $0.4 million reported below of deferred
compensation related to acquisitions .................... 12,139,000 14,049,000
Deferred compensation related to acquisitions (Note 4)..... 420,000 --
Depreciation and amortization ............................. 2,055,000 2,584,000
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 ................................... 15,811,000 19,958,000
---------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS ....................................... (5,939,000) (5,701,000)
---------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense .......................................... (1,018,000) (1,651,000)
Interest income ........................................... 60,000 46,000
Foreign currency transaction loss ......................... (131,000) (410,000)
Minority interest in loss (Note 4) ........................ -- --
Proxy related litigation expense (Note 8) ................. (119,000) (3,901,000)
Other income .............................................. 57,000 6,000
Other expense ............................................. -- (39,000)
---------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSE ........................................ (1,151,000) (5,949,000)
---------------------------------------------------------------------------------------------
LOSS BEFORE TAXES ON INCOME AND EXTRAORDINARY ITEM ......... (7,090,000) (11,650,000)
TAXES ON INCOME (Note 11) .................................. -- 1,640,000
---------------------------------------------------------------------------------------------
NET LOSS BEFORE EXTRAORDINARY ITEM ......................... (7,090,000) (13,290,000)
LOSS ON EARLY RETIREMENT OF DEBT (Note 7) .................. -- --
---------------------------------------------------------------------------------------------
NET LOSS ................................................... (7,090,000) (13,290,000)
PREFERRED STOCK DIVIDENDS (Note 10) ........................ -- --
---------------------------------------------------------------------------------------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS ............... $ (7,090,000) $ (13,290,000)
---------------------------------------------------------------------------------------------
NET LOSS PER SHARE (BASIC AND DILUTED) (Note 6):
Net loss before extraordinary item ........................ $ (0.40) $ (0.78)
Loss on early retirement of debt .......................... -- --
---------------------------------------------------------------------------------------------
NET LOSS PER SHARE (Note 6) ................................ $ (0.40) $ (0.78)
---------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING (Note 6) ............... 17,736,654 17,082,495
---------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
<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, APRIL 1, 1997 .................................................................. -- $ --
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 .................................................................... -- --
----------------------------------------------------------------------------------------------------------------
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
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
Stock to be issued in connection with acquisitions (Note 4) .............................. -- --
Stock issued in connection with debt repayments, net of costs of $40,000 (Notes 5 and 7).. 40 --
Stock issued in connection with private placements, net of costs of $2,084,000 (Note 10).. 2,770 --
Value of beneficial conversion feature on Preferred Stocks and debt, net of unamortized
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) --
Exchange of Series G Preferred for Series K Preferred (Notes 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) ......................................... -- --
Conversion of Series D and N Preferred into common stock, including conversion of
dividends of $240,000 (Note 10)........................................................... (1,150) --
Stock to be issued for dividends ......................................................... -- --
Cumulative Preferred Stock dividends ..................................................... -- --
Amortization of discounts (premium) on Preferred Stocks .................................. -- --
Other issuances and registration costs ................................................... -- --
Foreign currency translation adjustment .................................................. -- --
Net loss for the year .................................................................... -- --
----------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 .............................................................. 1,927,791 $ 2,000
----------------------------------------------------------------------------------------------------------------
<CAPTION>
COMMON STOCK
-----------------------
SHARES AMOUNT
<S> <C> <C>
BALANCE, APRIL 1, 1997 .................................................................. 15,861,240 $ 16,000
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) .............................................................. -- --
Exercise of stock appreciation rights .................................................... 18,348 --
Issuance of warrants to purchase stock (Note 10) ......................................... -- --
Foreign currency translation adjustment .................................................. -- --
Net loss for the year .................................................................... -- --
--------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1998 ................................................................. 17,346,766 17,000
Stock issued in connection with litigation settlement (Note 8) ........................... 28,700 --
Stock issued to common escrow (Note 8) ................................................... 350,000 --
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 .............................................................. 16,362,966 16,000
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)...................................................................................... 1,161,755 1,000
Stock to be issued in connection with acquisitions (Note 4) .............................. -- --
Stock issued in connection with debt repayments, net of costs of $40,000 (Notes 5 and 7).. 697,328 1,000
Stock issued in connection with private placements, net of costs of $2,084,000 (Note 10).. 160,257 --
Value of beneficial conversion feature on Preferred Stocks and debt, net of unamortized
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) ..................................................................... 3,000,000 3,000
Exchange of Series G Preferred for Series K Preferred (Notes 4 and 10) ................... -- --
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)........................................................ -- --
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 conversion of
dividends of $240,000 (Note 10)........................................................... 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 .............................................................. 29,580,604 $ 30,000
--------------------------------------------------------------------------------------------------------------------
<CAPTION>
STOCK TO BE NOTES
ISSUED RECEIVABLE
<S> <C> <C>
BALANCE, APRIL 1, 1997 .................................................................. $ -- $ --
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) .............................................................. 3,500,000 --
Exercise of stock appreciation rights .................................................... -- --
Issuance of warrants to purchase stock (Note 10) ......................................... -- --
Foreign currency translation adjustment .................................................. -- --
Net loss for the year .................................................................... -- --
------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1998 ................................................................. 3,500,000 --
Stock issued in connection with litigation settlement (Note 8) ........................... -- --
Stock issued to common escrow (Note 8) ................................................... (3,500,000) --
Issuance of warrants to purchase stock (Note 7) .......................................... -- --
Stock issued in connection with acquisitions (Notes 4 and 10) ............................ -- --
Exchange of common stock for Series C Preferred Stock (Notes 7 and 10) ................... -- --
Deferred compensation costs (Note 4) ..................................................... -- --
Foreign currency translation adjustment .................................................. -- --
Net loss for the period .................................................................. -- --
------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 .............................................................. -- --
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) ..................................................................................... -- --
Stock to be issued in connection with acquisitions (Note 4) .............................. 2,624,000 --
Stock issued in connection with debt repayments, net of costs of $40,000 (Notes 5 and 7).. -- --
Stock issued in connection with private placements, net of costs of $2,084,000 (Note 10).. -- --
Value of beneficial conversion feature on Preferred Stocks and debt, net of unamortized
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) ..................................................................... -- --
Exchange of Series G Preferred for Series K Preferred (Notes 4 and 10) ................... -- --
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)........................................................ -- --
Deferred compensation costs (Notes 4 and 10) ............................................. -- --
Exercise of stock options and warrants (Note 10) ......................................... -- (1,210,000)
Conversion of Series D and N Preferred into common stock, including conversion of
dividends of $240,000 (Note 10)........................................................... -- --
Stock to be issued for dividends ......................................................... -- --
Cumulative Preferred Stock dividends ..................................................... -- --
Amortization of discounts (premium) on Preferred Stocks .................................. -- --
Other issuances and registration costs ................................................... -- --
Foreign currency translation adjustment .................................................. -- --
Net loss for the year .................................................................... -- --
------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 .............................................................. $ 2,624,000 $ (1,210,000)
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT
<S> <C> <C>
BALANCE, APRIL 1, 1997 .................................................................. $ 16,048,000 $ (8,186,000)
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 .................................................................... -- (13,290,000)
---------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1998 ................................................................. 25,047,000 (21,476,000)
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 .................................................................. -- (7,090,000)
---------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 .............................................................. 33,975,000 (28,566,000)
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) .............................. -- --
Stock issued in connection with debt repayments, net of costs 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 unamortized
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 (Notes 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) ......................................... 1,990,000 --
Conversion of Series D and N Preferred into common stock, including conversion 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 .................................................................... -- (51,468,000)
---------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 .............................................................. $106,576,000 $ (80,034,000)
--------------------------------------------------------------------------------
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE STOCKHOLDER'S
INCOME (LOSS) EQUITY
<S> <C> <C>
BALANCE, APRIL 1, 1997 .................................................................. $ 82,000 $ 7,960,000
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 .................................................. (49,000) (49,000)
Net loss for the year .................................................................... -- (13,290,000)
-------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1998 ................................................................. 33,000 7,121,000
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 .................................................. (116,000) (116,000)
Net loss for the period .................................................................. -- (7,090,000)
-------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 .............................................................. (83,000) 5,343,000
