<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO _______
COMMISSION FILE NUMBER: 000-23260
ONEWORLD SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3095680
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1144 EAST ARQUES AVE.
SUNNYVALE, CA 94086
(Address of principal executive offices, including zip code)
(408) 523-1100
(Registrant's telephone number, including area code)
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 such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Common Stock outstanding as of July 31, 1998 was
17,426,859.
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ONEWORLD SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.......................................................................3
Condensed Consolidated Balance Sheets
as of June 30, 1998 and March 31, 1998..............................................................3
Condensed Consolidated Statements of Operations
for the three months ended June 30, 1998 and 1997...................................................4
Condensed Consolidated Statements of Cash Flows
for the three months ended June 30, 1998 and 1997...................................................5
Notes to Condensed Consolidated Financial Statements....................................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..............................................................................8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................................................15
Item 2. Changes in Securities/Recent Sales of Unregistered Securities..........................................15
Item 3. Defaults Upon Senior Securities........................................................................15
Item 4. Submission of Matters to a Vote of Security Holders....................................................15
Item 5. Other Information......................................................................................15
Item 6. Exhibits and Reports on Form 8-K.......................................................................15
SIGNATURES..............................................................................................................16
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ONEWORLD SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
June 30, 1998 March 31, 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,876 $ 3,097
Note receivable from Boca Research, Inc. 5,855 --
Accounts receivable, net 27 8,160
Inventories, net -- 2,351
Other current assets 313 253
------- -------
Total current assets 11,071 13,861
Property and equipment, net 526 4,049
Other assets 65 63
------- -------
Total assets $11,662 $17,973
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 803 $ 7,625
Accrued and other liabilities 4,134 6,003
------- -------
Total current liabilities 4,937 13,628
Stockholders' equity 6,725 4,345
======= =======
Total liabilities and stockholders' equity $11,662 $17,973
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
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ONEWORLD SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended June 30,
1998 1997
-------- --------
<S> <C> <C>
Net revenue $ 12,365 $ 15,907
Cost of revenue 9,549 10,316
-------- --------
Gross profit 2,816 5,591
-------- --------
Operating expenses:
Research and development 2,537 2,422
Marketing and sales 2,781 3,793
General and administrative 1,111 1,408
Restructuring costs 404 --
-------- --------
Total operating expenses 6,833 7,623
-------- --------
Loss from operations (4,017) (2,032)
-------- --------
Other income, net:
Gain on sale of modem operations 6,128 --
Other income 12 57
-------- --------
Total other income, net 6,140 57
-------- --------
Income (loss) before income taxes 2,123 (1,975)
Income tax benefit 22 --
-------- --------
Income (loss) from continuing operations 2,145 (1,975)
-------- --------
Discontinued operations:
Income from discontinued operations 90 --
-------- --------
Net income (loss) $ 2,235 $ (1,975)
======== ========
Basic per share data:
Income (loss) per share from continuing operations $ 0.12 $ (0.12)
Income per share from discontinued operations 0.01 --
-------- --------
Net income (loss) per share $ 0.13 $ (0.12)
======== ========
Diluted per share data:
Income (loss) per share from continuing operations $ 0.12 $ (0.12)
Income per share from discontinued operations 0.01 --
-------- --------
Net income (loss) per share $ 0.13 $ (0.12)
======== ========
Shares used in basic per share computations 17,163 16,933
Dilutive effect of stock options 201 --
-------- --------
Shares used in diluted per share computations 17,364 16,933
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
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ONEWORLD SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended June 30,
1998 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 2,235 $(1,975)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 570 938
Gain on sale of modem operations (6,128) --
Changes in operating assets and liabilities:
Accounts receivable, net (1,145) (4,440)
Inventories 218 (457)
Income taxes -- 7,665
Other current assets 105 (216)
Accounts payable 2,816 (3,364)
Accrued and other liabilities (693) (545)
------- -------
Net cash used in operating activities of:
Continuing operations (2,022) (2,394)
Discontinued operations (184) --
------- -------
Net cash used in operating activities (2,206) (2,394)
------- -------
INVESTING ACTIVITIES:
Proceeds from sale of modem operations 4,000 (115)
Purchases of property and equipment (22) --
Other assets (2) 54
------- -------
Net cash provided by (used in) investing activities 3,976 (61)
------- -------
FINANCING ACTIVITIES:
Repayments under line of credit -- (4,241)
Proceeds from issuance of Common Stock, net 8 107
------- -------
Net cash provided by (used in) financing activities 8 (4,134)
------- -------
Net increase (decrease) in cash and cash equivalents 1,778 (6,589)
Cash and cash equivalents at beginning of period 3,098 9,687
------- -------
Cash and cash equivalents at end of period $ 4,876 $ 3,098
======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid:
Interest $ 198 $ 104
Income taxes $ 19 $ --
Non-cash investing and financing activities:
Sale of modem operations in exchange for note receivable
from Boca Research, Inc. $ 5,855 $ --
Warrants issued to Boca Research, Inc. $ 140 $ --
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
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ONEWORLD SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
OneWorld Systems, Inc. ("OneWorld Systems" or the "Company") (founded in
1989 as "Global Village Communication, Inc." and incorporated in
Delaware), designs, develops, manufactures and sells products that enhance
and simplify wide area data communications for the small and medium size
office market. The Company's recently introduced OneWorld 5000
communications servers are designed to be versatile, easy-to-use,
cost-effective and expandable solutions that combine Internet access and
routing, remote access, on-line service access, and fax capabilities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The interim condensed consolidated financial
statements as of June 30, 1998 and for the three months ended June 30,
1998 and 1997, include all adjustments (consisting of only normal
recurring adjustments) that in the opinion of management are necessary to
present fairly the financial information set forth therein, in accordance
with generally accepted accounting principles. Certain reclassifications
have been made for consistent presentation. These financial statements
should be read in conjunction with the Company's consolidated financial
statements and notes thereto contained in the Company's Form 10-K for the
fiscal year ended March 31, 1998.
The Company's interim results are subject to fluctuation and largely based
on sales from the Company's modem operations, which were sold in June 1998
(see note 5 of the Notes to Condensed Consolidated Financial Statements).
As a result, the Company believes the results of operations for the
interim periods are not indicative of the results to be expected for any
future period.
NET INCOME (LOSS) PER SHARE. Basic earnings per share ("EPS") excludes
dilution and is computed by dividing net income available to common
stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS includes dilution and net income per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. For the three months
ended June 30, 1998 "in-the-money" dilutive options of approximately
201,000 were included in the calculation of diluted EPS. For the three
months ended June 30, 1997 "in-the-money" dilutive options of
approximately 427,000 were not included in the calculation of diluted EPS
as they were considered antidilutive. The Company has restated net income
(loss) per share for the three months ended June 30, 1997 presented in the
accompanying condensed consolidated financial statements to reflect net
income (loss) per share on both a basic and a diluted basis.
