SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
X Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
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1934 for the fiscal year ended: December 31, 1996
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______Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from _________ to _________
Commission file number 33-60296
Globalink, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 54-1473222
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9302 Lee Highway, 12th Floor, Fairfax, VA 22031
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 273-5600
Securities registered pursuant to Section 12(b) of the Exchange Act:Common Stock
Securities registered pursuant to Section 12(g) of the Exchange Act:none
Indicate by check mark whether the issuer (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
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is contained in this form, and disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State the issuer's revenues for the most recent fiscal year: $13,976,000
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: $14,688,366 based on the closing price on February 28, 1997.
Indicate the number of shares outstanding of each of the issuer's classes of
common equity: Common Stock, par value $.01 per share --
5,528,230 as of February 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1996 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within 120
days after the close of the fiscal year ended December 31, 1996, are
incorporated by reference into Part III hereof.
Portions of the Registrant's Registration Statement number 33-60296 filed with
the Securities and Exchange Commission on Form SB-2 are incorporated by
reference into Part IV hereof.
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GLOBALINK, INC.
TABLE OF CONTENTS
Annual Report on Form 10-KSB
For the Fiscal Year ended December 31, 1996
Part I Page No.
Item 1 Business............................................... 3
Item 2 Properties............................................. 11
Item 3 Legal Proceedings...................................... 11
Item 4 Submission of Matters to a Vote of Security Holders.... 11
Item 4(a) Directors and Executive Officers of the Registrant..... 11
Part II
Item 5 Market for Registrant's Common Equity and Related
Stockholder's Matters.................................. 14
Item 6 Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................. 15
Item 7 Financial Statements and Supplementary Data............ 20
Item 8 Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure............................... 20
Part III
Item 9 Directors, Executive Officers of the Registrant........ 21
Item 10 Executive Compensation................................. 21
Item 11 Security Ownership of Certain Beneficial Owners and
Management............................................. 21
Item 12 Certain Relationships and Related Transactions......... 21
Part IV
Item 13 Exhibits and Reports on Form 8-K ...................... 22
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PART I
ITEM 1 BUSINESS
The Company
Globalink, Inc. ("Globalink" or "the Company") is a leading provider of products
and services that help businesses and individuals overcome language barriers.
The Company designs, develops, publishes, markets, and supports translation and
language learning software; and provides professional translation services
through the Globalink Translation Services Division and the Globalink
Translation Alliance. With an extensive range of software and service offerings,
Globalink helps corporations, government agencies, large organizations,
students, educators and small businesses solve language problems. The Company
currently markets bi-directional software for creating draft translations
between English and French, German, Italian, Portuguese and Spanish, as well as
language learning software for English, French, German and Spanish. The Company
continues to develop new generations of its core translation technology while
also bringing new applications of that technology and related technologies to
market, providing advanced and affordable translation software and language
learning software for its customers.
The Company also offers professional translation services through its worldwide
network of preferred translators. Some of the materials routinely translated
include: Web Sites, software user guides, technical manuals, proposals, legal
contracts, business correspondence, advertising and marketing materials,
newsletters, employee handbooks, and more. These services focus on translating
documents in a time sensitive production environment designed to meet the needs
of the Company's domestic and international client base.
Background
As the global economy has continued to expand, so too has the need to share
information. As post-industrial economies are transforming into information
economies, data is increasingly a key asset. Timely access to pertinent
information is essential for the "knowledge workers" of these new economies. The
growth of the Internet has played a significant role in this new wave of
information processing. E-mail messages, Web sites, and HTML and word processing
documents are rapidly becoming international in the audience they address, as
they are disseminated over the Internet. While the Internet enables the flow of
information across national and cultural boundaries, communication still
requires overcoming the language barrier. As a leading provider of machine
translation technology, the Company sees growth opportunities in providing tools
to enable communication. Machine translation, also known as "MT," is the process
of converting text from one language to another with a computer. Today, most
translations are still performed by humans. However, demand for translations is
already beginning to outpace supply, and as more information is digitally
created and transmitted, alternative translation methods will play a larger
role.
The introduction of powerful new personal computers and workstations has helped
this trend, by allowing the development of PC-based MT functions that had
previously been mainframe dependent. The widespread acceptance of these powerful
new personal computers, and their increasing use as communication devices, has
rapidly increased demand for low-cost, PC-based MT software.
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Machine Translation (MT) Technology
MT is an early application of natural-language processing research. Unlike
software that merely looks up words in a dictionary, MT applications
grammatically analyze the original language text (the Source Language) and
automatically generate corresponding text in the Target Language (the translated
text). The input to the software application is the text of the Source Language.
The output is the text of the Target Language which may be displayed on-screen,
printed (with or without the corresponding Source Language text), e-mailed,
posted on a Web site, etc.
Globalink's Products -- Core Technology
Globalink translation software products (The Globalink Language Assistant
Series(TM), Globalink Power Translator(R), Power Translator(R) Pro and Globalink
Web Translator(TM)) provide high-speed, computer-assisted draft translations for
a wide range of applications. When used with customized Subject Dictionaries,
Globalink translation software will create acceptable draft translations of
scientific, technical, or commercial texts. The texts must be clearly written in
the Source Language and use grammatically correct, declarative sentences. The
Company's software is not intended for use in translating literary works or
poetry.
The Globalink approach is based fundamentally on linguistic and machine
translation algorithms. The language the user is translating from is the Source
Language. The language the user is translating into is the Target Language. For
example, if one has a German text to be translated into English, German would be
the Source Language and English the Target Language.
The translation dictionaries are lexical databases, or "lexicons." They list
terms in the Source Language with their appropriate translation in the Target
Language.
The translation program translates the original text into the selected language,
utilizing the machine translation dictionaries as lexical databases. Users can
translate entire documents with a single command, or translate selections from
the document or single sentences. Documents can be created using the built-in
editor of the program, or can be imported from most popular word processors,
using import filters that retain formatting. In addition, The Language Assistant
Series, Power Translator (version 6) and Power Translator Pro allow you to use
the program from within your word processor (Word for Windows). Similarly, Web
Translator lets you translate Web pages from within the browser as you surf the
Internet. In addition, with the Translation Utility (a feature of Power
Translator 6 and Power Translator Pro), it's easy to translate e-mail messages
in popular e-mail packages (such as Microsoft Mail).
All Globalink translation programs are designed to be user-friendly and to
generate quality draft translations. End users can add new terms to the
dictionaries or modify existing terms. They can also create special Subject
Dictionaries or purchase them from Globalink. The texts are displayed in a split
screen, facilitating review of the source text and the target text. The built in
editor, with special features for accented and foreign character entry, make it
easy to edit translations on-screen. During the editing process, end users have
access to alternative translations for terms that have been translated or access
to synonyms for terms in the Source Language that would result in more accurate
translations.
Special Translation Algorithms will perform multiple translations of a word in a
sentence based on parts of speech (noun, verb, adjective). Other translation
features include: component analysis of German compound nouns, the
disambiguation of terms with multiple parts of speech, automatic inflection of
semantic units, and other automatic grammatical functions.
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The software products also contain a special reference component that will
display parts of speech, translations and other grammatical information for any
term in the dictionary.
Market Strategy
Globalink's objective is to become the world's leading provider of translation
and language solutions. The Company's target market areas are professional,
governmental, educational, industry, and consumer mass markets. Globalink
translation software products are designed to emphasize quality translation,
adaptability to the end user, integration with market-leading applications (such
as Web browsers, e-mail packages and word processors) and affordability, thus
creating mass marketing potential.
Current Globalink products and others under development are available on a wide
variety of computer platforms including IBM PCs and compatibles under Windows
and Macintosh(R) operating systems. The products are designed for high
productivity translation or for rapid draft translations. The Company's products
are priced for high-end professional users as well as for general consumers. The
Company plans to continue to broaden its product offerings with more language
pairs and enhancements to its existing products.
The Company sells its products and services primarily through worldwide
non-exclusive distributor/dealer channels. All distributors have agreed to
purchase inventory of products upon execution of their respective distributor
agreements. The Company is broadening its distribution through expansion of its
distribution/dealer channels, direct sales efforts nationally, original
equipment manufacturer agreements (OEM) and extensive promotional programs.
Products
Current Products
Globalink Power Translator(R) 6.0 - Globalink Power Translator 6.0 is
the Company's newest product for US and Canadian markets, and raises
the bar significantly by offering tremendous value at an aggressive
price. The product creates draft translations of documents, e-mail,
Web pages and more. With four languages in one box--Spanish, French,
German and Italian--it is easy to translate text to and from English.
Globalink Power Translator 6 customers can create new documents,
import files from other applications, or install it to work within
Microsoft Word. Globalink Power Translator 6 also includes: a utility
for translating within e-mail applications, a special version of
Globalink Web Translator(TM) (see below), and a Conversation utility.
Advanced features allow the user to create, prioritize and modify
dictionaries; edit documents interactively; and look up or inflect
words. Globalink Power Translator 6 is based on Globalink
Barcelona(TM) technology and runs on Windows 95 or NT systems.
Globalink Power Translator 5.1 - Is a similar product to Globalink
Power Translator 6.0 (above), but is for Windows 3.1 systems. The
product includes three language pairs--English to and from French,
German and Italian.
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Globalink Web Translator(TM) - The only browser add-on for translating
French, German and Spanish Web sites into English. Users can research
companies and markets, plan a vacation, broaden their horizons, or
just have fun. The product applies the Company's core MT technology to
business tasks such as finding and understanding information from news
bureaus, resorts, embassies, libraries, museums, and more.
Translations are draft-quality, providing an understandable
translation of the foreign language site. Translated pages maintain
all hotlinks, graphics, and formatting of the original pages.
Globalink Web Translator works with Netscape Navigator 2.0 and
Microsoft Internet Explorer 3.0 and translates while on-line so users
do not have to exit their browser. Versions for Italian to and from
English and Portuguese (Brazilian) to and from English are also
available. Runs on Windows 3.1, Windows 95 or Windows NT.
Globalink Language Assistant - This product is targeted at consumers
purchasing software through traditional (e.g. superstores) and
emerging (such as mass merchants) retail outlets. The low price point
and appealing feature set make the product perfect for students,
travelers, pen pals, and home computer users. Globalink Language
Assistant is useful to translate letters, articles, recipes, travel
brochures, bulletins and more. A complete suite of reference tools
gives users instant help when writing, studying, or translating.
Globalink Language Assistant products have extensive grammar help,
including an on-line grammar "reference book" to help users get better
translation quality. There are also bilingual dictionaries which can
easily be customized by adding new words and phrases, or by modifying
existing entries. Finally, for writing in a foreign language or
entering new foreign words to dictionaries, the program contains an
accented character utility. And with the Deluxe CD-ROM editions, users
can play back sentences, paragraphs, or entire documents in either
language supported by each Globalink Language Assistant. Languages
available are English to and from French, German, Italian or Spanish.
Runs on Windows 3.1, Windows 95, Windows NT or Macintosh.
Globalink Talk to Me(TM) - In response to market demand and customer
requests for language learning titles, Globalink released Talk to Me.
Just as MT software helps customers to overcome language barriers by
producing draft translations, language learning software helps users
bridge the language gap by developing foreign language skills.
Globalink Talk to Me is published in conjunction with Auralog, a
privately held French company. The program was developed in
conjunction with leading educational institutions in Europe, including
the Sorbonne, the University of Bristol and the Goethe Institute.
Speaking a foreign language like a native is one thing. Understanding
what native speakers are saying is quite another. Globalink Talk to Me
is the one interactive language learning program that does both:
teaches users how to listen and to talk. Using unique speech
recognition technology, Globalink Talk to Me lets users actually see
voiceprints of native speakers, then record a voiceprint of their own
pronunciation. Through imitation, repetition and comparison, users can
perfect their pronunciation. At the same time, the program helps to
train the ear to hear subtle nuances and differences in the
pronunciation of phrases, words and even syllables. Globalink Talk to
Me includes adjustable self-paced challenge levels, interactive
dialogues involving real-life situations, and language learning games
that help reinforce vocabulary, spelling and listening skills.
Languages available: English, French, German, and Spanish. Runs on
Windows 3.1 and Windows 95.
For the Macintosh platform, Globalink offers versions of several of
its product lines, including Language Assistant, Power Translator and
Power Translator Professional.
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Translate Direct Management System - The Company has introduced
Translate Direct Management System which will give corporations and
other organizations the ability to manage their own translation bureau
for maximum efficiency. Using a dedicated on-site server and Globalink
software, they can manage their own translation bureau through direct
on-line access to their translators and gain unprecedented control
over all translation activities.
New Products
During 1997, Globalink has scheduled an array of new products and
services for both the general market as well as specific market areas.
Products under development for release in 1997 currently include:
Globalink Power Translator Pro - Power Translator Pro will be quite
similar to Power Translator 6.0 (above), but will be localized for
international markets in Europe and Latin America. The product will
also contain the functionality of the Power Translator 5.1 domestic
product, thereby offering a single solution for customers regardless
of Windows version (Windows 3.1, Windows 95 or Windows NT). Power
Translator Pro will be available in localized versions in French,
German, Italian, Spanish and Portuguese.
Globalink Web Translator Portuguese - This product is the newest
addition to the Globalink Web Translator family and will be marketed
heavily in Brazil and Portugal. The product is based on Globalink's
Barcelona technology and runs on Windows 95 and Windows NT.
New language pairs - The Company sees a significant market opportunity
in producing new language pairs for its products, such as a version of
Globalink Power Translator Pro that translates French text to and from
German. In 1997 the Company plans to devote significant resources to
capitalizing on the investment made in its Barcelona technology for
such new language pair development.
More than two years in development, Barcelona marks a breakthrough in
translation software. This open system allows linguists and translators
to add to the rule sets without any knowledge of software programming.
The result is a new degree of precision previously unattainable in
machine translation software systems. The technology also makes it a
good platform for future growth, allowing for development to improve on
a rapid basis in coming years.
Sales, Marketing and Distribution
The Company markets and sells its software products in much the same fashion as
other PC software manufacturers who rely on the retail channel for the majority
of their business. This includes sales to distributors who in turn provide
products to retailers or value added resellers (VARs) who sell to end users or
the public. In order to accomplish this channel sales process the Company
employs not only an experienced internal retail and distribution sales team but
the services of merchandising representatives who call on retail establishments.
The Company also participates in trade shows and invests in advertising and
other promotional activities.
Promotional cost is the single largest expense of software product marketing.
Furthermore, product promotion is a continuing business activity and increases
proportionally with increases in revenue. Consequently, the success of the
Company's promotional programs are directly related to the success of the
Company.
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Promotion and Advertising
The Company's success to date has been a result of careful expenditures on
advertising and promotion controlled by limited budgets. With the successful
IPO, subsequent warrant redemption, and recent private equity placements, the
Company has been able to continue investing in aggressive advertising campaigns
and promotions. This has included expanded public relations programs, extended
advertising in general business publications, as well as known trade journals,
and increased use of free or general news coverage publicity.
Currently, the Company's promotion and advertising programs include the
following:
Advertising - Product advertising appears at different times in
different media, as the Company performs targeted marketing. For
example, campaigns have run where ads appear in trade magazines, such as
PC Magazine, as well as several cross industry publications. Regional
promotions use advertising vehicles such as The Miami Herald, while
campaigns focusing on business travelers run in airline publications.
Promotions targeting specific demographic sectors are also run, such as
an infomercial on Spanish language television (Telemundo and others).
Catalog advertising continues at a high rate in known industry and trade
catalogs.
Direct Mail - The Company is investing more in direct mail programs to
increase sales and exposure for the product lines. This includes
programs by industry and by demographic profiles of known buyers.
Exhibits - CeBIT and other European trade shows highlight the company's
participation in several local, national and international trade shows.
In addition to Company expenditures, many of the distributors and agents
employed by the Company participate in local exhibits.
Public Relations - The Company continues to expand its international
public relations programs to educate the general marketplace. These
include the employment of free lance public relations agents or
specialized companies throughout the world.
Distributors
The Company currently has a number of worldwide distributors who are major
players typical of the type engaged by the world's significant software
manufacturers. These include the larger international distributors such as
Ingram Micro, Merisel and TechData. In less developed parts of the world the
Company uses regional or local distributors. In parts of Europe and South
America the Company uses agents to represent its interests.
Product Development
Since inception, the Company has made substantial investments in product
development. To date, the Company's products have been developed by its internal
product development staff and independent contractors. The Company believes that
timely development of new products and enhancements to existing products is
essential to maintaining a competitive position in the market.
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The Company currently has a staff of seventeen (17) development personnel
located in the Research and Development facility in San Diego, California. The
Company is focusing its development efforts in two areas: first, in the
development of algorithms to improve the translation quality and second, in the
development of new language pairs to expand current markets or enter new
markets.
Competition
Competition in the PC software industry in general is intense and includes not
only competition between similar product companies but all PC software companies
for retail shelf space in general. Thus the Company's competitors include not
only other companies who produce and market machine translation products but
virtually all software companies who compete for shelf space in computer
software retailers.
Within the software industry, several manufacturers have made public statements
of their intent to produce or market machine translation products. These
companies include Microsoft, Novell and IBM. Among direct PC software
competitors there are a dozen or more companies who market machine translation
software products that compete either in the mini computer marketplace or in the
PC marketplace on a limited language basis (i.e. Spanish-English only).
Globalink holds the dominant position in the retail marketplace for machine
translation software. The Company believes it has successfully pioneered and
dominated an emerging software industry segment to date and can continue to do
so as long as it continues to generate new and advanced products.
In order to be successful in the future, the Company must continue to respond
promptly and effectively to all challenges of technological and marketing
capabilities any competitor may offer. The Company's performance will continue
to depend on its ability to innovate, as well as maintain and solicit quality
people in technical, sales and management positions. The Company will continue
to seek out and recruit the most capable and experienced staff in order to
maintain its competitive superiority.
Intellectual Property, Proprietary Rights, Licenses and Software Protection
The Company regards certain features of its internal operations, software and
documentation as proprietary, and relies on a combination of contract,
copyright, trademark and trade secret laws and other measures to protect this
proprietary information. The Company has no patents, and existing copyright laws
afford only limited protection. The Company believes that, because of the rapid
pace of technological change in the computer software industry, trade secret and
copyright protection are less significant than factors such as the knowledge,
ability and experience of the Company's employees, frequent product enhancements
and the timeliness and quality of support services.
The Company provides its products to end users under non-exclusive, perpetual
term licenses, which generally are nontransferable. The Company generally
licenses its products solely for the customer's internal operations and only on
designated computers. In certain circumstances, the Company makes available
enterprise-wide licenses. The Company does not make source code available as
this may increase the likelihood of misappropriation or other misuse of the
Company's intellectual property.
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The Company has registered its "Globalink" service mark and trademark in the
United States for language translation services and computer software for
foreign language translation, respectively. The Company has also registered its
"Power Translator" trademark in the United States for computer software for
foreign language translation and its "Globalink the Translation Company" mark,
together with its oval logo, in the United States for computer hardware and
software for language translation. The Company has applications pending for
federal registration of the marks "Telegraph", "Translate Direct" and "Web
Translator". The Company is in the process of registering the mark "Globalink",
together with its flag logo, in addition to the mark "Web Translator", in the
United States, Canada, the European Community and other major international
markets in Asia and South America, for language translation services rendered
via electronic means and computer software for foreign language translation.
Applications for "Internet Translator" and "Web Translator" have been filed as
Community Trademarks applications for the European Union countries (Australia,
Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
Netherlands, Portugal, Spain, Sweden and the United Kingdom). The use and
registration rights of a trademark holder do not ensure that such holder has
superior rights to others that may have registered or used identical related
marks on related goods or services.
The Company believes that copyright protection, which generally applies whether
or not a license agreement exists, is sufficient to protect the Company's rights
regarding its products.
Employees
As of December 31, 1996, the Company had seventy-four (74) full-time and
part-time employees including seventeen (17) in product development, nineteen
(19) in marketing and sales, twenty-three (23) in finance, administration and
shipping, four (4) in customer support, and eleven (11) in language services.
The Company's future success will depend on, in part, its ability to continue to
attract, retain and motivate highly qualified technical, marketing and
management personnel. The Company's employees are not represented by any
collective bargaining agreements, and the Company has never experienced a work
stoppage. The Company believes that it has a satisfactory relationship with its
employees.
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ITEM 2 PROPERTIES
The Company leases approximately 21,100 square feet of office space in Fairfax,
Virginia, pursuant to a lease that expires on August 31, 1999. This space, which
allows some room for expansion, is used as the Company's headquarters and
includes marketing, sales, customer support, and administrative offices. The
Company also leases approximately 7,200 square feet of office space in San
Diego, California, pursuant to a lease that expires on September 6, 1997. This
space is primarily utilized as the Research and Development center.
ITEM 3 LEGAL PROCEEDINGS
The Company is a party to various legal proceedings arising in the ordinary
course of its business. Management believes that the ultimate resolution of such
claims, either individually or in the aggregate, will not have a material
adverse effect on the Company's financial position or results of operations.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 13, 1996, a Special Meeting was held in which the stockholders
approved an amendment to the Company's Certificate of Incorporation to authorize
two hundred and fifty thousand (250,000) shares of Preferred Stock with a par
value of $.01 per share. No other matters were submitted to the stockholders of
the Company during the quarter ended December 31, 1996.
ITEM 4(a) DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Directors, Executive Officers and Key Employees are as follows:
Name Age Position
Harry E. Hagerty, Jr. (1)(2) 56 Chairman, Chief Executive Officer,
President
John F. McCarthy, III (1)(2) 51 Director, Secretary, Vice President
William E. Kimberly (1) 63 Director
Michael J. Murphy (2) 46 Director
W. Braun Jones, Jr. (1) 51 Director
Thomas W. Patterson 37 Director
Ronald W. Johnston 50 Chief Operating Officer
Mark A. Paiewonsky 34 Chief Financial & Accounting Officer
Philippe J. Kuperman 53 Executive Vice President of Sales &
Marketing
(1) Members of the Audit Committee
(2) Members of the Compensation Committee
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Biographical Information
Mr. Harry E. Hagerty, Jr., a director of Globalink since its inception, is
President of Hagerty & Associates, a company that invests in and consults with
start-up and early-stage businesses. Mr. Hagerty participated in the initial
funding of the Discovery Channel and was a founder of Digital Switch Corporation
(now "DSC Communications, Inc."). Until recently he served on the Board of
Directors of CCAIR, Inc. a regional airline based in Charlotte, NC. Mr. Hagerty
currently serves on the Boards of Directors of Learning 2000 Corporation and
Systems Impact.
Mr. William E. Kimberly, a director of the Company since 1990, is Chairman of
NAZTEC International Group, Inc. a McLean, VA based investment banking firm.
Prior to this, Mr. Kimberly worked for Kimberly-Clark Corporation from 1959 to
1983, where he held various management positions including Marketing Director,
CEO of a major subsidiary and Senior Vice President. Mr. Kimberly has held Board
of Director positions at Pabst Brewing Co., Blue Cross and Blue Shield of
Wisconsin and First National Bank of Neenah, Wisconsin. He is currently director
of several emerging companies.
Mr. Michael J. Murphy, a director of Globalink since 1992, has been Chairman and
Chief Executive Officer of Environmental Strategies Corporation ("ESC") since
1986, an environmental consulting firm. Mr. Murphy has extensive experience in
environmental consulting and senior corporate management related to
environmental programs. He is also Chief Executive Officer of Industrial
Recovery Capital Company ("IRCC"), a property acquisition, remediation and
redevelopment company. He has considerable experience advising multi-national
corporations on international environmental issues.
Mr. John F. McCarthy, III, a director of Globalink since 1993, was Vice
President and General Counsel for Computone Corporation, which was engaged in
the development of computer peripheral products. Prior to joining Computone, Mr.
McCarthy was the managing partner of the Washington, DC, offices of the law firm
of Burnham, Connolly, Osterle and Henry. Mr. McCarthy joined Globalink in August
1995 as Chief Legal Counsel and is responsible for resolving all international
and domestic legal issues for the Company.
Mr. W. Braun Jones, Jr., was appointed as a director of Globalink in February
1996 and has over twenty years experience in the information technology industry
beginning as an IBM sales representative and then as a successful founding
entrepreneur of several computer hardware and software companies. Mr. Jones
founded Carlyn Computer Systems Inc., and served as President of Dexel Systems
Corporation, of which he was the majority stockholder and founder. Presently he
is the acting Vice President of Strategic Ventures for University Online, Inc.,
an education software publisher.
Mr. Thomas W. Patterson was appointed as a director of Globalink in March 1997
and has over fifteen years of combined experience in information security and
electronic commerce. He has advised the White House, U.S. Congress, NII
Committee, Departments of Defense, Treasury, Energy and Commerce, and scores of
large businesses and organizations around the world. Formerly the Information
Security Director for MicroElectronics and Computer Technology Corp. ("MCC"),
Mr. Patterson is a leader in driving industry toward reasonable use of the
Internet. He recently joined IBM Corporation as their Chief Strategist for
Electronic Commerce.
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Mr. Ronald W. Johnston brings over 25 years of executive experience with an
emphasis on operations, administration and finance to Globalink. He has
first-hand knowledge of foreign and domestic markets and an extensive background
in overseas business, due in part to 11 years in senior management positions at
Whittaker Corporation. Mr. Johnston joined Globalink in April 1995 as Chief
Operating Officer and is responsible for coordinating the efforts of various
departments and managing daily business operations.
Mr. Mark A. Paiewonsky joined the Company in May 1994. He has over 10 years of
finance and accounting experience in the computer software industry. Prior to
joining Globalink, he was the Corporate Controller for Best Programs, Inc., a
software development company offering solutions to the accounting, tax and human
resources software markets. While with the Small Business Enterprise group at
Arthur Andersen & Co., he performed a variety of business and accounting
functions on behalf of publicly and privately held companies in the
manufacturing, distribution, retail and service industries.
Mr. Philippe J. Kuperman joined Globalink in August 1996 as Vice President,
International, to lead the expansion of the Company's software business overseas
through channel and OEM distribution. Mr. Kuperman is fluent in 6 languages and
has over 25 years of experience in international markets, including Europe,
Latin America and Asia, with companies such as SOFTWARE AG, Sterling Software
and PEGASUS International. In January 1997 he was appointed Executive Vice
President of Sales & Marketing.
Directors hold their offices until the next annual meeting of the stockholders
and thereafter until their successors have been duly elected and qualified.
Executive officers are elected by the Board of Directors on an annual basis and
serve at the discretion of the Board or pursuant to an employment agreement.
13
<PAGE>
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS' MATTERS
The Company's Common Stock was first listed for trading on June 4, 1993, on the
National Association of Securities Dealers Automated Quotations (NASDAQ)
Small-Cap Market System under the symbol "GLNK." As of May 1, 1994, the
Company's Common Stock was listed for trading on the American Stock Exchange
(ASE) under the symbol "GNK." The table below presents the quarterly high and
low sale prices for the Company's Common Stock as reported by the American Stock
Exchange.