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 costs 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 unamortized
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 (Notes 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 conversion 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 .................................................. 570,000 570,000
Net loss for the year .................................................................... -- (51,468,000)
-------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 .............................................................. $ 487,000 $ 28,475,000
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-5
<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 ......................................................................... $ (51,468,000)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ......................................... 570,000
---------------------------------------------------------------------------------------------------
COMPREHENSIVE NET LOSS ........................................................... $ (50,898,000)
---------------------------------------------------------------------------------------------------
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, MARCH 31,
1998 1998
<S> <C> <C>
-----------------------------------------------------------------------------------------------------------------------
NET LOSS ......................................................................... $ (7,090,000) $ (13,290,000)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ......................................... (116,000) (49,000)
-----------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE NET LOSS ........................................................... $ (7,206,000) $ (13,339,000)
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-6
<PAGE>
eGLOBE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1999
<S> <C>
--------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net loss ........................................................................ $ (51,468,000)
Adjustments to reconcile net loss to cash provided by (used in)
operating activities:
Depreciation and amortization .................................................. 12,245,000
Provision for bad debts ........................................................ 2,434,000
Non-cash interest expense ...................................................... 889,000
Minority interest in loss ...................................................... (26,000)
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 ........................................................... (2,712,000)
Prepaid expenses .............................................................. (205,000)
Other current assets .......................................................... (37,000)
Other assets .................................................................. 3,000
Accounts payable .............................................................. 10,172,000
Income tax payable ............................................................ (815,000)
Accrued expenses .............................................................. (815,000)
Deferred revenue .............................................................. (153,000)
Other liabilities ............................................................. 87,000
--------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES .................................. (21,652,000)
--------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment ............................................. (881,000)
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)
--------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES ................................................ (4,207,000)
--------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from notes payable (Notes 4 and 5) ..................................... 2,517,000
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 ........................................ --
Payments on capital leases ...................................................... (860,000)
Payments on notes payable ....................................................... (8,582,000)
Payments on notes payable--related party (Note 7) ............................... (8,066,000)
--------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES ............................................ 25,387,000
--------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH .................................................. (472,000)
CASH AND CASH EQUIVALENTS, beginning of period ................................... 1,407,000
--------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period ......................................... $ 935,000
--------------------------------------------------------------------------------------------------
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, MARCH 31,
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1998 1998
<S> <C> <C>
----------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net loss ........................................................................ $ (7,090,000) $ (13,290,000)
Adjustments to reconcile net loss to cash provided by (used in)
operating activities:
Depreciation and amortization .................................................. 2,256,000 2,770,000
Provision for bad debts ........................................................ 789,000 1,434,000
Non-cash interest expense ...................................................... -- --
Minority interest in loss ...................................................... -- --
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 ........................................................... 887,000 (916,000)
Prepaid expenses .............................................................. 19,000 (206,000)
Other current assets .......................................................... 159,000 259,000
Other assets .................................................................. -- --
Accounts payable .............................................................. 3,338,000 (1,055,000)
Income tax payable ............................................................ (90,000) 1,500,000
Accrued expenses .............................................................. 1,034,000 2,414,000
Deferred revenue .............................................................. 311,000 19,000
Other liabilities ............................................................. 61,000 (58,000)
----------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES .................................. 3,559,000 (2,505,000)
----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment ............................................. (1,990,000) (2,150,000)
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
----------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES ................................................ (5,251,000) (2,124,000)
----------------------------------------------------------------------------------------------------------------------
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) --
Payments on capital leases ...................................................... (198,000) (448,000)
Payments on notes payable ....................................................... (20,000) (9,998,000)
Payments on notes payable--related party (Note 7) ............................... -- --
----------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES ............................................ 708,000 4,847,000
----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH .................................................. (984,000) 218,000
CASH AND CASH EQUIVALENTS, beginning of period ................................... 2,391,000 2,173,000
----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period ......................................... $ 1,407,000 $ 2,391,000
----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Note 17 for Supplemental Cash Flow Information.
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-7
<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, telephone portal and unified
messaging 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. The Company
provides its services principally to large national telecommunications
companies, to Internet service providers and to financial institutions.
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.
Subsequent to year end, pursuant to an Agreement and Plan of Merger
entered into on December 16, 1999, 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"). See Note 16 for further discussion.
MANAGEMENT'S PLAN
As of December 31, 1999, the Company had a net working capital deficiency
of $30.5 million. This net working capital deficiency resulted principally from
a loss from operations of $42.0 million (including depreciation, amortization
and other non-cash charges) for the year ended December 31, 1999. Also
F-8
<PAGE>
eGLOBE, INC.
SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
MANAGEMENT'S PLAN - (CONTINUED)
contributing to the working capital deficiency was $6.8 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 $30.0
million in accounts payable, accrued expenses and deferred revenue. The $6.8
million of current maturities consists of $4.2 million primarily related to
acquisition debt 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 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, 9.1% of the Company's net accounts receivable
of $9.3 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 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 to meet
the needs of its announced acquisition program, including the Trans Global
merger. As discussed in Note 16, the Company closed the merger with Trans
Global on March 23, 2000. As a result of this merger, the Company is now
including Trans Global in its plans and funding requirement projections.
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.
CHANGE OF 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.
F-9
<PAGE>
eGLOBE, INC.
SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
CHANGE OF FISCAL YEAR- (CONTINUED)
Information for the comparable nine month period ended December 31, 1997
is summarized below (unaudited):
<TABLE>
<S> <C>
Revenue ................................................ $ 25,584,000
Gross profit ........................................... $ 10,905,000
Taxes on income ........................................ $ 140,000
Net loss ............................................... $ (5,336,000)
Net loss per common share -- Basic and diluted ......... $ (0.31)
</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 consolidated financial
statements with the other member's interest recorded as Minority Interest in
LLC.
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'
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
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.
F-10
<PAGE>
eGLOBE, INC.
SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK- (CONTINUED)
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.
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 9.1% in net accounts receivable from one customer . The
Company is negotiating with this customer 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, 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.
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. 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
F-11
<PAGE>
eGLOBE, INC.
SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
SOFTWARE DEVELOPMENT COSTS - (CONTINUED)
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, "Accounting 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 Coast as discussed
in Note 4. These amounts are included in other intangible assets in the
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.
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
F-12
<PAGE>
eGLOBE, INC.
SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
GOODWILL AND OTHER INTANGIBLE ASSETS- (CONTINUED)
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 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
recognized over the terms of the contracts, which are generally one year,
except for the six month expiration for prepaid calling cards (enhanced
services). 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 (postpaid calling, prepaid
calling and platform) to customers under contracted terms who are charged on a
per call basis (for postpaid, usage-based prepaids and platform) or on a per
card basis (for activation-based prepaids). 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
F-13
<PAGE>
eGLOBE, INC.
SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
REVENUE RECOGNITION - (CONTINUED)
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.
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.
F-14
<PAGE>
eGLOBE, INC.
SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
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.
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 and in assessing performance. SFAS No. 131 also requires
disclosures about products and services, geographic areas and major customers.
Prior to 1999, the Company had primarily one reporting segment --
Telecommunications Services. As a result of the 1999 acquisitions and
integration of the 1998 acquisitions, the Company now has four operating
reporting segments consisting of Enhanced Services (formerly Telecommunications
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
F-15
<PAGE>
eGLOBE, INC.
SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENT - (CONTINUED)
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-16
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
LIFE IN
1999 1998 YEARS
--------------- --------------- -----------
<S> <C> <C> <C>
Land ................................................... $ 122,000 $ 122,000 --
Buildings and improvements ............................. 992,000 983,000 5-20
Calling card platform equipment ........................ 14,722,000 13,480,000 5
IP transmission equipment .............................. 4,229,000 888,000 5
Operations center equipment and furniture .............. 12,470,000 8,086,000 3-5
Call diverters ......................................... 6,531,000 1,401,000 5
Equipment under capital leases (Note 5) ................ 4,910,000 1,279,000 Lease-Term
Internet communications equipment ...................... 563,000 562,000 5
------------ ------------ ----
44,539,000 26,801,000
Less accumulated depreciation and amortization ......... 18,620,000 13,649,000
------------ ------------
$ 25,919,000 $ 13,152,000
============ ============
</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 $5.1 million,
$2.1 million and $2.6 million, respectively.
2. OTHER INTANGIBLE ASSETS
Other intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
LIFE IN
1999 1998 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-17
<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 ................ 1,065,000 387,000
Salaries and benefits ...................... 789,000 513,000
Interest ................................... 313,000 647,000
Costs associated with acquisitions ......... 296,000 697,000
Other ...................................... 747,000 868,000
------------ -----------
$ 10,657,000 $ 6,203,000
============ ===========
</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.
Subsequent to December 31, 1999, the Company completed the merger with
Trans Global. See Note 16 for further discussion.
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 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.
F-18
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 to 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-19
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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 month period 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 Series F
F-20
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Convertible Preferred Stock ("Series F Preferred") valued at $2.0 million; (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 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.
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
F-21
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 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 Swiftcall Stockholder. 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 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
F-22
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-23
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 the LLC.
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 in the
LLC.
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 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.
F-24
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1999 DECEMBER 31, 1998 MARCH 31, 1998
------------------- ------------------- ------------------
<S> <C> <C> <C>
Revenue .............................................. $ 63,157,000 $ 48,701,000 $ 33,691,000
Net loss before extraordinary item ................... $ (62,897,000) $ (23,218,000) $ (21,648,000)
Net loss ............................................. $ (64,798,000) $ (23,218,000) $ (21,648,000)
Net loss attributable to common stockholders ......... $ (73,579,000) $ (25,897,000) $ (26,560,000)
Basic and diluted net loss per share ................. $ (3.02) $ (1.20) $ (1.54)
</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-25
<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 --
Capitalized lease obligations (11) ...................................................... 5,750,000 724,000
----------- -----------
Total ................................................................................... 10,342,000 14,922,000
Less current maturities, net of unamortized discount of $0 and $275,000.................. 6,813,000 13,685,000
----------- -----------
Total notes payable and long-term debt .................................................. $ 3,529,000 $ 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 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
F-26
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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) 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.
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
YEARS ENDING DECEMBER 31, LONG-TERM DEBT CAPITAL LEASES TOTAL
------------------------------------------ ---------------- ---------------- --------------
<S> <C> <C> <C>
2000 .............................. $ 4,225,000 $ 3,252,000 $ 7,477,000
2001 .............................. 84,000 2,427,000 2,511,000
2002 .............................. 9,000 915,000 924,000
2003 .............................. 9,000 -- 9,000
2004 .............................. 10,000 -- 10,000
Thereafter ........................ 255,000 -- 255,000
----------- ----------- -----------
Total payments .................... 4,592,000 6,594,000 11,186,000
Less amounts representing interest -- 844,000 844,000
----------- ----------- -----------
Principal payments ................ 4,592,000 5,750,000 10,342,000
Less current maturities ........... 4,225,000 2,588,000 6,813,000
----------- ----------- -----------
Total long-term debt .............. $ 367,000 $ 3,162,000 $ 3,529,000
=========== =========== ===========
</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
F-27
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 earnings (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 are not included in the computation of basic and diluted loss per
share.
<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 ................... $ (49,567,000) $ (7,090,000) $ (13,290,000)
Preferred stock dividends ............................ (11,930,000) -- --
-------------- ------------- --------------
Net loss before extraordinary item attributable to
common stockholders ................................ (61,497,000) (7,090,000) (13,290,000)
Loss on early retirement of debt ..................... (1,901,000) -- --
-------------- ------------- --------------
Net loss attributable to common stockholders ......... $ (63,398,000) $ (7,090,000) $ (13,290,000)
============== ============= ==============
DENOMINATOR
Weighted average shares outstanding .................. 20,610,548 17,736,654 17,082,495
============== ============= ==============
PER SHARE AMOUNTS (BASIC AND DILUTED)
Net loss before extraordinary item ................... $ (2.99) $ (0.40) $ (0.78)
Loss on early retirement of debt ..................... ( 0.09) -- --
-------------- ------------- --------------
Net loss per share ................................... $ (3.08) $ (0.40) $ (0.78)
============== ============= ==============
</TABLE>
F-28
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table lists accrued 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>
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 unamortized 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 is 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.
F-29
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, the Lender 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 and 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.
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 the Company's
existing operating assets and the Company's and IDX's accounts
receivables--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, this 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
F-30
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-31
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 to 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.
F-32
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 cannot
be ascertained 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:
F-33
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Series B Convertible Preferred Stock, 500,000 shares authorized, and 0
and 500,000 shares, respectively, issued and outstanding (series
eliminated in December 1999).
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-34
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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 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.
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
F-35
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-36
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 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 (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.
F-37
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-38
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-39
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-40
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 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.
F-41
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 numbers of shares of common stock available to 200,000,000 was
approved and adopted.
F-42
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $3,500,000 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 Note 4
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 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.
F-43
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
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.
F-44
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. 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 $.01 and $5.00 per share. During the nine months ended December
31, 1998, 375,000 contingent warrants were issued. 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 $0.001 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 month period 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,
F-45
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999, the nine month period 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 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 NINE MONTHS YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 1998
------------------ ----------------- ------------------
<S> <C> <C> <C>
Net loss attributable to common
stockholders
As reported ....................... $ (63,398,000) $ (7,090,000) $ (13,290,000)
Pro forma ......................... $ (65,081,000) $ (7,440,000) $ (13,458,000)
Loss per share -- Basic and Diluted:
As reported ....................... $ (3.08) $ (0.40) $ (0.78)
Pro forma ......................... $ (3.16) $ (0.42) $ (0.79)
</TABLE>
F-46
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, DECEMBER 31, MARCH 31,
1999 1998 1998
------------------------ ------------------------ -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF 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>
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 NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
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>
F-47
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 EXERCISE NUMBER EXERCISE
SHARES PRICE OF 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
========== ====== ========= ====== ========= ======
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 ).
The following table summarizes information about warrants outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------------------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
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 outstanding warrants because the Company includes the
operations of ORS in its 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.