INVENTORIES. Inventories are stated at the lower of cost or market. Costs
are calculated using standard cost, which approximates the lower of actual
cost (first-in, first-out method) or market. Currently, the Company has no
unreserved inventory. Inventories consisted of
<TABLE>
<CAPTION>
(in thousands) March 31, 1998
------
<S> <C>
Purchased parts $ --
Work in process --
Finished goods 2,351
------
Total inventories $2,351
======
</TABLE>
6
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
- ----------------------------------------------------
3. LINE OF CREDIT
The Company has a line of credit agreement with a bank which expires in
April 1999. As of June 30, 1998 there were no borrowings under this line
of credit. As a result of the Company's sale of its modem operations, the
line of credit has been suspended because the sale included most of the
assets that would have secured borrowings under the line of credit. The
Company is currently negotiating a new line of credit.
4. DISCONTINUED OPERATIONS
In the second quarter of fiscal 1997, the Company adopted a formal plan to
discontinue its enterprise network server operation based in the United
Kingdom (formerly, the Company's ISDN Division). The disposition of the
division has been accounted for as a discontinued operation in accordance
with Accounting Principles Board (APB) No. 30 and prior period financial
statements have been restated to reflect the discontinuation of the
enterprise network server operation.
5. SALE OF MODEM OPERATIONS
On June 18, 1998 the Company completed the sale of its modem operations to
Boca Research, Inc. ("Boca"). Included in the sale were substantially all
of the Company's assets related to the Company's single user modem and
software product offerings. Additionally, the Company issued to Boca a
five year Warrant to purchase up to 425,000 shares of the Company's Common
Stock at approximately $1.00 per share. In consideration for these assets,
Boca assumed certain of the Company's liabilities related to the modem
operations, paid the Company $4.0 million in cash, and delivered a
non-interest bearing promissory note for $6.0 million payable in two equal
installments on September 30 and December 31, 1998, which has been
recorded at $5.855 million. The difference between the booked value and
the face value of the note will be recognized as interest income over the
life of the note. During the quarter, the Company recorded a net gain of
$6.1 million on the sale of its modem operations.
The Condensed Consolidated Balance Sheet as of June 30, 1998, contained
herein, gives full effect to the sale of the modem operations to Boca. The
assets purchased by Boca included products which represented the
overwhelming majority of the Company's revenues and gross profit. For the
quarter ended June 30, 1998, these products accounted for approximately
99% of the Company's reported net revenue and gross profit, and for the
year ended March 31, 1998, these products accounted for approximately 95%
of the Company's reported net revenue and approximately 88% of reported
gross profit. The Company's modem operations sold to Boca were not
separate from, nor accounted separately from, the other activities of the
Company. Therefore, the Company is unable to accurately estimate the
operating expenses associated with the assets sold to Boca.
6. RESTRUCTURE COSTS
On March 31, 1998 the Company announced a fundamental shift in business
strategy to refocus its efforts on its new line of communication servers
for small and medium size offices and a change of its name to OneWorld
Systems, Inc. During the first fiscal quarter of 1999, the Company
recorded a restructuring charge of approximately $404,000 comprised of
additional one-time costs for severance and employee related costs
(approximately $247,000), lease abandonment (approximately $88,000), and
fixed asset write-offs (approximately $69,000) associated with the
transition to OneWorld Systems.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto, and with the
Company's audited consolidated financial statements and notes thereto for the
fiscal year ended March 31, 1998. This report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ materially from those anticipated in forward-looking
statements as a result of the risk factors and other cautionary disclosures set
forth below and elsewhere in this report.
OVERVIEW
OneWorld Systems, Inc. ("OneWorld Systems" or the "Company") (founded in June
1989 as "Global Village Communication, Inc." and incorporated in Delaware),
designs, develops, manufactures and sells products that enhance and simplify
wide area data communications for the small and medium size office market. The
Company's recently introduced OneWorld 5000 communications servers are designed
to be versatile, easy-to-use, cost-effective and expandable solutions that
combine Internet access and routing, remote access, on-line service access, and
fax capabilities.
On March 31, 1998 the Company announced an agreement to sell its modem
operations to Boca Research, Inc. ("Boca") and unveiled a new corporate strategy
focusing on wide-area data communications for the small and medium size office.
The transaction closed June 18, 1998, and the Company changed its name to
OneWorld Systems, Inc. at that time.
Upon the close of the transaction, the Company ceased selling individual use
modems or other individual use communications systems. These products
represented substantially all of the Company's revenue during the first quarter
of fiscal 1999.
The Company's primary source of revenue in the future will be from its recently
introduced OneWorld 5000 communications server product line. The Company does
not expect to be profitable in the short-term, nor can there be any assurance
that the Company will ever achieve profitability.
The OneWorld 5000 family of communications servers will provide the major data
communications functions required by small businesses, including sending and
receiving faxes; Internet access and routing so that the entire office has
access to the Internet (not just one PC in the office); modem pooling so that
the entire office can share modems and access on-line services from any desk at
anytime; and remote access so that employees can dial into the office network
from home or on the road. In addition, the OneWorld 5000 family of
communications servers will be among the first to offer all these capabilities
simultaneously to both Windows and Macintosh users.
The Company's planned shipment of its server products is dependent upon the
completion of the development of the product. The Company may have difficulty
resolving these product development issues, or any other issues that may arise,
in a timely manner, which could delay the planned shipment of the new OneWorld
Systems communications server product line. Commercial acceptance of these
products is dependent on certain factors including the Company's sales and
marketing efforts, technical reviews by third parties, introductions of new
technologies or standards, performance of the Company's distributors and
suppliers, and announcements by the Company's competitors. Many of the Company's
future competitors have substantially greater financial, technical, sales,
marketing and other resources, as well as greater name recognition and a larger
customer base, than the Company. OneWorld products will not be sold through the
same channels as the Company's modem products were sold. Consequently, the
Company will be required to establish new distribution channels, including
expanding the Company's VAR channel. There can be no assurance that the Company
will be successful in establishing an effective distribution channel for its new
products. As a result, the Company believes that period-to-period comparisons of
its results of operations are not necessarily meaningful and should not be
relied upon as an indication of future performance.
In the past, the industry in which the Company competed was subject to short
product life cycles. As a result, the Company traditionally experienced a
reduction in the average selling prices of its products as the time from product
introduction elapses. There can be no assurances that similar pricing pressures
will not lead to reductions in average selling prices of the Company's new
servers.
