U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
--------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File No. 0-25668
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GLOBAL TECHNOLOGIES, LTD.
-----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 86-0970492
- ------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification Number)
1811 Chestnut Street, Suite 120
Philadelphia, Pennsylvania 19103
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(Address of Principal Executive Offices)
(215) 972-8191
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at November 10, 1999
----- --------------------------------
Class A common stock, $.01 par value 6,113,244 shares
Class B common stock, $.01 par value -0- shares
Transitional Small Business Disclosure Format
Yes No X
--- ---
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
Index
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999
(unaudited) and June 30, 1999................................................ 3
Condensed Consolidated Statements of Operations for the Three Months
Ended September 30, 1999 and 1998 (unaudited)................................ 4
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended September 30, 1999 and 1998 (unaudited)................................ 5
Notes to Condensed Consolidated Financial Statements......................... 6
Item 2. Management's Discussion and Analysis or Plan of Operation.................... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 22
Item 2. Changes in Securities........................................................ 23
Item 4. Submission of Matters to a Vote of Security Holders.......................... 24
Item 6. Exhibits and Reports on Form 8-K............................................. 24
SIGNATURES............................................................................ 27
</TABLE>
2
<PAGE>
GLOBAL TECHNOLOGIES, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------- -------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,257,226 $ 15,521,275
Restricted cash 1,376,652 1,412,736
Investments 4,173,444 4,594,751
Accounts receivable, net of allowance of $6,544 5,113,667 128,489
Notes receivable from related parties 97,932 98,932
Inventories, net of allowance of $7,837,595 2,984,708 1,400,000
Prepaid expenses 630,465 607,900
Assets held for sale 400,000 800,000
Other current assets 380,964 470,273
------------- -------------
Total current assets 24,415,058 25,034,356
Investments 5,903,089 5,752,599
Note receivable from related party 75,000 75,000
Property and equipment, net of accumulated depreciation of $1,055,565
and $915,901, respectively 1,353,300 1,369,392
Intangibles, net accumulated amortization of $259,122 and $74,981,
respectively 6,995,493 7,119,806
Other assets 2,873,604 61,468
------------- -------------
Total assets $ 41,615,544 $ 39,412,621
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 5,394,048 $ 2,530,675
Accrued liabilities 2,548,083 2,292,609
Deferred revenue 1,155,428 365,851
Accrued product warranties 144,750 --
Current maturities of notes payable 23,473 24,391
Notes payable to related parties 68,836 68,836
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Total current liabilities 9,334,618 5,282,362
Notes payable 605,650 3,467,045
Accrued litigation settlement 1,000,000 1,843,750
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Total liabilities 10,940,268 10,593,157
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Minority interest 1,261,460 1,165,098
Commitments and contingencies
Stockholders' equity:
Series A 8% Convertible preferred stock, 3,000 shares designated, issued
and outstanding (liquidation preference of $1,200 per share) 30 30
Series B 8% Convertible preferred stock, 3,000 shares designated, zero
shares issued and outstanding -- --
Class A common stock, one vote per share, par value
$0.01 per share, 40,000,000 shares authorized; 6,113,244 and
5,460,636 shares issued and outstanding, respectively 61,132 54,606
Class B common stock, six votes per share, par value $0.01 per
share, 4,000,000 shares authorized; zero shares issued and outstanding -- --
Additional paid-in capital 115,675,071 113,462,394
Accumulated other comprehensive income:
Net unrealized loss on investment securities (1,415) (10,107)
Accumulated deficit (86,127,012) (85,658,567)
Treasury stock, at cost; 78,600 shares (193,990) (193,990)
------------- -------------
Total stockholders' equity 29,413,816 27,654,366
------------- -------------
Total liabilities and stockholders' equity $ 41,615,544 $ 39,412,621
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
GLOBAL TECHNOLOGIES, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
ended September 30,
----------- -----------
1999 1998
----------- -----------
<S> <C> <C>
Revenue:
Equipment sales $ 5,550,560 $ 89,028
Service income 59,827 465,404
----------- -----------
5,610,387 554,432
----------- -----------
Costs and expenses:
Cost of equipment sales 3,420,381 283,714
Cost of service income 8,580 146,362
General and administrative expenses 2,416,965 4,847,618
Special charges -- (190,000)
Depreciation and amortization expense 325,066 330,300
----------- -----------
6,170,992 5,417,994
----------- -----------
Operating loss (560,605) (4,863,562)
Other:
Interest expense (8,651) (2,390)
Interest income 303,838 591,114
Equity in loss of nonconsolidated affiliates (152,576) --
Other income (expense) 13,408 (2,628)
----------- -----------
Net loss before minority interest and preferred dividends $ (404,586) $(4,277,466)
----------- -----------
Minority interest (94,529) --
Net loss before preferred dividends $ (499,115) $(4,277,466)
Cumulative dividend on preferred stock (60,000) --
----------- -----------
Net loss attributable to common stockholders $ (559,115) $(4,277,466)
=========== ===========
Basic and diluted net loss per share of common stock $ (0.10) $ (0.75)
=========== ===========
Weighted average shares outstanding: basic and diluted 5,834,662 5,704,055
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
GLOBAL TECHNOLOGIES, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (499,115) $ (4,277,466)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 325,066 330,300
Equity in loss of nonconsolidated affiliates 152,576 --
Loss applicable to minority interest 94,529 --
Special charges -- (190,000)
Loss on sale of assets held for sale 4,506 --
Non cash compensation expense 85,000 --
Loss on disposals of property and equipment -- 2,629
Changes in assets and liabilities, net of acquisition:
Increase in accounts receivable (4,985,178) (578,567)
Increase in inventories (1,584,708) (52,820)
Decrease in prepaid expenses, other current assets
and other assets 54,608 66,516
Increase in accounts payable 2,822,053 32,855
Decrease in accrued liabilities (187,919) (678,059)
Increase in deferred revenue 789,577 36,263
Increase in accrued product warranties 144,750 82,749
------------ ------------
Net cash used in operating activities $ (2,784,255) $ (5,225,600)
------------ ------------
Cash flows from investing activities:
Maturities of investment securities 1,450,079 1,216,653
Purchases of investment securities (1,489,085) (2,105,606)
Sales of investment securities 469,005 --
Investments in affiliates (387,534) --
Payments received on related party note receivable 1,000 --
Deposits on property and equipment (2,800,000) --
Purchases of property and equipment (123,572) (51,680)
Proceeds from sale of equipment -- 3,389
Proceeds from sale of assets held for sale 395,494 --
Decrease (Increase) in restricted cash 36,084 (1,153,024)
Purchase of Johnny Valet, Inc. -- (688,736)
Payments to purchase Series A, D and E notes (555,000) --
------------ ------------
Net cash used in investing activities $ (3,003,529) $ (2,779,004)
------------ ------------
Cash flows from financing activities:
Payments on capital lease obligations -- (20,775)
Payments on notes payable (476,265) --
Purchase of treasury stock -- (1,305,004)
------------ ------------
Net cash used in financing activities $ (476,265) $ (1,325,779)
------------ ------------
Net decrease in cash and cash equivalents (6,264,049) (9,330,383)
Cash and cash equivalents at beginning of period 15,521,275 38,961,896
------------ ------------
Cash and cash equivalents at end of period $ 9,257,226 $ 29,631,513
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
GLOBAL TECHNOLOGIES, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
PART I. FINANCIAL INFORMATION
Basis of Presentation
(1) Principles of Consolidation
The condensed consolidated financial statements include the accounts of
Global Technologies, Ltd. ("Global") and its wholly-owned subsidiaries: IFT
Holdings Limited, IFT Management Limited, Interactive Flight Technologies
(Gibraltar) Limited, IFT Lottoco, Inc., IFT Subco, Inc., IFT Investments
Limited, IFT Leasing Limited, and MTJ Corp. (inactive subsidiary that formerly
operated the Company's dry cleaning business); and the majority-owned and
controlled subsidiary, The Network Connection, Inc. ("TNCi") (collectively, the
"Company"). The ownership interest of minority shareholders in TNCi are recorded
as "minority interest" on the accompanying consolidated financial statements.
TNCi was acquired by Global effective May 1, 1999 for accounting purposes (the
"Transaction"). All significant intercompany accounts and transactions have been
eliminated.
The equity method of accounting is used for the Company's 50% or less owned
affiliates (Inter Lotto (UK) Limited and Donativos S.A. de C.V.) over which the
Company has the ability to exercise significant influence. The amount by which
the Company's carrying value in each such affiliate exceeds its share of the
underlying net assets of such equity affiliate ("Equity Goodwill") is amortized
over five years on a straight-line basis from the date of acquisition which
adjusts the Company's share of such affiliate's earnings or losses. The
Company's investment in US Wireless Corporation is accounted for at cost ($3.0
million).
The Company continually evaluates investments for indications of impairment
based on the market value of each investment relative to cost, financial
condition, near-term prospects of the investment, and other relative factors. If
impairment is determined the carrying value is adjusted to fair value.
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles, pursuant
to the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, the accompanying condensed consolidated financial
statements reflect all adjustments (consisting of normal recurring accruals)
which are necessary for a fair presentation of the results for the interim
periods presented. Certain information and footnote disclosures normally
included in consolidated financial statements have been condensed or omitted
pursuant to such rules and regulations. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto for the transition period ended June 30,
1999, included in the Company's Annual Report on Form 10-KSB.
The results of operations for the three months ended September 30, 1999 are
not necessarily indicative of the results to be expected for the entire fiscal
year.
(2) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Additionally, such estimates and assumptions affect the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
(3) Reverse Stock Split
On October 30, 1998, the stockholders of the Company approved a
one-for-three reverse stock split on the Company's Class A Common Stock and
Class B Common Stock. One share was issued for each three shares held by
stockholders of record as of the close of business on November 2, 1998.
6
<PAGE>
All references to the number of shares of Class A and B Common Stock and
per share amounts elsewhere in the condensed consolidated financial statements
and related footnotes have been restated as appropriate to reflect the effect of
the reverse split for all periods presented prior to the reverse split.
(4) Notes Payable
Prior to the Transaction, TNCi entered into a Secured Promissory Note with
Global in the principal amount of $750,000, bearing interest at a rate of 9.5%
per annum, and a related security agreement granting Global a security interest
in TNCi's assets (the "Promissory Note"). The Promissory Note is convertible
into shares of TNCi Series C 8% convertible preferred stock ("TNCi Series C
Stock") at the discretion of Global.
In July and August 1999, Global purchased all of the Series A and E notes
and the Series D notes issued by TNCi (collectively, the "Series Notes"),
respectively, from the holders of such notes. Concurrent with such purchase by
Global, TNCi executed the fifth and sixth allonges to the Promissory Note which
cancelled such Series Notes and rolled the principal balance, plus accrued but
unpaid interest, penalties and redemption premiums on the Series Notes, into the
principal balance of the Promissory Note. Subsequent to May 18, 1999, Global has
also advanced working capital to TNCi in the form of intercompany advances. In
August 1999, TNCi executed the seventh allonge to the Promissory Note which
rolled the intercompany advances into the principal balance of the Promissory
Note. As of September 30, 1999, the Promissory Note had a principal balance of
$4.3 million which has been eliminated in consolidation.
On August 24, 1999, the Board of Directors of Global approved the
conversion of the Promissory Note into approximately five million shares of TNCi
common stock at a price per share equal to 66.67% of the average of the five
lowest last sale prices of a share of TNCi common stock as reported by the
Nasdaq National Market out of the 20 trading days immediately preceding August
24, 1999. Such conversion was contingent upon receiving shareholder approval to
increase the authorized share capital of TNCi. This increase was subsequently
approved at the September 17, 1999 Special Meeting of TNCi shareholders.
On August 24, 1999, the Company's Board of Directors approved a $5 million
secured revolving credit facility by and between TNCi and Global (the
"Facility"). The Facility provides that TNCi may borrow up to $5 million for
working capital and general corporate purposes at the prime rate of interest
plus 3%. The Facility matures in September 2001. TNCi paid an origination fee of
$50,000 to Global and will pay an unused line fee of 0.5% per annum. The
Facility is secured by all of the assets of Global and is convertible, at
Global's option, into shares of TNCi Series C Stock. The Company executed the
Facility on October 12, 1999.
In September 1999, TNCi sold one of its two buildings in Alpharetta,
Georgia. The net proceeds of approximately $390,000 from the sale, plus cash of
approximately $80,000, were used to repay a note payable due April 2001, in the
principal amount of $470,000. The sale of the second building occurred in
November 1999. The net proceeds of approximately $390,000 from the sale were
used to retire a note payable due 2009 in the principal amount of $217,000.
In October 1999, a note payable of TNCi in the principal amount of $400,000
due September 5, 1999 was converted into 200,000 shares of TNCi common stock.
(5) Preferred Stock
The Company issued 3,000 shares of its Series A 8% Convertible Preferred
Stock ("Series A Stock") to a third party in May 1999 in connection with the
Transaction. The Series A Stock has a stated value of $1,000 per share and
liquidation value of 120% of stated value. The holder of Series A Stock is
entitled to receive, when, as and if declared by the Board of Directors, an
annual cumulative dividend of $80 per share payable quarterly in cash or common
stock. Cumulative undeclared and unpaid dividends at September 30, 1999 total
$93,333 or $31.11 per share of Series A Stock. Beginning November 6, 1999, the
holder may request redemption or that each share of Series A Stock be converted
into Class A Common Stock at a price equal to $3.00 per share or into Series B
8% Convertible Preferred Stock (the "Series B Stock") at the rate of 1.19 shares
of Series B Stock
7
<PAGE>
for each share of Series A Stock. Global's Series B Stock is entitled to
one vote for each share of Common Stock into which it may convert. There are no
shares of Series B Stock outstanding.
Global may redeem the Series A Stock at prices ranging from 115% to 125% of
stated value, plus accrued and unpaid dividends, at any time between November 6,
1999 and May 4, 2000. If the Series A Stock is not redeemed or converted into
shares of Global's Common Stock by May 5, 2000, then the Series A Stock
automatically converts into shares of Series B Stock at the rate of 1.25 shares
of Series B Stock for each share of Series A Stock.
Shares of Series B Stock are convertible into Class A Common Stock of
Global at a price per share equal to the lower of (a) 82% of Market Price (as
defined in the Certificate of Rights, Preferences, and Designations of the
Series B Stock) or (b) $3.00 per share of Class A Common Stock.
On November 10, 1999, the Board of Directors of the Company approved the
redemption of the Series A Stock as of November 6, 1999 for approximately $3.57
million, consisting of its stated value of $3 million, plus accrued and unpaid
dividends of approximately $120,000 and a redemption premium of approximately
$450,000.
(6) Pro Forma Information
Pro forma unaudited operations data assuming the TNCi acquisition had taken
place on July 1, 1998 is as follows:
Three Months Ended
September 30, 1998
------------------
Revenue $1,716,000
Net loss $7,550,000
Net loss per share $ 1.32
(7) Commitments and Contingencies
(a) Lawsuits
Swissair/MDL-1269, In Regards to an Air Crash Near Peggy's Cove, Nova
Scotia. This multi-district litigation relates to the crash of Swissair Flight
No. 111 on September 2, 1998 in waters near Peggy's Cove, Nova Scotia resulting
in the death of all 229 people on board. The Swissair MD-11 aircraft involved in
the crash was equipped with an Entertainment Network System that had been sold
to Swissair by the Company. Following the crash, investigations were conducted
and continue to be conducted by Canadian and United States agencies concerning
the cause of the crash. No investigative agency has linked the Entertainment
Network System to the crash. Estates of the victims of the crash have filed
lawsuits throughout the United States against Swissair, Boeing, Dupont and
various other parties, including the Company. TNCi was not a party to the
contract for the Entertainment Network System, but has been named in some of the
lawsuits filed by families of victims on a claim of successor liability. The
Company and TNCi deny all liability for the crash. TNCi is being defended by the
aviation insurer for the Company.
Fidelity and Guaranty Insurance Company v. Interactive Flight Technologies,
Inc., United States District Court for the District of Minnesota, CV No. 99-410.
This is a declaratory judgment action where the Company and its insurers are
seeking a declaration of the applicability of an excess liability policy to
claims made by the estates of victims of the crash of Swissair Flight No. 111 on
September 2, 1998.
Federal Express Corporation v. The Network Connection, Inc., State Court of
Forsyth County, State of Georgia, Civil Action File No. 99-SC-0053. This lawsuit
was served on TNCi on or about July 22, 1999 by Federal Express Corporation. The
suit alleges TNCi owes Federal Express approximately $110,000 for past services
rendered.
8
<PAGE>
On September 1, 1999, SAir Group invited Global to participate in a
conciliation hearing before the Justice of the Peace in Kloten, Switzerland,
which is the customary manner in which civil litigation is initiated in
Switzerland. The document received by Global informing it of the proceeding
states that the request has been filed in connection with the crash of Swissair
Flight 111 primarily in order to avoid the expiration of any applicable statutes
of limitations and to reserve the right to pursue further claims. The document
states that further information will be supplied at the hearing. The document
states that the relief sought is "possibly the equivalent of CHF 342,000,000 -
in a currency to be designated by the court; each plus 5% interest with effect
from September 3, 1998; legal costs and a participation to the legal fees (of
the plaintiff) to be paid by the defendant."