F-48
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
11. TAXES ON INCOME
Taxes on income 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>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 1998
---------------- -------------- ---------------
<S> <C> <C> <C>
Current:
Federal ..................... $ -- $ -- $ --
Foreign ..................... -- -- 140,000
State ....................... -- -- --
Other ....................... -- -- 1,500,000
------------- ---------- ------------
Total Current ................ -- -- 1,640,000
------------- ---------- ------------
Deferred:
Federal ..................... (16,900,000) (416,000) (1,830,000)
State ....................... (1,499,000) (37,000) (163,000)
------------- ---------- ------------
(18,399,000) (453,000) (1,993,000)
Change in Valuation allowance 18,399,000 453,000 1,993,000
------------- ---------- ------------
Total ........................ $ -- $ -- $ 1,640,000
============= ========== ============
</TABLE>
During the year ended March 31, 1998, the Company undertook a study to
simplify its organizational and tax structure and identified potential
international tax issues. The Company determined that it had potential tax
liabilities and recorded an additional tax provision of $1.5 million to reserve
against liabilities. In early 1999, the Company filed with the Internal Revenue
Service ("IRS") amended returns for the years ended March 31, 1991 through
1998. In May 1999, the Company 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 carryforwards ............. $ 20,676,000 $ 6,041,000 $ 3,496,000
Expense accruals ............................. 1,406,000 1,525,000 1,295,000
Goodwill and intangible amortization ......... 3,626,000 -- --
Foreign net operating loss carryforwards. 762,000 260,000 --
Other ........................................ 186,000 431,000 269,000
------------- ------------ ------------
26,656,000 8,257,000 5,060,000
Valuation allowance .......................... (26,656,000) (8,257,000) (5,060,000)
------------- ------------ ------------
Net deferred tax asset ....................... $ -- $ -- $ --
============= ============ ============
</TABLE>
F-49
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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... ( 1.0) ( 1.0) ( 1.0)
Effect of foreign operations ..................... 1.2 29.0 19.0
Amendment to prior year net operating loss
carryforwards ................................... ( 5.1) -- --
Additional taxes ................................. -- -- 13.0
Change in valuation allowance .................... 35.7 6.0 17.0
Other ............................................ 3.2 -- --
----- ----- -----
Total ............................................ 0.0% 0.0% 14.0%
===== ===== =====
</TABLE>
As of December 31, 1999, the Company has net operating loss carryforwards
available of approximately $55.9 million, which can offset future year's 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
Prior to 1999, the Company had primarily one reporting segment -
Telecommunications Services. As a result of the 1999 acquisitions and
integration of the December 1998 acquisitions, the Company now has four
operating reporting segments consisting of Enhanced Services (formerly
Telecommunications 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
F-50
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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(A) CARE SERVICES TOTAL
--------------- ----------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDING
DECEMBER 31, 1999
Revenue ..................... $ 20,088,000 $ 20,473,000 $ 1,637,000 $ 1,001,000 $ 43,199,000
Inter-Segment ............... $ (22,000) $ (1,175,000) $ -- $ -- $ (1,197,000)
------------ ------------- ----------- ------------ ------------
Total Revenue ............... $ 20,066,000 $ 19,298,000 $ 1,637,000 $ 1,001,000 $ 42,002,000
Gross profit (loss) ......... $ 2,946,000 $ (3,228,000) $ 308,000 $ 65,000 $ 91,000
Total Assets ................ $ 38,063,000 $ 23,851,000 $ 3,736,000 $ 20,965,000 $ 86,615,000
FOR THE NINE MONTHS
ENDING DECEMBER 31, 1998
Revenue ..................... $ 21,360,000 $ 578,000 $ -- $ 553,000 $ 22,491,000
Gross profit (loss) ......... $ 10,064,000 $ (150,000) $ -- $ (42,000) $ 9,872,000
Total Assets ................ $ 21,697,000 $ 13,784,000 $ -- $ 907,000 $ 36,388,000
FOR THE YEAR ENDING
MARCH 31, 1998 .............
Revenue ..................... $ 31,819,000 $ -- $ -- $ 1,304,000 $ 33,123,000
Gross profit ................ $ 13,667,000 $ -- $ -- $ 590,000 $ 14,257,000
Total Assets ................ $ 21,797,000 $ -- $ -- $ 1,103,000 $ 22,900,000
</TABLE>
(a) In 1998, IDX was included in Enhanced Services (formerly Telecommunication
Services).
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 ................................ $ 1,554,000 $ 7,873,000
Operating Loss ......................... $ (2,095,000) $ (6,993,000)
Identifiable Long Lived Assets ......... $ 4,253,000 $ 3,846,000
FOR THE NINE MONTHS ENDING
DECEMBER 31, 1998
Revenue ................................ $ 1,967,000 $ 5,949,000
Operating Loss ......................... $ (483,000) $ (1,460,000)
Identifiable Long Lived Assets ......... $ 3,874,000 $ 4,076,000
FOR THE YEAR ENDING MARCH 31,
1998
Revenue ................................ $ 3,468,000 $ 10,295,000
Operating Loss ......................... $ (597,000) $ (1,772,000)
Identifiable Long Lived Assets ......... $ 2,580,000 $ 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 ................................ $ 28,830,000 $ 3,485,000 $ 260,000 $ 42,002,000
Operating Loss ......................... $ (28,271,000) $ (4,374,000) $ (222,000) $ (41,955,000)
Identifiable Long Lived Assets ......... $ 14,754,000 $ 2,035,000 $ 1,031,000 $ 25,919,000
FOR THE NINE MONTHS ENDING
DECEMBER 31, 1998
Revenue ................................ $ 9,009,000 $ 5,244,000 $ 322,000 $ 22,491,000
Operating Loss ......................... $ (2,630,000) $ (1,287,000) $ (79,000) $ (5,939,000)
Identifiable Long Lived Assets ......... $ 2,708,000 $ 1,571,000 $ 923,000 $ 13,152,000
FOR THE YEAR ENDING MARCH 31,
1998
Revenue ................................ $ 10,062,000 $ 8,248,000 $ 1,050,000 $ 33,123,000
Operating Loss ......................... $ (1,732,000) $ (1,419,000) $ (181,000) $ (5,701,000)
Identifiable Long Lived Assets ......... $ 4,753,000 $ 440,000 $ -- $ 11,911,000
</TABLE>
F-51
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Customer Information
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, DECEMBER 31, MARCH 31,
1999 1998 1998
-------------- -------------- ----------
<S> <C> <C> <C>
Customer:
A .............. 1% 19% 18%
B .............. 4% 16% 14%
C .............. 5% 10% 11%
D .............. 13% 5% --
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
Employment 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.
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. 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.
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
F-52
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 .................... $ 6,882,000
2001 .................... 5,325,000
2002 .................... 1,803,000
2003 .................... 157,000
2004 .................... 75,000
------------
$ 14,242,000
============
</TABLE>
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 are as follows:
<TABLE>
<CAPTION>
MINIMUM SUBLEASE
LEASE RENTAL
YEARS ENDING DECEMBER 31, PAYMENTS INCOME TOTAL
--------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
2000 .................... $ 1,531,000 $ (551,000) $ 980,000
2001 .................... 1,024,000 (227,000) 797,000
2002 .................... 746,000 -- 746,000
2003 .................... 651,000 -- 651,000
2004 .................... 421,000 -- 421,000
Thereafter .............. 343,000 -- 343,000
----------- ----------- -----------
$ 4,716,000 $ (778,000) $ 3,938,000
=========== =========== ===========
</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 $1.5
million, $0.5 million, and $0.6 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.
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.
F-53
<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. 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. 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
F-54
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 the network 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 contributors 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.
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.
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.
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
conversion date, capitalized software development costs related to Vogo and
accrued excise and sales and use taxes which in total amounted to an aggregate
of approximately $1.5 million were recorded and are discussed in "Summary of
Accounting Policies" and Note 10 to the consolidated financial statements.
16. SUBSEQUENT EVENTS
Merger with Trans Global Communications Inc.
On March 23, 2000 pursuant to an Agreement and Plan of Merger entered into
on December 16, 1999, a wholly-owned subsidiary of the Company merged with and
into Trans Global, with Trans Global continuing as the surviving corporation
and becoming a wholly-owned subsidiary of the Company. Trans
F-55
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Global is a leading provider of international voice and data services to
carriers in several markets around the world. As part of the merger, the
outstanding shares of Trans Global common stock were exchanged for 40,000,000
shares of the Company's common stock.
