SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
X Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
- ------ 1934 For the fiscal year ended: December 31, 1997
-------------------
______ 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: $14,729,000
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: $15,973,701 based on the closing price on February 27, 1998.
Indicate the number of shares outstanding of each of the issuer's classes of
common equity: Common Stock, par value $.01 per share --
9,160,236 as of February 27, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1997 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, 1997, 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, 1997
Part I Page No.
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Item 1. Business................................................... 3
Item 2 Properties................................................. 10
Item 3 Legal Proceedings.......................................... 10
Item 4 Submission of Matters to a Vote of Security Holders........ 10
Part II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters........................................ 11
Item 6 Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 13
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..................................... 22
Item 11 Security Ownership of Certain Beneficial Owners and
Management................................................. 23
Item 12 Certain Relationships and Related Transactions............. 23
Part IV
Item 13 Exhibits and Reports on Form 8-K .......................... 24
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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; provides real-time translations to Internet users
through its Comprende service; and provides professional translation services
through the Globalink Translation Services Division. 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 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 vital 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, humans
still perform most translations. As more information is digitally created and
transmitted, alternative translation methods will play a larger role. In the
case of the Internet and e-business, the need for high-volume, real-time
translations makes machine translation solutions particularly important.
Machine Translation (MT) Technology
Machine Translation (MT), the automated process of translating from one language
to another, is the earliest type of language processing. Unlike software that
merely looks up words in a dictionary, MT grammatically analyzes the original
language text (source language) and automatically generates corresponding text
in the target language desired. This output may then be displayed on-screen,
printed (with or without the corresponding source language), e-mailed or posted
on a Web site, among other options. Globalink's translation applications use
three sets of data: the input text, the translation program and permanent
knowledge sources (containing a dictionary of words and phrases of the source
language),
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and information about the concepts evoked by the dictionary and rules for
sentence development. These rules are in the form of linguistic rules for syntax
and grammar, and some are algorithms governing verb conjugation, syntax
adjustment, gender and number agreement and word re-ordering. Once the user has
selected the source text and initiated the machine translation process, the
program begins to match words of the input text with those stored in its
dictionary. Upon finding a match, the application brings up a complete record
that includes information on possible meanings of the word and its contextual
relationship to other words that occur in the same sentence. The time required
for the translation depends on the length of the text and the system running the
software.
Globalink's Products -- Core Technology
Globalink translation software products and services (Comprende(TM), Globalink
Language Assistant(TM), Globalink Power Translator(R), Globalink 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 creates
draft translations of scientific, technical, or commercial texts. The source
texts should use clearly written, grammatically correct, declarative sentences.
The Company's software is not intended for use in translating literary works or
poetry.
The most recent versions of these products are based on Globalink's proprietary
Barcelona technology. Globalink's Barcelona technology, with its modular
architecture of linguistics and programming components, enhances the development
of both the core translation technology and new language pairs. In addition,
Globalink currently has research efforts underway in the areas of context-free
parsing, transformational morphology, statistical analysis, and large-corpus
lexicography.
Globalink translation programs convert the original text into the selected
target language, utilizing the machine translation dictionaries as lexical
databases. Users can translate entire documents with a single command, or
translate selections or single sentences from the document. Documents can be
created using the built-in editor of the program, or can be imported from other
files in which the documents are resident, using import filters that retain
formatting. In addition, some of the Company's programs allow users to operate
the program from within a word processor (e.g. Microsoft Word for Windows).
Similarly, Web Translator and Comprende let users translate Web pages as they
surf the Internet. Other features allow for translation of e-mail messages and
chat rooms.
All of Globalink's translation programs seek to be user-friendly and to generate
quality draft translations. Users can add new terms to the dictionaries or
modify existing terms. They can also create special Subject Dictionaries or
purchase them from Globalink. In programs such as Power Translator, the texts
are displayed in a split screen, facilitating review of the source text and the
target text. Similarly, the built in editor, with special features for entering
accented and foreign character entry, permits users to edit translations
on-screen. During the editing process, users can access alternative translations
or synonyms for terms in the source language that may result in translations
that are more accurate.
Special translation algorithms will perform multiple translations of a word in a
sentence based on parts of speech. 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.
The software products also contain a special reference component that will
display parts of speech, translations and other grammatical information for
terms contained in the internal dictionaries of the products.
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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, word processors and online offerings) and
affordability.
Current Globalink products and others under development are available on a wide
variety of computer platforms including IBM PCs and compatibles under Windows
and Internet-based offerings that are functional across platforms. These
products and services are designed to deliver high productivity through rapid
draft translations. The Company's products and services cover a range in price
for large organizations as well as for general consumers. The Company plans to
continue to broaden its product offerings with more language pairs, enhancements
to its existing products, and new products and services for areas such as e-
business.
The Company sells its products and services primarily through worldwide
non-exclusive distributor/dealer channels and original equipment manufacturer
(OEM) agreements. Distributors normally agree 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, OEM agreements, on line (Internet
based) sales channels and extensive promotional programs. Distributor agreements
usually contain stock rotation provisions which allow distributors to
periodically exchange one product held in inventory for an equal value of
another product upon written request. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Products and Services
Globalink Comprende is a real-time Intranet-based translation service that gives
account holders the capability to translate documents, web pages, electronic
mail, newsgroups, and chat. Comprende account holders can surf the Internet in
any of the offered languages, turning the service on when necessary to translate
found material into the user's natural language. Once logged on, the Globalink
server systems remotely retrieve web pages, e-mail, documents, newsgroup
content, or chat dialogue on demand, run it through the Comprende translation
engine, and return the page contents to the user for viewing. Currently, the
service offers translation for the following language pairs: French{}English,
German{}English, Italian{}English, Portuguese{}English and Spanish{}English.
Globalink Intranet Translator(TM) is a product for corporate Intranets which
translates e-mail messages, web pages, word processor files and other documents.
Language pairs supported are French{}English, German{}English, Italian{}English,
Portuguese{}English and Spanish{}English. Chinese, Japanese and Russian are in
development. Globalink Intranet Translator is compatible with many Windows
applications, office suites, e-mail packages, Web browsers and groupware
packages. The server portion of Globalink Intranet Translator currently runs on
Windows NT, while desktop clients using Windows 3.X, Windows 95 or Windows NT
interact with the server. Because Globalink Intranet Translator is
Intranet-based, information services (IS) departments can maintain and control
deployment of computer-based translation capabilities while providing similar,
scaleable support for "clients" on workstations or notebook computers located
anywhere throughout the enterprise. This architecture also allows customers to
develop and control customized dictionaries.
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Globalink Power Translator(R) and Globalink Power Translator(R) Pro (versions
6.x). Globalink Power Translator is the Company's newest shrink-wrapped retail
product. The product creates draft translations of documents, including e-mail
and Web pages for four or five language pairs in one box French{}English,
German{}English, Italian{}English, Portuguese{}English and Spanish{}English--
Globalink Power Translator customers can create new documents, import files from
other applications, or install it to work within Microsoft Word or Corel
WordPerfect. Globalink Power Translator 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 uses the Globalink
Barcelona(TM) technology and runs on Windows 95 or NT systems.
Globalink Power Translator 5.1 (16 bit) is a similar product to Globalink Power
Translator 6.x (32 bit), but is for Windows 3.1 systems. The product includes
three language pairs: French{}English, German{}English and Spanish{}English.
Globalink Language Assistant is targeted at students, travelers, pen pals, and
home computer users. Globalink Language Assistant is useful to translate
letters, articles, recipes, travel brochures, bulletins and more. A 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.
Bilingual dictionaries can 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.
Globalink Web Translator(TM) is a browser add-on for translating Web sites. The
product applies the Company's core MT technology to tasks such as 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 the hotlinks, graphics, and
formatting of the original pages. Globalink Web Translator works with Netscape
Navigator and Microsoft Internet Explorer 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 available. This product runs on
Windows 3.1, Windows 95 or Windows NT.
New Products--During 1998, Globalink plans to release a variety of new products
and services. These new offerings are expected to include updated and improved
versions of existing products, new language pairs (such as French{}German and
Spanish{}Portuguese) within the Barcelona technology for use across multiple
product lines, and new product functions, with an emphasis on the
Internet/Intranet/Extranet environment, and the market segments of e-business
and online communication. In addition, Globalink plans to put significant
emphasis on continued development of its core Barcelona technology, expanding
its functionality and increasing both speed and translation quality. The Company
believes that any improvements in the Barcelona technology would benefit many of
Globalink's products and services.
Sales, Marketing and Distribution
The Company markets and sells its software products through a variety of
channels, primarily through worldwide non-exclusive distributor/dealer channels
and OEM agreements. Distributors 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 an internal retail and
distribution sales team
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and also 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. The Company is broadening its
distribution through expansion of its distribution/dealer channels, direct sales
efforts nationally, OEM agreements, on-line (Internet-based) sales channels and
promotional programs. Distributor agreements usually contain stock rotation
provisions which allow distributors to periodically exchange one product held in
inventory for an equal value of another product upon written request. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Promotional activities of varying forms are the single largest expense of
software product marketing. Product promotion is a continuing business activity
and increases proportionally with increases in revenue.
Promotion and Advertising
With the recent private equity placements, the Company has been able to invest
in advertising campaigns and promotions. This has included expanded public
relations programs, extended advertising in general business publications, as
well as 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 included
ads in trade magazines, regional promotions and promotions targeting specific
demographic sectors. Catalog advertising continues at a high rate in industry
and trade catalogs. Online advertising and promotions are expected to continue
to increase in importance in 1998.
Direct Mail - The Company invests in direct mail programs to increase sales and
exposure for its product lines. This includes programs by industry and by
demographic profiles of 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. Globalink is also the Official
Translation Company of the Internet World trade shows in Latin America and
Europe.
Public Relations - The Company plans to expand its public relations programs to
educate the general marketplace. These include the employment of freelance
public relations agents or specialized companies throughout the world.
Distributors
The Company currently has a number of worldwide distributors. These include the
larger international distributors such as Ingram Micro, Merisel and TechData,
and various second tier distributors. In less developed parts of the world the
Company uses regional or local distributors. In parts of Europe and South
America the Company uses sales agents to represent its interests.
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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.
The Company currently has a staff of development personnel located in the
Research and Development facility in San Diego, California. The Company is
focusing its development efforts in three areas: first, in the development of
algorithms to improve translation quality, second, in the development of new
language pairs to expand current markets or enter new markets, and third, in the
development of new product functions, with an emphasis on the
Internet/Intranet/Extranet environment.
Competition
Competition in the PC software industry in general is intense and includes
competition not only between similar product companies but among all PC software
companies for retail shelf space. The same battle for product awareness is now
being waged in online environments; thus, the Company's competitors include not
only other companies who produce and market machine translation products, but
also virtually all software companies who compete for shelf space in computer
software retailers and for buyers of translation services marketed on the
Internet.
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, including Logos, Systran and
Transparent Language Inc., who market machine translation software products that
compete in either the PC marketplace or the online marketplace.
Globalink holds a strong 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 will continue to do
so as long as the Company continues to generates new and advanced products.
In order to be successful in the future, the Company must respond promptly and
effectively to the challenges of technological and marketing capabilities
competitors may offer. The Company's performance will 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 capable
and experienced staff in order to maintain its competitive superiority.
The translation services market is also highly competitive. Although none of the
current participants in this market has a significant market share, the Company
has numerous competitors, certain of whom have substantially greater resources
than the Company. The Company competes primarily on the basis of quality of
translation, responsiveness and price.
The Company believes that competition in the Internet/Intranet machine
translation market, will be based upon accuracy, functionality, ease-of-use,
versatility and price. There can be no assurance that the Internet and Intranet
machine translation products being developed by the Company will be commercially
successful.
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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 typically 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.
In December 1997, the Company entered into a non-monetary transaction with a
publishing company which included license agreements between the parties. The
Company became a licensee under two agreements. The first was a one year license
for the use of six "Virtual Campuses" established by the publishing company. The
second was a one-year renewable license relating to "Campus Courseware" provided
by the publishing company. In exchange, the Company granted a license for its
Barcelona Technology Server in five languages. In conjunction with this license,
the Company will provide maintenance for a period of one year from the date of
the agreement.
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 the
following marks in the United States: "POWER TRANSLATOR" for computer software
for foreign language translation; "GLOBALINK THE TRANSLATION COMPANY", together
with the oval logo, for computer hardware and software for language translation
and "TRANSLATE DIRECT" for language translation services. The Company has
applications pending for federal registration of the following marks:
"COMPRENDE", "NO COMPRENDE? NO COMPRENDE, KNOW THE WORLD", "TRANSLATEPLUS", "WEB
TRANSLATOR", "GLOBALINK THE TRANSLATION COMPANY" with the flag logo,
"TRANSLATION @ YOUR FINGERTIPS", the "Flag Design", and the "Comprende Design".
The Company is in the process of registering the mark "GLOBALINK", together with
the Company's flag logo, in addition to the mark "WEB TRANSLATOR", in the United
States, Canada, the European Community (Austria, Belgium, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal,
Spain, Sweden and the United Kingdom) and other major international markets in
Asia and South America. The mark "GLOBALINK" with the Company's flag logo
concerns language translation software and services, whereas the mark "WEB
TRANSLATOR" has been filed in connection with software. 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, 1997, the Company had sixty-eight (68) full-time and five (5)
part-time employees; including nineteen (19) in product development, thirteen
(13) in marketing and sales, twenty-six (26) in finance, administration and
shipping, two (2) in customer support, and thirteen (13) in language services.
The Company's future success will depend on, in part, its ability to continue to
attract, retain and
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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.
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 December 7, 2000. This
space is primarily utilized as the Research and Development center.
Additionally, the Company leases approximately 300 square feet of office space
in Paris, France. This space supports the European Sales and Marketing team.
ITEM 3 LEGAL PROCEEDINGS
The Company is a party to various legal proceedings arising in the ordinary
course of its business. The Company 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.
The Company has also filed suit against one customer in France, for payment of
approximately $1,547,000 of overdue OEM receivables. The case is scheduled for
hearing in September 1998 and the Company believes it is probable that the
balance of this receivable eventually will be fully collected.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the stockholders of the Company during the quarter
ended December 31, 1997.
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PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
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.
Calendar year 1996 High Low
------- -------
First Quarter..................... 8.000 5.000
Second Quarter.................... 9.375 5.875
Third Quarter..................... 7.375 5.125
Fourth Quarter.................... 5.750 2.750
Calendar year 1997 High Low
------- -------
First Quarter..................... 4.312 2.875
Second Quarter.................... 4.000 3.125
Third Quarter..................... 3.562 1.125
Fourth Quarter.................... 3.500 1.688
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 27, 1998, there were approximately 180 holders of record of the
Company's Common Stock. The Company believes that at such date there were in
excess of 2,700 beneficial owners of the Company's Common Stock.
In March 1997, the Company sold 2,502 shares of Series A-3 preferred stock to a
private fund for a total of $2,502,000. Each share was convertible into shares
of Common Stock at the lower of $3.44 per share, or 85% of the arithmetic
average of the prior five days closing prices. As part of the agreement, the
Company also issued 85,568 options at an exercise price of $4.30 per share to
the private fund. The options have a term of four years. In addition, the
Company issued 25,050 options at an exercise price of $3.44 per share to Tanner
Unman Securities, Inc., and 20,000 options at an exercise price of $4.30 per
share to Prudential Securities, Inc., both of which facilitated the agreement
with the private fund. These options also have a term of four years. As of
December 31, 1997, the private fund had converted the Series A-3 preferred stock
into 2,382,268 shares of Common Stock.
In October 1997, the Company sold 727,274 units for a total of $1,000,000. Each
unit consisted of one share of common stock and one warrant which entitles the
holder to purchase one share of Common Stock at an exercise price of $1.75 per
share. As part of the agreement, the Company also issued purchase options for
72,727 additional units at an exercise price of $1.51 per unit to M.H. Meyerson
& Co., Inc., which served as the placement agent. These purchase options have a
term of five years.
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During 1997, holders of Series A-2 preferred stock converted 17,644 shares of
preferred stock into 176,440 shares of Common Stock.
During 1997, the Company granted options to certain directors and employees to
purchase an aggregate of 906,000 shares of Common Stock. Options for 70,000
shares were granted to directors, all of which have an exercise price of $3.44
per share, have a term of 5 years and are fully vested. Options for 836,000
shares were granted to employees, of which 759,500 have an exercise price of
$3.44 per share, have a term of 8 years and vest at the rate of 50 percent
immediately and 50 percent in one year, 65,000 have exercise prices ranging from
$3.44 to $5.00, have a term of 5 years and are fully vested and 11,500 have
exercise prices ranging from $3.13 to $3.44, have a term of 5 years and vest at
a rate of 33-1/3 percent per year over 3 years.
The issuances of all of these securities are claimed to be exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933 as
transactions by an issuer not involving a public offering.
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ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Form 10-KSB contains historical information and forward-looking statements
within the meaning of Section 21E of the Private Securities Litigation Reform
Act of 1995, including material regarding the future business operations and
projected financial results of the Company. These forward-looking statements are
subject to risks and uncertainties which could cause the Company's actual
results to differ materially from the forward-looking statements. Such risks and
uncertainties, include, but are not limited to: general business conditions and
growth in the language translation industry and the economy; competitive
factors, such as competing language translation software products and services,
acceptance of new language translation software products and services and
pricing issues; timing of language translation software product and service
introductions; unanticipated costs, complications or delays in product
development; fluctuations in customer demand; risk of inventory obsolescence due
to shifts in market demand; risk of nonpayment of material customer receivables;
continued success in current product enhancements and language translation
technology advances; risks associated with the sales of products in foreign
markets, including currency fluctuations; unanticipated costs or adverse effects
associated with distributors, vendors and suppliers; litigation involving
intellectual property, licensing and consumer issues; availability of sufficient
resources including short- and long-term financing to carry out the Company's
product development and marketing plans; and other unanticipated business risks
and uncertainties.
Year 2000 Issue
Management has undertaken an investigation of whether the Company will be
adversely impacted by the issue of whether its systems are Year 2000 compliant.
Based on this review, management has determined that a material adverse impact
on the Company's financial statements is unlikely. In addition, as none of the
Company's products utilize dates or date fields mathematically, they are not
subject to Year 2000 compliance issues.
Revenues
Year Ended Year Ended Increase
12/31/97 12/31/96 %
------------ ------------ ----------
Product Sales (net of returns).......... $13,387,000 $12,429,000 8%
Translation Services.................... 1,342,000 1,547,000 -13%
------------ ------------ ----------
Total Sales............................. $14,729,000 $13,976,000 5%
Globalink's total sales increased 5% to $14,729,000 for the year ended December
31, 1997, from $13,976,000 for the year ended December 31, 1996. During 1997 the
Company introduced a Portuguese version of Power Translator Pro 6.2 which has
been well accepted in Brazil. The Company continues to experience revenue
pressures resulting from 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, 1997, increased 8% or $958,000 to
$13,387,000 from $12,429,000 for the year ended December 31, 1996. U.S.
distributor channel sales increased 8% to $5,798,000 for the year ended December
31, 1997, from $5,350,000 in the prior year. The Company
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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 Power Translator 6.0 in June 1996, and Talk to
Me in December 1996, Power Translator Pro 6.2 in March 1997, and Language
Assistant 2.0 in September 1997, all of which have also been well accepted.
For the year ended December 31, 1997, international sales increased 7% to
$7,589,000 from $7,079,000 in the prior year. International sales represented
51% of total sales in 1997 and 1996. The primary exports have been to Europe,
Canada, and Latin and South America. In 1997, export sales to Brazil were
approximately $3,159,000, or 21% of total sales. 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. 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 South 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 the Company believes are better able to promote and sell
its products into the retail channel of their respective geographical locations.
Translation Services revenue decreased 13% to $1,342,000 for the year ended
December 31, 1997, from $1,547,000 for the year ended December 31, 1996. The
decrease in revenues for this group resulted from delays early in the year in
obtaining larger jobs and establishing more long term projects with the group's
customers.
Throughout 1997, the Company placed increasing emphasis on developing multiple
channels of distribution, including distributors, resellers, VARs and OEMs.
Globalink also continued to develop a telesales group which has proven to be
successful.
Sales returns and allowances decreased to $3,807,000 in fiscal 1997 compared to
$4,665,000 for the prior year. The Company has continued its 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.
Year Ended Year Ended
12/31/97 12/31/96
------------ ------------
Gross Product Sales................ $17,194,000 $17,094,000
Returns............................ (3,807,000) (4,665,000)
------------ ------------
Net Sales......................... $13,387,000 $12,429,000
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Costs and Expenses
Year Ended Year Ended Change
12/31/97 12/31/96 %
------------ ------------ ----------
Cost of product sold................... $ 2,347,000 $ 1,766,000 33%
Direct labor & fringes................. 705,000 799,000 -12%
Amortization of capitalized software... 650,000 570,000 14%
Product development.................... 898,000 1,452,000 -38%
Selling, marketing & other............. 7,978,000 8,245,000 -3%
General & administrative............... 3,744,000 3,357,000 12%
------------ ------------ ----------
Total costs and expenses............... $16,322,000 $16,189,000 1%
Cost of products sold increased 33% in fiscal 1997 to $2,347,000 compared to
$1,766,000 in the prior year. The increase in cost of products sold was
primarily due to a charge of $650,000 associated with a non-monetary transaction
the Company entered into with a customer in December 1997 (see Note O to the
Company's Financial Statements for further discussion of the transaction).
Otherwise, cost of products sold decreased by $69,000 due to decreased costs of
certain packaging components. This was partially offset by the increased costs
of certain products due to associated royalties for the licensing of products,
such as Talk to Me, and various features, such as speech recognition and word
processing filters in other products. Gross profit margin was 84% in fiscal 1997
compared to 87% in the prior year. The decrease in gross profit margin was
directly attributable to the increase in cost of products sold.
Direct labor & fringes, which principally include charges for independent and
in-house translators within the translation services group, decreased 12% in
fiscal 1997 to $705,000 compared to $799,000 in 1996 as a result of the
decreased revenues in 1997. These expenses increased from 52% to 53% as a
percentage of Translation Services revenues. This increase 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.
Amortization of capitalized software for the period ended December 31, 1997,
increased 14% to $650,000 from $570,000 for the prior year. The increase was due
to the release of new products in the latter part of 1996 and in March and
September of 1997 for which previously capitalized software development costs
began to be amortized. This was partially offset by the impact of certain
previously capitalized software development costs becoming fully amortized in
June of 1997.
Product development expenses, which consist of the current cost of
non-capitalizable development expenses, decreased 38% to $898,000 from
$1,452,000 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 3% or $267,000 to $7,978,000 for the period ended December 31, 1997,
from $8,245,000 for the prior year. This decrease was primarily attributable to
the Company's increased focus of fiscal resources on more effective promotion
and advertising programs, particularly in print media and retail store
promotions.
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, 1997, general and administrative expenses increased 12% or $387,000 from the
prior year. The increases occurred primarily in the areas of payroll, legal and
accounting fees,
15
<PAGE>
insurance costs, rent and depreciation as a result of additional expenses
incurred to support the anticipated growth of the Company.
Other Income/Expense
Interest expense was $22,000 for the fiscal year ended December 31, 1997, as
compared to $32,000 in the prior year. This was due to interest expense incurred
as a result of draws on the Company's revolving and equipment lines of credit.
Income Tax Expense
No provision for income taxes was required for the years ended December 31, 1997
and 1996, due to the Company's net operating loss ("NOL") carryforwards.
Approximately $10,478,000 of NOL carryforwards existed at December 31, 1997. The
use of the NOL carryforwards is limited to future taxable earnings of the
Company.
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 and OEM
agreements 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 product sales can cause significant variations
in operating results from period to period.
Liquidity and Financial Resources
The Company has a $3,000,000 demand loan and a $750,000 equipment line of credit
with First Union National Bank. As of December 31, 1997, the Company had
$1,250,000 outstanding under the demand note, which is being used to finance
accounts receivable and other working capital needs. In addition, the Company
had $326,000 outstanding at December 31, 1997, under the equipment line which
was used to finance furniture and equipment purchases.
During 1997 and 1996 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 was 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 were
convertible 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
Series A-2 8%, convertible, redeemable 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 was 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
16
<PAGE>
option of the Company. The offering resulted in net proceeds to the Company of
approximately $1,253,000.
In March 1997 the Company issued 2,502 shares of Series A-3 convertible,
redeemable preferred stock and associated stock warrants to a private fund for a
total of $2,502,000. Each share was convertible into shares of common stock at
the lower of $3.44 per share, or 85% of the arithmetic average of the prior five
days closing prices. In addition, the Company raised $1,000,000 in a private
placement of 727,274 units in October 1997. Each unit consisted of one share of
common stock and one warrant which entitles the holder to purchase one share of
common stock at an exercise price of $1.75.
During 1997, approximately $2,160,000 was used to finance accounts receivable,
$473,000 was used to finance capitalized software, $328,000 was used to finance
a long-term receivable, and $136,000 was used to purchase fixed assets. This was
primarily funded by an increase in accounts payable of $354,000 and the issuance
of common stock and preferred stock totaling $3,153,000. During 1996,
approximately $1,860,000 was used to finance accounts receivable, $437,000 was
used to finance capitalized software, $333,000 was used to finance inventory,
and $271,000 was used to purchase fixed assets. This was primarily funded by an
increase in accounts payable of $316,000 and the issuance of common stock,
preferred stock and stock warrants totaling $2,558,000. The remaining proceeds
have been invested in short-term repurchase agreements collateralized by
government securities.
For the year ended December 31, 1997, the Company's cash and cash equivalents,
invested cash and marketable securities decreased to $1,068,000 from $1,606,000
primarily as a result of the loss incurred for the year along with the financing
of accounts receivable, capitalized software and fixed assets, offset by the
amortization of capitalized software and depreciation totaling $1,078,000 and
the proceeds from issuance of common stock and preferred stock totaling
$3,153,000. As of December 31, 1997, the Company had $9,130,000 in working
capital. The Company has no significant capital asset commitments.
For the year ended December 31, 1997, accounts receivable increased to
$11,200,000 from $9,040,000. This increase of $2,160,000 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, the Company
has experienced certain payment delays from some of its OEM customers due to
various factors, such as, local banking regulations in Brazil and tax
withholding requirements in other countries. The Company has also filed suit
against one customer in France, which represents approximately $1,547,000 of
overdue OEM receivables. The case will be heard on September 4, 1998, and
management believes it is probable that the balance of this receivable will be
fully collected. The Brazilian economy has experienced significant shifts and
currency fluctuations during the last several years. With the introduction of
the Portuguese version of Power Translator Pro 6.2 in March 1997, the Company
experienced significant revenue generation in the Brazilian market. Accounts
receivable at December 31, 1997, included approximately $3,425,000 due from
Brazilian partners. While the Company has experienced some delays in scheduled
payments from such partners, it is management's belief that payments will be
made in full over the next several months. Management of the Company works
closely with its partners on a continuous basis in order to insure timely
collection of amounts owed to the Company. If the Brazilian economy were to
worsen significantly, timeliness of cash receipts from these partners could be
jeopardized and thus adversely impact the Company's overall working capital
position.