In September of 1999, Global filed a lawsuit against Barington Capital
Group, L.P. ("Barington") in Maricopa County Superior Court, Arizona, seeking a
declaratory judgment that no sums were owed to Barington pursuant to a Financial
Advisory Service Agreement dated in October of 1998. In October of 1999,
Barington filed a lawsuit on the same contract in the Supreme Court of the State
of New York, County of New York, Index No. 99-604606, captioned Barington
Capital Group, L.P. v. Interactive Flight Technologies, Inc., alleging that
Barington is owed $1,750,471 in connection with services alleged to have been
performed pursuant to the Financial Advisory Service Agreement. Global denies
all liability and denies that any sums are owed to Barington.
The Company is subject to other lawsuits and claims arising in the ordinary
course of its business. In the Company's opinion, as of September 30, 1999, the
effect of such matters will not have a material adverse effect on the Company's
results of operations and financial position.
(b) Carnival Agreement
In September 1998, the Company entered into a Turnkey Agreement (the
"Carnival Agreement") with Carnival Corporation ("Carnival"), for the purchase,
installation and maintenance of its advanced cabin entertainment and management
system for the cruise industry ("CruiseView") on a minimum of one Carnival
Cruise Lines ship. During the four-year period commencing on the date of the
Carnival Agreement, Carnival has the right to designate a limited number of
additional ships for the installation of CruiseView by the Company. The cost per
cabin for CruiseView purchase and installation on each ship is provided for in
the Carnival Agreement. In December 1998, Carnival ordered the installation of
CruiseView on one Carnival Cruise Lines "Fantasy" class ship which has been in
operational use, on a test basis, since August 1999. In August 1999, Carnival
ordered the installation of CruiseView on one Carnival Cruise Lines "Destiny"
class ship which has been in operational use, on a test basis, since October
1999.
The terms of the Carnival Agreement provide that Carnival may return the
CruiseView system within the Acceptance Period, as defined in the Carnival
Agreement. The acceptance periods for the "Fantasy" and "Destiny" class ships
are 12 months and three months, respectively. As of September 30, 1999, the
Company recorded deferred revenue of $1,155,000, reflecting amounts paid by
Carnival towards the purchase price of CruiseView aboard these ships. As of
September 30, 1999, the Company has not recognized any revenue in association
with the Carnival Agreement. The Company would be required to repay such funds
to Carnival in the event Carnival does not accept the system. Under the Carnival
Agreement, the Company is required to provide a performance bond or standby
letter of credit in favor of Carnival ensuring the Company's ability to repay
such amounts.
The Company has not provided a bond or letter of credit. Should Carnival
require the Company to obtain a bond or letter of credit, the Company may be
required to provide cash collateral to a financial institution to secure such
obligation.
(c) Letter of Credit
In June 1999, the Company granted a letter of credit in the amount of
$913,445 as security for the payment of certain equipment purchases made by
Donativos S.A. de C.V., an affiliate of the Company. To secure this letter of
credit, the Company was required to provide cash collateral with a commercial
bank. Payments totaling $114,000 have been made through November 15, 1999 by the
Company, effectively reducing its exposure by such amount.
(d) Purchase Commitment
In September 1999, IFT Leasing Limited entered into an agreement with
International Lottery & Totalizator Systems, Inc., a California corporation
("ILTS"), to purchase an on-line lottery system for the operation of the Inter
Lotto lotteries. The purchase price of the lottery system is $12.3 million. In
addition, on the same date, IFT Management Limited entered into an eight-year
facilities management agreement with ILTS to provide operational and technology
support for the system. Under this agreement, IFT Management is required to make
weekly payments of $72,000, plus additional amounts based on the number of
installed terminals and sales volumes, upon the commencement of ticket sales
through the system. Global has guaranteed the obligations of IFT Leasing Limited
and IFT Management Limited under these agreements.
9
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(8) Operating Segments
In 1998, the Company adopted SFAS 131, which requires the reporting of
operating segments using the "management approach" versus the "industry
approach" previously required. The Company's reportable segments consist of TNCi
and general corporate operations. TNCi's operations include development,
manufacturing and marketing of computer-based entertainment and data networks,
which provides users access to information, entertainment and a wide array of
service options such as movies, shopping for goods and services, computer games,
access to the World Wide Web and gambling, where permitted by applicable law.
General corporate operations consists of developing and operating affiliate
companies, most of which are engaged in telecommunications, e-commerce,
networking solutions and gaming.
The following summarizes information related to the Company's segments. All
significant inter-segment activity has been eliminated. Assets are the owned or
allocated assets used by each operating segment.
Three Month Ended September 30,
---------------------------------
1999 1998
------------ ------------
Revenue
TNCi $ 5,610,387 $ 334,325
Other -- 220,107
------------ ------------
$ 5,610,387 $ 554,432
Gross profit(a)
TNCi $ 2,181,426 $ 50,355
Other -- 74,001
------------ ------------
$ 2,181,426 $ 124,356
Operating income (loss)
TNCi $ 517,635 $ (4,688,972)
Other (1,078,240) (174,590)
------------ ------------
$ (560,605) $ (4,863,562)
General corporate operations
Equity in loss of non-
consolidated affiliate $ (152,576) $ --
Net interest 295,187 588,724
Other income (expenses) 13,408 (2,628)
Minority interest (94,529) --
------------ ------------
$ 61,490 $ 586,096
Net loss $ (499,115) $ (4,277,466)
Total assets
TNCi $ 19,137,090 $ 5,841,955
General corporate 22,478,454 $ 35,642,381
------------ ------------
Total Assets $ 41,615,544 $ 41,484,336
============ ============
- ----------
(a) Gross profit is the difference between Revenue and Cost of Revenue in the
consolidated statement of operations.
10
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(9) Comprehensive Income
Comprehensive income encompasses net income and "other comprehensive
income", which includes all other non-owner transactions and events which change
stockholders' equity. The Company recognized comprehensive income (loss) for the
three months ended September 30, 1999 and 1998 as follows:
Three Month Ended September 30,
--------- -----------
1999 1998
--------- -----------
Net loss
Other comprehensive loss, net of tax: $(449,115) $(4,277,466)
Net unrealized loss on
investment securities (1,415) --
--------- -----------
Comprehensive loss $(450,530) $(4,277,466)
========= ===========
(10) Issuance of Class A Common Stock
On August 13, 1999, Company, pursuant to the First Lawrence Capital Corp.
("First Lawrence") Release and Settlement Agreement, issued 250,000 shares of
Class A Common Stock to First Lawrence. Such settlement was accrued for at June
30, 1999 in the amount of $843,750. Upon the issuance of the shares of Class A
Common Stock on August 13, 1999 this portion of the accrued litigation
settlement was reclassified as shareholders equity.
(11) Subsequent Event -- Series A 8% Convertible Preferred Stock
On November 10, 1999, the Board of Directors of the Company approved
redemption of the Series A Stock at its stated value of $3 million plus accrued
and unpaid dividends of approximately $120,000 and a redemption premium of
approximately $450,000. See note 5.
11
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Item 2 -- Management's Discussion and Analysis or Plan of Operation
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Condensed Consolidated Financial Statements
and the Notes thereto appearing elsewhere herein. Historical results are not
necessarily indicative of trends in operating results for any future period.
Acquisitions and Investments
The Network Connection, Inc.
On May 18, 1999, the Company received from The Network Connection, Inc.
("TNCi") 1,055,745 shares of its common stock and 2,495,400 shares of its Series
D Convertible Preferred Stock in exchange for $4,250,000 in cash and
substantially all the assets and certain liabilities of the Company's
Interactive Entertainment Division ("IED"), as defined in the Asset Purchase and
Sale Agreement dated April 30, 1999, as amended (the "Transaction"). The Company
has consolidated the results of operations of TNCi from the date of the
transaction forward. TNCi is a majority-owned subsidiary of Global whose
ownership, through a combination of the Transaction and Global's purchase of
TCNi Series B 8% convertible preferred stock, 110,000 shares of TNCi common
stock, and of TCNi Series A, D and E convertible notes from third-party
investors approximates 81% of TNCi on an if-converted common stock basis, as of
September 30, 1999.
TNCi is engaged in the development, manufacturing and marketing of
computer-based entertainment and data networks, which provides users access to
information, entertainment and a wide array of service options, such as shopping
for goods and services, computer games, access to the World Wide Web, and
gambling operations where permitted by applicable law. The Company primarily
markets TNCi's products to academic institutions, passenger rail carriers,
cruise ship lines, business jet manufacturers, hotels and corporations (for
training purposes).
Education
TNCi has developed a high-speed multimedia server for use in the
educational and training markets. Through TNCi's servers and networks,
students and faculty are able to access hundreds of hours of multimedia content,
search the internet, and build interactive courses.
In August 1999, the Company received an approximately $5.3 million order
for 195 Cheetah(TM) multimedia servers to begin the first phase of the Georgia
Metropolitan Regional Education Services Agency ("MRESA") Net 2000 project. The
Net 2000 Project is a three year state-wide program, whereby MRESA hopes to
bring advanced multimedia learning tools and technology to all 700 Georgia
schools grades K-12 in the MRESA area. Delivery and installation
of all 195 servers was completed by September 30, 1999.
There is no assurance that TNCi will receive any further orders in
connection with the Net 2000 Project, or any orders to put its systems in other
schools or corporate training environments.
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TrainView
In February 1999, the Company received an engineering design order from
Alstom Transport Limited ("Alstom"), a unit of ALSTOM SA, a worldwide leader in
the manufacture of high speed passenger trains, to incorporate the design of
TrainView, the Company's advanced Infoactive Business and Entertainment System,
into Alstom's concept high speed train design. The TrainView all-digital system
proposed is an adaptation of the Company's existing system currently installed
for cruise customers. The system is expected to deliver personal interactive
entertainment, video/audio on demand, e-commerce for shopping, event booking,
Internet and business services to the seat through the Company's TransPORTAL
applications. The Company has completed its work under this engineering design
order and has been paid for its services.
CruiseView
In September 1998, the Company entered into a Turnkey Agreement (the
"Carnival Agreement") with Carnival Corporation ("Carnival") for the purchase,
installation and maintenance of CruiseView on a minimum of one Carnival Cruise
Lines ship. During the four-year period commencing on the date of the Carnival
Agreement, Carnival has the right to designate a limited number of additional
ships for the installation of CruiseView by the Company. The cost per cabin for
CruiseView purchase and installation on each ship is provided for in the
Carnival Agreement. Carnival exercised its right and ordered the installation of
CruiseView on one Carnival Cruise Lines "Fantasy" class ship. Delivery and
installation of CruiseView for the "Fantasy" class ship began in December 1998
and has been in operational use, on a test basis, since August 1999. It is
expected to begin commercial operation in the quarter ending December 31, 1999.
In August 1999, Carnival ordered the installation of CruiseView on one Carnival
Cruise Lines "Destiny" class ship which has been in operational use, on a test
basis, since October 1999. There can be no assurance, however, that Carnival
will exercise its right under the Carnival Agreement to order CruiseView for
installation on any additional ships.
The terms of the Carnival Agreement provide that Carnival may return
CruiseView systems within the Acceptance Period, as defined in the Carnival
Agreement. The Acceptance Periods for the "Fantasy" and "Destiny" class ships
are 12 months and three months, respectively. As of September 30, 1999, the
Company recorded deferred revenue of $1,155,428, reflecting amounts paid by
Carnival towards the purchase price of CruiseView aboard these ships. As of
September 30, 1999, the Company has not recognized any revenue in connection
with the Carnival Agreement. The Company would be required to return the funds
received from Carnival in the event Carnival does not accept the system. Under
the Carnival Agreement, the Company is required to provide a performance bond or
standby letter of credit in favor of Carnival ensuring the Company's ability to
repay such funds.
The Company has not provided a bond or letter of credit. Should Carnival
require the Company to obtain a bond or letter of credit, the Company may be
required to provide cash collateral to a financial institution to secure such
obligation.
The Company has concluded that the cost of building and installing
CruiseView systems in Carnival ships pursuant to the Carnival Agreement may
exceed the revenue earned in connection therewith. Carnival's continuing to
exercise its option for building and installing CrusieView on additional ships
under the Carnival Agreement may prove unprofitable and therefore have a
negative effect on the Company's working capital. The Company is currently
endeavoring to renegotiate the terms of the Carnival Agreement.
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AirView
In April 1998, the Boeing Company specified the Company's AirView data
server as part of the airplane manufacturer's completion Request For Proposal
(RFP) for the new B737-73Q Business Jet. In November 1998, the Company received
an order from Raytheon Systems Company, a unit of Raytheon Company, which was
contracted by Boeing Company, to equip the Boeing Business Jet (BBJ) B737-73Q
"Demonstrator" aircraft with the Company's AirView for an Integrated Business
and Entertainment System. Installation began in late 1998. There can be no
assurance, however, that any additional orders for the Company's AirView system
other than the Demonstrator will be received.
Swissair
In October, 1997, the Company entered into a revised agreement with
Swissair which required the Company to install and maintain the Entertainment
Network in the first, business and economy class sections of three aircraft at
no cost to Swissair and in the first and business classes of another sixteen
aircraft at an average price of $1.7 million per aircraft. As of October 31,
1998, the Company had completed all installations under the initial Swissair
program. The Company was responsible for maintenance costs through September
1998 for all nineteen aircraft and specific software and hardware upgrades to
the Entertainment Network that are not yet completed. The Swissair agreement
also provided for a one-year warranty on the Entertainment Network. The Company
entered into a contract dated April 1, 1998 with Swissair for $3,975,000 to
extend the warranty on the installed system for a second and third year. Through
May 18, 1999, the Company has been paid $707,500 under this contract. No
subsequent payments have been received from Swissair.
In April 1998 and October 1998, the Company entered into additional
contracts with Swissair for a $4.7 million order for first and business class
installations on four Swissair MD-11 aircraft that are being added to the
Swissair fleet. Swissair has made payments of $1,450,000 on the $4.7 million
order for the four installations.
On September 2, 1998, Swissair Flight 111 crashed. The aircraft involved in
the crash was an MD-11 equipped with the Entertainment Network. Despite the fact
that there is no evidence that the Entertainment Network had anything to do with
the crash, on October 29, 1998, the Company was notified by Swissair of the
airline's decision to deactivate the Entertainment Network on all Swissair
aircraft. Until April 1999, the Company and its system integrator/installation
contractor had been working closely with Swissair to take the necessary steps
that would allow Swissair to reactivate the systems as quickly as possible.
However, by April 1999, discussions between the Company and Swissair regarding
outstanding financial matters related to current accounts receivable, inventory,
purchase commitments and extended warranty obligations, as well as planning
discussions for an October 1999 reactivation ceased to be productive.
On May 6, 1999, the Company filed a lawsuit against Swissair in the United
States District Court for the District of Arizona seeking damages for Swissair's
failure to honor its obligations for payment and reactivation of the Company's
Entertainment Network. Swissair has failed to make payments to the Company under
installation and warranty contracts and has harmed the Company's business and
reputation by failing to honor its commitments to reactivate the Entertainment
Network on Swissair aircraft. Even though there has been no evidence that the
Entertainment Network contributed in any way to the crash of Swissair Flight No.
111 on September 2, 1998, Swissair has continued to use the unfortunate
circumstances of the crash as an excuse to avoid its obligations.
The Swissair agreements are not assignable to third parties under the terms
of such agreements. However, in connection with the Transaction, the Company has
agreed to pay to TNCi any net proceeds received from Swissair as a result of the
above litigation or otherwise. Further, TNCi, as a subcontractor to the Company,
will assume any operational responsibilities of the Swissair agreement in the
event that such requirement arises. TNCi has not assumed any liabilities or
obligations arising out of the crash of Swissair Flight No. 111.
As a result of the above events, management concluded that its only source
of future payment, if any, will be through the litigation process. In addition,
with the deactivation of the entertainment system and Swissair's breach of its
agreements with the Company, TNCi believes it will not be called upon by
Swissair to perform any ongoing warranty, maintenance or development services.
Swissair's actions have rendered TNCi's accounts receivable, inventory and
deposits worthless. These items were written off or reserved for as of June 30,
1999.
US Wireless Corporation
In March 1999, the Company invested $3 million in US Wireless Corporation
("US Wireless") in exchange for 30,000 shares of Series B Preferred Stock ("US
Wireless Series B"). As of September 30, 1999, the Company accounts for this
investment at cost. Each share of US Wireless Series B is convertible into
approximately 67 shares of common stock of US Wireless until March 2000, after
which each such
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share is convertible into 100 shares of common stock of US Wireless. Each share
of US Wireless Series B is subject to mandatory conversion into 100 shares of US
Wireless common stock in the event the closing price for US Wireless common
stock as reported on NASDAQ is at least $5.00 per share for 30 consecutive
trading days. Although the price of US Wireless common stock has exceeded $5.00
per share on several occasions, as of November 11, 1999 (when the last sale
price per share was $4.66 as reported on the Nasdaq National Market),
it had not done so for 30 consecutive days.
The US Wireless Series B entitles the holder to receive $100 per share
liquidation preference before any distributions to the holders of common stock
in the event of a liquidation of US Wireless. In addition, the Company and other
holders of the US Wireless Series B have, as a separate class, elected one
member to US Wireless' Board of Directors and one additional individual as an
observer to the Board. As a condition to making the investment, the Company also
obtained certain rights relating to the registration under the Securities Act of
1933, as amended (the "Securities Act"), of those shares of common stock of US
Wireless into which the US Wireless Series B held by the Company is convertible.