<TABLE>
<CAPTION>
Calendar year 1995 High Low
<S> <C> <C>
First Quarter.................. 16.125 9.625
Second Quarter................. 16.625 10.875
Third Quarter.................. 15.375 9.875
Fourth Quarter................. 10.750 6.000
<CAPTION>
Calendar year 1996 High Low
<S> <C> <C>
First Quarter.................. 8.000 5.000
Second Quarter................. 9.375 5.875
Third Quarter.................. 7.375 5.125
Fourth Quarter................. 5.750 2.750
</TABLE>
The Company has never paid cash dividends on its Common Stock. The Board of
Directors does not anticipate paying cash dividends in the foreseeable future as
it intends to retain future earnings to finance the growth of the business. The
payment of future cash dividends will depend on such factors as earnings levels,
anticipated capital requirements, the operating and financial conditions of the
Company and other factors deemed relevant by the Board of Directors.
As of February 28, 1997, there were approximately 190 holders of record of the
Company's Common Stock. The Company believes that at such date there were in
excess of 2,400 beneficial owners of the Company's Common Stock.
14
<PAGE>
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Revenues
Year Ended Year Ended Increase
12/31/96 12/31/95 %
----------- ----------- ---------
<S> <C> <C> <C>
Product Sales (net of returns)... 12,429,000 16,835,000 -26%
Translation Services ............ 1,547,000 770,000 101%
----------- ----------- ---------
Total Sales ..................... 13,976,000 17,605,000 -21%
----------- ------------ ---------
</TABLE>
Globalink's total sales decreased 21% to $13,976,000 for the year ended December
31, 1996, from $17,605,000 for the year ended December 31, 1995. The decrease in
sales was primarily attributable to a reallocation of resources from marketing
that historically supported the distribution and retail channels to an
investment in a new revenue endeavor of corporate direct sales and marketing.
This new direction proved not to meet the Company's expectations and further
investment was suspended in the fourth quarter of 1996. The Company did not
recognize any revenue from this business opportunity during fiscal 1996. In
addition, growth of personal computer sales in Western Europe declined in 1996,
resulting in decreased international product sales for the Company. Additional
revenue pressures resulted from the Company's increased efforts in reducing
distributor inventory in the channels, aligning sell-through campaigns with
sales of products into the channels, and collecting existing receivable balances
to provide for more consistent sales cycles.
Product sales for the year ended December 31, 1996, decreased 26% or $4,406,000
to $12,429,000 from $16,835,000 for the year ended December 31, 1995. U.S.
distributor channel sales declined 27% to $6,894,000 for the year ended December
31, 1996, from $9,386,000 in the prior year due to the Company's increasing
efforts to reduce inventory and align sell-through campaigns with sales of
products into the channels. The Company continues to open new distributor
channels, increase growth in the existing distributor channels, and pursue
additional OEM opportunities. The Language Assistant Series Localized version
and the Power Translator and Language Assistant Series versions for Windows in
CD-ROM media have been the primary vehicles for sales to the Company's
distributors and have been well accepted. In addition, the Company introduced
Web Translator and Telegraph in March 1996, Power Translator 6.0 in June 1996,
and Talk-to-Me in December 1996, all of which have also been well accepted and
contributed to sales in 1996.
For the year ended December 31, 1996, international sales decreased 5% to
$7,079,000 from $7,448,000 in the prior year. International sales represented
51% of total sales in 1996 as compared to 42% in 1995. The primary exports have
been to Europe, Canada, and Latin America. In 1996, export sales to France and
Germany were approximately $2,126,000 and $1,495,000, respectively, or 15% and
11% of total sales, respectively. In 1995, export sales to Germany were
approximately $2,073,000 or 12% of total sales. International sales have been
primarily attributable to further development of the Company's network of
international distributors, along with additional OEM contracts entered into in
Latin America and Europe. The Company has also shifted its focus in Europe away
from the exclusive use of key major distributors towards smaller, more active,
second tier distributors who are better able to promote and sell its products
into the retail channel of their respective geographical locations.
15
<PAGE>
Translation Services experienced revenue growth of 101% to $1,547,000 for the
year ended December 31, 1996, from $770,000 for the year ended December 31,
1995. The growth in revenues for this group resulted from increased
revenue-generating efforts by the department's personnel who were previously
concentrating on the translation of localized versions of the Company's new
products. In addition, the department has increased its focus on obtaining
larger jobs and establishing long term projects with its customers.
Throughout 1996, the Company placed increasing emphasis on developing multiple
channels of distribution, including distributors, resellers, value added
resellers (VARs), and Original Equipment Manufacturers (OEMs). Globalink also
continued to develop a telesales group which has proven to be successful.
Sales returns and allowances increased to $4,665,000 in fiscal 1996 compared to
$3,537,000 for the prior year. The increased return on sales was due to the
decline in growth of personal computer sales in Western Europe during 1996 which
resulted in stock balancing requests from certain major distributors located in
the United Kingdom and Germany. Additionally, the Company continued efforts to
reduce distributor inventory and align sell-through campaigns with sales of
products into the channels. Distribution agreements typically allow for the
return of certain merchandise to provide for stock balancing. The Company
continuously monitors these programs and makes appropriate accruals monthly to
handle future distribution stock balancing. The following table shows the gross
product sales, returns and net product sales for the periods indicated.
<TABLE>
<CAPTION>
Year Ended Year Ended
12/31/96 12/31/95
------------- -------------
<S> <C> <C>
Gross Product Sales...... 17,094,000 20,372,000
Returns.................. (4,665,000) (3,537,000)
------------- -------------
Net Sales................ 12,429,000 16,835,000
------------- -------------
<CAPTION>
Costs and Expenses
Year Ended Year Ended Change
12/31/96 12/31/95 %
----------- ----------- --------
<S> <C> <C> <C>
Cost of product sold................... 1,766,000 2,844,000 -38%
Direct labor & fringes................. 799,000 493,000 62%
Amortization of capitalized software... 570,000 331,000 72%
Product development.................... 1,452,000 1,555,000 -7%
Selling, marketing & other............. 8,245,000 10,519,000 -22%
General & administrative............... 3,357,000 3,065,000 10%
----------- ----------- --------
Total costs and expenses............... 16,189,000 18,807,000 -14%
----------- ----------- --------
</TABLE>
Cost of products sold decreased 38% in fiscal 1996 to $1,766,000 compared to
$2,844,000 in the prior year. The decrease in cost of products sold was
primarily due to decreased product sales along with decreased costs of certain
packaging components and a shift in the mixture of products sold. This shift was
both to an increase in sales of the CD-ROM editions of the Power Translator and
the Language Assistant Series product lines and additional OEM contracts which
contribute higher margins along with a decrease in sales of the Language
Computers which carried lower margins. Gross profit margin was 87% in fiscal
1996 compared to 84% in the prior year. The increase in gross profit margin was
directly attributable to the decrease in cost of products sold.
16
<PAGE>
Direct labor & fringes, which principally include charges for independent and
in-house translators within the translation services group, increased 62%
compared to 1995 as a result of the increased revenues in 1996. These expenses
decreased from 64% to 52% as a percentage of Translation Services revenues. This
decrease was primarily attributable to fluctuations in the number and relative
size of jobs being performed, as the gross margin varies with the size of the
job due to the fixed administrative tasks which still must be performed. During
1996, the Company experienced an increase in the number of larger jobs being
performed, which carry a higher gross margin.
Amortization of capitalized software for the period ended December 31, 1996,
increased 72% to $570,000 from $331,000 for the prior year. The increase was due
to the release of new products in 1996 for which previously capitalized software
development costs began to be amortized.
Product development expenses, which consist of the current cost of
non-capitalizable development expenses, decreased 7% to $1,452,000 from
$1,555,000 for the prior year. The decrease was a result of the Company's
completion of several new products resulting in reduced costs associated with
certain outside consultants who were assisting in the development of those
products.
Selling, marketing and other expenses, which include the costs of selling,
marketing, customer support, shipping and administration for product sales,
decreased 22% or $2,274,000 to $8,245,000 for the period ended December 31,
1996, from $10,519,000 for the prior year. This decrease was primarily
attributable to the decrease in revenues along with the Company's increased
focus of fiscal resources on more effective promotion and advertising programs,
particularly in print media and retail store promotions. In addition, the
Company was increasing its sales force and instituting new incentive plans
during 1995 as it was expanding internationally into Europe, Canada, Mexico and
Latin America. Other costs within this category, such as sales commissions,
travel and other similar expenses, are generally related to revenues and
decreased accordingly.
General and administrative expenses consist primarily of payroll and related
expenses, occupancy costs, travel and related expenses for senior management,
finance and accounting, legal and administration. For the year ended December
31, 1996, general and administrative expenses increased 10% or $292,000 from the
prior year. The increases occurred in the areas of payroll, travel, business
taxes, insurance costs and depreciation as a result of additional expenses
incurred to support the anticipated growth of the Company.
Other Income/Expense
Interest expense was $32,000 for the fiscal year ended December 31, 1996, as
compared to interest income of $108,000 in the prior year. This was due to
interest expense incurred during 1996 as a result of draws on the Company's
revolving and equipment lines of credit. The previous interest income was
attributable to short-term investments made by the Company after receiving the
proceeds of the redemption of warrants in May 1994.
Income Tax Expense
No provision for income taxes was required for the years ended December 31, 1996
and 1995, due to the Company's net operating loss carryforwards. Approximately
$9,084,000 of net operating loss ("NOL") carryforwards existed at December 31,
1996. The use of the NOL is limited to future taxable earnings of the Company.
17
<PAGE>
Variability of Operating Results
Although the Company has not identified any specific seasonality, the Company's
revenues and operating results have varied substantially from period to period.
Historically, the Company, with the exception of its Translation Services
operations, has operated with little backlog of orders because its software
products are generally shipped as orders are received. Product sales are
difficult to forecast due to the relatively early stages of both the consumer
market and of the machine translation software market. As a result, small
variations in the timing of products sales can cause significant variations in
operating results from period to period.
Liquidity and Financial Resources
The Company has secured a $2,000,000 revolving short-term line of credit, a
$2,000,000 revolving intermediate line of credit and a $750,000 equipment line
of credit with First Union National Bank. As of December 31, 1996, there was a
$1,000,000 loan balance outstanding under the revolving intermediate line, which
is being used to finance accounts receivable and other working capital needs.
The Company also had $495,000 outstanding at December 31, 1996, under the
equipment line which was used to finance furniture and equipment purchases. The
Company expects to renew its revolving line of credit prior to June 1997 when
the existing facility expires by its terms.
During 1996 and 1995 the Company's principal uses of cash were to fund the
losses incurred and support the development of the Company's software products
and increases in accounts receivable and fixed assets.
In October 1996 the Company sold three (3) prepaid warrants to an investor at
$500,000 per warrant for a total consideration of $1,500,000. Each prepaid
warrant is convertible into a number of shares of Common Stock determined by
dividing the exercise amount by the lower of $5.25 or 85% of the arithmetic
average of the closing price of the Common Stock on the five (5) consecutive
trading days immediately preceding the exercise date. The prepaid warrants may
be converted on the 90th, 120th and 150th day following the closing date,
respectively.
In December 1996 and January 1997 the Company issued 40,224 and 4,191 units of
preferred stock and associated warrants, respectively. Each unit consisted of
one (1) share of 8% convertible, redeemable Preferred Stock and one (1) Warrant
to purchase ten (10) shares of Common Stock at $4.18 per share. Each share of
Preferred Stock is convertible into ten shares of common stock at the holders
option. Dividends on the preferred stock are cumulative and payable annually in
arrears, beginning January 1, 1998, in either cash or shares of common stock at
the option of the Company. The offering resulted in net proceeds to the Company
of approximately $1,335,000.
During 1996, approximately $1,860,000 was used to finance accounts receivable,
$437,000 was used to finance capitalized software, and $271,000 was used to
purchase fixed assets. During 1995, approximately $1,023,000 was used to finance
accounts receivable, $555,000 was used to finance capitalized software, and
$485,000 was used to purchase fixed assets. The remaining proceeds have been
invested in short term repurchase agreements collateralized by government
securities.
For the year ended December 31, 1996, the Company's cash and cash equivalents,
invested cash and marketable securities decreased to $1,606,000 from $2,399,000
as a result of the loss incurred for the year along with the financing of
accounts receivable, capitalized software and fixed assets. As of December 31,
1996, the Company had $7,600,000 in working capital. The Company has no
significant capital asset commitments.
18
<PAGE>
For the year ended December 31, 1996, accounts receivable increased to
$9,040,000 from $7,180,000. This increase of $1,860,000 resulted principally
from the increase in OEM contracts, which typically provide for graduated
installment payments over a period of up to 12 months. In addition, accounts
receivable from distributors has increased. In general, the contractual payment
terms from distributors are between 60 and 90 days; however, the Company has
experienced a longer payment cycle with some distributors which has resulted in
an increase in their accounts. The Company introduced new product offerings in
Europe late in the second and third quarters of 1996. In order to assist with
the introduction of these new products to the market, the Company has allowed
certain distributors extended payment terms on their purchases of these new
products which, in most instances, extend through June 1996.
For the years ended December 31, 1996 and 1995, net cash used in operating
activities was approximately $3,009,000 and $1,665,000, respectively, due
primarily to net losses from operations and financing of accounts receivable,
inventory and prepaid expenses.
For the years ended December 31, 1996 and 1995, net cash provided by investing
activities was approximately $871,000 and $1,042,000, respectively. In 1996 and
1995, investing activities consisted primarily of increases in capitalized
software development costs, purchases and sales of marketable securities, and
purchases of office equipment.
For the years ended December 31, 1996 and 1995, capital expenditures totaled
$271,000 and $485,000, respectively. Capital expenditures have remained high for
the past two years due to a number of factors, including purchases of new PC
equipment and software for new employees, new trade show booths, and other fixed
assets to accommodate the personnel growth of the organization.
For the years ended December 31, 1996 and 1995, cash provided by financing
activities was approximately $2,924,000 and $940,000, respectively. For the year
ended December 31, 1996, financing activities consisted primarily of the
issuance of warrants and preferred stock along with the issuance and repayment
of debt under the Company's revolving intermediate and equipment lines of
credit. For the year ended December 31, 1995, financing activities consisted
primarily of the issuance and repayment of debt under the Company's revolving
intermediate and equipment lines of credit.
The Company anticipates that the net proceeds from the sale of the prepaid
warrants and the issuance of the preferred stock units, together with cash flow
from operations, existing cash balances, and periodic borrowings under the
Company's bank lines of credit will be adequate to meet the Company's expected
cash requirements through 1997. In addition, the Company has received and is
considering a number of offers for an equity placement to raise up to $4,000,000
in additional capital to be used for the funding of marketing and sales programs
directed at the introduction of the Company's new products. It is the intent of
the Company to launch these new product marketing and sales programs beginning
in the second quarter of fiscal 1997.
While operating activities may provide cash in certain periods, to the extent
the Company experiences growth in the future, the Company anticipates that its
operating and product development activities, along with extended payment terms
for European distributors, may use cash, and consequently, such growth may
require the Company to obtain additional sources of financing. There can be no
assurances that unforeseen events may not require more working capital than the
Company currently has at its disposal. The Company presently has a revolving
intermediate line of credit to finance receivables and believes that such line
will be sufficient to meet cash requirements when needed.
Other than as discussed above, the Company is not aware of any known trends, or
uncertainties, that have had or are reasonably likely to have a material effect
on the Company's liquidity, capital resources, or operations.
19
<PAGE>
ITEM 7 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements Form 10-KSB
Independent Auditors' Report F-1
Balance Sheets as of
December 31, 1996 and 1995 F-2
Statements of Operations for the years
ended December 31, 1996 and 1995 F-3
Statements of Stockholders' Equity for the years
ended December 31, 1996 and 1995 F-4
Statements of Cash Flows for the years
ended December 31, 1996 and 1995 F-5
Notes to the Financial Statements F-6 to F-19
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
20
<PAGE>
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT
Except for the information disclosed in Item 4(a) of this Annual Report on Form
10-KSB, the information required by this item will be contained in the Company's
Proxy Statement for its 1996 Annual Stockholders' Meeting to be filed with the
Securities and Exchange Commission within 120 days after December 31, 1996, and
is incorporated herein by reference.
ITEM 10 EXECUTIVE COMPENSATION
The information required by this item will be contained in the Company's Proxy
Statement for its 1996 Annual Stockholders' Meeting to be filed with the
Securities and Exchange Commission within 120 days after December 31, 1996, and
is incorporated herein by reference.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this item will be contained in the Company's Proxy
Statement for its 1996 Annual Stockholders' Meeting to be filed with the
Securities and Exchange Commission within 120 days after December 31, 1996, and
is incorporated herein by reference.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be contained in the Company's Proxy
Statement for its 1996 Annual Stockholders' Meeting to be filed with the
Securities and Exchange Commission within 120 days after December 31, 1996, and
is incorporated herein by reference.
21
<PAGE>
PART IV
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
(A) Index of Exhibits as required by Item 601 of Regulations S-B.
Exhibit Number Description of Exhibit
3.1 (a) Articles of Incorporation (1)
3.1 (b) Certificate of Amendment of
Certificate of Incorporation
3.1 (c) Certificate of Designations of Series
A-1 Convertible Preferred Stock
3.1 (d) Certificate of Designations of Series
A-2 8% Convertible Redeemable
Preferred Stock
3.2 Bylaws (1)
4.1 (a) Common Stock Specimen (1)
4.1 (b) Form of Stock Option (2)
4.1 (c) Form of Warrant Purchase Agreement
between the Company and the Pangaea
Fund Limited dated October 2, 1996
4.1 (d) Form of Unit Purchase Agreement
between the Company and J. Michael
Reisert, Inc. dated December 20, 1996
10.2 Employment Agreement between the
Company and Harry E. Hagerty, Jr.
(1) Incorporated herein by reference from the Registration Statement
number 33-60296 filed by the Company on Form SB-2.
(2) Incorporated herein by reference from the Registration Statement
number 33-82062 filed by the Company on Form S-8.
(B) Reports on Form 8-K
None.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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, in the city of
Fairfax, State of Virginia, on the 19th day of March, 1997.
GLOBALINK, INC.
By: /s/Harry E. Hagerty, Jr.
---------------------------
Harry E. Hagerty, Jr.
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the 19th day of March, 1997.
Signature Title
/s/Harry E. Hagerty, Jr. Chairman, Chief Executive Officer
- --------------------------- and President
Harry E. Hagerty, Jr.
/s/John F. McCarthy, III Director, Secretary and Vice President
- ---------------------------
John F. McCarthy, III
/s/Michael J. Murphy Director
- ---------------------------
Michael J. Murphy
/s/William E. Kimberly Director
- ---------------------------
William E. Kimberly
/s/W. Braun Jones, Jr. Director
- ---------------------------
W. Braun Jones, Jr.
/s/Thomas W. Patterson Director
- ---------------------------
Thomas W. Patterson
/s/Ronald W. Johnston Chief Operating Officer
- ---------------------------
Ronald W. Johnston
/s/Mark A. Paiewonsky Chief Financial & Accounting Officer
- ---------------------------
Mark A. Paiewonsky
/s/Philippe J. Kuperman Executive Vice President of Sales &
- --------------------------- Marketing
Philippe J. Kuperman
23
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Globalink, Inc., and Subsidiary
We have audited the accompanying consolidated balance sheets of Globalink, Inc.,
and Subsidiary as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Globalink, Inc.,
and Subsidiary as of December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/S/Grant Thornton LLP
Vienna, Virginia
February 24, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
Globalink, Inc., and Subsidiary
Consolidated Balance Sheets
December 31, 1996 1995
- --------------------------------------------------------------------------------
Assets
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 406,088 $ 819,846
Invested cash 1,200,000 -
Marketable securities - 1,579,237
Accounts receivable, net 9,040,297 7,180,600
Inventories, net 818,294 585,350
Prepaid expenses and deposits 108,745 263,051
Other receivables 126,894 93,252
---------------------------
Total Current Assets 11,700,318 10,521,336
Equipment and Furniture, net 879,753 979,534
Capitalized Software 817,988 951,324
---------------------------
$ 13,398,059 $ 12,452,194
===========================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable--trade $ 2,057,002 $ 1,793,705
Accrued and other liabilities 763,948 795,749
Line of credit 1,279,000 740,000
---------------------------
Total Current Liabilities 4,099,950 3,329,454
Long-Term Notes Payable 216,356 388,889
Deferred Rent 65,706 83,579
Commitments and Contingencies - -
Stockholders' Equity
Preferred stock, $.01 par value, 250,000 shares
authorized; 40,224 and -0- shares issued
and outstanding in 1996 and 1995, respectively 1,154,658 -
Common stock, $.01 par value, 20,000,000 shares
authorized; 5,341,352 and 5,304,017 shares issued
and outstanding in 1996 and 1995, respectively 53,413 53,040
Additional paid-in capital--common stock 18,702,013 17,246,384
Accumulated deficit (10,894,037) (8,649,152)
---------------------------
9,016,047 8,650,272
---------------------------
$ 13,398,059 $ 12,452,194
===========================
<FN>
The accompanying notes are an integral part of these statements.
F-2
</FN>
<PAGE>
<CAPTION>
Globalink, Inc., and Subsidiary
Consolidated Statements of Operations
Year ended December 31, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Product Sales, net of returns and allowances of
$4,664,942 and $3,536,940 in 1996 and 1995,
respectively $ 12,429,362 $ 16,835,003
Translation Service Revenue 1,546,672 770,498
---------------------------
13,976,034 17,605,501
Costs and Expenses
Cost of products sold 1,765,951 2,843,995
Direct labor and fringes 799,206 492,825
Amortization of capitalized software 570,247 331,080
Development 1,451,687 1,555,061
Selling, marketing and other 8,244,992 10,519,380
Administrative 3,356,443 3,065,020
---------------------------
16,188,526 18,807,361
---------------------------
Loss from Operations (2,212,492) (1,201,860)
Interest (Expense) Income, net (32,393) 108,190
---------------------------
Loss Before Income Taxes (2,244,885) (1,093,670)
Income Tax Expense - -
---------------------------
Net Loss $ (2,244,885) $ (1,093,670)
===========================
Loss per Common Share $ (.42) $ (.21)
===========================
Weighted Average Number of Common Shares
Outstanding During the Year 5,333,852 5,293,197
===========================
<FN>
The accompanying notes are an integral part of these statements.
F-3
</FN>
<PAGE>
<CAPTION>
Globalink, Inc., and Subsidiary
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996 and 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Additional
Paid-in
Capital-
Common Common Common Preferred Preferred Accumulated
Shares Stock Stock Shares Stock Deficit Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 5,256,454 $ 52,565 $ 17,063,310 - $ - $ (7,555,482) $ 9,560,393
Exercise of Stock Warrants 13,748 137 46,223 - - - 46,360
Exercise of Stock Options 30,500 305 114,508 - - - 114,813
Common Stock Issued in Payment of Debt 3,315 33 22,343 - - - 22,376
Net Loss for the Year - - - - - (1,093,670) (1,093,670)
------------------------------------------------------------------------------------------
Balance at December 31, 1995 5,304,017 53,040 17,246,384 - - (8,649,152) 8,650,272
Exercise of Stock Options 30,000 300 109,700 - - - 110,000
Common Stock Issued in Payment of Debt 7,335 73 52,647 - - - 52,720
Sale of Stock Warrants - - 1,293,282 - - - 1,293,282
Preferred Stock Issued - - - 40,224 1,154,658 - 1,154,658
Net Loss for the Year - - - - - (2,244,885) (2,244,885)
------------------------------------------------------------------------------------------
Balance at December 31, 1996 5,341,352 $ 53,413 $ 18,702,013 40,224 $ 1,154,658 $ (10,894,037) $ 9,016,047
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these statements.
F-4
</FN>
<PAGE>
<CAPTION>
Globalink, Inc., and Subsidiary
Consolidated Statements of Cash Flows
Year ended December 31, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents and
Invested Cash
Cash Flows from Operating Activities
Net loss $ (2,244,885) $ (1,093,670)
---------------------------
Adjustments to reconcile net loss to net cash
used in operating activities
Amortization of capitalized software 570,247 331,080
Depreciation 370,852 268,810
Reserve for obsolete inventories 100,000 (314,118)
Changes in assets and liabilities
Increase in accounts receivable (1,859,697) (1,023,376)
Increase in other receivables (33,642) (3,119)
(Increase) decrease in inventories (332,944) 427,557
Decrease in long-term accounts receivable - 50,000
Decrease (increase) in prepaid expenses
and deposits 154,306 (122,161)
Increase (decrease) in accounts payable--trade 316,017 (271,965)
(Decrease) increase in accrued and other
liabilities (31,801) 92,611
Decrease in deferred rent (17,873) (7,145)
---------------------------
Total Adjustments (764,535) (571,826)
---------------------------
Net Cash Used in Operating Activities (3,009,420) (1,665,496)
---------------------------
Cash Flows from Investing Activities
Purchase of marketable securities (2,778,279) (5,159,702)
Proceeds from sales of marketable securities 4,357,516 7,242,435
Increase in capitalized software (436,911) (555,339)
Capital expenditures for equipment and furniture (271,071) (485,481)
---------------------------
Net Cash Provided by Investing Activities 871,255 1,041,913
---------------------------
Cash Flows from Financing Activities
Sale of common stock 110,000 114,813
Exercise of stock warrants - 46,360
Sale of preferred stock 1,154,658 -
Sale of stock warrants 1,293,282 -
Repayment of debt (253,000) (441,111)
Proceeds from issuance of debt 619,467 1,220,000
---------------------------
Net Cash Provided by Financing Activities 2,924,407 940,062
---------------------------
Net Increase in Cash and Cash Equivalents 786,242 316,479
Cash and Cash Equivalents and Invested Cash at
Beginning of Year 819,846 503,367
---------------------------
Cash and Cash Equivalents and Invested Cash at
End of Year $ 1,606,088 $ 819,846
===========================
<FN>
The accompanying notes are an integral part of these statements.
F-5
</FN>
</TABLE>
<PAGE>
Globalink, Inc., and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company designs, develops, publishes, markets and supports foreign
language translation and language learning software for business,
professional and personal use for the microcomputer marketplace. In
addition, the Company provides professional language services through its
multilingual staff and through contract arrangements with independent
linguists/translators. The Company's products and services are sold
worldwide.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All material intercompany accounts and
transactions have been eliminated.
Using Estimates in Preparing Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition and Significant Estimates
Revenue from sales to distributors or dealers is recognized when the
products are shipped (transfer of title occurs) and no significant
obligation remains to the Company. Revenue billed or collected in advance
for future product shipments is deferred and recorded as income in the
period in which the products are shipped. Revenue from royalties pursuant to
license arrangements with certain distributors and Original Equipment
Manufacturers (OEMs) is recognized upon delivery of the software. Generally,
the Company has no, or insignificant, obligations remaining under the
agreement after delivering the software. Payment terms under OEM agreements
are based on graduated payment schedules generally over 12 months.