8
<PAGE> 9
The Company intends to ship products within a short period after receipt of an
order, consequently, the Company does not expect to have a material backlog of
unfilled orders, and shipments in any quarter will be substantially dependent on
orders booked in that quarter. The Company's expense levels are based in part on
its expectations as to future revenues. Therefore, the Company may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall of demand in relation to the
Company's expectations or any material delay of customer orders would have an
almost immediate adverse impact on the Company's results of operations and
liquidity. Fluctuations in operating results may also result in volatility in
the price of the Company's Common Stock.
In addition, announcements by the Company's competitors of new products with the
potential to replace products developed by the Company may cause customers to
defer purchasing the Company's products, which could have a material adverse
effect on the Company's results of operations. As a result of changing
technology and market factors, the Company is subject to the risk that its
inventories may rapidly become obsolete or that the Company may carry quantities
of certain products that exceed current or projected demand. While the Company
has written down inventory that it considers to be excess or obsolete, there can
be no assurance that the Company's write downs will be adequate, and a material
increase in such write-downs and returns over historical rates would have a
material adverse effect on the Company's results of operations and working
capital. There can be no assurance that the Company will be successful in
developing new products or enhancing its current products on a timely basis, or
that such new products or product enhancements will achieve market acceptance.
NET REVENUE
On June 18, 1998, the Company sold its modem operations to Boca Research. The
modem operations accounted for substantially all of the Company's revenue during
the quarter and in the previous fiscal year. Consequently, the comparisons below
should not be relied upon as predictors of future performance.
Net revenue includes revenue from gross shipments, licenses and royalties, less
reserves for returns and allowances. Net revenue decreased 22.3% to $12.4
million for the first quarter of fiscal 1999 as compared to $15.9 million for
the first quarter of fiscal 1998. The decrease in net revenue for the first
quarter of fiscal 1999 as compared to the same period in fiscal 1998 was
primarily attributable to decreased shipments of the Company's Teleport and PC
Card modem products and the Company's sale of its modem operations. The decline
in revenue was partially offset by an increase in OEM modem revenues. During the
quarter ended June 30, 1998, the Company's two largest customers accounted for
approximately 50% and 18%, respectively, of the Company's net revenue.
Substantially all revenues to these customers were from modem operations
products. The Company sold no modem operations products after the close of the
transaction with Boca Research on June 18, 1998.
International net revenue increased to $6.1 million or 49% of net revenues for
the first quarter of fiscal 1999 from $2.5 million or 16% of net revenue for the
first quarter of fiscal 1998. The increase in international revenue was
primarily due to an increase in international OEM modem product shipments.
Revenue reserves and allowances are established for estimated future returns due
to stock balancing and discontinued and nonsaleable products based on the
Company's past experience and internal forecasts. There can be no assurance that
the Company's historical experience regarding returns and allowances will
continue or that its projections will prove accurate. If the Company experiences
returns in excess of its reserves, the Company's results of operations could be
materially, adversely effected.
9
<PAGE> 10
COST AND EXPENSES
On June 18, 1998, the Company sold its modem operations to Boca Research. The
modem operations accounted for substantially all of the Company's gross profit
and a significant portion of its research and development, marketing and sales,
and general and administrative expenses during the quarter and in the prior
fiscal year. Consequently, the comparisons below should not be relied upon as
predictors of future performance.
GROSS PROFIT
Cost of revenue primarily consisted of cost of materials, contract manufacturing
costs, manufacturing overhead expenses, royalty payments and warranty expenses.
The Company's gross profit as a percentage of net revenue decreased to 22% in
the first quarter of fiscal 1999 from 35% in the first quarter of fiscal 1998.
The gross profit margin decrease was primarily attributable to price reductions
on certain of the Company's modem products, a product mix change to lower margin
OEM business, and one-time costs associated with the transition to OneWorld
Systems. Gross profit margins are likely to fluctuate as a result of the sales
mix between lower and higher margin products, the nature and amount of licensing
and royalty income, and changes in distribution channels, as well as changes in
component and production costs, price reductions and reserve requirements.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 5% to $2.5 million or 21% of net
revenues for the first quarter of fiscal 1999 from $2.4 million or 15% of net
revenues in the comparable quarter of fiscal 1998. The increase in research and
development expenses is primarily related to development, testing and
pre-production costs of the OneWorld 5000 communication server products. The
increase was partially offset by reductions in headcount and manufacturing
support costs resulting from the sale of the modem operations to Boca Research.
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as incurred
until technological feasibility has been established, in compliance with SFAS
No. 86, "Accounting for the Costs of Software to be Sold, Leased, or Otherwise
Marketed." Historically, software development has been substantially completed
concurrently with the establishment of technological feasibility, and,
accordingly, no costs have been capitalized to date.
MARKETING AND SALES
Marketing and sales expenses decreased 27% to $2.8 million or 23% of net
revenues in the first quarter of fiscal 1999 compared to $3.8 million or 24% of
net revenues during the same period of fiscal 1998. The decline in fiscal 1999
expenses was primarily attributable a reduction in advertising and promotion
expenses, as well as, a reduction in personnel costs associated with the sale of
the modem operations.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased 21% to $1.1 million from $1.4
million between the first quarter of fiscal 1999 and the first quarter of fiscal
1998. General and administrative expenses remained essentially flat as a
percentage of net revenues at 9% of net revenues for first quarter of fiscal
1999 and for the same period of fiscal 1998. The decrease was primarily
attributable to a reduction in personnel costs associated with the sale of the
modem operations.
RESTRUCTURING COSTS
On March 31, 1998 the Company announced a fundamental shift in business strategy
to refocus its efforts on its new line of communication servers for small and
medium size offices and a change of its name to OneWorld Systems, Inc. During
the first fiscal quarter of 1999, the Company recorded a restructuring charge of
approximately $404,000 comprised of additional one-time costs for severance and
employee related costs (approximately $247,000), lease abandonment
(approximately $88,000), and fixed asset write-offs (approximately $69,000)
associated with the transition to OneWorld Systems.
10
<PAGE> 11
NET OTHER INCOME
Net other income increased to $6.1 million or 50% of net revenues for the first
fiscal quarter of fiscal 1999 from $0.1 million or 1% of net revenues for the
first fiscal quarter of 1998. Net other income in the first fiscal quarter of
1999 included a gain on sale of the Company's modem operations of $6.1 million.
On June 18, 1998 the Company completed the sale of its modem operations to Boca
Research. Included in the sale were substantially all of the Company's assets
related to the Company's single user modem and software product offerings.