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 will be accounted for as a
pooling-of-interests and, accordingly, eGlobe's historical consolidated
financial statements presented in future reports will be restated to include
the accounts and results of operations of Trans Global as if the companies had
been combined at the first date covered by the combined financial statements.
The following unaudited pro forma consolidated results of operations are
presented as if the merger with Trans Global had been consummated at the
beginning of the periods presented. For the March 31, 1998 pro forma results,
Trans Global amounts include its December 31, 1997 year end as compared to the
Company's March 31, 1998 year end. For the December 31, 1998 pro forma results,
the Company has included the nine month period of Trans Global from April 1,
1998 through December 31, 1998. For the year ended December 31, 1999 pro forma
results, the Company has included Trans Global's results of operations for the
comparable period.
<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 .................................. $ 142,284,000 $ 90,504,000 $ 79,596,000
Net loss ................................. $ (54,961,000) $ (6,037,000) $ (11,725,000)
Net loss attributable to common
stockholders ............................ $ (66,890,994) $ (6,037,000) $ (11,725,000)
Basic and diluted loss per share ......... $ (1.09) $ (0.10) $ (0.21)
</TABLE>
On February 15, 2000, the Company entered into a note payable agreement
with Trans Global whereby the Company loaned Trans Global $3.4 million. The
note bears interest at 8% and the principal and interest are due on December
31, 2000. The Company received a security interest in Trans Global's account
receivables. In addition, the Company received security interests in
approximately 2% of Trans Global's ownership through pledge agreements received
from two officers of Trans Global.
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
F-56
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $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 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
F-57
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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:
o if the Company fails to perform specified obligations under the
securities purchase agreement or related agreements;
o 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;
o if the Company merges out of existence without the surviving company
assuming the obligations relating to the Series Q Preferred Stock;
o if the Company's common stock is no longer listed on the Nasdaq National
Market, the Nasdaq SmallCap Market, the NYSE or the AMEX;
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 the
Company has not waived such limit or obtained stockholder approval of a
higher limit; or
F-58
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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. 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% equity 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.
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 ............................................. $ 1,204,000 $ 176,000 $ 1,267,000
Income taxes ......................................... 599,000 96,000 101,000
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 costs ..................................... 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 --
</TABLE>
F-59
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR NINE MONTHS YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 1998
-------------- -------------- ----------
<S> <C> <C> <C>
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) -- --
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 assets 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 ........................ -- -- --
</TABLE>
F-60
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR NINE MONTHS YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 1998
---------------- -------------- ----------
<S> <C> <C> <C>
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>
18. 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 events 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.
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.
F-61
<PAGE>
eGLOBE, INC.
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-62
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
62
<PAGE>
eGLOBE, INC.
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Shown below are the names of all directors and executive officers of
eGlobe, 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 Co-Chairman of the Board and Chief Executive
Officer and Class III Director
Arnold S. Gumowitz ............ 71 Co-Chairman of the Board 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
Richard Chiang ................ 44 Class I Director
John H. Wall .................. 34 Class II Director
Gary S. Gumowitz .............. 38 President, eGlobe Development Corp.
and Class II Director
John W. Hughes ................ 51 Senior Vice President and General Counsel
and Class I Director
David Skriloff ................ 34 Chief Financial and Administrative Officer
Bijan Moaveni ................. 54 Chief Operating Officer
Ronald A. Fried ............... 40 Vice President of Business Development
Anne Haas ..................... 49 Vice President, Controller 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.
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.
ARNOLD S. GUMOWITZ, age 71, was appointed Co-Chairman of the Board of
Directors on March 24, 2000. Mr. Gumowitz has been the Chairman and Chief
Financial Officer of Trans Global since its inception in 1995. Before joining
Trans Global, Mr. Gumowitz was a co-founder and Chairman of AAG Management,
Inc., a real estate concern which commenced operations in 1979. In addition,
Mr. Gumowitz has over 40 years experience in the textile, apparel and
manufacturing fields.
63
<PAGE>
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, 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.
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.
DONALD H. SLEDGE, age 59, has been a Director of eGlobe since November 10,
1997. Mr. Sledge has served as Vice Chairman, President and Chief Executive
Officer of TeleHub Communications Corp., a privately held technology
development company, since 1996. 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 is currently Chairman of the Board
of United Digital Network, a small interexchange carrier that operates
primarily in Texas, Oklahoma, Arizona and California. Mr. Sledge is a member of
the Board of Advisors of DataProse and serves as a director of AirCell
Communications, Inc. He also serves as advisor and board member to several
small technology-based start-up companies.
RICHARD CHIANG, age 44, has been a Director of eGlobe since December 2,
1998. Mr. Chiang has been the Chairman and President of Princeton Technology,
Corp. since 1986 and Chairman since 1996. He has been on the Board of Directors
of Taitron Companies, Inc. and Buslogic, Inc. since 1989 and Alliance Venture
Capital Corp. since 1996. Mr. Chiang served as Chairman for IDX International,
Inc. from 1997 to 1998. Mr. Chiang currently sits on the Board of Proware
Technology, Corp. which is a RAID subsystem business and as a Chairman at
Advanced Communication Devices, Corp. whose primary business is Networking
Switch Controller Chips. He has served with these two companies since 1996.
JOHN H. WALL, age 34, has been a Director of eGlobe since June 16, 1999.
Mr. Wall has been the Vice President and Chief Technology Officer for Insurdata
Incorporated, a healthcare technology solutions and services provider, since
March 3, 1998. Prior to joining Insurdata, 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.
GARY S. GUMOWITZ, age 38, was appointed President of eGlobe Development
Corp., a wholly owned subsidiary of eGlobe, and Director of eGlobe on March 24,
2000. Mr. Gumowitz was the founder of Trans Global and has served as its Chief
Executive Officer since its inception in 1995. Previously, Mr. Gumowitz
64
<PAGE>
served on Trans Global's board of directors, and on the boards of AAG
Management Company and GGB Associates with interests in the real estate and
hospitality industries since 1990. He is a graduate of the University of Rhode
Island and holds a degree in Economics.
JOHN W. HUGHES, age 51, was appointed Senior Vice President and General
Counsel and Director of eGlobe on March 24, 2000. Mr. Hughes was the outside
General Counsel of Trans Global since its inception in 1995 and was a sole
proprietor practicing law in New York for twenty-five years, specializing in
the areas of taxation, business organizations, and contracts. Mr. Hughes served
as a faculty member in the tax department at Pace University and as a lecturer
at the Cornell University Graduate School of Business Administration. In
addition, Mr. Hughes serves on Trans Global's board of directors. He is an
alumnus of Cornell University, where he earned a Bachelor's Degree in l970, an
MBA in 1971 and a J.D. in l974.
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, beginning in 1993 where he was a Senior
Associate before being promoted to Vice President, Corporate Finance. Mr.
Skriloff also worked as an Associate at The American Acquisition Company, a
venture capital group and was a co-founder and Senior Vice President of Sales
and Marketing at Performance Technologies, Inc., a computer software company.
BIJAN MOAVENI, age 54, was appointed Chief Operating Officer of eGlobe on
December 3, 1999. Prior to joining eGlobe, Mr. Moaveni served as President of
Coast International, Inc., a private telecommunications company which he
founded and which was acquired by eGlobe in December 1999, for ten years.
Before founding Coast, Mr. Moaveni held various senior management positions
with Sprint Corporation, including marketing and sales, telecommunications
networks, customer service, billing and business and system development.
RONALD A. FRIED, age 40, was named Vice President of Business Development
of eGlobe on February 20, 1998. Prior to joining eGlobe, Mr. Fried worked for a
subsidiary of Sun Healthcare Group, Inc. (formerly Regency Health Services) as
Vice President of Business Development from January 1997 to March 1998. Mr.