Allowances for estimated future returns and exchanges are recorded in the
period in which the related revenue is recognized. Distribution agreements
typically allow for the return of certain merchandise to provide for stock
balancing. The Company continually monitors such programs and uses
historical and current information to estimate and record appropriate
accruals to provide for future stock balancing. Although it is reasonably
possible that management's estimate for future returns and exchanges could
change in the near future, management is not currently aware of any events
that would result in a change to its estimate which would be material to the
Company's financial position or its results of operations.
Marketable Securities
Marketable securities include government debt securities which mature
within one year. The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 115 for the fiscal year beginning January 1, 1995.
SFAS No. 115 requires the Company to record investments which are held to
maturity as held-to-maturity securities. Net unrealized gains or losses
from held-to-maturity securities are not included in the determination of
net income, but are disclosed in the footnotes (see Note D).
F-6
<PAGE>
Globalink, Inc., and Subsidiary
Notes to Consolidated Financial Statements--Continued
December 31, 1996 and 1995
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Inventories
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market.
Research and Development
Research and development costs are expensed as incurred.
Capitalized Software Costs
The Company capitalizes certain initial software development costs and
enhancements thereto incurred after technological feasibility has been
demonstrated. To date, all products and enhancements thereto have utilized
proven technology. Such capitalized amounts are amortized commencing with
product introduction over the greater of the ratio of current gross revenue
for a product to the total expected gross revenue over the life of that
product, or the straight-line method over the remaining estimated economic
life, ranging from 18 months to three years. The unamortized capitalized
costs by product are reduced to an amount not to exceed the future net
realizable value by product at each balance sheet date. Future net
realizable value is determined through sales forecasts based on existing and
anticipated dealer/distributor agreements and other sales contracts.
Although it is possible that management's estimate for the future net
realizable value could change in the near future, management is not
currently aware of any events that would result in a change to its estimate
which would be material to the Company's financial position or its results
of operations.
The amount of development costs capitalized in accordance with Statement of
Financial Accounting Standards No. 86 for 1996 and 1995 was $436,911 and
$555,339, respectively. Amortization of software development costs charged
to costs and expenses during the years ended 1996 and 1995 was $570,247 and
$331,080, respectively.
Income Taxes
The Company accounts for income taxes under the liability method pursuant to
SFAS No. 109, "Accounting for Income Taxes." Deferred taxes arise from
temporary differences, primarily attributable to differences between
depreciation and amortization for tax and financial statement purposes, and
reserves accrued for book purposes on accounts receivable and inventories.
As a result of net operating losses for tax purposes for the years ended
December 31, 1996 and 1995, a provision for deferred income taxes arising
from temporary differences, primarily due to differences between the
treatment of capitalized software costs and depreciation for tax and
financial statement purposes, has not been recognized.
F-7
<PAGE>
Globalink, Inc., and Subsidiary
Notes to Consolidated Financial Statements--Continued
December 31, 1996 and 1995
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Depreciation
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives. The
estimated lives used in determining depreciation are--
Office and other equipment 3-5 years
Furniture and fixtures 5-7 years
The straight-line method of depreciation is followed for all assets for
financial reporting purposes. Accelerated methods are used for tax purposes.
Earnings per Common Share
Earnings per common share for 1996 and 1995 do not include the common
equivalent shares because the effect of such inclusion would be to decrease
loss per share. The weighted average numbers of shares used in the
computations were 5,333,852 and 5,293,197 in 1996 and 1995, respectively.
Advertising Costs
The Company expenses the costs of first-time advertising when the material
is published. Prepaid advertising and brochures consist of advertising costs
paid in advance of publication. Also included in prepaid advertising and
brochures expense are the costs of developing various marketing and product
materials for new software. These costs are expensed when the software is
released.
Employee Stock Options
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," which is effective for 1996 financial statements.
SFAS No. 123 requires that stock-based compensation be accounted for on the
fair value method as described in SFAS No. 123, or on the intrinsic
value-based method of Accounting Principles Board Opinion No. 25 (APB 25),
whereby if options are priced at or above the quoted market price on the
date of grant, there is no compensation expense recognized by the Company as
a result of the options. If the intrinsic value-based method is used, pro
forma net income and earnings per share must be disclosed as if the fair
value-based method had been applied. The Company continues to account for
its employee stock options in accordance with APB 25; therefore, the
required pro forma disclosures are contained in Note I to the financial
statements.
F-8
<PAGE>
Globalink, Inc., and Subsidiary
Notes to Consolidated Financial Statements--Continued
December 31, 1996 and 1995
NOTE B--COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
Cash and Cash Equivalents
The Company considers all highly liquid securities purchased with a maturity
of three months or less to be cash equivalents.
The Company maintains cash balances in two financial institutions. These
balances are insured by the Federal Deposit Insurance Corporation up to
$100,000 per institution. At December 31, 1996, uninsured amounts held at
one bank totaled $148,300.
Invested Cash
The Company has invested excess cash in repurchase accounts. This cash
investment is consistent with the Company's investment strategy to set aside
cash not to be used for Company operations but to allow for liquidity as the
need arises. At December 31, 1996, invested cash totaled $1,200,000, which
is collateralized by government securities held by the Company's bank.
Accounts Receivable
Accounts receivable consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Trade $ 12,044,950 $ 10,287,601
Allowance for returns and uncollectible
accounts (1,863,653) (1,764,074)
Allowance for advertising and other credits (1,141,000) (1,342,927)
---------------------------
$ 9,040,297 $ 7,180,600
---------------------------
</TABLE>
Inventories
Inventories consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Finished goods $ 649,495 $ 449,098
Allowance (150,000) (50,000)
---------------------------
499,495 399,098
Work-in-process 318,799 186,252
---------------------------
$ 818,294 $ 585,350
---------------------------
</TABLE>
F-9
<PAGE>
Globalink, Inc., and Subsidiary
Notes to Consolidated Financial Statements--Continued
December 31, 1996 and 1995
NOTE B--COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS--Continued
Prepaid Expenses and Deposits
Prepaid expenses and deposits consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Prepaid advertising and brochures $ 47,671 $ 144,639
Other prepaid amounts 61,074 118,412
---------------------------
$ 108,745 $ 263,051
---------------------------
</TABLE>
Equipment and Furniture
Equipment and furniture consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Office and other equipment $ 1,532,574 $ 1,325,086
Furniture and fixtures 115,808 95,797
---------------------------
1,648,382 1,420,883
Accumulated depreciation (768,629) (441,349)
---------------------------
$ 879,753 $ 979,534
---------------------------
</TABLE>
Capitalized Software
Capitalized software consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Capitalized software $ 5,468,185 $ 5,031,274
Accumulated amortization (4,650,197) (4,079,950)
---------------------------
$ 817,988 $ 951,324
---------------------------
</TABLE>
F-10
<PAGE>
Globalink, Inc., and Subsidiary
Notes to Consolidated Financial Statements--Continued
December 31, 1996 and 1995
NOTE B--COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS--Continued
Accrued and Other Liabilities
Accrued and other liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Accrued salaries, taxes and fringe benefits $ 623,958 $ 599,903
Accrued royalties 89,990 145,846
Other accrued liabilities 50,000 50,000
---------------------------
$ 763,948 $ 795,749
---------------------------
</TABLE>
NOTE C--FINANCIAL INSTRUMENTS
The financial statements include various estimated fair value information as
of December 31, 1996 and 1995, as required by SFAS No. 107, "Disclosures
About Fair Value of Financial Instruments." Such information, which pertains
to the Company's financial instruments, is based on the requirements set
forth in the Statement and does not purport to represent the aggregate net
fair value of the Company.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short-term
maturity of these instruments. At December 31, 1996 and 1995, the carrying
amount/estimated fair value of these assets is approximately $406,000 and
$820,000, respectively.
Invested Cash
The carrying amount approximates fair value because of the short-term
maturity of these instruments. At December 31, 1996, the carrying
amount/estimated fair value of these assets is approximately $1,200,000.
Loans Receivable
Outstanding loans receivable included in other receivables represent short-
term loans to the employees of the Company. The carrying amount of the
loans approximates the fair value due to the nature of the transactions and
the short-term maturity of the loans. At December 31, 1996 and 1995,
the carrying amount/estimated fair value of these assets is approximately
$95,000 and $57,000, respectively.
F-11
<PAGE>
Globalink, Inc., and Subsidiary
Notes to Consolidated Financial Statements--Continued
December 31, 1996 and 1995
NOTE C--FINANCIAL INSTRUMENTS--Continued
Line of Credit and Notes Payable
Quoted market prices for the same or similar issues or the current rates
offered to the Company for debt of the same remaining maturities are used to
estimate the fair value of the Company's line of credit. At December 31,
1996 and 1995, the carrying amount/estimated fair value of this debt is
approximately $1,495,000 and $1,129,000, respectively, recorded as a
short-term line of credit, and long-term notes payable in the financial
statements.
NOTE D--INVESTMENTS
The Company classifies debt securities as held-to-maturity. Held-to-maturity
securities are carried at amortized cost.
As of December 31, 1995, the Company held approximately $1,579,000 in U.S.
Government debt securities that matured within one year. As of December 31,
1995, amortized cost of these securities equaled estimated fair value.
NOTE E--LINE OF CREDIT
At December 31, 1996 and 1995, the Company had available a $2,000,000
short-term working capital line of credit (the borrowing base facility), and
a $2,000,000 intermediate-term working capital line of credit (the cash flow
facility), both at the lower of the bank's prime rate or LIBOR rate plus
2.5%. Also at December 31, 1996 and 1995, the Company had a $750,000 fixed
asset line of credit at the bank's prime rate plus 1/4%. All credit
facilities are collateralized by the assets of the Company. Under these
credit facilities the Company is required to maintain certain financial
covenants.
The bank's prime rate and LIBOR rate at December 31, 1996, were 8.25% and
5.53%, respectively. The borrowing base and cash flow facilities and the
unused portion of the fixed asset line of credit expire June 30, 1997. The
Company expects to renew these credit facilities before their expiration.
At December 31, 1996, $495,356 and $1,000,000 were outstanding on the fixed
asset and intermediate-term working capital lines of credit, respectively,
with principal payments as follows:
F-12
<PAGE>
Globalink, Inc., and Subsidiary
Notes to Consolidated Financial Statements--Continued
December 31, 1996 and 1995
NOTE E--LINE OF CREDIT--Continued
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1997 $ 1,279,000
1998 216,356
------------
$ 1,495,356
------------
</TABLE>
At December 31, 1995, $500,000 and $628,889 were outstanding on the
intermediate-term working capital and fixed assets lines of credit,
respectively. The bank's prime rate at December 31, 1995, was 8.5%. The
lines of credit were renewed by the Company before their expiration on June
30, 1996.
NOTE F--LEASES
The Company leases its office facilities and certain office equipment under
various operating leases. Lease terms range from one to four years.
Minimum annual rental and lease commitments for leases with a remaining term
of one year or more at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1997 $ 555,000
1998 491,000
1999 345,000
2000 23,000
------------
Net minimum lease payments $ 1,414,000
------------
</TABLE>
Rent expense was $628,000 and $611,000 for the years ended December 31, 1996
and 1995, respectively.
F-13
<PAGE>
Globalink, Inc., and Subsidiary
Notes to Consolidated Financial Statements--Continued
December 31, 1996 and 1995
NOTE G--RELATED PARTY TRANSACTIONS
During 1996, the Company loaned $95,000 to two officers. One officer was
loaned $25,000 at an interest rate of 9-1/4%, which is payable on demand. A
second officer was loaned $70,000 at an interest rate of 8%, in two separate
promissory notes. Both notes are payable on or before December 1, 1997, with
interest. In January 1997, the second officer was loaned an additional
$110,000 at an interest rate of prime plus 1% which is due on demand.
During 1993, the Company loaned $50,000 at an interest rate of 5% to an
individual who at the time was an officer. The note was paid in July 1996.
During 1994, the Company loaned approximately $45,000 to an officer. The
note was paid in May 1995.
NOTE H--COMMITMENTS
Employment Agreements
The Company has entered into employment agreements with four of its
employees. The agreements are each for a three-year period commencing
between March 1995 and June 1996 and will renew automatically for succeeding
periods of one year unless sooner terminated. In the event the Company
terminates without cause the employment of any of these employees, the
employee shall receive an amount equal to one year's base salary plus
accrued benefits and incentive compensation. The agreements contain a
provision which triples certain amounts due in the event of a hostile
takeover. The agreements also contain provisions for the accelerated vesting
of options if certain defined changes to the composition of the Board of
Directors should occur. During 1996, one agreement was terminated by mutual
agreement between the Company and an employee.
The minimum amounts due under the agreements during the succeeding
three-year period, exclusive of contingent incentive compensation, are as
follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1997 $ 580,000
1998 310,000
1999 83,000
------------
$ 973,000
------------
</TABLE>
F-14
<PAGE>
Globalink, Inc., and Subsidiary
Notes to Consolidated Financial Statements--Continued
December 31, 1996 and 1995
NOTE I--WARRANTS, OPTIONS AND OTHER STOCK ISSUED
Stock Options Issued
The Company issues options to employees, members of its Board of Directors
and outside vendors based on merit or in payment of debt. The Company has
accounted for its options under APB Opinion No. 25 and related
interpretations. The options, which have a term of five years when issued,
are granted at various times during the year and vest based upon individual
grant specifications. The exercise price of each option equals or exceeds
the market price of the Company's stock on the date of grant. No
compensation cost has been recognized for employee options. Had compensation
cost for the plan been determined based on the fair value of the options at
the grant dates, consistent with the method in Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss would have been increased to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Net loss--as reported $ (2,244,885) $ (1,093,670)
Net loss--pro forma (2,996,947) (1,476,670)
Net loss per share--as reported (0.42) (0.21)
Net loss per share--pro forma (0.56) (0.28)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options-pricing method with the following weighted-
average assumptions used for grants in 1996 and 1995, respectively: expected
volatility of 40% and 43%; risk-free interest rate of 6.2% and 6.1% and
expected lives of 2.7 and 3.7 years.
The following tables depict activity in the plan for the years ended
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
1996 Shares Price
----------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at beginning of year 801,800 $ 9.35
Granted 387,050 7.05
Exercised (30,000) (3.67)
Forfeited (215,334) (9.44)
-------------
Outstanding at end of year 943,516 $ 8.57
-------------
Options exercisable at year-end 526,714 $ 8.41
-------------
Weighted-average fair value per share
of options granted during the year $ 2.22
</TABLE>
F-15
<PAGE>
Globalink, Inc., and Subsidiary
Notes to Consolidated Financial Statements--Continued
December 31, 1996 and 1995
NOTE I--WARRANTS, OPTIONS AND OTHER STOCK ISSUED--Continued
<TABLE>
<CAPTION>
Weighted
Average
Exercise
1995 Shares Price
----------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at beginning of year 316,000 $ 7.76
Granted 554,300 10.18
Exercised (30,500) (3.76)
Forfeited (38,000) (12.67)
-------------
Outstanding at end of year 801,800 $ 9.35
-------------
Options exercisable at year-end 264,466 $ 8.09
-------------
Weighted-average fair value per share
of options granted during the year $ 4.11
</TABLE>
The following applies to options outstanding at December 31, 1996:
Number outstanding 943,516
Range of exercise prices $ 3.75 to $ 14.88
Weighted-average exercise price $ 8.41
Weighted-average remaining contractual life 3.48 years
Prepaid Warrants Issued
During 1996, the Company sold three prepaid warrants to a private fund in
the amount of $500,000 each for a total of $1,500,000. Each warrant is
convertible into shares of common stock at the lower of $5.25 per share, or
85% of the arithmetic average of the prior five days closing prices. As part
of the agreement, the Company also issued 33,613 options at an exercise
price of $5.25 per share to the private fund. The options have a term of
four years. In addition, the Company issued 20,000 options at an exercise
price of $5.25 per share to both Tanner Unman Securities, Inc., and
Prudential Securities, Inc., both of whom facilitated the agreement with the
private fund. These options also have a term of four years.
Preferred Stock Issued
During 1996, the Company's Board of Directors approved a private placement
of 8% convertible, redeemable preferred stock and associated stock warrants.
Dividends on the preferred stock are cumulative and payable annually in
arrears, beginning January 1, 1998, in either cash or additional shares of
preferred stock, at the option of the Company. The dividend is calculated as
8% of the book value of the stock, based on its original trading price. The
preferred stock is convertible into ten shares of common stock any time
after 30 days from the date of issuance. Any unconverted preferred stock
remaining at January 1, 2002, will automatically be converted into ten
shares of common stock per preferred share at that time. Each share of
preferred stock was also issued with one warrant entitling the holder to
purchase ten shares of common stock each at $4.18 per share.
At December 31, 1996, the Company has outstanding 40,224 shares of preferred
stock and 40,224 associated stock warrants.
F-16
<PAGE>
Globalink, Inc., and Subsidiary
Notes to Consolidated Financial Statements--Continued
December 31, 1996 and 1995
NOTE J--INCOME TAXES
Deferred tax assets (liabilities) consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Capitalized software $ (310,508) $ (361,123)
Fixed assets (38,687) (48,387)
Inventory capitalization (8,270) (3,475)
Inventory reserves 56,940 18,980
Receivable reserves 1,140,566 1,179,418
Deferred rent and other 24,942 31,727
Accrued compensation 90,756 87,888
Loss carryforwards 3,448,152 2,425,977
---------------------------
Gross deferred tax asset 4,403,891 3,331,005
Deferred tax asset valuation allowance (4,403,891) (3,331,005)
---------------------------
$ - $ -
---------------------------
</TABLE>
The differences between the total income tax expense (benefit) and the
income tax expense (benefit) computed using the federal income tax rate were
as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Pretax loss $ (2,244,885) $ (1,093,670)
---------------------------
Computed federal income taxes at 34% $ (763,261) $ (371,848)
Computed state income taxes, net of federal
benefit (88,897) (43,309)
Effect of recognizing stock option
compensation for tax purposes (220,728) 96,949
---------------------------
Deferred tax benefit (1,072,886) (318,208)
Expense arising from change in deferred tax
asset valuation allowance 1,072,886 318,208
---------------------------
Income tax expense $ - $ -
---------------------------
</TABLE>
F-17
<PAGE>
Globalink, Inc., and Subsidiary
Notes to Consolidated Financial Statements--Continued
December 31, 1996 and 1995
NOTE J--INCOME TAXES--Continued
Approximately $9,084,000 and $6,683,000 of loss carryforwards are available
for tax return purposes at December 31, 1996 and 1995, respectively. Their
use is limited to future taxable earnings of the Company, and subject to an
annual limitation. The loss carryforwards expire from December 31, 2004, to
December 31, 2012.
NOTE K--SUPPLEMENTAL CASH FLOWS INFORMATION
Supplemental Disclosures of Cash Flows Information
The Company paid the following amounts for interest and income taxes during
the year ended December 31:
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Interest $ 103,169 $ 66,389
---------------------------
Income taxes $ - $ -
---------------------------
</TABLE>
Supplemental Schedule of Non-Cash Investing and Financing Activities
Set forth below are amounts of common stock and additional paid-in capital
recorded in non-cash transactions during the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Common stock, at par $ 73 $ 33
Additional paid-in capital 52,647 22,343
---------------------------
$ 52,720 $ 22,376
---------------------------
</TABLE>
F-18
<PAGE>
Globalink, Inc., and Subsidiary
Notes to Consolidated Financial Statements--Continued
December 31, 1996 and 1995
NOTE L--EXPORT SALES
The Company sells software abroad through distributors, dealers, and mail
orders. In 1996, export sales to Germany and France totaled $1,495,000 and
$2,126,000, respectively, or approximately 11% and 15%, respectively, of
total sales. In 1995, export sales to Germany totaled $2,073,000, or
approximately 12% of total sales. Total export sales for the years ended
December 31, 1996 and 1995, were approximately $7,079,000 and $7,448,000,
respectively.
NOTE M--RETIREMENT PLAN
The Company has a profit-sharing retirement plan which conforms to the
provisions of Section 401(k) of the Internal Revenue Code. The plan covers
all full-time employees, and allows employees voluntarily to defer a certain
percentage of their income through contributions to the plan. If no
resolution is made by the Board of Directors to the contrary, the Company is
not required to contribute. No Company contribution was made for the years
ended December 31, 1996 or 1995.
NOTE N--CONCENTRATION OF CREDIT RISK
Due to the nature of the Company's business, sales to a few customers,
primarily software distributors and original equipment manufacturers (OEMs),
have accounted for a significant percentage of the Company's sales. During
1996, there were three customers that accounted for 10% or more of net sales
each (in aggregate representing 37% of net sales). During 1995, there were
no customers that accounted for 10% or more of net sales; however, five
customers accounted for approximately 37% of net sales. Accounts receivable
at December 31, 1996 and 1995, include approximately $3,981,000 and
$4,473,000, respectively, in amounts due from these customers.
NOTE O--GLOBALINK EUROPE LIMITED
In July 1995, the Company established Globalink Europe Limited, a
wholly-owned subsidiary in the United Kingdom. The subsidiary was
established to increase marketing and sales efforts in Europe. Globalink
Europe Limited financial activity is not material to the Company's financial
statements. Globalink Europe Limited's office in the United Kingdom was
closed on December 31, 1996.
F-19
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
GLOBALINK, INC.
Globalink, Inc. a Corporation organized and existing by virtue of the
General Corporation Law of the State of Delaware does hereby certify that:
FIRST. At the special meeting of shareholders held on December 13,
1996, an appropriate majority of the holders of the shares of common stock
entitled to vote authorized the amendment of the Certificate of Incorporation so
that the Article thereof numbered "FOURTH" shall provide as follows:
"FOURTH. The Corporation shall have authority to issue twenty million
(20,000,000) shares of Common Stock of the par value of $.01 per share and two
hundred fifty thousand shares (250,000) of Preferred Stock of the par value
$0.01 per share. The designations, powers, preferences, rights, qualifications,
limitations and/or restrictions of the preferred stock shall be determined at a
later date by resolution or resolutions of the Board of Directors of the
Company.
SECOND. The said amendment was duly adopted in accordance with
provisions of Section 242 of the General Corporate Law of the State of Delaware.
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by Harry E. Hagerty, Jr., its Chief Executive Officer and Secretary, and
John F. McCarthy III, Esq., Vice President, this 13th day of December, 1996.
GLOBALINK, INC.
(Corporate Seal) By: /s/ Harry E. Hagerty, Jr.
-------------------------
Harry E. Hagerty, Jr.
Chief Executive Officer
Attest:
/s/ John F. McCarthy, III
- -------------------------
John F. McCarthy III, Esq.
Vice President
<PAGE>
Commonwealth of Virginia
County of Fairfax
This instrument was acknowledged before me on the day of December, 1996
by Harry E. Hagerty, Jr. as Chief Executive Officer of Globalink, Inc., who
acknowledged that he had executed the same for the purpose, consideration and in
the capacity therein stated, and as the act and deed of said corporation. He
further acknowledged to me that the facts stated therein are true and correct.
Notary Public
My commission expires:
GLOBALINK, INC.
CERTIFICATE OF DESIGNATIONS
OF
SERIES A-I CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the General Corporation
Law of the State of Delaware)
Globalink, Inc., a Delaware corporation (the "Corporation"), in
accordance with the provisions of Section 103 of the General Corporation Law of
the State of Delaware (the "DGCL") DOES HEREBY CERTIFY:
That pursuant to authority vested in the Board of Directors of the
Corporation by the Certificate of Incorporation of the Corporation, the Board of
Directors of the Corporation, by unanimous written consent, dated September ,
1996, adopted a resolution providing for the creation of a series of the
Corporation's Preferred Stock, $0.01 par value, which series is designated
"Series A-I Convertible Preferred Stock", which resolution is as follows:
RESOLVED, that pursuant to authority vested in the Board of Directors
of the Corporation by the Certificate of Incorporation the Board of Directors
does hereby provide for the creation of a series of the Preferred Stock, $0.01
par value (hereafter called the "Preferred Stock"), of the Corporation, and to
the extent that the voting powers and the designations, preferences and
relative, participating, optional or other special rights thereof and the
qualifications, limitations or restrictions of such rights have not been set
forth in the Certificate of Incorporation, as amended, of the Corporation, does
hereby fix the same as follows:
SERIES A-I CONVERTIBLE PREFERRED STOCK
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A-I Convertible Preferred Stock" (the "Series A-I
Convertible Preferred Stock"), and the number of shares constituting the Series
A-I Convertible Preferred Stock shall be 1,500, and shall not be subject to
increase.
Section 2. Stated Capital. The amount to be represented in stated
capital at all times for each share of Series A-I Convertible Preferred Stock
shall be $1,000.
Section 3. Rank. All Series A-I Convertible Preferred Stock shall rank
(i) senior to the Common Stock, $.01 par value collectively the "Common Stock"),
of the Corporation, now or hereafter issued, as to payment of distribution of
assets upon liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary, and (ii) on a parity with any additional series of
preferred stock of any class which the Board of Directors or the stockholders
may from time to time authorize as to distributions of assets upon liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary.
<PAGE>
Section 4. Dividends and Distributions.
(a) The holders of shares of Series A-I Convertible Preferred Stock
shall not be entitled to receive any dividends.
(b) The Corporation shall not pay or declare and set apart for such
payment any dividend on shares of Common Stock, Junior Dividend Stock or Junior
Liquidation Stock (as defined herein) other than (1) dividends on shares of
Common Stock solely in the form of additional shares of Common Stock, (2)
dividends on Junior Dividend Stock solely in the form of shares of Common Stock
or additional shares of Junior Dividend Stock or (3) dividends on Junior
Liquidation Stock solely in the form of shares of Common Stock or additional
shares of Junior Liquidation Stock unless, contemporaneously therewith, the
Corporation shall pay or declare and set apart for payment dividends on the
shares of Series A-I Convertible Preferred Stock in an amount per share of
Series A-I Convertible Preferred Stock equal to the aggregate amount of
dividends the holder of such share of Series A-I Convertible Preferred Stock
would otherwise have been entitled to receive had such holder converted such
share of Series A-I Convertible Preferred Stock in accordance with Section 9(a)
(but without regard to the limitations on conversion contained in the proviso to
the second sentence of Section 9(a) or in Section 9(d)) into shares of Common
Stock as if the Conversion Date (as defined herein) were the earlier of (x) the
record date for the payment of such dividend on shares of Common Stock, Junior
Dividend Stock or Junior Liquidation Stock, as the case may be, and (y) the
trading day prior to the date on which ex-dividend trading in the Common Stock,
Junior Dividend Stock or Junior Liquidation Stock, as the case may be, begins
with respect to such dividend thereon.