In December 1997, the Company entered into a non-monetary transaction with a
publishing company which included license agreements between the parties. No
gain or loss was recorded on this transaction, as there was an equal exchange
between the two companies.
The Company became a licensee under two agreements. The first, a one-year
license for the use of six "Virtual Campuses" established by the publishing
company, had a value of $600,000. At December 31,
17
<PAGE>
1997, this amount was capitalized as a prepaid license, the balance of which
will be amortized over the term of the license agreement. The second, a one-year
renewable license relating to "Campus Courseware" provided by the publishing
company, had a value of $650,000 which was expensed in 1997.
In exchange, the Company granted a license for its Barcelona Technology Server
in five languages with a value of $1,025,000 which has been included in income
in 1997. In conjunction with this license, the Company will provide maintenance
for a period of one year from the date of the agreement. The value of the
maintenance agreement is $225,000 which has been recorded as deferred income at
December 31, 1997, and will be recognized over the term of the maintenance
agreement.
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 Latin America late in the second and third
quarters of 1997. 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 1998.
For the years ended December 31, 1997 and 1996, net cash used in operating
activities was approximately $3,162,000 and $3,009,000, respectively, due
primarily to net losses from operations and financing of accounts receivable,
inventory and prepaid expenses, offset by the amortization of capitalized
software, depreciation and increases in accounts payable.
For the year ended December 31, 1997, net cash used in investing activities was
approximately $610,000. For the year ended December 31, 1996, net cash provided
by investing activities was approximately $871,000. In 1997 and 1996, 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, 1997 and 1996, capital expenditures totaled
$136,000 and $271,000, respectively. Capital expenditures were higher than
normal in 1996 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, 1997 and 1996, cash provided by financing
activities was approximately $3,234,000 and $2,924,000, respectively. For the
years ended December 31, 1997 and 1996, financing activities consisted primarily
of the issuance of warrants, preferred stock and common stock along with the
issuance and repayment of debt under the Company's revolving 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 and common 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 1998.
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 certain 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.
18
<PAGE>
If additional funds are raised through the issuance of equity or convertible
securities, the Company's current shareholders will experience additional
dilution. While management of the Company believes additional funding will be
available if and when needed, there can be no assurance that additional
financing will be available on terms acceptable to the Company, if at all. The
inability to obtain additional financing, if and when needed, would have a
material adverse effect on the Company, including possibly requiring the Company
to curtail or cease operations.
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, 1997 and 1996 F-2
Statements of Operations for the years
ended December 31, 1997 and 1996 F-3
Statements of Stockholders' Equity for the years
ended December 31, 1997 and 1996 F-4
Statements of Cash Flows for the years
ended December 31, 1997 and 1996 F-5
Notes to the Financial Statements F-6 to F-22
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
20
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PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's Directors and Executive Officers are as follows:
Name Age Position
Harry E. Hagerty, Jr. (2) 57 Chairman, Chief Executive Officer
John F. McCarthy, III (1)(2) 52 Director, Secretary, Vice President
and General Counsel
Ronald W. Johnston 51 Director, President,
Chief Operating Officer
William E. Kimberly (1)(2) 64 Director
Thomas W. Patterson (1) 38 Director
David H. Biggs 52 Director
Mark A. Paiewonsky 35 Chief Financial & Accounting Officer
Philippe J. Kuperman 54 Executive Vice President of
Sales & Marketing
Biographical Information
Mr. Harry E. Hagerty, Jr., a director of Globalink since its inception, has been
President of Hagerty & Associates, a company that invests in and consults with
start-up and early-stage businesses since 1986 Mr. Hagerty participated in the
initial funding of the Discovery Channel and was a founder of Digital Switch
Corporation (now "DSC Communications, Inc."). He served on the Board of
Directors of CCAIR, Inc. a regional airline based in Charlotte, NC., from 1987
to 1989. Mr. Hagerty currently serves on the Boards of Directors of Learning
2000 Corporation and Systems Impact.
Mr. John F. McCarthy, III, has been a director of Globalink since 1993 and Vice
President and General Counsel since August 1995. From 1990 to 1993, Mr. McCarthy
was Vice President and General Counsel for Computone Corporation, which was
engaged in the development of computer peripheral products. From 1988 to 1990,
he was the managing partner of the Washington, DC, offices of the law firm of
Burnham, Connolly, Osterle and Henry.
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. In October 1997 he was promoted to President and was
appointed as a director. Beginning in 1993 Mr. Johnston became a
Principal/General Partner in McCarthy, Johnston & Associates, a professional
consulting firm. Mr. McCarthy is also a Principal/General Partner of this firm.
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 a
director of several emerging companies.
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<PAGE>
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. From Fall 1993 to Spring
1995, Mr. Patterson was the Information Security Director for MicroElectronics
and Computer Technology Corp. ("MCC") and the Chief Strategist for Electronic
Commerce for IBM Corporation. Since that time, Mr. Patterson has served as
Corporate Vice President for Cyberguard Corporation.
Mr. David H. Biggs was appointed as a director of Globalink in January 1998.
From February 1968 to May 1997, Mr. Biggs was Vice President of Operations and
Product Development at Bently Nevada Corporation where he managed operations for
a number of domestic and international sites. He is the author of a book called
Market Aimed Products. Since June 1997, Mr. Biggs has been a Vice President at
R. D. Garwood, Inc. Mr. Biggs is the designee of M.H. Meyerson & Co., Inc.,
("Meyerson"), which has the right to designate a director of the Company
pursuant to an Agency Agreement between the Company and Meyerson dated October
15, 1997.
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. From 1992
to 1994, he was the Corporate Controller for Best Programs, Inc., a software
development company offering solutions to the accounting, tax and human
resources software markets. From 1986 to 1990, he was an Audit Senior in the
Small Business Enterprise group at Arthur Andersen & Co., where 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. From January 1989 to June 1996, Mr. Kuperman was Sr. Vice
President, Indirect Sales of SOFTWARE AG. 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.
Except for the foregoing information, the information required by this item will
be contained in the Company's Proxy Statement for its 1997 Annual Stockholders'
Meeting to be filed with the Securities and Exchange Commission within 120 days
after December 31, 1997, 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 1998 Annual Stockholders' Meeting to be filed with the
Securities and Exchange Commission within 120 days after December 31, 1997, and
is incorporated herein by reference.
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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 1998 Annual Stockholders' Meeting to be filed with the
Securities and Exchange Commission within 120 days after December 31, 1997, and
is incorporated herein by reference.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED 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 was payable on demand and repaid
during 1997. A second officer was loaned $70,000 at an interest rate of 8%, in
two separate promissory notes. Both notes were payable on or before December 1,
1997, with interest.
Additional notes were issued to the second officer during fiscal year 1997. On
December 17, 1997, all outstanding notes for this officer were consolidated into
one note of $327,750, including accrued interest. The note is a demand note with
an interest rate of 8.95% and is due in full, without demand notice, on December
17, 2000. As part of the agreement, this officer pledged 140,000 shares of
common stock as collateral.
On October 15, 1997, the Company entered into an Agency Agreement with M.H.
Meyerson & Co., Inc. ("Meyerson"), pursuant to which Meyerson acted as the
placement agent for an offering of 727,274 units, each consisting of one share
of Common Stock and one warrant which entitled the holder to purchase one share
of Common Stock at an exercise price of $1.75. Pursuant to the Agency Agreement,
the Company granted Meyerson the right to appoint one director to the Company's
board of directors and issued purchase options to Meyerson to purchase 72,727
additional units.
23
<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)
3.1 (c) Certificate of Designations of Series
A-1 Convertible Preferred Stock (3)
3.1 (d) Certificate of Designations of Series
A-2 8% Convertible Redeemable
Preferred Stock (3)
3.1 (e) Certificate of Designations of Series
A-3 Convertible Preferred Stock (4)
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 (3)
4.1 (d) Form of Unit Purchase Agreement
between the Company and J. Michael
Reisert, Inc. dated December 20, 1996 (3)
4.1 (e) Form of Subscription Agreement
between the Company and The Pangaea
Fund Limited dated March 27, 1997 (4)
4.1 (i) Form of Warrants issued on October 20, 1997 (5)
4.1 (j) Form of Purchase Option issued to M.H. Meyerson
& Co., Inc., on October 20, 1997 (5)
10.3 Form of Agency Agreement with M.H. Meyerson & Co.,
Inc., dated October 15, 1997 (5)
10.4 Employee Stock Option Plan and form of Non-
Incentive Stock Option Agreement for options
granted under the plan (5)
24
<PAGE>
(1) Incorporated herein by reference from the Registration Statement
number 33-60296 as filed by the Company on Form SB-2.
(2) Incorporated herein by reference from the Registration Statement
number 33-82062 as filed by the Company on Form S-8.
(3) Incorporated herein by reference from the Annual Report on Form
10-KSB as filed by the Company for the fiscal year ended
December 31, 1996.
(4) Incorporated herein by reference from the Current Report on Form
8-K as filed by the Company on April 7, 1997.
(5) Filed herewith.
(B) Reports on Form 8-K
None.
25
<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 25th day of August, 1998.
GLOBALINK, INC.
By: /s/ Ronald W. Johnston
----------------------
Ronald W. Johnston
President
26
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Globalink, Inc.
We have audited the accompanying balance sheets of Globalink, Inc., as of
December 31, 1997 and 1996, and the related 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 financial position of Globalink, Inc., as of December
31, 1997 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
Vienna, Virginia
February 27, 1998
F-1
<PAGE>
<TABLE>
<CAPTION>
Globalink, Inc.
Balance Sheets
December 31, 1997 1996
- --------------------------------------------------------------------------------
Assets
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 68,241 $ 406,088
Invested cash 1,000,000 1,200,000
Accounts receivable, net 11,200,143 9,040,297
Inventories, net 760,659 818,294
Prepaid expenses and deposits 791,415 108,745
Other receivables 37,134 126,894
---------------------------
Total Current Assets 13,857,592 11,700,318
Long-Term Receivable 327,750 -
Equipment and Furniture, net 587,783 879,753
Capitalized Software, net 641,821 817,988
---------------------------
$ 15,414,946 $ 13,398,059
===========================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable--trade $ 2,410,886 $ 2,057,002
Accrued and other liabilities 832,847 763,948
Line of credit 1,484,356 1,279,000
---------------------------
Total Current Liabilities 4,728,089 4,099,950
Long-Term Notes Payable 92,000 216,356
Deferred Rent 42,015 65,706
Commitments and Contingencies - -
Stockholders' Equity
Preferred stock, $.01 par value, 250,000 shares
authorized; 26,771 and 40,224 shares issued
and outstanding in 1997 and 1996, respectively 755,354 1,154,658
Common stock, $.01 par value, 20,000,000 shares
authorized; 9,160,236 and 5,341,352 shares issued
and outstanding in 1997 and 1996, respectively 91,602 53,413
Additional paid-in capital--common stock 22,143,154 18,702,013
Dividends payable 72,573 -
Accumulated deficit (12,509,841) (10,894,037)
---------------------------
10,552,842 9,016,047
---------------------------
$ 15,414,946 $ 13,398,059
===========================
<FN>
The accompanying notes are an integral part of these statements.
F-2
</FN>
<PAGE>
<CAPTION>
Globalink, Inc.
Statements of Operations
Year ended December 31, 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Product Sales, net of returns and allowances of
$3,807,485 and $4,664,942 in 1997 and 1996,
respectively $ 13,386,873 $ 12,429,362
Translation Service Revenue 1,342,242 1,546,672
---------------------------
14,729,115 13,976,034
Costs and Expenses
Cost of products sold 2,347,514 1,765,951
Direct labor and fringes 705,241 799,206
Amortization of capitalized software 649,597 570,247
Development 897,715 1,451,687
Selling, marketing and other 7,978,294 8,244,992
Administrative 3,744,099 3,356,443
---------------------------
16,322,460 16,188,526
---------------------------
Loss from Operations (1,593,345) (2,212,492)
Interest Expense, net (22,459) (32,393)
---------------------------
Loss Before Income Taxes (1,615,804) (2,244,885)
Income Tax Expense - -
---------------------------
Net Loss $ (1,615,804) $ (2,244,885)
===========================
Loss per Common Share (Basic and Diluted) $ (.25) $ (.42)
===========================
Weighted-Average Number of Common Shares
Outstanding During the Year 6,876,743 5,333,852
===========================
<FN>
The accompanying notes are an integral part of these statements.
F-3
</FN>
<PAGE>
<CAPTION>
Globalink, Inc.
Statements of Stockholders' Equity
Years ended December 31, 1997 and 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Additional
Paid-in
Capital-
Common Common Common Preferred Preferred Dividend Accumulated
Shares Stock Stock Shares Stock Payable Deficit Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 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
Issuance of Preferred Stock - - - 6,693 2,381,777 - - 2,381,777
Conversions to Common Stock 3,091,610 30,916 2,770,367 (20,146) (2,781,081) (20,202) - -
Issuance of Common Stock 727,274 7,273 763,549 - - - - 770,822
Preferred Stock Dividends - - (92,775) - - 92,775 - -
Net Loss for the Year - - - - - - (1,615,804) (1,615,804)
------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 9,160,236 $ 91,602 $ 22,143,154 26,771 $ 755,354 $ 72,573 $ (12,509,841) $ 10,552,842
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these statements.
F-4
</FN>
<PAGE>
<CAPTION>
Globalink, Inc.
Statements of Cash Flows
Year ended December 31, 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents and
Invested Cash
Cash Flows from Operating Activities
Net loss $ (1,615,804) $ (2,244,885)
---------------------------
Adjustments to reconcile net loss to net cash
used in operating activities
Non-monetary transaction (375,000) -
Amortization of capitalized software 649,597 570,247
Depreciation 428,180 370,852
Reserve for obsolete inventories - 100,000
Changes in assets and liabilities
Increase in accounts receivable (2,159,846) (1,859,697)
Decrease (increase) in other receivables 89,760 (33,642)
Decrease (increase) in inventories 57,635 (332,944)
(Increase) decrease in prepaid expenses
and deposits (82,670) 154,306
Increase in long-term receivable (327,750) -
Increase in accounts payable--trade 353,884 316,017
Decrease in accrued and other liabilities (156,101) (31,801)
Decrease in deferred rent (23,691) (17,873)
---------------------------
Total Adjustments (1,546,002) (764,535)
---------------------------
Net Cash Used in Operating Activities (3,161,806) (3,009,420)
---------------------------
Cash Flows from Investing Activities
Purchase of marketable securities - (2,778,279)
Proceeds from sales of marketable securities - 4,357,516
Increase in capitalized software (473,430) (436,911)
Capital expenditures for equipment and furniture (136,210) (271,071)
---------------------------
Net Cash (Used in) Provided by Investing Activities (609,640) 871,255
---------------------------
Cash Flows from Financing Activities
Sale of common stock 770,823 110,000
Sale of preferred stock 2,381,776 1,154,658
Sale of stock warrants - 1,293,282
Repayment of debt (801,000) (253,000)
Proceeds from issuance of debt 882,000 619,467
---------------------------
Net Cash Provided by Financing Activities 3,233,599 2,924,407
---------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (537,847) 786,242
Cash and Cash Equivalents and Invested Cash at
Beginning of Year 1,606,088 819,846
---------------------------
Cash and Cash Equivalents and Invested Cash at
End of Year $ 1,068,241 $ 1,606,088
===========================
<FN>
The accompanying notes are an integral part of these statements.
F-5
</FN>
</TABLE>
<PAGE>
Globalink, Inc.
Notes to Financial Statements
December 31, 1997 and 1996
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.
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.
In October 1997, the American Institute of Certifited Public Accountants
issued Statement of Position 97-2 ("SOP 97-2"), Softwae Revenue Recognition,
which is effective for transactions entered into in fiscal years beginning
after December 15, 1997. Retroactive application of the provisions of this
SOP is prohibited. The SOP 97-2 provides guidance on applying generally
accepted accounting principles in recognizing revenue on software
transactions. This SOP supersedes SOP 91-1, Software Revenue Recognition.
The effect of adopting this new standard is not expected to be material.
Inventories
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market.
F-6
<PAGE>
Globalink, Inc.
Notes to Financial Statements--Continued
December 31, 1997 and 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
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 24 to 36 months. 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 1997 and 1996 was $473,429 and
$436,911, respectively. Amortization of software development costs charged
to costs and expenses during the years ended December 31, 1997 and 1996, was
$649,597 and $570,247, 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, 1997 and 1996, 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.
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.
F-7
<PAGE>
Globalink, Inc.
Notes to Financial Statements--Continued
December 31, 1997 and 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Loss per Common Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" (EPS).
This Statement replaces the presentation of primary EPS with a presentation
of basic EPS. It also requires dual presentation of basic and diluted EPS on
the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the diluted
EPS computation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Diluted EPS is computed similarly to fully diluted EPS pursuant to APB
Opinion 15. In complying with the requirements of SFAS No. 128, the Company
has recalculated all prior period EPS data resulting in no change.
The following table reconciles basic and diluted EPS for the years ended
December 31:
1997 1996
---------------------------
Numerator
Net loss $ (1,615,804) $ (2,244,885)
Preferred stock dividend (92,775) -
---------------------------
Net loss available to common stockholders $ (1,708,579) $ (2,244,885)
---------------------------
Denominator
Weighted-average shares 6,876,743 5,333,852
---------------------------
The loss per common share for 1997 and 1996 do not include the common
equivalent shares because the effect of such inclusion would be to decrease
the loss per share. No reconciliation has been presented for the numerator
and denominator, as the antidilution of common equivalent shares causes
basic and diluted EPS to be the same.
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.
F-8
<PAGE>
Globalink, Inc.
Notes to Financial Statements--Continued
December 31, 1997 and 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Employee Stock Options
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," 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 H to the financial
statements.
Cash and Cash Equivalents
The Company considers all highly liquid securities purchased with a maturity
of three months or less to be cash equivalents.
Invested Cash
The Company has invested excess cash in money market 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, 1997 and 1996, invested cash totaled $1,000,000
and $1,200,000, respectively, which amounts are collateralized by government
securities held by the Company's bank.
Liquidity
The Company has incurred losses and used cash in its recent operation. The
Company anticipates that the net proceeds from past equity offerings, exist-
ing 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 1998. In addition, the Company anticipates obtaining equity during
1998.
Reporting Comprehensive Income
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income," effective for fiscal years beginning after December 15, 1997. This
Statement establishes standards for reporting and display of comprehensive
income and its components (revenue, expenses, gains and losses) in a full
set of general-purpose financial statements. This Statement requires all
items required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. SFAS No. 130 does
not require a specific format for that financial statement but requires that
an enterprise display an amount representing total comprehensive income for
the period in that financial statement. The Statement requires that an
enterprise classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other
comprehensive income separately
F-9
<PAGE>
Globalink, Inc.
Notes to Financial Statements--Continued
December 31, 1997 and 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
from retained earnings and additional paid-in capital in the equity section
of a statement of financial position. Reclassification of financial state-
ments for earlier periods provided for comparative purposes is required.
The Company will comply with the disclosure requirements of SFAS No. 130
in fiscal year 1998.
Disclosures About Segments of an Enterprise and Related Information
The Financial Accounting Standards Board recently issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information,"
effective for periods beginning after December 15, 1997. This Statement
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers.
This Statement requires a public business enterprise to report financial and
descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision-maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on
the basis that it is used internally for evaluating segment performance and
deciding how to allocate resources to segments. This Statement requires a
public business enterprise to report a measure of segment profit loss,
certain specific revenue and expense items and segment assets and certain
other related information; and information about the revenue derived from
the enterprise's products or services (or groups of similar products and
services), about the countries in which the enterprise earns revenue and
holds assets and about major customers regardless of whether that
information is used in making operating decisions. However, this Statement
does not require an enterprise to report information that is not prepared
for internal use if reporting it would be impracticable. The Company will
comply with the disclosure requirements of SFAS No. 131 in fiscal year 1998.
NOTE B--ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31:
1997 1996
---------------------------
Trade $ 13,893,969 $ 12,044,950
Allowance for returns and uncollectible
accounts (1,676,110) (1,863,653)
Allowance for advertising and other credits (1,017,716) (1,141,000)
---------------------------
$ 11,200,143 $ 9,040,297
---------------------------
F-10
<PAGE>
Globalink, Inc.
Notes to Financial Statements--Continued
December 31, 1997 and 1996
NOTE B--ACCOUNTS RECEIVABLE--Continued
The Company provides for an allowance for uncollectible accounts receivable
based on experience. Although it is reasonably possible that management's
estimate for uncollectible accounts could change in the near future,
management is not aware of any events that would result in a change to its
estimate which would be material to the Company's financial position or
results of operations.
Included in the accounts receivable balance at December 31, 1997, is
$1,547,000 due from a customer which is currently in litigation in France.
The case will be heard in April 1998, and management believes it is probable
the balance of this receivable will be fully collected.
NOTE C--COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
Inventories
Inventories consist of the following at December 31:
1997 1996
---------------------------
Finished goods $ 661,479 $ 649,495
Allowance (150,000) (150,000)
---------------------------
511,479 499,495
Work-in-process 249,180 318,799
---------------------------
$ 760,659 $ 818,294
---------------------------
Prepaid Expenses and Deposits
Prepaid expenses and deposits consist of the following at December 31:
1997 1996
---------------------------
Prepaid license $ 600,000 $ -
Prepaid advertising and brochures 23,334 47,671
Other prepaid amounts 168,081 61,074
---------------------------
$ 791,415 $ 108,745
---------------------------
F-11
<PAGE>
Globalink, Inc.
Notes to Financial Statements--Continued
December 31, 1997 and 1996
NOTE C--COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS--Continued
Equipment and Furniture
Equipment and furniture consist of the following at December 31:
1997 1996
---------------------------
Office and other equipment $ 1,620,150 $ 1,532,574
Furniture and fixtures 112,399 115,808
---------------------------
1,732,549 1,648,382
Accumulated depreciation (1,144,766) (768,629)
---------------------------
$ 587,783 $ 879,753
---------------------------
Capitalized Software
Capitalized software consists of the following at December 31:
1997 1996
---------------------------
Capitalized software $ 5,941,614 $ 5,468,185
Accumulated amortization (5,299,793) (4,650,197)
---------------------------
$ 641,821 $ 817,988
---------------------------
Accrued and Other Liabilities
Accrued and other liabilities consist of the following at December 31:
1997 1996
---------------------------
Accrued salaries, taxes and fringe benefits $ 491,828 $ 623,958
Deferred income--maintenance fee 293,000 -
Accrued royalties 48,019 89,990
Other accrued liabilities - 50,000
---------------------------
$ 832,847 $ 763,948
---------------------------
F-12
<PAGE>
Globalink, Inc.
Notes to Financial Statements--Continued
December 31, 1997 and 1996
NOTE D--FINANCIAL INSTRUMENTS
The financial statements include various estimated fair value information as
of December 31, 1997 and 1996, 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, 1997 and 1996, the carrying
amount/estimated fair value of these assets is approximately $68,000 and
$406,000, respectively.
Invested Cash
The carrying amount approximates fair value because of the short-term
maturity of these instruments. At December 31, 1997 and 1996, the carrying
amount/estimated fair value of these assets is approximately $1,000,000 and
$1,200,000, respectively.
Loans Receivable
Outstanding loans receivable included in other receivables represent 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
rates of interest corresponding to quoted market prices available to the
Company. At December 31, 1997 and 1996, the carrying amount/estimated fair
value of these assets is approximately $328,000 and $95,000, respectively.
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,
1997 and 1996, the carrying amount/estimated fair value of this debt is
approximately $1,576,000 and $1,495,000, respectively, recorded as a
short-term line of credit, and long-term notes payable in the financial
statements.
F-13
<PAGE>
Globalink, Inc.
Notes to Financial Statements--Continued
December 31, 1997 and 1996
NOTE E--LINE OF CREDIT
At December 31, 1997, the Company had available a $3,000,000 short-term
working capital line of credit at the lower of the bank's prime rate plus
.25%, or LIBOR plus 2.75%. At December 31, 1996, the Company had 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), at the lower of the bank's prime rate or LIBOR
plus 2.50%. In 1997, the short-term and intermediate-term working capital
lines of credit were replaced by the $3,000,000 line of credit referenced
above. Also, at December 31, 1997 and 1996, the Company had a $750,000 fixed
asset line of credit at the bank's prime rate plus 3/4% and 1/4%,
respectively. 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 rate of interest on the short-term working capital line of credit at
December 31, 1997, was 8.47%. The short-term working capital and the unused
portion of the fixed asset line of credit were set to expire on April 30,
1999. On March 4, 1998, the Company's loan agreement was modified to change
the $3,000,000 line of credit from a time note having a maturity of April
30, 1999, to a demand note which shall be payable on demand. This
modification also removed all financial covenants from the agreement.
At December 31, 1997, $326,356 and $1,250,000 were outstanding on the fixed
asset and short-term working capital lines of credit, respectively, with
principal payments as follows:
Year ending December 31,
1998 $ 1,484,356
1999 92,000
-------------
$ 1,576,356
-------------
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.
The bank's rate of interest at December 31, 1996, was 8.25%. The lines of
credit were renewed by the Company before their expiration on June 30, 1997.
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.
F-14
<PAGE>
Globalink, Inc.
Notes to Financial Statements--Continued
December 31, 1997 and 1996
NOTE F--LEASES--Continued
Minimum annual rental and lease commitments for leases with a remaining term
of one year or more at December 31, 1997, are as follows:
Year ending December 31,
1998 $ 537,000
1999 413,000
2000 117,000
-------------
Net minimum lease payments $ 1,067,000
-------------
Rent expense was $587,000 and $628,000 for the years ended December 31, 1997
and 1996, respectively.
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 was payable on demand
and repaid during 1997. A second officer was loaned $70,000 at an interest
rate of 8%, in two separate promissory notes. Both notes were payable on or
before December 1, 1997, with interest.
Additional notes were issued to the second officer during fiscal year 1997.
On December 17, 1997, all outstanding notes for this officer were
consolidated into one note of $327,750, including accrued interest. The note
is a demand note with an interest rate of 8.95% and is due in full, without
demand notice, on December 17, 2000. As part of the agreement, this officer
pledged 140,000 shares of common stock as collateral.
NOTE H--COMMITMENTS
Employment Agreements
The Company has entered into employment agreements with three 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.
F-15
<PAGE>
Globalink, Inc.
Notes to Financial Statements--Continued
December 31, 1997 and 1996
NOTE H--COMMITMENTS--Continued
The minimum amounts due under the agreements during the succeeding two-year
period, exclusive of contingent incentive compensation and salary
adjustments, are as follows:
Year ending December 31,
1998 $ 310,000
1999 83,000
-------------
$ 393,000
-------------
NOTE I--WARRANTS, OPTIONS AND OTHER STOCK ISSUED
Stock Options Issued
The Company issues options to employees and members of its Board of
Directors based on merit. 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. During 1997, 584,975 options granted previously were revalued
to a lower exercise price. 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:
1997 1996
---------------------------
Net loss--as reported $ (1,615,804) $ (2,244,885)
Net loss--pro forma (2,229,997) (2,996,947)
Net loss per share--as reported (0.25) (0.42)
Net loss per share--pro forma (0.34) (0.56)
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 1997 and 1996, respectively: expected
volatility of 42% and 40%; risk-free interest rate of 5.9% and 6.2% and
expected lives of 2.9 and 2.7 years.