The Company has waived its registration rights.
Based on the foregoing, the Company currently beneficially owns 11.15% of
the common stock of US Wireless (based on a conversion rate of 67 shares of
common stock per share of US Wireless Series B) and, assuming no further share
issuances until March 2000, will beneficially own 15.25% of the common stock of
US Wireless at that time (based on a conversion rate of 100 shares of common
stock per share of US Wireless Series B). Both percentages assume full
conversion of US Wireless Series A Preferred Stock (into 560,000 shares) and US
Wireless Series B (into 3,350,000 and 5,000,000 shares based on conversion at
the 67 share rate and 100 share rate, respectively). The fair market value of
the Company's investment in US Wireless Series B at September 30, 1999, assuming
conversion into 67 shares or 100 shares of common stock for each share of US
Wireless Series B and a discount of 25% (which discount might actually be higher
or lower, depending upon market conditions) for potential lack of marketability
of the unregistered shares, are estimated to be $6.3 million and $9.4 million,
respectively. The corresponding figures as of November 11, 1999 were $7.0
million and $10.5 million, respectively.
There is no assurance that the Company will realize any gain on its
investment in US Wireless.
Inter Lotto (UK) Limited
As of September 30, 1999, the Company's investment in Inter Lotto was
$1,200,967 consisting of working capital advances, notes receivable and
capitalized acquisition costs. During the three month period ended September 30,
1999, the Company recorded its proportionate share of losses of Inter Lotto and
Equity Goodwill amortization of $67,925 which has been recorded as equity in
loss of non-consolidated affiliates in the consolidated statement of operations.
IFT Leasing Limited entered into an agreement with International Lottery &
Totalizator Systems, Inc., a California corporation ("ILTS"), to purchase an
on-line lottery system for the operation of the Inter Lotto lotteries. The
purchase price of the lottery system is $12.3 million. As of November 1999,
the Company had paid $3.5 million towards this purchase price. In addition, IFT
Management Limited entered into an eight-year facilities management agreement
with ILTS to provide operational and technological support for the system.
Under this agreement, at such time, if any, that ticket sales commence in
connection with the lotteries, IFT Management Limited is required to make
weekly payments to ILTS of $72,000, plus additional amounts based on the number
of installed terminals in excess of 3,500 and plus a percentage of the average
daily sales.
Global has guaranteed the obligations of IFT Leasing Limited and IFT
Management Limited under these agreements.
Donativos
In May 1999, the Company, through its wholly-owned subsidiary, Interactive
Flight Technologies (Gibraltar) Limited, a Gibraltar company ("IFT Gibraltar"),
loaned $1,632,000 to Donativos S.A. de C.V. ("Donativos") and acquired a 24.5%
interest in Donativos, which has developed and is operating an entertainment
center in Monterrey, Mexico. The Company accounts for this investment under the
equity method. In addition to IFT Gibraltar, other partners in the venture
include Regal Gaming and
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Entertainment, Inc. ("Regal Gaming"), which also has a 24.5% interest, and
Manuel G. Caldera, a Mexican national, who has a 51% interest. The IFT Gibraltar
loan bears interest at an annual rate equal to the prime rate plus three percent
(3%) and matures on April 30, 2001. The Company has also provided a letter of
credit in the amount of $913,445 to secure payment of the purchase price of
certain gaming equipment acquired by IFT Gibraltar and leased to Donativos. The
obligation underlying this letter of credit has been reduced to $799,000 as of
November 1999. In addition to its 24.5% equity interest in Donativos, in
consideration for making the loan and providing the letter of credit, the
Company will receive 25% of any profits generated by Donativos and, for a term
of 10 years, the Company will have an equity interest of at least 10% in any
gaming venture in which Regal Gaming, or a subsidiary or affiliate of Regal
Gaming, is an investor and which relates to gaming activities in Mexico.
On October 21, 1999, Donativos removed Regal Gaming as manager of the
entertainment center project and terminated the management agreement pursuant to
which Regal Gaming was serving as manager. An interim management team was
installed and subsequently removed by the majority shareholder of Donativos on
November 3, 1999. A group led by the majority shareholder of Donativos is
currently managing the entertainment center, which continues to operate at a
loss. Donativos is currently seeking a professional management team to run the
center and plans to have one in place in December 1999.
As of September 30, 1999, the Company's investment in Donativos was
$1,664,854 consisting of the $1,632,000 loan receivable and capitalized
acquisition costs. During the three month period ended September 30, 1999, the
Company recorded its proportionate share of losses of Donativos and Equity
Goodwill amortization of $84,651 which has been recorded as equity in loss of
non-consolidated affiliates in the consolidated statement of operations.
Results of Operations
Three Months Ended September 30, 1999 versus Three Months Ended September 30,
1998
Revenue for the quarter ended September 30, 1999 was $5,610,387, an
increase of $5,055,955 compared to revenue of $554,432 for the corresponding
period of the previous fiscal year. Revenue for the quarter ended September 30,
1999 consisted of equipment sales of $5,550,560 and service income of $59,827.
The equipment sales were principally generated from the installation of TNCi's
Cheetah(TM) video servers in 195 schools in the State of Georgia. The service
income was generated from system design services provided by TNCi to Alstom, a
TrainView customer. Revenue for the corresponding period ended September 30,
1998 consisted of equipment sales of $89,028 and service income of $465,404. The
equipment sales revenues resulted from the sale of spare parts needed for the
Entertainment Networks on three Swissair aircraft. The service income includes
$245,297 which was generated from programming services provided to Swissair, the
Company's share of gaming profits generated by the Swissair systems and revenue
earned under the Swissair extended warranty Letter of Intent; as well as
$220,107 of service income generated by the Company's dry cleaning operations
acquired on July 24, 1998. The dry cleaning operations were acquired by prior
management of the Company and disposed of by current management.
Cost of equipment sales and service income for the quarter ended September
30, 1999 was $3,428,961, an increase of $2,998,885 over cost of equipment sales
and service income of $430,076 for the corresponding period ended September 30,
1998. Cost of equipment sales for the quarter ended September 30, 1999 is
comprised principally of material costs and estimated warranty costs associated
with the 195 TNCi Cheetah(TM) video servers for the Georgia schools project.
Cost of equipment sales for the corresponding period ended September 30, 1998 is
comprised of material, installation and maintenance costs, as well as estimated
warranty costs and costs of upgrades to the Entertainment Networks installed in
Swissair aircraft. Cost of service income for the three-month period ended
September 30, 1998 is principally attributed to production costs related to the
dry cleaning operations previously owned by the Company.
General and administrative expenses for the quarter ended September 30,
1999 were $2,416,965, a decrease of $2,430,653 (or 50%) compared to expenses of
$4,847,618 for the corresponding period ended
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September 30, 1998. Significant components attributable to the decrease in
expenses in the current period include a $3.1 million severance expense recorded
September 1998 for three former executives of the Company which was offset
partially by current period legal and consulting fees related to the Donativos
and Inter Lotto investments.
Depreciation and amortization expense for the quarter ended September 30,
1999 was $325,066, a decrease of $5,234 (or 2%) compared to depreciation and
amortization expense of $330,300 for the corresponding period ended September
30, 1998. Depreciation and amortization expense for the 1999 quarter is
comprised of property, plant and equipment depreciation of $139,663 and
intangible amortization of $185,403. Depreciation and amortization expense for
the period ended September 30, 1998 is comprised of property, plant and
equipment depreciation of $330,300. There was no amortization expense for such
period. The decrease in property, plant and equipment depreciation in the
current period is a result of $1,006,532 of equipment written off during October
1998.
Special charges for the quarter ended September 30, 1999 were zero compared
to a credit of $190,000 during the corresponding period ended September 30,
1998. A recovery of $190,000 was recognized during September 1998 as a result of
a reduction in the number of Entertainment Networks requiring maintenance.
Interest expense was $8,651 for the quarter ended September 30, 1999
compared to $2,390 for the corresponding period ended September 30, 1998.
Interest expense for the period ended September 30, 1999 can be attributed
principally to long-term debt obligations, whereas interest expense for the
corresponding period of the previous fiscal year is attributable to the
Company's capital leases for furniture.
Interest income was $303,838 for the quarter ended September 30, 1999
compared to $591,114 for the corresponding period ended September 30, 1998. The
interest is attributed principally to short-term investments of working capital.
The decrease in income during the current period is due to the lower average
cash balance during the three-month period ended September 30, 1999 compared to
the corresponding period ended September 30, 1998.
Other income for the quarter ended September 30, 1999 was $13,408 and is
comprised of a $5,067 gain resulting from the sale of office furniture, a $6,784
gain on the sale of a note receivable and $6,063 of sublet income for the
sublease of office space; partially offset by a $4,506 loss on the sale of one
of two buildings located in Alpharetta, Georgia. Other expense for the
corresponding period ended September 30, 1998 was $2,628 and which resulted from
a loss on the sale of equipment during the period.
For the quarter ended September 30, 1999 the Company recorded its
proportionate share of its equity interest in losses of Inter Lotto and
Donativos in the amount of $67,925 and $84,651, respectively.
Liquidity and Capital Resources
At September 30, 1999, the Company had cash and cash equivalents, and
short-term investments of approximately $13.4 million. The Company has a
purchase commitment related to Inter Lotto in the amount of $9.5 million ($12.3
million commitment less payments of $2.8 million as of September 30, 1999) and
has determined to redeem the outstanding shares of its Series A 8% Convertible
Preferred Stock ("Series A Stock") for approximately $3.6 million. In addition,
the Company has granted options to certain stockholders that may require the
Company to repurchase their shares at an aggregate price of approximately $1.4
million. These three items, together with other capital and operating
obligations of the Company, exceed currently available cash and short-term
investments. The Company is seeking financing for the Inter Lotto obligation,
which, if obtained, would permit the Company to continue to meet its other
obligations in the ordinary course of business. In the event that financing is
not obtained for Inter Lotto, the Company may need to delay the Inter Lotto
project until such financing is obtained. Such a delay could have a material
adverse effect on the project and on the Company (and could subject the Company
to legal liability as a result of any such delay). Alternatively, the Company
may seek to obtain financing against certain of its non-Inter Lotto assets.
There is no assurance that the Company would be able to obtain any such
financing.
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Prior to the last fiscal year, the Company's primary source of funding had
historically been through equity offerings. Subsequent to June 30, 1999, the
Company obtained orders for the manufacture, delivery and installation of 195
Cheetah(TM) multimedia servers to certain Georgia schools, and a service order
under the Carnival Agreement for installation of a second CruiseView system. As
of November 8, 1999, all 195 servers had been delivered and the Company had
received payment. The Company received installment payments from Carnival in
August 1999 for the two ships currently under contract, which has been recorded
as deferred revenue (the aggregate amount of which was $1.1 million at September
30, 1999). Excluding the benefit of the Georgia schools program, cash and cash
equivalents, and short-term investments will continue to decrease as the Company
continues to invest in inventory for the Carnival service order, invest in
business development and cover overhead expenses, contribute capital into
affiliate companies and complete new transactions which may not generate cash
flow in the next twelve months. The combination of the Company's Series A Stock
redemption and purchase commitments with respect to Inter Lotto will greatly
accelerate this decrease to the extent that financing for the Inter Lotto
project is not obtained. In the absence of such (or any alternative) financing,
the Company will have depleted its cash and cash equivalents, and short-term
investment securities early in the quarter ending March 31, 2000.
The Company has concluded that the cost of building and installing
CruiseView systems in Carnival ships pursuant to the Carnival Agreement may
exceed the revenue earned in connection therewith. Carnival's continuing to
exercise its option for building and installing CrusieView on additional ships
under the Carnival Agreement may prove unprofitable and therefore have a
negative effect on the Company's working capital. The Company is currently
endeavoring to renegotiate the terms of the Carnival Agreement.
On November 10, 1999, the Board of Directors of the Company approved the
redemption of the Series A Stock for approximately $3.57 million, consisting of
its stated value of $3 million, plus accrued and unpaid dividends of
approximately $120,000 and a redemption premium of approximately $450,000.
At the November 10, 1999 meeting of the Board of Directors of the Company,
the Board approved the sale of approximately 1,035,000 shares of its Class A
Common Stock to certain of the Company's directors and officers at $2.625 per
share, the last sale price of a share of Class A Common Stock on November 10,
1999 as reported by the Nasdaq National Market. The Board determined the
transaction to be in the best interest of the Company in order to alleviate the
current liquidity strain and to provide capital for the Company to pursue an
investment in an e-commerce company. The issuance was made in a private offering
pursuant to Section 4(2) of the Securities Act.
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Global may be required to commit additional funds to its affiliate
companies, TNCi, Donativos and Inter Lotto, which would come from either
existing working capital of the Company, or proceeds from external financing by
Global or one of its subsidiaries. Global may also identify new business
opportunities which may require financing. Should additional funding, if
required, exceed existing resources, or should the Company not be able to raise
external financing to meet its capital requirements, the Company's ability to
financially support certain affiliate companies or acquire new operating
companies or make new investments would be materially adversely affected.
In particular, because of the cash flow deficit being experienced by
Donativos, the Company has been servicing and will probably be required to
continue to service, the obligations associated with its purchase of 332 slot
machines without receiving corresponding timely equipment rental payments from
Donativos. As of November 15, 1999, the balance due for the slot machines is
approximately $799,000. Additionally, as of September 8, 1999, IFT Leasing
Limited entered into an agreement to purchase $12.3 million of lottery systems
in connection with its investment in Inter Lotto. As of November 11, 1999, the
Company had paid $3.5 million towards the purchase price and expects to finance
the balance of this commitment with debt or other financing to be obtained from
a financial institution or other third party investors. No assurances can be
made that such financing will be available to the Company. If the Company is
unable to obtain such financing, such inability would have a material adverse
effect on the Company's liquidity and may require the Company to postpone, or
even cancel the lottery systems ordered pursuant to the $12.3 million agreement.
A delay of the Inter Lotto project could adversely affect the project's
viability. The Company also entered into a facilities management agreement for
servicing of the lottery systems. Under this agreement, IFT Management Limited
is required to make weekly payments to ILTS of $72,000, plus additional amounts
based on the number of installed terminals in excess of 3,500 and plus a
percentage of the average daily sales. The obligations under the facilities
management agreement do not begin until such time, if any, that ticket sales
commence in connection with the lotteries. Global has guaranteed the obligations
of IFT Leasing Limited and IFT Management Limited under these agreements.
On August 13, 1999, the Company and two of its officers entered into a
Release and Settlement Agreement with First Lawrence Capital Corp. ("First
Lawrence") whereby the Company issued 250,000 shares of its Class A Common Stock
and agreed that its wholly-owned subsidiary, IFT Holdings Limited, a UK
corporation ("IFT Holdings"), will pay First Lawrence 24 consecutive monthly
payments of $41,667 each beginning February 1, 2000. In exchange, First Lawrence
will be available to perform management consulting services to IFT Holdings.
Funding for the consulting services is expected to be derived from operating
cash flow of the Inter Lotto project.
On August 24, 1999, the Board of Directors of Global approved a $5 million
secured revolving credit facility in favor of TNCi ("the Facility"). The
Facility provides that TNCi may borrow up to $5 million for working capital and
general corporate purposes at an annual interest rate equal to the prime rate
plus 3%. The Facility matures in September 2001. TNCi paid an origination fee of
$50,000 to the Company and will pay an unused line fee of 0.5% per annum. The
Facility is secured by all of the assets of TNCi and is convertible, at the
Company's option, into shares of TNCi Series C Preferred Stock or TNCi Common
Stock. As of September 30, 1999, no amounts were outstanding under the Facility.
In the event TNCi were to borrow under the Facility, Global's financial
resources for other needs would be adversely affected.
A note payable of TNCi due September 5, 1999 was converted into 200,000
shares of TNCi's common stock.
The terms of the Carnival Agreement provide that Carnival may return
CruiseView systems within the Acceptance Period, as defined in the Carnival
Agreement. The Acceptance Periods for the "Fantasy" and "Destiny" class ships on
which CruiseView was installed is 12 months and three months, respectively. As
of September 30, 1999, the Company recorded deferred revenue of $1,155,428,
reflecting amounts paid by Carnival towards the purchase price of CruiseView
aboard these ships. As of September 30, 1999, the Company has not recognized any
revenue in connection with the Carnival Agreement.
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The Company would be required to repay the funds received from Carnival in
the event Carnival does not accept the system, which would have an adverse
effect on liquidity. The Company is required to provide a performance bond or
standby letter of credit in favor of Carnival ensuring the Company's ability to
repay such funds. The Company has not provided a bond or letter of credit. If
Carnival requires the Company to do so, the Company may be required to provide
cash collateral to a financial institution to secure such a financial
instrument.
The Company has concluded the cost of building and installing CruiseView
systems in Carnival ships pusuant to the Carnival Agreement may exceed the
revenues earned in connection therewith. Carnival's continuing to exercise its
option for building and installing CruiseView on additional ships under the
Carnival Agreement may prove unprofitable and therefore have a negative effect
on the Company's working capital. The Company is currently endeavoring to
renegotiate the terms of the Carnival Agreement.