(c) Neither the Corporation nor any subsidiary of the Corporation shall
redeem, repurchase or otherwise acquire in any one transaction or series of
related transactions any shares of Common Stock, Junior Dividend Stock or Junior
Liquidation Stock if the number of shares so repurchased, redeemed or otherwise
acquired in such transaction or series of related transactions is more than
either (x) 5.0% of the number of shares of Common Stock, Junior Dividend Stock
or Junior Liquidation Stock, as the case may be, outstanding immediately prior
to such transaction or series of related transactions or (y) 1% of the number of
shares of Common Stock, Junior Dividend Stock or Junior Liquidation Stock, as
the case may be, outstanding immediately prior to such transaction or series of
related transactions if such transaction or series of related transactions is
with any one person or group of affiliated persons, unless the Corporation or
such subsidiary offers to purchase from each holder of shares of Series A-I
Convertible Preferred Stock at the time of such redemption, repurchase or
acquisition the same percentage of such holder's shares of Series A-I
Convertible Preferred Stock as the percentage of the number of outstanding
shares of Common Stock, Junior Dividend Stock or Junior Liquidation Stock, as
the case may be, to be so redeemed, repurchased or acquired at a purchase price
per share of Series A-I Convertible Preferred Stock equal to the product
obtained by multiplying (1) the number of shares of Common Stock into which such
share of Series A-I Convertible Preferred Stock could be converted in accordance
with Section 9(a) (but without regard to the limitations on conversion contained
in the proviso to the second sentence of Section 9(a)) on the date of purchase
of such share of Series A-I Convertible Preferred Stock times (2) the Computed
Price of one share of Common Stock on the date of purchase of such share of
Series A-I Convertible Preferred Stock.
<PAGE>
"Computed Price" of shares of Common Stock on any date means 85 percent of the
arithmetic average of the per share Closing Price (as defined in Section 9(b))
of the Common Stock on the five consecutive trading days ending on the trading
day immediately preceding the applicable dividend payment date; provided
however, that, notwithstanding the foregoing, in no event shall the Computed
Price be less than $.01 per share.
(d) Neither the Corporation nor any subsidiary of the Corporation shall
(1) make any tender offer or exchange offer (a "Tender Offer") for outstanding
shares of Common Stock unless the Corporation contemporaneously therewith makes
an offer or (2) enter into an agreement regarding a Tender Offer for outstanding
shares of Common Stock by any person other than the Corporation or any
subsidiary of the Corporation unless such person agrees with the Corporation to
make an offer, in either such case to each holder of outstanding shares of
Series A-I Convertible Preferred Stock to purchase the same percentage of shares
of Series A-I Convertible Preferred Stock held by such holder as the percentage
of outstanding shares of Common Stock offered to be purchased in such Tender
Offer at a price per share of Series A-I Convertible Preferred Stock equal to
the product obtained by multiplying (1) the number of shares of Common Stock
into which such share of Series A-I Convertible Preferred Stock could be
converted in accordance with Section 9(a) (but without regard to the limitations
on conversion contained in the proviso to the second sentence of Section 9(a))
on the date of purchase of such share of Series A-I Convertible Preferred Stock
times (2) 117.65 percent of the cash price (or other consideration) per share of
Common Stock offered in such Tender Offer.
Section 5. Liquidation Preference. In the event of a liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series A-I Convertible Preferred Stock shall be entitled to
receive out of the assets-of the Corporation, whether such assets constitute
stated capital or surplus of any nature, an amount per share of Series A-I
Convertible Preferred Stock equal to $1,000.00 (collectively, "the Liquidation
Preference"), and no more, before any payment shall be made or any assets
distributed to the holders of Common Stock or any other class or series of the
Corporation's capital stock ranking junior as to liquidation rights to the
Series A-I Convertible Preferred Stock (collectively, the Junior Liquidation
Stock"); provided, however, that such rights shall accrue to the holders of
Series A-I Convertible Preferred Stock only in the event that the Corporation's
payments with respect to the liquidation preference of the holders of capital
stock of the Corporation ranking senior as to liquidation rights to the Series
A-I Convertible Preferred Stock (the ~Senior Liquidation Stock") are fully met.
After the liquidation preferences of the Senior Liquidation Stock are fully met,
the entire assets of the Corporation available for distribution shall be
distributed ratably among the holders of the Series A-I Convertible Preferred
Stock and any other class or series of the Corporation's capital stock having
parity as to liquidation rights with the Series A-I Convertible Preferred Stock
(the "Parity Liquidation Stock") in proportion to the respective preferential
amounts to which each is entitled (but only to the extent of such preferential
amounts). After payment in full of the liquidation price of the shares of the
Series A-I Convertible Preferred Stock and the Parity Liquidation Stock, the
holders of such shares shall not be entitled to any further participation in any
distribution of assets by the Corporation. Neither a consolidation or merger of
the Corporation with another corporation nor a sale or
<PAGE>
transfer of all or part of the Corporation's assets for cash, securities, or
other property in and of itself will be considered a liquidation, dissolution,
or winding up of the Corporation.
Section 6. No Mandatory Redemption. The shares of Series A-I
Convertible Preferred Stock shall not be subject to mandatory redemption by the
Corporation.
Section 7. No Sinking Fund. The shares of Series A-I Convertible
Preferred Stock shall not be subject to the operation of a purchase, retirement,
or sinking fund.
Section 8. No Optional Redemption. The shares of Series A-I
Convertible Preferred Stock shall not be subject to redemption at the option of
the Corporation.
Section 9. Conversion.
(a) Conversion at Option of Holder. (i) Subject to the limitations set
forth in the legends to appear on certificates for the shares of Series A-I
Convertible Preferred Stock as provided in Section 9(a)(ii), the holders of the
Series A-I Convertible Preferred Stock may, upon surrender of the certificates
therefor, convert any or all of their shares of Series A-I Convertible Preferred
Stock into fully paid and nonassessable shares of Common Stock and such other
securities and property as hereinafter provided. Commencing on the respective
dates following initial issuance of shares of Series A-I Convertible Preferred
Stock (such date of initial issuance being referred to herein as the "Issuance
Date") shown on the certificates for shares of Series A-I Convertible Preferred
Stock and at any time thereafter to and including the day prior to the Mandatory
Conversion Date, each share of Series A-I Convertible Preferred Stock may be
converted at the principal executive offices of the Corporation, the office of
any transfer agent for the Series A-I Convertible Preferred Stock, if any, the
office of any transfer agent for the Common Stock or at such other office or
offices, if any, as the Board of Directors may designate, initially into such
number of fully paid and nonassessable shares of Common Stock (calculated as to
each conversion to the nearest 1/lOOth of a share) determined by dividing (x)
the Conversion Amount by (y) the lower of (1) the product of the Conversion
Percentage times (B) the arithmetic average of the Closing Price of the Common
Stock on the five consecutive trading days immediately preceding the Conversion
Date or (2) $5.25 (subject to equitable adjustments for stock splits, stock
dividends, combinations, recapitalizations, reclassifications and similar events
occurring on or after the date of filing of this Certificate of Designations
with the Secretary of State of the State of Delaware), in each case subject to
adjustment as hereinafter provided (the "Conversion Rate"); provided, however,
that in no event shall any holder be entitled to convert any shares of Series
A-I Convertible Preferred Stock in excess of that number of shares of Series A-I
Convertible Preferred Stock upon conversion of which the sum of (1) the number
of shares of Common Stock beneficially owned by such holder and any person whose
beneficial ownership of shares of Common Stock would be aggregated with such
holder's beneficial ownership of shares of Common Stock for purposes of Section
13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and Regulation 13D-G thereunder (each a "Restricted Person" and collectively,
the "Restricted Persons") (other than shares of Common Stock deemed beneficially
owned through the ownership of unconverted shares of
<PAGE>
Series A-I Convertible Preferred Stock and unexercised Warrants) and (2) the
number of shares of Common Stock issuable upon the conversion of the number of
shares of Series A-I Convertible Preferred Stock with respect to which the
determination in this proviso is being made, would result in beneficial
ownership by any Restricted Person of more than 4.9% of the outstanding shares
of Common Stock. For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and Regulation 13D-G thereunder, except as otherwise
provided in clause (1) of the proviso to the immediately preceding sentence. For
purposes of the proviso to the second preceding sentence, the Corporation shall
be entitled to rely, and shall be fully protected in relying, on any statement
or representation made by a holder to the Corporation in connection with a
particular conversion, without any obligation on the part of the Corporation to
make any inquiry or investigation or to examine its records or the records of
any transfer agent for the Common Stock. The "Conversion Price" shall be equal
to the Conversion Amount divided by the Conversion Rate.
(ii) Each certificate for shares of Series A-I Convertible Preferred
Stock shall, until such time as such legend, by its terms, no longer applies,
contain one of the following legends as agreed in writing by the initial holder
of such shares of Series A-I Convertible Preferred Stock at the time of original
issuance thereof:
"THESE SECURITIES ARE NOT CONVERTIBLE AT THE OPTION OF THE
HOLDER HEREOF UNTIL ON OR AFTER THE 9OTH DAY FOLLOWING THE
ORIGINAL ISSUANCE THEREOF."
"THESE SECURITIES ARE NOT CONVERTIBLE AT THE OPTION OF THE
HOLDER HEREOF UNTIL ON OR AFTER THE 120TH DAY FOLLOWING THE
ORIGINAL ISSUANCE THEREOF."
"THESE SECURITIES ARE NOT CONVERTIBLE AT THE OPTION OF THE
HOLDER HEREOF UNTIL ON OR AFTER THE 150TH DAY FOLLOWING THE
ORIGINAL ISSUANCE THEREOF."
Any new certificate issued upon transfer of any shares of Series A-I Convertible
Preferred Stock or, in connection with a conversion of shares of Series A-I
Convertible Preferred Stock, co evidence the unconverted balance of shares of
Series F Convertible Preferred Stock shall bear the same legend as the
certificate surrendered to the Corporation in connection herewith, if
applicable.
(b) Certain Definitions.
As used herein, the "Closing Price" of any security on any date shall
mean the closing bid price of such security on such date on the principal
securities exchange or market on which such security is traded.
<PAGE>
As used herein, the "Conversion Amount" initially shall be equal to
$1,000.00, subject to adjustment as hereinafter provided.
As used herein, "Conversion Date" shall mean the date on which the
notice of conversion is actually received by the Corporation, in case of a
conversion at the option of the holder pursuant to Section 9(a).
As used herein, "Conversion Percentage" shall mean 85 percent.
As used herein, "Registration Statement" shall mean the Registration
Statement required to be filed by the Corporation with the SEC pursuant to
Section 2(a) of the Registration Rights Agreement.
As used herein, "Registration Rights Agreement" shall mean the
Registration Rights Agreement between the Corporation and the original holder of
the Series A-I Convertible Preferred Stock.
As used herein, "SEC" shall mean the United States Securities and
Exchange Commission.
(c) Other Provisions. Notwithstanding anything in this Section 9 to the
contrary, no change in the Conversion Amount shall actually be made until the
cumulative effect of the adjustments called for by this Section 9 since the date
of the last change in the Conversion Amount would change the Conversion Amount
by more than 1%. However, once the cumulative effect would result in such a
change, then the Conversion Rate shall actually be changed to reflect all
adjustments called for by this Section 9 and not previously made.
Notwithstanding anything in this Section 9, no change in the Conversion Amount
shall be made that would result in a Conversion Price of less than the par value
of the Common Stock into which shares of Series A-I Convertible Preferred Stock
are at the time convertible.
The right of the holders of Series A-I Convertible Preferred Stock to
convert their shares shall be exercised by delivering to the Corporation or its
agent, as provided above, a written notice, duly signed by or on behalf of the
holder, stating the number of shares of Series A-I Convertible Preferred Stock
to be converted. Promptly, but in no event later than ten business days after
delivery of a notice of conversion, such holder shall surrender for such purpose
to the Corporation or its agent, as provided above, certificates representing
shares to be converted, duly endorsed in blank or accompanied by proper
instruments of transfer. If such holder shall fail to deliver certificates
representing shares to be converted in such form on or prior to such tenth
business day, such notice of conversion shall not be effective, unless otherwise
agreed by the Corporation, but such failure shall not affect such holder s right
to convert such shares at a date after the date such notice of conversion was
given. The Corporation shall pay any tax arising in connection with any
conversion of shares of Series A-I Convertible Preferred Stock except that the
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery upon conversion of
shares of Common Stock or other securities or
<PAGE>
property in a name other than that of the holder of the shares of the Series A-I
Convertible Preferred Stock being converted, and the Corporation shall not be
required to issue or deliver any such shares or other securities or property
unless and until the person or persons requesting the issuance thereof shall
have paid to the Corporation the amount of any such tax or shall have
established to the satisfaction of the Corporation that such tax has been paid.
The Corporation (and any successor corporation) shall take all action
necessary so that a number of shares of the authorized but unissued Common Stock
(or common stock in the case of any successor corporation) sufficient to provide
for the conversion of the Series A-I Convertible Preferred Stock outstanding
upon the basis hereinbefore provided are at all times reserved by the
Corporation (or any successor corporation), free from preemptive rights, for
such conversion, subject to the provisions of the next succeeding paragraph. If
the Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series A-I Convertible Preferred Stock shall be convertible as
herein provided, the Corporation shall at the same time also make proper
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series A-I Convertible Preferred Stock on the new
basis. If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all of the outstanding
shares of Series A-I Convertible Preferred Stock, the Corporation promptly shall
seek such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
In case of any consolidation or merger of the Corporation with any
other corporation (other than a wholly-owned subsidiary of the Corporation) in
which the Corporation is not the surviving corporation, or in case of any sale
or transfer of all or substantially all of the assets of the Corporation, or in
the case of any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property, the Corporation
shall make appropriate provision or cause appropriate provision to be made so
that each holder of shares of Series A-I Convertible Preferred Stock then
outstanding shall have the right thereafter to convert such shares of Series A-I
Convertible Preferred Stock into the kind and amount of shares of stock and
other securities and property receivable upon such consolidation, merger, sale,
transfer, or share exchange by a holder of the number of shares of Common Stock
into which such shares of Series A-I Convertible Preferred Stock could have been
converted immediately prior to the effective date of such consolidation, merger,
sale, transfer, or share exchange. If, in connection with any such
consolidation, merger, sale, transfer, or share exchange, each holder of shares
of Common Stock is entitled to elect to receive either securities, cash, or
other assets upon completion of such transaction, the Corporation shall provide
or cause to be provided to each holder of Series A-I Convertible Preferred Stock
the right to elect the securities, cash, or other assets into which the Series
A-I Convertible Preferred Stock held by such holder shall be convertible after
completion of any such transaction on the same terms and subject to the same
conditions applicable to holders of the Common Stock (including, without
limitation. notice of the right to elect, limitations on the period in which
such election shall be made, and the effect of
<PAGE>
failing to exercise the election). The Corporation shall not effect any such
transaction unless the provisions of this paragraph have been complied with. The
above provisions shall similarly apply to successive consolidations, mergers,
sales, transfers, or share exchanges.
If a holder shall have given a notice of conversion of shares of Series
A-I Convertible Preferred Stock. upon surrender of certificates representing
shares of Series A-I Convertible Preferred Stock for conversion, the Corporation
shall issue and deliver to such person at an address within the United States to
be specified by such person certificates for the Common Stock issuable upon such
conversion within three business days after such surrender of certificates and
the person converting shall be deemed to be the holder of record of the Common
Stock issuable upon such conversion, and all rights with respect to the shares
surrendered shall forthwith terminate except the right to receive the Common
Stock or other securities, cash, or other assets as herein provided. If a holder
shall have given a notice of conversion as provided herein, the Corporation's
obligation to issue and deliver the certificates for Common Stock shall be
absolute and unconditional, irrespective of the absence of any action by the
converting holder to enforce the same, any waiver or consent with respect to any
provision thereof, the recovery of any judgment against any person or any action
to enforce the same, any failure or delay in the enforcement of any other
obligation of the Corporation to the holder of record, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the holder of any obligation to the Corporation, and irrespective of
any other circumstance which might otherwise limit such obligation of the
Corporation to the holder in connection with such conversion. If the Corporation
fails to issue and deliver the certificates for the Common Stock to the holder
converting shares of Series A-I Convertible Preferred Stock pursuant to the
first sentence of this paragraph as and when required to do so, in addition to
any other liabilities the Corporation may have hereunder and under applicable
law, the Corporation shall pay or reimburse such holder on demand for all
out-of-pocket expenses including, without limitation, fees and expenses of legal
counsel incurred by such holders as a result of such failure.
No fractional shares of Common Stock shall be issued upon conversion of
Series A-I Convertible Preferred Stock but, in lieu of any fraction of a share
of Common Stock which would otherwise be issuable in respect of the aggregate
number of such shares surrendered for conversion at one time by the same holder,
the Corporation at its option (a) may pay in cash an amount equal to the product
of (i) the arithmetic average of the Closing Price of a share of Common Stock on
the three consecutive trading days ending on the trading day immediately
preceding the Conversion Date and (ii) such fraction of a share or (b) may issue
an additional share of Common Stock.
The Conversion Amount shall be adjusted from time to time under certain
circumstances, subject to the provisions of the first three sentences of the
first paragraph of this Section 9(c), as follows:
(i) In case the Corporation shall issue rights or warrants on a pro
rata basis to all holders of the Common Stock entitling such holders to
subscribe for or purchase Common Stock on the record date referred to below at a
price per share less than the average daily Closing Prices of the Common
<PAGE>
Stock on the 30 consecutive business days commencing 45 business days before the
record date (the "Current Market Price"), then in each such case the Conversion
Amount in effect on such record date shall be adjusted in accordance with the
formula
C1 = C x O + N
-----
O + N x P
-----
M
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
O = the number of shares of Common Stock outstanding
on the record date.
N = the number of additional shares of Common Stock issuable pursuant to the
exercise of such rights or warrants.
P = the offering price per share of the additional shares (which amount
shall include amounts received by the Corporation in respect of the
issuance and the exercise of such rights or warrants).
M = the Current Market Price per share of Common Stock on the record date.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants are
not so issued or expire or terminate before being exercised, the Conversion
Amount then in effect shall be readjusted appropriately.
(ii) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Junior Stock (as hereinafter defined) evidences
of its indebtedness or assets (including securities, but excluding any warrants
or subscription rights referred to in subparagraph (i) above and any dividend or
distribution paid in cash out of the retained earnings of the Corporation), then
in each such case the Conversion Amount then in effect shall be adjusted in
accordance with the formula
C1 = C x M
-----
M - F
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
<PAGE>
M = the Current Market Price per share of Common Stock on the record date
mentioned below.
F = the aggregate amount of such cash dividend and/or the fair market value
on the record date of the assets or securities to be distributed divided
by the number of shares of Common Stock outstanding on the record date.
The Board of Directors shall determine such fair market value, which
determination shall be conclusive.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
For purposes of this subparagraph (ii), "Junior Stock" shall include any class
of capital stock ranking junior as to dividends or upon liquidation to the
Series A-I Convertible Preferred Stock.
(iii) All calculations hereunder shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant to the
fourth paragraph of this Section 9(c), the holder of any Series A-I Convertible
Preferred Stock thereafter surrendered for conversion shall become entitled to
receive securities, cash, or assets other than Common Stock, the number or
amount of such securities or property so receivable upon conversion shall be
subject to adjustment from time to time in a manner and on terms nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in subparagraphs (i) to (iii) above.
Except as otherwise provided above in this Section 9, no adjustment in
the Conversion Amount shall be made in respect of any conversion for share
distributions or dividends theretofore declared and paid or payable on the
Common Stock.
Whenever the Conversion Amount is adjusted as herein provided, the
Corporation shall send to each transfer agent, if any, for the Series A-I
Convertible Preferred Stock and the Common Stock, and to the principal
securities exchange, if any, on which the Series A-I Convertible Preferred Stock
and the Common Stock is traded, or the Nasdaq National Market if the Series A-I
Convertible Preferred Stock or Common Stock is admitted for a quotation thereon,
a statement signed by the Chairman of the Board, the President, or any Vice
President of the Corporation and by its Treasurer or its Secretary or an
Assistant Secretary stating the adjusted Conversion Amount determined as
provided in this Section 9, and any adjustment so evidenced, given in good
faith, shall be binding upon all stockholders and upon the Corporation. Whenever
the Conversion Amount is adjusted, the Corporation will give notice by mail to
the holders of record of Series A-I Convertible Preferred Stock, which notice
shall be made within 15 days after the effective date of such adjustment and
shall state the adjustment and the Conversion Amount. Notwithstanding the
foregoing notice provisions, failure by the Corporation to give such notice or a
defect in such notice shall not affect the binding nature of such corporate
action of the Corporation.
<PAGE>
Whenever the Corporation shall propose to take any of the actions
specified in the fourth paragraph of this Section 9(c) or in subparagraphs (i)
or (ii) of the seventh paragraph of this Section 9(c) which would result in any
adjustment in the Conversion Amount under this Section 9(c), the Corporation
shall cause a notice to be mailed at least 20 days prior to the date on which
the books of the Corporation will close or on which a record will be taken for
such action, to the holders of record of the outstanding Series A-I Convertible
Preferred Stock on the date of such notice. Such notice shall specify the action
proposed to be taken by the Corporation and the date as of which holders of
record of the Common Stock shall participate in any such actions or be entitled
to exchange their Common Stock for securities or other property, as the case may
be. Failure by the Corporation to mail the notice or any defect in such notice
shall not affect the validity of the transaction.
Notwithstanding any other provision of this Section 9, no adjustment in
the Conversion Amount need be made (a) for a transaction referred to in
subparagraphs (i) or (ii) of the seventh paragraph of this Section 9(c) if
holders of Series A-I Convertible Preferred Stock are to participate in the
transaction or distribution on a basis and with notice that the Board of
Directors determines such transaction to be fair to the holders of the Series
A-I Convertible Preferred Stock and appropriate in light of the basis on which
holders of the Common Stock or, in the case of a transaction referred to in said
subparagraph (ii), holders of Junior Stock participate in the transaction; (b)
for sales of Common Stock pursuant to a plan for reinvestment of dividends and
interest, provided that the purchase price in any such sale is at least equal to
the fair market value of the Common Stock at the time of such purchase, or
pursuant to any plan adopted by the Corporation for the benefit of its
employees, directors, or consultants; or (c) after such time as a holder of
shares of Series A-I Convertible Preferred Stock becomes entitled to receive
only cash upon conversion of such shares (in which case no interest shall accrue
on the amount of such cash for any period prior to the date which is three
business days after surrender of the certificates for such shares for
conversion).
(d) Mandatory Conversion. So long as the Corporation shall be in
compliance in all material respects with its obligations to the holders of the
Series A-I Convertible Preferred Stock (including its obligations under the
Registration Rights Agreement and the provisions of this Certificate of
Designations) and so long as the Registration Statement shall be effective (or
all the shares of Common Stock into which shares of Series A-I Convertible
Preferred Stock then outstanding are convertible may be sold by each holder of
record of such shares of Series A-I Convertible Preferred Stock within a period
of three months under Rule 144), on the date which is 730 days after the
Issuance Date (the "Mandatory Conversion Date") all of the shares of Series A-I
Convertible Preferred Stock then outstanding shall be converted, in accordance
with the provisions, and subject to the limitations, of Section 9(a), into
shares of Common Stock to the extent the same are at such time convertible into
shares of Common Stock. On the Mandatory Conversion Date, the Corporation shall
mail by first class mail or otherwise deliver to each holder of Series A-I
Convertible Preferred Stock a notice (a "Section 9(d) Notice"), which shall
state (1) the number of shares of Series A-I Convertible Preferred Stock held by
such holder which have been converted
<PAGE>
into shares of Common Stock in accordance with this Section 9(d) and (2) the
Mandatory Conversion Date. If the Corporation shall give a Section 9(d) Notice,
then, unless theretofore converted by the holder in accordance herewith, and so
long as the Registration Statement shall remain effective on the Mandatory
Conversion Date (or all the shares of Common Stock into which shares of Series
A-I Convertible Preferred Stock then outstanding are convertible may be sold by
each holder of record of such shares of Series A-I Convertible Preferred Stock
within a period of three months under Rule 144) and the Corporation shall be in
compliance in all material respects with its obligations to the holders of the
Series A-I Convertible Preferred Stock (including its obligations under the
Registration Rights Agreements and the provisions of this Certificate of
Designations) on the Mandatory Conversion Date, then on the Mandatory Conversion
Date properly set forth therein, all shares of Series A-I Convertible Preferred
Stock which, on the Mandatory Conversion Date are convertible in accordance with
Section 9(a) hereof, shall be converted into such number of shares of Common
Stock as shall be determined pursuant to this Section 9 as if the conversion of
such number of shares of Series A-I Convertible Preferred Stock were made by the
holders thereof in accordance herewith and as if the Mandatory Conversion Date
were the Conversion Date. Upon the surrender of certificates for shares of
Series A-I Convertible Preferred Stock by the holder after a Section 9(d) Notice
is given, the Corporation shall issue and, within three trading days after such
surrender, deliver to or upon the order of such holder that number of shares of
Common Stock as shall be issuable in respect to the conversion of the number of
shares of Series A-I Convertible Preferred Stock converted into Common Stock as
shall be determined in accordance herewith.
Section 10. Voting Rights. Except as otherwise required by law or
expressly provided herein, shares of Series A-I Convertible Preferred Stock
shall not be entitled to vote on any matter.
The affirmative vote or consent of the holders of a majority of the
outstanding shares of the Series A-I Convertible Preferred Stock, voting
separately as a class, will be required for (1) any amendment, alteration, or
repeal, whether by merger or consolidation or otherwise, of the Corporation's
Certificate of Incorporation if the amendment, alteration, or repeal materially
and adversely affects the powers, preferences, or special rights of the Series
A-I Convertible Preferred Stock, or (2) the creation and issuance of any Senior
Dividend Stock or Senior Liquidation Stock; provided, however, that any increase
in the authorized preferred stock of the Corporation or the creation and
issuance of any stock which is both Junior Dividend Stock and Junior Liquidation
Stock or any other capital stock of the Corporation ranking on a parity with the
Series A-I Convertible Preferred Stock shall not be deemed to affect materially
and adversely such powers, preferences, or special rights.
Section 11. Outstanding Shares. For purposes of this Certificate of
Designations, all shares of Series A-I Convertible Preferred Stock shall be
deemed outstanding except (i) from the date of surrender of certificates
representing shares of Series A-I Convertible Preferred Stock for conversion
into Common Stock, all shares of Series A-I Convertible Preferred Stock
converted into Common Stock and (ii) from the date of registration of transfer,
all shares of Series A-I Convertible Preferred Stock held of record by the
Corporation or any subsidiary or Affiliate (as defined herein) of
<PAGE>
the Corporation. For the purposes of this Certificate of Designations,
"Affiliate" means any person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Corporation. "Control" is
the power to direct the management and policies of a person, directly or through
one or more intermediaries, whether through the ownership of voting securities,
by contract, or otherwise.