F-16
<PAGE>
Globalink, Inc.
Notes to Financial Statements--Continued
December 31, 1997 and 1996
NOTE I--WARRANTS, OPTIONS AND OTHER STOCK ISSUED--Continued
The following tables depict activity in the plan for the years ended
December 31, 1997 and 1996:
Weighted-
Average
Exercise
1997 Shares Price
----------------------------------------------------------------------------
Options outstanding at beginning of year 943,516 $8.57
Granted 906,000 3.64
Exercised - -
Forfeited (95,867) (8.73)
Expired (20,000) (4.00)
-------------
Outstanding at end of year 1,733,649 $4.18
-------------
Options exercisable at year-end 1,132,816 $4.52
-------------
Weighted-average fair value per share
of options granted during the year $0.53
Weighted-
Average
Exercise
1996 Shares Price
----------------------------------------------------------------------------
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
F-17
<PAGE>
Globalink, Inc.
Notes to Financial Statements--Continued
December 31, 1997 and 1996
NOTE I--WARRANTS, OPTIONS AND OTHER STOCK ISSUED--Continued
The following applies to options outstanding at December 31, 1997:
Number outstanding 1,254,000
Range of exercise prices $ 3.13 to $ 3.75
Weighted-average exercise price 3.44
Weighted-average remaining contractual life 5.92 years
Number outstanding 437,249
Range of exercise prices $ 3.76 to $ 8.50
Weighted-average exercise price $ 5.67
Weighted-average remaining contractual life 2.96 years
Number outstanding 42,400
Range of exercise prices $ 8.51 to $ 14.88
Weighted-average exercise price $ 10.88
Weighted-average remaining contractual life 1.64 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 which facilitated the agreement with
the private fund. These options also have a term of four years. As of
December 31, 1997, the private fund had converted the prepaid warrants into
526,832 shares of common stock.
Preferred Stock Issued
During 1996, the Company's Board of Directors approved a private placement
of Series A-2 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.
During 1997, 17,644 shares of Series A-2 preferred stock were converted into
176,440 shares of common stock. At December 31, 1997 and 1996, the Company
has outstanding 26,771 and 40,224 shares of Series A-2 preferred stock,
respectively, and 44,415 and 40,224 associated stock warrants, respectively.
F-18
<PAGE>
Globalink, Inc.
Notes to Financial Statements--Continued
December 31, 1997 and 1996
NOTE I--WARRANTS, OPTIONS AND OTHER STOCK ISSUED--Continued
In March 1997, the Company's Board of Directors approved a private placement
of Series A-3, convertible, redeemable preferred stock and associated stock
warrants. The Company sold 2,502 shares of Series A-3 preferred stock to a
private fund for a total of $2,502,000. Each share is convertible into
shares of common stock at the lower of $3.44 per share, or 85% of the
arithmetic average of the prior five days closing prices. As part of the
agreement, the Company also issued 85,568 options at an exercise price of
$4.30 per share to the private fund. The options have a term of four years.
In addition, the Company issued 25,020 options at an exercise price of $3.44
per share to Tanner Unman Securities, Inc., and 20,000 options at an
exercise price of $4.30 per share to Prudential Securities, Inc., both of
which facilitated the agreement with the private fund. These options also
have a term of four years. As of December 31, 1997, the private fund had
converted the Series A-3 preferred stock into 2,382,268 shares of common
stock.
Common Stock Issued
In October 1997, the Company's Board of Directors approved a private
placement of common stock units. The Company sold 727,274 units for a total
of $1,000,000. Each unit consisted of one share of common stock and one
warrant which entitles the holder to purchase one share of common stock at
an exercise price of $1.75 per share. As part of the agreement, the Company
also issued purchase options for 72,727 additional units at an exercise
price of $1.51 per unit to M. H. Meyerson & Co. which served as the
placement agent. These purchase options have a term of five years.
NOTE J--INCOME TAXES
Deferred tax assets (liabilities) consist of the following at December 31:
1997 1996
---------------------------
Capitalized software $ (243,635) $ (310,508)
Fixed assets (5,241) (38,687)
Inventory capitalization (6,439) (8,270)
Inventory reserves 56,940 56,940
Receivable reserves 1,022,576 1,140,566
Deferred rent and other 15,949 24,942
Accrued compensation 66,772 90,756
Loss carryforwards 3,977,292 3,448,152
---------------------------
Gross deferred tax asset 4,884,214 4,403,891
Deferred tax asset valuation allowance (4,884,214) (4,403,891)
---------------------------
$ - $ -
---------------------------
F-19
<PAGE>
Globalink, Inc.
Notes to Financial Statements--Continued
December 31, 1997 and 1996
NOTE J--INCOME TAXES--Continued
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:
1997 1996
---------------------------
Pretax loss $(1,615,804) $ (2,244,885)
---------------------------
Computed federal income taxes at 34% $ (549,373) $ (763,261)
Computed state income taxes, net of federal
benefit (63,986) (88,897)
Effect of recognizing stock option
compensation for tax purposes 133,038 (220,728)
---------------------------
Deferred tax benefit (480,321) (1,072,886)
Expense arising from change in deferred tax
asset valuation allowance 480,321 1,072,886
---------------------------
Income tax expense $ - $ -
---------------------------
Approximately $10,478,000 and $9,084,000 of loss carryforwards are available
for tax return purposes at December 31, 1997 and 1996, 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, 2013.
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 years ended December 31:
1997 1996
---------------------------
Interest $ 110,382 $ 103,169
---------------------------
Income taxes $ - $ -
---------------------------
F-20
<PAGE>
Globalink, Inc.
Notes to Financial Statements--Continued
December 31, 1997 and 1996
NOTE K--SUPPLEMENTAL CASH FLOWS INFORMATION--Continued
Supplemental Schedule of Non-Cash Investing and Financing Activities
The following amounts have been recorded in non-cash transactions during the
years ended December 31, 1997 and 1996:
As a result of the exchange discussed in Note O, prepaid expenses and other
deposits have been increased $600,000 and accrued and other liabilities have
been increased $225,000.
Series A-2 preferred shares with a value of $497,832 were converted into
common stock. Series A-3 preferred shares with a value of $2,283,249 were
converted into common stock. Dividends owed on preferred stock converted
with a value of $20,202 were paid in common stock. Dividends payable which
were paid subsequently to December 31, 1997, in preferred shares with a
value of $72,573 were accrued against additional paid-in capital.
In 1996, stock was issued in payment to a vendor with a value of $52,720.
NOTE L--EXPORT SALES
The Company sells software abroad through distributors, dealers, and mail
orders. In 1997, export sales to Brazil totaled $3,159,000 or approximately
21% of total sales. Total export sales for the years ended December 31, 1997
and 1996, were approximately $7,589,000 and $7,079,000, respectively.
NOTE M--RETIREMENT PLAN
The Company has a profit-sharing retirement plan which conforms to the
provisions of Section 401(a) 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, 1997 or 1996.
F-21
<PAGE>
Globalink, Inc.
Notes to Financial Statements--Continued
December 31, 1997 and 1996
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
1997, one customer accounted for 17% of net sales. During 1996, three
customers accounted for 10% or more of net sales each (in aggregate,
representing 37% of net sales). Accounts receivable at December 31, 1997 and
1996, include approximately $1,805,000 and $3,981,000, respectively, in
amounts due from the Company's significant customer(s).
NOTE O--NON-MONETARY TRANSACTION
In December 1997, the Company entered into a non-monetary transaction with a
publishing company which included license agreements between the parties. No
gain or loss was recorded on this transaction, as there was an equal
exchange between the two companies.
The Company became a licensee under two agreements. The first, a one-year
license for the use of six "Virtual Campuses" established by the publishing
company, had a value of $600,000. At December 31, 1997, this amount was
capitalized as a prepaid license, the balance of which will be amortized
over the term of the license agreement. The second license, relating to
"Campus Courseware" provided by the publishing company, had a value of
$650,000 which was expensed in 1997.
In exchange, the Company granted a license for its Barcelona Technology
Server in five languages with a value of $1,025,000 which has been included
in income in 1997. In conjunction with this license, the Company will
provide maintenance for a period of one year from the date of the agreement.
The value of the maintenance agreement is $225,000 which has been recorded
as deferred income at December 31, 1997, and will be recognized over the
term of the maintenance agreement.
F-22
EXHIBIT 4.1(i)
NEITHER THIS WARRANT NOR THE COMMON STOCK WHICH MAY BE ACQUIRED UPON THE
EXERCISE HEREOF ("WARRANT SHARES"), AS OF THE DATE OF ISSUANCE HEREOF, HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT
THERETO UNDER THE ACT AND COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAW,
OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL, SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED. THE COMPANY'S SUBSCRIPTION
AGREEMENT WITH THE HOLDER CONTAINS ADDITIONAL PROVISIONS RESTRICTING THE
TRANSFER OF THIS WARRANT AND THE WARRANT SHARES AND THIS WARRANT AND SUCH
SUBSCRIPTION AGREEMENT SET FORTH THE COMPANY'S OBLIGATIONS TO REGISTER THE
RESALE OF THE WARRANT SHARES. A COPY OF SUCH SUBSCRIPTION AGREEMENT IS AVAILABLE
FOR INSPECTION AT THE COMPANY'S OFFICE.
For the Purchase of
_________ shares of
No. ___ Common Stock
WARRANT FOR THE PURCHASE OF
SHARES OF COMMON STOCK
OF
GLOBALINK, INC.
(A Delaware corporation)
Globalink, Inc. ("Company"), hereby certifies that for value received,
________________, or his, her or its registered assigns ("Registered Holder"),
is entitled, subject to the terms set forth below, to purchase from the Company,
at any time or from time to time during the period commencing on October 20,
1997, and ending on October 19, 2002, _______ shares of Common Stock, $.01 par
value, of the Company ("Common Stock"),at a purchase price equal to $1.75 per
share. The number of shares of Common Stock purchasable upon exercise of this
Warrant, and the purchase price per share, each as adjusted from time to time
pursuant to the provisions of this Warrant, are hereinafter referred to as the
"Warrant Shares" and the "Purchase Price," respectively.
1. Exercise.
1.1 Procedure. This Warrant may be exercised by the Registered Holder,
in whole or in part, by the surrender of this Warrant (with the Notice of
Exercise Form attached hereto as Exhibit I duly executed by such Registered
Holder) at the principal office of the Company, or at such other office or
agency as the Company may designate, accompanied by payment in full, in lawful
money of the United States, of an amount equal to the then applicable Purchase
Price multiplied by the number of Warrant Shares then being purchased upon such
exercise.
1
<PAGE>
1.2 Date of Exercise. Each exercise of this Warrant shall be deemed to
have been effected immediately prior to the close of business on the day on
which this Warrant shall have been surrendered to the Company as provided in
subsection 1.1 above. At such time, the person or persons in whose name or names
any certificates for Warrant Shares shall be issuable upon such exercise as
provided in subsection 1.3 below shall be deemed to have become the holder or
holders of record of the Warrant Shares represented by such certificates.
1.3 Cashless Exercise.
(i) Determination of Amount. In lieu of the payment of the
Purchase Price in the manner required by Section 1.1, the Registered Holder
shall have the right (but not the obligation) to pay the Purchase Price for the
Warrants being purchased with this Warrant upon exercise by the surrender to the
Company of any exercisable but unexercised portion of this Warrant having a
value at the close of trading on the last trading day immediately preceding the
exercise of this Warrant, equal to the Purchase Price multiplied by the number
of Warrants being purchased upon exercise ("Cashless Exercise Right"). The sum
of (a) the number of Warrants being purchased upon exercise of the
non-surrendered portion of this Warrant pursuant to this Cashless Exercise Right
and (b) the number of Warrants underlying the portion of this Warrant being
surrendered, shall not in any event be greater than the total number of Warrants
purchasable upon the complete exercise of this Warrant if the Purchase Price
were paid in cash. The value of the portion of the Warrant being surrendered
shall equal the remainder derived by subtracting (a) the Purchase Price
multiplied by the number of Warrants underlying the portion of this Warrant
being surrendered from (b) the "Market Price" (as defined below) of the Warrants
multiplied by the number of Warrants underlying the portion of this Warrant
being surrendered. As used herein, the term "Market Price" at any date shall be
deemed to be the last reported sale price of a share of Common Stock on such
date, or, in case no such reported sale takes place on such date, the average of
the last reported sale prices for the immediately preceding three trading days,
in either case as officially reported by the principal securities exchange on
which the Common Stock is listed or admitted to trading, or, if the Common Stock
is not listed or admitted to trading on any national securities exchange or if
any such exchange on which the Common Stock is listed is not its principal
trading market, the last reported sale price as furnished by the National
Association of Securities Dealers ("NASD") through the Nasdaq National Market or
SmallCap Market, or, if applicable, the OTC Bulletin Board, or if the Common
Stock is not listed or admitted to trading on the Nasdaq National Market or
SmallCap Market or OTC Bulletin Board or similar organization, as determined in
good faith by resolution of the Board of Directors of the Company, based on the
best information available to it.
(ii) Mechanics of Cashless Exercise. The Cashless Exercise
Right may be exercised by the Holder on any business day on or after the
Commencement Date and not later than the Expiration Date by delivering to the
Company the Purchase Option with a duly executed exercise form attached hereto
with the cashless exercise section completed.
1.4 Issuance of Certificate. As soon as practicable after the exercise
of the purchase right represented by this Warrant, the Company at its expense
will use its best efforts to cause to be issued in the name of, and delivered
to, the Registered Holder, or, subject to the terms and conditions hereof, to
such other individual or entity as such Holder (upon payment by such Holder of
any applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of full
shares of Warrant Shares to which such Registered Holder shall be entitled upon
such exercise plus, in lieu of any fractional
2
<PAGE>
share to which such Registered Holder would otherwise be entitled, cash in an
amount determined pursuant to Section 3 hereof, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, stating on the face or faces
thereof the number of shares currently stated on the face of this Warrant minus
the number of such shares purchased by the Registered Holder upon such exercise
as provided in subsection 1.1 above.
2. Adjustments.
2.1 Split, Subdivision or Combination of Shares. If the outstanding
shares of the Company's Common Stock at any time while this Warrant remains
outstanding and unexpired shall be subdivided or split into a greater number of
shares, or a dividend in Common Stock shall be paid in respect of Common Stock,
the Purchase Price in effect immediately prior to such subdivision or at the
record date of such dividend shall, simultaneously with the effectiveness of
such subdivision or split or immediately after the record date of such dividend
(as the case may be), shall be proportionately decreased. If the outstanding
shares of Common Stock shall be combined or reverse-split into a smaller number
of shares, the Purchase Price in effect immediately prior to such combination or
reverse split shall, simultaneously with the effectiveness of such combination
or reverse split, be proportionately increased. When any adjustment is required
to be made in the Purchase Price, the number of shares of Warrant Shares
purchasable upon the exercise of this Warrant shall be changed to the number
determined by dividing (i) an amount equal to the number of shares issuable upon
the exercise of this Warrant immediately prior to such adjustment, multiplied by
the Purchase Price in effect immediately prior to such adjustment, by (ii) the
Purchase Price in effect immediately after such adjustment.
2.2 Reclassification Reorganization, Consolidation or Merger. In the
case of any reclassification of the Common Stock (other than a change in par
value or a subdivision or combination as provided for in subsection 2.1 above),
or any reorganization, consolidation or merger of the Company with or into
another corporation (other than a merger or reorganization with respect to which
the Company is the continuing corporation and which does not result in any
reclassification of the Common Stock), or a transfer of all or substantially all
of the assets of the Company, or the payment of a liquidating distribution then,
as part of any such reorganization, reclassification, consolidation, merger,
sale or liquidating distribution, lawful provision shall be made so that the
Registered Holder of this Warrant shall have the right thereafter to receive
upon the exercise hereof, the kind and amount of shares of stock or other
securities or property which such Registered Holder would have been entitled to
receive if, immediately prior to any such reorganization, reclassification,
consolidation, merger, sale or liquidating distribution, as the case may be,
such Registered Holder had held the number of shares of Common Stock which were
then purchasable upon the exercise of this Warrant. In any such case,
appropriate adjustment (as reasonably determined by the Board of Directors of
the Company) shall be made in the application of the provisions set forth herein
with respect to the rights and interests thereafter of the Registered Holder of
this Warrant such that the provisions set forth in this Section 2 (including
provisions with respect to the Purchase Price) shall thereafter be applicable,
as nearly as is reasonably practicable, in relation to any shares of stock or
other securities or property thereafter deliverable upon the exercise of this
Warrant.
2.3 Price Adjustment. No adjustment in the per share exercise price
shall be required unless such adjustment would require an increase or decrease
in the Purchase Price of at least $0.01; provided, however, that any adjustments
which by reason of this paragraph are not required
3
<PAGE>
to be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 2 shall be made to the nearest
cent or to the nearest 1/100th of a share, as the case may be.
2.4 Price Reduction. Notwithstanding any other provision set forth in
this Warrant, at any time and from time to time during the period that this
Warrant is exercisable, the Company in it sole discretion may reduce the
Purchase Price or extend the period during which this Warrant is exercisable.
2.5 No Impairment. The Company will not, by amendment of its Articles
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 2 and in the taking of all such actions as may be necessary or
appropriate in order to protect against impairment of the rights of the
Registered Holder of this Warrant to adjustments in the Purchase Price.
2.6 Notice of Adjustment. Upon any adjustment of the Purchase Price or
extension of the Warrant exercise period, the Company shall forthwith give
written notice thereto to the Registered Holder of this Warrant describing the
event requiring the adjustment, stating the adjusted Purchase Price and the
adjusted number of shares purchasable upon the exercise hereof resulting from
such event, and setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
3. Fractional Shares. The Company shall not be required upon the exercise of
this Warrant to issue any fractional shares, but shall make an adjustment
thereof in cash on the basis of the closing sale price of the Warrant Shares on
the American Stock Exchange ("AMEX") or if the securities are traded or Nasdaq,
the closing sale price expected by Nasdaq on the trading day immediately prior
to the date of exercise, whichever is applicable, or if neither is applicable,
then on the basis of the then fair market value of the Warrant Shares as shall
be reasonably determined by the Board of Directors of the Company.
4. Limitation on Sales. Each holder of this Warrant acknowledges that this
Warrant and the Warrant Shares, as of the date of original issuance of this
Warrant, have not been registered under the Securities Act of 1933, as amended
("Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or
otherwise dispose of this Warrant or any Warrant Shares issued upon its exercise
in the absence of (a) an effective registration statement under the Act as to
this Warrant or such Warrant Shares or (b) an opinion of counsel, satisfactory
to the Company, that such registration and qualification are not required. The
Warrant Shares issued upon exercise thereof shall be imprinted with a legend in
substantially the following form:
"THE ISSUANCE OF THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SAID ACT OR APPLICABLE
STATE SECURITIES LAWS, SUPPORTED BY AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS
NOT REQUIRED."
4
<PAGE>
5. Certain Dividends. If the Company pays a dividend or makes a distribution on
the Common Stock ("Dividend"), other than a stock dividend payable in shares of
Common Stock, then the Company will pay or distribute to the Registered Holder
of this Warrant, upon the exercise hereof, in addition to the Warrant Shares
purchased upon such exercise, the Dividend which would have been paid to such
Registered Holder if it had been the owner of record of such Warrant Shares
immediately prior to the date on which a record is taken for such Dividend or,
if no record is taken, the date as of which the record holders of Common Stock
entitled to such Dividend are determined.
6. Registration Rights of Warrant Holder.
6.1 Registration. Upon the written demand of the holders of at least
51% of the Warrants and/or the Warrant Shares ("Majority Holders"), the Company
shall file a Registration Statement under the Act ("Registration Statement")
with the Securities and Exchange Commission and in such states as shall be
reasonably specified by M.H. Meyerson & Co. ("Placement Agent") registering for
reoffer and resale the Warrant Shares. The Company agrees to use its best
efforts to file the Registration Statement and have it declared effective within
60 days after the demand of the Majority Holder. The Company shall keep the
Registration Statement effective and current until all the securities thereunder
are sold or may be sold freely under an appropriate exemption under the Act and
the blue sky laws of the states selected by the Placement Agreement. The Company
covenants and agrees to give written notice of its receipt of any demand by the
Majority Holders to all other holders within ten days from the date of the
receipt of any demand.
6.2 Expenses. The Company shall bear all the expenses and pay all the
fees it incurs in connection with the preparation, filing, modifying and
amending of the Registration Statement, providing reasonable numbers of the
prospectus contained therein to the Registered Holder and effecting the issuance
and transfer of the Warrant Shares on an expeditious basis.
6.3 Indemnification. The Company shall indemnify the Registered
Holder(s) of the Warrant Shares to be sold pursuant to any registration
statement hereunder and each person, if any, who controls such Registered
Holders within the meaning of Section 15 of the Act or Section 20(a) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), against all loss,
claim, damage, expense or liability (including all reasonable attorneys' fees
and other expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever incurred by the indemnified party in any action or
proceeding between the indemnitor and indemnified party or between the
indemnified party and any third party or otherwise) to which any of them may
become subject under the Act, the Exchange Act or any other statute or at common
law or otherwise under the laws of foreign countries, arising from such
registration statement or based upon any untrue statement or alleged untrue
statement of a material fact contained in (i) any preliminary prospectus, the
Registration Statement or prospectus (as from time to time each may be amended
and supplemented); (ii) in any post-effective amendment or amendments or any new
registration statement and prospectus in which is included the Warrant Shares;
or (iii) any application or other document or written communication
(collectively called "application") executed by the Company or based upon
written information furnished by the Company in any jurisdiction in order to
qualify the Warrant Shares under the securities laws thereof or filed with the
Commission, any state securities commission or agency, AMEX or any securities
exchange; or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, unless
such statement or omission is made in reliance upon, and in conformity with,
written information furnished to the Company with respect to the Registered
Holders expressly for use in any preliminary prospectus, the Registration
Statement or prospectus, or any amendment
5
<PAGE>
or supplement thereof, or in any application, as the case may be. The Company
agrees promptly to notify the Registered Holders of the commencement of any
litigation or proceedings against the Company or any of its officers, directors
or controlling persons in connection with the issue and sale or resale of the
Warrant Shares or in connection with the Registration Statement or prospectus.
7. Redemption.
7.1 Redemption Rights. The Company may call all (but not less than all)
of the Warrants for redemption at any time after October ___, 1999, at the price
of $.01 per Warrant, upon notice referred to in Section 7.2, provided that (i)
the Warrant Shares underlying the Warrants have been registered for resale by
means of the Registration Statement; (ii) the Registration Statement is current
and effective at the time the aforementioned notice is sent and the Warrants are
called by the Company; and (iii) the last sales price of the Common Stock has
been at least $5.00 on each of the twenty (20) consecutive trading days
immediately preceding the day on which notice of redemption is given.
7.2 Date Fixed for Redemption; Notice of Redemption. In the event the
Company shall elect to redeem all of the Warrants, the Company shall fix a date
for the redemption and mail a notice of redemption by first class mail, postage
prepaid, not less than 20 days from the date fixed for redemption to the holders
of the Warrants at their last address as they shall appear on the registration
books. Any notice mailed in the manner herein provided shall be conclusively
presumed to have been duly given whether or not the registered holder received
such notice.
7.3 Exercise After Notice of Redemption. The Warrants may be exercised
in accordance with Section 1 of this Agreement at any time after notice of
redemption shall have been given by the Company pursuant to Section 7.2 hereof
and prior to the time and date fixed for redemption. On and after the redemption
date, the holder of the Warrants shall have no further rights except to receive,
upon surrender of the Warrants, the redemption price.
8. Notices of Record Date. In case:
(i) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time deliverable upon the
exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividend or other distribution, or to receive any right to subscribe
for or purchase any shares of any class or any other securities, or to receive
any other right, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company, or
(iii) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company, then, and in each such case, the Company will mail
or cause to be mailed to the Registered Holder of this Warrant a notice
specifying, as the case may be, (i) the date on which a record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the effective
date on which such reorganization, reclassification, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place, and the time,
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if any is to be fixed, as of which the holders of record of Common Stock (or
such other stock or securities at the time deliverable upon the exercise of this
Warrant) shall be entitled to exchange their shares of Common Stock (or such
other stock or securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be mailed at least ten
(10) days prior to the record date or effective date for the event specified in
such notice, provided that the failure to mail such notice shall not affect the
legality or validity of any such action.
9. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such shares of Common Stock and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant. The Company
shall apply for listing, and obtain such listing, for the Warrant Shares on AMEX
and each exchange on which the Common Stock is listed, at the earliest time that
such listing may be obtained in accordance with the rules and regulations of
AMEX and the exchange and maintain such listing until the seventh anniversary of
the date of original issuance of this Warrant.
10. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and
(in the case of loss, theft or destruction) upon delivery of an indemnity
agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
11. Transfers, etc.
11.1 Warrant Register. The Company will maintain a register containing
the names and addresses of the Registered Holders of this Warrant. Any
Registered Holder may change its, his or her address as shown on the warrant
register by written notice to the Company requesting such change.
11.2 Registered Holder. Until any transfer of this Warrant is made in
the warrant register, the Company may treat the Registered Holder of this
Warrant as the absolute owner hereof for all purposes; provided, however, that
if and when this Warrant is properly assigned in blank, the Company may (but
shall not be obligated to) treat the bearer hereof as the absolute owner hereof
for all purposes, notwithstanding any notice to the contrary.
12. No Rights as Stockholder. Until the exercise of this Warrant, the Registered
Holder of this Warrant shall not have or exercise any rights by virtue hereof as
a stockholder of the Company.
13. Successors. The rights and obligations of the parties to this Warrant will
inure to the benefit of and be binding upon the parties hereto and their
respective heirs, successors, assigns, pledgees, transferees and purchasers.
Without limiting the foregoing, the registration rights set forth in this
Warrant shall inure to the benefit of the Registered Holder and all the
Registered Holder's successors, heirs, pledgees, assignees, transferees and
purchasers of this Warrant and the Warrant Shares.
14. Change or Waiver. Any term of this Warrant may be changed or waived only by
an instrument in writing signed by the party against which enforcement of the
change or waiver is sought.
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15. Headings. The headings in this Warrant are for purposes of reference only
and shall not limit or otherwise affect the meaning of any provision of this
Warrant.
16. Governing Law. This Warrant shall be governed by and construed in accordance
with the laws of the State of New York as such laws are applied to contracts
made and to be fully performed entirely within that state between residents of
that state.
17. Jurisdiction and Venue. The Company (i) agrees that any legal suit, action
or proceeding arising out of or relating to this Warrant shall be instituted
exclusively in New York State Supreme Court, County of New York or in the United
States District Court for the Southern District of New York, (ii) waives any
objection to the venue of any such suit, action or proceeding and the right to
assert that such forum is not a convenient forum for such suit, action or
proceeding, and (iii) irrevocably consents to the jurisdiction of the New York
State Supreme Court, County of New York, and the United States District Court
for the Southern District of New York in any such suit, action or proceeding,
and the Company further agrees to accept and acknowledge service or any and all
process which may be served in any such suit, action or proceeding in New York
State Supreme Court, County of New York or in the United States District Court
for the Southern District of New York and agrees that service of process upon it
mailed by certified mail to its address shall be deemed in every respect
effective service of process upon it in any suit, action or proceeding.