During the three months ended September 30, 1999, the Company used $2.8
million of cash for operating activities, a decrease of $2.4 million from the
$5.2 million of cash used by operating activities for the three months ended
September 30, 1998. Cash utilized in operations during the three months ended
September 30, 1999 resulted primarily from increases in accounts receivable and
inventories, offset by increases in accounts payable and accrued product
warranties. The cash used in operations during the three months ended September
30, 1998 resulted primarily from general and administrative expenses.
During the three months ended September 30, 1999, restricted cash decreased
by $36,084 as a result of payments made under consulting and severance
agreements with a former executive of the Company.
Cash flows used in investing activities were $3.0 million during the three
months ended September 30, 1999. Deposits on equipment purchases in the amount
of $2.8 million for the Inter Lotto project accounted for the majority of the
use of cash. Purchases of investment securities and payments to purchase Series
A, D and E notes of TNCi, offset by maturities of investment securities and
proceeds from the sale of assets held for sale, accounted for the balance of the
change.
Inflation and Seasonality
The Company does not believe that it is significantly impacted by
inflation. The Company's operations are not seasonal in nature, except to the
extent fluctuations in quarterly operating results occur due to the cyclical
nature of government funding to be obtained in connection with education
programs.
Risks Associated With Year 2000
The commonly referred to Year 2000 ("Y2K") problem results from the fact
that many existing computer programs and systems use only two digits to identify
the year in the date field. These programs were designed and developed without
considering the impact of a change in the century designation. If not corrected,
computer applications that use a two-digit format could fail or create erroneous
results in any computer calculation or other processing involving the Year 2000
or a later date. The Company has identified two main areas of Y2K risk:
1. Internal computer systems or embedded chips could be disrupted or fail,
causing an interruption or decrease in productivity in the Company's operations,
and
2. Computer systems or embedded chips of third parties including without
limitation, financial institutions, suppliers, vendors, landlords, customers and
service providers and others could be disrupted or fail, causing an interruption
or decrease in the Company's ability to continue operations.
The Company has performed a comprehensive review of its Y2K issues and
internal systems and has received assurances from third parties on which it
relies with respect to the compliance of their systems. All of the Company's
application software programs are Y2K compliant. The Company presently believes
that the Y2K problem will not pose significant operational problems for the
Company's internal systems or that systems of third parties on which it relies
will be materially adversely affected thereby. The Company also believes that
incremental remediation costs, if any, to become Y2K compliant, are not
material.
While the Company believes that it is adequately addressing the Y2K issue,
there can be no assurance that the cost and liabilities associated with the Y2K
issue will not materially adversely impact its business, prospects, revenues or
financial position. The Company is uncertain as to its most reasonably likely
worst case Y2K scenario, and it has not developed a contingency plan to handle a
worst case scenario.
Forward-Looking Information
This Report contains certain forward-looking statements and information
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The cautionary statements made in this
Report should be read as being applicable to all related forward-looking
statements wherever they appear in this Report. Forward-looking statements, by
their very nature, include risks and uncertainties. Accordingly, the Company's
actual results could differ materially from those discussed herein. A wide
variety of factors could cause or contribute to such differences and could
adversely impact revenues, profitability, cash flows and capital needs. Such
factors, many of which are beyond the control of the Company, include, without
limitation, the following: resolution of the Swissair-related litigation;
maintenance of the Donativos permit for operation of the Center; obtaining a
secondary prize permit by Donativos for use at the Center; obtaining financing
for the Inter Lotto gaming equipment; remedying or improving dramatically the
cash shortfall in Donativos' operations; the inability to cover the obligations
to ILTS from the operations of a start-up venture in an untried game in the UK
market; the
20
<PAGE>
Company's success in obtaining new contracts; the volume and type of work orders
that are received under such contracts; the accuracy of the cost estimates for
the projects; the Company's ability to complete its projects on time and within
budget; levels of, and ability to collect accounts receivable; availability of
trained personnel and utilization of the Company's capacity to complete work;
competition and competitive pressures on pricing; and economic conditions in the
United States and in other regions served by the Company.
21
<PAGE>
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
Federal Express Corporation v. The Network Connection, Inc., State Court of
Forsyth County, State of Georgia, Civil Action File No. 99-V51560685. This
lawsuit was served on TNCi on or about July 22, 1999 by Federal Express
Corporation. The suit alleges TNCi owes Federal Express approximately $110,000
for past services rendered.
Sigma Designs, Inc. ("Sigma") v. The Network Connection, Inc., United
States District Court, Northern District of California, San Jose Division, Civil
Action File No. 98-21149J(EAI). Sigma filed a Complaint against TNCi on December
1, 1998, alleging breach of contract and action on account. Sigma claims that
TNCi failed to pay for goods that it shipped to TNCi. The matter was settled by
written agreement dated January 22, 1999, contingent upon registration of TNCi
stock and warrants issued to Sigma as a part of such settlement and payment by
TNCi of $50,000. TNCi did not complete its obligations under the terms of the
original settlement agreement. In or about May 1999, the shares of TNCi issued
to Sigma as a part of the settlement of the above-referenced lawsuit were sold
by Sigma to Global, the parent company of TNCi. The lawsuit was dismissed with
prejudice on July 12, 1999 as a condition of Global's purchase.
Hollingsead International, Inc. v. The Network Connection, Inc., State
Court of Forsyth County, State of Georgia, Civil Action File No. 99S0053.
Hollingsead International, Inc. ("Hollingsead") filed suit against TNCi on
January 28, 1999, alleging that TNCi failed to pay invoices submitted for
installation and service of audio-visual systems in its aircraft. Hollingsead
sought damages in the amount of $357,850, in addition to interest at the rate of
18% per annum from March 2, 1998, attorneys' fees and punitive damages. The
parties entered into a settlement agreement on or about August 5, 1999 that
provided for the payment of $427,870 by TNCi, to be paid in installments,
including interest accruing at 8.0% per annum from July 28, 1999 until the
balance is paid. The agreement also provides for Hollingsead to pay $5,399 as
reimbursement for attorneys' fees. The last installment is due on or before
December 20, 1999. Under the settlement agreement, TNCi will dismiss its
counterclaims with prejudice and Hollingsead will dismiss its Complaint with
prejudice upon completion of all payments by TNCi.
On May 5, 1999, a complaint captioned First Lawrence Capital Corp. v. James
Fox, Irwin Gross and Interactive Flight Technologies, Inc., No. 7196/99 was
filed in the Supreme Court of the State of New York. This is a claim made
against Global arising from the hiring of James Fox, a former First Lawrence
employee, by Global. First Lawrence asserts that business opportunities of First
Lawrence were diverted to Global by James Fox. This case was settled pursuant to
a Release and Settlement Agreement entered into on August 13, 1999, by the
issuance to First Lawrence of 250,000 shares of Class A Common Stock of Global
and the agreement by IFT Holdings to pay First Lawrence 24 monthly installments
of $41,667 beginning February 1, 2000. In exchange, First Lawrence will be
available to perform management consulting services to IFT Holdings.
Eric Schindler v. Interactive Flight Technologies, Inc. et al., State Court
for Fulton County, Georgia Case No. 99-V51560685. On August 18, 1999, Eric
Schindler commenced a lawsuit, naming Global and TNCi as defendants. The
Complaint alleges that TNCi and Global failed to pay severance pay pursuant to a
written employment contract following Schindler's resignation as an employee and
vice president of TNCi in May 1999. Specifically, the Complaint alleges (1)
breach of contract (against TNCi), (2) conspiracy and interference with contract
rights (against TNCi and Global), and (3) interference with contract rights
(against Global). The Complaint seeks $85,000 in severance pay on the contract
claims, unspecified damages for loss of stock options, punitive damages of at
least $450,000, attorneys' fees and costs. TNCi and Global deny any liability.
TNCi entered into a settlement agreement in October 1999 with Mr. Schindler
whereby TNCi paid $50,000 to Mr. Schindler and all claims have been dropped.
Such amount had been accrued for at September 30, 1999.
On September 1, 1999, SAir Group invited Global to participate in a
conciliation hearing before the Justice of the Peace in Kloten, Switzerland,
which is the customary manner in which civil litigation is initiated in
Switzerland. The document received by Global informing it of the proceeding
states that the request has been filed in connection with the crash of Swissair
Flight 111 primarily in order to avoid the expiration of any applicable statutes
of limitations and to reserve the right to pursue further claims. The document
states that further information will be supplied at the hearing. The document
states that the relief sought is "possibly the equivalent of CHF 342,000,000 -
in a currency to be designated by the court; each plus 5% interest with effect
from September 3, 1998; legal costs and a participation to the legal fees (of
the plaintiff) to be paid by the defendant."
In September of 1999, Global filed a lawsuit against Barington Capital
Group, L.P. ("Barington") in Maricopa County Superior Court, Arizona, seeking a
declaratory judgment that no sums were owed to
22
<PAGE>
Barington pursuant to a Financial Advisory Service Agreement dated in October of
1998. In October of 1999, Barington filed a lawsuit on the same contract in the
Supreme Court of the State of New York, County of New York, Index No. 99-604606,
captioned Barington Capital Group, L.P. v. Interactive Flight Technologies,
Inc., alleging that Barington is owed $1,750,471 in connection with services
alleged to have been performed pursuant to the Financial Advisory Service
Agreement. Global denies all liability and denies that any sums are owed to
Barington.
On October 25, 1999, Global filed a lawsuit against Regal Gaming (and its
principals and their spouses) in the United States District Court for the
Southern District of Florida seeking judgment in favor of Global on the $500,000
promissory note made by Regal Gaming (and guaranteed by its principals and their
spouses) to Global. The promissory note was made to secure Regal Gaming's
obligations to fund cost overruns in connection with the entertainment center
project undertaken by Donativos.
The Company is subject to other lawsuits and claims arising in the ordinary
course of its business. In the Company's opinion, as of September 30, 1999, the
effect of such matters will not have a material adverse effect on the Company's
results of operations or financial condition.
Item 2 -- Changes in Securities
Unregistered Issuances
In 1995, the Company issued 59,259 shares of its Class B Common Stock to
each of Boris, Yuri and Michail Itkis. In December 1998, Michail Itkis, and in
February 1999, Boris and Yuri Itkis converted these shares to an equal number of
shares of Class A Common Stock in accordance with the provisions of Class B
Common Stock. These issuances were made in private offerings pursuant to Section
4(2) of the Securities Act.
On July 16, 1999, Global issued an aggregate of 272,610 shares of its Class
A Common Stock and cash in the amount of $555,000 to various holders of TNCi's
Series A and Series E notes in exchange for such notes. The issuance was made in
a private offering pursuant to Section 4(2) of the Securities Act.
On August 9, 1999, Global issued an aggregate of 115,000 shares of its
Class A Common Stock to various holders of TNCi's Series D notes in exchange for
such notes and for warrants to purchase 70,000 shares of TNCi common stock. The
issuance was made in a private offering pursuant to Section 4(2) of the
Securities Act of 1933.
On August 13, 1999, Global issued 250,000 shares of its Class A Common
Stock to First Lawrence, pursuant to the terms of a Release and Settlement
Agreement executed by First Lawrence, Global, Irwin L. Gross, James W. Fox and
IFT Holdings. The issuance was made in private offering pursuant to Section 4(2)
of the Securities Act.
At the November 10, 1999 meeting of the Board of Directors of the Company,
the Board approved the sale of approximately 1,035,000 shares of its Class A
Common Stock to certain of the Company's directors and officers at $2.625 per
share, the last sale price of a share of Class A Common Stock on November 10,
1999 as reported by the Nasdaq National Market. The Board determined the
transaction to be in the best interest of the Company in order to alleviate the
current liquidity strain
23
<PAGE>
and to provide capital for the Company to pursue an investment in an e-commerce
company. The issuance was made in a private offering pursuant to Section 4(2) of
the Securities Act.
Item 4 -- Submission of Matters to a Vote of Security Holders
The Company held a Special Meeting of Stockholders on September 30,1999. At
the meeting, the stockholders were asked to consider and approve the
reincorporation of Interactive Flight Technologies, Inc. ("IFT") by means of a
merger of IFT with and into Global, for purposes of (a) changing the name of IFT
to Global Technologies, Ltd., and (b) electing not to be governed by Section 203
of the Delaware General Corporation Law.
The stockholders approved the reincorporation proposal. There were
3,803,536 votes cast by holders of Class A Common Stock, and 1,000,000 votes
cast by holders of Series A Stock, in favor of the proposal; 115,394 votes cast
by holders of Class A Common Stock, and no votes cast by holders of Series A
Stock, against the proposal; and 11,254 abstentions with respect to the
proposal.
Item 6 -- Exhibits and Reports on Form 8-K
The following Index to Exhibits lists the Exhibits filed as part of this
Quarterly Report on Form 10-QSB. Where so indicated, Exhibits which were
previously filed are incorporated by reference. Documents filed herewith are
denoted with an asterisk.
24
<PAGE>
<TABLE>
<CAPTION>
(a) Exhibits
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
2 Agreement and Plan of Merger by and between Interactive Flight
Technologies, Inc. and Global Technologies, Ltd., dated as of August 16,
1999.*
3.1 Amended and Restated Certificate of Incorporation of Global
Technologies, Ltd., filed with the Secretary of State of the State of
Delaware on August 13, 1999.*
3.2 Amended and Restated By-Laws of Global Technologies, Ltd.*
4.1 Certificate of Designations, Rights, Preferences and Limitations of
Series A 8% Convertible Preferred Stock of Global Technologies, Ltd.*
4.2 Certificate of Designations, Rights, Preferences and Limitations of
Series B 8% Convertible Preferred Stock of Global Technologies, Ltd.*
10.27 Registration Rights Agreement dated July 1999 with respect to shares
issued pursuant to the Securities Purchase Agreement dated as of June
25, 1999, for the purchase of TNCi Series A and Series E Notes.(1)
10.28 Form of Put/Call Agreement dated July 1999.(1)
10.29 Securities Purchase Agreement dated August 9, 1999 for the purchase of
TNCi Series D Notes.(1)
10.30 Form of Warrant Purchase Agreement dated August 9, 1999 between Global
Technologies, Ltd. and certain TNCi warrant holders.(1)
10.31 Registration Rights Agreement dated August 12, 1999 among Global
Technologies, Ltd., XCEL Capital, LLC and Elaine Martin.(1)
10.32 Registration Rights Agreement dated August 12, 1999 among Global
Technologies, Ltd., Robert E. Benninger, Jr., Sara Anne Benninger, Will
Brantley and Elaine Martin.(1)
10.33 Form of Put/Call Agreement dated August 12, 1999 with respect to shares
issued pursuant to the Warrant Purchase Agreement between Global
Technologies, Ltd. and certain TNCi warrant holders.(1)
10.34 Employment Agreement between Global Technologies, Ltd. and James W. Fox,
dated as of January 1, 1999.(1)
10.35 Employment Agreement between Global Technologies, Ltd. and Irwin L.
Gross, dated as of October 1, 1999.*
10.36 Purchase Agreement between IFT Leasing Limited and International Lottery
and Totalizator Systems, Inc. regarding purchase of ILTS Datatrak
On-Line Turnkey Lottery System, dated September 8, 1999.*
10.37 Facilities Management Agreement between IFT Management Limited and
International Lottery and Totalizator Systems, Inc. regarding
operational and technical support management of ILTS Datatrak On-Line
Turnkey Lottery System, dated September 8, 1999.*
10.38 Guarantee by Global Technologies, Ltd. of the obligations of IFT Leasing
Limited and IFT Management Limited under the Purchase Agreement and
Facilities Management Agreement, respectively.*
27 Financial Data Schedule.*
99.13 Fifth Allonge to Secured Promissory Note, dated July 16, 1999.(1)
99.14 Sixth Allonge to Secured Promissory Note, dated August 9, 1999.(1)
99.15 Seventh Allonge to Secured Promissory Note, dated August 24, 1999.(1)
</TABLE>
25
<PAGE>
- ------------
* Filed herewith.
(1) Incorporated by reference from Global Technologies, Ltd.'s Annual Report on
Form 10-KSB for the Transition Period ended June 30, 1999, filed with the
Securities and Exchange Commission on October 13, 1999, File No.
0-25668.
(b) Reports on Form 8-K
On August 3, 1999, the Company filed a Report on Form 8-K announcing the
change of its fiscal year end from October 31 to June 30, and on July 30, 1999
filed an amendment to a Report on Form 8-K filed with respect to the TNCi
transaction to include required pro forma and other financial information in
connection therewith.
26
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 15, 1999 GLOBAL TECHNOLOGIES, LTD.
By: /s/ IRWIN L. GROSS
------------------------------------
Irwin L. Gross
Chief Executive Officer
By: /s/ Morris C. Aaron
------------------------------------
Morris C. Aaron
Executive Vice President &
Chief Financial Officer
27
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter called the "Merger
Agreement") is made as of August 16, 1999, by and between Interactive Flight
Technologies, Inc., a Delaware corporation ("Oldco"), and Global Technologies,
Ltd., a Delaware corporation ("Newco"). Oldco and Newco are sometimes referred
to herein as the "Constituent Corporations." The Board of Directors of each of
the Constituent Corporations deems it advisable and to the advantage of its
respective Constituent Corporation that Oldco merge with and into Newco upon the
terms and conditions herein provided.