Additionally, the Company issued to Boca a Warrant to purchase up to 425,000
shares of the Company's Common Stock. In consideration for these assets, Boca
assumed certain of the Company's liabilities related to the modem operations,
paid to the Company $4.0 million in cash, and delivered a non-interest bearing
promissory note for $6.0 million payable in two equal installments on September
30, 1998 and December 31, 1998 (see note 5 of the Notes to Condensed
Consolidated Financial Statements). During the quarter, the Company recorded a
net gain of $6,1 million on the sale of its modem operations.
The effective tax rate for the first quarter of fiscal 1999 was 1% as compared
to zero in the first quarter of fiscal 1998. The increase relates to refunds of
prior periods state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents totaled $4.9 at June 30, 1998,
representing 42% of total assets. The Company's working capital was $6.1 million
at June 30, 1998 as compared to $0.2 million at March 31, 1998, an increase of
$5.9 million. The increase in working capital was primarily attributable to the
receipt of proceeds and elimination of certain liabilities associated with the
sale of the modem operations to Boca Research.
At June 30, 1998, the Company's principal source of liquidity was $4.9 million
in cash and future payments of notes receivable from Boca Research, Inc. (see
note 5 of the Notes to Condensed Consolidated Financial Statements).
The Company does not expect fiscal 1999 capital expenditures to exceed
historical levels and may possibly be reduced. During the past several quarters,
the Company has experienced significant negative cash flows from operations.
However, the Company currently believes that its existing cash and cash proceeds
from the sale of its modem operations (see note 5 of the Notes to Condensed
Consolidated Financial Statements), should enable the Company to meet its short
term needs. The preceding sentence is a forward-looking statement. The Company's
funding requirements may change at any time due to various factors, including
the Company's operating results, the results and timing of the Company's launch
of new products and services, the Company's ability to reduce or control various
operating expenses through cost containment measures or operating reductions,
the success of the Company's marketing efforts, technological advances and
competition. The Company may be required to issue additional debt or equity
securities which could substantially dilute the ownership of existing
stockholders. Any shortfall in funding could result in the Company having to
curtail the introduction or development of new products and its entry into new
markets, any of which could have a material adverse affect on the Company's
business, financial condition and results of operations.
YEAR 2000 ISSUES
The Company is aware of the potential issues facing the Company, its vendors and
its customers with respect to the ability for computer software to function
properly in the year 2000. The Company has assessed the impact on its corporate
information system for Year 2000 issues and has a plan to adopt a new
information system that will accommodate dates after 1999. The Company believes
that after conversion to the new software system, the year 2000 issue will not
pose significant operational problems for its computer system. The financial
impact of making the required systems changes is not expected to be material to
the Company's financial position, results of operation or cash flows. The
Company has been contemplating a decision to move to another information system
for other business reasons and will resolve any year 2000 issues by making the
conversion.
Additionally, the Company is in the process of reviewing the year 2000 issues
with its customers, suppliers and other business partners. There can be no
assurance made at this time, that all the systems of its customers, suppliers
and other business partners will be year 2000 compliant on a timely basis. If
said systems are not compliant, it could have a material adverse impact on the
Company.
11
<PAGE> 12
The Company has commenced efforts to ensure that all products that the Company
produces will be fully year 2000 compliant. While this evaluation is not yet
complete, the Company believes that any costs incurred to bring its products
into compliance will not have a material impact on its financial position,
results of operation or cash flows. There can be no assurances, however, that
non-year 2000 compliant products would not result in the loss of or delay in
market acceptance of the Company's products.
CERTAIN FACTORS WHICH MAY AFFECT FUTURE PERFORMANCE
In addition to the other information in this Quarterly Report, one should
carefully consider the following factors in evaluating the Company.
PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE
The Company believes that its future success will depend on its ability to
develop new products on a timely and cost-effective basis that meet changing
customer needs and respond to emerging industry standards and other
technological changes. In particular, the Company must adapt its products to the
evolving technological standards of the various computer platforms and new
technical standards resulting from increases in data transmission speed and
wireless communication. Any failure by the Company to anticipate or respond
adequately to changes in technology and customer preferences or any significant
delay in product development or introduction would have a material adverse
effect on the Company's results of operations. Due in part to the factors
described above, the Company is subject to the risk that its inventories may
rapidly become obsolete or that the Company may carry quantities of certain
products that exceed current or projected demand. In addition, products as
complex as those offered by the Company may contain undetected errors or defects
when first introduced or as new versions are released. There can be no assurance
that, despite testing by the Company and by current and potential customers,
errors will not be found in new products after commencement of commercial
shipments resulting in a delay in market acceptance or a recall of such
products.
MARKET ANTICIPATION OF NEW PRODUCTS OR TECHNOLOGIES
Since the environment in which the Company will operate in the future is
characterized by rapid new product and technology introductions and generally
falling prices for existing products, the Company's customers may from time to
time postpone purchases in anticipation of such new product introductions or
lower prices. If such anticipated changes are viewed as significant by the
market, then this may have the effect of temporarily slowing overall market
demand and negatively impacting the Company's operating results.
COMPETITION
The market for the Company's products is intensely competitive and is
characterized by rapidly changing technology, evolving industry communication
standards and frequent new product introductions. The Company's OneWorld fax
server products compete primarily with dedicated fax servers, stand-alone fax
machines, electronic mail, centralized fax systems produced by independent
manufacturers such as Castelle, 4Sight, Cypress, and STF, as well as printer
vendors, including Apple and NEC, which offer fax capabilities with some of
their products. The Company's OneWorld Remote Access, Suite, Network Modem and
Combo servers compete with the same products in the fax server category, as well
as with remote access server router and modem pool products produced by
competitors such as Cisco Systems, Shiva, 3COM, and others. Other companies in
the personal computer industry could seek to expand their product offerings by
designing and selling products using competitive technology that could render
obsolete or have a material adverse effect on sales of the Company's future
products.
Many of the Company's competitors have substantially greater financial,
technical, sales, marketing and other resources, as well as greater name
recognition and a larger customer base, than the Company. In addition, the
market for the Company's server products is characterized by significant price
competition, and the Company expects that it will face increasing pricing
pressures from its competitors. Accordingly, there can be no assurance that the
Company will be able to provide products that compare favorably with the
products of the Company's competitors or that competitive pressures will not
require the Company to reduce its prices. Any material reduction in the price of
the Company's products could negatively affect gross profit as a percentage of
net revenue and could require the Company to increase unit sales in order to
maintain net revenue. There can be no assurance, however, that the Company would
be able to increase its unit sales or make up for a short fall. Any
12
<PAGE> 13
failure to increase unit sales or make up for a short fall in net revenue would
have a material adverse effect on the Company's financial condition and results
of operations.
DEPENDENCE ON MANUFACTURERS
Historically, the Company purchased fully manufactured and tested units from a
"turnkey" manufacturing subcontractor. The Company anticipated that it will
continue to utilize this manufacturing strategy for its new family of OneWorld
5000 communications servers. The Company believes that there are a number of
alternative contract manufacturers that could produce the Company's products.