IN WITNESS WHEREOF, Globalink, Inc. has caused its corporate seal to be
affixed and this certificate to be signed by Harry E. Hagerty, Jr., its
Chairman, as of the 13th day of December, 1996.
By:/s/Harry E. Hagerty, Jr.
------------------------
Harry E. Hagerty, Jr.
Chairman
GLOBALINK, INC.
CERTIFICATE OF DESIGNATION
OF
SERIES A-2 CONVERTIBLE PREFERRED STOCK
Globalink, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, in accordance
with the provisions of Section 103 of the General Corporation Law of the State
of Delaware (the "DGCL") DOES HEREBY CERTIFY:
That the Corporation's share capital includes 250,000 shares of
Preferred Stock, par value $.01 per share, which Preferred Stock may be issued
in one or more series with the Board of Directors of the Corporation (the
"Board") being entitled by resolution to fix the number of shares in each series
and to designate the voting powers, designations and other rights, privileges,
restrictions and conditions of all shares of each series, and that pursuant to
this authority, the Board of Directors of the Corporation, on December 13, 1996,
adopted a resolution providing for the creation of a series of the Corporation's
Preferred Stock, par value $0.01, which series is designated "Series A-2 8%
Convertible Redeemable Preferred Stock", which resolution is as follows:
RESOLVED, THAT THE RIGHTS, PRIVILEGES, RESTRICTIONS AND
CONDITIONS ATTACHING TO THE SERIES A-2 PREFERRED STOCK SHALL BE AS
FOLLOWS:
Section 1 - Number
The Series A-2 8% Convertible Redeemable Preferred Stock (the "8%
Preferred Stock") of the Corporation shall consist of 248,500 shares of 8%
Preferred Stock.
Section 2 - Voting and Pre-emptive Rights
Except as expressly provided by the General Corporation Law of the
State of Delaware ("DGCL"), and the Corporation's amended Certificate of
Incorporation, the record holders (hereinafter the "Eligible Holders") of the 8%
Preferred Stock shall have no voting rights and the Eligible Holders of the 8%
Preferred Stock will not have any pre-emptive rights to acquire any other
securities issued by the Corporation in the future.
Section 3 - Liquidation Rights
3.1 If the Corporation shall be voluntarily or involuntarily liquidated,
dissolved or wound up, at any time when any share of 8% Preferred Stock shall be
outstanding, the Eligible Holders of the then outstanding 8% Preferred Stock
shall receive a preference on liquidation over all other equity
<PAGE>
securities of the Corporation, either currently existing or created in the
future, except with respect to the existing outstanding Series A-1 Convertible
Preferred Stock as to which the preference shall be pari passu. The preference
shall be the greater of (i) $33.4375 (the "Stated Value", for purposes hereof,
the term Original Stock Price shall mean one-tenth of the Stated Value), per
share of 8% Preferred Stock plus accrued dividends, thereon; or (ii) the amount
that would be paid to the Eligible Holders had the 8% Preferred Stock been
converted into shares of Common Stock of the Corporation, $.01 per share (the
"Common Stock"), immediately prior to such event. Eligible Holders shall have a
preference in distribution of the Corporation's property available for
distribution to the holders of the Corporation's Common Stock equal to a
pro-rata amount of said distribution in proportion to the Eligible Holder's
ownership of 8% Preferred Stock, together with an amount equal to all unpaid
dividends accrued thereon, if any, to the date of payment of such distribution,
whether or not declared by the Board. The Amalgamation of the Corporation with
any corporation or corporations, the sale or transfer by the Corporation of
substantially all of its assets, whether now or hereafter authorized, shall be
deemed to be a liquidation of the Corporation within the meaning of any of the
provisions of this Section 3.
3.2 Subject to the provisions hereof, all amounts to be paid as preferential
distributions to the Eligible Holders of 8% Preferred Stock as provided in this
Section 3 shall be paid or set apart for payment before the payment or setting
apart for payment of any amount for, or the distribution of any of the
Corporation's assets to the holders of Common Stock or to the holders of any
other equity securities of the Corporation, whether now or hereafter authorized,
in connection with such liquidation, dissolution or winding up.
Section 4 - Dividends
The 8% Preferred Stock has a dividend right of 8% per annum, based upon
the Stated Value per share of 8% Preferred Stock, which is cumulative, payable
annually in arrears on the first business day of each calendar year commencing
January 1998, in cash or in shares of 8% Preferred Stock, at the option of the
Corporation, except as set forth below. In the event the Corporation elects to
pay dividends by means of issuing 8% Preferred Stock, the 8% Preferred Stock to
be issued shall be valued at the lesser of the Stated Value per share or ten
(10) time the average bid price for Common Stock for the last ten (10)
consecutive trading days prior to the end of the relevant calendar year. If the
average bid price for Common Stock during any sixty (60) day period commencing
on or after January 1, 1998 is eighty (80%) percent or less of the Original
Stock Price, Eligible Holders of the majority of the outstanding 8% Preferred
Stock can elect, by written notice to the Corporation signed by such Eligible
Holders, to have the Corporation pay dividends on all outstanding 8% Preferred
Stock in cash for the balance of the life of the 8% Preferred Stock (the "Cash
Election"). If the Corporation does not or cannot pay the Cash Election, (i) the
Corporation must pay the dividend in shares of 8% Preferred Stock valued as set
forth above in this Section 4; and (ii) Eligible Holders owning a majority of
the 8% Preferred Stock shall have the right, by written notice to the
Corporation signed by such Eligible Holders, to designate one (1) member to the
Board of Directors of the Corporation and the Corporation shall immediately
appoint the designee to the Board of Directors and use its best efforts to cause
the election of such designee (or any substitute designee designated in writing
at any time by Eligible Holders owning a majority of
<PAGE>
the outstanding 8% Preferred Stock) for so long as twenty-five (25%) percent or
more of the 8% Preferred Stock remains outstanding.
Section 5 - Redemption
5.1 The Corporation shall have the right (but not the obligation) to redeem for
cash all, but not less than all, outstanding shares of 8% Preferred Stock at the
Stated Value per share on not less than thirty (30) days or more than forty-five
(45) days written notice (the "Redemption Notice") to all Eligible Holders of
the 8% Preferred Stock; provided, however, that at the time such notice is given
and at the effective date of such redemption: (a) the Conversion Shares (as
defined below) have been registered by the Corporation pursuant to the
Securities Act of 1933, as amended (the "Act") in accordance with the terms and
conditions set forth in Paragraph 7 of the Unit Purchase Agreement by and among
the Corporation, J. Michael Reisert, Inc., either on its own behalf or on behalf
of other investors (the "Unit Purchase Agreement") and such registration is then
currently effective, and (b) the average closing bid price for the Common Stock,
whether the Common Stock is listed on the New York Stock Exchange, American
Stock Exchange or its shares of Common Stock are traded on the National
Association of Securities Dealers Automated Quotation System (collectively,
"Exchange"), during the ten (10) consecutive trading days ending five (5)
business days prior to the date that written notice of redemption of the 8%
Preferred Stock is given to the Eligible Holders, is at or above 200% of the
Original Stock Price per share.
5.2 On January 1, 2002, any outstanding shares of 8% Preferred Stock shall
automatically be converted into shares of Common Stock at the lesser of the
Original Stock Price per share or the average bid price for Common Stock for the
ten (10) consecutive trading days ending five (5) business days prior to January
1, 2002.
5.3 For purposes of this Section 5, the term "Conversion Shares" shall mean the
shares of Common Stock which the Eligible Holders would be entitled to receive
upon conversion of shares of 8% Preferred Stock pursuant to Section 6 below.
Section 6 - Conversion
6.1 Eligible Holders of 8% Preferred Stock may at any time and from time to time
commencing thirty (30) days after the issuance of the 8% Preferred Stock convert
all or any amount of the 8% Preferred Stock then owned into shares of Common
Stock at a conversion price equal to the Original Stock Price, subject to
adjustment as provided in this Section 6. Notwithstanding anything to the
contrary contained in Section 5 above, an Eligible Holder may exercise the
Eligible Holder's conversion rights set forth in this Section 6 at any time up
to one (1) business day prior to the date set forth for redemption in any
redemption notice by the Corporation under Section 5 above.
6.2 The conversion right granted by Section 6.1 hereof may be exercised only by
an Eligible Holder of 8% Preferred Stock, in whole or in part, by the surrender
of the share certificate or share certificates representing the 8% Preferred
Stock to the converted at the principal office of the Corporation (or such other
place as the Corporation may designate in a written notice sent to the
<PAGE>
holder by first-class mail, postage prepaid, at its address shown on the books
of the Corporation) against delivery of that number of shares of whole Common
Stock as shall be computed by multiplying each share of 8% Preferred Stock by a
fraction, the numerator of which is the Stated Value and the denominator of
which is the Conversion Price (as defined below) on the Conversion Date (as
defined below). At the time of conversion of a share of 8% Preferred Stock, the
Corporation shall pay in cash to the holder thereof an amount equal to all
unpaid dividends, if any, accrued thereon to the date of conversion, or, at the
Corporation's option, issue that number of whole shares of Common Stock which is
equal to the quotient resulting by dividing the amount of such unpaid dividends
by the lesser of the Stated Value per share or ten (10) times the average bid
price for Common Stock for the last ten (10) consecutive trading days ending
prior to the time of conversion, whether of not declared by the Board. Each 8%
Preferred Stock Certificate surrendered for conversion shall be endorsed by the
Eligible Holder. Any Eligible Holder may exercise its right to convert the 8%
Preferred Stock by telecopying an executed and completed Notice of Conversion
(as defined below) to the Corporation, and within 72 hours thereafter,
delivering the original Notice of Conversion and the certificate representing
the 8% Preferred Stock to the Corporation by express courier. The Corporation
will transmit the Common Stock certificates issuable upon conversion of any 8%
Preferred Stock nd a certificate representing the balance of the 8% Preferred
Stock to the Eligible Holder via express courier within three (3) business days
after the Conversion Date. The term "Conversion Date" shall mean (i) the date
the original Notice of Conversion and Certificate of the 8% Preferred Stock
being converted are received by the Corporation, or (ii) if the Eligible Holder
elects to send the Notice of Conversion by telecopier, the date the Corporation
receives the Notice of Conversion by telecopier, provided that the Eligible
Holder delivers to the Corporation the original Notice of Conversion and
certificate within 72 hours. The term "Notice of Conversion" shall mean the
written notice from the Eligible Holders to the Corporation.
6.3 All Common Stock which may be issued upon conversion of the 8% Preferred
Stock will, upon issuance be duly issued, fully paid and non-assessable and free
from all taxes, liens, and charges with respect to the issue thereof. At all
times that any shares of 8% Preferred Stock are outstanding, the Corporation
shall have authorized and shall have reserved for the purpose of issuance upon
such conversion into Common Stock of all 8% Preferred Stock, a sufficient number
of shares of Common Stock to provide for the conversion of all outstanding
shares of 8% Preferred at the then effective Conversion Price. Without limiting
the generality of the foregoing, if at any time, the Conversion Price is
decreased, the number of shares of Common Stock authorized and reserved for
issuance upon the conversion of the 8% Preferred Stock shall be proportionately
increased.
6.4 The Initial Conversion Price is the Original Stock Price per share of Common
Stock ("Initial Conversion Price"). The Initial Conversion Price shall be
adjusted as provided for below in this Section 6.4 (the Initial Conversion
Price, as adjusted, shall be referred to as the "Conversion Price") and the
Conversion Price from time to time shall be adjusted as provided for below in
this Section 6.4. Upon each adjustment of the Conversion Price, the Eligible
Holders of the 8% Preferred Stock shall thereafter be entitled to receive upon
conversion at the Conversion Price resulting from such adjustment, the number of
shares of Common Stock obtained by (i) multiplying the Conversion Price in
effect prior to such adjustment by the number of shares of Common Stock
<PAGE>
receivable upon conversion hereunder prior to such an adjustment and (ii)
dividing the product thereof by the Conversion Price resulting from such
adjustment. The Initial Conversion Price and the Conversion Price shall be
adjusted as follows:
6.4.1 In the case of any amendment to the Certificate of Incorporation
to change the designation of the Common Stock or the rights, privileges,
restrictions or conditions in respect to the Common Stock or division of the
Common Stock, the 8% Preferred Stock shall be adjusted so as to provide that
upon conversion thereof the Eligible Holder shall receive, in lieu of each
Common Stock theretofore issuable upon such conversion, the kind and amount of
shares, other securities, money and property receivable upon such designation,
change or division by such holder issuable upon such conversion had the
conversion occurred immediately prior to such designation, change or division.
The 8% Preferred Stock shall be deemed thereafter to provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 6. The provisions of this Subsection 6.4.1 shall
apply in the same manner to successive reclassification, changes, consolidations
and mergers.
6.4.2 If the Corporation shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares of Common Stock, or
declare a dividend or make any other distribution upon the Common Stock of the
Corporation payable in shares of Common Stock, the Conversion Price in effect
immediately prior to such subdivision or dividend or other distribution shall be
proportionately reduced, and conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares of Common Stock,
the Conversion Price in effect immediately prior to such combination shall be
proportionately increased. There shall be no adjustment in the Conversion Price
in the event that the Corporation pays a cash dividend, provided, however, that
the Corporation shall give written notice to all Eligible Holders at least
thirty (30) days prior to the record date for a cash dividend that the
Corporation intends to declare a cash dividend.
6.4.3 In case the Corporation shall issue or otherwise sell or
distribute shares of Common Stock for a consideration per share in cash or
property less than the Conversion Price in effect at the time of such issuance,
the Conversion Price then in effect shall be reduced by multiplying such
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance, sale or
distribution plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for such issuance, sale or
distribution (such consideration, if other than cash, as determined by the Board
of Director including a majority of the Directors who are not officers or
employees of the Corporation or any of its subsidiaries, whose determination
shall be conclusive and described in a resolution of the Board of Directors)
would purchase at the Conversion Price per share and the denominator shall be
the number of shares of Common Stock outstanding immediately after giving effect
to such issuance, sale or distribution. The provisions of this Section 6.4.3
shall not apply to the issuance and sale of Units pursuant to the Unit Purchase
Agreement.
6.4.4 If any capital reorganization or reclassification of the capital stock of
the Corporation, or any consolidation or merger of the Corporation with another
or other entity, or the sale of all or
<PAGE>
substantially all of the Corporation's assets to another corporation or other
entity shall be effected in such a way that holders of shares of Common Stock
shall be entitled to receive stocks, securities, other evidence of equity
ownership or assets with respect to or in exchange for shares of Common Stock,
then, as a condition of such reorganization, reclassification, consolidation,
merger or sale (except as otherwise provided below in this Section 6.4.4),
lawful and adequate provisions shall be made whereby the Eligible Holders shall
thereafter have the right to receive upon the basis and upon the terms and
conditions specified herein, such shares of stock, securities, other evidence of
equity ownership or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of Common Stock equal to the number
of shares of Common Stock immediately theretofore purchasable and receivable
upon the conversion of 8% Preferred Stock under this Section 6 had such
reorganization, reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provisions shall be made with respect to the
rights and interests of the Eligible Holders to the end that the provisions
hereof (including, without limitation, provisions for adjustments of the
Conversion Price and of the number of shares of Common Stock receivable upon the
conversion of 8% Preferred Stock) shall thereafter be applicable, as nearly as
may be, in relation to any shares of stock, securities, other evidence of equity
ownership or assets thereafter deliverable upon the exercise hereof (including
an immediate adjustment, by reason of such consolidation or merger, of the
Conversion Price to the value for the Common Stock reflected by the terms of
such consolidation or merger if the value so reflected is less than the
Conversion Price in effect immediately prior to such consolidation or merger).
In the event of a merger or consolidation of the Corporation with or into
another corporation or other entity as a result of which the number of shares of
Common Stock of the surviving corporation or other entity issuable to holders of
Common Stock of the Corporation, is greater or lesser than the number of shares
of Common Stock of the Corporation outstanding immediately prior to such merger
or consolidation, then the Conversion Price in effect immediately prior to such
merger or consolidation shall be adjusted in the same manner as though there
were a subdivision or combination of the outstanding shares of Common Stock of
the Corporation. The Corporation will not effect any such consolidation, merger
or sale, unless prior to the consummation thereof the successor corporation (if
other than the Corporation) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument executed
and mailed or delivered to the Eligible Holders at the last address of such
holder appearing on the books of the Corporation, the obligation to deliver to
such Eligible Holder such shares of stock, securities, other evidence of equity
ownership or assets as in accordance with the foregoing provisions, such
Eligible Holders may be entitled to receive or otherwise acquire. If a purchase,
tender or exchange offer is made to and accepted by the holders of more than
fifty (50%) percent of the outstanding shares of Common Stock of the
Corporation, the corporation shall not effect any consolidation, merger or sale
with the Person (as defined below) having made such offer or with an Affiliate
(as defined below) of such Person, unless prior to the consummation of such
consolidation, merger, or sale of Eligible holders of 8% Preferred Stock shall
have been given a reasonable opportunity to then elect to receive upon the
conversion of 8% Preferred Stock the amount of stock, securities, other evidence
of equity ownership or assets then issuable with respect tot he number of shares
of Common Stock of the corporation in accordance with such offer. The term
"Person" as used herein shall mean and include an individual, a partnership, a
corporation, a trust, a joint venture, an unincorporated organization and a
government or any department or agency thereof. For purposes hereof, any
<PAGE>
"Affiliate" of any Person shall mean any Person directly or indirectly
controlling, controlled by or under direct or indirect control with, such other
Person. A Person shall be deemed to control a corporation if such a Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of such corporation, whether through the ownership
of voting securities, by contrast or otherwise.
6.5 Whenever the Conversion Price shall be adjusted pursuant to Section 6.4
hereof, the Corporation shall issue a certificate signed by its President or
Vice President and by its Treasurer, Assistant Treasurer, Secretary, or
Assistant Secretary, setting forth, in reasonable detail, the event requiring
the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated (including a description of the basis on which the
Board of Directors made any determination hereunder), and the Conversion Price
after giving effect to such adjustment, and shall cause copies of such
certificates to be mailed (by first class mail, postage prepaid) to each holder
of 8% Preferred Stock at its address shown on the books of the Corporation. The
Corporation shall make such certificate and mail it to each holder promptly
after each adjustment.
6.6 No fractional Common Stock shall be issued in connection with any conversion
or redemption, if applicable) of 8% Preferred Stock, but in lieu of such
fractional shares, the Corporation shall make a cash payment therefor equal in
amount to the product of the applicable fraction multiplied by the Conversion
Price then in effect.
6.7 No shares of 8% Preferred Stock which have been converted into Common Stock
shall be reissued by the Corporation; provided, however, that each such share,
after being retired and canceled, shall be restored to the status of an
authorized but unissued Preferred Share without designation as to series and may
thereafter be issued as a preferred stock not designated an 8% Preferred Stock.
Section 7 - Parity with Other Shares of 8% Preferred Stock
If any cumulative dividends, return of capital or any other required payments in
respect of 8% Preferred Stock are not paid in full, the Eligible Holders shall
participate ratably in respect of accumulated dividends, return of capital and
such other payments.
Section 8 - Registration Rights
The holders of the 8% Preferred Stock shall have the registration rights and a
continuing "piggyback" registration rights set forth in the Unit Purchase
Agreement. Such registration rights and "piggyback" registration rights are
incorporated herein by reference as if such provisions had been set forth herein
in full.
Section 9 - Amendment
In addition to any requirement for a series vote pursuant to the DGCL in respect
of any amendment to the rights, privileges, restrictions and conditions
attaching to the 8% Preferred Stock,
<PAGE>
the rights, privileges, restrictions and conditions attaching to the 8%
Preferred Stock may be amended only if the Corporation has obtained the
affirmative vote of all Eligible Holders at a duly called meeting of the holders
of the 8% Preferred Stock or written consent by the Eligible Holders.
This designation was duly adopted in accordance with the provisions of
Section 151 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, we have signed this Certificate this day of
December, 1996.
GLOBALINK, INC.
/s/ Harry E. Hagerty, Jr.
-------------------------
Harry E. Hagerty, Jr.
Chairman and Chief Executive Officer
ATTEST:
/s/John F. McCarthy, III, Esq.
- ------------------------------
John F. McCarthy, III, Esq.
Vice President, General Counsel and Secretary
WARRANT PURCHASE AGREEMENT
WARRANT PURCHASE AGREEMENT, dated as of the date of acceptance set forth
below, by and between GLOBALINK, INC., a Delaware corporation, with headquarters
located at 9302 Lee Highway, 12th Floor, Fairfax, Virginia 22031 (the
"Company"), and the undersigned (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration provided
by Regulation D under the Securities Act of 1933, as amended (the "1933 Act");
and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, certain warrants of the Company to purchase shares
of Common Stock, $.01 par value (the "Common Stock"), of the Company and in
connection therewith to receive other warrants to purchase shares of Common
Stock, subject to acceptance of this Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. AGREEMENT TO PURCHASE; WARRANTS; PURCHASE PRICE.
(a) Purchase. The Company hereby agrees to issue to the Buyer three
Warrants of the Company in the form attached hereto as Annex I (the "Prepaid
Warrants"). The Buyer hereby agrees to prepay an amount equal to the Total
Purchase Price (as defined in the Prepaid Warrants) for the Prepaid Warrants in
the amount shown on the signature page of this Agreement at the closing in
connection with the issuance of the Warrants to the Buyer. The Buyer shall make
prepayment of the Total Purchase Price for the Prepaid Warrants in United States
Dollars in immediately available funds and the Company shall issue to the Buyer
three scrip certificates in the form attached hereto as Annex B to the Prepaid
Warrants (the "Scrip") to evidence such payment. In addition to issuance of the
Warrants, the Company shall issue to the Buyer on the Closing Date (as herein
defined) additional warrants to purchase shares of Common Stock, such warrants
to be in the form attached hereto as Annex II (the "Additional Warrants"). The
number of shares of Common Stock initially purchasable upon exercise of the
Additional Warrants to be issued to the Buyer on the Closing Date shall be
33,613. The Prepaid Warrants and the
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Additional Warrants are referred to herein collectively as the "Warrants". The
shares of Common Stock issuable upon exercise of the Prepaid Warrants are
referred to herein as the "Warrant Shares." The shares of Common Stock issuable
upon exercise of the Additional Warrants are referred to herein as the
"Additional Warrant Shares." The Warrant Shares and the Additional Warrant
Shares are referred to herein collectively as the "Common Shares." The Common
Shares and the Warrants are referred to herein collectively as the "Securities."
(b) Form of Payment. The Buyer shall pay the Total Purchase Price for the
Prepaid Warrants by delivering good funds in United States Dollars to the escrow
agent (the "Escrow Agent") identified in the Joint Escrow Instructions attached
hereto as Annex III (the "Joint Escrow Instructions"). Such delivery of funds
shall be made against delivery by the Company of the Prepaid Warrants registered
in the name of the Buyer and the Scrip. Promptly following payment by the Buyer
to the Escrow Agent of the purchase price of the Warrants, but in no event later
than the Closing Date, the Company shall deliver certificates for the Warrants
and the Scrip, duly executed by the Company and registered in the name of the
Buyer, to the Escrow Agent. By signing this Agreement, the Buyer and the Company
each agrees to all of the terms and conditions of, and becomes a party to, the
Joint Escrow Instructions, all of the provisions of which are incorporated
herein by this reference as if set forth in full.
(c) Method of Payment. Payment of the purchase price for the Warrants shall
be made by wire transfer of funds to:
Citibank, N.A.
153 East 53rd Street
New York, New York 10043
ABA#021000089
For Further Credit to A/C#37179446
for credit to the account of Brian W. Pusch Attorney Escrow Account
Reference: Pangaea/Globalink
Not later than 4:00 p.m., New York City time, on the date which is three New
York Stock Exchange trading day after the Company shall have accepted this
Agreement and returned a signed counterpart of this Agreement to the Buyer, the
Buyer shall deposit with the Escrow Agent an amount equal to the Total Purchase
Price for the Prepaid Warrants.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
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(a) The Buyer is acquiring the Warrants for its own account for investment
only and not with a view towards the public sale or distribution thereof;
(b) The Buyer is an "accredited investor" as that term is defined in Rule
501 of the General Rules and Regulations under the 1933 Act by reason of Rule
501(a)(3);
(c) All subsequent offers and sales of the Securities by the Buyer shall be
made pursuant to registration of the Securities being offered and sold under the
1933 Act or pursuant to an exemption from registration;
(d) The Buyer understands that the Warrants are being offered and sold, and
the Common Shares are being offered, to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein and in the
Prospective Purchaser Questionnaire, a true and accurate copy of which has been
delivered by the Buyer to the Company (the "Questionnaire), in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Warrants and to receive an offer of the Common Shares;
(e) The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Warrants and the offer of the
Common Shares which have been requested by the Buyer. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and have received complete and satisfactory answers to any such
inquiries. Without limiting the generality of the foregoing, the Buyer has had
the opportunity to obtain and to review the Company's (1) Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995, (2) Quarterly Reports on
Form 10-QSB for the fiscal quarters ended March 31, 1996 and June 30, 1996, (3)
Current Report on Form 8-K, dated March 28, 1996, and (4) definitive Proxy
Statement for its 1996 Annual Meeting of Stockholders, in each case as filed
with the SEC. The Buyer understands that its investment in the Securities
involves a high degree of risk;
(f) The Buyer understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities; and
(g) This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
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3. COMPANY REPRESENTATIONS, WARRANTIES, ETC.
The Company represents and warrants to, and covenants and agrees with, the
Buyer that:
(a) Concerning the Securities. The Securities have been duly authorized and
the Warrants, when issued and paid for in accordance with this Agreement, and
the Common Shares, when issued upon exercise of the Warrants will be duly and
validly issued, fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such holder. There are no
preemptive rights of any stockholder of the Company, as such, to acquire any of
the Common Shares. The Common Stock is listed for trading on the American Stock
Exchange, Inc. (the "AMEX") and no suspension of trading in the Common Stock is
in effect.
(b) Warrant Purchase Agreement; Registration Rights Agreement; Warrants.
This Agreement, the Registration Rights Agreement, the form of which is attached
hereto as Annex IV (the "Registration Rights Agreement") and the Warrant, have
been duly and validly authorized by the Company, this Agreement has been duly
executed and delivered on behalf of the Company and this Agreement is and the
Registration Rights Agreement and the Warrants, when executed and delivered by
the Company, will be, valid and binding agreements of the Company enforceable in
accordance with their respective terms, subject as to enforceability to general
principles of equity and to bankruptcy, insolvency, moratorium and other similar
laws affecting the enforcement of creditors' rights generally.
(c) Non-contravention. The execution and delivery of this Agreement, the
Registration Rights Agreement and the Warrants by the Company and the
consummation by the Company of the issuance of the Warrants and the other
transactions contemplated by this Agreement, the Registration Rights Agreement
and the terms of the Warrants do not and will not conflict with or result in a
breach by the Company of any of the terms or provisions of, or constitute a
default under, the certificate of incorporation or by-laws of the Company, or
any indenture, mortgage, deed of trust or other material agreement or instrument
to which the Company is a party or by which it or any of its properties or
assets are bound, or any applicable law, rule or regulation or any applicable
decree, judgment or order of any court, United States federal or state
regulatory body, administrative agency or other governmental body having
jurisdiction over the Company or any of its properties or assets.