NOW, THEREFORE, the parties do hereby adopt the plan encompassed by this
Merger Agreement and do hereby agree that Oldco shall merge with and into Newco
on the following terms, conditions and other provisions:
I. TERMS AND CONDITIONS
1.1 Merger. Oldco shall be merged with and into Newco, and Newco shall be
the surviving corporation (the "Surviving Corporation") effective upon the date
and time when this Merger Agreement, or a Certificate of Merger in lieu thereof,
is filed with the Secretary of State of the State of Delaware (the "Effective
Date").
1.2 Internal Revenue Code Qualifications. For Federal income tax purposes,
it is intended that the Merger shall qualify as a reorganization within the
meaning of Section 368(a)(1)(F) of the Internal Revenue Code, as amended.
1.3 Succession. On the Effective Date, the Surviving Corporation shall
succeed to all of the rights, privileges, powers and property, including without
limitation all rights, privileges, franchises, patents, trademarks, licenses,
registrations and other assets of every kind and description, of Oldco in the
manner of and as more fully set forth in the General Corporation Law of the
State of Delaware (the "DGCL").
1.4 Common Stock of Oldco and Newco. On the Effective Date, by virtue of
the merger and without any further action on the part of the Constituent
Corporations or their stockholders, (i) each share of Class A Common Stock of
Oldco, par value $.01 per share ("Oldco Common Stock"), issued and outstanding
immediately prior thereto shall be changed and converted into one fully paid and
nonassessable share of Class A Common Stock of the Surviving Corporation, par
value $.01 per share, (ii) each share of Newco Common Stock issued and
outstanding immediately prior thereto shall be cancelled and returned to the
status of authorized but unissued shares and (iii) each share of Oldco Common
Stock issued but held in the treasury of Oldco shall be canceled.
<PAGE>
1.5 Preferred Stock of Oldco and Newco. On the Effective Date, by virtue of
the merger and without any further action on the part of the Constituent
Corporations or their stockholders, each share of Series A Preferred Stock of
Oldco, issued and outstanding immediately prior thereto shall be changed and
converted into one fully paid and nonassessable share of Series A Preferred
Stock of the Surviving Corporation.
1.6 Stock Certificates. On and after the Effective Date, all
of the outstanding certificates which prior to that time represented shares of
Oldco capital stock shall be deemed for all purposes to evidence ownership of
and to represent the shares of capital stock of the Surviving Corporation into
which the shares of Oldco capital stock represented by such certificates have
been converted as herein provided and shall be so registered on the books and
records of the Surviving Corporation or its transfer agent. The registered owner
of any such outstanding stock certificate shall, until such certificate shall
have been surrendered for transfer or otherwise accounted for to the Surviving
Corporation or its transfer agent, have and be entitled to exercise any voting
or other right with respect to and to receive any dividend or other distribution
upon the shares of such capital stock evidenced by such outstanding certificate
as above provided.
1.7 Options. On the Effective Date, Newco will assume and continue all of
Oldco's stock option plans, including but not limited to the Interactive Flight
Technologies, Inc. 1994 Stock Option Plan and 1997 Stock Option Plan, and any
other options, warrants or rights to acquire Oldco Common Stock and the
outstanding and unexercised portions of all options, warrants or rights to
acquire Oldco Common Stock shall become options for, warrants or rights to
acquire the same number and kind of shares of common stock of the Surviving
Corporation with no other changes in the terms and conditions of such options,
warrants or rights to acquire, including exercise prices, and upon the Effective
Date, the Surviving Corporation shall assume the outstanding and unexercised
portions of such options, warrants or rights to acquire and the obligations of
Oldco with respect thereto.
II. CERTIFICATE OF INCORPORATION AND BY-LAWS
2.1 Certificate of Incorporation. The Certificate of Incorporation of Newco
shall be the Certificate of Incorporation of the Surviving Corporation (the
"Newco Charter").
2.2 By-laws. The By-laws of Newco in effect on the Effective Date shall be
the By-laws of the Surviving Corporation without change or amendment until
further amended in accordance with the provisions thereof and applicable law.
III. DIRECTORS AND OFFICERS
3.1 Directors. The directors of Oldco shall be the directors of the
Surviving Corporation.
3.2 Officers. The officers of Oldco shall be the officers of the Surviving
Corporation to serve at the pleasure of its Board of Directors.
<PAGE>
IV. MISCELLANEOUS
4.1 Further Assurances. From time to time, as and when required by Newco or
by its successors and assigns, there shall be executed and delivered on behalf
of Oldco such deeds and other instruments, and there shall be taken or caused to
be taken by it such further and other action, as shall be appropriate or
necessary in order to vest or perfect in or to conform of record or otherwise,
in Newco the title to and possession of all the property, interests, assets,
rights, privileges, immunities powers, franchises, and authority of Oldco and
otherwise to carry out the purposes of this Merger Agreement, and the officers
and directors of Newco are fully authorized in the name and on behalf of Oldco
or otherwise to take any and all such action and to execute and deliver any and
all such deeds and other instruments.
4.2 Amendment. At any time before or after approval by the
stockholders of the Constituent Corporations, this Merger Agreement may be
amended in any manner (except as otherwise provided by the DGCL) as may be
determined in the judgment of the respective Boards of Directors of Newco and
Oldco to be necessary, desirable or expedient.
4.3 Termination. At any time before the Effective Date, this Merger
Agreement may be terminated and the merger may be terminated by the Board of
Directors of either Oldco or Newco or both, notwithstanding the approval of this
Merger Agreement by the stockholders of Oldco and Newco.
4.4 Counterparts. In order to facilitate the filing and recording of this
Merger Agreement, the same may be executed in any number of counterparts, each
of which shall be deemed to be an original.
IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved
by the Board of Directors of Oldco and Newco, is hereby executed on behalf of
each Constituent Corporation by its duly authorized officer.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By: James W. Fox
_____________________________
GLOBAL TECHNOLOGIES, LTD.
By: James W. Fox
_____________________________
AMENDED AND RESTATED CERTIFICATE
OF
INCORPORATION
OF
NEW IFT CORPORATION
(Pursuant to Sections 241 and 245 of the
General Corporation Law of the State of Delaware)
It is certified that:
1. The name of the corporation is New IFT Corporation (the "Corporation").
The date of filing of the original Certificate of Incorporation of the
Corporation with the Secretary of State of the State of Delaware was January 20,
1999.
2. The Certificate of Incorporation be and it hereby is amended and
restated in its entirety entirely to read as set forth below.
3. The provisions of the Certificate of Incorporation of the
Corporation as herein amended are hereby restated and integrated into the single
instrument which is hereinafter set forth, and which is entitled Amended and
Restated Certificate of Incorporation of New IFT Corporation.
4. The Corporation has not received any payment for any of its stock.
5. The amendments and the restatement herein certified have been duly
adopted by the sole Director in the manner and by the vote prescribed by Section
241 and Section 245 of the General Corporation Law of the State of Delaware,
only one (1) director having been named in the Certificate of Incorporation and
no directors having been elected.
6. The Certificate of Incorporation of the Corporation, as amended and
restated herein, shall at the effective time of this Amended and Restated
Certificate of Incorporation, read as follows:
ARTICLE ONE
NAME
The name of the Corporation is GLOBAL TECHNOLOGIES, LTD. (the
"Corporation").
ARTICLE TWO
REGISTERED OFFICE
<PAGE>
The address of the Corporation's registered office in the State of Delaware
is c/o The Prentice-Hall Corporation System, Inc., 1013 Centre Road, in the City
of Wilmington, County of New Castle, State of Delaware. The name of its
registered agent at such address is The Prentice-Hall Corporation System, Inc.
ARTICLE THREE
PURPOSES
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
ARTICLE FOUR
CAPITAL STRUCTURE
4.1 Authorized Shares. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is forty-nine million
(49,000,000), consisting of three classes of capital stock:
(a) 40,000,000 shares of Class A Common Stock, par value $.01 per
share (the "Class A Shares");
(b) 4,000,000 shares of Class B Common Stock, par value $.01 per share
(the "Class B Shares"); and
(c) 5,000,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Shares").
4.2 Designations, Preferences, etc. The designations, preferences, powers
and rights, and the qualifications, limitations and restrictions thereof, of the
capital stock of the Corporation shall be as set forth in ARTICLE FIVE AND
ARTICLE SIX below.
ARTICLE FIVE
COMMON SHARES
5.1 Identical Rights. Except as otherwise expressly provided in this
ARTICLE FIVE, all Common Shares shall be identical and shall entitle the holders
thereof to the same rights and privileges.
5.2 Stock Splits. The Corporation shall not in any manner subdivide (by any
stock split, reclassification, stock dividend, recapitalization, or otherwise)
or combine the outstanding shares of one class of Common Shares unless the
outstanding shares of all classes of Common Shares shall be proportionately
subdivided or combined.
<PAGE>
5.3 Liquidation Rights. Upon any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the Corporation, after payment
shall have been made to holders of outstanding Preferred Shares, if any, of the
full amount to which they are entitled pursuant to the Certificate of
Incorporation, the holders of Common Shares shall be entitled, to the exclusion
of the holders of the Preferred Shares, if any, to share ratably, in accordance
with the number of Common Shares held by each such holder, in all remaining
assets of the Corporation available for distribution among the holders of Common
Shares, whether such assets are capital, surplus, or earnings. For the purposes
of this Paragraph 5.3, neither the consolidation or merger of the Corporation
with or into any other corporation or corporations in which the stockholders of
the Corporation receive capital stock and/or securities (including debt
securities) of the acquiring corporation (or of the direct or indirect parent
corporation of the acquiring corporation) nor the sale, lease or transfer of the
Corporation, shall be deemed to be a voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation as those terms are used in this
Paragraph 5.3.
5.4 Voting Rights.
(a) The holders of the Class A Shares and the Class B Shares shall
vote as a single class on all matters submitted to a vote of the stockholders,
with each Class A Share being entitled to one (1) vote and each Class B Share
being entitled to six (6) votes, except as otherwise provided by law.
(b) The holders of Class A Shares and Class B Shares are not entitled
to cumulative votes in the election of any directors.
5.5 Preemptive or Subscription Rights.
No holder of Common Shares shall be entitled to preemptive or
subscription rights.
5.6 Conversion Rights.
(a) Automatic Conversion. Each Class B Share shall (subject to receipt
of any and all necessary approvals) convert automatically into one fully paid
and non-assessable Class A Share (i) upon its sale, gift, or other transfer to a
party other than a Principal Stockholder (as defined below) or an Affiliate of a
Principal Stockholder (as defined below), (ii) upon the death of the Class B
Stockholder holding such Class B Share, unless the Class B Shares are
transferred by operation of law to a Principal Stockholder or an Affiliate of a
Principal Stockholder, or (iii) in the event of a sale, gift, or other transfer
of a Class B Share to an Affiliate of a Principal Stockholder, upon the death of
the transferor. Each of the foregoing automatic conversion events shall be
referred to hereinafter as an "Event of Automatic Conversion." For purposes of
this ARTICLE FIVE, "Principal Stockholder" includes any of Donald H. Goldman,
Steven M. Fieldman, Lance Fieldman, Yuri Itkis, Michall Itkis and Boris Itkis
and an "Affiliate of a Principal Stockholder" is a person that directly or
indirectly through one or more
<PAGE>
intermediaries, controls, or is controlled by, or is under common control with,
the person specified. For purposes of this definition, "control," when used with
respect to any specified person, means the power to direct or cause the
direction of the management, and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise. Without limitation, an Affiliate also includes the estate of such
individual.
(b) Voluntary Conversion. Each Class B Share shall be convertible at
the option of the holder, for no additional consideration, into one fully paid
and non-assessable Class A Share at any time.
(c) Conversion Procedure. Promptly upon the occurrence of an Event of
Automatic Conversion such that Class B shares are converted automatically into
Class A Shares, or upon the voluntary conversion by the holder, the holder of
such shares shall surrender the certificate or certificates therefor, duly
endorsed in blank or accompanied by proper instruments of transfer, at the
office of the Corporation or of any transfer agent for the Class A Shares, and
shall give written notice to the Corporation at such office (i) stating that the
shares are being converted pursuant to an Event of Automatic Conversion into
Class A Shares as provided in subparagraph 5.6(a) hereof or a voluntary
conversion as provided in subparagraph 5.6(b) hereof, (ii) specifying the Event
of Automatic Conversion (and, if the occurrence of such event is within the
control of the transferor, stating the transferor's intent to effect an Event of
Automatic Conversion) or whether such conversion is voluntary, (iii) identifying
the number of Class B Shares being converted, and (iv) setting out the name or
names (with addresses) and denominations in which the certificate or
certificates for Class A Shares shall be issued and including instructions for
delivery thereof. Delivery of such notice together with the certificates
representing the Class B Shares shall obligate the Corporation to issue such
Class A Shares and the Corporation shall be justified in relying upon the
information and the certification contained in such notice and shall not be
liable for the result of any inaccuracy with respect thereto. Thereupon, the
Corporation or its transfer agent shall promptly issue and deliver at such
stated address to such holder or to the transferee of Class B Shares a
certificate or certificates for the number of Class A Shares to which such
holder or transferee is entitled, registered in the name of such holder, the
designee of such holder or transferee, as specified in such notice. To the
extent permitted by law, conversion pursuant to (i) an Event of Automatic
Conversion shall be deemed to have been effected as of the date on which the
Event of Automatic Conversion occurred or (ii) a voluntary conversion shall be
deemed to have been effected as of the date the Corporation receives the written
notice pursuant to this subparagraph (c) (each date being the "Conversion
Date"). The person entitled to receive the Class A Shares issuable upon such
conversion shall be treated for all purposes as the record holder of such Class
A Shares at and as of the Conversion Date, and the right of such person as the
holder of Class B Shares shall cease and terminate at and as of the Conversion
Date, in each case without regard to any failure by the holder to deliver the
certificates or the notice by this subparagraph (c).
(d) Unconverted Shares. In the event of the conversion of
fewer than all of the Class B Shares evidenced by a certificate surrendered to
the Corporation in
<PAGE>
accordance with the procedures of this Paragraph 5.6, the Corporation shall
execute and deliver to or upon the written order of the holder of such
certificate, without charge to such holder, a new certificate evidencing the
number of Class B Shares not converted.
(e) Reissue of Shares. Class B Shares that are converted into Class A
Shares as provided herein shall be retired and canceled and shall not be
reissued.
(f) Reservation. The Corporation hereby reserves and shall at all
times reserve and keep available, out of its authorized and unissued Class A
Shares, for the purpose of effecting conversions, such number of duly authorized
Class A Shares as shall from time to time be sufficient to effect the conversion
of all outstanding Class B Shares. The Corporation convenants that all the Class
A Shares so issuable shall, when so issued, be duly and validly issued, fully
paid and non-assessable, and free from liens and charges with respect to the
issue. The Corporation will take all such action as may be necessary to assure
that all such Class A Shares may be so issued without violation of any
applicable law or regulation, or any of the requirements of any national
securities exchange upon which the Class A Shares may be listed. The Corporation
will not take any action that results in any adjustment of the conversion ratio
if the total number of Class A Shares issued and issuable after such action upon
conversion of the Class B Shares would exceed the total number of Class A Shares
then authorized by the Amended and Restated Certificate of Incorporation, as
amended.
ARTICLE SIX
PREFERRED SHARES
The Preferred Shares may be issued from time to time in one or more
series. The Board of Directors of the Corporation is hereby expressly authorized
to provide, by resolution or resolutions duly adopted by it prior to issuances,
for the creation of each such series and to fix the designation and the powers,
preferences, rights, qualifications, limitations and restrictions relating to
the shares of each such series. The authority of the Board of Directors with
respect to each series of Preferred Shares shall include, but not be limited to,
determining the following:
(a) the designation of such series, the number of shares to constitute
such series and the stated value if different from the par value thereof;
(b) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of such
voting rights, which may be general or limited;
(c) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and if so, from what dates, the conditions and
dates upon which such dividends shall be payable, and the preference or relation
which such dividends shall bear
<PAGE>
to the dividends payable on any shares of stock of any other class or any other
series of Preferred Shares;
(d) whether the shares of such series shall be subject to redemption by
the Corporation, and, if so, the times, prices and other conditions of such
redemption;
(e) the amount or amounts payable upon shares of such series upon, and
the rights of the holders of such series in, the voluntary or involuntary
liquidation, dissolution or winding up, or upon any distribution of the assets,
of the Corporation;
(f) whether the shares of such series shall be subject to the operation
of a retirement or sinking fund and, if so, the extent to and the manner in
which any such retirement or sinking fund shall be applied to the purchase or
redemption of the shares of such series for retirement or other corporate
purposes and the terms and provisions relating to the operation thereof;
(g) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or other series of
Preferred Shares or any other securities and, if so, the price or prices or the
rate or rates of conversion or exchange and the method, if any, of adjusting the
same, and any other terms and conditions of conversion or exchange;
(h) the limitations and restrictions, if any, to be effective while any
shares of such series are outstanding upon the payment of the dividends or the
making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Shares or shares of stock of any
other class or any other series of Preferred Shares;
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of Preferred
Shares or of any other class; and
(j) any other powers, preferences and relative, participating, optional
and other special rights, and any qualifications, limitations and restrictions,
thereof.