18. Mailing of Notices, etc. All notices and other communications under this
Warrant (except payment) shall be in writing and shall be sufficiently given if
delivered to the addressees in person, by Federal Express or similar receipt
delivery, by facsimile delivery or, if mailed, postage prepaid, by certified
mail, return receipt requested, as follows:
Registered Holder: To his or her address on page 1 of this Warrant.
The Company: Globalink, Inc.
9302 Lee Highway
Fairfax, Virginia 22031
Attention: Harry E. Hagerty
Fax: (703) 273-3405
In either case,
with a copy to: Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016-2097
Attention: David Alan Miller, Esq.
Fax: (212) 818-8881
or to such other address as any of them, by notice to the others may designate
from time to time. Time shall be counted to, or from, as the case may be, the
delivery in person or by mailing.
GLOBALINK, INC.
By:
--------------------------------
Name: Harry E. Hagerty, Jr.
Title: Chief Executive Officer
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EXHIBIT I
NOTICE OF EXERCISE
TO: Globalink, Inc.
9302 Lee Highway
Fairfax, Virginia 22031
1. The undersigned hereby elects to purchase ________ shares of the Common Stock
of Globalink, Inc., pursuant to terms of the attached Warrant, and tenders
herewith payment of the purchase price of such shares in full, together with all
applicable transfer taxes, if any.
or
The undersigned hereby elects to purchase _________ shares of Common
Stock of Globalink, Inc. by surrender of the unexercised portion of the within
Warrant (with a "Value" of $__________ based on a "Market Price" of
$-----------).
Please issue the Common Stock underlying the Warrants in accordance
with the instructions given below.
2. Please issue a certificate or certificates representing said shares of the
Common Stock in the name of the undersigned or in such other name as is
specified below:
3. The undersigned represents that it will sell the shares of Common Stock
pursuant to an effective Registration Statement under the Securities Act of
1933, as amended, or an exemption from registration thereunder.
4. |_| I acknowledge that this exercise of the Warrant represented by this
Notice of Exercise was solicited by M.H. Meyerson & Co., Inc.
|_| The exercise of this Warrant represented by this Notice of Exercise was
not solicited by M.H. Meyerson & Co., Inc.
-------------------------------
Signature of Holder
Please issue securities as follows: -------------------------------
(Name)
-------------------------------
(Address)
-------------------------------
-------------------------------
-------------------------------
(Taxpayer Identification Number)
9
EXHIBIT 4.1(j)
THE SECURITIES EVIDENCED BY THIS INSTRUMENT, AS OF THE DATE OF ORIGINAL ISSUANCE
HEREOF, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("SECURITIES ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT AND APPLICABLE SECURITIES LAWS OF ANY STATE OR JURISDICTION, OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
VOID AFTER 5:00 P.M. EASTERN TIME, OCTOBER 19, 2002.
PURCHASE OPTION
For ______ Units
of
Globalink, Inc.
(A Delaware Corporation)
Purchase Option.
THIS CERTIFIES THAT, in consideration of $.001 per option duly
paid by or on behalf of ________________ ("Holder"), as registered owner of this
Purchase Option, to Globalink, Inc. ("Company"), Holder is entitled, at any time
or from time to time at or after October 20, 1997 ("Commencement Date"), and at
or before 5:00 p.m., Eastern Time, October 19, 2002 ("Expiration Date"), but not
thereafter, to subscribe for, purchase and receive, in whole or in part, up to
______ Units of the Company ("Units"). Each Unit consists of one share of Common
Stock of the Company, $.01 par value ("Common Stock") and one Common Stock
Purchase Warrant ("Warrant"). Each Warrant is to purchase one share of Common
Stock for a period of five years from the closing date ("Closing Date") of the
sale of Units in a private placement ("Private Placement") through M. H.
Meyerson & Co., Inc. ("MHM") as placement agent, as described in the Agency
Agreement between the Company and MHM dated as of October 15, 1997. Each Unit
and Warrant is the same as the Units and Warrants sold in the Private Placement.
The Units, shares of Common Stock and Warrants issuable hereunder are sometimes
collectively referred to herein as the "Securities." If the Expiration Date is a
day on which banking institutions are authorized by law to close, then this
Purchase Option may be exercised on the next succeeding day which is not such a
day in accordance with the terms herein. This Purchase Option is initially
exercisable at $1.51 per Unit purchased; provided, however, that upon the
occurrence of any of the events specified in Section 6 hereof, the rights
granted by this Purchase Option, including the exercise price for the Units and
the number of shares of Common Stock and Warrants to be received upon such
exercise, shall be adjusted as therein specified. The term "Exercise Price"
shall mean the initial exercise price or the adjusted exercise price, depending
on the context. This Purchase Option is one of a number of such options issued
by the Company to MHM and its designees ("Purchase Options").
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1. Exercise.
1.1 Exercise Form. In order to exercise this Purchase Option, the
exercise form attached hereto must be duly executed and completed and delivered
to the Company, together with this Purchase Option and payment of the Exercise
Price for the Securities being purchased by wire transfer, certified check or
official bank check. If the subscription rights represented hereby are not
exercised at or before 5:00 p.m., Eastern time, on the Expiration Date this
Purchase Option shall become and be void without further force or effect, and
all rights represented hereby shall cease and expire.
1.2 Legend. Each certificate for the securities purchased under this
Purchase Option shall bear a legend as follows unless such Securities have been
registered under the Securities Act:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Securities Act") or applicable state law. The securities may
not be offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement under the
Securities Act, or pursuant to an exemption from registration
under the Securities Act and applicable state law."
1.3 Cashless Exercise.
1.3.1 Determination of Amount. In lieu of the payment of the
Exercise Price in the manner required by Section 2.1, the Holder shall have the
right (but not the obligation) to pay the Exercise Price for the Units being
purchased with this Purchase Option upon exercise by the surrender to the
Company of any exercisable but unexercised portion of this Purchase Option
having a "Value" (as defined below), at the close of trading on the last trading
day immediately preceding the exercise of this Purchase Option, equal to the
Exercise Price multiplied by the number of Units being purchased upon exercise
("Cashless Exercise Right"). The sum of (a) the number of Units being purchased
upon exercise of the non-surrendered portion of this Purchase Option pursuant to
this Cashless Exercise Right and (b) the number of Units underlying the portion
of this Purchase Option being surrendered, shall not in any event be greater
than the total number of Units purchasable upon the complete exercise of this
Purchase Option if the Exercise Price were paid in cash. The "Value" of the
portion of the Purchase Option being surrendered shall equal the remainder
derived by subtracting (a) the Exercise Price multiplied by the number of Units
underlying the portion of this Purchase Option being surrendered from (b) the
"Market Price" (as defined below) of the Units multiplied by the number of Units
underlying the portion of this Purchase Option being surrendered. As used
herein, the term "Market Price" at any date shall be deemed to be the last
reported sale price of a share of Common Stock on such date, or, in case no such
reported sale takes place on such date, the average of the last reported sale
prices for the immediately preceding three trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or if any such exchange
on which the Common Stock is listed is not its principal trading market, the
last reported sale price as furnished by the National Association of Securities
Dealers ("NASD") through the Nasdaq National Market or SmallCap Market, or, if
applicable, the OTC Bulletin Board, or if the Common Stock is not listed or
admitted to trading on the Nasdaq National Market or SmallCap Market or OTC
Bulletin Board or similar
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organization, as determined in good faith by resolution of the Board of
Directors of the Company, based on the best information available to it.
1.3.2 Mechanics of Cashless Exercise. The Cashless Exercise
Right may be exercised by the Holder on any business day on or after the
Commencement Date and not later than the Expiration Date by delivering to the
Company the Purchase Option with a duly executed exercise form attached hereto
with the cashless exercise section completed.
2. Transfer.
2.1 General Restrictions. The registered Holder of this Purchase
Option, by its acceptance hereof, agrees that it will not sell, transfer or
assign or hypothecate this Purchase Option, other than in compliance with or
exemptions from applicable securities laws. In order to make any permitted
assignment, the Holder must deliver to the Company the assignment form attached
hereto duly executed and completed, together with this Purchase Option and
payment of all transfer taxes, if any, payable in connection therewith. The
Company shall immediately transfer this Purchase Option on the books of the
Company and shall execute and deliver a new Purchase Option or Purchase Options
of like tenor to the appropriate assignee(s) expressly evidencing the right to
purchase the aggregate number of Units purchasable hereunder or such portion of
such number as shall be contemplated by any such assignment.
2.2 Restrictions Imposed by the Act. This Purchase Option and the
Securities underlying this Purchase Option shall not be transferred unless and
until (i) the Company has received the opinion of counsel reasonably acceptable
to the Company that this Purchase Option or the Securities, as the case may be,
may be transferred pursuant to an exemption from registration under the Act and
applicable state law, the availability of which is established to the reasonable
satisfaction of the Company, or (ii) a registration statement relating to such
Purchase Option or Securities, as the case may be, has been filed by the Company
and declared effective by the Securities and Exchange Commission ("Commission").
3. New Purchase Options to be Issued.
3.1 Partial Exercise or Transfer. Subject to the restrictions in
Section 3 hereof, this Purchase Option may be exercised or assigned in whole or
in part. In the event of the exercise or assignment hereof in part only, the
Company shall cause to be delivered to the Holder without charge a new Purchase
Option of like tenor in the name of the Holder evidencing the right to purchase
the aggregate number of Units as to which this Purchase Option has not been
exercised or assigned.
3.2 Lost Certificate. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Purchase Option and of reasonably satisfactory indemnification, the Company
shall execute and deliver a new Purchase Option of like tenor and date. Any such
new Purchase Option executed and delivered as a result of such loss, theft,
mutilation or destruction shall constitute a substitute contractual obligation
on the part of the Company.
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<PAGE>
4. Registration Rights.
4.1 Obligation to Register. Upon the written demand of the holders of
at least 51% or more of the Warrants and/or the underlying shares of Common
Stock ("Majority Holders"), the Company shall file a registration statement
("Registration Statement") under the Securities Act with the Commission,
registering for resale the Common Stock issuable upon exercise of this Purchase
Option, the Common Stock issuable upon exercise of the Warrants underlying this
Purchase Option and the Common Stock and Common Stock issuable upon exercise of
Warrants included in the Units sold to investors in the Private Placement. The
Company shall use its best efforts to file the Registration Statement and have
it declared effective within 60 days after the demand by the Majority Holders.
4.2 Terms. The Company shall bear all fees and expenses it incurs in
connection with the preparation, filing, modifying and amending the Registration
Statement, providing reasonable numbers of the prospectus contained therein to
the Holders and effecting the issuance and transfer of the securities referred
to under Section 4.1 hereof ("Registrable Securities"), but the Holders shall
pay any and all underwriting commissions and the expenses of any legal counsel
selected by the Holders to represent them in connection with the sale of the
Registrable Securities. The Company agrees to qualify or register the
Registrable Securities in such states as are reasonably requested by the
Holder(s); provided, however, that in no event shall the Company be required to
register the Registrable Securities in a state in which such registration would
cause (i) the Company to be obligated to register or license to do business in
such state, or (ii) the principal stockholders of the Company to be obligated to
escrow their shares of capital stock of the Company. The Company shall cause any
Registration Statement filed pursuant to this Section 5 to remain effective and
current until the Registrable Securities may be sold without any limitation
under the Securities Act by the Holders thereof.
4.3 General Terms.
4.3.1 Indemnification. The Company shall indemnify the
Holder(s) of the Securities to be sold pursuant to any registration statement
hereunder and each person, if any, who controls such Holders within the meaning
of Section 15 of the Securities Act and/or Section 20(a) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), against all loss, claim,
damage, expense or liability (including all reasonable attorneys' fees and other
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever incurred by the indemnified party in any action or
proceeding between the indemnitor and indemnified party or between the
indemnified party and any third party or otherwise) to which any of them may
become subject under the Securities Act, the Exchange Act or any other statute
or at common law or otherwise under the laws of foreign countries, arising from
such registration statement or based upon any untrue statement or alleged untrue
statement of a material fact contained in (i) any preliminary prospectus, the
registration statement or prospectus (as from time to time each may be amended
and supplemented); (ii) in any post-effective amendment or amendments or any new
registration statement and prospectus in which is included the Registrable
Securities; or (iii) any application or other document or written communication
(collectively called "application") executed by the Company or based upon
written information furnished by the Company in any jurisdiction in order to
qualify the Registrable Securities under the securities laws thereof or filed
with the Commission, any state securities commission or agency, Nasdaq or any
securities exchange; or the omission or alleged omission therefrom of
4
<PAGE>
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, unless such statement or omission is made in reliance upon, and
in conformity with, written information furnished to the Company with respect to
the Holders expressly for use in a preliminary prospectus, registration
statement or prospectus, or amendment or supplement thereof, or in any
application, as the case may be. The Company agrees promptly to notify the
Holder of the commencement of any litigation or proceedings against the Company
or any of its officers, directors or controlling persons in connection with the
issue and sale or resale of the Registrable Securities or in connection with the
registration statement or prospectus.
4.3.2 Exercise of Warrants. Nothing contained in this Purchase
Option shall be construed as requiring the Holder(s) to exercise their Purchase
Options or Warrants prior to or after the initial filing of any registration
statement or the effectiveness thereof.
5. Adjustments.
5.1 Adjustments to Exercise Price and Number of Securities. The
Exercise Price and the number of shares of Common Stock and Warrants issuable
upon exercise of this Purchase Option shall be subject to adjustment from time
to time as hereinafter set forth:
5.1.1 Stock Dividends - Split-Ups. If after the date hereof,
and subject to the provisions of Section 5.2 below, the number of outstanding
shares of Common Stock is increased by a stock dividend payable in shares of
Common Stock or by a split-up of shares of Common Stock or other similar event,
then, on the effective date of such stock dividend or split-up, the number of
shares of Common Stock issuable on exercise of each Purchase Option shall be
increased in proportion to such increase in outstanding shares.
5.1.2 Aggregation of Shares. If after the date hereof, and
subject to the provisions of Section 5.2, the number of outstanding shares of
Common Stock is decreased by a consolidation, combination or reclassification of
shares of Common Stock or other similar event, then, upon the effective date of
such consolidation, combination or reclassification, the number of shares of
Common Stock issuable on exercise of each Purchase Option shall be decreased in
proportion to such decrease in outstanding shares.
5.1.3 Adjustments in Number of Warrants. The number of shares
of Common Stock purchasable upon exercise of the Warrants issuable upon exercise
of this Purchase Option shall be adjusted (as will the exercise price of such
Warrants) in accordance with the terms of the Warrants, as if such Warrants were
outstanding on the date hereof.
5.1.4 Adjustments in Exercise Price. Whenever the number of
shares of Common Stock purchasable upon the exercise of this Purchase Option is
adjusted, as provided in this Section 5.1, the Exercise Price shall be adjusted
(to the nearest cent) by multiplying such Exercise Price immediately prior to
such adjustment by a fraction (x) the numerator of which shall be the number of
shares of Common Stock purchasable upon the exercise of this Purchase Option
immediately prior to such adjustment, and (y) the denominator of which shall be
the number of shares of Common Stock so purchasable immediately thereafter.
5.1.5 Replacement of Securities Upon Reorganization, etc.
If after the date hereof any capital reorganization or reclassification of the
Common Stock of the Company, or
5
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consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its assets to another corporation or other similar
event shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and fair provision shall
be made whereby the Holders shall thereafter have the right to purchase and
receive, upon the basis and upon the terms and conditions specified in this
Purchase Option and in lieu of the Securities immediately theretofore
purchasable and receivable upon the exercise of this Purchase Option, such
shares of stock, securities, or assets as may be issued or payable with respect
to or in exchange for the number of Securities immediately theretofore
purchasable and receivable upon the exercise of this Purchase Option, had such
reorganization, reclassification, consolidation, merger or sale not taken place.
In such event, appropriate provision shall be made with respect to the rights
and interests of the Holders so that the provisions hereof (including, without
limitation, provisions for adjustments of the Exercise Price and of the number
of securities purchasable upon the exercise of this Purchase Option) shall
thereafter be applicable, as nearly as may be in relation to any share of stock,
securities, or assets thereafter deliverable upon the exercise hereof. The
Company shall not effect any such reorganization, reclassification,
consolidation, merger or sale unless, prior to the consummation thereof, the
successor corporation (if other than the Company) resulting from such
transaction shall assume by written instrument executed and delivered to the
Holders the obligation to deliver such shares of stock, securities or assets.
5.2 Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of Common Stock or
Warrants upon the exercise or transfer of the Purchase Option, nor shall it be
required to issue scrip or pay cash in lieu of any fractional interests, it
being the intent of the parties that all fractional interests shall be
eliminated by rounding any fraction up to the nearest whole number of Warrants,
shares of Common Stock or other securities, properties or rights at no
additional cost to the Holder.
6. Reservation and Listing. The Company shall at all times reserve and keep
available out of its authorized shares of Common Stock, solely for the purpose
of issuance upon exercise of the Purchase Options, Units or Warrants, such
number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Purchase Options and payment of the Exercise Price
therefor, all shares of Common Stock and other securities issuable upon such
exercise shall be duly and validly issued, fully paid and non-assessable and not
subject to preemptive rights of any stockholder. The Company further covenants
and agrees that upon exercise of the Warrants underlying the Units included in
this Purchase Option and payment of the exercise price therefor, all shares of
Common Stock and other securities issuable upon such exercise shall be duly and
validly issued, fully paid and non-assessable and not subject to preemptive
rights of any stockholder. As long as the Purchase Options shall be outstanding,
the Company shall use its best efforts to cause the Common Stock issuable upon
exercise of the Purchase Options and Warrants to be listed (subject to official
notice of issuance) on all securities exchanges (or, if applicable on Nasdaq) on
which the Common Stock is then listed and/or quoted for a period of seven years
from the Closing Date.
7. Certain Notice Requirements.
7.1 Holder's Right to Receive Notice. Nothing herein shall be construed
as conferring upon the Holders the right to vote or consent or to receive notice
as a stockholder for the election of directors or any other matter, or as having
any rights whatsoever as a stockholder
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of the Company. If, however, at any time prior to the expiration of the Purchase
Options and their exercise, any of the events described in Section 7.2 shall
occur, then, in one or more of said events, the Company shall give written
notice of such event at least fifteen days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, conversion or exchange of
securities or subscription rights, or entitled to vote on such proposed
dissolution, liquidation, winding up, consolidation, merger, reorganization or
sale. Such notice shall specify such record date or the date of the closing of
the transfer books, as the case may be.
7.2 Events Requiring Notice. The Company shall be required to give the
notice described in this Section 8 upon one or more of the following events: (i)
if the Company shall take a record of the holders of its shares of Common Stock
for the purpose of entitling them to receive a dividend or distribution, or (ii)
the Company shall offer to all the holders of its Common Stock any additional
shares of capital stock of the Company or securities convertible into or
exchangeable for shares of capital stock of the Company, or any option, right or
warrant to subscribe therefor, or (iii) a dissolution, liquidation, winding up,
consolidation, merger or reorganization of the Company or a sale of all or
substantially all of its property, assets and business shall be proposed.
7.3 Notice of Change in Exercise Price. The Company shall, promptly
after an event requiring a change in the Exercise Price pursuant to Section 6.1
hereof, send notice to the Holders of such event and change ("Price Notice").
The Price Notice shall describe the event causing the change and the method of
calculating same and shall be certified as being true and accurate by the
Company's President and Chief Financial Officer.
7.4 Transmittal of Notices. All notices, requests, consents and other
communications under this Purchase Option shall be in writing and shall be
deemed to have been duly made on the date of delivery if delivered personally or
sent by overnight courier, with acknowledgment of receipt to the party to which
notice is given, or on the fifth day after mailing if mailed to the party to
whom notice is to be given, by registered or certified mail, return receipt
requested, postage prepaid and properly addressed as follows: (i) if to the
registered Holder of the Purchase Option, to the address of such Holder as shown
on the books of the Company, or (ii) if to the Company, to its principal
executive office.
8. Miscellaneous.
8.1 Amendments. The Company and MHM may from time to time supplement or
amend this Purchase Option without the approval of any of the Holders in order
to cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and MHM may deem necessary or desirable. All other
modifications or amendments shall require the written consent of the party
against whom enforcement of the modification or amendment is sought.
8.2 Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Purchase Option.
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8.3 Entire Agreement. This Purchase Option constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements and understandings of the parties, oral and
written, with respect to the subject matter hereof.
8.4 Binding Effect. This Purchase Option shall inure solely to the
benefit of and shall be binding upon, the Holder and the Company and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Purchase Option or any provisions
herein contained. Without limiting the foregoing, the registration rights set
forth in this Purchase Option shall inure to the benefit of the Holders and all
the Holder's successors, heirs, pledgees, assignees, transferees and purchasers
of this Purchase Option or the Registrable Securities.
8.5 Governing Law; Submission to Jurisdiction. This Purchase Option
shall be governed by and construed and enforced in accordance with the laws of
the State of New York, without giving effect to conflict of laws. The Company
hereby agrees that any action, proceeding or claim against it arising out of, or
relating in any way to this Purchase Option shall be brought and enforced in the
courts of the State of New York or of the United States of America for the
Southern District of New York, and irrevocably submits to such jurisdiction,
which jurisdiction shall be exclusive. The Company hereby waives any objection
to such exclusive jurisdiction and that such courts represent an inconvenient
forum. Any process or summons to be served upon the Company may be served by
transmitting a copy thereof by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
8 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the Company in any action, proceeding or claim. The Company agrees
that the prevailing party(ies) in any such action shall be entitled to recover
from the other party(ies) all of its reasonable attor neys' fees and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
8.6 Waiver, Etc. The failure of the Company or the Holder to at any
time enforce any of the provisions of this Purchase Option shall not be deemed
or construed to be a waiver of any such provision, nor to in any way affect the
validity of this Purchase Option or any provision hereof or the right of the
Company or any Holder to thereafter enforce each and every provision of this
Purchase Option. No waiver of any breach, non-compliance or non-fulfillment of
any of the provisions of this Purchase Option shall be effective unless set
forth in a written instrument executed by the party or parties against whom or
which enforcement of such waiver is sought; and no waiver of any such breach,
non-compliance or non-fulfillment shall be construed or deemed to be a waiver of
any other or subsequent breach, non-compliance or non-fulfillment. The issuance
of any Extra Warrants is not intended to be liquidated damages, and the Holder
has the right to seek damages or other remedies at law or equity for the breach
by the Company of any of its obligations under this Purchase Option without
limitation.
8.7 Execution in Counterparts. This Purchase Option may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
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8.8 Exchange Agreement. As a condition of the Holder's receipt and
acceptance of this Purchase Option, Holder agrees that, at any time prior to the
complete exercise of this Purchase Option by Holder, if the Company and MHM
enter into an agreement ("Exchange Agreement") pursuant to which they agree that
all outstanding Purchase Options issued in connection with the Private Placement
will be exchanged for securities or cash or a combination of both, then Holder
shall agree to such exchange and become a party to the Exchange Agreement.
IN WITNESS WHEREOF, the Company has caused this Purchase
Option to be signed by its duly authorized officer as of October 20, 1997.
GLOBALINK, INC.
By:/s/ Harry E. Hagerty Jr.
----------------------------
Harry E. Hagerty, Jr.
Chief Executive Officer
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Form to be used to exercise Purchase Option:
Globalink, Inc.
9302 Lee Highway
Fairfax, Virginia 22031
Attn.: Harry E. Hagerty, Jr.
Date:_________________, 19__
The undersigned hereby elects irrevocably to exercise the
within Purchase Option and to purchase ____ Units of Globalink, Inc. and hereby
makes payment of $____________ (at the rate of $_________ per Unit) in payment
of the Exercise Price pursuant thereto. Please issue the Common Stock and
Warrants comprising the Units as to which this Purchase Option is exercised in
accordance with the instructions given below.
or
The undersigned hereby elects irrevocably to exercise the
within Purchase Option and to purchase _________ Units of Globalink, Inc. by
surrender of the unexercised portion of the within Purchase Option (with a
"Value" of $__________ based on a "Market Price" of $___________). Please issue
the Common Stock and Warrants comprising the Units in accordance with the
instructions given below.
-------------------------
Signature
NOTICE: The signature to this form must correspond with the
name as written upon the face of the within Purchase Option in every particular
without alteration or enlargement or any change whatsoever.
Please issue securities as follows: Name:___________________________
Address:________________________
--------------------------------
I.D.#:__________________________
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Form to be used to assign Purchase Option:
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer of the
within Purchase Option):
FOR VALUE RECEIVED, ____________________________________ does hereby
sell, assign and transfer unto ______________________________ the right to
purchase ___________________________ Units of Globalink, Inc. ("Company")
evidenced by the within Purchase Option and does hereby authorize the Company to
transfer such right on the books of the Company.
Dated: _______________, 19___
-----------------------
Signature
NOTICE: The signature to this form must correspond with the name as
written upon the face of the within Purchase Option in every particular without
alteration or enlargement or any change whatsoever.
11
Exhibit 10.3
GLOBALINK, INC.
AGENCY AGREEMENT
October 15, 1997
M.H. Meyerson & Co., Inc.
525 Washington Blvd.
Jersey City, N.J. 07303-0260
Gentlemen:
Globalink, Inc., a Delaware corporation ("Company"), proposes
to offer for sale in a private placement ("Offering"), units ("Units")
aggregating a minimum of $750,000 and a maximum of $1,000,000 of gross proceeds
to the Company. Each Unit consists of one share of common stock, $.01 par value
("Common Stock"), and one Common Stock Purchase Warrant ("Warrant"). The
per-Unit offering price ("Offering Price") will be the lower of $1.375 or 85% of
the average of the closing bid price of the Common Stock on the ten consecutive
business days ending three business days prior to the initial closing of the
Offering ("Closing"). Each Warrant will entitle the holder thereof to purchase
one share of Common Stock during the five-year period commencing on the Closing,
at an exercise price equal to 127.27% of the per-Unit Offering Price. The
Warrant will be issued in the form of Exhibit A ("Warrant Certificate") to the
Offering Documents (as hereinafter defined). No fractional Units will be issued;
instead, the Company will round up to the nearest whole number of Units, at no
additional cost to the investor. The Units will be offered on a "best efforts,
$750,000 minimum, $1,000,000 maximum" basis, in accordance with Section 4(2)
and/or 3(b) of the Securities Act of 1933, as amended ("Securities Act"), and
Rules 501-506 of Regulation D ("Reg D") promulgated thereunder, only to
"accredited investors," as defined in Reg D. The minimum subscription amount
will be $100,000, but subscriptions for amounts less than $100,000 may be
accepted at the discretion of the Placement Agent (as defined hereinafter) and
the Company.
The Units, Common Stock and Warrants have the terms and
conditions reflected in the Company's Confidential Private Placement Memorandum
dated October 15, 1997 to be delivered to each subscriber of Units ("PPM"). The
PPM, together with all exhibits thereto, including, but not limited to, the form
of Common Stock Purchase Warrant, form of Subscription Agreement to be executed
by each purchaser and the Company, the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1996, the Company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 1997 and the Company's Forms 8-K filed on
March 21, 1997 and April 7, 1997, will be referred to herein as the "Offering
Documents. "M.H. Meyerson & Co., Inc. is sometimes referred to herein as "MHM"
or the "Placement Agent."