(d) Approvals. No authorization, approval or consent of or filing with any
court, governmental body, regulatory agency, self-regulatory organization, or
stock exchange or market or the stockholders of the Company is required to be
obtained by the Company for the issuance and sale of the Securities
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as contemplated by this Agreement and the Warrants, other than (1) approval of
the listing of the Common Shares by the AMEX and (2) the requirements of any
applicable blue sky laws.
(e) SEC Reporting Status and Filings. The Company has filed with the SEC
all reports and other information required to be filed under Sections 13(a), 14
and 15(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act").
Since June 30, 1995, the Company has not filed any reports or other information
with the SEC pursuant to Sections 13(a), 14 and 15(d) of the 1934 Act other than
the reports and other information identified in Section 2(e) hereof.
(f) Information Provided. The information provided by or on behalf of the
Company to the Buyer and referred to in Section 2(e) of this Agreement does not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading.
(g) Absence of Certain Changes. Since December 31, 1995, there has been no
material adverse change and no material adverse development in the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company, except as disclosed in the documents referred to in
Section 2(e) hereof.
(h) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company or any of its subsidiaries, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business, condition (financial or other), results of operations or
prospects of the Company and its subsidiaries taken as a whole or the
transactions contemplated by this Agreement or any of the documents contemplated
hereby or which would adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, this
Agreement or any of such other documents.
4. Certain Covenants and Acknowledgments.
(a) Transfer Restrictions. The Buyer acknowledges that (1) the Warrants
have not been and are not being registered under the provisions of the 1933 Act
and, except as provided in the Registration Rights Agreement, the Common Shares
have not been and are not being registered under the 1933 Act, and may not be
transferred unless (A) subsequently registered thereunder or (B) the Buyer shall
have delivered to the Company an opinion of counsel, reasonably satisfactory in
form, scope and substance to the Company, to the effect that the Securities to
be sold or transferred may be sold or transferred pursuant to an exemption from
such registration; (2) any sale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act may be made only in
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<PAGE>
accordance with the terms of said Rule and further, if said Rule is not
applicable, any such resale of Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other person is under any
obligation to register the Common Shares (other than pursuant to the
Registration Rights Agreement) or the Warrants under the 1933 Act or to comply
with the terms and conditions of any exemption thereunder (other than pursuant
to Section 4(d) hereof and pursuant to the Registration Rights Agreement).
(b) Restrictive Legend. The Buyer acknowledges and agrees that the Warrants
and, until such time as the Common Shares have been registered under the 1933
Act as contemplated by the Registration Rights Agreement, the certificates for
the Common Shares, may bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the
certificates for the Common Shares and the Warrants):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be sold, transferred or assigned in the
absence of an effective registration statement for the securities under the
Securities Act of 1933, as amended, or an opinion of counsel that
registration is not required under said Act.
(c) Registration Rights Agreement. The parties hereto agree to enter into
the Registration Rights Agreement on or before the Closing Date.
(d) Form D. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to the
Buyer promptly after such filing. The Buyer agrees to cooperate with the Company
in connection with such filing and, upon request of the Company, to provide all
information relating to the Buyer reasonably required for such filing.
(e) AMEX Listing; Reporting Status. The Company has filed a listing
application for the Common Shares with the AMEX and shall provide evidence of
such filing to the Buyer. The Company shall obtain the approval of the listing
of the Common Shares, subject to official notice of issuance, by the AMEX on or
prior to the Closing Date. So long as the Buyer beneficially owns any of the
Warrants or the Common Shares, the Company shall file all reports required to be
filed with the SEC pursuant to Section 13 or 15(d) of the 1934 Act and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination.
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<PAGE>
(f) Use of Proceeds. The Company will use the proceeds from the sale of the
Warrants for the Company's internal working capital purposes and not for the
purpose of any investment in or loan to any other corporation, partnership,
enterprise or other person; provided, however, that the proceeds may be used for
loans to companies which are wholly-owned subsidiaries of the Company at all
times when such loans are outstanding.
(g) Blue Sky Laws. On or before the Closing Date, the Company shall take
such action as shall be necessary to qualify, or to obtain an exemption for, the
Warrants for sale to the Buyer pursuant to this Agreement and the Common Shares
for issuance to the Buyer on exercise of the Warrants under such of the
securities or "blue sky" laws of jurisdictions in the United States as shall be
applicable to the sale of the Warrants to the Buyer pursuant to this Agreement
and the issuance of the Common Shares to the Buyer on exercise of the Warrants.
The Company shall furnish copies of all filings, applications, orders and grants
or confirmations of exemptions relating to such securities or "blue sky" laws on
or prior to the Closing Date.
(h) Certain Expenses. Whether or not any closing occurs, the Company shall
pay or reimburse the Buyer for all reasonable legal fees and expenses of counsel
to the Buyer for the preparation and negotiation of, and closing under, this
Agreement up to an amount of $10,000. The obligations of the Company under the
provisions of this Section 4(h) shall be in addition to the obligation of the
Company for expenses under the Registration Rights Agreement.
(i) Certain Issuances of Securities. The Company will not issue any shares
of Common Stock or shares of any series of preferred stock or other securities
convertible into Common Stock of the Company for less than the greater of the
book or market value of such Common Stock, if such issuance would be integrated
as a transaction with the offer and sale of the Warrants to the Buyer and the
exercise thereof for purposes of the Stockholder Approval (as defined in the
Prepaid Warrants) requirement under of the rules of the AMEX and require
Stockholder Approval or a waiver thereof from the AMEX, unless the Company
obtains Stockholder Approval or such waiver thereof from the AMEX, as and to the
extent required under of the rules of the AMEX.
5. TRANSFER AGENT INSTRUCTIONS; CONVERSION PROCEDURE.
Transfer Agent Instructions. Promptly following the delivery by the Buyer
of the aggregate purchase price for the Warrants in accordance with Section 1(c)
hereof, and prior to the Closing Date, the Company will irrevocably instruct its
transfer agent to issue certificates for the Common Shares from time to time
upon exercise of the Warrants in such amounts as specified from time to time to
the transfer agent in the subscription forms attached to the Warrants, such
certificates to bear the restrictive legend specified in Section 4(b) of this
Agreement prior to registration of the
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<PAGE>
Common Shares under the 1933 Act, registered in the name of the Buyer or its
nominee and in such denominations to be specified by the Buyer in connection
with each exercise of the Warrants. The Company warrants that no instruction
other than such instructions referred to in this Section 5 and stop transfer
instructions to give effect to Section 4(a) hereof prior to registration of the
Common Shares under the 1933 Act will be given by the Company to the transfer
agent and that the Common Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement. Nothing in this Section 5 shall affect in any way the Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of the Securities. If the Buyer provides the Company with an opinion of
counsel reasonably satisfactory in form, scope and substance to the Company that
registration of a resale by the Buyer of any of the Securities in accordance
with clause (1)(B) of Section 4(a) of this Agreement is not required under the
1933 Act, the Company shall permit the transfer of such Securities and, in the
case of the Common Shares, instruct the Company's transfer agent to issue upon
transfer and deliver to or upon the order of the Buyer promptly, but in no event
later than three business days after receipt of such opinion, one or more share
certificates in such name or names and in such denominations as specified by the
Buyer. The provisions of Section 3(n) of the Registration Rights Agreement shall
supersede this Section 5(a) once said Section 3(n) becomes applicable.
6. STOCK DELIVERY INSTRUCTIONS.
The Warrants shall be delivered by the Company to the Escrow Agent pursuant
to Section 1(b) hereof on a delivery against payment basis at the closing.
7. CLOSING DATE.
The date and time of the issuance of the Warrants (the "Closing Date")
shall be 12:00 noon, New York City time, on the date which is three New York
Stock Exchange trading days after the date on which the Buyer has deposited the
purchase price for the Warrants with the Escrow Agent in accordance with Section
1(c) hereof, or such other mutually agreed to time. The closing shall occur on
the Closing Date at the offices of the Escrow Agent.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE.
The Buyer understands that the Company's obligation to issue the Warrants
to the Buyer pursuant to this Agreement is conditioned upon:
(a) The receipt and acceptance by the Company of this Agreement as
evidenced by execution of this Agreement by the
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<PAGE>
Company and delivery of an executed counterpart of this Agreement to the Buyer
or its legal counsel;
(b) Delivery by the Buyer to the Escrow Agent of good funds as payment in
full of an amount equal to the purchase price for the Warrants in accordance
with Section 1(c) hereof; and
(c) The accuracy on the Closing Date of the representations and warranties
of the Buyer contained in this Agreement and in the Questionnaire as if made on
the Closing Date and the performance by the Buyer on or before the Closing Date
of all covenants and agreements of the Buyer required to be performed on or
before the Closing Date.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Warrants on the Closing Date is conditioned upon:
(a) Delivery by the Company to the Escrow Agent of the Warrants in
accordance with this Agreement;
(b) The accuracy on the Closing Date of the representations and warranties
of the Company contained in this Agreement as if made on the Closing Date and
the performance by the Company on or before the Closing Date of all covenants
and agreements of the Company required to be performed on or before such Closing
Date; and
(c) Receipt by the Buyer on the Closing Date of an opinion of counsel for
the Company, dated the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer, to the effect set forth in Annex V attached hereto;
and
(d) The Common Shares shall have been approved for listing, subject to
official notice of issuance, by the AMEX.
10. GOVERNING LAW; MISCELLANEOUS.
(a) This Agreement shall be governed by and interpreted in accordance with
the laws of the Commonwealth of Virginia.
(b) This Agreement may be executed in counterparts and by the parties
hereto on separate counterparts, all of which
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<PAGE>
together shall constitute one and the same instrument. A facsimile transmission
of this Agreement bearing a signature on behalf of a party hereto shall be legal
and binding on such party.
(c) The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
(d) If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
(e) No failure or delay by any party in exercising any right or remedy
under this Agreement or otherwise, and no course of dealing between the parties,
shall operate as a waiver thereof or amendment of this Agreement, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or exercise of any other right or power.
(f) Neither this Agreement nor any term thereof (including this paragraph)
may be amended, changed, waived, discharged or terminated unless such amendment,
change, waiver, discharge or termination is in a writing signed by the party to
be charged with enforcement.
(g) Any notices required or permitted to be given under the terms of this
Agreement shall be sent by mail or delivered personally (which shall include
telephone line facsimile transmission) or by courier and shall be effective five
days after being placed in the mail, if mailed, or upon receipt, if delivered
personally or by courier, in each case addressed to a party at such party's
address shown in the introductory paragraph or on the signature page of this
Agreement, as the case may be (facsimile number 703-273-3866, in the case of the
Company, and as set forth on the signature page hereof, in the case of the
Buyer), or such other address as a party shall have provided by notice to the
other party in accordance with this provision. The Buyer hereby designates as
its address and telephone line facsimile transmission number for any notice
required or permitted to be given to the Buyer pursuant to the Certificate of
Designations or the Registration Rights Agreement the address and telephone line
facsimile transmission number set forth on the signature page hereof, until the
Buyer shall by notice to the Company designate another address or telephone line
facsimile transmission number for such purpose.
(h) The Buyer shall have the right to assign its rights and obligations
under this Agreement with respect to the purchase of all or any portion of the
Warrants to another investment fund, provided such assignee, by written
instrument duly executed by such assignee, assumes all obligations of the Buyer
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<PAGE>
hereunder with respect to the purchase of the portion of the Warrants so
assigned and makes the same representations and warranties with respect thereto
as the Buyer makes in this Agreement, whereupon the Buyer shall be relieved of
any further obligations, responsibilities and liabilities with respect to the
purchase of all or the portion of the Warrants the obligation for the purchase
of which has been so assigned. In the case of any such assignment, the Company
shall agree in writing with such assignee to make available to such assignee the
benefits of the Registration Rights Agreement with respect to the Common Shares
issuable on exercise of the Warrants with respect to which the purchase under
this Agreement has been so assigned.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer or
one of its officers thereunto duly authorized as of the date set forth below.
AGGREGATE PURCHASE PRICE: $1,500,000.00
NAME OF BUYER: Pangaea Fund LIMITED
SIGNATURE ____________________________
Title: _______________________________
Date: ____________________________
Address:
Facsimile Number:
This Agreement has been accepted as of the date set forth below.
GLOBALINK, INC.
By: ________________________
Title: _____________________
Date: _____________________
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UNIT PURCHASE AGREEMENT
AGREEMENT ("Agreement") dated as of the 20th day of December,
1996, by and among GLOBALINK, INC., a Delaware corporation (the "Company"), J.
MICHAEL REISERT, INC. ("JMR"), either on its own behalf or on behalf of other
investors, and the persons and entities listed on Exhibit A to this Agreement
(JMR and the persons and entities listed on Exhibit A annexed hereto being
referred to individually as an "Investor" and collectively as the "Investors").
W I T N E S S E T H :
WHEREAS, in reliance upon the representations, warranties, terms and
conditions hereinafter set forth, the Investors desire to purchase from the
Company, and the Company desires to sell to the Investors, a minimum of two
million five hundred thousand ($2,500,000) dollars and a maximum of six million
five hundred thousand ($6,500,000) dollars of units (the "Units") at the Unit
Purchase Price (as defined below) per Unit, each Unit consisting of: (a) one (1)
share of the Company's Eight (8%) Percent Convertible Redeemable Preferred Stock
("Preferred Stock"), each share of Preferred Stock being convertible into ten
(10) shares of the Company's common stock, par value $.01 per share ("Common
Stock"); and (b) one Redeemable Common Stock Purchase Warrant exercisable for
five (5) years (the "Warrant" and collectively, the "Warrants") to purchase ten
(10) shares of Common Stock at the Warrant Exercise Price (as defined below);
and
WHEREAS, the Units are being issued pursuant to the Company's
Confidential Private Placement Memorandum and Exhibits thereto dated December
11, 1996 (collectively, the "Memorandum"); and
WHEREAS, the Units are being issued pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended (the "1933
Act").
NOW, THEREFORE, in consideration of the premises and the respective
promises hereinafter set forth, the Company and the Investors hereby agree as
follows:
1. Sale and Purchase of Units.
(a) Subject to the terms and conditions of this Agreement, the
Company shall sell to the Investors Units having a minimum aggregate Unit
Purchase Price of two million five hundred thousand ($2,500,000) dollars and a
maximum aggregate Unit Purchase Price of six million five hundred thousand
($6,500,000) dollars, and each Investor shall purchase from the Company the
number of Units as is set forth after the Investor's name on Exhibit A annexed
hereto for a consideration equal to the Unit Purchase Price per Unit. Forms of
the Preferred Stock and Warrants, which comprise the Units, are included in the
Memorandum. For purpose hereof, the terms: (i) "Unit Purchase Price" shall mean
ten (10) times the ten (10) consecutive trading day average of the closing bid
price on the American Stock Exchange ("ASE") for the
<PAGE>
Company's Common Stock ending five (5) calendar days prior to the Initial
Closing Date (as defined below); and (ii)"Original Stock Price" shall mean
one-tenth (1/10th) of the Unit Purchase Price.
(b) The initial sale and purchase described in Paragraph 1(a)
of this Agreement shall take place at a closing at the offices of SPITZER &
FELDMAN P.C., 405 Park Avenue, New York, New York 10022-4405 or such other place
as shall be acceptable to the Company and JMR on such date or dates as JMR shall
advise the Company on two (2) business days notice or such shorter notice as
shall be reasonably acceptable to the Company (the "Initial Closing Date"). In
no event, however, shall the Initial Closing Date be later than December 31,
1996. Subsequent sale and purchase of Units shall take place at one or more
closings held on such dates as the Company and JMR shall mutually determine
("Additional Closing Dates"). All Additional Closing Dates pursuant to this
Agreement shall occur not later than December 31, 1996, subject to the right of
JMR by written notice to the Company to extend such period up to and including
January 31, 1997. The closings that occur on the Initial Closing Date and the
Additional Closing Dates shall be referred to individually as "Closing" and
collectively as "Closings".
(c) As provided in the Warrants, the Warrants are exercisable
at an exercise price per share, subject to adjustment as provided in the
Warrant, equal to one hundred twenty-five (125%) percent of the Original Stock
Price (the "Warrant Exercise Price") until the fifth (5th) anniversary of the
Initial Closing Date. The Company can redeem all, but not less than all,
outstanding Warrants for one cent ($.01) per Warrant on not less than thirty
(30) days nor more than forty-five (45) days written notice to all of the record
holders of the Warrants provided that, at the time such notice is given, (A) the
Warrant Shares (as defined below) have been registered pursuant to the 1933 Act
as provided for in Paragraph 7 below and such registration is then currently
effective, and (B) the average closing bid price of the Common Stock as listed
on the ASE, or the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), or the New York Stock Exchange ("NYSE"), or
wherever the Common Stock is then traded, during the ten (10) consecutive
trading days ending five (5) business days prior to the date that written notice
of the Warrants redemption is given is at least two hundred (200%) percent of
the Warrant Exercise Price per share of Common Stock. In the event of any
conflict or inconsistency between the provisions of this Paragraph 1(c) and the
Warrants, the Warrants shall govern and be controlling.
(d) As provided in the Preferred Stock, each share of
Preferred Stock is convertible into ten (10) shares of Common Stock, subject to
adjustment as provided in the Preferred Stock, at the option of the holder. If
the Company's Common Stock trades at 200% or more of the Original Stock Price on
the ASE, NASDAQ, NYSE or wherever the Common Stock is then traded for ten (10)
consecutive trading days and the Company then has an effective registration
statement under the 1933 Act with respect to all shares of Common Stock
underlying the Preferred Stock, the Company has the right, upon no less than
thirty (30) days nor more than forty-five (45) days prior written notice to all
holders of record of the Preferred Stock, to redeem
<PAGE>
all, but not less than all, of the Preferred Stock for cash at the Unit Purchase
Price per share of Preferred Stock plus accrued and unpaid dividends. On January
1, 2002, any shares of outstanding Preferred Stock shall automatically convert
into shares of Common Stock at the lesser of the Original Stock Price per share
or the average bid price per share for the Common Stock for ten (10) consecutive
trading days ending five (5) business days prior to January 1, 2002.
(e) As provided in the Preferred Stock, the Company shall pay
dividends of eight (8%) percent per annum, in arrears, on a cumulative basis to
the holders of the Preferred Stock on an annual basis on the first business day
of each calendar year commencing in January 1998. A pro rata dividend shall be
paid by the Company for any period that shares of Preferred Stock are
outstanding for less than a full calendar year. At the option of the Company,
dividends will be paid in cash or in shares of Preferred Stock valued at the
lesser of a per share price equal to the Unit Purchase Price or ten (10) times
the average closing bid price for shares of Common Stock for the last ten (10)
consecutive trading days prior to the end of the calendar year. In the event of
any conflict or inconsistency between the provisions of this Paragraph 1(e) and
the Preferred Stock, the Preferred Stock shall govern and be controlling.
(f) As provided in the Preferred Stock, if the average bid
price for Common Stock during any sixty (60) day period commencing on or after
January 1, 1998 is eighty (80%) percent or less of the Original Stock Price,
holders of a majority of the outstanding shares of Preferred Stock can elect, by
written notice to the Company signed by such holders, to have the dividend on
all of the Preferred Stock paid in cash for the balance of the life of the
Preferred Stock (the "Cash Election"). In the event that the Company cannot or
does not honor the Cash Election, (i) the Company must pay the dividend in
shares of Preferred Stock valued at the lesser of a per share price equal to the
Unit Purchase Price or ten (10) times the average closing bid price for shares
of Common Stock for the last ten (10) consecutive trading days prior to the end
of the respective calendar year, and (ii) holders of a majority of the
outstanding Preferred Stock shall have the right, by written notice to the
Company signed by such holders, to designate one (1) member to the Board of
Directors of the Company, the Company shall immediately take all steps necessary
to appoint such designee as a member of the Board of Directors of the Company
and the Company shall use its best efforts to cause the election of such
designee (or any substitute designee designated in writing by the holders of a
majority of the outstanding Preferred Stock) for so long as at least twenty-five
(25%) percent of the Preferred Stock remains outstanding. In the event of any
conflict or inconsistency between the provisions of this Paragraph 1(f) and the
Preferred Stock, the Preferred Stock shall govern and be controlling.
(g) The shares of Preferred Stock and Warrants provide for
adjustment to the conversion price and exercise price upon the happening of the
following:(i) any subdivision of the outstanding shares of Common Stock of the
Company into a greater number of shares of Common Stock; (ii) any declaration of
a dividend or making any other distribution by the Company upon its Common Stock
payable in shares of Common Stock; (iii) any capital reorganization or
reclassification of the capital stock of the Company; (iv) the issuance, sale or
<PAGE>
distribution of shares of Common Stock by the Company for a consideration per
share in cash or property less than the Original Stock Price (the foregoing
provision does not apply to the issuance and sale of the Units); and (v) any
consolidation or merger of the Company with another entity.
2. Payment. At each Closing, the Company shall deliver to JMR, on
behalf of the Investors, the original executed and sealed certificates for the
shares of Preferred Stock and Warrants comprising the Units being purchased by
the Investors pursuant to Paragraph 1 of this Agreement, against its receipt of
payment therefor by certified or bank check drawn on a bank located in the
United States, or by Federal wire transfer, in the amount of the aggregate
purchase price for such Units as provided in Paragraph 1 of this Agreement, less
the amount of fees payable to JMR pursuant to Paragraph 10(a) of this Agreement.
All certificates for shares of Preferred Stock and Warrants comprising the Units
being purchased by the Investors shall be issued in the respective names of the
Investors in accordance with instructions provided by JMR not later than the
business day preceding the Closing.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to and covenants and agrees with each Investor and JMR,
as of the date hereof and as of the date of each Closing, as follows:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and is
qualified and in good standing as a foreign corporation in each jurisdiction in
which the nature of the business conducted by the Company or the property owned
or leased by the Company requires such qualification. Except as set forth on the
disclosure schedule attached hereto as Exhibit C (the "Disclosure Schedule"),
the Company has no active subsidiaries and does not own any equity interest and
has not made any loans or advances to or guarantees of indebtedness to any
person, corporation, partnership or other entity.
(b) The authorized capital of the Company consists of twenty
million (20,000,000) shares of Common Stock and two hundred fifty thousand
(250,000) shares of preferred stock, of which, as of the date of this Agreement,
(i) 5,341,352 shares of Common Stock are issued and outstanding, (ii) no shares
of preferred stock are issued and outstanding (other than shares of Preferred
Stock issued at any prior Closing or Closings), (iii) 1,686,278 shares of Common
Stock have been reserved for issuance upon conversion of equity or debt
securities, exercise of outstanding options, warrants and other rights to
acquire Common Stock and upon the exercise of options granted or to be granted
pursuant to the Company's stock option plans and pursuant to other agreements,
excluding, however, (a) the shares of Common Stock issuable upon the conversion
of the Preferred Stock (the "Conversion Shares"), (b) the shares of Common Stock
issuable upon exercise of the Warrants (the "Warrant Shares"), (c) the shares of
Common Stock issuable upon the conversion of the Preferred Stock comprising part
of the Units purchasable by the Placement Agent upon the exercise of the
Placement Agent Warrants (as defined below), and (d) the shares of Common Stock
issuable upon the exercise of the Warrants
<PAGE>
comprising part of the Units purchasable by the Placement Agent upon the
exercise of the Placement Agent Warrants, and (iv) 1,500 shares of preferred
stock designated "A-1" reserved for issuance upon the conversion of outstanding
prepaid warrants ("Prepaid Warrants"). Except as set forth in the Memorandum,
the Company is not a party to any agreement to issue, nor has it issued, any
warrants, options or rights or debentures, notes or other evidence of
indebtedness or other securities, instruments or agreements upon the exercise or
conversion of which or pursuant to the terms of which additional shares of
capital stock of the Company may become issuable. No holder of any of the
Company's securities has preemptive rights or contractual rights of first
refusal.
(c) The Company has the full right, power and authority to
execute, deliver and perform under this Agreement, the Preferred Stock, the
Warrants and the Placement Agent Warrants. This Agreement has been duly executed
by the Company and, at each Closing, the Preferred Stock, Warrants and the
Placement Agent Warrants being issued will have been duly executed by the
Company, and this Agreement, the Preferred Stock, the Warrants and the Placement
Agent Warrants and the transactions contemplated by this Agreement, the
Preferred Stock, the Warrants, and Placement Agent Warrants have been duly
authorized by all necessary corporate action and each constitute, the legal,
valid and binding obligations of the Company, enforceable in accordance with
their respective terms.
(d) All of the issued and outstanding shares of Common Stock
of the Company have been duly and validly authorized and issued and are fully
paid and nonassessable, with no personal liability attaching to the holders
thereof, and such shares of Common Stock have not been issued in violation of
the preemptive rights or rights of first refusal of any holder of securities of
the Company. All of the issued and outstanding shares of Common Stock have been
issued pursuant to either a current effective registration statement under the
1933 Act or an exemption from the registration requirements of the 1933 Act and
were issued in accordance with all applicable Federal and state securities laws.
(e) The shares of Common Stock included in the Conversion
Shares and the Warrant Shares and the shares of Common Stock issuable upon the
conversion of the Preferred Stock and exercise of the Warrants underlying the
Placement Agent Warrants have been validly authorized for issuance and, when
issued pursuant to this Agreement and the terms of the Preferred Stock, the
terms of the Warrants and the terms of the Preferred Stock and Warrants
underlying the Placement Agent Warrants, as the case may be, will be duly and
validly authorized and issued, fully paid and nonassessable and free from
preemptive rights or rights of first refusal held by any person.
(f) The Company has delivered to each Investor a copy of the
following financial statements of the Company (hereinafter collectively, the
"Financial Statements"): (1) (i) consolidated balance sheets as at December 31,
1995 and 1994, and (ii) consolidated statements of operations, stockholders'
equity (deficiency) and cash flows for the fiscal years ended December 31, 1995
and 1994, and the related notes thereto, which have been audited by Grant
<PAGE>
Thornton LLP, independent certified public accountants, and (2) (i) unaudited
balance sheet as at September 30, 1996, and (ii) unaudited statement of
operations, stockholders' equity (deficiency) and cash flows for the fiscal
quarter ended September 30, 1996, and the related notes thereto, which have been
prepared by the Company. The Financial Statements, which are included in the
Company's Form 10-KSB Annual Report for the year ended December 31, 1995 ("Form
10-K") and the Company's Form 10-QSB Quarterly Report for the quarter ended
September 30, 1996 ("Form 10-Q"), were prepared in accordance with generally
accepted accounting principles consistently applied and present and reflect
fairly the financial position of the Company at the respective balance sheet
dates and the results of its operations, changes in stockholders' equity and
cash flows for the periods then ended. During the period of Grant Thornton LLP's
engagement as the Company's independent certified public accountant, there have
been no disagreements between the accounting firm and the Company on any matters
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure and no reportable events relating to the
relationship between the Company and the accounting firm. The Company has made
and kept books and records and accounts which are in reasonable detail and which
fairly and accurately reflect the activities of the Company.