The powers, preferences and relative, participating, optional and other
special rights of each series of Preferred Shares, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Shares shall be identical in all respects with all other shares of
such series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereof shall be cumulative.
ARTICLE SEVEN
LIMITATION OF LIABILITY OF DIRECTORS
No director of the Corporation shall be personally liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director;
<PAGE>
provided, however, that nothing contained in this ARTICLE SEVEN shall eliminate
or limit the liability of a director (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware or (iv) for any transaction from which the director derived an improper
personal benefit.
If the General Corporation Law of the State of Delaware is hereafter
amended to authorize the further elimination or limitation of the liability of a
director, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the General Corporation
Law of the State of Delaware, as so amended.
This ARTICLE SEVEN may not be amended or modified to increase the liability
of a director, or repealed, except upon the affirmative vote of the holders of
75% or more of the outstanding Common Shares. No such amendment, modification,
or repeal shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment, modification, or
repeal.
ARTICLE EIGHT
INDEMNIFICATION
The Corporation shall, to the fullest extent permitted by Section 145
of the General Corporation Law of the State of Delaware, as the same may be
amended from time to time, indemnify and reimburse all persons whom it may
indemnify and reimburse pursuant thereto. The indemnification provided for
herein shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any By-Law of the Corporation, agreement,
vote of stockholders or disinterested directors, or otherwise.
ARTICLE NINE
CLASSIFIED BOARD OF DIRECTORS
9.1 The Board of Directors shall consist of five (5) members. Such number
of Directors may be changed from time to time by resolutions of the Board of
Directors, except as otherwise provided by law or the Amended and Restated
Certificate of Incorporation. Any Director may resign at any time upon written
notice to the Corporation. Directors need not be stockholders.
9.2 The Board of Directors shall be divided into three (3) classes, as
nearly equal in numbers as the then total number of Directors constituting the
entire Board permits with the term of office of one (1) class expiring each
year. At the 1999 Annual Meeting of Stockholders, Directors of the first class
shall be elected to hold office for a term expiring at the next succeeding
Annual Meeting, Directors of the second class shall
<PAGE>
be elected to hold office for a term expiring at the second succeeding Annual
Meeting, and Directors of the third class shall be elected to hold office for a
term expiring at the third succeeding Annual Meeting. Subject to the foregoing,
at each Annual Meeting of Stockholders the successors to the class of Directors
whose term shall then expire shall be elected to hold office for a term expiring
at the third succeeding Annual Meeting.
ARTICLE TEN
BY-LAWS
The Board of Directors is expressly empowered to adopt, amend or repeal the
By-Laws of the Corporation.
ARTICLE ELEVEN
AMENDMENTS
The Corporation reserves the right to amend or repeal any provisions
contained in the Amended and Restated Certificate of Incorporation at any time
in the manner now or hereafter prescribed in the Amended and Restated
Certificate of Incorporation and by the laws of the State of Delaware, and all
rights herein conferred upon stockholders are granted subject to such
reservation.
ARTICLE TWELVE
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
The Corporation elects not to be governed by Section 203 of the General
Corporation of the State of Delaware.
The above restatement was duly adopted in accordance with the provisions of
Sections 241 and 245 of the General Corporation Law of the State of Delaware.
Executed on August 13, 1999.
NEW IFT CORPORATION
By: Irwin L. Gross
________________________________
Irwin L. Gross, Sole Director
GLOBAL TECHNOLOGIES, LTD.
BY-LAWS
ARTICLE I - OFFICES
1.1 Registered Office. The registered office of the corporation shall be at
such place within the State of Delaware as the Board of Directors may from time
to time determine.
1.2 Other Offices. The corporation may also have offices at such other
places as the Board of Directors may from time to time appoint or the activities
of the corporation may require.
ARTICLE II - CORPORATE SEAL
2.1 Seal. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its incorporation, and the words "Corporate Seal,
Delaware." If and when so directed by the Board of Directors or a committee
thereof, duplicates of the seal may be kept and used by the Secretary, an
Assistant Secretary, Treasurer or an Assistant Treasurer.
ARTICLE III - STOCKHOLDERS' MEETINGS
3.1 Annual Meeting. There shall be an annual meeting of the stockholders
during October of each year, at such time and place as the Board of Directors
may determine. At the annual meeting, the stockholders shall elect directors and
transact such other business as may properly be brought before the meeting.
<PAGE>
3.2 Special Meetings. Special meetings of the stockholders may be called at
any time for any purpose not prohibited by law or the Certificate of
Incorporation by the Chairman of the Board, the President, Board of Directors,
or stockholders entitled to cast a majority of the votes which all stockholders
are entitled to vote at the meeting, by submitting a written request therefor,
stating the object of the meeting, to the Secretary. The Secretary shall fix the
time and place of the meeting, which shall be not later then 60 days after the
receipt of the request. If the Secretary shall neglect or fail so to set the
time and place of the meeting, the persons or entities calling the meeting may
do so. Business transacted at all special meetings shall be confined to the
object stated in the request therefor, and matters directly related and germane
thereto.
3.3 Notice.
(a) Written notice of every meeting of the stockholders, stating the
place, time and hour thereof, shall be given to each stockholder not less
than ten days nor more than sixty days prior to the date of the meeting,
except as otherwise provided herein or required by law (meaning, here and
hereinafter, as required from time to time by the Delaware General
Corporation Law or the Certificate of Incorporation of the corporation).
Notice of a special meeting shall state the nature of the business to be
transacted.
(b) When a meeting is adjourned to another place, date or time,
written notice need not be given of the adjourned meeting if the place,
date and time thereof are announced at the meeting at which the adjournment
is taken; provided, however, that if the date of any adjourned meeting is
more than thirty days after the date for which the meeting was originally
noticed, or if a new record date is fixed for the adjourned meeting, then
notice shall be given in
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conformity with Subsection (a) of this Section 3.3. At any adjourned meeting,
any business may be transacted which might have been transacted at the original
meeting.
3.4 Quorum. At all meetings of the stockholders, the holders of a majority
of the issued and outstanding shares entitled to vote, present in person or
represented by proxy, shall constitute a quorum. If a meeting of stockholders
cannot be organized because of the absence of a quorum, the stockholders present
in person or by proxy may adjourn the meeting to such time and place as they may
determine. Except as otherwise provided in these By-Laws, the Certificate of
Incorporation, or applicable law, the acts of the holders of a majority of
shares entitled to vote, present in person or by proxy, and voting at a meeting
having a quorum shall be the acts of the stockholders.
3.5 Organization. Such person as the Board of Directors may have designated
or, in the absence of such a person, the chief executive officer of the
corporation or, in his or her absence, such person as may be chosen by the
holders of a majority of the shares entitled to vote who are present, in person
or by proxy, shall call to order any meeting of the stockholders and act as
chairman of the meeting. In the absence of the Secretary of the corporation, the
secretary of the meeting shall be such person as the chairman appoints.
3.6 Conduct of Business. The chairman of any meeting of stockholders shall
determine the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to him
in order.
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3.7 Proxies and Voting. (a) At any meeting of the stockholders, every
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing filed in accordance with the procedure established for the
meeting.
(b) Each stockholder shall have one vote for every share of stock
entitled to vote which is registered in his name on the record date for the
meeting, except as otherwise provided herein or required by law.
(c) All voting, including on the election of directors but excepting
where otherwise required by law, may be by a voice vote; provided, however,
that upon demand therefor by a stockholder entitled to vote or by his or
her proxy, a stock vote shall be taken. Every stock vote shall be taken by
ballots, each of which shall state the name of the stockholder or proxy
voting and such other information as may be required under the procedure
established for the meeting. Every vote taken by ballots shall be counted
by an inspector or inspectors appointed by the chairman of the meeting.
(d) All elections shall be determined by a plurality of the votes
cast, and except as otherwise required by law, all other matters shall be
determined by a majority of the votes cast.
3.8 Voting List. The officer having charge of the transfer books for shares
of the corporation shall prepare, at least ten days before each meeting of
stockholders, an alphabetical list of the names and addresses of and shares held
by the stockholders entitled to vote at the meeting. The list shall be open for
inspection for any purpose, germane to the meeting, during usual business hours,
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<PAGE>
for a period of at least ten days prior to the meeting at either a place within
the city in which the meeting will be held or at the place of the meeting. The
list should also be produced and kept open for inspection by stockholders at the
time and place of the meeting.
3.9 Inspectors of Elections. The Board of Directors may, before a meeting
of stockholders, appoint one or three Inspector(s) (who need not be
stockholders) for such meeting. If no such Inspector(s) of Election are
appointed, the chairman of the meeting may, and on the request of any
stockholder or his proxy shall, make such appointment. If Inspector(s) are
appointed at the request of one or more stockholders or proxies, the
stockholders present and entitled to vote shall determine whether there will be
one or three Inspectors. The Inspector(s) of Election shall take such action as
may be necessary or proper fairly to conduct the election to vote and shall
report in writing on any matter they determine, executing a certificate of any
fact they find, if requested by the chairman of the meeting or any stockholder.
No person who is a candidate for office shall act as an Inspector of Election.
3.10 Consent of Stockholders in Lieu of Meeting. Any action required to be
taken at any annual or special meeting of stockholders of the corporation, or
any action which may be taken at any annual or special meeting of the
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
5
<PAGE>
ARTICLE IV - SHARE CERTIFICATES
4.1 Form of Certificate. The certificate of shares of the corporation shall
state the name of the registered holder; the number, class, and series (if any)
of the shares represented; and the par value of each share or the absence of par
value, as appropriate. Each certificate shall be numbered and registered in a
share register in the order issued.
4.2 Signature. Each share certificate shall be signed by the Chairman of
the Board or the President and by the Secretary, an Assistant Secretary, the
Treasurer, or an Assistant Treasurer, and sealed with the corporate seal. When a
certificate is signed by a transfer agent or registrar, the signature of an
authorized officer may be facsimile. If an officer who has signed a certificate,
personally or by facsimile, ceases to be an officer before the certificate is
delivered, the certificate may be issued as if the signatory remained in office.
4.3 Lost, Stolen or Destroyed Certificates. The Board of Directors shall
cause the issuance of a new certificate as a replacement for a certificate
claimed to have been lost, wrongfully taken, or destroyed upon submission of an
affidavit of the person making the claim of the loss, wrongful taking, or
destruction. The Board of Directors may, in its discretion, require as a
condition to the issuance of a replacement certificate that the owner of the
certificate advertise the loss in such manner as the Board may determine and/or
give the corporation a bond in such sum and with such sureties as the Board may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate claimed to have been lost, destroyed, or
wrongfully taken.
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4.4 Transfer of Shares. Upon surrender to the corporation or its transfer
agent of a share certificate duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, the corporation shall issue a
new certificate to the person entitled thereto, cancel the old certificate, and
record the transaction in its books.
4.5 Closing Transfer Books. The Board of Directors may fix a record date
for the determination of the stockholders entitled to notice of and to vote at a
meeting, to receive payment of a dividend or distribution, to receive an
allotment of rights, or to exercise rights in respect to a change, conversion or
exchange of shares. In such case, only the stockholders of record on the record
date shall be entitled to notice of or to vote at or participate in such meeting
or activity or event, notwithstanding any transfer of any shares on the books of
the corporation after the record date. If the Board of Directors closes the
transfer books during such period, it shall so notify each stockholder in
writing. The record date may not be more than 60 days nor less than 10 days
prior to the meeting, activity, or event to which it relates.
4.6 Registered Stockholders. The corporation shall be entitled to treat the
holder of record of any shares as the holder in fact for all purposes and shall
not be bound to recognize any claim to or interest in such shares on the part of
any other person. The corporation shall not be liable for any improper or
impermissible registration or transfer of shares which are or to be registered
in the name of a fiduciary or its nominee unless the corporation had actual
knowledge that the fiduciary or nominee are committing a breach of trust in
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requesting such registration or transfer, or the corporation had knowledge of
such facts that its participation in the registration or transfer amounts to bad
faith.
4.7 Regulations. The issue, transfer, conversion and registration of
certificates of stock shall be governed by such other regulations as the Board
of Directors may establish.
ARTICLE V - BOARD OF DIRECTORS
5.1 General Powers. The business and affairs of the corporation shall be
managed by the Board of Directors, and all powers of the corporation are hereby
granted to and vested in the Board of Directors, except as otherwise expressly
provided in these By-Laws or in the Certificate of Incorporation or by law.
5.2 Composition. There shall be such number of directors, not fewer than
three (3) nor more than eleven (11), as the Board may from time to time
determine by resolution.
5.3 Classified Board; Term. The Board of Directors shall be divided into
three (3) classes, as nearly equal in number as the then total number of
directors constituting the entire Board permits with the term of office of one
(1) class expiring each year. At the initial annual meeting of stockholders of
the corporation, directors of the first class shall be elected to hold office
for a term expiring at the next succeeding annual meeting of stockholders,
directors of the second class shall be elected to hold office for a term
expiring at the second succeeding annual meeting of stockholders, and directors
of the third class shall be elected to hold office for a term expiring at the
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third succeeding annual meeting of stockholders. Subject to the foregoing, at
each annual meeting of stockholders the successors to the class of directors
whose term shall then expire shall be elected to hold office for a term expiring
at the third succeeding annual meeting of stockholders.
5.4 Regular Meetings. The Board may hold regular meetings at such times and
places as it may determine.
5.5 Special Meetings. Special meetings of the Board of Directors may be
called at any time by the Chairman of the Board, the President or by one of the
Directors, by submitting a written request therefor, stating the object of the
meeting, to the Secretary. The Secretary shall set the time and place of the
meeting, which shall be held not later than 30 days after the receipt of the
request. If the Secretary shall neglect or refuse to set the time and place of
the meeting, the person or persons calling the meeting may do so. Business
transacted at all special meetings shall be confined to the objects stated in
the request therefor and matters directly related and germane thereto.
5.6 Annual Meeting. There shall be an annual meeting of the Board of
Directors following each annual meeting of the stockholders. At the annual
meeting, the Board of Directors shall elect officers and transact such other
business as may be properly brought before the meeting.
5.7 Notices. Written notice of regular and annual meetings of the Board of
Directors, stating the time and place thereof shall be given to all directors at
least five days prior to the date of the meeting. Written notice of special
meetings of the Board of Directors shall be given to each director at least 48
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hours prior to the time of the meeting. Unless otherwise indicated in the notice
thereof, any and all business may be transacted at a special meeting.
5.8 Quorum. A majority of the members of the Board of Directors shall
constitute a quorum for the transaction of business, and the acts of a majority
of directors present and voting at a meeting at which a quorum is present shall
be the acts of the Board of Directors. In the event that a quorum is not present
at any meeting of the Board of Directors, the directors present may adjourn the
meeting without any notice of the time and place of the adjourned meeting except
for announcement at the meeting at which adjournment is taken.
5.9 Vacancies. If the office of a director shall become vacant for any
reason, including an increase in the number of directors, the remaining
directors shall elect a successor, who shall hold office for the unexpired term
for which the vacancy occurred or until his or her successor is duly qualified
and seated. A majority of the remaining directors shall constitute a quorum for
purposes of filling the vacancy on the Board of Directors.
5.10 Removal. Any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors, except that when cumulative voting is
permitted, if less than the entire Board is to be removed, no director may be
removed without cause if the votes cast against his or her removal would be
sufficient to elect him if then cumulatively voted at an election of the entire
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Board of Directors, or, if there be classes of directors, at an election of the
class of directors of which he is a part.
ARTICLE VI - COMMITTEES
6.1 Establishment. The Board of Directors by a vote of a majority of the
whole Board, may establish one or more standing or special committees, including
without limitation an executive committee. Except as otherwise provided in these
By-Laws, the Certificate of Incorporation, or applicable law, any committee may
exercise such powers and authority of the Board of Directors in the management
of the business and affairs of the corporation as may, from time to time, be
determined.
6.2 Committee Members. The Board of Directors shall appoint all committee
members and committee chairpersons, each Committee to consist of one or more
directors, and may appoint alternates for any member or chairperson of any
committee. In the absence or disqualification of any member of any committee and
any alternate member in his place, the member or members of the committee
present at the meeting and not disqualified from voting, whether or not he or
she or they constitute a quorum, may be unanimous vote appoint another member of
the Board of Directors to act at the meeting in the place of the absent or
disqualified member.
6.3 Conduct of Business. Each committee may determine the procedural rules
for meeting and conducting its business and shall act in accordance therewith,
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except as otherwise provided herein or required by law. Adequate provision shall
be made for notice to members of all meetings, one-third of the members shall
constitute a quorum unless the committee shall consist of one or two members, in
which event one member shall constitute a quorum; and all matters shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
ARTICLE VII - OFFICERS
7.1 Officers. The officers of the corporation shall be chosen by the Board
of Directors and shall be a Chairman of the Board, a President, a Treasurer, a
Secretary, and such Vice Presidents and assistant officers as the Board of
Directors may determine that the corporation requires. All officers shall be
natural persons of full age, and any two or more offices may be held by the same
person.
7.2 Election and Term.
(a) The Chairman of the Board, the President, each Vice President,
Treasurer and Secretary shall be elected by the Board of Directors at its
annual meeting and shall serve for a term of one year, or until their
respective successors are duly elected and qualified. All assistant
officers shall be elected or appointed at such times and for such terms as
the Board of Directors may determine.