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1. Appointment of Placement Agent; The Offering Period.
1.1 Appointment of Placement Agent. You are hereby appointed exclusive
Placement Agent of the Company during the offering period herein specified
("Offering Period") for the purpose of assisting the Company in placing the
Units with purchasers who are qualified accredited investors ("Subscribers").
You hereby accept such agency and agree to assist the Company in placing Units
with the Subscribers. Your agency hereunder is not terminable by the Company
except upon termination of the Offering or breach by you of your material
obligations hereunder.
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1.2 Offering Period. The Offering Period shall commence on the day the
Offering Documents are first made available to you by the Company and shall
continue until October 31, 1997; provided, however, that the Offering Period may
be extended for an additional period through November 30, 1997 by the mutual
decision of the Company and the Placement Agent, without notice to any
Subscriber. If, at any time during the Offering Period, subscriptions for not
less than $750,000 have been received and accepted by the Company (and funds in
payment therefor have cleared the banking system), then, upon the mutual consent
of the Company and the Placement Agent, a Closing shall take place with respect
to such accepted subscriptions. If subscriptions for at least $1,000,000 are not
received and accepted (and funds in payment therefor cleared) prior to the end
of the Offering Period (including any extension thereof), the Offering will be
terminated and all funds received from Subscribers will be returned, without
interest and without any deduction. The day that the Offering Period terminates
is hereinafter referred to as the "Termination Date."
1.3 Offering Documents. The Company will provide the Placement Agent
with a sufficient number of copies of the Offering Documents for delivery to
potential Subscribers and such other information, documents and instruments
which the Placement Agent may reasonably request in order to comply with the
rules, regulations and judicial and administrative interpretations respecting
compliance with applicable state and federal statutes related to the Offering.
1.4 Segregation of Funds. Each subscriber for Units shall tender to the
Placement Agent a check payable to "M.H. Meyerson & Co., Inc. -- Globalink
Special Account" in the amount of the investment subscribed for, which funds
shall be held by the Placement Agent in a segregated non-interest bearing bank
account in accordance with Rules 10b-9 and 15c2-4 promulgated under the
Securities Exchange Act of 1934 ("Exchange Act"), as set forth in the Offering
Documents.
1.5 No Firm Commitment. The Company understands and acknowledges that
the undertaking by the Placement Agent pursuant to this Agreement is not a "firm
commitment" offering, and the Placement Agent is not obligated in any way to
purchase or sell the Units offered hereby.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants as follows:
2.1 Due Incorporation and Qualification. The Company has been duly
incorporated, is validly existing and is in good standing under the laws of its
state of incorporation and is duly qualified as a foreign corporation for the
transaction of business and is in good standing in each jurisdiction in which
the ownership or leasing of its properties or the conduct of its business
requires such quali fication, except where the failure to so qualify would not
have a material adverse effect on the business of the Company and its
subsidiaries ("Subsidiaries") taken as a whole. The Company has all requisite
corporate power and authority necessary to own or hold its properties and
conduct its business as described in the Offering Documents.
2.2 Authorized Capital. The Company is authorized to issue (i)
20,000,000 shares of Common Stock, of which 8,432,962 shares are currently
issued and outstanding and (ii) 250,000 shares of preferred stock, of which
26,771 shares of Series A-2 8% convertible redeemable preferred are currently
issued and outstanding ("Preferred Stock"). All of the outstanding securities of
the Company have been duly and validly authorized and issued and are fully paid
and non-assessable. None of the holders of such securities is subject to
personal liability solely by reason of being such a holder. The offers and sales
of such outstanding securities were at all relevant times either registered
under the Securities Act and the applicable state securities or Blue Sky laws or
exempt from such registration. The Company has reserved for issuance a
sufficient number of shares of Common Stock to be issued to the Subscribers and
upon the exercise of the Warrants as set forth in the Warrant Certificate
("Warrant Shares") and to be issued pursuant to the Placement Agent Options (as
herein defined) and the Warrants underlying the Placement Agent Options.
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2.3 No Preemptive Rights; Options; Registration Rights. Except as set
forth on Schedule 2.3, there are no preemptive or other rights to subscribe for
or purchase, or any restriction upon the voting or transfer of, any shares of
Common Stock or other securities of the Company, under the Certificate of
Incorporation or By-Laws of the Company or under any agreement or other
outstanding instrument to which the Company is a party or by which it is bound.
Except as set forth on Schedule 2.3, the Company does not have outstanding any
option, warrant, convertible security, or other right permitting or requiring it
to issue, or otherwise to purchase or convert any obligation into, shares of
Common Stock or other securities of the Company and the Company has not agreed
to issue or sell any shares of Common Stock or other securities of the Company.
Except as set forth on Schedule 2.3, no holder of any of the Company's
securities has any rights, "demand," piggyback" or otherwise, to have such
securities registered or to demand the filing of a registration statement.
2.4 Financial Statements. The financial statements of the Company
included in the Offering Documents ("Financials") fairly present the financial
position and results of operations of the Company at the dates thereof and for
the periods covered thereby, subject, in the case of interim periods, to
year-end adjustments and normal recurring accruals. The Company has no material
liabilities or obligations, contingent, direct, indirect or otherwise except (i)
as set forth in the latest balance sheet included in the Financials (the date of
such Financials being referred to as the "Balance Sheet Date"), (ii) those
incurred in the ordinary course of business since the Balance Sheet Date and
(iii) as set forth on Schedule 2.4. Schedule 2.4 also sets forth all outstanding
amounts due to or from any officers, directors or shareholders of the Company,
or to any of their respective affiliates, including, but not limited to, accrued
salaries, loans, etc.
2.5 No Material Adverse Changes. Except as otherwise stated in the
Offering Documents, since the Balance Sheet Date, there has not been any change
in the condition, financial or otherwise, of the Company which could materially
adversely affect its ability to conduct its operations as described in the
Offering Documents.
2.6 Subsidiaries. Except for the Subsidiaries set forth in Schedule
2.6, the Company has no subsidiaries and has no interest in, shares of capital
stock of or right to acquire an interest in or shares of capital stock of any
other corporation, limited liability company, partnership or other entity. The
Company owns the outstanding capital stock of the subsidiaries as set forth in
Schedule 2.6 free and clear of all liens, charges and encumbrances of any kind
whatsoever, and there are no outstanding rights to acquire, or directly or
indirectly control the vote or transfer of, any of the capital stock of the
Subsidiaries.
2.7 Taxes. The Company has filed all federal tax returns and all state
and municipal and local tax returns (whether relating to income, sales,
franchise, withholding, real or personal property or other types of taxes)
required to be filed under the laws of the United States and applicable states,
and has paid in full all taxes which have become due pursuant to such returns or
claimed to be due by any taxing authority or otherwise due and owing; provided,
however, that the Company has not paid any tax, assessment, charge, levy or
license fee that it is contesting in good faith and by proper proceedings and
adequate reserves for the accrual of same are maintained if required by
generally accepted accounting principles. Each of the tax returns heretofore
filed by the Company correctly and accurately reflects the amount of its tax
liability thereunder. The Company has withheld, collected and paid all levies,
assessments, license fees and taxes to the extent required. As used herein,
"tax" or "taxes" include all taxes, charges, fees, levies or other assessments
imposed by any Federal, state, local, or foreign taxing authority, including,
without limitation, income, premium, recapture, credit, excise, property, sales,
use, occupation, service, service use, leasing, leasing use, value added,
transfer, payroll, employment, license, stamp, franchise or similar taxes
(including any interest earned thereon or penalties or additions attributable
thereto).
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2.8 Finder's Fees; Other Underwriters. The Company is not obligated to
pay a finder's fee to anyone in connection with the introduction of the Company
to the Placement Agent or the con summation of the Offering contemplated
hereunder. The Company does not owe any monies or other obligations to any NASD
member, associate or affiliate.
2.9 No Pending Actions. Except as set forth in the Offering Documents,
there are no actions, suits, proceedings, claims or hearings of any kind or
nature existing or pending (or, to the best knowledge of the Company,
threatened) or, to the best knowledge of the Company, any investigations or
inquiries, before or by any court, or other governmental authority, tribunal or
instrumentality (or, to the Company's best knowledge, any state of facts which
would give rise thereto), pending or threatened against the Company, or
involving the properties of the Company, which might result in any material
adverse change in the business, properties, financial position or results of
operations of the Company, or which might adversely affect the transactions or
other acts contemplated by this Agreement or the validity or enforceability of
this Agreement.
2.10 Private Offering Exemption; Offering Documents. The Offering
Documents conform in all material respects with the requirements of Section 4(2)
and/or 3(b) of the Securities Act and Rules 501-506 of Reg D and with the
requirements of all other applicable rules and regulations of the Securities and
Exchange Commission ("Commission") currently in effect relating to "private
offerings." The Offering Documents contain all material statements which are
required to be stated therein in accordance with such requirements and do not
contain any 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, in
the light of the circumstances under which they were made, not misleading. The
Warrants and Placement Agent Options conform to the descriptions thereof
contained in the Offering Documents. When any exhibit to the PPM that was
required to be filed with the Commission, was filed with the Commission pursuant
to the Exchange Act or the Regulations promulgated thereunder or other
applicable law, such exhibit complied in all material respects with the
applicable provisions of the Exchange Act and the Regulations promulgated
thereunder or other applicable law and did not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Assuming that (i) a
proper Form D is filed in accordance with Rule 503 of Reg D, (ii) the offer and
the sale of the Units by the Placement Agent was made in compliance with Rule
502(c) of Reg D and/or Section 4(2) of the Securities Act, and (iii) the
representations of the Subscribers in the Subscription Agreements signed by them
are true and correct (which facts will not be independently verified by the
Company) the sale of Units in the Offering is exempt from registration under the
Securities Act and is in compliance with Reg D.
2.11 Due Authorization; Consents. The Company has full right, power and
authority to enter into this Agreement and the Warrants, the Subscription
Agreements, the Placement Agent Options and the Merger & Acquisition Agreement
to be entered into between the Company and the Subscribers and the Placement
Agent, as the case may be, (collectively the "Offering Agreements") and to
perform all of its obligations hereunder and thereunder. The execution and
delivery of this Agreement and the Offering Agreements has been duly authorized
by all necessary corporate action and no further corporate action or approval is
or will be required for their respective execution, delivery and performance.
This Agreement constitutes, and the Offering Agreements upon execution and
delivery will constitute, valid and binding obligations of the Company,
enforceable in accordance with their respective terms (except (i) as the
enforceability thereof may be limited by bankruptcy or other laws now or
hereafter in effect relating to or affecting creditors' rights generally, (ii)
that the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceedings therefor may be brought, and (iii) that
the enforceability of the indemnification and contribution provisions of the
respective agreements may be limited by the federal and state securities laws
and public policy), and no consent, approval, authorization, order of, or filing
with, any court or governmental authority or any other third
5
<PAGE>
party is required to consummate the transactions contemplated by this Agreement
or the Offering Documents, except that the offer and sale of the Units in
certain jurisdictions may be subject to the provisions of the securities or Blue
Sky laws of such jurisdictions and final action may have to be taken with
respect to the listing of the Common Stock underlying the Units, the Warrant
Shares and the Common Stock underlying the Placement Agent Options and the
Warrants underlying the Placement Agent Options.
2.12 Non-Contravention. The Company's execution and delivery of this
Agreement and the Offering Agreements and the incurrence of the obligations
herein and therein set forth, and the consummation of the transactions
contemplated herein and therein will not (i) conflict with, or constitute a
breach of, or a default under, the Certificate of Incorporation or By-Laws of
the Company, or any contract, lease or other agreement or instrument to which
the Company is a party or in which the Company has a beneficial interest or by
which the Company is bound; (ii) violate any existing applicable law, rule or
regulation, or any judgment, order or decree of any governmental agency or
court, domestic or foreign, having jurisdiction over the Company or any of its
properties or business (collectively, "Laws"), except where such violation(s)
would not have a material adverse effect, singly or in the aggregate, on the
Company; or (iii) have any material adverse effect on any permit, certification,
registration, approval, consent, license or franchise (collectively, "Permits")
necessary for the Company to own or lease and operate any of its properties or
to conduct its business.
2.13 Shares and Warrants. The shares of Common Stock included in the
Units, the Warrant Shares and the shares of Common Stock underlying the
Placement Agent Options and the Warrants issuable thereunder have been duly and
validly authorized and, when issued and delivered in accordance with the terms
of the Subscription Agreements, the Warrants and Placement Agent Options, as the
case may be, will be duly and validly issued, fully paid and non-assessable. The
holders of the shares of Common Stock included in the Units and Warrant Shares
and the shares of Common Stock underlying the Placement Agent Options and the
Warrants issuable thereunder will not be subject to personal liability by reason
of being such holders and will not be subject to the preemptive rights of any
holders of any security of the Company or similar contractual rights granted by
the Company. All corporate action required to be taken for the authorization,
issuance and sale of the Common Stock, included in the Units, the Warrant Shares
and the shares of Common Stock underlying the Placement Agent Options and the
Warrants issuable thereunder have been duly and validly taken.
2.14 No Right to Purchase. The issuance of the Units in the Offering
and the Placement Agent Options and the Common Stock upon exercise of the
Warrants, the Placement Agent Options and the Warrants issuable thereunder will
not give any holder of any of the Company's outstanding shares of Common Stock,
options, warrants or other convertible securities or rights to purchase
securities of the Company (i) the right to purchase any additional shares of
Common Stock or any other securities of the Company, or (ii) the right to
purchase any securities at a reduced price.
2.15 No Regulatory Problems. The Company (i) has not filed a
registration statement which is the subject of any pending proceeding or
examination under Section 8 of the Securities Act, and is not and has not been
the subject of any refusal order or stop order thereunder; (ii) is not subject
to any pending proceeding under Rule 258 of the Securities Act or any similar
rule adopted under Section 3(b) of the Securities Act, or to an order entered
thereunder; (iii) has not been convicted of any felony or misdemeanor in
connection with the purchase or sale of any security or involving the making of
any false filing with the Commission; (iv) is not subject to any order,
judgment, or decree of any court of competent jurisdiction temporarily or
preliminarily restraining or enjoining, or subject to any order, judgment, or
decree of any court of competent jurisdiction permanently restraining or
enjoining, the Company from engaging in or continuing any conduct or practice in
connection with the purchase or sale of any security or involving the making of
any false filing with the Commission; and (v) is not subject to a United States
Postal Service false representation order entered under Section
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3005 of Title 39, United States Code or a temporary restraining order or
preliminary injunction entered under Section 3007 of Title 39, United States
Code, with respect to conduct alleged to have violated Section 3005 of Title 39,
United States Code. None of the Company's directors, officers, or beneficial
owners of 10 percent or more of any class of its equity securities (i) has been
convicted of any felony or misdemeanor in connection with the purchase or sale
of any security, involving the making of a false filing with the Commission, or
arising out of the conduct of the business of an underwriter, broker, dealer,
municipal securities dealer, or investment advisor; (ii) is subject to any
order, judgment or decree of any court of competent jurisdiction temporarily or
preliminarily enjoining or restraining, or is subject to any order, judgment or
decree of any court of competent jurisdiction permanently enjoining or
restraining, such person from engaging in or continuing any conduct or practice
in connection with the purchase or sale of any security, or involving the making
of a false filing with the Commission, or arising out of the conduct of the
business of an underwriter, broker, dealer, municipal securities dealer, or
investment adviser; (iii) is subject to an order of the Commission entered
pursuant to Section 15(b), 15B(a) or 15B(c) of the Exchange Act, or is subject
to an order of the Commission entered pursuant to Section 203(e) or (f) of the
Investment Advisers Act of 1940; (iv) is suspended or expelled from membership
in, or suspended or barred from association with a member of, an exchange
registered as a national securities exchange pursuant to Section 6 of the
Exchange Act, an association registered as a national securities association
under Section 15A of the Exchange Act, or a Canadian securities exchange or
association for any act or omission to act constituting conduct inconsistent
with just and equitable principles of trade; or (v) is subject to a United
States Postal Service false representation order entered under Section 3005 of
Title 39, United States Code, or is subject to a restraining order or
preliminary injunction entered under Section 3007 of Title 39, United States
Code, with respect to conduct alleged to have violated Section 3005 of Title 39,
United States Code.
2.16 No Defaults. The Company is not in default in the performance and
observance of any term, covenant or condition of any license, contract,
indenture, mortgage, deed of trust, note, loan or credit agreement, or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party or by which the
Company may be bound or to which any of the properties or assets of the Company
is subject (collectively "Contracts"), except defaults which (singly or in the
aggregate) would not have a material adverse effect on the Company. Schedule
2.21 attached hereto lists all material Contracts that the Company is subject
to. The Company is not in violation of any term or provision of its Certificate
of Incorporation or By-Laws.
2.17 Conduct of Business; Compliance with Law. The Company has all
requisite corporate power and authority, and has all necessary Permits, to own
or lease its properties and conduct its business as described in the Offering
Documents. The Company has been operating its business in compliance with all
such Permits. The disclosures in the Offering Documents concerning the effects
of federal, state and local regulation on the Company's business as currently
contemplated are correct in all material respects and do not omit to state a
material fact. The Company is in compliance with all Laws except where
noncompliance, singly or in the aggregate, would not have a material adverse
effect on the Company.
2.18 Title to Property; Insurance. The Company has good and marketable
title to, or valid and enforceable leasehold estates in, all items of real and
personal property (tangible and intangible) owned or leased by it, free and
clear of all liens, encumbrances, claims, security interests, defects and
restrictions of any material nature whatsoever. The Company has adequately
insured its properties against loss or damage by fire or other casualty and
maintains, in adequate amounts.
2.19 Intangibles. The Company owns or possesses the requisite licenses
or rights to use all trademarks, service marks, service names, trade names,
patents and patent applications, copyrights and other rights (collectively,
"Intangibles") used by the Company in its business or relating
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to products or services sold by the Company, and all such Intangibles are listed
on Schedule 2.19. The Company's Intangibles which have been registered in the
United States Patent and Trademark Office have been fully maintained and are in
full force and effect. There is no claim or action by any person pertaining to,
or proceeding pending or, to the Company's knowledge, threatened and the Company
has not received any notice of conflict with, the asserted rights of others
which challenges the exclusive right of the Company with respect to any
Intangibles used in the conduct of the Company's business except as described in
the Offering Documents. The Intangibles and the Company's current products,
services and processes do not infringe on any intangibles held by any third
party. To the best of the Company's knowledge, no others have infringed upon the
Intangibles of the Company.
2.20 [Intentionally Omitted]
2.21 [Intentionally Omitted]
2.22 Exchange Act Reports. The Company has filed all forms, reports,
statements and other documents required to be filed with the Securities and
Exchange Commission and has heretofore made available to the Placement Agent, in
the same form filed with the Commission, together with any amendments thereto,
copies of its (i) Annual Report on Form 10-KSB for fiscal 1996 and all Quarterly
Reports on Form 10-QSB filed since January 1, 1997, (ii) all proxy statements
relating to meetings of stockholders (whether annual or special) since January
1, 1996, (iii) all reports on Form 8-K since January 1, 1997, and (iv) all other
reports or registration statements filed by the Company since January 1, 1997
(collectively, the "Company Reports"). As of their respective filing dates, the
Company Reports (i) complied as to form in all material respects with the
requirements of the 1934 Act and the Securities Act and (ii) did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
2.23 Subsidiaries. The representations and warranties made by the
Company in this Agreement shall also apply and be true with respect to each
wholly and partially owned subsidiary, individually and taken as a whole with
the Company and all subsidiaries, as if each representation and warranty
contained herein made specific referenced to the subsidiary each time the term
"Company" was used.
3. Representations and Warranties of the Placement Agent. The Placement
Agent represents and warrants as follows:
3.1 Due Incorporation. The Placement Agent is duly incorporated and
validly existing and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation for the transaction
of business and is in good standing in each jurisdiction where the failure to be
so qualified would not have a materially adverse effect on the business of the
Placement Agent.
3.2 Broker/Dealer Registration. The Placement Agent is registered
as a broker-dealer under Section 15 of the Exchange Act.
3.3 Good Standing. The Placement Agent is a member in good
standing of the NASD.
3.4 Sale In Certain Jurisdictions. Sales of Units by the Placement
Agent will be made only in such jurisdictions in which (i) the Placement Agent
is a registered broker-dealer or where an applicable exemption from such
registration exists and (ii) the Offering and sale of Units is registered under,
or is exempt from, applicable registration requirements.
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3.5 Compliance with Laws. Offers and sales of Units by the Placement
Agent will be made in compliance with the provisions of Rule 502(c) of Reg D
and/or Section 4(2) of the Securities Act, and the Placement Agent will furnish
to each subscriber a copy of the Offering Documents prior to accepting any
payments for Units.
4. Closing.
4.1 Closing. At any time prior to the Termination Date and after the
receipt (and clearance) of subscriptions for not less than $750,000 and not more
than $1,000,000 of the Units which are accepted by the Company and the clearance
of the funds representing the sale of such Units, upon the mutual consent of the
Company and the Placement Agent that there should be a Closing, a Closing shall
take place at the offices of Graubard Mollen & Miller ("GM&M"), 600 Third
Avenue, New York, New York. At the Closing, payment for the Units issued and
sold by the Company (by certified check payable to the order of, or by wire
transfer to, the Company), less the amount deductible by the Placement Agent
pursuant to Section 4.4 hereof, shall be made against delivery of certificates
representing the shares of Common Stock and the Warrants included in the Units.
4.2 Deliveries at Closing. At the Closing, and as a condition to
such Closing, the Company shall deliver or cause to be delivered to the
Placement Agent:
4.2.1 Opinions of Counsel. The opinion of The Stoppelman Law
Firm, dated as of the date of the Closing, to the effect that:
(i) The Company and each of the Subsidiaries has
been duly organized and is validly existing as a corporation or other entity and
is in good standing under the laws of its state of organization and is duly
qualified and in good standing in each jurisdiction in which it owns or leases
any real property or the character of its operations requires such
qualification, except where the failure to so qualify would not have a material
adverse effect on the business of the Company and the Subsidiaries taken as a
whole.
(ii) Based on a review of the Certificate of
Incorporation of the Company, and its corporate minute book and stock records,
the Company is authorized to issue (i) 20,000,000 shares of Common Stock, of
which 8,432,962 shares are currently issued and outstanding, and (ii) 250,000
shares of Preferred Stock, of which 26,771 shares of Series A-2 8% convertible
redeemable preferred are currently issued and outstanding. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof have no rights
of rescission with respect thereto, and are not subject to personal liability by
reason of being such holders; and none of such securities was issued in
violation of the statutory preemptive rights of any holders of any security of
the Company or, to the knowledge of such counsel, similar contractual rights
granted by the Company. The options and warrants to purchase shares of Common
Stock outstanding immediately before the Closing constitute the valid and
binding obligations of the Company, enforceable in accordance with their terms.
The offers and sales of Common Stock and options and warrants to purchase shares
of Common Stock outstanding immediately before the Closing were at all relevant
times either registered under the Securities Act and the applicable state
securities laws or Blue Sky Laws or are exempt from the registration
requirements thereof.
(iii) The Company and each of the Subsidiaries has
all requisite corporate power or other authority, and has all necessary Permits
of and from all governmental or regulatory officials and bodies to own or lease
its properties and conduct its business as described in the PPM, and, to the
knowledge of such counsel, is and has been doing business in compliance with all
Permits, except where the failure to obtain or comply with any Permit, singly or
in the aggregate would not have a material adverse effect on the Company or any
Subsidiary.
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(iv) Except as set forth on Schedule 2.3 to this
Agreement, there are no statutory preemptive or other rights to subscribe for or
purchase, or any restriction upon the voting or transfer of, any shares of
Common Stock of the Company, or to such counsel's knowledge any other rights to
subscribe or purchase from the Company any shares of Common Stock, or any such
right or restriction under the Certificate of Incorporation or By-Laws of the
Company or, to the best of such counsel's knowledge, under any agreement or
other outstanding instrument to which the Company is a party or by which it is
bound. To the best of such counsel's knowledge, except as set forth in Schedule
2.3, (A) no holders of any securities of the Company or of any options, warrants
or securities of the Company exercisable for or convertible or exchangeable into
securities of the Company have the right to require the Company to register any
such securities of the Company under the Securities Act or to include any such
securities in a registration statement to be filed by the Company; and (B) the
issuance of the Units in the Offering and the issuance of the Warrant Shares
upon the exercise of the Warrants, the issuance of the Placement Agent Options
or the issuance of the Common Stock or Warrants included therein or the Common
Stock issuable upon exercise of such Warrants will not give any holder of any of
the Company's outstanding options, warrants or other convertible securities or
rights to purchase shares of the Company's Common Stock, the right to purchase
or be issued any additional shares of Common Stock and/or the right to purchase
shares at a reduced price.
(v) In the course of the preparation of the
Offering Documents, such counsel has participated in discussions with officers
of the Company. Nothing has come to such counsel's attention which has caused
such counsel to believe that the Offering Documents contain any 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, in light of the
circumstances under which they were made, not misleading (except that such
counsel need not express any opinion as to the Financial Statements and other
financial or statistical data contained in the Offering Documents). The
statements in the Offering Documents have been reviewed by such counsel, and
insofar as they refer to statements of law, descriptions of statutes, licenses,
rules or regulations or legal conclusions, are correct in all material respects.
No statute or regulation or legal or governmental proceeding required to be
described in the Offering Documents is not described as required, nor are any
contracts or documents of a character required to be described in the Offering
Documents not so described or filed as required. Assuming that (a) a proper Form
D is filed in accordance with Rule 503 of Reg D, (b) the offer and the sale of
the Units by the Placement Agent was made in compliance with Rule 502(c) of Reg
D and (c) the representations of the Subscribers in the Subscription Agreements
signed by them are true and correct (which facts have not been independently
verified by counsel), the sale of the Units is exempt from registration under
the Securities Act and is in compliance with Reg D.
(vi) The certificates representing the Common
Stock, the Warrants and the Placement Agent Options are in proper legal form.
The Common Stock, Warrants and Placement Agent Options conform in all respects
to the descriptions thereof contained in the PPM.
(vii) To such counsel's knowledge, the Company has
good and marketable title to, or valid and enforceable leasehold estates in, all
items of real and personal property (tangible and intangible) stated in the
Offering Documents to be owned or leased by it, free and clear of all liens,
encumbrances, claims, security interests, defects and restrictions of any
material nature whatsoever, other than those referred to in the Offering
Documents and liens for taxes not yet due and payable.
(viii) The Company has all corporate power and
authority to engage in and consummate the Offering and to execute and deliver
the Offering Agreements and to carry out the provisions and conditions thereof,
and all consents, authorizations, approvals and orders required in connection
therewith have been obtained. No consents, approvals, authorizations or orders
of, and no filing with, any court or governmental agency or body (other than
such as may be required under
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applicable Blue Sky laws and the requirements for listing the Common Stock
issuable in the Offering and upon exercise of the Warrants, Placement Agent
Options and the Warrants underlying the Placement Agent Options) is required for
the valid authorization, issuance, sale and delivery of the Common Stock and
Warrants, the Placement Agent Options or the Common Stock issuable upon exercise
of the Warrants, Placement Agent Options or Warrants underlying the Placement
Agent Options, and the consummation of the transactions and agreements
contemplated by the Offering Documents and the Offering Agreements.