(g) Except as set forth on the Disclosure Schedule, the
Company has good and marketable title to all of its property and assets and none
of the property or assets of the Company is subject to any lien, mortgage,
pledge, encumbrance or other security interest.
(h) Since December 31, 1995, except as set forth in the
Memorandum and its Exhibits, there has not been any material adverse change in
the financial condition or in the operations, business or prospects of the
Company from that shown in the Financial Statements or any damage or
destruction, whether covered by insurance or not, which affects the business,
property or assets of the Company.
(i) The Company has delivered to each Investor (i) a copy of
the Company's Form 10-K; (ii) a copy of the Company's Form 10-Q; (iii) a copy of
the Company's annual report and proxy statement relating to the Company's 1996
annual meeting of stockholders held on June 18, 1996, (iv) a copy of the
Company's proxy statement relating to the Company's December 2, 1996 special
meeting of stockholders; (v) any Current Reports on Form 8-K or other reports
filed with the Securities and Exchange Commission (the "SEC") subsequent to
September 30, 1996; and (vi) such additional documents referred to in Exhibit B
annexed hereto.
(j) Neither the execution or delivery of this Agreement, the
Preferred Stock, the Warrants or the Placement Agent Warrants by the Company nor
the performance by the Company of the transactions contemplated by this
Agreement, the Preferred Stock, the Warrants or the Placement Agent Warrants:
(i) requires the consent, waiver, approval, license or authorization of or
filing with or notice to any person, entity or public authority (except any
filings required by Federal or state securities laws, which filings have been or
will be made by the Company on a timely basis); (ii) violates or constitutes a
default under or breach of any law, rule or regulation applicable to the
Company; (iii) conflicts with or results in a breach or
<PAGE>
termination of any provision of, or constitutes a default under, or will result
in the creation of any lien, charge or encumbrance upon any of the property or
assets of the Company with or without the giving of notice, the passage of time
or both, pursuant to (A) the Company's certificate of incorporation or by-laws,
(B) any mortgage, deed of trust, indenture, note, loan agreement, security
agreement, contract, lease, license, alliance agreement, joint venture
agreement, or other agreement or instrument, or (C) any order, judgment, decree,
statute, regulation or any other restriction of any kind or character to which
the Company is a party or by which any of the assets of the Company may be
bound.
(k) The Company has no indebtedness to any officer, director,
5% stockholder or other Affiliate (as defined in the Rules and Regulations of
the SEC under the 1933 Act) of the Company.
(l) The Company is in compliance with all laws, rules and
regulations of all Federal, state and local government agencies having
jurisdiction over it or affecting its business, assets or properties, and the
Corporation possesses all licenses, permits, consents, approvals and agreements
which are required to be issued by any and all applicable Federal, state or
local authorities necessary for the operation of its business and/or in
connection with its assets or properties.
(m) The Company is not in default under any note, loan
agreement, security agreement, mortgage, contract, lease, alliance agreement,
joint venture agreement, agreement, license, permit, consent, approval or
instrument to which it is a party, and no event has occurred which, with or
without the lapse of time or giving of notice, or both, would constitute such
default thereof by the Company or would cause acceleration of any obligation of
the Company or would adversely affect the business, operations, financial
condition or prospects of the Company.
(n) To the best of the Company's knowledge, no officer,
director or 5% stockholder of the Company and no Affiliate of any such person
either (i) holds any interest in any corporation, partnership, business, trust,
sole proprietorship or any other entity which is engaged in a business similar
to that conducted by the Company (other than a passive immaterial interest in a
public company engaged in any such business) or (ii) engages in business with
the Company.
(o) There are no material (i.e., involving an asserted
liability in excess of ten thousand dollars ($10,000)) claims, actions, suits,
proceedings or labor disputes, inquiries or investigations (whether or not
purportedly on behalf of the Company), pending or, to the best of the Company's
knowledge, threatened, against the Company, at law or in equity or by or before
any Federal, state, county, municipal or other governmental department, SEC,
ASE, board, bureau, agency or instrumentality, domestic or foreign, whether
legal or administrative or in arbitration or mediation, nor is there any basis
for any such action or proceeding. Neither the Company nor any of its assets are
subject to, nor is the Company in default with respect to, any order, writ,
injunction, judgment or decree that could adversely affect the financial
condition, business, assets or prospects of the Company.
<PAGE>
(p) The accounts receivable of the Company represent
receivables generated from the sale of goods and services in the ordinary course
of business. The Company knows of no material disputes concerning accounts
receivable, and the accounts receivable are collectible in the ordinary course
of business, subject to reserves reflected on the Financial Statements.
(q) Except as set forth in the Memorandum, the Company has (i)
no written employment contracts and no oral employment contracts not terminable
at will by the Company, with any officer, director or other employee of the
Company or any five (5%) percent shareholder of the Company, (ii) no consulting
agreement or other compensation agreement with any officer, director or other
employee of the Company or any five (5%) percent shareholder of the Company, and
(iii) no agreement or contract with any party that will result in the payment by
the Company, or the creation of any commitment or obligation (absolute or
contingent), of the Company to pay any severance, termination, "golden
parachute", or similar payment to any present or former personnel of the Company
following termination of employment. No director, executive officer or other key
employee of the Company has advised the Company in writing that he or she
intends to resign as director and/or executive officer of the Company or to
terminate his or her employment with the Company.
(r) The accounts payable of the Company represent bona fide
payables to third parties incurred in the ordinary course of business and
represent bona fide debts for services and/or good provided to the Company.
(s) The Company is not a party to a labor agreement with
respect to its employees with any labor organization, union, group or
association and there are no employee unions (nor any similar labor or employee
organizations). In the last five (5) years, the Company has not experienced any
attempt by organized labor or its representatives to make the Company conform to
demands of organized labor relating to its employees or to enter into a binding
agreement with organization labor that would cover any of the Company's
employees. There is no labor strike or labor stoppage or slowdown pending, or,
to the knowledge of the Company, threatened against the Company nor has the
Company experienced in the last five (5) years any work stoppage or other labor
difficulty. The Company is in compliance with all applicable laws, rules and
regulations regarding employment practices, employee documentation, terms or
conditions of employment and wage and hours and the Company is not engaged in
any unfair labor practices. There are no unfair labor practices charge or
complaint against the Company pending before the National Labor Relations Board
or any other governmental agency.
(t) Except as set forth in the Memorandum, there are no
employee pension, retirement or other benefit plans, maintained, contributed to
or required to be contributed to by the Company covering any employee or former
employee of the Company. The Company has no liability or obligation of any kind
or nature, whether accrued or contingent, matured or unmatured, known or
unknown, under any provision of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or any provision of the Internal Revenue Code of
<PAGE>
1986, as amended, specifically relating to persons subject to ERISA.
(u) The Company has timely filed with the appropriate taxing
authorities all returns in respect of taxes required to be filed through the
date hereof and has timely paid all taxes it is required to pay or has
established an adequate reserve therefor, except where the Company has timely
filed for extensions. There are no pending or, to the knowledge of the Company,
threatened audits, investigations or claims for or relating to any liability of
the Company in respect of taxes.
(v) The Company has no liabilities of any kind or nature
whether accrued or contingent, matured or unmatured, known or unknown, except as
set forth in the Financial Statements and those liabilities incurred by the
Company in the ordinary course of business since December 31, 1995.
(w) Except as set forth in the Disclosure Schedule, no
customer of the Company during fiscal year 1996 has accounted for more than five
(5%) percent of the revenues of the Company and to the best of the Company's
knowledge, no customer will account for more than five (5%) percent of the
Company's revenues during fiscal year 1997. None of the customers identified on
the Disclosure Schedule have advised the Company that they: (i) have or are
contemplating filing bankruptcy; (ii) desire to negotiate extended payment
terms; or (iii) have determined to discontinue the Company's products or to
materially reduce their product orders.
(x) There are no finder's fees or brokerage commissions
payable with respect to the transactions contemplated by this Agreement, except
as provided in Paragraph 10 of this Agreement, and the Company agrees to
indemnify and hold harmless each of the Investors from and against any and all
cost, damage, liability, judgment and expense (including reasonable fees and
expenses of counsel) arising out of or relating to claims for such fees or
commissions (and to pay JMR pursuant to a separate agreement between the Company
and JMR), except to the extent that any such fees or commissions have been
incurred by an Investor as a result of the actions of that Investor.
(y) The Company has not agreed to any terms and conditions
with respect to any merger, consolidation, acquisition, disposition or other
material business transaction with any party.
(z) The Company has the right to conduct its business in the
manner in which its business has been heretofore conducted. Except as set forth
in the Disclosure Schedule, neither the conduct of the Company's business nor
any of the Company's products violates or infringes upon the patent, copyright,
trade secret or other proprietary rights of any third party, and the Company has
received no notice of any claim of any such violation or infringement.
(aa) There is no legal or other impediment to the Company
filing a registration statement on Form S-3 with the SEC or to such filing
becoming effective. The Company
<PAGE>
covenants and agrees to maintain such conditions.
(bb) The Company has delivered to each Investor a copy of the
Memorandum. The information contained in the Financial Statements and the
Memorandum, taken together, describe in all material respects the business and
financial condition of the Company, and such material, taken together, does not
contain any misstatement of a material fact or omit to state a material fact
necessary to make the information not misleading. The Investors shall be
entitled to rely on such material notwithstanding any investigation they or any
of them may have made.
4. Representations and Warranties of the Investors. Each Investor
(except for JMR, other than in its capacity as a purchaser of Units) hereby
represents and warrants to the Company and JMR as follows:
(a) Investor has the full right, power and authority to enter
into this Agreement and to carry out and consummate the transactions
contemplated herein. This Agreement constitutes the legal, valid and binding
obligation of the Investor.
(b) Investor acknowledges that Investor has received and
reviewed the Financial Statements and the Memorandum and has had an opportunity
to meet with and ask questions of the management of the Company.
(c) Investor is an Accredited Investor (as defined in Rule 501
promulgated by SEC under the 1933 Act), has the financial ability to bear the
economic risk of the Investor's investment, can afford to sustain a complete
loss of such investment and has adequate means of providing for the Investor's
current needs and personal contingencies, and has no need for liquidity in the
Investor's investment in the Company; and the amount invested in the Company by
the Investor does not constitute a substantial portion of the Investor's net
worth. The Investor has delivered to the Company and JMR a confidential investor
questionnaire, and all of the information set forth in the confidential investor
questionnaire is true and correct in all material respects.
(d) Investor is acquiring the Units being purchased for
investment and not with a view to the sale or distribution thereof, for such
Investor's own account and not on behalf of others and the Investor has not
granted any other person any right or option or any participation or beneficial
interest in any of the Units, Preferred Stock, Warrants, Conversion Shares or
Warrant Shares, except that JMR may acquire Units (but JMR has no obligation to
acquire Units) and thereafter transfer such Units to persons who qualify as
Investors pursuant to this Agreement and execute this Agreement as an Investor,
provided that JMR shall have delivered the Units being transferred to the
Company or its transfer agent prior to the effective date of the registration
statement to be filed by the Company pursuant to Paragraph 7(a) of this
Agreement. Investor acknowledges that the Preferred Stock and Warrants
comprising the Units constitute restricted securities within the meaning of Rule
144 of the SEC under the 1933 Act, and that neither such securities nor the
Conversion Shares nor Warrant Shares may be sold
<PAGE>
except pursuant to an effective registration statement under the 1933 Act or in
a transaction exempt from registration under the 1933 Act, and the Investor
acknowledges that the Investor understands the meaning and effect of such
restriction. The Investor has sufficient knowledge and experience in financial
and business matters so that the Investor is capable of evaluating the risks and
merits of the purchase of the Units. The Investor is aware that no Federal or
state regulatory agency or authority has passed upon the sale of the Units or
the terms of the sale or the accuracy or adequacy of any material being provided
to the Investor and that the price of the Units was negotiated between the
Company and JMR and does not necessarily bear any relationship to the underlying
assets or value of the Company. INVESTOR UNDERSTANDS THAT AN INVESTMENT IN THE
UNITS BEING PURCHASED INVOLVES A HIGH DEGREE OF RISK.
(e) INVESTOR UNDERSTANDS THAT, IN CONNECTION WITH INVESTOR'S
EVALUATION OF THE COMPANY, INVESTOR HAS BEEN OR MAY HAVE BEEN PROVIDED WITH
ACCESS TO CERTAIN NON-MATERIAL INFORMATION CONCERNING THE COMPANY WHICH HAS NOT
BEEN PUBLICLY DISCLOSED. INVESTOR FURTHER UNDERSTANDS THAT ANY TRADING BY THE
INVESTOR IN SECURITIES OF THE COMPANY USING NON-PUBLIC INFORMATION COULD
CONSTITUTE A VIOLATION OF FEDERAL AND STATE SECURITIES LAWS AND OTHER LAWS AND
MAY SUBJECT THE INVESTOR TO CRIMINAL AND/OR CIVIL PENALTIES AND/OR LIABILITY. In
view of the foregoing, Investor agrees not to (i) purchase or sell, including a
short sale, any of the Company's securities or rights to purchase or sell such
securities as long as the Investor is in possession of material non-public
information or (ii) disclose any non-public information to any other person.
(f) There are no finder's fees or brokerage commissions
payable with respect to the purchase by the Investor of the Units, except as
provided in Paragraph 10 of this Agreement.
(g) If an Investor is a resident of the Commonwealth of
Pennsylvania, the Investor acknowledges and agrees that (a) the securities
purchased by Investor cannot be sold for a period of twelve (12) months from the
date of purchase except as permitted under Section 204.011 of the Pennsylvania
Securities Regulations, and (b) pursuant to Section 207(m) of the Pennsylvania
Securities Act, each Pennsylvania resident who accepts an offer to purchase
securities exempted from registration under Section 203(d) of the Pennsylvania
Securities Act directly from an issuer or an affiliate of an issuer has the
right to withdraw his acceptance without incurring any liability to the seller,
underwriter, if any, or any other person within two (2) business days from the
date of receipt by the issuer of his written binding contract of purchase or, in
the case of a transaction in which there is no written binding contract of
purchase, within two (2) business days after he makes the initial payment for
the securities being offered.
5. Use of Proceeds. The net proceeds from the sale of the Units
will be used by the Company for research and development, product development,
marketing of new products, and
<PAGE>
may be used for a short term secured loan to the Company's Chief Executive
Officer and the repurchase of the Prepaid Warrants, and general working capital
and other general corporate purposes, as disclosed in the Memorandum. If the
above mentioned secured loan and/or repurchase of Prepaid Warrants does not
occur, additional proceeds will be used as general working capital.
6. Unregistered Securities. The Units, Preferred Stock, Warrants,
Conversion Shares and Warrant Shares have not been registered under the 1933
Act, in reliance upon the applicability of Section 3(b), 4(2), 4(6) and/or
Regulation D of the 1933 Act to the transactions contemplated hereby. The
Investor acknowledges that the Company is relying in part on such Investor's
representations in Paragraph 4 of this Agreement and in the confidential
investor questionnaire to establish such exemption. In furtherance of such
reliance, the certificates representing the Preferred Stock and Warrants will
bear an investment legend and Conversion Shares and Warrant Shares issued prior
to their respective registration under Paragraph 7 below will also bear an
investment legend.
7. Registration Rights and "Piggy-Back" Registration Rights.
(a) As soon as possible after the last Closing, but in no
event later than three (3) months after the Initial Closing Date (regardless of
whether the maximum number of Units shall have been sold), the Company shall, at
its sole cost and expense, file a registration statement on Form S-3 with the
SEC ("Form S-3") covering all of the Conversion Shares, Warrant Shares and the
shares of Common Stock issuable upon the conversion of the Preferred Stock and
exercise of the Warrants underlying the Placement Agent Warrants and such
additional shares of Common Stock that may be issued pursuant to the conversion
of Preferred Stock that may be issued by the Company in payment of dividends on
Preferred Stock, the anti-dilution rights contained in the Preferred Stock,
Warrants and securities comprising the Placement Agent Warrants (collectively,
the "Registrable Securities"), time being of the essence. The Company will use
its best efforts to have the Form S-3 declared effective as soon as possible
thereafter, and shall keep the Form S-3 current and effective for at least five
(5) years from the effective date thereof or until such earlier date as all of
the Registrable Securities registered pursuant to such registration statement
shall have been sold or otherwise transferred. If after using its best efforts,
the Company is not able to have declared effective a Form S-3, or, such form
having been declared effective, the Form S-3 is not maintained current and
effective as provided above, holders of 25% or more of the outstanding
Registrable Securities, by written notice to the Company, can demand that the
Company file a registration statement on Form S-1 or such other form as is then
available for use by the Company with the SEC (collectively, "Form S-1")
covering the then unsold Registrable Securities. Upon receipt of such demand,
the Company shall, as expeditiously as possible, at its sole cost and expense,
prepare and file the Form S-1 and use its best efforts to have the Form S-1
declared effective as soon as possible thereafter, and shall keep the Form S-1
current and effective until five (5) years from the effective date thereof or,
if earlier, a period of time such that the Form S-3 and the Form S-1
registration statements were current and effective for at least five (5) years
in total. Notwithstanding anything to the
<PAGE>
contrary contained herein, if the Form S-3 shall not be filed within three (3)
months after the Initial Closing Date (regardless of whether the maximum number
of Units shall have been sold), then the Conversion Price on the Preferred Stock
will be reduced (and the number of shares of Common Stock issuable upon
conversion of the Preferred Stock will be concomitantly increased) by two (2%)
percent per month, or part thereof, up to six (6%) percent in the aggregate.
(b) In the event the Company effects any registration under
the 1933 Act of any Registrable Securities pursuant to Paragraphs 7(a) above or
7(g) below, the Company shall indemnify, to the extent permitted by law, and
hold harmless any registered holder whose Registrable Securities are included in
such registration statement (each, a "Seller"), any underwriter, any officer,
director, employee or agent of any Seller or underwriter, and each other person,
if any, who controls any Seller or underwriter within the meaning of Section 15
of the 1933 Act, against any losses, claims, damages or liabilities, judgment,
fines, penalties, costs and expenses, joint or several, or actions in respect
thereof (collectively, the "Claims"), to which each such indemnified party
becomes subject, under the 1933 Act or otherwise, insofar as such Claims arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement or prospectus or any
amendment or supplement thereto or any document filed under a state securities
or blue sky law (collectively, the "Registration Documents") or insofar as such
Claims arise out of or are based upon the omission or alleged omission to state
in any Registration Document a material fact required to be stated therein or
necessary to make the statements made therein not misleading, and will reimburse
any such indemnified party for any legal or other expenses reasonably incurred
by such indemnified party in investigating or defending any such Claim; provided
that the Company shall not be liable in any such case to the extent such Claim
is based upon an untrue statement or alleged untrue statement of a material fact
or omission or alleged omission of a material fact made in any Registration
Document in reliance upon and in conformity with written information furnished
to the Company by or on behalf of any indemnified party specifically for use in
the preparation of such Registration Document.
(c) In connection with any registration statement in which any
Seller is participating, each Seller, severally and not jointly, shall
indemnify, to the extent permitted by law, and hold harmless the Company, each
of its directors, each of its officers who have signed the registration
statement, each other person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act, each other Seller and each underwriter,
any officer, director, employee or agent of any such other Seller or underwriter
and each other person, if any, who controls such other Seller or underwriter
within the meaning of Section 15 of the 1933 Act against any Claims to which
each such indemnified party may become subject under the 1933 Act or otherwise,
insofar as such Claims (or actions in respect thereof) are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
Registration Document, or insofar as any Claims are based upon the omission or
alleged omission to state in any Registration Document a material fact required
to be stated therein or necessary to make the statements made therein not
misleading, and will reimburse any such indemnified party for any legal or other
expenses reasonably incurred by such indemnified party in investigating or
<PAGE>
defending any such claim; provided, however, that such indemnification or
reimbursement shall be payable only if, and to the extent that, any such Claim
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any Registration Document in reliance
upon and in conformity with written information furnished to the Company by the
Seller specifically for use in the preparation thereof.
(d) Any person entitled to indemnification under Paragraphs
7(b) or 7(c) above shall notify promptly the indemnifying party in writing of
the commencement of any Claim if a claim for indemnification in respect thereof
is to be made against an indemnifying party under this Paragraph 7(d), but the
omission of such notice shall not relieve the indemnifying party from any
liability which it may have to any indemnified party otherwise than under
Paragraph 7(b) or 7(c) above, except to the extent that such failure shall
materially adversely affect any indemnifying party or its rights hereunder. In
case any action is brought against the indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it chooses, to assume the
defense thereof with counsel reasonably satisfactory to the indemnified party;
and, after notice from the indemnifying party to the indemnified party that it
so chooses, the indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that (i) if the indemnifying party fails to take reasonable steps necessary to
defend diligently the Claim within twenty (20) days after receiving notice from
the indemnified party that the indemnified party believes it has failed to do
so; (ii) if the indemnified party who is a defendant in any action or proceeding
which is also brought against the indemnifying party reasonably shall have
concluded that there are legal defenses available to the indemnified party which
are not available to the indemnifying party; or (iii) if representation of both
parties by the same counsel is otherwise inappropriate under applicable
standards of professional conduct, the indemnified party shall have the right to
assume or continue its own defense as set forth above (but with no more than one
firm of counsel for all indemnified parties in each jurisdiction, except to the
extent any indemnified party or parties reasonably shall have concluded that
there are legal defenses available to such party or parties which are not
available to the other indemnified parties or to the extent representation of
all indemnified parties by the same counsel is otherwise inappropriate under
applicable standards of professional conduct) and the indemnifying party shall
be liable for any reasonable expenses therefor; provided, that no indemnifying
party shall be subject to any liability for any settlement of a Claim made
without its consent (which may not be unreasonably withheld, delayed or
conditioned). If the indemnifying party assumes the defense of any Claim
hereunder, such indemnifying party shall not enter into any settlement without
the consent of the indemnified party if such settlement attributes liability to
the indemnified party (which consent may not be unreasonably withheld, delayed
or conditioned).
(e) If for any reason the indemnity provided in Paragraphs
7(b) or 7(c) above is unavailable, or is insufficient to hold harmless, an
indemnified party, then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of any
<PAGE>
Claim in such proportion as is appropriate to reflect the relative benefits
received by the indemnifying party on the one hand and the indemnified party on
the other from the transactions contemplated by this Agreement. If, however, the
allocation provided in the immediately preceding sentence is not permitted by
applicable law, or if the indemnified party failed to give the notice required
by Paragraph 7(d) above, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the indemnifying party and the indemnified party as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable in respect of any Claim shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such Claim. Notwithstanding the foregoing, no
underwriter or controlling person thereof, if any, shall be required to
contribute, in respect of such underwriter's participation as an underwriter in
the offering, any amount in excess of the amount by which the total price at
which the Registrable Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The obligation of any underwriters to
contribute pursuant to this paragraph (e) shall be several in proportion to
their respective underwriting commitments and not joint.
(f) The provisions of Paragraphs 7(b) through 7(e) of this
Agreement shall be in addition to any other rights to indemnification or
contribution which any indemnified party may have pursuant to law or contract
and shall remain operative and in full force and effect regardless of any
investigation made or omitted by or on behalf of any indemnified party and shall
survive the transfer of the Registrable Securities by any such party.
(g) Investor shall have certain "piggy-back" registration
rights with respect to the Registrable Securities as hereinafter provided:
A. If, at any time, after the Initial Closing
Date, the Company shall file with the SEC a registration statement under the
1933 Act (other than on Form S-4 or Form S- 8 or any successor form thereto)
registering any shares of Common Stock owned by any person or entity, the
Company shall give written notice to Investor thereof prior to such filing.
B. Within thirty (30) days after such notice
from the Company, Investor shall give written notice to the Company whether or
not the Investor desires to have all of the Investor's Registrable Securities
included in the registration statement. If Investor fails to
<PAGE>
give such notice within such period, Investor shall not have the right to have
Investor's Registrable Securities registered pursuant to such registration
statement. If Investor gives such notice, then the Company shall include the
Registrable Securities in the registration statement, at the Company's sole cost
and expense, subject to the remaining terms of this Paragraph 7(g).
C. If the registration statement relates to an
underwritten offering, and the underwriter shall determine in writing that the
total number of shares of Common Stock to be included in the offering, including
the Registrable Securities, shall exceed the amount which the underwriter deems
to be appropriate for the offering, the number of shares of the Registrable
Securities shall be reduced in the same proportion as the remainder of the
shares in the offering and each Investor's Registrable Securities included in
such registration statement will be reduced proportionately. For this purpose,
if other securities in the registration statement are derivative securities,
their underlying shares shall be included in the computation.
D. Investor shall have two (2) opportunities to
have the Registrable Securities registered under this Paragraph 7(g).
E. Investor shall furnish in writing to the
Company such information as the Company shall reasonably require in connection
with a registration statement.
(h) If and whenever the Company is required by the provisions
of this Paragraph 7 to use its best efforts to register any Registrable
Securities under the 1933 Act, the Company shall, as expeditiously as possible
under the circumstances:
A. Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective as soon as possible and
remain effective.
B. Prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement current and to comply with the provisions of the 1933 Act, and any
regulations promulgated thereunder, with respect to the sale or disposition of
all Registrable Securities covered by the registration statement required to
effect the distribution of the securities, but in no event shall the Company be
required to do so for a period of more than three (3) years following the
effective date of the registration statement.
C. Furnish to the Sellers participating in the
offering, copies (in reasonable quantities) of summary, preliminary, final,
amended or supplemented prospectuses, in conformity with the requirements of the
1933 Act and any regulations promulgated thereunder, and other documents as
reasonably may be required in order to facilitate the disposition of the
securities, but only while the Company is required under the provisions hereof
to keep the registration statement current.
<PAGE>
D. Use its best efforts to register or qualify the Registrable Securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions of the United States as the Sellers participating in
the offering shall reasonably request, and do any and all other acts and things
which may be reasonably necessary to enable each participating Seller to
consummate the disposition of the Registrable Securities in such jurisdictions.
E. Notify each Seller selling Registrable
Securities, at any time when a prospectus relating to any such Registrable
Securities covered by such registration statement is required to be delivered
under the 1933 Act, of the Company's becoming aware that the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing, and promptly prepare and furnish to each
such Seller selling Registrable Securities a reasonable number of copies of a
prospectus supplemented or amended so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing.