Fried served as the Director of Development for Vitas Healthcare Corporation
from June 1992 to January 1997. From March 1983 to May 1985, Mr. Fried worked
as Director of Regulatory Affairs for a subsidiary of Orion, Orion Satellite
Corporation.
ANNE HAAS, age 49, 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.
MEETING AND COMMITTEES OF THE BOARD OF DIRECTORS
Directors are elected for three year terms with approximately one-third of
such overall directors elected each year; except that in order to implement the
staggered board, at the recent annual meeting held on June 16, 1999, Class I
Directors were elected for a one-year term, Class II Directors were elected for
a two-year term and Class III Directors were elected for a full three-year
term. Directors will hold office until the end of their term and until their
successors are elected and qualified. Executive Officers serve at the pleasure
of the Board or until the next annual meeting of stockholders. Arnold Gumowitz
is the father of Gary Gumowitz.
Our Board is entrusted with managing our business and affairs. Pursuant to
the powers bestowed upon our Board by our Amended and Restated Bylaws, as
amended (the "Bylaws"), our Board may establish committees from among its
members. In addition, the Bylaws provide that our Board must annually appoint
officers of the Company to manage the affairs of the Company on a day to day
basis as set forth in the Bylaws or as otherwise directed by our Board. During
the fiscal period ended
65
<PAGE>
December 31, 1999, there were a total of 12 meetings held by our Board of
Directors. All of the Directors attended at least 75% of the meetings held by
our Board of Directors during the fiscal period ended December 31, 1999 (with
the exception of Mr. Chiang, who attended 3 of such meetings).
In April 1998, our Board reconstituted the then-existing committees of the
Company as four standing committees of our Board: the Executive Committee, the
Audit Committee, the Finance Committee and the Compensation Committee. We do
not have a Nominating Committee.
The Executive Committee oversees activities in those areas not assigned to
other committees of our Board and has the full power and authority of our Board
to the extent permitted by Delaware law. Our Executive Committee is presently
comprised of Messrs. Howard, Sledge, and Vizas.
The Audit Committee's duties include making recommendations concerning the
engagement of independent public accountants, reviewing with the independent
public accountants the plans and results of the audit engagement, reviewing and
approving professional services rendered by the independent public accountants,
reviewing the independence of the independent public accountants, considering
the range of audit and non-audit fees, reviewing the adequacy of our internal
auditing controls; and reviewing situations or transactions involving actual or
potential conflicts of interest. Our Audit Committee is presently comprised of
Messrs. Howard, Wall and Vizas (in an ex officio capacity).
The Compensation Committee is responsible for approving all compensation
for senior officers and employees, makes recommendations to our Board with
respect to the grant of stock options and eligibility requirements, including
grants under and the requirements of our stock option plans and may make grants
to Directors under such stock option plans. Our Compensation Committee is
presently comprised of Messrs. Vizas, Krinsley and Sledge.
The Executive Committee held 11 meetings during the fiscal period ended
December 31, 1999. The Audit Committee held 2 meetings during the fiscal period
ended December 31, 1999. The Compensation Committee held 5 meetings during the
fiscal period ended December 31, 1999.
66
<PAGE>
ITEM 11 -- 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 $100,000 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------- --------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING
BONUS COMPEN- AWARDS OPTIONS/
NAME AND PRINCIPAL POSITION(1) YEAR SALARY($) ($) SATION ($) ($) 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 0 100,000
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 0
</TABLE>
----------
* Nine month period ended December 31, 1998
(1) We no longer employ Mr. Balinger and Mr. Smith. 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. In connection with the consummation of the Merger with Trans
Global, we hired Arnold Gumowitz to act as our Co-Chairman, Gary Gumowitz
to act as President of eGlobe Development Corp. and John Hughes to act as
our General Counsel. Each of Messrs. Gumowitz, Gumowitz and Hughes have
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."
(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."
(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 resides in
Hong Kong. See "Employment Agreements, Termination of Employment and
Change of Control Agreements."
(5) Mr. Smith has served as our Vice President of Legal Affairs since February
1, 1998. Mr. Smith's employment agreement provides for a base salary of
$135,000, performance based bonuses of up $50,000 and options to purchase
up to 100,000 shares, subject to various performance criteria. See
"Employment Agreements, Termination of Employment and Change in Control
Arrangements."
(6) Mr. Mandel has served as our Senior Vice President since 1991.
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OPTION/SAR GRANTS IN LAST FISCAL PERIOD
The following table sets forth the information concerning individual
grants of stock options and stock appreciation rights ("SARs") during the last
periods to each of the Named Executive Officers during such periods. All of the
options granted in the year ended December 31, 1999 to the Named Executive
Officers have terms of between five (5) and ten (10) years. A total of
3,798,182 options were granted to our employees and directors in the 12-month
period ended December 31, 1999 under eGlobe's 1995 Employee Stock Option and
Appreciation Rights Plan (the "Employee Stock Option Plan") and outside of the
Employee Stock Option Plan.
OPTION/SAR GRANTS IN LAST FISCAL PERIODS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM
------------------------------------------------------- ------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL PERIOD ($/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 $3,526 $ 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 AT OPTIONS/SARS AT
SHARES FP-END FP-END($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE/UNEXERCISABLE EXCERCISABLE/UNEXERCISABLE
------------------------------ ------------- ------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Christopher J. Vizas ......... 280,768 $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 June 18, 1998, Mr. Sledge and Mr. Warnes were granted options to
purchase 15,000 shares of common stock at $2.719 per share, the fair market
value on the date of the grant, which vested on the date of grant and has a
term of five years. On December 16, 1998, each of Messrs. Gerrity, Warnes,
Krinsley, Sledge, Samuels and Howard received an option to purchase 25,000
shares of common stock at $1.813 per share, the fair market value on the date
of the grant, which vested on the grant date and has a term of five years. On
December 27, 1998, options to purchase 10,000 shares of common stock that were
granted on November 10, 1997 to each of Messrs. Gerrity, Warnes, Krinsley,
Balinger, Samuels, and Sledge expired. On December 31, 1998, options to
purchase 10,000 shares of common stock that were granted on April 1, 1998 to
each of Messrs. Gerrity, Warnes, Krinsley, Sledge, Samuels and Howard expired.
Both groups of the expired options noted above vested only upon the achievement
of certain corporate economic and financial goals which were not achieved.
On April 16, 1998, Mr. Balinger was granted options to purchase an
aggregate of 10,000 shares of common stock. Such options have a term of five
years and vest in three equal annual installments, beginning on April 16, 1999,
at an exercise price per share equal to $3.68, the fair market value on the
date of the grant. These options vest only upon the achievement of certain
performance goals to be set by the Chief Executive Officer. Options to purchase
3,333 shares of common stock expired due to failure to achieve the economic and
financial goals specified by the Chief Executive Officer.
On December 27, 1998, Mr. Vizas was granted bonus options to purchase an
aggregate of 50,000 shares of common stock. Such options have a term of five
years and vest in ninety days from the grant date, at an exercise price per
share equal to $1.57, the fair market value on the date of the grant. In
addition, Mr. Vizas was granted options on December 27, 1998 to purchase an
aggregate of 50,000 shares of common stock at $1.57 per share, the fair market
value on the date of the grant. Such options have a term of five years and vest
in three equal annual installments, beginning on December 27, 1999. These
options vest only upon the achievement of certain performance goals to be set
by the Board. On December 5, 1998, options to purchase 100,000 shares of common
stock that were granted on December 5, 1997 to Mr. Vizas expired. These options
vested only upon the achievement of certain performance goals which were not
achieved. Options to purchase 100,000 shares of common stock which were granted
to Mr. Vizas on December 5, 1997 expired. These options were to vest only upon
the achievement of certain performance goals which were not achieved.