(ix) The Common Stock and Warrants included in
the Units have been duly authorized and validly issued and the Common Stock
included in the Units is, and Warrant Shares when issued and paid for will be,
validly issued, fully paid and non-assessable, and the holders thereof are not
and will not be subject to personal liability by reason of being such holders.
The Placement Agent Options have been duly authorized and validly issued, and
the Common Stock and Warrants issuable upon exercise of the Placement Agent
Options and the Common Stock issuable upon exercise of the Warrants, when issued
and paid for, will be validly issued, fully paid and non-assessable, and the
holders thereof will not be subject to personal liability by reason of being
such holders. All corporate action required to be taken for the authorization,
issuance and sale of the Units, Common Stock, Warrants and Warrant Shares and
Placement Agent Options has been duly and validly taken. The Company has
reserved for issuance a sufficient number of shares of Common Stock to be issued
upon exercise of the Warrants. This Agreement, the Subscription Agreements and
the other Offering Documents and Offering Agreements have been duly and validly
authorized, executed and delivered by the Company, will constitute valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms.
(x) To the best of counsel's knowledge, the
execution, delivery and performance by the Company of the Offering Documents and
the Offering Agreements, the issuance and sale of the Common Stock, Warrants,
Warrant Shares and Placement Agent Options, the consummation of the transactions
contemplated hereby and thereby and the compliance by the Company with the terms
and provisions hereof and thereof, do not and will not, with or without the
giving of notice or the lapse of time, or both, (A) conflict with, or result in
a breach of any of the terms or provisions of, or constitute a default under, or
result in the creation or modification of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company pursuant to the
terms of, any material mortgage, deed of trust, note, indenture, loan, contract,
commitment or other material agreement or instrument to which the Company is a
party or by which the Company or any of its properties or assets may be bound,
(B) result in any violation of the provisions of the Certificate of
Incorporation or the By-Laws of the Company, (C) violate any Law, except where
such violation would not have a material adverse effect upon the Company, or (D)
have a material effect on any Permit.
(xi) To the best of such counsel's knowledge, no
default exists in the due performance and observance of any term, covenant or
condition of any material license, contract, indenture, mortgage, deed of trust,
note, loan or credit agreement, or any other material agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the Company or a Subsidiary is a party or by which the
Company or a Subsidiary may be bound or to which any of its properties or assets
is subject, except such defaults which, singly or in the aggregate, would not
have a material adverse effect on the Company or any Subsidiary. Neither the
Company nor any Subsidiary is in violation of any term or provisions of its
Certificate of Incorporation or By-Laws. To the best of such counsel's
knowledge, neither the Company nor any Subsidiary is in violation of any Law,
except where such violation would not have a material adverse effect on the
Company or any Subsidiary.
(xii) To the best of such counsel's knowledge, the
Company and each Subsidiary owns or possesses, free and clear of all liens or
encumbrances and rights thereto or
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therein by third parties, the requisite licenses or other rights to use all
intangibles and other rights necessary to conduct its business (including,
without limitation, any such licenses or rights described in the PPM as being
licensed to or owned or possessed by the Company or a Subsidiary) and, to the
best of such counsel's knowledge, there is no claim or action by any person
pertaining to, or proceeding, pending or threatened which challenges the
exclusive rights of the Company or a Subsidiary with respect to any intangibles
used in the conduct of its business (including without limitation any such
licenses or rights described in the PPM as being owned or possessed by the
Company or a Subsidiary). To the best of such counsel's knowledge, the Company's
current products, services and processes do not infringe on any Intangible held
by third persons.
(xiii) To the best of such counsel's knowledge,
except as described in the PPM, there are no claims, actions, suits, hearings,
investigations, inquiries or proceedings of any kind or nature, before or by any
court, governmental authority, tribunal or instrumentality, domestic or foreign,
pending or threatened against or affecting the Company or a Subsidiary or
involving the properties of the Company or a Subsidiary which may result in any
material adverse change in the business, properties or financial condition of
the Company or a Subsidiary, or which may adversely affect the transactions or
other acts contemplated by this Agreement or the validity or enforceability of
this Agreement.
4.2.2 Officers' Certificate. A certificate of the Company,
signed by two executive officers thereof, stating (i) that the representations
and warranties contained in Section 2 hereof are true and accurate at the
Closing as applied to the Company with the same effect as though expressly made
at the Closing, and (ii) that the Company has complied with all covenants and
agreements required to be complied with as of the Closing.
4.2.3 Investor Documents. Subscription Agreements signed
by the Company and each of the Subscribers.
4.2.4 Certificates. The certificates representing the
Common Stock and the Warrants included in the Units.
4.2.5 Consents. Consents of any parties required to
consummate this Offering and the transactions contemplated thereby.
4.2.6 Placement Agent Options. At the Closing, the Company
shall issue to the Placement Agent and its designees, five-year options
("Placement Agent Options") to purchase a number of Units equal to 10% of the
Units sold in the Offering, exercisable at a purchase price equal to 110% of the
per-Unit Offering Price, at any time until the fifth anniversary of the Closing.
The Units purchasable under the Placement Agent Options will be identical to the
Units sold to the Subscribers. The Placement Agent Option will contain
registration rights with respect to the shares underlying the Placement Agent
Options and Warrants issuable upon exercise of the Placement Agent Options
identical to the registration rights granted to the Subscribers in the Offering.
4.2.7 Merger and Acquisition Agreement. On the Closing Date,
the Company will enter into a Merger and Acquisition Agreement with the
Placement Agent providing for a finder's fee to be paid to the Placement Agent
if the Company participates in any merger, consolidation, or other transaction
in which the Placement Agent introduced the Company to the other party for a
period of five years from the Closing Date.
4.2.8 Insider Agreements. The Company shall deliver to the
Placement Agent executed originals of the Insider Agreements, pursuant to
Section 5.6 hereof signed by the Company's officers, directors (which agreements
are also effective against any family member or affiliate of any of the
foregoing persons).
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4.2.9 Transfer Sheets. The Company shall deliver to the
Placement Agent copy of letters to Depository Trust Company and the Company's
transfer agent requesting that the Placement Agent be provided copies of the
Company's daily stock transfer sheet and lists of the beneficial and record
holders of the Company's securities, at the Company's sole cost and expense.
4.2.10 American Stock Exchange. Copy of acceptance letter
for quotation of additional shares of Common Stock to be issued at the Closing
by the American Stock Exchange ("AMEX").
4.2.11 Other Documents. Such other closing documents as
shall be reasonably requested by the Placement Agent or GM&M.
4.3 Conditions. The obligations of the Placement Agent under this
Agreement shall be subject to the following conditions:
(i) All representations and warranties of the
Company set forth in this Agreement are true and accurate as of the date of the
Closing; and
(ii) The Company has complied with all covenants
and agreements required to be complied with as of the date of the Closing.
4.4 Placement Agent's Fees and Expenses. At the Closing, the Company
shall pay to the Placement Agent a commission equal to 10% of the aggregate
purchase price of the Units sold in the Offering. In order to reimburse the
Placement Agent for its expenses incurred in connection with the Offering, at
the Closing, the Company also shall pay to the Placement Agent a non-accountable
expense allowance equal to 3% of the aggregate purchase price of the Units (less
$10,000 paid on account) sold in the Offering. On or before the Closing, the
Company shall also pay the fees and disbursements of GM&M referred to in Section
5.2 below in connection with the qualification of the Units under the securities
or Blue Sky laws of the states which the Placement Agent shall designate and the
other expenses of the offering that are referred to in Section 5.2 below. All
the foregoing amounts are payable directly to the parties who are owed same by
deduction from the aggregate pur chase price of the Units sold.
5. Covenants. The Company covenants and agrees that:
5.1 Amendments to Offering Documents. Until the Offering has been
completed or terminated, if there shall occur any event relating to or
affecting, among other things, the Company or any affiliate, or the proposed
operations of the Company as described in the Offering Documents, as a result of
which it is necessary, in the reasonable opinion of GM&M or counsel for the
Company, to amend or supplement the Offering Documents in order that the
Offering Documents will not contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
the Company shall immediately prepare and furnish to the Placement Agent a
reasonable number of copies of an appropriate amendment of or supplement to the
Offering Documents, in form and substance satisfactory to GM&M.
5.2 Expenses of Offering. The Company shall be responsible for, and
shall pay, all fees, disbursements and expenses incurred in connection with the
Offering, including, but not limited to, the Company's legal and accounting fees
and disbursements, the costs of preparing, printing, mailing, delivering and,
where necessary, filing the Offering Documents, including all amendments and
supplements thereto, this Agreement, the Subscription Agreement, Warrants and
Placement Agent Options and related documents, all in quantities as the
Placement Agent may reasonably require; preparation of four transaction
"bibles"; the reasonable costs of up to $10,000 of any "due diligence
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meetings" or investigations conducted by the Company including the fees of a
consultant to render a due diligence report to the Placement Agent on the
Company; preparation and printing of stock and warrant certificates; and the
fees and disbursements of GM&M in connection with blue sky matters (which fees
(excluding disbursements) shall be approximately $10,000), plus "blue sky"
filing fees to be paid in the various states (as such fees become due) and
transfer taxes and transfer and warrant agent fees.
5.3 Further Assurances. The Company will take such actions as may be
reasonably required or desirable to carry out the provisions of this Agreement
and the transactions contemplated hereby. The Company further agrees to take
promptly, or cause to be taken, all actions and to do promptly, or cause to be
done, all other things necessary, proper or advisable to prepare the
registration statement necessary to file with the Commission in connection with
the proposed initial public offering and have such registration statement
declared effective by the Commission.
5.4 Capitalization. The Company will not change its current
capitalization or issue any shares of capital stock or any options, warrants or
other securities convertible into or exchangeable for shares of Common Stock,
other than as contemplated in the Letter of Intent, without the consent of the
Placement Agent prior to the earlier of the abandonment or consummation of the
Offering.
5.5 Restriction on Sales of Securities. The Company shall cause each of
the Company's officers and directors to execute an agreement which provides that
during the three year period following the Closing, the Placement Agent shall
have the right to purchase for its account or to sell for the account of such
persons (including any family member or affiliate of any of the foregoing
persons (collectively, "Insiders"), any securities sold by the Insiders on the
open market, including sales pursuant to Rule 144 under the Securities Act and
each Insider will agree to consult with the Placement Agent with regard to any
such sales and will offer the Placement Agent the exclusive opportunity to
purchase or sell such securities on terms at least as favorable to the Insiders
as they can secure elsewhere.
5.6 Right of First Refusal. The Company hereby grants to the Placement
Agent a thirty-day right of first refusal to underwrite or place any public or
private sale of debt or equity securities ("Future Offering") of the Company or
any subsidiary or successor of the Company, during the three-year period
following the Closing. If the Placement Agent fails to accept in writing any
proposal for such Future Offering within 30 days after receipt of a written
notice from the Company containing such proposal, then the Placement Agent shall
have no claim or right with respect to such Future Offering. If, thereafter, the
terms of the Future Offering are modified in any material respect, the Company
shall adopt the same procedure as with respect to the original proposal.
5.7 Designee to the Board of Directors. For a period of three (3) years
from the Closing, the Placement Agent shall have the right to designate a person
to serve on the Company's Board of Directors. The Company will appoint such
designee to the Board promptly after the Placement Agent designates such person
and shall recommend and use its best efforts to have such designee elected at
each annual or other meeting held after such appointment during the three-year
period, at which directors of the Company are to be elected. Alternatively, the
Placement Agent shall have the right to designate and send a representative (who
need not be the same individual from meeting to meeting) to observe each meeting
of the Board of Directors. Such designee shall receive no more or less
compensation than is paid to other non-management directors of the Company and
such designee and representative shall be entitled to receive reimbursement for
all reasonable costs incurred in attending such meetings, including, but not
limited to, food, lodging and transportation.
5.8 Accuracy of Representations and Warranties. The Company hereby
agrees that prior to the Termination Date it will not enter into any transaction
or take any action, and will use its best efforts to prevent the occurrence of
any event, which could result in any of its representations,
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warranties or covenants contained in this Agreement or any of the Offering
Documents not to be true and correct, or not to be performed as contemplated, at
and as of the time immediately after the occurrence of such transaction or
event.
5.9 Warrant Solicitation and Warrant Solicitation Fee.
5.9.1 Engagement. The Company hereby engages the Placement
Agent, on a non-exclusive basis, as its agent for the solicitation of the
exercise of the Warrants. The Company, at its cost, will (i) assist the
Placement Agent with respect to such solicitation, if requested by the Placement
Agent and (ii) provide the Placement Agent, and direct the Company's transfer
and warrant agents to deliver to the Placement Agent, lists of the record, and
to the extent known, beneficial owners of the Warrants. The Company shall
instruct the transfer and warrant agents to cooperate with the Placement Agent
in every respect in connection with the Placement Agent's solicitation
activities, including, but not limited to, providing to the Placement Agent, at
the Company's cost, a list of record and beneficial holders of the Warrant and
providing disclosure documents, where necessary, to holders of the Warrants at
the time of exercise of the Warrants.
5.9.2 Procedure. In each instance in which a Warrant is
exercised, the Company shall promptly give written notice of such exercise to
the Placement Agent. If, upon the exercise of any Warrant, (i) the market price
of the Company's Common Stock is greater than the Warrant exercise price, (ii)
disclosure of compensation arrangements was made at the time of offering and of
exercise (as required by applicable law, rule or regulation), (iii) the exercise
of the Warrant was solicited by the Placement Agent, (iv) the Warrant was not
held in a discretionary account, and (v) the solicitation of the exercise of the
Warrant was not in violation of Regulation M (as such rule or any successor rule
may be in effect as of such time of exercise) promulgated under the Exchange
Act, then the Company shall, upon exercise of the Warrant, pay from the proceeds
received upon exercise of the Warrant a fee of 5% of the Warrant exercise price
to the Placement Agent, provided that the Placement Agent delivers to the
Company a certificate that the conditions set forth in the preceding clauses
(iii), (iv) and (v) have been satisfied. The Placement Agent may, at any time
during business hours, examine the records of the Company, including its ledger
of original Warrant certificates returned to the Company upon exercise of
Warrants.
5.10 Listing of Securities. The Company shall apply for listing, and
obtain such listing, for the shares of Common Stock issuable as part of the
Units, upon exercise of the Warrants, the Placement Agent Options and the
Warrants underlying the Placement Agent Options on AMEX, at or prior to the
Closing and maintain such listing until the seventh anniversary of the date of
Closing. At the request of the Placement Agent, the Company shall apply for
quotation of its Common Stock on the Nasdaq Stock Market prior to the filing of
the Registration Statement described in Section 6 hereof, if the filing
qualifications of the Nasdaq Stock Market are met.
5.11 Affiliate Transactions. The Company hereby agrees that for a
period of two years from the Closing, it shall not lend money to or enter into
any other similar transaction with any Insider.
5.12 Regulation S Filing. The Company shall not commence any offer of
securities of the Company pursuant to Regulation S of the Securities Act or any
successor regulation during the two year period following the Closing.
6. Registration Rights; Subscriber Lockup.
6.1 Registration Rights. As additional consideration for this Agreement
and the transactions contemplated hereby, the Company agrees with the Placement
Agent and will agree with each Subscriber, as the case may be, to register for
resale under a Registration Statement ("Registration Statement") pursuant to the
Securities Act and the Blue Sky or state securities laws of
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states reasonably selected by the Placement Agent, the Common Stock comprising
the Units and the Common Stock underlying the Warrants, the Placement Agent
Options and the Warrants underlying the Placement Agent Option ("Registrable
Securities"). The Company agrees that upon the written demand of at least 51% of
the holders of the Registrable Securities ("Majority Holders") it will file a
Registration Statement and use its best efforts to have it declared effective
within 60 days after the demand of the Majority Holders. The Company shall keep
the Registration Statement effective and current until all the securities
registered thereunder are sold or can be sold freely under an appropriate
exemption from the securities laws of the United States and the states, without
limitation. The Company shall bear all the expenses and pay all the fees it
incurs in connection with the preparation, filing and modification or amendment
of the Registration Statement, The Company agrees with the Placement Agent and
the Subscribers that it will provide copies of the Registration Statement
(including each amendment and supplement) to GM&M and the Placement Agent at
least 5 days prior to its planned filing date with the Commission. The
registration rights granted in respect of the Registrable Securities shall inure
to the benefit of each pledgee, assignee, transferee or purchaser of the
Registrable Securities and each successor and heir of the Subscribers, Placement
Agent and the holders of the Placement Agent Options.
6.2 Lockup by Subscribers. Notwithstanding the foregoing, each
Subscription Agreement will provide that each Subscriber will not sell any of
the securities of the Company purchased in the Offering or any of the Warrant
Shares for a period of one year after the Closing, without the prior written
consent of the Placement Agent.
7. Indemnification and Contribution.
7.1 Indemnification by the Company. The Company agrees to indemnify and
hold harmless the Placement Agent and each person, if any, who controls the
Placement Agent within the meaning of the Securities Act and/or the Exchange Act
against any losses, claims, damages or liabilities, joint or several, to which
the Placement Agent or such controlling person may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a material fact contained
(A) in the Offering Documents, or (B) in any blue sky application or other
document executed by the Company specifically for blue sky purposes or based
upon any other written information furnished by the Company or on its behalf to
any state or other jurisdiction in order to qualify any or all of the Units
under the securities laws thereof (any such application, document or information
being hereinafter called a "Blue Sky Application"), (ii) any breach by the
Company of any of its representations, warranties or covenants contained herein
or in any of the Offering Agreements, or (iii) the omission or alleged omission
by the Company to state in the Offering Documents or in any Blue Sky Application
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; and will reimburse the Placement Agent and each such controlling
person for any legal or other expenses reasonably incurred by the Placement
Agent or such controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action, whether arising out of an
action between the Placement Agent and the Company or the Placement Agent and a
third party; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon (i) an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with written
information regarding the Placement Agent which is furnished to the Company by
the Placement Agent specifically for inclusion in the Offering Documents or any
such Blue Sky Application or (ii) any breach by the Placement Agent of the
representations, warranties or covenants contained herein (collectively, (i) and
(ii) above are referred to as the "Non-Indemnity Events").
7.2 Indemnification by the Placement Agent. The Placement Agent
agrees to indemnify and hold harmless the Company and each person, if any, who
controls the Company within the
16
<PAGE>
meaning of the Securities Act and/or the Exchange Act against any losses,
claims, damages or liabilities, joint or several, to which the Company or such
controlling person may become subject, under the Securities Act or otherwise
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any Non-Indemnity Event; and will
reimburse the Company and each such controlling person for any legal or other
expenses reasonably incurred by the Company or such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action provided that such loss, claim, damage or liability is found
ultimately to arise out of or be based upon any Non-Indemnity Event.
7.3 Procedure. Promptly after receipt by an indemnified party under
this Section 6 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 7, notify in writing the indemnifying party of the
commencement thereof; and the omission so to notify the indemnifying party will
relieve the indemnifying party from any liability under this Section 7 as to the
particular item for which indemnification is then being sought, but not from any
other liability which it may have to any indemnified party. In case any such
action is brought against any indemnified party, and it notifies an indemnifying
party of the commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent that it may wish, jointly with any other
indemnifying party, similarly notified, to assume the defense thereof, with
counsel who shall be to the reasonable satisfaction of such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 7 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. Any such
indemnifying party shall not be liable to any such indemnified party on account
of any settlement of any claim or action effected without the consent of such
indemnifying party.
7.4 Contribution. If the indemnification provided for in this Section 7
is unavailable to any indemnified party in respect to any losses, claims,
damages, liabilities or expenses referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party, will contribute to the
amount paid or payable by such indemnified party, as a result of such losses,
claims, damages, liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand, and the Placement Agent, on the other hand, from the Offering, or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above, but also the relative fault of the Company, on
the one hand, and of the Placement Agent, on the other hand, in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses as well as any other relevant equitable considerations.
The relative benefits received by the Company, on the one hand, and the
Placement Agent, on the other hand, shall be deemed to be in the same proportion
as the total proceeds from the Offering (net of sales commis sions and the
non-accountable expense allowance, but before deducting other expenses) received
by the Company bear to the commissions and non-accountable expense allowance
received by the Placement Agent. The relative fault of the Company, on the one
hand, and the Placement Agent, on the other hand, will be determined with
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the Company, and its relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
7.5 Equitable Considerations. The Company and the Placement Agent agree
that it would not be just and equitable if contribution pursuant to this Section
7 were determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred to in the
immediately preceding paragraph.
17
<PAGE>
7.6 Attorneys' Fees. The amount payable by a party under this Section 7
as a result of the losses, claims, damages, liabilities or expenses referred to
above will be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim.
8. Termination by Placement Agent. The Placement Agent shall have the right to
terminate this Agreement at any time prior to the Closing if (i) the Placement
Agent determines that market conditions would preclude a successful offering;
(ii) a material adverse change not yet reported by the Company in its public
filings has occurred in the financial condition, business or prospects of the
Company; or (iii) the Company has breached any of its material representations,
warranties or obligations hereunder, or failed to expeditiously proceed with the
Offering. If the Placement Agent elects not to proceed with the Offering as a
result of the condition enumerated in clause (i) above, the Placement Agent
shall be entitled to retain the deposit of $10,000 previously paid to it
("Deposit"), but the Company shall not be liable to MHM for any other expenses.
If the Placement Agent elects not to proceed with the Offering as a result of
any of the conditions enumerated in any of clauses (ii) or (iii) above, or if
the Company elects not to proceed with the Offering for any reason, then (a) the
Company shall reimburse the Placement Agent in full for its reasonable
out-of-pocket expenses (including, without limitation its reasonable legal fees
and disbursements) up to an aggregate of $25,000, against which the Deposit
shall be applied as a credit and (b) if the Company subsequently engages in any
public offering, private placement or other capital raising transaction
involving the sale of its securities, or in any sale or exchange of all or
substantially all of its assets or outstanding shares of capital stock
(including by way of merger), or in any similar transaction within 12 months
following the termination of the Offering, then the Company shall pay the
Placement Agent a fee of $200,000. The provisions of Sections 7 and 8 of this
Agreement shall survive the termination of this Agreement for any reason.
9. Notices. Any notice hereunder shall be in writing and shall be
effective when delivered in person or by facsimile transmission, or mailed by
certified mail, postage prepaid, return receipt requested, to the appropriate
party or parties, at the following addresses: if to the Placement Agent, to M.H.
Meyerson & Co., Inc., 525 Washington Blvd, Jersey City, New Jersey 07303-0260,
Attention: Ronald I. Heller (Fax No. 201-459-9510); with a copy to Graubard
Mollen & Miller, 600 Third Avenue, New York, New York 10016, Attention: David
Alan Miller, Esq. (Fax No. 212/818-8881); if to the Company, to Globalink, Inc.,
9302 Lee Highway, 12th Floor, Fairfax, Virginia 22031, Attention: Mr. Harry E.
Hagerty, Jr., President (Fax No. 703/273-3866); with a copy to The Stoppelman
Law Firm, 1749 Meadow Road, Suite 610, McLean, Virginia 22102-4310, Attention:
John S. Stoppelman, Esq. (Fax No. 703 827-7455); or, in each case, to such other
address as the parties may hereinafter designated by like notice.
10. Parties. This Agreement will inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. Neither party may
assign this Agreement or its obligations hereunder without the prior written
consent of the other party. This Agreement is intended to be, and is, for the
sole and exclusive benefit of the parties hereto and the persons described in
Section 7.1 and 7.2 hereof and their respective successors and assigns, and for
the benefit of no other person, and no other person will have any legal or
equitable right, remedy or claim under, or in respect of this Agreement.
11. Amendment and/or Modification. Neither this Agreement, nor any term or
provision hereof, may be changed, waived, discharged, amended, modified or
terminated orally, or in any manner other than by an instrument in writing
signed by each of the parties hereto.
12. Further Assurances. Each party to this Agreement will perform any and
all acts and execute any and all documents as may be necessary and proper under
the circumstances in order to accomplish the intents and purposes of this
Agreement and to carry out its provisions.
18
<PAGE>
13. Validity. In case any term of this Agreement will be held invalid,
illegal or unenforceable, in whole or in part, the validity of any of the other
terms of this Agreement will not in any way be affected thereby.
14. Waiver of Breach. The failure of any party hereto to insist upon strict
performance of any of the covenants and agreements herein contained, or to
exercise any option or right herein conferred in any one or more instances, will
not be construed to be a waiver or relinquishment of any such option or right,
or of any other covenants or agreements, and the same will be and remain in full
force and effect.
15. Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties with respect to the subject matter hereof and
thereof, respectively, and there are no representations, inducements, promises
or agreements, oral or otherwise, not embodied in this Agreement. Any and all
prior discussions, negotiations, commitments and understanding relating to the
subject matter of these agreements are superseded by them.
16. Counterparts. This Agreement may be executed in counterparts and each
of such counterparts will for all purposes be deemed to be an original, and such
counterparts will together constitute one and the same instrument.
17. Law. This Agreement will be deemed to have been made and delivered in New
York City and will be governed as to validity, interpretation, construction,
effect and in all other respects by the internal law of the State of New York.
The Company (i) agrees that any legal suit, action or proceeding arising out of
or relating to this Agreement shall be instituted exclusively in New York State
Supreme Court, County of New York, or in the United States District Court for
the Southern District of New York, (ii) waives any objection to the venue of any
such suit, action or proceeding, and the right to assert that such forum is an
inconvenient forum, and (iii) irrevocably consents to the jurisdiction of the
New York State Supreme Court, County of New York, and the United States District
Court for the Southern District of New York in any such suit, action or
proceeding. The Company further agrees to accept and acknowledge service of any
and all process which may be served in any such suit, action or proceeding in
the New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York and agrees that service of
process upon it mailed by certified mail to its address shall be deemed in every
respect effective service of process upon it in any such suit, action or
proceeding.
18. Representations, Warranties and Covenants to Survive Delivery. The
respective representations, indemnities, agreements, covenants, warranties and
other statements of the Company and the Placement Agent shall survive execution
of this Agreement and delivery of the Units and/or the termination of this
Agreement prior thereto.
19
<PAGE>
If you find the foregoing is in accordance with our
understanding, kindly sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement between
us.
Very truly yours,
GLOBALINK, INC.
By:
Harry E. Hagerty, Jr.
Chief Executive Officer
AGREED:
M.H. MEYERSON & CO., INC.
By:
Michael Silvestri
President
20
GLOBALINK, INC.