However, it could take a significant period of time and result in significant
additional expense to qualify an alternative subcontractor and commence
manufacturing in the event of a reduction or interruption of production.
Therefore, the Company is highly dependent, on a short-term basis, on its
continued relationship with its "turnkey" manufacturing subcontractor and any
reduction, interruption, or termination of this relationship could have a
material adverse effect on the operating results of the Company. Components and
manufacturing services from the Company's suppliers are obtained on an as-needed
basis.
The Company has been, and will continue to be, dependent on sole or limited
source suppliers for certain key components used in its products, particularly
chip sets designed and manufactured by Rockwell International and Motorola. The
Company generally purchases sole or limited source components pursuant to
purchase orders placed from time to time in the ordinary course of business and
has no guaranteed supply arrangements with its sole or limited source suppliers.
Certain component suppliers, such as Rockwell, are also modem manufacturers and,
accordingly, could elect to satisfy their internal supply requirements rather
than the Company's purchase requirements. The Company at times in the past has
experienced delays in product development and difficulties in manufacturing
sufficient product to meet demand due to the inability of certain suppliers to
meet the Company's volume and schedule requirements. There can be no assurance
that the Company's suppliers will be able to meet the Company's requirements for
key components and failure to meet such requirements in the future could have a
material adverse effect on the Company's results of operations.
RELIANCE ON VALUE ADDED RESELLERS
The Company will distribute its new OneWorld 5000 communications servers through
national and regional value added resellers (VARs) and corporate resellers,
particularly those with a focus on serving the small and medium size office
market. The Company intends to increase the number of VARs by launching VAR
recruiting, training and support programs. There can be no assurance that the
Company will be successful in attracting existing or new VARs to distribute
these products, or that the VAR channel will be a successful distribution
channel for the OneWorld 5000 product family. Failure to attract these VARs or
their inability to sell the products would cause sales of such products to be
below Company expectations, and the Company's business, financial condition and
results of operations would be materially adversely affected.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends to a significant extent on its senior
management and other key employees, including key development personnel. The
loss of the services of any of these individuals or group of individuals could
have a material adverse effect on the Company's results of operations. The
Company believes that its future success will depend in large part on its
ability to attract and retain additional key employees. Competition for such
personnel in the computer industry is intense, and there can be no assurance
that the Company will be successful in attracting and retaining such personnel.
If the Company were to fail to replace or retain its key employees or attract
additional key employees, the Company's results of operations could be
materially adversely effected.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company relies primarily on a combination of copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to protect
its proprietary rights. The Company has no patents or patent applications
pending. The Company seeks to protect its hardware, software, documentation and
other written materials under trade secret and copyright laws, which afford only
limited protection. The Company seeks to protect its brand names under trademark
and unfair competition laws. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult,
and while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of
13
<PAGE> 14
some foreign countries do not protect the Company's proprietary rights to as
great an extent as do the laws of the United States. There can be no assurance
that the Company's means of protecting its proprietary rights will be adequate
or that the Company's competitors will not independently develop similar
technology.
The Company believes that, due to the rapid pace of innovation within the
communications software industry, the Company's success in establishing and
maintaining a technological leadership position is likely to depend more upon
the technological and creative skills of its personnel, continued innovation,
its marketing skills and customer support than on the various legal means of
protecting its existing technology.
The Company is aware of products in addition to its own that are marketed under
the trademark "OneWorld." There can be no assurance that litigation with respect
to these trademarks will not be instituted by any third parties. If any such
litigation were successful, the Company could be required to pay damages and
cease all use of a particular trademark. There can be no assurance that any loss
of the right to use a trademark would not reduce sales of the Company's
products. In any event, even if the Company were successful in any such
litigation, the legal and other costs associated with such litigation could be
substantial. As is customary in the Company's industry, the Company from time to
time receives communications from third parties asserting that the Company's
products infringe, or may infringe, the proprietary rights of third parties or
seeking indemnification against such infringement. There can be no assurance
that any such claims would not result in protracted and costly litigation. The
Company anticipates that the duration of its trademarks will be perpetual.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has been volatile and trading
volumes have been relatively low. Factors such as variations in the Company's
revenue, operating results and cash flow and announcements of technological
innovations or price reductions by the Company, its competitors, or providers of
alternative products could cause the market price of the Company's Common Stock
to fluctuate substantially. In addition, the stock markets have experienced
significant price and volume fluctuations that particularly have affected
technology-based companies and resulted in changes in the market prices of the
stocks of many companies that have not been directly related to the operating
performance of those companies. Such broad market fluctuations may adversely
affect the market price of the Company's Common Stock.
ANTI-TAKEOVER PROVISIONS
The Company's Board of Director's has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the
stockholders. The rights of the holders of the Company's Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. While the Company has no
present intention to issue shares of Preferred Stock, any such issuance could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. In addition, the
Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which could have the effect of delaying or
preventing a change of control of the Company. Furthermore, certain provision of
the Company's Certificate of Incorporation may have the effect of delaying or
preventing changes in control or management of the Company, which could
adversely affect the market price of the Company's Common Stock.
UNCERTAIN INTERNATIONAL DEMAND
There can be no assurance that the Company will be able to attain international
demand for the its new OneWorld 5000 communications server products or that the
Company's distributors will be able to effectively meet that demand. Risks
inherent in the Company's international business activities generally include
unexpected changes in regulatory requirements, tariffs and other trade barriers,
costs and risks of localizing products for foreign countries, longer accounts
receivable payment cycles, difficulties in managing international operations and
distributors, potentially adverse tax consequences, repatriation of earnings,
the burdens of complying with a wide variety of foreign laws and changes in
demand resulting from fluctuations in exchange rates. In addition, the laws of
certain foreign countries do not provide protection for the Company's
intellectual property to the same extent as do the laws of the United States.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - Not applicable.
ITEM 2. CHANGES IN SECURITIES/RECENT SALES OF UNREGISTERED SECURITIES
In connection with the sale of the modem operations, the Company issued to Boca
Research a warrant to purchase up to 425,000 shares of the Company's Common
Stock at approximately $1.00 per share. The warrant was sold in a private
placement to Boca Research in reliance on Section 4(2) of the Securities Act of
1933, as amended. The warrant expires on June 18, 2003.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held a special meeting of Stockholders on June 8, 1998. The
following matters were approved by the stockholders by the votes indicated:
<TABLE>
<CAPTION>
Number of Shares
-----------------------------------------------------------------------
Broker
Matter: For Against Abstain Non-Vote
- --------------------------------------------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
To approve and adopt that certain Asset Purchase 8,642,429 576,118 162,469 7,475,853
Agreement dated March 31, 1998, and the transactions
contemplated thereby, pursuant to which Boca Research,
Inc. a Florida Corporation, and Boca Global, Inc., a
Florida Corporation and a wholly owned subsidiary of
Boca Research, Inc., will purchase the Modem Business
from the Company.