(b) Any vacancy in any office shall be filled by the Board of
Directors.
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7.3 Chairman of the Board. The Chairman of the Board shall be the Chief
Executive Officer of the corporation. He or she shall preside at all meetings of
the stockholders and Board of Directors. He or she shall act as a liaison from
and a spokesman for the Board of Directors. He or she shall participate in long
range planning for the corporation. He or she shall see that all resolutions and
orders of the Board of Directors are carried into effect. He or she, in general,
shall perform all duties incident to and have responsibility for the management
of the corporation, with the right to execute on behalf of the corporation all
bonds, mortgages, contracts, and other documents, except where such documents
are required by law to be otherwise executed or when the execution thereof shall
be delegated by the Board of Directors to another officer.
7.4 President. The President shall be the Chief Operating and
Administrative Officer of the Corporation. He or she shall manage the day to day
operations of the Corporation and administer the general direction of the
affairs of the Corporation except as otherwise determined by the Board. He or
she shall perform the duties and powers of the Chairman of the Board during the
absence or disability of the Chairman of the Board, and such other duties and
powers as the Board of Directors shall designate.
7.5 Vice Presidents. The Vice Presidents, if any, in such order as the
Board may determine, shall act in all cases for and as the President in the
President's absence, disability, or incapacity, and shall perform such other
duties as may be delegated to any of them by the Board of Directors, the
Chairman of the Board or the President.
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<PAGE>
7.6 Treasurer. The Treasurer shall have custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects of the corporation in separate accounts or
depositories in the name of and to the credit of the corporation as shall be
designated by the Board of Directors. He or she shall disburse the funds of the
corporation as may be ordered by the Board of Directors for such disbursements
and shall render to the Board of Directors, whenever it may so require it, an
account of all his or her transactions as Treasurer and of the financial
condition of the corporation.
7.7 Secretary. The Secretary shall attend all meetings of the Board of
Directors and record all votes of the corporation and the minutes of all
transactions in a book to be kept for that purpose and perform like duties for
committees of the Board of Directors, if and when required. He or she shall
give, or cause to be given, notice of all meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the Board of
Directors or the President. He or she shall keep, or cause to be kept, in safe
custody the corporate seal and, when authorized to do so by the Board of
Directors, affix the same to any instrument requiring it and attest to it by his
or her signature.
7.8 Assistant Officers. Assistant officers shall perform such functions and
have such responsibilities as the Board of Directors may determine.
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<PAGE>
7.9 Delegation of Authority. The Board of Directors may from time to time
delegate the powers or duties of any officer to any other officers or agents,
notwithstanding any provision hereof.
7.10 Removal. Any officer of the corporation may be removed at any time,
with or without cause, by the Board of Directors.
7.11 Action with Respect to Securities of Other Corporations. Unless
otherwise directed by the Board of Directors, the Chairman of the Board, the
President or any officer of the corporation authorized by the Board of Directors
shall have power to vote and otherwise act on behalf of the corporation, in
person or by proxy, at any meeting of stockholders of or with respect to any
action of stockholders of any other corporation in which this corporation may
hold securities and otherwise to exercise any and all rights and powers which
this corporation may possess by reason of its ownership of securities in such
other corporation.
ARTICLE VIII - INDEMNIFICATION
8.1 Indemnification. The corporation shall indemnify every director and
officer and may indemnify any employee or agent to the full extent permitted by
the General Business Corporation Law of the State of Delaware and all amendments
and successor provisions thereto, and such statutory provisions and all
amendments and successor provisions thereto are incorporated herein by
reference; provided that this Article VIII shall not exclude any other rights to
which such party may be entitled, whether by agreement, vote of stockholders, or
otherwise.
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ARTICLE IX - NOTICES
9.1 Form of Notice. Whenever written notice is required or permitted, by
these By-Laws or otherwise, to be given to any person or entity, it may be given
either personally or by sending a copy thereof by first class mail, postage
prepaid, or by telegram, charges prepaid, to the address of the appropriate
person or entity as it appears on the books of the corporation. If the notice is
sent by mail or telegraph, it shall be deemed to have been given when deposited
in the United States Mail or with a telegraph office for transmission.
9.2 Waiver of Notice. Whenever a written notice is required, by these
By-Laws or otherwise, a waiver of such notice in writing, signed by the person
or persons or on behalf of the entity or entities entitled to receive the notice
shall be deemed equivalent to the giving of such notice, whether the waiver is
signed before or after the time required for such notice. Except as otherwise
required by law, the waiver of notice need not state the business to be
transacted at nor the purpose of the meeting, except that the waiver of notice
of a special meeting of the stockholders or the Board of Directors shall specify
the general nature of the business to be transacted at the meeting. Attendance
at any meeting shall constitute waiver of notice of such meeting, except where a
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of business because the meeting was not
called or convened upon proper notice.
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<PAGE>
ARTICLE X - MISCELLANEOUS PROVISIONS
10.1 Fiscal Year. The fiscal year of the corporation shall begin on the
first day of July in each year.
10.2 Participation by Telecommunications. One or more persons may
participate in a meeting of the Board of Directors or of any committee by means
of a conference telephone or similar communications equipment by which all
persons participating in the meeting can hear one another. Participation in a
meeting pursuant to this section shall constitute the presence in person at such
meeting.
10.3 Dividends. The Board of Directors may, at any meeting, declare
dividends upon the shares of the corporation to be paid in cash, property or
shares, subject to any limitations in the Certificate of Incorporation or
applicable law.
10.4 Facsimile Signatures. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these by-laws,
facsimile signatures of any officer or officers of the corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
10.5 Reliance upon Books, Reports and Records. Each director, each member
of any committee designated by the Board of Directors and each officer of the
corporation shall, in the performance of his duties, be fully protected in
relying in good faith upon the books of account or other records of the
corporation, including reports made to the corporation by any of its officers,
by an independent certified public accountant, or by an appraiser selected with
reasonable care.
17
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10.6 Time Periods. In applying any provision of these by-laws which require
that an act be done or not done a specified number of days prior to an event or
that an act be done during a period of a specified number of days prior to an
event, calendar days shall be used, the day of the doing of the act shall be
excluded, and the day of the event shall be included.
ARTICLE XI - AMENDMENTS
11.1 Amendments. The Board of Directors shall have the power to amend,
alter, or repeal all or any part of these By-laws, subject to the power of the
stockholders to change such action.
************
18
EMPLOYMENT AGREEMENT
THIS AGREEMENT is effective as of October 1, 1999, between GLOBAL
TECHNOLOGIES, LTD. (f.k.a. Interactive Flight Technologies, Inc.) ("Company")
and Irwin L. Gross ("Executive").
W I T N E S S E T H:
Company wishes to employ Executive and Executive wishes to enter into the
employ of Company on the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the facts, mutual promises and
covenants contained herein and intending to be legally bound hereby, Company and
Executive agree as follows:
1. Employment. Company hereby employs Executive and Executive hereby
accepts employment by Company for the period and upon the terms and conditions
contained in this Agreement.
2. Office and Duties.
(a) The Executive is engaged hereunder as the Company's Chairman of the
Board and Chief Executive Officer and agrees to perform the duties and services
incident to that position. The Executive will report to the Board of Directors
of Company on a regular basis.
(b) Throughout the term of this Agreement, Executive shall devote
substantially all of his working time, energy, skill and best efforts to the
performance of his duties hereunder in a manner which will faithfully and
diligently further the business and interests of Company. The foregoing shall
not be construed, however, as preventing the Executive from investing his assets
in such form or manner as will not require services on the part of the Executive
in the operations of the business in which such investment is made that would
materially interfere with his obligations hereunder, and provided such business
is not in competition with the company or, if in competition, such business has
a class of securities registered under the Securities Exchange Act of 1934 and
the interest of Executive therein is solely that of an investor owning not more
than 5% of any class of the outstanding equity securities of such business.
3. Term. This Agreement shall be for a term of thirty-six (36) months,
commencing as of October 1, 1999, and ending on September 30, 2002, unless
sooner terminated as hereinafter provided. This Agreement shall terminate at the
end of the original term, provided, however, that the parties hereto shall, at
least sixty (60) days prior to the end of the term hereof, use their best
efforts to determine whether the Agreement will be renewed or negotiated.
4. Compensation.
(a) In recognition and consideration of the contributions that Executive
has made to the Company during the period from September 15, 1998 to September
30, 1999, during which period of time Executive received no compensation from
the Company, Executive shall be paid Two Hundred and Fifty Thousand Dollars
($250,000). For all services to be rendered by
<PAGE>
Executive to Company pursuant to this Agreement, Executive shall receive an
annual base salary of Two Hundred and Fifty Thousand Dollars ($250,000), payable
in accordance with Company's regular payroll practices in effect from time to
time.
(b) In addition to Executive's base salary, Company shall pay to
Executive, on April 30 and October 31 for the preceding six-month periods ending
on March 31 and September 30 of each year during the term of this Agreement,
such bonuses or other additional compensation as the Board of Directors may
determine based upon the achievement of the goals assigned to Executive as set
forth in a Board-approved Business Plan or as may otherwise be determined or
agreed to by the Board. Subject to the achievement of the assigned goals, the
total and aggregate bonuses to be paid to Executive in any year during the term
of this Agreement should not be less than twenty percent (20%) of Executive's
annual salary.
(c) Throughout the term of this Agreement and as long as they are kept
in force by Company, Executive shall be entitled to participate in and receive
the benefits of any profit sharing or retirement plans and any health, life,
accident or disability insurance plans or programs made available to other
similarly situated executives of Company. Specifically, Executive shall be
provided family medical and dental coverage at Company's expense. Executive
shall be entitled to four (4) weeks paid vacation during each year of the term
of this Agreement. Company shall pay Executive for any unused vacation at
December 31st of each year.
(d) Company will provide Executive with an automobile allowance of $1000
per month and Company will reimburse Executive for all reasonable expenses
incurred by Executive in connection with the performance of Executive's duties
hereunder, including mobile phone and club memberships, upon receipt of vouchers
therefor and in accordance with Company's regular reimbursement procedures and
practices in effect from time to time.
(e) The Company shall grant to Executive options to purchase up to an
aggregate of One Million (1,000,000) shares of the Company's common stock, par
value $.01 per share ("Common Stock"). One quarter of the options shall vest as
of the date hereof. Another quarter of the options will vest, subject to certain
conditions, as follows: eighty-three thousand three hundred thirty-four (83,334)
on October 8, 2000; eighty-three thousand three hundred thirty-three (83,333) on
October 8, 2001; and eighty-three thousand three hundred thirty-three (83,333)
on October 8, 2002. The balance of the options shall vest, subject to the
achievement of certain performance milestones and certain other conditions, as
follows: one hundred sixty-six thousand, six hundred sixty-seven (166,667) on
October 8, 2000; one hundred sixty-six thousand, six hundred sixty-six (166,666)
on October 8, 2001; and one hundred sixty-six thousand, six hundred sixty-six
(166,666) on October 8, 2002. The exercise price of the options shall be equal
to the closing sale price (or closing bid if no sales were reported) of a share
of Common Stock as reported by the Nasdaq National Market on October 7, 1999 (or
the next trading day in the event there is no trading on such date). The options
shall be for a term of ten (10) years from the date of the grant of such
options.
5. Disability. If Executive becomes unable to perform his duties hereunder
due to partial or total disability or incapacity resulting from a mental or
physical illness, injury or any other cause ("Disability"), Company will
continue the payment of Executive's base salary at its then current rate for a
period of twelve (12) weeks following the date Executive is first unable to
perform his duties due to such disability or incapacity. Thereafter, Company
shall have no obligation for
2
<PAGE>
base salary or other compensation payments to Executive during the continuance
of such disability or incapacity, except as provided in the Company's disability
policy, if any.
6. Death. If Executive dies, all payments hereunder shall cease at the end
of the month in which Executive's death shall occur and Company shall have no
further obligations or liabilities hereunder to Executive's estate or legal
representative or otherwise.
7. Termination of Company's Business. If (i) Company shall discontinue the
business operation in which Executive is employed, Company may immediately
terminate Executive's employment upon written notice, or (ii) there is a Change
in Control (as hereinafter defined), and as a result of such Change in Control,
the Executive is terminated without Cause (as defined in Paragraph 8 below) or
leaves for Good Reason (as hereinafter defined), then, on the occurrence of any
of such events, Company shall have no further obligations or liabilities
hereunder to Executive, except Company shall (A) pay Executive an amount equal
to two times the remaining base salary due the Executive for the then current
term, but in no event shall Executive receive less than his base salary for one
year, to be paid in accordance with the regular payroll practices of Company;
and (B) continue to provide Executive with family medical and dental coverage
for a period of 12 months. In addition, in the event of termination of the
Executive pursuant to this Paragraph, the restrictions of subparagraph 11(a)
shall terminate.
(a) Change in Control. The term "Change in Control" shall mean a change
in control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A issued under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") as in effect as of the date hereof, or
if Item 6(e) is no longer in effect, any subsequent regulation issued under the
Exchange Act for a similar purpose, whether or not the Company is subject to
such reporting requirements; provided that, without limitation, such a change in
control shall be deemed to have occurred if:
(i) any "person" is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 50% or more of the combined voting power of the Company's
then outstanding securities;
(ii) during any period of two consecutive years (not including any
period prior to the date of the Agreement), individuals who at the beginning of
such period constitute the Board of Directors, and any new director, whose
election by the Board or nomination or election by the Company's stockholders
was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for elections was previously approved, cease for any
reason to constitute a majority of the Board; or
(iii) the business of the Company is disposed of by the Company
pursuant to a liquidation, sale of assets of the Company, or otherwise.
(b) Good Reason. "Good Reason" shall mean the occurrence after a Change
in Control of any of the following events without the Executive's express
written consent:
(i) any change in the Executive's title, authorities,
responsibilities (including reporting responsibilities), which represent a
demotion from his status, title, position or responsibilities (including
reporting responsibilities) as in effect immediately prior to the Change in
Control; the assignment to him of any duty or work responsibilities which, in
his reasonable
3
<PAGE>
judgment, are inconsistent with such status, title, position or work
responsibilities; or any removal of the Executive from or failure to appoint or
reelect him to any of such positions, except in connection with the termination
of his employment for Disability, retirement or Cause, as a result of the
Executive's death or by him other than for Good Reason;
(ii) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased from time
to time; or
(iii) the failure of the Company to obtain a satisfactory agreement
from any successor or assign of the Company to assume and agree to perform this
Agreement.
8. Termination For Cause. Company may discharge the Executive and thereby
terminate his employment hereunder for the following reasons (for "Cause"):
(a) habitual intoxication;
(b) habitual illegal drug use or drug addiction;
(c) conviction of a felony, materially adversely affecting Company where
such conviction significantly impairs the Executive's ability to perform his
duties hereunder;
(d) while acting in his capacity as Executive of Company, knowingly
engaging in any unlawful activity which could materially adversely affect the
Company;
(e) gross insubordination, gross negligence, or willful and knowing
violation of any expressed direction or regulation established by Company which
is materially injurious to the business or reputation of Company;
(f) misappropriation of corporate funds or other acts of dishonesty;
(g) the Executive's material breach of this Agreement in any other
respect.
In the event that Company discharges the executive for Cause, Company
shall pay to Executive the portion, if any, of the Executive's base salary for
the period up to the date of termination which remains unpaid. The Company shall
have no further obligation or liability under this Agreement.
9. Termination Without Cause. In the event Company terminates this
Agreement without Cause at any time, the Company's sole liability for
compensation to Executive shall be to pay the Executive two times the remaining
balance of the base salary due the Executive for the remainder of the then
current term to be paid in accordance with the regular payroll practices of
Company, and to provide Executive with family medical and dental coverage for
the same period. In addition, in the event of termination of the Executive
pursuant to this Paragraph, the restrictions of subparagraph 11(a) shall
terminate.
10. Company Property. All advertising, sales, manufacturers' and other
materials or articles or information, including without limitation data
processing reports, customer sales analyses, invoices, price lists or
information, samples, budgets, business plans, strategic plans, financing
applications, reports, memoranda, correspondence, financial statements, and any
other materials or data of any kind furnished to Executive by Company or
developed by Executive on
4
<PAGE>
behalf of Company or at Company's direction or for Company's use or otherwise in
connection with Executive's employment hereunder, are and shall remain the sole
and confidential property of Company; if Company requests the return of any such
materials at any time during or at or after the termination of Executive's
employment, Executive shall immediately deliver the same to Company.
11. Noncompetition, Trade Secrets, Etc.
(a) During the term of this Agreement and for a period of one (1) year
after the termination of his employment with Company for any reason whatsoever,
Executive shall not directly or indirectly induce or attempt to influence any
executive of Company to terminate his or her employment with Company and shall
not engage in (as a principal, partner, director, officer, agent, executive,
consultant or otherwise) or be financially interested in any business operating
within the geographical area described in Exhibit "A", attached hereto, which is
involved in business activities which are the same as, similar to, or in
competition with business activities carried on by Company, or being definitely
planned by Company, at the time of the termination of Executive's employment.
However, nothing contained in this Paragraph 11 shall prevent Executive from
holding for investment no more than five percent (5%) of any class of equity
securities of a company whose securities are traded on a national securities
exchange or on the NASDAQ System.