F. As soon as practicable after the effective
date of the registration statement, and in any event within eighteen (18) months
thereafter, make generally available to Sellers participating in the offering an
earnings statement (which need not be audited) covering a period of at least
twelve (12) consecutive months beginning after the effective date of the
registration statement which earnings statement shall satisfy the provisions of
Section 11(a) of the 1933 Act, including, at the Company's option, Rule 158
thereunder. To the extent that the Company files such information with the SEC
in satisfaction of the foregoing, the Company need not deliver the above
referenced earnings statement to Seller.
G. Upon request, deliver promptly to counsel of
each Seller participating in the offering copies of all correspondence between
the SEC and the Company, its counsel or auditors and all memoranda relating to
discussions with the SEC or its staff with respect to the registration statement
and permit each such Seller to do such investigation at such Seller's sole cost
and expense, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary. Each Seller agrees that it will use its best efforts not to interfere
unreasonably with the Company's business when conducting any such investigation.
H. Provide a transfer agent and registrar
located in the United States for all such Registrable Securities covered by such
registration statement not later than the effective date of such registration
statement.
I. List the Registrable Securities covered by
such registration statement on the ASE or such other exchanges and/or on the
NASDAQ as the Common Stock is then currently listed upon.
<PAGE>
J. Pay all Registration Expenses incurred in
connection with a registration of Registrable Securities, whether or not such
registration statement shall become effective; provided that each Seller shall
pay all underwriting discounts, commissions and transfer taxes, if any, relating
to the sale or disposition of such Seller's Registrable Securities pursuant to a
registration statement. As used herein, "Registration Expenses" means any and
all reasonable and customary expenses incident to performance of or compliance
with the registration rights set forth herein, including, without limitation,
(i) all SEC and stock exchange or National Association of Securities Dealers,
Inc. registration and filing fees, (ii) all fees and expenses of complying with
state securities or blue sky laws (including reasonable fees and disbursements
of counsel for the underwriters in connection with blue sky qualifications of
the Registrable Securities but no other expenses of the underwriters or their
counsel), (iii) all printing, messenger and delivery expenses, and (iv) the
reasonable fees and disbursements of counsel for the Company and the Company's
independent public accountants.
(i) The Company acknowledges that there is no adequate remedy
at law for failure by it to comply with the provisions of this Paragraph 7 and
that such failure would not be adequately compensable in damages, and therefore
agrees that its agreements contained in this Paragraph 7 may be specifically
enforced. In the event that the Company shall fail to file such registration
statement when required pursuant to Paragraph 7(a) above or to keep any
registration statement effective as provided in this Paragraph or otherwise
fails to comply with its obligations and agreements in this Paragraph 7, then,
in addition to any other rights or remedies Investors may have at law or in
equity, including without limitation, the right of rescission, the Company shall
indemnify and hold harmless the Investors from and against any and all manner or
loss which they may incur as a result of such failure. In addition, the Company
shall also reimburse the Investors for any and all reasonable legal fees and
expenses incurred by them in enforcing their rights pursuant to this Paragraph
7, regardless of whether any litigation was commenced; provided, however, that
the Company shall not be liable for the fees and expenses of more than one law
firm, which firm shall be designated by JMR.
8. Conditions. The obligations of the Investors to purchase the
Units are subject to the satisfaction or fulfillment prior thereto on the date
of each Closing, unless otherwise provided, of each of the following conditions:
(a) The Company shall have delivered to JMR, on behalf of the
Investors, at the Initial Closing, (i) a currently-dated long-form good standing
certificate or telegram from the Secretary of State of Delaware and each other
jurisdiction in which the Company is qualified to do business as a foreign
corporation; (ii) the certificate of incorporation of the Company, as currently
in effect, certified by the Secretary of State of the State of Delaware; (iii)
by-laws of the Company certified by the secretary of the Company; and (iv)
certified resolutions of the Company's Board of Directors approving this
Agreement, the issuance of the Units, Preferred Stock, Warrants and Placement
Agent Warrants, the registration of the Conversion Shares,
<PAGE>
Warrant Shares and other Registrable Securities and the other transactions
contemplated by this Agreement.
(b) There shall have occurred no material adverse event
affecting the Company its business, assets, prospects or the Company's
securities since the date of the Memorandum.
(c) No litigation or administrative proceeding shall have been
threatened or commenced against the Company which (i) seeks to enjoin or
otherwise prohibit or restrict the consummation of the transactions contemplated
by this Agreement or (ii) if adversely determined, would have an adverse effect
upon the Company's business, assets or prospects or the Company's securities,
except as set forth in the Disclosure Schedule.
(d) The Company shall have delivered to JMR, on behalf of the
Investors, a certificate of its principal executive and operating officers as to
the matters set forth in Paragraphs 8(a), (b) and (c) of this Agreement and to
the further effect that (i) the Company is not in default, in any respect, under
any note, loan agreement, security agreement, mortgage, deed of trust,
indenture, contract, alliance agreement, lease, license, joint venture
agreement, agreement or other instrument to which it is a party, except as
disclosed in the Financial Statements or the Memorandum; (ii) the Memorandum is
true and accurate in all respects, and does not contain any misstatement of a
material fact or omit to state a material fact necessary to make the statements
set forth therein not misleading; (iii) the Company's representations and
warranties contained in this Agreement are true and correct in all respects on
such date with the same force and effect as if made on such date; (iv) there has
been no amendment or changes to the Company's certificate of incorporation or
by-laws or authorizing resolutions from those delivered pursuant to Paragraph
8(a) of this Agreement; (v) no event has occurred which, with or without the
lapse of time or giving of notice, or both, would constitute a breach or default
thereof by the Company or would cause acceleration of any obligation of the
Company, or could adversely affect the business, operations, financial condition
or prospects of the Company; (vi) the Company has not agreed to any terms and
conditions with respect to any acquisition, disposition or other material
business transaction with any party; and (vii) no proceedings for the
liquidation or dissolution of the Company is pending or contemplated.
(e) JMR, on behalf of the Investors, shall have received the
opinion of The Stoppelman Law Firm, counsel for the Company, dated as of the
date of Closing, in form and substance satisfactory to JMR and its counsel.
(f) The Company shall have prepared and filed or delivered to
counsel for filing with the SEC and any states in which such filing is required,
a Form D relating to the sale of the Units and such other documents and
certificates as are required.
(g) Units having an aggregate value of not less than two
million five hundred thousand ($2,500,000) dollars shall have been subscribed
for.
<PAGE>
(h) In addition to the right of JMR to terminate this
Agreement and not consummate the transaction contemplated by this Agreement as a
result of the failure of the Company to comply with any of its obligations set
forth in this Agreement, this Agreement may be terminated by JMR by written
notice to the Company at any time prior to the Initial Closing Date if, in JMR'
sole judgment, (i) the Company shall have sustained a loss that is material to
the Company, whether or not insured, by reason of fire, earthquake, flood,
accident or other calamity, or from any labor dispute or court or government
action, order or decree; (ii) trading in securities on any exchange or system
shall have been suspended or limited either generally or specifically with
respect to the Company's Common Stock; (iii) material governmental restrictions
have been imposed on trading in securities generally or specifically with
respect to the Company's Common Stock (not in force and effect on the date of
this Agreement); (iv) a banking moratorium shall have been declared by Federal
or New York State authorities; (v) an outbreak of major international
hostilities or other national or international calamity shall have occurred;
(vi) the Congress of the United States or any state legislative body shall have
passed or taken any action or measure, or such bodies or any governmental body
or any authoritative accounting institute, or board, or any governmental
executive shall have adopted any orders, rules or regulations, which JMR
believes is likely to have an adverse effect on the business, financial
condition or financial statements of the Company or the market for the Units;
(vii) the Common Stock shall have been delisted from ASE or the Company shall
have received notice from ASE advising the Company of its intention to have the
Common Stock delisted from ASE, whether conditional or otherwise, or the Company
shall fail to meet the requirements for continued listing on ASE; or (viii)
there shall have been, in JMR's judgment, a material decline in the Dow Jones
Industrial Index or the market price of the Common Stock at any time subsequent
to the date of the Memorandum.
9. Covenants of the Company. The Company agrees at all times as long as
the Preferred Stock, Warrants and securities underlying the Placement Agent
Warrants may be converted or exercised, to keep reserved from the authorized and
unissued Common Stock, such number of shares of Common Stock as may be, from
time to time, issuable upon conversion of the Preferred Stock or the exercise of
the Warrants and the conversion of the Preferred Stock and exercise of the
Warrants underlying the Placement Agent Warrants.
10. Fees.
(a) Upon the receipt by the Company of the payments from the
Investors provided for in Paragraph l of this Agreement, the Company shall pay
to JMR a fee equal to seven (7%) percent of the aggregate Unit Purchase Price
paid on at such Closing, a portion of which may be paid by JMR to other
registered broker-dealers. Such amount may be deducted by JMR from the payment
being made to the Company pursuant to Paragraph 2 of this Agreement. In
addition, as set forth in the Placement Agreement, the Company shall issue at
the last Closing, five (5) year warrants to purchase an amount of Units equal to
ten (10%) percent of all of the Units sold in the private placement pursuant to
the Memorandum at an exercise price equal to
<PAGE>
one hundred ten (110%) percent of the Unit Purchase Price, subject to adjustment
(the "Placement Agent Warrants"). Regardless of whether the private placement
pursuant to the Memorandum closes, the Company shall pay such other fees to JMR
and reimburse JMR for such expenses, including the reasonable fees and expenses
of Spitzer & Feldman P.C., counsel to JMR, as are set forth in the Placement
Agreement. The Company has also agreed with Prudential Securities Incorporated
("PSI"), in connection with obtaining a letter from PSI whereby PSI agreed that
it would not be entitled to any cash compensation in connection with the sale by
the Company of the Units, to issue to PSI warrants to purchase 20,000 shares of
Common Stock at the Original Stock Price per share.
(b) The Company shall pay any fees required in connection with
the qualification of the sale of the Units under the state securities or blue
sky laws of any state which JMR reasonably deems necessary and any other
out-of-pocket expenses incurred by the Company in connection with the
transaction contemplated by this Agreement.
11. Notices. All notices provided for in this Agreement shall be in
writing signed by the party giving such notice, and delivered personally or sent
by overnight courier or messenger against receipt thereof or sent by registered
or certified mail (air mail if overseas), return receipt requested, or by
facsimile transmission, if confirmed by mail as provided in this Paragraph 11.
Notices shall be deemed to have been received on the date of personal delivery
or facsimile or, if sent by certified or registered mail, return receipt
requested, shall be deemed to be delivered on the third business day after the
date of mailing. Notices shall be sent to the following addresses:
To the Company:
GLOBALINK, INC.
9302 Lee Highway
Fairfax, VA 22031
Telecopier:
Attention: Mr. John F. McCarthy, III
Vice President and General Counsel
With a copy to:
THE STOPPELMAN LAW FIRM
1749 Old Meadow Road, Suite 610
McLean, VA 22102
Telecopier: (703) 827-7455
Attention: John S. Stoppelman, Esq.
To the Investors:
<PAGE>
at the addresses set forth in Exhibit A to this Agreement
With copies to:
J. MICHAEL REISERT, INC.
2455 East Sunrise Boulevard
Suite 700
Fort Lauderdale, FL 33304
Telecopier: (954) 561-3223
Attention: Mr. Irving H. Bowen
and
SPITZER & FELDMAN P.C.
405 Park Avenue
New York, New York 10022-4405
Telecopier: (212) 838-7472
Attention: Robert G. Leonard, Esq.
or to such other address as any party shall designate in the manner provided in
this Paragraph 11.
12. Miscellaneous.
(a) This Agreement constitutes the entire agreement between
the parties relating to the subject matter hereof, superseding any and all prior
or contemporaneous oral and prior written agreements and understandings. This
Agreement may not be modified or amended nor may any right be waived except by a
writing which expressly refers to this Agreement, states that it is a
modification, amendment or waiver and is signed by all parties with respect to a
modification or amendment or the party granting the waiver with respect to a
waiver. No course of conduct or dealing and no trade custom or usage shall
modify any provisions of this Agreement.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such State. Each party hereby consents to
the exclusive jurisdiction of the Federal and state courts situated in New York
County, New York, in connection with any action arising out of or based upon
this Agreement and the transactions contemplated by this Agreement.
(c) This Agreement shall be binding upon and inure to the
benefit of the parties hereto, and their respective personal representatives,
successors and permitted assigns.
(d) In the event that any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall
<PAGE>
continue in full force and effect without said provision.
(e) Each party shall, without payment of any additional
consideration by any other party, at any time on or after the date of any
Closing take such further action and execute such other and further documents
and instruments as the other party may request in order to provide the other
party with the benefits of this Agreement.
(f) The captions and headings contained herein are solely for
convenience and reference and do not constitute a part of this Agreement.
(g) All references to any gender shall be deemed to include
the masculine, feminine or neuter gender, the singular shall include the plural
and the plural shall include the singular.
(h) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same document.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and
year first aforesaid.
GLOBALINK, INC. J. MICHAEL REISERT, INC.
By:________________________________ By:_________________________________
John F. McCarthy, III, Irving H. Bowen,
Vice President Managing Director
TO BE COMPLETED BY INVESTOR
-------------------------------------
Print Name
Signature for Individual Investor Signature of Investor Other than Individual
_________________________________ By:_________________________________
Signature Name:
Title:
-------------------------------------
Address
-------------------------------------
City State Zip Code
-------------------------------------
Number of Units
-------------------------------------
Aggregate Amount of Subscription
-------------------------------------
Social Security or Employer Identification
Number
<PAGE>
EXHIBIT A
Names, addresses and
Social Security or
Employer Identification Number of
Numbers of Investors Units
<PAGE>
EXHIBIT B
Memorandum and Information Concerning the Company*
1. Form of 8% Preferred Stock.
2. Form of Warrant.
3. Form 10-K Annual Report for the year ended December 31, 1995.
4. Form 10-Q Quarterly Report for the quarter ended September 30, 1996.
5. The Company's annual report to stockholders and proxy statement
relating to the Company's 1996 annual meeting of stockholders.
6. The Company's proxy statement relating to the Company's December 2,
1996 special meeting of stockholders.
7. No Current Reports on Form 8-K or other reports filed with the SEC
subsequent to September 30, 1996.
- ---------------------------
* The exhibits to the documents filed with the SEC are not included in
the package of documents for Investors, but are available from JMR or
the Company on request.
<PAGE>
EXHIBIT C
Disclosure Schedule
(see attached)
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of this 1st
day of June, 1996 by and between Globalink, Inc. with address of 9302 Lee
Highway, Fairfax, Virginia 22031 ("Globalink" or the "Company") and Harry E.
Hagerty with home address at 1416 34th Street, NW, Washington, DC 20008
("Executive").
WHEREAS, Globalink desires to have the benefits of Executive's
knowledge and expertise as a full-time employee without the distraction of
employment related uncertainties and considers such employment in the best
interests of the Company and its shareholders, and Executive desires to be
employed full time by the Company; and
WHEREAS, Globalink and Executive desire to enter into an Agreement
reflecting terms under which Executive will be employed by the Company for a
three (3) year period which commenced on June 1, 1996.
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, subject only to the approval of the Compensation Committee of
the Board of Directors, the parties agree as follows:
1. Term. This Agreement will remain in effect for a period of three (3)
years and will be renewed automatically for succeeding periods of one year
unless sooner terminated as provided in sections 6 and 7 below, unless either
party provides not less than thirty (30) days notice prior to the end of the
term of its or his desire to terminate this Agreement at the end of the term.
2. Nature of Employment. Executive shall be employed as the Chairman of
the Board of Directors and Chief Executive Officer of Globalink with full power
and authority as determined by the Board of Directors of Globalink. Executive
agrees to diligently and faithfully perform such reasonable duties and serve in
such capacities as the Board of Directors of the Company shall determine from
time to time.
3. Compensation for Services. As consideration to Executive under this
Agreement, Globalink shall compensate Executive as follows:
(a) Base salary. Executive shall receive a base salary of Two
Hundred Thousand ($200,000) per year, or such other greater sum by way of base
salary as the Globalink Board of Directors may determine from time to time.
(b) Incentive Compensation and Bonus.
(i) Stock options to purchase 120,000 shares of the
Company's common stock at $8.625, the market price on June 1,
1996, per share to be granted at commencement of employment.
The options shall vest at thirty-three and one-third percent
(33-1/3% or 40,000 shares) per year on the first, second and
third anniversaries of the date of commencement of the
Executive's employment. The
<PAGE>
vested options shall be exercisable for a period of five years
from the date of vesting.
The options are cancelable upon the Executive's termination
from Globalink for cause as defined in 6 (a) below.
Furthermore, the options shall inure to the benefit of the
Executive's heirs and designees.
(ii) Upon the accomplishment of certain objectives by
the Executive as set forth in Exhibit A, attached hereto, the
Executive shall be entitled to an initial bonus of up to
$100,000.
(iii) Other incentive compensation shall be at the
discretion of the Board of Directors.
(c) Globalink shall lease an automobile for the exclusive use
of the Executive. The monthly lease payments shall not exceed
$1,000 per month for the length of this Employment Contract.
(d) Benefits. Executive shall be entitled to all other
benefits normally accorded to full time employees of Globalink
so long as he remains an employee of Globalink.
(e) Reimbursement. Executive shall be reimbursed within
fifteen (15) days for all properly documented Globalink
business expenses incurred by Executive. To the extent
permitted by applicable law, Globalink, shall treat these
expenses as senior in the right of payment to any other
obligation of Globalink.
4. Responsibility of Executive. The responsibilities of Executive
under this Agreement are as follows:
(a) Executive agrees to serve Globalink for the term of
employment specified in Section 1 above. Executive agrees to (i) devote his full
business time to the business and affairs of Globalink, (ii) use his best
efforts to promote the interests of Globalink, and (iii) perform faithfully and
efficiently the responsibilities assigned to him by the Board of Directors.
(b) During the term of this Agreement, Executive shall not
perform services for any person or entity that competes directly or indirectly
with the Company. Executive agrees to disclose to the Board of Directors any
non-Company activities for which Executive receives compensation for services
rendered.
(c) Executive agrees to abide by general company policies as
the same are duly adopted by the Board of Directors from time to time, so long
as such policies do not conflict with the terms and conditions of this
Agreement.
<PAGE>
5. Confidentiality and Non-Disclosure Agreement. Executive
acknowledges that the software technology, the business information and
techniques used, developed and acquired by the Company ("Confidential
Information") are among its most valuable assets and such Confidential
Information was compiled with the expenditure of incalculable time, effort and
expense. Executive further acknowledges that by reason of his employment by the
Company, he will have access to Confidential Information of the Company and that
the value of such information may be destroyed by disclosure to anyone outside
the employ of the Company. Consequently, the Executive hereby agrees that he
will not at any time, without the express written consent of the Company: (i)
disclose, directly or indirectly, any Confidential Information (as defined
below) to anyone outside the employ of the Company, or (ii) use, directly or
indirectly, any Confidential Information for the benefit of anyone other than
the Company.
"Confidential Information" as used herein means all information of a
business or technical nature disclosed to, learned or developed by Executive in
the course of his employment by the Company, which information relates to the
Company or the business of any other person, firm, corporation or other entity
which consults with the Company in connection with the Business which is not
generally known in the software industry. Confidential Information shall
include, but is not limited to, information and knowledge pertaining to the
software technology, linguistic algorithms, developments, improvements, methods
of operation, sales and profit figures, customer and client lists, credit and
other financial information about the Company or its customers, and
relationships between the Company and its customers, clients and others who have
business dealings with the Company.
6. Termination by the Company. The Board of Directors may
terminate the employment of Executive at any time with or without cause, and in
such event the following shall apply:
(a) In the event of termination by Globalink for cause, all
salary and other benefits paid or provided to Executive hereunder shall cease as
of the date of termination, and the Company shall have no further obligations to
Executive. For purposes of this Section 6 (a), termination "for cause" shall be
defined as:
(i) any willful and material breach or violation of
any of Executive's covenants, duties, or obligations under
this Agreement (including Executive's resignation without
cause) or any willful or material neglect of or failure to
refusal to perform any of such covenants, duties, or
obligations, which is not cured within five days after the
receipt by Executive of notice of such breach or violation;
(ii) any willful or material misconduct which is
reasonably deemed to be injurious to the Company, including,
without limitation, misconduct involving fraud or dishonesty
in the performance of such covenants, duties or obligations;
(iii) the development by Executive of any drug,
alcohol, or other substance abuse problem, or the conviction
of a crime involving moral turpitude; or
<PAGE>
(iv) any willful violation or willful refusal to obey
the reasonable lawful directives and instructions of the Board
of Director, which is not cured within five days after the
receipt by Executive of notice of such breach or violation.
For the purposes of this definition, no act or omission of
Executive shall be considered "willful" unless Executive was not acting in good
faith and did not have a reasonable belief that such action or omission was in
the best interest of the Company.
(b) In the event of termination by Globalink without cause,
except as provided in Section 6 (c) hereof, the Company agrees to provide
Executive with the following:
(i) Executive shall receive an amount equal to
twenty-four (24) months' base salary plus the value of his
benefits accrued at the time of termination that the Executive
would have received under this Agreement but for such
termination. Such amount shall be payable to Executive
bi-monthly installments over a period of twenty-four (24)
months following termination. The Company will also pay the
incentive compensation described in Section 3 (b).
(ii) The definition of termination without cause
shall include, but not be limited to, any termination relating
to a continuous disability or incapacity of Executive which
prevents him from performing his duties for a period of not
less than three (3) months as determined by any independent,
licensed medical doctor.
(c) Globalink shall be entitled to terminate this Agreement
upon a finding of the Board of Directors that Executive has willfully failed to
observe or perform his obligations or duties as specifically set forth in
Section 4 hereof, provided that the Board of Directors has first notified
Executive on two separate occasions of such failure and has given Executive at
least thirty (30) days after each such occasion to remedy such willful breach of
duty. In the event of a termination under this Section 6 (c), Globalink shall
provide Executive with one-half of all amounts payable under Section 6 (b).
(d) In the event of a hostile takeover of the Company,
Executive shall receive an amount equal to three multiplied by one year's base
salary plus the value of his other employment benefits. All non-vested stock
options shall immediately vest and shall be exercisable as set forth in
paragraph 3 (b) (i) above.
(e) In the event of a change in control, Executive shall
receive an amount equal to one year's base salary plus the value of his other
employment benefits and all non-vested stock options shall immediately vest and
shall be exercisable, as set forth in paragraph 3 (b) (i) above.
<PAGE>
A "change in control" with respect to Globalink shall be
deemed to have occurred if (i) substantially all the assets of the Company are
sold, other than any such transaction following which the stockholders of the
Company prior to the transaction retain at least a majority of the voting equity
securities of the surviving or successor corporation; (ii) the Company is merged
or consolidated with, or becomes a subsidiary of, another corporation, other
than any such transaction following which the stockholders of the Company prior
to the transaction retain at least a majority of the voting equity securities of
the surviving or successor corporation; (iii) any "person" or "group" of persons
(as such terms are used in Section 13(d) of the Securities Exchange Act of 1934,
as amended), other than the Company or a subsidiary of the Company, and other
than persons currently holding greater than 10% of the outstanding voting
securities becomes the "beneficial owner" (as defined in Rule 13d-3 under the
1934 Act), directly or indirectly, of securities of the Company representing 50%
or more of the combined voting power of the Company's then outstanding
securities, or (iv) during any period of two consecutive years during the term
of this Agreement, individuals who at the beginning of such period constitute
the Board of Directors of the Company cease for any reasons to constitute at
least a majority thereof, unless the election of each director who was not a
director at the beginning of such period has been approved in advance by
directors representing at least two-thirds of the sum of the directors (i) then
in office who were directors at the beginning of the period and (ii) directors
approved by two-thirds of the directors then in office.
7. Resignation by Executive. Executive may terminate this
Agreement and his employment with Globalink for cause, in which event Executive
and Globalink shall have such rights and obligations as would apply if this
Agreement had been terminated under Section 6 (b). For purposes of this Section
6, Executive's termination "for cause" shall be defined as termination for
Globalink's willful or permanent breach of its obligations under this Agreement.
If, however, Executive terminates this Agreement and his employment with the
Company without cause, resignation shall be deemed termination for cause under
Section 6 (a) and all such rights and obligations thereunder shall apply.
8. Governing Law. The Agreement shall be governed by and
construed in accordance with the laws of the State of Virginia.
9. Severability. If any court of competent jurisdiction should
find any provision of this Agreement invalid or unenforceable, for any reason,
the remaining portion or portions hereof shall nevertheless by valid,
enforceable and carried into effect, unless to do so would clearly violate the
present legal and valid intention of the parties hereto.
10. Entire Agreement. This Agreement constitutes the
entire understanding between the parties with respect to the subject matter
hereof, superseding all prior negotiations and agreements. This Agreement may
not be amended except in writing executed by the parties hereto.
11. Effect on Successors in Interest. This Agreement
shall inure to the benefit of and be binding upon heirs, administrators,
executors, successors and assigns of each of the parties hereto.
<PAGE>
12. Notices. Any notice required or permitted hereunder shall
be given in writing and shall be deemed effectively given upon personal
delivery, including by facsimile, or by recognized courier (such as Federal
Express), or three (3) business days after deposit in the United States Mail, by
registered or certified mail, addressed to a party at its address shown below or
at such other address or facsimile number as such party may designate in writing
to the other party pursuant to this Section.
13. Assignment. Globalink shall have the right to assign this
agreement and to delegate all of its rights, duties and obligations hereunder,
whether in whole or in part to any parent, affiliate, successor, or subsidiary
organization or company of Globalink or corporation with which Globalink may
merge or consolidate or which acquires by purchase or otherwise all or
substantially all of Globalink assets, subject to the provisions of Section 6
(d), but such assignment shall not release Globalink from its obligations under
this agreement.
14. Good Faith. The parties will deal with each holder in good
faith with respect to this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be signed by a duly authorized officer, and Executive has signed this Agreement
as of the date and year written above.
The Company:
Globalink, Inc.
9302 Lee Highway, 12th Floor
Fairfax, VA 22031
BY:_______________________________
Executive:
--------------------------------
--------------------------------
--------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
December 31, 1996, Financial Statements and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,606,088
<SECURITIES> 0
<RECEIVABLES> 12,044,950
<ALLOWANCES> 3,004,653
<INVENTORY> 818,294
<CURRENT-ASSETS> 11,700,318
<PP&E> 1,648,382
<DEPRECIATION> 768,629
<TOTAL-ASSETS> 13,398,059
<CURRENT-LIABILITIES> 4,099,950
<BONDS> 216,356
0
1,154,658
<COMMON> 53,413
<OTHER-SE> 18,702,013
<TOTAL-LIABILITY-AND-EQUITY> 13,398,059
<SALES> 12,429,362
<TOTAL-REVENUES> 13,976,034
<CGS> 1,765,951
<TOTAL-COSTS> 8,244,992
<OTHER-EXPENSES> 6,177,583
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,393
<INCOME-PRETAX> (2,244,885)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,244,885)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,244,885)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
</TABLE>