EMPLOYEE STOCK OPTION PLAN
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<PAGE>
TABLE OF CONTENTS
Page
1. PURPOSE 1
2. DEFINITIONS 1
3. ADMINISTRATION 3
3.1. Board 3
3.2. Committee 3
3.3. No Liability 3
4. STOCK 4
5. ELIGIBILITY 4
6. EFFECTIVE DATE AND TERM 4
6.1. Effective Date 4
6.2. Term 4
7. GRANT OF OPTIONS 4
8. OPTION AGREEMENTS 5
9. OPTION PRICE 5
10. TERM AND EXERCISE OF OPTIONS 5
10.1.Term 5
10.2.Option Period and Limitations on Exercise 5
10.3.Change in Control 6
10.4.Method of Exercise 6
11. TRANSFERABILITY OF OPTIONS 7
11.1.Transferability of Options 7
11.2.Family Transfers. 8
12. TERMINATION OF SERVICE RELATIONSHIP 8
13. RIGHTS IN THE EVENT OF DEATH OR DISABILITY 8
13.1.Death 8
13.2.Disability 9
14. USE OF PROCEEDS 10
15. SECURITIES LAWS 10
16. EXCHANGE ACT: RULE 16b-3 11
16.1.General 11
16.2.Compensation Committee 11
16.3.Restriction on Transfer of Stock 11
17. AMENDMENT AND TERMINATION 11
18. EFFECT OF CHANGES IN CAPITALIZATION 12
18.1 Changes in Stock 12
18.2.Reorganization With Corporation Surviving 12
18.3.Other Reorganizations; Sale of Assets or Stock 12
18.4.Adjustments 13
18.5.No Limitations on Corporation 13
19. WITHHOLDING 13
20. DISCLAIMER OF RIGHTS 13
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<PAGE>
21. NONEXCLUSIVITY 14
22. NONCOMPETITION 14
23. GOVERNING LAW. 14
<PAGE>
GLOBALINK, INC.
EMPLOYEE STOCK OPTION PLAN
Globalink, Inc., a Delaware corporation (the "Corporation"),
sets forth herein the terms of the Employee Stock Option Plan (the "Plan") as
follows:
1. PURPOSE
The Plan is intended to advance the interests of the
Corporation by providing eligible individuals, persons and entities (as
designated pursuant to Section 5 hereof) an opportunity to acquire or increase a
proprietary interest in the Corporation, which thereb will create a stronger
incentive to expend maximum effort for the growth and success of the Corporation
and its subsidiaries and will encourage such eligible individuals, persons and
entities to continue to service the Corporation. Each stock option granted under
the Plan is not intended to be an Incentive Stock Option within the meaning of
Section 422 of the Code.
2. DEFINITIONS
For purposes of interpreting the Plan and related documents (including
Option Agreements), the following definitions shall apply:
2.1 "Affiliate" means Globalink, Inc. and any
company or other trade or business that is controlled by or under common control
with the Corporation, (determined in accordance with the principles of Section
414(b) and 414(c) of the Code and the regulations thereunder) or is an affiliate
of the Corporation within the meaning of Rule 405 of Regulation C under the 1933
Act.
2.2 "Board" means the Board of Directors of the
Corporation.
2.3 "Code" means the Internal Revenue Code of 1986,
as now in effect or as hereafter amended.
2.4 "Committee" means the Compensation Committee of
the Board which must consist of no fewer than two members of the Board and shall
be appointed by the Board.
2.5 "Corporation" means Globalink, Inc.
2.6 "Effective Date" means the date of adoption of
the Plan by the Board.
2.7 "Employer" means Globalink, Inc. or other
Affiliate which employs the designated recipient of an Option.
2.8 "Exchange Act" means the Securities Exchange Act
of 1934, as now in effect or as hereafter amended.
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<PAGE>
2.9 "Fair Market Value" means the value of each
share of Stock subject to the Plan determined as follows: if on the Grant Date
or other determination date the shares of Stock are listed on an established
national or regional stock exchange, are admitted to quotation on the National
Association of Securities Dealers Automated Quotation System, or are publicly
traded on an established securities market, the Fair Market Value of the shares
of Stock shall be the closing price of the shares of Stock on such exchange or
in such market (the highest such closing price if there is more than one such
exchange or market) on the trading day immediately preceding the Grant Date or
such other determination date (or if there is no such reported closing price,
the Fair Market Value shall be the mean between the highest bid and lowest asked
prices or between the high and low sale prices on such trading day) or, if no
sale of the shares of Stock is reported for such trading day, on the next
preceding day on which any sale shall have been reported. If the shares of Stock
are not listed on such an exchange, quoted on such System or traded on such a
market, Fair Market Value shall be determined by the Board in good faith.
2.10 "Grant Date" means the later of (i) the date as
of which the Committee approves the grant and (ii) the date as of which the
Optionee and the Corporation or Affiliate enter the relationship resulting in
the Optionee being eligible for grants.
2.11 "Immediate Family Members" means the spouse,
children and grandchildren of the Optionee.
2.12 "Option" means an option to purchase one or more
shares of Stock pursuant to the Plan.
2.13 "Option Agreement" means the written agreement
evidencing the grant of an Option hereunder.
2.14 "Optionee" means a person who holds an Option
under the Plan.
2.15 "Option Period" means the period during which
Options may be exercised as defined in Section 10.
2.16 "Option Price" means the purchase price for each
share of Stock subject to an Option.
2.17 "Plan" means the Globalink, Inc. Employee Stock
Option Plan.
2.18 "1933 Act" means the Securities Act of 1933, as
now in effect or as hereafter amended.
2.19 "Stock" mean the shares of common stock, par
value $.01 per share, of the Corporation.
2.20 "Subsidiary" means any "subsidiary corporation"
of the Corporation within the meaning of Section 425(f) of the Code.
<PAGE>
3. ADMINISTRATION
3.1. Board
The Plan shall be administered by the Board which shall have the full
power and authority to take all actions and to make all determinations required
or provided for under the Plan or any Option granted or Option Agreement entered
into hereunder and all such other actions and determinations not inconsistent
with the specific terms and provisions of the Plan deemed by the Board to be
necessary or appropriate to the administration of the Plan or any Option granted
or Option Agreement entered into hereunder. The interpretation and construction
by the Board of any provision of the Plan or of any Option granted or Option
Agreement entered into hereunder shall be final, binding and conclusive.
3.2. Committee
If the Board so delegates, the Plan may be administered by the
Committee appointed by the Board, which shall have the full power and authority
to take all actions and to make all determinations required or provided for
under the Plan or any Option granted or Option Agreement entered into hereunder
and all such other actions and determinations not inconsistent with the specific
terms and provisions of the Plan deemed by the Committee to be necessary or
appropriate to the administration of the Plan or any Option granted or Option
Agreement entered into hereunder. The interpretation and construction by the
Committee of any provision of the Plan or of any Option granted or Option
Agreement entered into hereunder shall be final and conclusive.
3.3. No Liability
No member of the Board or of the Committee shall be liable for
any action or determination made, or any failure to take or make an action or
determination, in good faith with respect to the Plan or any Option grant d or
Option Agreement entered into hereunder.
4. STOCK
The stock that may be issued pursuant to Options granted under
the Plan shall be Stock, which shares may be treasury shares or authorized but
unissued shares. The number of shares of Stock that may be issued pursuant to
Options granted under the Plan shall not exceed in the aggregate 1,400,000
shares of Stock, which number of shares is subject to adjustment as provided in
Section 20 hereof. If any Option expires, terminates or is terminated for any
reason prior to exercise in full, the shares of Stock that were subject to the
unexercised portion of such Option shall be available for future Options granted
under the Plan.
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<PAGE>
5. ELIGIBILITY
Options may be granted under the Plan to (i) any officer or
key employee of the Corporation or any Subsidiary (including any such fficer or
key employee who is also a director of the Corporation or any Subsidiary) or
(ii) any other individual, person or entity whose participation in the Plan is
determined to be in the best interests of the Corporation by the Committee. An
individual, person or entity may hold more than one Option, subject to such
restrictions as are provided herein.
6. EFFECTIVE DATE AND TERM
6.1. Effective Date
The Plan shall become effective as of the date of adoption by
the Board.
6.2. Term
The Plan shall terminate on the date 10 years after the
effective date.
7. GRANT OF OPTIONS
Subject to the terms and conditions of the Plan, the committee
may, at any time and from time to time prior to the date of termination of the
Plan, grant to such eligible individuals, person or entities as the Committee
may determine options to purchase such number of shares of stock on such terms
and conditions as the Committee may determine. Without limiting the foregoing,
the Committee may at any time, with the consent of the optionee, amend the terms
of outstanding options or issue new options in exchange for the surrender and
cancellation of outstanding options. the date on which the committee approves
the grant of an option (or such later date as is specified by the committee)
shall be considered the date on which such option is granted.
8. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by
written agreements to be executed by the Corporation and the Optionee, in such
form or forms as the Committee shall from time to time determine. Option
Agreements covering Options granted from time to time or at the same time need
not contain similar provisions; provided, however, tha all such Option
Agreements shall comply with all terms of the Plan.
9. OPTION PRICE
The purchase price of each share of Stock subject to an Option
shall be fixed by the Committee and stated in each Option Agreement. The Option
Price shall be not less
<PAGE>
than the greater of par value or 50 percent of the Fair Market Value of a share
of the Stock covered by the Option on the date the Option is granted (as
determine in good faith by the Committee).
10. TERM AND EXERCISE OF OPTIONS
10.1. Term
Each Option granted under the Plan shall terminate and all
rights to purchase shares thereunder shall cease upon the expiration of 10 years
from the date such Option is granted, or on such date prior thereto as may be
fixed by the Committee and stated in the Option Agreement relating to such
Option.
10.2. Option Period and Limitations on Exercise
Each Option granted under the Plan shall be exercisable in
whole or in part at any time and from time to time over a period commencing on
or after the date of grant of the Option and ending upon the expiration or
termination of the Option, as the Committee shall determine and set forth in the
Option Agreement relating to such Option. Without limitation of the foregoing,
the Committee, subject to the terms and conditions of the Plan, may in its sole
discret on provide that an Option may not be exercised in whole or in part for
any period or periods of time during which such Option is outstanding as the
Committee shall determine and set forth in the Option Agreement relating to such
Option. Any such limitation on the exercise of an Option contained in any Option
Agreement may be rescinded, modified or waived by the Committee, in its sole
discretion, at any time and from time to time after the date of grant of such
Option.
10.3. Change in Control
In the event of a "Change of Control", all non-vested Options
outstanding under the Plan shall become immediately exercisable. For purposes of
this Plan, "Change of Control" means:
(a) execution by the Corporation of an agreement for the
merger of the Corporation into or with another corporation, the result of which
would be that the stockholders of the Corporation at the time of execution of
such agreement would own less than 49% of the total equity of the corporation
surviving the merger; or
(b) the sale of assets of the Corporation having an aggregate
book value of 40% or more of the total book value of all assets of the
Corporation as shown on the then most recent annual audited financial statement
of the Corporation; or
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<PAGE>
(c) a change of control of a nature that would be required to
be reported in response to Item 5(f) of Schedule 14A of Regulation 14A
promulgated under the Exchange Act, provided that, without limitation, such a
change of control shall be deemed to have occurred if (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing 25% of the
Corporation's then outstanding securities; or (ii) during any two (2) year
period, individuals who at the beginning of such period constitute the Board of
Directors, together with any new directors elected or appointed during the
period whose election or appointment resulted from a vacancy on the Board of
Directors caused by the retirement, death, or disability of a director and whose
election or appointment was approved by a vote of at least two-thirds (2/3rds)
of the directors then still in office who were directors at the beginning of the
period, cease for any reason to constitute a majority thereof;
and provided further that no such change of control shall be deemed to have
occurred if prior to such transaction the full Board of Directors of the Company
shall by at least a two-thirds vote have specifically approved such transaction
and determined that such transaction does not constitute a Change in Control for
purposes of Options granted under the Plan
10.4. Method of Exercise
An Option that is exercisable hereunder may be exercised by
delivery to the Corporation on any business day, at its principal office
addressed to the attention of the Committee, of written notice of exercise,
which notice shall specify the number of shares for which the Option is being
exercised, and shall be accompanied by payment in full of the Option Price of
the shares for which the Option is being exercised. Payment of the Option Price
for the shares of Stock purchased pursuant to the exercise of an Option shall be
made, as determined by the Committee and set forth in the Option Agreement
pertaining to an Option, (a) in cash or by certified check payable to the order
of the Corporation; (b) through the tender to the Corporation of shares of
Stock, which shares, if acquired from the Corporation, have been owned for at
least six (6) months and which shares shall be valued, for purposes of
determining the extent to which the Option Price has been paid thereby, at their
Fair Market Value on the date of exercise; or (c) by a combination of the
methods described in Sections 10.4(a) and 10.4(b) hereof; provided, however,
that the Committee may in its discretion impose and set forth in the Option
Agreement pertaining to an Option such limitations or prohibitions on the use of
shares of Stock to exercise Options as it deems appropriate. Payment in full of
the Option Price need not accompany the written notice of exercise provided the
notice directs that the Stock certificate or certificates for the shares for
which the Option is exercised be delivered to a licensed broker acceptable to
the Corporation as the agent for the individual exercising the Option and, at
the time such Stock certificate or certificates are delivered, the broker
tenders to the Corporation cash (or cash equivalents acceptable to the
Corporation) equal to the Option Price plus the amount (if any) of federal
and/or other taxes which the Corporation may, in its judgment, be required to
withhold with respect to the exercise of the Option. An attempt to exercise any
Option granted hereunder other than as set forth above shall be invalid and of
no force and effect. Promptly after the exercise of an Option and the payment in
full of the Option Price
<PAGE>
of the shares of Stock covered thereby, the individual exercising the Option
shall be entitled to the issuance of a Stock certificate or certificates
evidencing such individual's ownership of such shares. A separate Stock
certificate or certificates shall be issued for any shares purchased pursuant to
the exercise of an Option which is an Incentive Stock Option, which certificate
or certificates shall not include any shares which were purchased pursuant to
the exercise of an Option which is not an Incentive Stock Option. An individual
holding or exercising an Option shall have none of the rights of a stockholder
until the shares of Stock covered thereby are fully paid and issued to such
individual and, except as provided in Section 18 hereof, no adjustment shall be
made for dividends or other rights for which the record date is prior to the
date of such issuance.
11. TRANSFERABILITY OF OPTIONS
11.1. Transferability of Options
Except as provided in Section 11.2, during the lifetime of an
Optionee, only the Optionee (or, in the event of legal incapacity or
incompetency, the Optionee's guardian or legal representative) may exercise an
Option. Except as provided in Section 11.2, no Option shall be assignable or
transferable by the Optionee to whom it is granted, other than by will or the
laws of descent and distribution.
11.2. Family Transfers.
Subject to the terms of the applicable Option Agreement, an
Optionee may transfer all or part of an Option to (i) any Immediate Family
Member, (ii) a trust or trusts for the exclusive benefit of any Immediate Family
Member, or (iii) a partnership in which Immediate Family Members are the only
partners, provided that (x) there may be no consideration for any such transfer,
and (y) subsequent transfers of transferred Options are prohibited except those
in accordance with this Section 11.2 or by will or the laws of descent and
distribution. Following transfer, any such Option shall continue to be subject
to the same terms and conditions as were applicable immediately prior to
transfer, provided that for purposes of Section 11.2 hereof the term "Optionee"
shall be deemed to refer the transferee. The events of termination of the
Service Relationship of Sections 12 and 13 hereof shall continue to be applied
with respect to the original Optionee, following which the Option shall be
exercisable by the transferee only to the extent, and for the periods specified
in Section 10.3.
12. TERMINATION OF SERVICE RELATIONSHIP
The Committee may provide, by inclusion of appropriate
language in any Option Agreement, that an Optionee may (subject to the general
limitatio s on exercise set forth in Section 10.2 hereof), in the event of
termination of employment or other relationship of the Optionee with the
Corporation or a Subsidiary, exercise an Option, in whole or in part, at any
time subsequent to such termination of employment or other
\\\DC - 63353/3 - 0567211.01
<PAGE>
relationship and prior to termination of the Option pursuant to Section 10.1
hereof, either subject to or without regard to any installment limitation on
exercise imposed pursuant to Section 10.2 hereof, as the Committee, in its sole
and absolute discretion, shall determine and set forth in the Option Agreement.
Whether a leave of absence or leave on military or government service shall
constitute a termination of employment or other relationship for purposes of the
Plan shall be determined by the Committee, which determination shall be final
and conclusive. For purposes of the Plan, a termination of employment or other
relationship with the Corporation or a Subsidiary shall not be deemed to occur
if the Optionee is immediately thereafter employed or commences a relationship
with the Corporation or any other Subsidiary.
13. RIGHTS IN THE EVENT OF DEATH OR DISABILITY
13.1. Death
If an Optionee dies while employed by, or in a service
relationship with, the Corporation or a Subsidiary or within the period
following the termination of employment or other relationship during which the
Option is exercisable under Section 12 or 13.2 hereof, the executors,
administrators, legatees or distributees of such Optionee's estate shall have
the right (subject to the general limitations on exercise set forth in Section
10.2 hereof), at any time within one year after the date of such Optionee's
death and prior to termination of the Option pursuant to Section 10.1 hereof, to
exercise any Option held by such Optionee at the date of such Optionee's death,
to the extent such Option was exercisable immediately prior to such Optionee's
death; provided, however, that the Committee may provide by inclusion of
appropriate language in any Option Agreement that, in the event of the death of
an Optionee, the executors, administrators, legatees or distributees of such
Optionee's estate may exercise an Option (subject to the general limitations on
exercise set forth in Section 10.2 hereof), in whole or in part, at any time
subsequent to such Optionee's death and prior to termination of the Option
pursuant to Section 10.1 hereof, either subject to or without regard to any
installment limitation on exercise imposed pursuant to Section 10.2 hereof, as
the Committee, in its sole and absolute discretion, shall determine and set
forth in the Option Agreement.
13.2. Disability
If an Optionee terminates employment or other relationship
with the Corporation or a Subsidiary by reason of the "permanent and total
disability" (within the meaning of Section 22(e) (3) of the Code) of such
Optionee, then such Optionee shall have the r ght (subject to the general
limitations on exercise set forth in Section 10.2 hereof), at any time within
one year after such termination of employment or other relationship and prior to
termination of the Option pursuant to Section 10.1 hereof, to exercise, in whole
or in part, any Option held by such Optionee at the date of such termination of
employment or other relationship, to the extent such Option was exercisable
immediately prior to such termination of employment or other relationship;
provided, however, that the Committee
<PAGE>
may provide, by inclusion of appropriate language in any Option Agreement, that
an Optionee may (subject to the general limitations on exercise set forth in
Section 10.2 hereof), in the event of the termination of employment or other
relationship of the Optionee with the Corporation or a Subsidiary by reason of
the "permanent and total disability" (within the meaning of Section 22(e)(3) of
the Code) of such Optionee, exercise an Option, in whole or in part, at any time
subsequent to such termination of employment and prior to termination of the
Option pursuant to Section 10.1 hereof, either subject to or without regard to
any installment limitation on exercise imposed pursuant to Section 10.2 hereof,
as the Committee, in its sole and absolute discretion, shall determine and set
forth in the Option Agreement. Whether a termination of employment is to be
considered by reason of "permanent and total disability" for purposes of the
Plan shall be determined by the Committee, which determination shall be final
and conclusive.
14. USE OF PROCEEDS
The proceeds received by the Corporation from the sale of
Stock pursuant to Options granted under the Plan shall constitute general funds
of the Corporation.
15. SECURITIES LAWS
The Corporation shall not be required to sell or issue any
shares of St ck under any Option if the sale or issuance of such shares would
constitute a violation by the individual exercising the Option or by the
Corporation of any provisions of any law or regulation of any governmental
authority, including, without limitation, any federal or state securities laws
or regulations. If at any time the Corporation shall determine, in its
discretion, that the listing, registration or qualification of any shares
subject to the Option upon any securities exchange or under any state or federal
law, or the consent of any government regulatory body, is necessary or desirable
as a condition of, or in connection with, the issuance or purchase of shares,
the Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Corporation, and any delay
caused thereby shall in no way affect the date of termination of the Option.
Specifically in connection with the Securities Act, upon exercise of any Option,
unless a registration statement under the Securities Act is in effect with
respect to the shares of Stock covered by such Option, the Corporation shall not
be required to sell or issue such shares unless the Corporation has received
evidence satisfactory to the Corporation that the Optionee may acquire such
shares pursuant to an exemption from registration under the Securities Act. Any
determination in this connection by the Corporation shall be final and
conclusive. The Corporation may, but shall in no event be obligated to, register
any securities covered hereby pursuant to the Securities Act. The Corporation
shall not be obligated to take any affirmative action in order to cause the
exercise of an Option or the issuance of shares pursuant thereto to comply with
any law or regulation of any governmental authority. As to any jurisdiction that
expressly imposes the requirement that an Option shall not be
\\\DC - 63353/3 - 0567211.01
<PAGE>
exercisable unless and until the shares of Stock covered by such Option are
registered or are subject to an available exemption from registration, the
exercise of such Option (under circumstances in which the laws of such
jurisdiction apply) shall be deemed conditioned upon the effectiveness of such
registration or the availability of such an exemption.
16. EXCHANGE ACT: RULE 16b-3
16.1. General
The Plan is intended to comply with Rule 16b-3 ("Rule 16b-3")
(and any successor thereto) under the Exchange Act. Any provision inconsistent
with Rule 16b-3 shall, to the extent permitted by law and determined to be
advisable by the Committee (constituted in accordance with Section 16.2 hereof),
be inoperative and void.
16.2. Compensation Committee
The Committee appointed in accordance with Section 3.2 hereof
shall consist of not fewer than two members of the Board each of whom shall
qualify (at the time of appointment to the Committee and uring all periods of
service on the Committee) in all respects as a "non-employee director" as
defined in Rule 16b-3.
16.3. Restriction on Transfer of Stock
No director, officer or other "insider" of the Corporation
subject to Section 16 of the Exchange Act shall be permitted to sell Stock
(which such "insider" had received upon exercise of an Option) during the six
months immediately following the grant of such Option.
17. AMENDMENT AND TERMINATION
The Board may, at any time and from time to time, amend,
suspend or terminate the Plan as to any shares of Stock as to which Options have
not been granted; provided, however, any amendment or alteration to the Plan
shall be subject to the approval of the Company's stockholders not later than
the annual meeting next following such Board action if such stockholder approval
is required by any federal or state law or regulation (inc uding, without
limitation, Code Section 162(m)) or the rules of any stock exchange or automated
quotation system on which the Stock may then be listed or quoted, and the Board
may otherwise, in its discretion, determine to submit other such changes to the
Plan to stockholders for approval.
Except as permitted under Section 18 hereof, no amendment,
suspension or termination of the Plan shall, without the consent of the
Optionee, alter or impair rights or obligations under any Option theretofor
granted under the Plan.
<PAGE>
18. EFFECT OF CHANGES IN CAPITALIZATION
18.1 Changes in Stock
If the number of outstanding shares of Stock is increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Corporation by reason of any recapitalization,
reclassification, stock split-up, combination of shares, exchange of shares,
stock dividend or other distribution payable in capital stock, or other increase
or decrease in such shares effected without receipt of consideration by the
Corporation, occurring after the effective date of the Plan, a proportionate and
appropriate adjustment shall be made by the Corporation in the number and kind
of shares for which Options are outstanding, so that the proportionate interest
of the Optionee immediately following such event shall, to the extent
practicable, be the same as immediately prior to such event. Any such adjustment
in outstanding Options shall not change the aggregate Option Price payable with
respect to shares subject to the unexercised portion of the Option outstanding
but shall include a corresponding proportionate adjustment in the Option Price
per share.
18.2. Reorganization With Corporation Surviving
Subject to Section 18.3 hereof, if the Corporation shall be
the surviving entity in any reorganization, merger or consolidation of the
Corporation with one or more other entit es, any Option theretofore granted
pursuant to the Plan shall pertain to and apply to the securities to which a
holder of the number of shares of Stock subject to such Option would have been
entitled immediately following such reorganization, merger or consolidation,
with a corresponding proportionate adjustment of the Option Price per share so
that the aggregate Option Price thereafter shall be the same as the aggregate
Option Price of the shares remaining subject to the Option immediately prior to
such reorganization, merger or consolidation.
18.3. Other Reorganizations; Sale of Assets or Stock
Upon the dissolution or liquidation of the Corporation, or
upon a merger, consolidation or reorganization of the Corporation with one or
more other entities in which the Corporation is not the surviving entity, or
upon a sale of substantially all of the assets of the Corporation to another
entity, or upon any transaction (including, without limitation, a merger or
reorganization in which th Corporation is the surviving entity) approved by the
Board that results in any person or entity (other than persons who are holders
of stock of the Corporation at the time the Plan is approved by the Stockholders
and other than an Affiliate) owning 51 percent or more of the combined voting
power of all classes of stock of the Corporation, the Plan and all Options
outstanding hereunder shall continue and/or be assumed, or there shall be a
substitution for such Options of new options covering the stock of a successor
entity, or a parent or subsidiary thereof, with appropriate adjustments as to
\\\DC - 63353/3 - 0567211.01
<PAGE>
the number and kinds of shares and exercise prices, in which event the Plan and
Options theretofore granted shall continue in the manner and under the terms so
provided. The Committee shall send written notice of an event covered by this
Section not later than the time at which the Corporation gives notice thereof to
its stockholders.
18.4. Adjustments
Adjustments under this Section 18 relatin to stock or
securities of the Corporation shall be made by the Committee, whose
determination in that respect shall be final and conclusive. No fractional
shares of Stock or units of other securities shall be issued pursuant to any
such adjustment, and any fractions resulting from any such adjustment shall be
eliminated in each case by rounding downward to the nearest whole share or unit.
18.5. No Limitations on Corporation
The grant of an Option pursuant to the Plan shall not a fect
or limit in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.
19. WITHHOLDING
The Corporation or a Subsidiary may be obligated to withhold federal and
local income taxes and Social Security taxes to the extent that an Optionee
realizes ordinary income in connection with the exercise of an Option. The
Corporation or a Subsidiary may withhold amounts needed to cover such taxes from
payments otherwise due and owing to an Optionee, and upon demand the Optionee
will promptly pay to the Corporation or a Subsidiary having such obligation any
additional amounts as may be necessary to satisfy such withholding tax
obligation. Such payment shall be made in cash or cash equivalents.
20. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option
Agreement entered into pursuant to the Plan shall be construed to confer upon
any individual the right to remain in the employ of the Corporation or any
Subsidiary, or to interfere in any way with the right and authority of the
Corporation or any Subsidiary either to increase or decrease the compensation of
any individual at any time, or to terminate any emp oyment or other relationship
between any individual and the Corporation or any Subsidiary. The obligation of
the Corporation to pay any benefits pursuant to the Plan shall be interpreted as
a contractual obligation to pay only those amounts described herein, in the
manner and under the conditions prescribed herein. The Plan shall in no way be
interpreted to require the Corporation to transfer any amounts to a third party
trustee or otherwise hold any amounts in trust or escrow for payment to any
participant or beneficiary under the terms of the Plan.
<PAGE>
21. NONEXCLUSIVITY
Neither the adoption of the Plan nor the submission of the
Plan to the stockholders of the Corporation for approval shall be construed as
creating any limitations upon the right and authority of the Board to adopt such
other incentive compensation arrangements (which arrangements may be applicable
either generally to a class or classes of individu ls or specifically to a
particular individual or individuals) as the Board in its discretion determines
desirable, including, without limitation, the granting of stock options
otherwise than under the Plan.