To approve and adopt a proposal to amend the 16,179,465 557,638 119,766 --
Company's Certificate of Incorporation, as
amended, to change the name of the Company to
"OneWorld Systems, Inc."
To transact other such business as may properly 15,158,613 967,356 730,891 --
come before the meeting.
</TABLE>
ITEM 5. OTHER INFORMATION - Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.9 Warrant to Purchase 425,000 Shares of Common Stock granted by
the Company to Boca Research, Inc., dated as of June 18, 1998
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On April 1, 1998 the Company filed a Form 8-K in which the Company
presented two press releases, dated March 31, 1998, "Boca Research to
Acquire Global Village Modem Business" and "Global Village Unveils New
Corporate Strategy For Small and Medium Size Office Networking Market;
Sells Modem Business to Boca Research."
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OneWorld Systems, Inc.
Date: August 12, 1998 /S/Neil Selvin
--------------------------------------
President and Chief Executive Officer
(Principle Executive Officer)
Date: August 12, 1998 /S/Marc E. Linden
--------------------------------------
Senior Vice President Finance and
Chief Financial Officer
(Principle Financial and Accounting
Officer)
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
4.9 Warrant to Purchase 425,000 Shares of Common Stock granted by the Company
to Boca Research, Inc., dated as of June 18, 1998
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4.9
THIS WARRANT AND THE UNDERLYING SHARES OF COMMON STOCK ISSUED UPON ITS EXERCISE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND NO SALE OR TRANSFER THEREOF MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO
THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT.
No. W-1 Right to Purchase up to 425,000 shares of
Common Stock
GLOBAL VILLAGE COMMUNICATION, INC.
Common Stock Purchase Warrant
Global Village Communication, Inc., a Delaware corporation (the
"Company"), hereby certifies that Boca Research, Inc., a Florida corporation
(the "Holder"), is entitled, subject to the terms set forth below, to purchase
from the Company at any time or from time to time before 5:00 P.M., Boca Raton,
Florida time, on June 18, 2003, up to 425,000 fully paid and nonassessable
shares of Common Stock, par value $.01 per share, of the Company, at a purchase
price per share of $1.0003 (such purchase price per share as adjusted from time
to time as herein provided is referred to herein as the "Purchase Price"). The
number and character of such shares of Common Stock and the Purchase Price are
subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include Global Village
Communication, Inc. and any corporation or other entity which shall
succeed or assume the obligations of the Company hereunder.
(b) The term "Common Stock" includes the Company's Common
Stock, par value $.01 per share, as authorized on the date hereof and
any other securities into which or for which any of such Common Stock
may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the holders of the Warrant at any
time shall be entitled to receive, or shall have received, on the
exercise of the Warrant, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities
pursuant to Section 5 or otherwise.
(d) The term "Warrant" shall mean this Common Stock Purchase
Warrant.
(e) The term "Warrant Shares" shall mean the shares of Common
Stock issuable upon exercise of this Warrant.
1. Exercise of Warrant.
1.1. Full Exercise. Subject to the provisions of Section 1.3,
this Warrant may be exercised in full by the Holder by surrender of this
Warrant, with the form of subscription in the form attached hereto as Exhibit A
(the "Subscription Form") duly executed by such holder, to the Company at its
principal office, accompanied by payment, by wire transfer in immediately
available funds, in the amount obtained by multiplying the number of shares of
Common Stock for which this Warrant is then exercisable by the Purchase Price
then in effect.
1.2. Partial Exercise. This Warrant may be exercised in part
by surrender of this Warrant in the manner and at the place provided in Section
1.1 except that the amount payable by the Holder on such partial exercise shall
be the amount obtained by multiplying (a) the number of shares of Common Stock
designated by the Holder in the Subscription
Exhibit 4.9 - Page 1
<PAGE> 2
Form hereof by (b) the Purchase Price then in effect. On any such partial
exercise the Company at its expense will forthwith issue and deliver to or upon
the order of the Holder a new Warrant or Warrants of like tenor, in the name of
the Holder or as such holder (upon payment by such holder of any applicable
transfer taxes) may request, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock for which such Warrant or
Warrants may still be exercised.
1.3 Net Issue Election. The Holder may elect to receive,
without the payment by such holder of any additional consideration, shares equal
to the value of this Warrant or any portion hereof by the surrender of this
Warrant or such portion to the Company, with the Subscription Form duly executed
by such holder, at the office of the Company. Thereupon, the Company shall issue
to such holder such number of fully paid and nonassessable shares of Common
Stock as is computed using the following formula:
X = Y (A-B)
------
A
where X = the number of shares to be issued to such holder pursuant to this
Section 1.3.
Y = the number of shares covered by this Warrant in respect of which the
net issue election is made pursuant to this Section 1.3.
A = the Fair Market Value (as defined below) of one share of Common
Stock, as at the time the net issue election is made pursuant to this Section
1.3.
B = the Purchase Price in effect under this Warrant at the time the net
issue election is made pursuant to this Section 1.3.
As used herein, "Fair Market Value" shall mean with respect to each
share of Common Stock as of a date specified below (each, a "Determination
Date"):
(i) the Fair Market Value shall be deemed to be the
average of the closing prices on The Nasdaq Stock Market (or
other market on which the Common Stock is then traded) over a
ten (10) trading day period ending two days before the
Determination Date; or
(ii) if at any time the Common Stock is not traded on
the Nasdaq Stock Market or other market, the Fair Market Value
shall be the highest price per share which the Company could
obtain from a willing buyer (not a current employee or
director) for Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by
its Board of Directors, unless the Company shall become
subject to a merger, acquisition or other consolidation
pursuant to which the Company is not the surviving party, in
which case the Fair Market Value shall be deemed to be the
value received by the holders of Common Stock pursuant to such
merger or acquisition.
1.4 Company Acknowledgment. The Company will, at the time of
the exercise of the Warrant, upon the request of the Holder, acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.5 Trustee for Warrant Holders. In the event that a bank or
trust Company shall have been appointed as trustee for the Holder pursuant to
Section 4.2, such bank or trust Company shall have all the powers and duties of
a warrant agent appointed pursuant to Section 11 and shall accept, in its own
name for the account of the Company or such successor person as may be entitled
thereto, all amounts otherwise payable to the Company or such successor, as the
case may be, on exercise of this Warrant pursuant to this Section 1.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the Holder, or as such holder (upon payment by such holder
of any applicable transfer taxes) may direct, a certificate or certificates for
the number of fully paid and
Exhibit 4.9 - Page 2
<PAGE> 3
nonassessable shares of Common Stock (or Other Securities) to which such holder
shall be entitled on such exercise, together with any other stock or other
securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to Section 1 or otherwise. The Company
shall issue fractions of shares of Common Stock on the exercise of this Warrant
to extent required.