On December 27, 1998, Mr. Balinger was granted bonus options to purchase
an aggregate of 10,000 shares of common stock. Such options have a term of five
years and vest in ninety days from the grant date, at an exercise price per
share equal to $1.57, the fair market value on the date of the grant. In
addition, Mr. Balinger was granted options on December 27, 1998 to purchase an
aggregate of 15,000 shares of common stock at $1.57 per share, the fair market
value on the date of the grant. Such options have a term of five years and vest
in three equal annual installments, beginning on December 27, 1999. These
options vest only upon the achievement of certain performance goals to be set
by the Chief Executive Officer.
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, Chiang, Sledge and Wall. Such options have a term of
five years and vested upon grant.
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<PAGE>
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:
o options to purchase 50,000 shares of common stock at an exercise price of
$2.32 which vested upon their grant;
o options to purchase 50,000 shares of common stock at an exercise price of
$2.32 which vested on December 5, 1998;
o 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;
o options to purchase 50,000 shares at an exercise price of $3.50 which
vested on December 5, 1999;
o 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;
o 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
o 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, 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.
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<PAGE>
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. The employment agreement with Mr.
Balinger terminated in January, 2000.
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.
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
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
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<PAGE>
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 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 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
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<PAGE>
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, 2001. 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. Moeveni 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 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
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<PAGE>
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 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.
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
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<PAGE>
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 7,000,000 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. 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.
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of shares of our
common stock owned beneficially, as of April 3, 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
BENEFICIAL OWNER OWNED BENEFICIALLY (1) COMMON STOCK OUTSTANDING (2)
----------------------------------------- ------------------------ -----------------------------
<S> <C> <C>
Christopher J. Vizas (3) ................ 496,499 0.6%
Arnold Gumowitz ......................... 10,640,000 11.9
David W. Warnes (4) ..................... 111,000 *
Richard A. Krinsley (5) ................. 180,182 *
Donald H. Sledge (6) .................... 110,000 *
James O. Howard (7) ..................... 95,000 *
Richard Chiang (8) ...................... 2,153,545 2.4
John H. Wall (9) ........................ 50,000 *
Gary Gumowitz ........................... 13,300,000 14.9
John W. Hughes .......................... 3,800,000 4.3
David Skriloff (10) ..................... 50,061 *
Bijan Moaveni (11) ...................... 1,138,814 1.3
Ronald A. Fried (12) .................... 107,734 *
Anne Haas (13) .......................... 45,617 *
All executive officers and directors as a
Group (14 persons) (14) ............... 32,278,452 35.5%
</TABLE>
----------
* Less than 1%
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<PAGE>
(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 April 3,
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 204,372 shares of common stock exercisable
within 60 days from April 3, 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 April 3, 2000.
(5) Includes options to purchase 96,000 shares of common stock exercisable
within 60 days from April 3, 2000.
(6) Consists solely of options to purchase common stock exercisable within 60
days from April 3, 2000.
(7) Includes options to purchase 85,000 shares of common stock exercisable
within 60 days from April 3, 2000.
(8) Includes options to purchase 50,000 shares of common stock exercisable
within 60 days from April 3, 2000, and warrants to purchase 8,540 shares
of common stock exercisable within 60 days from April 3, 2000, owned by
Tenrich Holdings Ltd., of which Mr. Chiang is the sole stockholder. Does
not include warrants owned by Tenrich Holdings Ltd. to purchase 215,111
shares of common stock which are not exercisable within such period.
(9) Includes options to purchase 50,000 shares of common stock exercisable
within 60 days from April 3, 2000. Does not include 15% interest in
warrants to purchase 18,000 shares of common stock which are not
exercisable within such a period.
(10) Includes options to purchase 36,000 shares of common stock exercisable
within 60 days from April 3, 2000. 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 such period.
(11) Includes 901,600 shares of common stock which are issuable within 60 days
from April 3, 2000 upon the conversion of the Series O Preferred Stock.
(12) Includes options to purchase 16,047 shares of common stock exercisable
within 60 days from April 3, 2000. Does not include options to purchase
248,571 shares of common stock which are not exercisable within such
period.
(13) Includes options to purchase 30,617 shares of common stock exercisable
within 60 days from April 3, 2000. Does not include options to purchase
100,616 shares of common stock which are not exercisable within 60 days
from April 3, 2000.
(14) Includes (1) options to purchase 789,036 shares of common stock
exercisable within 60 days from April 3, 2000, (2) warrants to purchase
8,540 shares of common stock exercisable within 60 days from April 3, 2000
and (3) 901,600 shares of common stock issuable upon conversion of the
Series O Preferred Stock within 60 days from April 3, 2000. Does not
include (1) options to purchase 1,546,521 shares of common stock or (2)
warrants to purchase 219,329 shares of common stock which are not
exercisable within such period.
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<PAGE>
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 April 3, 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>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OF CLASS (2)
---------------------------------- -------------------------- -------------
<S> <C> <C>
EXTL Investors LLC (3) ........... 15,553,076 17.4%
850 Cannon, Suite 200
Hurst, Texas 76054
Gary Gumowitz .................... 13,300,000 14.9%
c/o eGlobe, Inc.
1250 24th Street, N.W., Suite 725
Washington, D.C. 20004
Arnold Gumowitz .................. 10,640,000 11.9%
c/o eGlobe, Inc.
1250 24th Street, N.W., Suite 725
Washington, D.C. 20004
</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 60 days from April 3, 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 (a) 2,254,000 shares of common stock issuable within 60 days from
April 3, 2000 upon the conversion of the Series O Preferred Stock and (b)
warrants to purchase 6,000,000 shares of common stock exercisable within
60 days from April 3, 2000. Ronald and Gladys Jensen, members of EXTL
Investors LLC, may be deemed to be beneficial owners of these securities.
ITEM 13 -- 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
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<PAGE>
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 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, one of our subsidiaries borrowed $7 million from EXTL
Investors and we granted EXTL Investors warrants to purchase 1,500,000 shares
of our common stock, 1,000,000 of which have expired. For more information, see
the "Business--Developments in 1999--Private Placement of Unsecured Notes and
Warrants" section above. As of June 30, 1999, three of our subsidiaries
borrowed $20 million from EXTL Investors and we granted EXTL Investors warrants
to purchase 5,000,000 shares of our common stock. For more information, see the
"Business--Developments in 1999--Completion of $20 Million Financing" section
above. In November 1999, we prepaid $4 million of such loan with the issuance
of shares of Series J Preferred Stock. For more information, see the
"Business--Developments in 1999--Issuance of Preferred Stock to Prepay $4
Million of $20 Million Note" section above. 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 our common stock was over the
required threshold for the requisite number of trading days.
On October 14, 1999, we acquired iGlobe, Inc., a wholly owned subsidiary
of Highpoint Telecommunications, Inc. David Warnes, an eGlobe Director, has
been the President and Chief Executive Officer of Highpoint since April 1998.
For more information, see the "Business-- Developments in 1999--iGlobe
Acquisition" section above.
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<PAGE>
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.
For more information, see the "Business--Developments in 1999--Coast
Acquisition" section above.
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 eGlobe 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 million debt using shares of eGlobe common
stock, where the number of shares issuable may equal or exceed 20% of eGlobe
common stock outstanding.
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:
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:
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 December 31, 1999, we have borrowed $1.1 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
79
<PAGE>
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.
As of December 16, 1999, we loaned certain of our senior executive
officers an aggregate of $1,209,736 in connection with their exercise of
employee stock options, including $673,954 to Chris 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 stocks
received upon exercise of the options and any cash, securities, dividends or
rights received upon sale of shares of such common stock.
"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 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.
Arnold Gumowitz, Co-Chairman of our Board of Directors, 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 terminates on March 31, 2003.