22. NONCOMPETITION
The Corporation may retain the right in an Option Agreement to cause a
forfeiture of the shares or gain realized by an Optionee on account of the
Optionee taking actions in "competition with the Corporation," as defined in the
applicable Option Agreement. Furthermore, the Corporation may, in the Option
Agreement, retain the right to annul the grant of an Option or to cause a
forfeiture of the shares or gain realized by an Optionee if the holder of such
grant was an employee of the Corporation or a Subsidiary and is terminated "for
cause," as defined in the applicable Option Agreement.
23. GOVERNING LAW.
This Plan and all Options to be granted hereunder shall be governed by the
laws of the State of Delaware (but not including the choice of law rules
thereof).
The Plan was duly adopted and approved by the Board on _________________,
199__ .
\\\DC - 63353/3 - 0567211.01
<PAGE>
GLOBALINK, INC.
EMPLOYEE STOCK OPTION PLAN
NON-INCENTIVE STOCK OPTION AGREEMENT
<PAGE>
TABLE OF CONTENTS
1. GRANT OF OPTION..........................................................1
2. TERMS OF PLAN............................................................1
3. OPTION PRICE.............................................................2
4. VESTING IN OPTIONS.......................................................2
(a) General.................................................................2
(b) Change in Control.......................................................2
5. TERM AND EXERCISE OF OPTION..............................................3
(a) Term....................................................................3
(b) Option Period and Limitations on Exercise...............................3
(c) Limitations on Exercise of Option.......................................3
(d) Method of Exercise......................................................4
6. TERMINATION OF THE SERVICE RELATIONSHIP..................................5
(a) Termination of Employment or Other Relationship.........................5
(b) Rights in the Event of Death............................................5
(c) Rights in the Event of Disability.......................................5
7. TRANSFERABILITY..........................................................6
8. PARACHUTE LIMITATIONS....................................................6
9. REQUIREMENTS OF LAW......................................................7
10. EFFECT OF CHANGES IN CAPITALIZATION.....................................8
(a) Changes in Stock........................................................8
(b) Reorganization in Which the Corporation Is the Surviving Corporation....8
(c) Dissolution, Liquidation, Sale of Assets, Reorganization in Which the
Corporation Is Not the Surviving Corporation, Etc.......................9
(d) Adjustments.............................................................9
(e) No Limitations on Corporation...........................................9
11. DISCLAIMER OF RIGHTS....................................................9
12. FORFEITURE OF RIGHTS....................................................10
13. CAPTIONS................................................................10
14. WITHHOLDING OF TAXES....................................................10
15. SEVERABILITY............................................................10
16. INTERPRETATION OF THIS STOCK OPTION AGREEMENT...........................11
17. GOVERNING LAW...........................................................11
18. BINDING EFFECT..........................................................11
19. NOTICE..................................................................11
20. ENTIRE AGREEMENT........................................................12
<PAGE>
GLOBALINK, INC.
EMPLOYEE STOCK OPTION PLAN
NON-INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement is made as of ______________, 1997, by and
between Globalink, Inc., a Delaware corporation (the "Corporation"), and
_________ an individual who is employed by, or providing services to, the
Corporation or one of its Affiliates (the "Optionee").
WHEREAS, the Board of Directors of the Corporation have duly adopted
and approved the Globalink, Inc. Employee Stock Option Plan (the "Plan ), which
Plan authorizes the Corporation to grant to eligible individuals options for the
purchase of shares of the Corporation's Common Stock, par value $.01 per share
(the "Stock"); and
WHEREAS, the Corporation has determined that it is desirable and in its
best interests to grant to the Optionee, pursuant to the Plan, an option to
purchase a certain number of shares of Stock, in order to provide the Optionee
with an incentive to advance the interests of the Corporation and any ffiliate
thereof;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto do hereby agree as follows:
1. GRANT OF OPTION
Subject to the terms of the Plan (attached hereto as Exhibit
B) the Corporation hereby grants to the Optionee the right and option (the
"Option") to purchase from the Corporation, on the terms and subject to the
conditions set forth in the Plan and in this Option Agreement, and subject to
the vesting Exhibit Attached hereto as Exhibit A; ________ shares of Stock. This
Option shall not constitute an incentive stock option within the meaning of
Section 422 of the Intern l Revenue Code of 1986, as amended (the "Code"). The
date of grant of this Option is __________, 1997, the date on which the grant of
the Option was approved by the Compensation Committee of the Board of Directors
of the Corporation (the "Committee").
2. TERMS OF PLAN
The Option granted pursuant to this Stock Option Agreement is
granted subject to the terms and conditions set forth in the Plan. All terms and
conditions of the Plan are hereby incorporated into this Stock Option Agreement
by reference and shall be deemed to be part of this Stock Option Agreement,
without regard to whether such terms and conditions are not otherwise set forth
in this Stock Option Agreement. To t e extent any capitalized words used in this
Stock Option Agreement are not defined, they shall have the definitions stated
for them in the Plan. In the event that there is any inconsistency between the
provisions of this Stock Option Agreement and of the Plan, the provisions of the
Plan shall govern.
<PAGE>
3. OPTION PRICE
The purchase price (the "Option Price") for each share subject
to the Option granted by this Stock Option Agreement is $3.44 which amount is
the Option Price.
4. VESTING IN OPTIONS
(a) General
The Option becomes vested in accordance with the attached
Exhibit A if the Optionee has been providing services to the Corporati n or any
of its Affiliates continuously from the date of grant to the vesting dates.
Service for this purpose includes service as an employee, director, advisor or
consultant providing bona fide services to the Corporation or any of its
Affiliates. For purposes of this Stock Option Agreement, termination of service
would not be deemed to occur if the Optionee, after terminating service in one
capacity, continues to provide service to the Corporation or any of its
Affiliates in another capacity. Termination of service is sometimes also
referred to herein as termination of employment or other relationship with the
Corporation or any of its Affiliates.
(b) Change in Control
In the event of a "Change in Control" as defined below, the
Option becomes vested as to one hundred percent (100%) of the shares purchasable
pursuant to the Option. "Change of Control" means:
(a) execution by the Corporation of an agreement for the
merger of the Corporation into or with another corporation, the result of which
would be that the stockholders fo the Corporation at the time of execution of
such agreement would own less than 49% of the total equity of the corporation
surviving the merger; or
(b) the sale of assets fo the Corporation having an aggregate
book value of 40% or more of the total book value of all assets of the
Corporation as shown on the then most recent annual audited financial statement
of the Corporation; or
(c) a change of control of a nature that would be required to
be reported in response to Item 5(f) of Schedule 14A of Regulation 14A
Promulgated
<PAGE>
under the Exchange Act, provided that, without limitation, such a change of
control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing 25% of the
Corporation's then outstanding securities; or (ii) during any two (2) year
period, individuals who at the beginning of such period constitute the Board of
Directors, together with any new directors elected or appointed during the
period whose election or appointment resulted from a vacancy on the Board of
Directors caused by the retirement, death, or disability of a director and whose
election or appointment was approved by a vote of at least two-thirds (2/3rds)
of the directors then still in office who were directors at the beginning of the
period, cease for any reason to constitute a majority thereof; and provided
further that no such change of control shall be deemed to have occurred if prior
to such transaction the full Board of Directors of the Company shall by at least
a two-thirds vote have specifically approved such transaction and determined
that such transaction does not constitute a Change in Control for purposes of
Options granted under the Plan.
5. TERM AND EXERCISE OF OPTION
(a) Term
The Option shall te minate and all rights to purchase the
shares thereunder shall cease upon the expiration of eight years after the Grant
Date, unless terminated earlier pursuant to another provision of this Stock
Option Agreement.
(b) Option Period and Limitations on Exercise
The Optionee may exercise the Option (subject to the
limitations on exercise set forth in this Stock Option Agreement and in the
Plan), to the extent the Option is vested and has not terminated. Any limitation
on the exercise of an Option may be rescinded, modified or waived by the
Committee, in its sole discretion, at any time and from time to time after the
Grant Date of the Option, so as to accelerate the time at which the Option may
be exercised. The time at which the Option may be exercised will be accelerated
and the Option shall be exercisable, in whole or in part, at any time and from
time to time prior to termination of the Option after termination of employment
by reason of death of Optionee or "permanent and total disability" (within the
meaning of Section 22(e)(3) of the Code) of the Optionee.
(c) Limitations on Exercise of Option
Notwithstanding the foregoing Sections, in no event may the
Option be exercised: (i) in whole or in part, after eight years following the
Grant Date, as set forth in Section 1 above, (ii) following termination of
employment or other relationship for Cause (as defined below) or (iii) following
termination of employment or other relationship except as provided in Sections
6(a), 6(b), and 6(c) below. For purposes of this Stock Option Agreement, "Cause"
means (i) gross negligence or willful misconduct in connection with the
performance of duties; (ii) conviction of a criminal offense (other than minor
traffic offenses); or (iii) material breach of any term of any employment,
consulting or other services, confidentiality, intellectual property or
non-competition agreements, if any, between Optionee and the Corporation or any
of its Affiliates.
(d) Method of Exercise
The Option may be exercised to the xtent that shares have
become exercisable hereunder by delivery to the Corporation on any business day,
at its
<PAGE>
principal office addressed to the attention of the Committee, of written notice
of exercise, which notice shall specify the number of shares for which the
Option is being exercised, and shall be accompanied by payment in full of the
Option Price of the shares for which the Option is being exercised. Payment of
the Option Price for the shares of Stock purchased pursuant to the exercise of
the Option shall be made (i) in cash or by certified check payable to the order
of the Corporation; (ii) through the tender to the Corporation of shares of
Stock, which, if acquired from the Corporation, have been owned for at least six
(6) months and which shares shall be valued, for purposes of determining the
extent to which the Option Price has been paid thereby, at their Fair Market
Value on the date of exercise; or (iii) by a combination of the methods
described in Sections 5(d)(i) and 5(d)(ii) hereof. Payment in full of the Option
Price need not accompany the written notice of exercise provided the notice
directs that the Stock certificate or certificates for the shares for which the
Option is exercised be delivered to a licensed broker acceptable to the
Corporation as the agent for the individual exercising the Option and, at the
time such Stock certificate or certificates are delivered, the broker tenders to
the Corporation cash (or cash equivalents acceptable to the Corporation) equal
to the Option Price plus the amount (if any) of federal and/or other taxes which
the Corporation may, in its judgment, be required to withhold with respect to
the exercise of the Option. An attempt to exercise any Option granted hereunder
other than as set forth above shall be invalid and of no force and effect.
Promptly after the exercise of an Option and the payment in full of the Option
Price of the shares of Stock covered thereby, the Optionee shall be entitled to
the issuance of a Stock certificate or certificates evidencing such individual's
ownership of such shares. An individual holding or exercising the Option shall
have none of the rights of a stockholder until the shares of Stock covered
thereby are fully paid and issued to such individual and, except as provided in
Section 10 hereof, no adjustment shall be made for dividends or other rights for
which the record date is prior to the date of such issuance.
6. TERMINATION OF THE SERVICE RELATIONSHIP
(a) Termination of Employment or Other Relationship
The Option shall remain exercisable for three (3) months
following a termination of the employment or other relationship of the Optionee
with the Corporation or any of its Affiliates, other than for Cause or by reason
of the death or "permanent and total disability" (within the meaning of Section
22(e)(3) of the Code), to the extent such Option was vested at the time of
termination. At the end of such three (3) month period, the Option shall
terminate unless notice is given exercising such Option, and such Optionee shall
have no further right to purchase shares pursuant to such Option. If the
termination of employment or other relationship is for Cause, the Option shall
terminate on the termination of employment or other relationship. Whether a
leave of absence or leave on military or government service shall constitute a
termination of employment or other relationship for purposes of this Stock
Option Agreement shall be determined by the Committee, which determination shall
be final and conclusive.
<PAGE>
(b) Rights in the Event of Death
If the Optionee dies while employed by, or in the service of,
the Corporation or any of its Affiliates, the executors or administrators or
legatees or distributees of such Optionee's estate shall have the right at any
time within one year after the date of such Optionee's death, and prior to
termination of the Option pursuant to Section 5(a) above, to exercise, in whole
or in part, any Option held by such Optionee t the date of such Optionee's
death, whether or not such Option was exercisable immediately prior to such
Optionee's death.
(c) Rights in the Event of Disability
If the Optionee terminates employment or other relationship
with the Corporation or any of its Affiliates by reason of the "permanent and
total disability" (within the meaning of Section 22(e)(3) of the Code) of the
Optionee, then such Optionee shall have the right, at any time within one year
after such termination of employment or other relationship and prior to
termination of the Option pursuant to Section 5(a) above, to exercise, in whole
or in part, the Option held by such Optionee at the date of such termination of
employment or other relationship, whether or not such Option was exercisable
immediately prior to such termination of employment or other relationship.
Whether a termination of employment or other relationship is to be considered by
reason of "permanent and total disability" for purposes of this Stock Option
Agreement shall be determined by the Committee, which determination shall be
final and conclusive.
(d) Options Granted Pursuant to our Employment Agreement
All Options granted to Optionee pursuant to an employment agreement shall be
exercisable for eight years from the date of this Agreement and sections 6 (a),
6 (b) and 6 (c) above shall not apply to those options.
7. TRANSFERABILITY
Except as provided in this Section 8, during the lifetime of the
Optionee, only such Optionee (or, in the event of legal incapacity or
incompetency, the Optionee's guardian or legal representative) may exercise the
Option and no Option shall be assignable or transferable by the Optionee, other
than by will or the laws of descent and distribution. The Optionee may transfer
all or part of an Option to (i) any Immediate Family Member, (ii) a trust or
trusts for the exclusive benefit of any Immediate Family Member, or (iii) a
partnership in which Immediate Family Members are the only partners, provided
that (x) there may be no consideration for any such transfer, and (y) subsequent
transfers of transferred Options are prohibited except those in accordance with
this Section 7 or by will or the laws of descent and
<PAGE>
distribution. Following transfer, any such Option shall continue to be subject
to the same terms and conditions as were applicable immediately prior to
transfer, provided that for purposes of Section 6 hereof the term "Optionee"
shall be deemed to refer the transferee. The events of termination of the
Service Relationship of Section 6 hereof shall continue to be applied with
respect to the original Optionee, following which the Option shall be
exercisable by the transferee only to the extent, and for the periods specified
in Section 5(b). For purposes of this Stock Option Agreement, the term
"Immediate Family Member" shall include the spouse, children and grandchildren
of the Optionee.
8. PARACHUTE LIMITATIONS
Notwithstanding any other provision of this Stock Option Agreement or
of any other agreement, contract, or understanding heretofore or hereafter
entered into by the Optionee and the Corporation or any Subsidiary, except an
agreement, contract, or understanding hereafter entered into that expressly
modifies or excludes application of this Section (the "Other Agreements"), and
notwithstanding any formal or informal plan or other arrangement heretofore or
hereafter adopted by the Corporation (or any Subsidiary) for the direct or
indirect compensation of the Optionee (including groups or classes of
participants or beneficiaries of which the Optionee is a member), whether or not
such compensation is deferred, is in cash, or is in the form of a benefit to or
for the Optionee (a "Benefit Arrangement"), if the Optionee is a "disqualified
individual," as defined in Section 280G(c) of the Code, the Option and any right
to receive any payment or other benefit under this Stock Option Agreement shall
not become exercisable or vested (i) to the extent that such right to exercise,
vesting, payment, or benefit, taking into account all other rights, payments, or
benefits to or for Optionee under the Plan, all Other Agreements, and all
Benefit Arrangements, would cause any payment or benefit to the Optionee under
this Stock Option Agreement to be considered a "parachute payment" within the
meaning of Section 280G(b)(2) of the Code as then in effect (a "Parachute
Payment") and (ii) if, as a result of receiving a Parachute Payment, the
aggregate after-tax amounts received by the Optionee from the Corporation under
this Stock Option Agreement, the Plan, all Other Agreements, and all Benefit
Arrangements would be less than the maximum after-tax amount that could be
received by Optionee without causing any such payment or benefit to be
considered a Parachute Payment. In the event that the receipt of any such right
to exercise, vesting, payment, or benefit under this Stock Option Agreement , in
conjunction with all other rights, payments, or benefits to or for the Optionee
under the Plan, any Other Agreement or any Benefit Arrangement would cause the
Optionee to be considered to have received a Parachute Payment under this Stock
Option Agreement that would have the effect of decreasing the after-tax amount
received by the Optionee as described in clause (ii) of the preceding sentence,
then the Optionee shall have the right, in the Optionee's sole discretion, to
designate those rights, payments, or benefits under this Stock Option Agreement,
the Plan, any Other Agreements, and any Benefit Arrangements that should be
reduced or eliminated so as to avoid having the payment or benefit to the
Optionee under this Stock Option Agreement be deemed to be a Parachute Payment.
<PAGE>
9. REQUIREMENTS OF LAW
The Corporation shall not be required to sell or issue any
securities under the Option if the sale or issuance of such securities would
constitute a violation by the Optionee, the individual exercising the Option, or
the Corporation of any provisions of any law or regulation of any governmental
authority, including without limitation any federal or state securities laws or
regulations. If at any time the Corporation shall determine, in its discretion,
that the listing, registration or qualification of any securities subject to the
Option upon any securities exchange or under any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the issuance or
purchase of securities hereunder, the Option may not be exercised in whole or in
part unless such listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to the
Corporation, and any delay caused thereby shall in no way affect the date of
termination of the Option. Specifically in connection with the 1933 Act, upon
the exercise of the Option, unless a registration statement under such act is in
effect with respect to the securities covered by the Option, the Corporation
shall not be required to sell or issue such securities unless the Committee has
received evidence satisfactory to it that the holder of such Option may acquire
such securities pursuant to an exemption from registration under such act. Any
determination in this connection by the Committee shall be final, binding, and
conclusive. The Corporation may, but shall in no event be obligated to, register
any securities covered hereby pursuant to the 1933 Act. The Corporation shall
not be obligated to take any affirmative action in order to cause the exercise
of the Option or the issuance of securities pursuant thereto to comply with any
law or regulation of any governmental authority. As to any jurisdiction that
expressly imposes the requirement that the Option shall not be exercisable until
the securities covered by such Option are registered or are exempt from
registration, the exercise of such Option (under circumstances in which the laws
of such jurisdiction apply) shall be deemed conditioned upon the effectiveness
of such registration or the availability of such an exemption.
10. EFFECT OF CHANGES IN CAPITALIZATION
(a) Changes in Stock
If the number of outstanding shares of Stock is increased or
decreased or the shares of Stock are changed into or exchanged for a different
number or kind of shares or other securities of the Corporation on account of
any recapitalization, reclassification, s ock split-up, combination of shares,
exchange of shares, stock dividend or other distribution payable in capital
stock, or other increase or decrease in such shares effected without receipt of
consideration by the Corporation, occurring after the date of grant of the
Option, the number and kind of shares of Stock for which the Option was granted
shall be adjusted proportionately and accordingly so that the
<PAGE>
proportionate interest of the Optionee immediately following such event shall,
to the extent practicable, be the same as immediately before such event. Any
such adjustment in the Option shall not change the aggregate Option Price
payable with respect to shares that are subject to the unexercised portion of
the Option but shall include a corresponding proportionate adjustment in the
Option Price per share.
(b) Reorganization in Which the Corporation Is the Surviving
Corporation
Subject to Subsection 10(c) hereof, if the Corporation shall
be the surviving corporation in any reorganization, merger, or consolidation of
the Corporation with one or more other corporations, the Option shall pertain to
and apply to the securities to which a holder of the number of shares of Stock
subject to the Option would have been entitled immediately following such
reorganization, merger, or consolidation, with a corresponding proportionat
adjustment of the Option Price per share so that the aggregate Option Price
thereafter shall be the same as the aggregate Option Price of the shares
remaining subject to the Option immediately prior to such reorganization,
merger, or consolidation.
(c) Dissolution, Liquidation, Sale of Assets, Reorganization in
Which the Corporation Is Not the Surviving Corporation,
Etc.
Upon the dissolution or liquidation of the Corporation, or
upon a merger, consolidation or reorganization of the Corporation with one or
more other entities in which the Corporation is not the surviving entity, or
upon any transaction (including, without limitation, a merger or reorganization
in which the Corporation is the surviving entity) approved by the Board that
results in any person or entity (other than persons who are holders of stock of
the Corporation at the time the Plan is approved by the Board of Directors and
other than an Affiliate) owning 80 percent or more of the combined voting power
of all classes of stock of the Corporation, the Plan and all Options outstanding
hereunder shall continue and/or be assumed, or there shall be a substitution for
such Options of new options covering the stock of a successor entity, or a
parent or subsidiary thereof, with appropriate adjustments as to the number and
kinds of shares and exercise prices, in which event the Plan and Options
theretofore granted shall continue in the manner and under the terms so
provided. The Committee shall send written notice of an event covered by this
Section not later than the time at which the Corporation gives notice thereof to
its stockholders.
(d) Adjustments
Adjustments under this Section 10 related to stock or
securities of the Corporation shall be made by the Board, whose determination in
that respect shall be final, binding, and conclusive. No fractional shares of
Stock or units of other securities shall be issued pursuant to any such
adjustment, and any fractions resulting from any
<PAGE>
such adjustment shall be eliminated in each case by rounding downward to the
nearest whole share or unit.
(e) No Limitations on Corporation
The grant of the Option shall not affect or limit in any way
the right or power of the Corporation to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure or to merge,
consolidate, dissolve, or liquidate, or to sell or transfer all or any part of
its business or assets.
11. DISCLAIMER OF RIGHTS
No provision in this Stock Option Agreement shall be construed
to confer upon any individual the right to remain in the employ or service of
the Corporation or any of its Affiliates, or to interfere in any way with any
contractual or other right or authority of the Corporation or any of its
Affiliates either to increase or decrease the compensation or other payments to
any individual at any time, or to terminate any employment or other relationship
between any individual and the Corporation or any of its Affiliates. In
addition, notwithstanding anything contained in the Plan to the contrary, the
Option shall not be affected by any change of duties or position of the Optionee
(including a transfer to or from the Corporation or any of its Affiliates), so
long as such Optionee continues to be an employee of, or otherwise in the
service of, the Corporation or any of its Affiliates.
12. FORFEITURE OF RIGHTS
The Corporation at any time shall have the right to ca se a
forfeiture of the rights of the Optionee on account of the Optionee taking
actions in competition with the Corporation. Unless otherwise specified in an
employment or other agreement between the Corporation and the Optionee, the
Optionee takes actions in competition with the Corporation if he or she directly
or indirectly owns any interest in, operates, joins, controls or participates as
a partner, director, principal, officer, or agent of, enters into the employment
of, acts as a consultant to, or performs any services for, any entity which has
material operations which compete with any business in which the Corporation or
any of its Subsidiaries is engaged during the Optionee's employment or other
relationship with the Corporation or any of its Affiliates or at the time of the
Optionee's termination of employment or other relationship.
13. CAPTIONS
The use of captions in this Stock Option Agreement is for the
convenience of reference only and shall not affect the meaning of any provision
of such Stock Option Agreement.
<PAGE>
14. WITHHOLDING OF TAXES
The Corporation shall have the right to deduct from payments
of any kind otherwise due to an Optionee any federal, state, or local taxes of
any kind required by law to be withheld with respect to any payments,
distributions and property transferred under this Stock Option Agreement. At the
time of exercise, the Opt onee shall pay to the Corporation any amount that the
Corporation may reasonably determine to be necessary to satisfy such withholding
obligation.
15. SEVERABILITY
If any provision of the Plan or this Stock Option Agreement
shall be determined to be illegal or unenforceable by any court of law in any
jurisdiction, the remaining provisions thereof and hereof shall be severable and
enforceable in a cordance with their terms, and all provisions shall remain
enforceable in any other jurisdiction.
16. INTERPRETATION OF THIS STOCK OPTION AGREEMENT
All decisions and interpretations made by t e Corporation or
the Committee with regard to any question arising under the Plan or this Stock
Option Agreement shall be final, binding and conclusive on the Corporation and
the Optionee and any other person entitled to exercise the Option as provided
for herein.
17. GOVERNING LAW
The validity and construction of this Stock Option Agreement
shall be governed by the laws of the State of Delaware ut not including the
choice of law rules thereof.
18. BINDING EFFECT
Subject to all restrictions provided for in this Stock Option
Agreement, the Plan and by applicable law limiting assignmen and transfer of
this Stock Option Agreement and the Option provided for herein, this Stock
Option Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, executors, administrators, successors, and
assigns.
19. NOTICE
All notices or other communications which may be or are
required to be given by any party to any other party pursuant to this Stock
Option Agreement shall be in writing and shall be mailed by first-class,
registered or certified mail, return receipt requested, postage prepaid, or
transmitted by hand delivery or telecopier (fax), addressed as follows:
If to the Corporation:
Globalink, Inc.
9302 Lee Highway
<PAGE>
Fairfax, Virginia 22031
Attention: John F. McCarthy
Telecopy: 703-273-3405
If to Optionee:
At the address set forth below under Optionee's name at the foot of this
Agreement.
Each party may designate by notice in writing a new address to which any notice
or other communication may thereafter be so given. Each notice or other
communication which shall be mailed, delivered or transmitted in the manner
described above, shall be deemed sufficiently given for all purposes at such
time as it is delivered to the addressee with the return receipt, the delivery
receipt, the affidavit of personal courier or, with respect to a telecopy, upon
acknowledgment of receipt thereof and in all cases at such time as delivery is
refused by the addressee upon presentation.
20. ENTIRE AGREEMENT
This Stock Option Agreement and the Plan together constitute
the entire agreement between the parties hereto with respect to the subject
matter hereof. Neither this Stock Option Agreement nor any term hereof may be
amended, waived, discharged or terminated except by a written instrument signed
by the Corporation and the Optionee; provided, however, that the Corporation
unilaterally may waive any provision hereof in writing to the extent that such
wa ver does not adversely affect the interests of the Optionee hereunder, but no
such waiver shall operate as or be construed to be a subsequent waiver of the
same provision or a waiver of any other provision hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Stock Option Agreement, or caused this Stock Option Agreement to
be duly executed and delivered in their name and on their behalf, as of the day
and year first above written.
Globalink, Inc.
By: _____________________________
Ronald W. Johnston, President
Optionee:
_________________________________
Address for Notice to Optionee:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
December 31, 1997, 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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,068,241
<SECURITIES> 0
<RECEIVABLES> 13,893,969
<ALLOWANCES> 2,693,826
<INVENTORY> 760,659
<CURRENT-ASSETS> 13,857,592
<PP&E> 1,732,549
<DEPRECIATION> 1,144,766
<TOTAL-ASSETS> 15,414,946
<CURRENT-LIABILITIES> 4,728,089
<BONDS> 92,000
0
755,354
<COMMON> 91,602
<OTHER-SE> 22,215,727
<TOTAL-LIABILITY-AND-EQUITY> 15,414,946
<SALES> 13,386,873
<TOTAL-REVENUES> 14,729,115
<CGS> 2,347,514
<TOTAL-COSTS> 7,978,294
<OTHER-EXPENSES> 5,996,652
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,459
<INCOME-PRETAX> (1,615,804)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,615,804)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,615,804)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