3. Adjustment for Dividends in Other Stock, Property, etc.;
Reclassification, etc. If at any time or from time to time, the holders of
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of shareholders eligible to receive)
shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property
(other than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are provided
for in Section 5), then and in each such case the Holder, on the exercise hereof
as provided in Section 1, shall be entitled to receive the amount of stock and
other securities and property (including cash in the cases referred to in
clauses (b) and (c) of this Section 3) which such holder would hold on the date
of such exercise if on the date hereof he had been the holder of record of the
number of shares of Common Stock called for on the face of this Warrant and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and all such other or additional stock and
other securities and property (including cash in the cases referred to in
clauses (b) and (c) of this Section 3) receivable by him as aforesaid during
such period, giving effect to all adjustments called for during such period by
Sections 4 and 5.
4. Adjustment for Reorganization, Consolidation, Merger, etc.
4.1. Reorganization. If at any time or from time to time, the
Company shall (a) effect a reorganization, (b) consolidate with or merge into
any other person, or (c) transfer all or substantially all of its properties or
assets to any other person under any plan or arrangement contemplating the
dissolution of the Company, then, in each such case, the Holder, on the exercise
hereof as provided in Section 1 at any time after the consummation of such
reorganization, consolidation or merger or the effective date of such
dissolution as the case may be, shall receive, in lieu of the Common Stock (or
Other Securities) issuable on such exercise prior to such consummation or such
effective date, the stock and other securities and property (including cash) to
which such holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such holder had so
exercised this Warrant immediately prior thereto, all subject to further
adjustment thereafter as provided in Sections 3 and 5.
4.2. Dissolution. In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense deliver or
cause to be delivered the stock and other securities and property (including
cash, where applicable) receivable by the Holder after the effective date of
such dissolution pursuant to this Section 4 to a bank or trust Company having
its principal office in New York, New York, as trustee for the Holder.
4.3 Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 4, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 6.
5. Adjustment for Extraordinary Events.
Exhibit 4.9 - Page 3
<PAGE> 4
In the event that the Company shall (i) issue additional
shares of the Common Stock as a dividend or other distribution on outstanding
Common Stock, (ii) subdivide its outstanding shares of Common Stock, or (iii)
combine its outstanding shares of the Common Stock into a smaller number of
shares of the Common Stock, then, in each such event, the Purchase Price shall,
simultaneously with the happening of such event, be adjusted by multiplying the
then Purchase Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such event and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such event, and the product so obtained shall thereafter be
the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive event or
events described herein in this Section 5. The Holder shall thereafter, on the
exercise hereof as provided in Section 1, be entitled to receive that number of
shares of Common Stock determined by multiplying the number of shares of Common
Stock which would otherwise (but for the provisions of this Section 5) be
issuable on such exercise by a fraction of which (i) the numerator is the
Purchase Price which would otherwise (but for the provisions of this Section 5)
be in effect, and (ii) the denominator is the Purchase Price in effect on the
date of such exercise.
6. No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Warrants, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder against
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any shares of stock receivable on the
exercise of the Warrants above the amount payable therefor on such exercise; and
(b) will take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
stock on the exercise of all Warrants from time to time outstanding.
7. Notices of Record Date, etc. In the event of
(a) any taking by the Company of a record of the holders of any
class or securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities or property, or to receive
any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company
or any transfer of all or substantially all the assets of the Company to
or consolidation or merger of the Company with or into any other person,
or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, or
(d) any proposed issue or grant by the Company of any shares of
stock of any class or any other securities, or any right or option to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities (other than the issue of Common Stock on
the exercise of the Warrants),
then and in each such event the Company will mail or cause to be mailed to each
Holder a notice specifying (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, (ii) the date on which
any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up, and (iii) the amount and
character of any stock or other securities, or rights or options with respect
thereto, proposed to be issued or granted, the date of such proposed issue or
grant and the persons or class of persons to whom such proposed issue or grant
is to be offered or made. Such notice shall be mailed at least 20 days prior to
the date specified in such notice on which any such action is to be taken.
8. Concerning registration under the Securities Act of 1933, the
following is applicable:
8.1 If at any time prior to the second anniversary of the date
hereof, the Company shall receive from the Holder of the Warrants and/or Warrant
Shares a written request that the Company effect the underwritten registration
Exhibit 4.9 - Page 4
<PAGE> 5
of all of the Warrant Shares (subject to Section 1.3), the Company will as soon
as practicable use all commercially reasonable efforts to effect such
registration as may be so requested and as would permit or facilitate the sale
and distribution of such portion of such Warrant Shares as are specified in such
request. Such notice shall identify the underwriter or underwriters that will
participate in the proposed offering. Neither the Company nor any other
shareholder may include shares in any registration effected under this Section
8.1 without the consent of the Holder to be included in such registration if the
inclusion of shares by the Company or the other shareholders would limit the
number of Warrant Shares sought to be included by the Holder or reduce the
offering price thereof. The costs and expenses of any registration effected in
accordance with this Section 8.1 shall be borne by the Holder of the Warrant
Shares, unless the Company or other shareholders include shares in such
registration, in which case the costs and expenses of such registration shall be
borne pro rata by the Company and all holders (including the Holder including
shares in such registration) based on the number of shares offered by such
persons.
8.2 The Company agrees that if at any time prior to the second
anniversary of the date hereof it and/or any of its subsidiaries and/or one or
more of its officers, directors or holders of its outstanding Common Stock
intend to offer equity securities to the public for cash pursuant to any type of
registration under the Securities Act of 1933, as amended (the "Act"), the
Company will notify all the Holder in writing at least forty-five (45) days
prior to the initial filing of a registration statement relating to such
offering with the Securities and Exchange Commission ("Registration Statement").