Prior to closing, Coast incurred $3.25 million of unsecured debt with an
affiliate of EXTL. With the consent of our existing lender, EXTL, we and our
operating subsidiaries have 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 (1) 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 (2) a promissory note in the original principal amount of $250,000 which
bears interest at 11% per annum and matures on November 29, 2000.
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eGLOBE, INC.
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
A) 1. THE FINANCIAL STATEMENTS ARE INCLUDED IN PART II, ITEM 8 BEGINNING AT
PAGE F-1:
2. FINANCIAL STATEMENT SCHEDULE
Schedule II Valuation and Qualifying Accounts
B) 1. REPORTS ON FORM 8-K:
1. A report on Form 8-K dated September 20, 1999 under Item 2 was filed
with the Commission on October 5, 1999 to report the acquisition of
control of Oasis Reservations Services, Inc.
2. A report on Form 8-K dated August 23, 1999 under Item 5 was filed with
the Commission on October 15, 1999 to satisfy compliance with Nasdaq
requirements regarding the listing of the Company on the Nasdaq National
Market.
3. A report on Form 8-K dated October 14, 1999 under Item 2 was filed with
the Commission on October 29, 1999 to report the closing of the
acquisition of iGlobe, Inc.
4. A report on Form 8-K/A dated September 20, 1999 under Item 7 was filed
with the Commission on December 6, 1999 to file financial statements of
Oasis Reservations Services, Inc.
5. A report on Form 8-K/A dated September 20, 1999 under Item 7 was filed
with the Commission on December 10, 1999 to correct problems due to data
transmission problems.
6. A report on Form 8-K dated December 2, 1999 under Item 2 was filed with
the Commission on December 17, 1999 to report the closing of the
acquisition of Coast International, Inc.
7. A report on Form 8-K dated October 14, 1999 under Item 2 was filed with
the Commission on December 28, 1999 to file financial statements of
iGlobe, Inc.
8. A report on Form 8-K dated December 16, 1999 under Item 2 was filed
with the Commission on December 30, 1999 to report the signing of the
definitive agreement to acquire Trans Global Telecommunications, Inc.
9. A report on Form 8-K dated January 27, 2000 under Item 2 was filed with
the Commission on February 15, 2000 to report the closing of a $15
million equity private placement with RGC International Investors, LDC.
10. A report on Form 8-K/A dated December 2, 1999 under Item 7 was filed
with the Commission on February 15, 2000 to file financial statements of
Coast International, Inc.
C) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NO. 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).
</TABLE>
IV-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- -------------------------------------------------------------------------------------------------
<S> <C>
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).
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.
3.3 Certificate of Amendment of Restated Certificate of Incorporation, dated March 23, 2000.
3.4 Certificate of Elimination to Certificate of Designations, Rights and Preferences of Series A
Convertible Preferred Stock of eGlobe, Inc.
3.5 Certificate of Elimination to Certificate of Designations, Rights and Preferences of Series B
Convertible Preferred Stock of eGlobe, Inc.
3.6 Certificate of Elimination to Certificate of Designations, Rights and Preferences of 8% Series C
Cumulative Convertible Preferred Stock of eGlobe, Inc.
</TABLE>
IV-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- -------------------------------------------------------------------------------------------------
<S> <C>
3.7 Certificate of Elimination to Certificate of Designations, Rights and Preferences of 8% Series D
Cumulative Convertible Preferred Stock of eGlobe, Inc.
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.
3.10 Certificate of Elimination to Certificate of Designations, Rights and Preferences of 6% Series G
Cumulative Convertible Redeemable Preferred Stock of eGlobe, Inc.
3.11 Certificate of Elimination to Certificate of Designations, Rights and Preferences of Series H
Convertible Preferred Stock of eGlobe, Inc.
3.12 Certificate of Elimination to Certificate of Designations, Rights and Preferences of Series I
Convertible Optional Redeemable Preferred Stock of eGlobe, Inc.
3.13 Certificate of Elimination to Certificate of Designations, Rights and Preferences of 5% Series J
Cumulative Convertible Preferred Stock of eGlobe, Inc.
3.14 Certificate of Elimination to Certificate of Designations, Rights and Preferences of 5% Series K
Cumulative Convertible Preferred Stock of eGlobe, Inc.
3.15 Certificate of Elimination to Certificate of Designations, Rights and Preferences of 20% Series
M Cumulative Convertible Preferred Stock of eGlobe, Inc.
3.16 Certificate of Elimination to Certificate of Designations, Rights and Preferences of 8% Series N
Cumulative Convertible Preferred Stock of eGlobe, Inc.
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).
</TABLE>
IV-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- -------------------------------------------------------------------------------------------------
<S> <C>
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).
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.
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).
</TABLE>
IV-4
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<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- ----------------------------------------------------------------------------------------------------------
<S> <C>
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).
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).
</TABLE>
IV-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
---------- --------------------------------------------------------------------------------------------------
<S> <C>
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).
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).
</TABLE>
IV-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
---------- -----------------------------------------------------------------------------------------------------
<S> <C>
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.
10.47 Memorandum of Mutual Agreement (English translation of Arabic language document), dated
, 2000, between The Egyptian Communications Company and Trans Global
Communications, Inc.
10.48 Agreement for Provision of Services, dated March 23, 2000, between Vogo Networks L.L.C. and
ETN, Italia.
10.49 Registration Rights Agreement, dated January 26, 2000, between eGlobe, Inc. and RCG
International Investors LDC.
10.50 Registration Rights Agreement, dated March 15, 2000, between eGlobe, Inc and RGC
International Investors LDC.
21 Subsidiaries of eGlobe, Inc.
23.1 Consent of BDO Seidman, LLP.
24 Power of Attorney (On signature page).
27 Financial Data Schedule
99.1 Section 214 Authorization for eGlobe, Inc. (Incorporated by reference to Exhibit 10.5 in Form
S-1 Registration Statement of eGlobe, Inc. (No. 33-25572)).
99.2 Assignment of Section 214 Authorization for IDX International, Inc. (Incorporated by reference to
Exhibit 99.2 in Annual Report on Form 10-K of eGlobe, Inc., for the period ended December 31, 1998).
99.3 Letter from the Nasdaq, dated August 20, 1999, regarding the Company's re-listing on Nasdaq
National Market. (Incorporated by reference to Exhibit 99.1 in Current Report on Form 8-K of
eGlobe, Inc., dated October 5, 1999).
99.4 Assignment of Section 214 Authorization for Trans Global Communications, Inc.
</TABLE>
IV-7
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
eGLOBE, INC.
Dated: November 6, 2000 By: /s/David Skriloff
------------------------------------
David Skriloff
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirement of the Securities Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE DATED
---------------------------------------------------------------------- -----------------
<S> <C>
By: * November 6, 2000
---------------------------------------------------------------------
Christopher J. Vizas, Chairman of the Board of Directors, and Chief
Executive Officer (Principal Executive Officer)
By: /s/ David Skriloff November 6, 2000
---------------------------------------------------------------------
Chief Financial Officer
(Principal Financial Officer)
By: * November 6, 2000
---------------------------------------------------------------------
Bijan Moaveni, Chief Operating Officer
(Principal Operating Officer)
By: * November 6, 2000
---------------------------------------------------------------------
Anne E. Haas, Chief Accounting Officer and Treasurer
(Principal Accounting Officer)
By: * November 6, 2000
----------------------------------------------------------
David W. Warnes, Director
By: * November 6, 2000
----------------------------------------------------------
Richard A. Krinsley, Director
By: * November 6, 2000
----------------------------------------------------------
Donald H. Sledge, Director
By: * November 6, 2000
----------------------------------------------------------
James O. Howard, Director
By: *
----------------------------------------------------------
John H. Wall, Director November 6, 2000
*By: /s/ David Skriloff November 6, 2000
----------------
Attorney-in-fact
</TABLE>
IV-8