Thereafter, the Company will, at its sole cost and expense, use its commercially
reasonable efforts to include in such registration statement, in accordance with
the Act, such Warrants and/or Warrant Shares (including Warrant Shares issuable
upon exercise of then outstanding Warrants) as the Holder shall request within
thirty (30) days of receipt of notification from the Company of its intention to
file such registration statement; provided, that the inclusion thereof will not
preclude the Company's use of the registration form intended to be utilized by
the Company and further provided, that the selling shareholders will agree, if
requested by the underwriter, not to sell those of their Warrant Shares not
included in such registration statement for ninety (90) days following the
effective date of the registration statement; and further provided that the
foregoing requirements shall not apply in the event that the Company proposes to
file a registration statement in connection with (i) any issuance of securities
pursuant to any stock option, stock purchase or other employee benefit plan; or
(ii) any issuance of securities in connection with any business combination,
whether by way of merger, consolidation, purchase of stock or assets or
otherwise. If the proposed registration statement is initiated by the Company
for an underwritten public offering of equity securities for its account and, in
the opinion of the managing underwriter, the inclusion of more than a specified
amount of such equity securities in such registration statement might adversely
affect such offering, holders of Warrants and/or Warrant Shares making requests
pursuant to this Section 8.2 may include Warrant Shares in priority to all other
holders of equity securities of the Company which desire to include Common
Shares therein; provided, however, that under no circumstances shall the Holder
have a preference to the shares to be issued by the Company under such
registration statement. If the proposed registration statement is initiated by
other holders of equity securities of the Company pursuant to registration
rights provided for in an agreement with the Company and, in the opinion of the
managing underwriter of any underwritten public offering of such equity
securities, the inclusion of more than a specified number of units of equity
securities in such registration statement might adversely affect such offering,
then the Holder may include equity securities in such registration statement in
priority to all other equity securities proposed to be registered by such
initiating holders, holders of Warrants and/or Warrant Shares and such other
holders. Any opinion of a managing underwriter referred to in this Section 8.2
shall be evidenced in a writing delivered to the Holder, if the Holder has
requested inclusion of shares in the related registration statement.
8.3 The inclusion or non-inclusion of the Holder's Shares in a
registration pursuant to Section 8.1 or 8.2 shall not adversely affect such
holder's right to have any Warrants and/or Warrant Shares which he then holds,
or Warrant Shares which he may hold upon the conversion of a Warrant which he
then holds, included in an additional registration or registrations pursuant to
Section 8.1 or 8.2.
8.4 The Company agrees to use its commercially reasonable
efforts to the end that each registration of the Warrants and/or Warrant Shares
required to be made by the Company pursuant to this Section 8 shall become
effective as promptly as practicable and shall remain effective until the
earlier to occur of the second anniversary of the date hereof, or the Holder has
disposed of the equity securities registered thereunder. Each registration and
blue sky qualification pursuant to Section 8.2 shall be at the sole cost and
expense of the Company; provided, however, that the Company shall not be
obligated to bear the expense of any underwriting discounts or commissions with
respect to the Warrants and/or Warrant Shares covered by the Registration
Statement.
8.5 In connection with each registration hereunder, the
Company agrees (i) to supply the Holder whose securities are being registered
with such number of copies of preliminary and final prospectuses as such holders
shall
Exhibit 4.9 - Page 5
<PAGE> 6
reasonably request, and (ii) to use its commercially reasonable efforts to
qualify the securities being registered under the securities or blue sky laws of
such states as the holder may reasonably request. The Holder agrees to furnish
to the Company such information in connection with such registration statement
as the Company may reasonably request.
8.6 The Company shall indemnify and hold harmless each holder
whose Warrants and/or Warrant Shares are included in a Registration Statement as
herein provided, and each underwriter, within the meaning of the Act, who may
purchase from or sell for the Holder from and against any and all losses,
claims, damages and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereto or any Registration Statement under the Act or
any prospectus included therein required to be filed or furnished by reason of
this Section 8 or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements are made, not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or alleged untrue statement or omission or
alleged omission based upon information furnished or required to be furnished in
writing to the Company by the Holder or each person, if any, who controls the
Holder and underwriter within the meaning of such Act; provided, however, that
the Company shall not be obliged to so indemnify any such holder or underwriter
or controlling person unless such holder or underwriter shall at the same time
indemnify the Company, its directors, each officer signing the registration
statement and each persons, if any, who controls the Company within the meaning
of such Act, from and against any and all losses, claims, damages and
liabilities caused by any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or any prospectus required
to be filed or furnished by reason of this Section 8 or caused by any omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, insofar as such losses, claims,
damages or liabilities are caused by any untrue statement or alleged untrue
statement or omission based upon information furnished in writing to the Company
by any such holder or underwriter expressly for use therein.
8.7 The Company's agreements with respect to Warrants or
Warrant Shares in this Section 8 shall continue in effect regardless of the
exercise and surrender of this Warrant so long as the Warrants or Warrant Shares
are outstanding.
9. Reservation of Stock, etc., Issuable on Exercise of Warrants. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of the Warrants, all shares of Common Stock (or other
Securities) from time to time issuable on the exercise of the Warrants.
10. Exchange of Warrants. On surrender for exchange of any Warrant,
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or on the order of the holder thereof a new Warrant or warrants of
like tenor, in the name of such holder or as such holder (on payment by such
holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
11. Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant,
on delivery of an indemnity agreement or security reasonably satisfactory in
form and amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of such warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
12. Warrant Agent. The Company may, by written notice to each holder of
a Warrant, appoint an agent having an office in either Miami, Florida or New
York, New York for the purpose of issuing Common Stock (or Other Securities) on
the exercise of the Warrants pursuant to Section 1, exchanging Warrants pursuant
to Section 10, and replacing Warrants pursuant to Section 11, or any of the
foregoing, and thereafter any such issuance, exchange or replacement, as the
case may be, shall be made at such office by such agent.
13. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
14. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is
Exhibit 4.9 - Page 6
<PAGE> 7
sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware. The headings in this Warrant are
for purposes of reference only, and shall not limit or otherwise affect any of
the terms hereof. This Warrant is being executed as an instrument under seal.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
Dated: June 18, 1998 GLOBAL VILLAGE COMMUNICATION, INC.
By: /S/Neil Selvin
-----------------------------------------
Name: Neil Selvin
Title: President, Chief Executive Officer
Exhibit 4.9 - Page 7
<PAGE> 8
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: GLOBAL VILLAGE COMMUNICATION, INC.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder _____
shares of Common Stock of Global Village Communication, Inc., and
herewith makes payment of $ _________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered
to ________________________________whose address is
Dated:
(Signature must conform to name of holder as specified
on the face of the Warrant)
Exhibit 4.9 - Page 8
<PAGE> 9
FORM OF ASSIGNMENT
(To be signed only on transfer of warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto ............. the right represented by the within Warrant to
purchase shares of Common Stock of Global Village Communication, Inc. to
which the within Warrant relates, and appoints ........ Attorney to
transfer such right on the books of Global Village Communication, Inc.
with full power of substitution in the premises.
Dated:
(Signature must conform to name of holder as
specified on the face of the Warrant)
(Address)
Signed in the presence of:
Exhibit 4.9 - Page 9
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