(b) During the term of this Agreement and at all times thereafter,
Executive shall not use for his personal benefit, or disclose, communicate or
divulge to, or use for the direct or indirect benefit of any person, firm,
association or company other than the Company, any material referred to in
Paragraph 10 above or any information regarding the business methods, business
policies, procedures, techniques, research or development projects or results,
trade secrets, or other knowledge or processes of or developed by the Company or
any names and addresses of customers or clients, any data on or relating to
past, present or prospective customers or clients, or any other confidential
information relating to or dealing with the business operations or activities of
Company, made known to Executive or learned or acquired by Executive while in
the employ of Company.
(c) Any and all reports, plans, budgets, writings, inventions,
improvements, processes, procedures and/or techniques which Executive may make,
conceive, discover or develop, either solely or jointly with any other person or
persons, at any time during the term of this Agreement, whether during working
hours or at any other time and whether at the request or upon the suggestion of
the Company or otherwise, which relate to or are useful in connection with any
business now or hereafter carried on or contemplated by the Company, including
developments or expansions of its present fields of operations, shall be the
sole and exclusive property of Company. Executive shall make full disclosure to
Company of all such reports, plans, budgets, writings, inventions, improvements,
processes, procedures and techniques, and shall do everything reasonably
necessary or desirable to vest the absolute title thereto in Company. Executive
shall write and prepare all specifications and procedures regarding such
inventions, improvements, processes, procedures and techniques and otherwise aid
and assist Company so that Company can prepare and present applications for
copyright or Letters Patent therefor and can secure such copyright or Letters
Patent wherever possible, as well as reissues, renewals, and extensions thereof,
and can obtain the record title to such copyright or patents so that Company
shall be the sole and absolute owner thereof in all countries in which it may
desire to have copyright or patent protection. Executive shall not be entitled
to any additional or special compensation or reimbursement regarding any and all
such writings, inventions, improvements, processes, procedures and techniques.
5
<PAGE>
(d) Executive acknowledges that the restrictions contained in the
foregoing subparagraphs (a), (b) and (c), in view of the nature of the business
in which Company is engaged, are reasonable and necessary in order to protect
the legitimate interests of Company, and that any violation thereof would result
in irreparable injuries to Company, and Executive therefore acknowledges that,
in the event of his violation of any of these restrictions, Company shall be
entitled to obtain from any court of competent jurisdiction preliminary and
permanent injunctive relief as well as damages and an equitable accounting of
all earnings, profits and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which Company may be entitled.
(e) If the period of time or the area specified in subparagraph (a)
above should be adjudged unreasonable in any proceeding, then the period of time
shall be reduced by such amount of time or the area shall be reduced by the
elimination of such portion thereof or both so that such restrictions may be
enforced in such area and for such time as is adjudged to be reasonable. If
Executive violates any of the restrictions contained in such subparagraph (a),
the restrictive period shall not run in favor of Executive from the time of the
commencement of any such violation until such time as such violation shall be
cured by Executive to the satisfaction of Company.
12. Prior Agreements. Executive represents to Company (a) that there are no
restrictions, agreements or understandings whatsoever to which Executive is a
party which would prevent or make unlawful his execution of this Agreement or
his employment hereunder, (b) that his execution of this Agreement and his
employment hereunder shall not constitute a breach of any contract, agreement or
understanding, oral or written, to which he is a party or by which he is bound
and (c) that he is free and able to execute this Agreement and to enter into
employment by Company.
13. Indemnification. Company shall maintain a Directors and Officers Errors
and Omission Policy with a minimum coverage of Fifteen Million Dollars
($15,000,000). Any deductible and all other costs and expenses which may be
incurred by Executive as a result of his acting in his capacity as an Officer of
the Company shall be paid by Company.
14. Miscellaneous.
(a) Indulgences, Etc. Neither the failure nor any delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
(b) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the State of Delaware,
notwithstanding any conflict-of-laws doctrines of any jurisdiction to the
contrary, and without the aid of any canon, custom or rule of law requiring
construction against the draftsman.
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<PAGE>
(c) Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received only when delivered
(personally, by courier service such as FedEx or by other messenger) against
receipt or upon actual receipt of registered or certified mail, postage prepaid,
return receipt requested, addressed as set forth below:
(i) If to Company:
Global Technologies, Ltd.
1811 Chestnut Street
Suite 120
Philadelphia, PA 19103
Attention: President
(ii) If to Executive:
Irwin L. Gross
722 Pine Street
Philadelphia, PA 19106
In addition, notice by mail shall be by air mail if posted outside of the
continental United States. Either party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this subparagraph for the giving of
notice.
(d) Exhibits. All Exhibits attached hereto are hereby incorporated by
reference into, and made a part of, this Agreement.
(e) Binding Nature of Agreement; No Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and assigns, except that no party
may assign or transfer its rights nor delegate its obligations under this
Agreement without the prior written consent of the other parties hereto.
(f) Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
(g) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
(h) Entire Agreement. This Agreement (together with the Stock Option
Grant Agreement between the Company and Executive dated October 8, 1999)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof, and supersedes all prior and contemporaneous agreements
and understandings, inducements or conditions, express
7
<PAGE>
or implied, oral or written, except as herein contained. The express terms
hereof control and supersede any course of performance and/or usage of the trade
inconsistent with any of the terms hereof. This Agreement may not be modified or
amended other than by an agreement in writing.
(i) Paragraph Headings. The Paragraph and subparagraph headings in this
Agreement have been inserted for convenience of reference only; they form no
part of this Agreement and shall not affect its interpretation.
(j) Gender, Etc. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context indicates is appropriate.
(k) Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
Holidays; provided, however, that if the final day of any time period falls on a
Saturday, Sunday or Holiday, then the final day shall be deemed to be the next
day which is not a Saturday, Sunday or Holiday. For purposes of this Agreement,
the term "Holiday" shall mean a day, other than a Saturday or Sunday, on which
national banks with branches in the Commonwealth of Pennsylvania are or may
elect to be closed.
(l) Expenses of the Parties. Company shall be responsible for up to
$4,000 in legal expenses incurred in the negotiation and preparation of this
Agreement.
8
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered in Philadelphia, Pennsylvania, as of the date first above written.
GLOBAL TECHNOLOGIES, LTD.
By: James W. Fox
-------------------------------
JAMES W. FOX, President and COO
EXECUTIVE:
Irwin L. Gross
-----------------------------------
IRWIN L. GROSS
9
<PAGE>
EXHIBIT "A"
Under Paragraph 11, Noncompetition, Trade Secrets, Etc., the geographic
area shall be as follows:
Worldwide
10
CERTIFICATE OF DESIGNATIONS, RIGHTS, PREFERENCES
AND LIMITATIONS
OF
SERIES A 8% CONVERTIBLE PREFERRED STOCK
OF
GLOBAL TECHNOLOGIES, LTD.
-----------
Pursuant to Section 151 of
the General Corporation Law of the State of Delaware
-----------
Global Technologies, Ltd., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Corporation on August 16, 1999 pursuant to authority of the Board of
Directors as required by Section 151 of the General Corporation Law of the State
of Delaware:
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of the Corporation (the "Board of Directors" or the "Board") in
accordance with the provisions of its Amended and Restated Certificate of
Incorporation, the Board of Directors hereby designates a series of the
Corporation's previously authorized Preferred Stock, par value $.01 per share
(the "Preferred Stock") as its Series A 8% Convertible Preferred Stock, and
hereby states the number of authorized shares, and the relative rights,
preferences, limitations, privileges, powers and restrictions thereof are and
shall be as set forth on the attached Annex A.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations, Rights, Preferences and Limitations to be signed by its duly
authorized officers as of the 16th day of August, 1999.
GLOBAL TECHNOLOGIES, LTD.
By: ____________________________________
Name: Irwin L. Gross
Title: Chairman
<PAGE>
ANNEX A
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article whenever
used in this Certificate of Designations have the following respective meanings:
(a) "AFFILIATE" has the meaning ascribed to such term in Rule 12b-2
under the Securities Exchange Act of 1934, as amended.
(b) "BUSINESS DAY" means a day other than Saturday, Sunday or any day
on which banks located in the State of New York are authorized or obligated to
close.
(c) "COMMON SHARES" or "COMMON STOCK" means shares of Class A common
stock, $.01 par value, of the Corporation.
(d) "COMMON STOCK ISSUED AT CONVERSION" when used with reference to
the securities issuable upon conversion of the Series A Preferred Stock, means
all Common Shares now or hereafter outstanding and securities of any other class
or series into which the Series A Preferred Stock hereafter shall have been
changed or substituted, whether now or hereafter created and however designated.
(e) "CONVERSION DATE" means any day on which all or any portion of
shares of the Series A Preferred Stock is converted in accordance with the
provisions hereof.
(f) "CONVERSION NOTICE" has the meaning set forth in Section 6.2.
(g) "CONVERSION PRICE" means on any date of determination the
applicable price for the conversion of shares of Series A Preferred Stock into
Common Shares on such day as set forth in Section 6.1.
(h) "CORPORATION" means Global Technologies, Ltd., a Delaware
corporation, and any successor or resulting corporation by way of merger,
consolidation, sale or exchange of all or substantially all of the Corporation's
assets, or otherwise.
(i) "HOLDER" means The Shaar Fund Ltd., any successor thereto, or any
Person to whom the Series A Preferred Stock is subsequently transferred in
accordance with the provisions hereof.
(j) "OUTSTANDING" when used with reference to Common Shares (the
"Shares"), means, on any date of determination, all issued and outstanding
Shares, and includes all such Shares issuable in respect of outstanding scrip or
any certificates representing fractional interests in such Shares; provided,
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however, that any such Shares directly or indirectly owned or held by or for the
account of the Corporation or any Subsidiary of the Corporation shall not be
deemed "Outstanding" for purposes hereof.
(k) "PERSON" means an individual, a corporation, a partnership, an
association, a limited liability company, an unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
(l) "SEC" means the United States Securities and Exchange Commission.
(m) "SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, all as in effect at the time.
(n) "SERIES A PREFERRED STOCK" means the Series A 8% Convertible
Preferred Stock of the Corporation or such other convertible Preferred Stock
exchanged therefor as provided in Section 2.1.
(o) "STATED VALUE" has the meaning set forth in Article 2.
(p) "SUBSIDIARY" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Corporation.
All references to "cash" or "$" herein means currency of the United States
of America.
ARTICLE 2
DESIGNATION AND AMOUNT
SECTION 2.1
The designation of this series, which consists of 3,000 shares of Preferred
Stock, is Series A 8% Convertible Preferred Stock, the Stated Value of which is
One Thousand Dollars ($1,000) per share (the "Stated Value").
ARTICLE 3
RANK
SECTION 3.1
The Series A Preferred Stock shall rank (i) prior to the Common Stock and
the Corporation's Class B Common Stock; (ii) prior to any class or series of
capital stock of the Corporation hereafter created other than "Pari Passu
Securities" (collectively, with the Common Stock and the Class B Common Stock,
"Junior Securities") and (iii) pari passu with any class or series of capital
stock of the Corporation hereafter or contemporaneously created specifically
ranking on parity with the Series A Preferred Stock ("Pari Passu Securities").
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ARTICLE 4
DIVIDENDS
SECTION 4.1
(a) (i) The Holder shall be entitled to receive, when, as and if declared
by the Board of Directors, out of funds legally available for the payment of
dividends, dividends (subject to Sections 4.1 (a)(ii) hereof) at the rate of 8%
per annum (computed on the basis of a 360-day year) (the "Dividend Rate") on the
Stated Value of each share of Series A Preferred Stock on and as of the most
recent Dividend Payment Due Date (as defined below) with respect to each
Dividend Period (as defined below). Dividends on the Series A Preferred Stock
shall be cumulative from the date of issue, whether or not declared for any
reason, including if such declaration is prohibited under any indebtedness or
borrowings of the Corporation or any of its Subsidiaries, or any other
contractual provision binding on the Corporation or any of its Subsidiaries, and
whether or not there shall be funds legally available for the payment thereof.
(ii) Each dividend shall be payable in equal quarterly amounts on each
March 31, June 30, September 30 and December 31 of each year (each, a "Dividend
Payment Due Date"), commencing September 30, 1999, to the holders of record of
shares of the Series A Preferred Stock, as they appear on the stock records of
the Corporation at the close of business on any record date, not more than sixty
(60) days nor less than ten (10) days preceding the payment dates thereof, as
shall be fixed by the Board of Directors. For the purposes hereof, "Dividend
Period" means the quarterly period commencing on and including the day after the
immediately preceding Dividend Payment Due Date and ending on and including the
immediately subsequent Dividend Payment Due Date. Accrued and unpaid dividends
for any past Dividend Period may be declared and paid at any time, without
reference to any Dividend Payment Due Date, to holders of record on such date,
not more than fifteen (15) days preceding the payment date thereof, as may be
fixed by the Board of Directors.
(b) The Holder shall not be entitled to any dividends in excess of the
cumulative dividends, as herein provided, on the Series A Preferred Stock.
Except as provided in this Article 4, no interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on the
Series A Preferred Stock that may be in arrears.
(c) As long as any shares of the Series A Preferred Stock are outstanding,
no dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on Pari Passu Securities for any
period unless full cumulative dividends required to be paid in cash have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for such payment on the Series A Preferred Stock
for all Dividend Periods terminating on or prior to the date of payment of the
dividend on such class or series of Pari Passu Securities. When dividends are
not paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon shares of the Series A Preferred Stock
and all dividends declared upon any other class or series of Pari Passu
Securities shall be declared ratably in proportion to the respective amounts of
dividends accumulated and unpaid on the Series A Preferred Stock and accumulated
and unpaid on such Pari Passu Securities.
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(d) As long as any shares of the Series A Preferred Stock are outstanding,
no dividends shall be declared or paid or set apart for payment or other
distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation or any Subsidiary, (all such dividends, distributions,
redemptions or purchases being hereinafter referred to as a "Junior Securities
Distribution") for any consideration (or any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such stock) by the
Corporation, directly or indirectly, unless in each case (i) the full cumulative
dividends required to be paid in cash on all outstanding shares of the Series A
Preferred Stock and any other Pari Passu Securities shall have been paid or set
apart for payment for all past Dividend Periods with respect to the Series A
Preferred Stock and all past Dividend Periods with respect to such Pari Passu
Securities, and (ii) sufficient funds shall have been paid or set apart for the
payment of the dividend for the current Dividend Period with respect to the
Series A Preferred Stock and the current Dividend Period with respect to such
Pari Passu Securities.
ARTICLE 5
LIQUIDATION PREFERENCE
SECTION 5.1
(a) If the Corporation shall commence a voluntary case under the Federal
bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency
or similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the Federal bankruptcy laws or any other applicable
Federal or state bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation upon liquidation, dissolution or winding up
unless prior thereto, the holders of shares of Series A Preferred Stock shall
have received the Liquidation Preference (as defined in Section 5.1(c)) with
respect to each share. If upon the occurrence of a Liquidation Event, the assets
and funds available for distribution among the holders of the Series A Preferred
Stock and holders of Pari Passu Securities shall be insufficient to permit the
payment to such holders of the preferential amounts payable thereon, then the
entire assets and funds of the Corporation legally available for distribution to
the Series A Preferred Stock and the Pari Passu Securities shall be distributed
ratably among such shares in proportion to the ratio that the Liquidation
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Preference payable on the shares of Series A Preferred Stock bears to the
aggregate liquidation preferences payable on all such shares.
(b) At the option of each Holder, the sale, conveyance or disposition of
all or substantially all of the assets of the Corporation, the effectuation by
the Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is disposed of, or the
consolidation, merger or other business combination of the Corporation with or
into any other Person or Persons when the Corporation is not the survivor shall
be deemed to be a liquidation, dissolution or winding up of the Corporation
pursuant to which the Corporation shall be required to distribute, upon
consummation of and as a condition to, such transaction an amount equal to 120%
of the Liquidation Preference with respect to each outstanding share of Series A
Preferred Stock in accordance with and subject to the terms of this Article 5;
provided, that all holders of Series A Preferred Stock shall be deemed to elect
the option set forth above if at least a majority in interest of such holders
elect such option.
(c) For purposes hereof, the "Liquidation Preference" with respect to a
share of the Series A Preferred Stock shall mean an amount equal to the sum of
(i) the Stated Value thereof, plus (ii) the aggregate of all accrued and unpaid
dividends on such share of Series A Preferred Stock until the most recent
Dividend Payment Due Date; provided that, in the event of an actual liquidation,
dissolution or winding up of the Corporation, the amount referred to in clause
(ii) above shall be calculated by including accrued and unpaid dividends to the
actual date of such liquidation, dissolution or winding up, rather than the
Dividend Payment Due Date referred to above.
ARTICLE 6
CONVERSION OF PREFERRED STOCK
SECTION 6.1 Conversion; Conversion Price. At the option of the Holder, the
shares of Series A Preferred Stock may be converted, either in whole or in part,
into Common Shares (calculated as to each such conversion to the nearest 1/100th
of a share), at any time, and from time to time on or after November 2, 1999 at
a Conversion Price equal to $3.00 per share. Notwithstanding the previous
sentence, in no event shall the Holder have the right to convert that portion of
the Series A Preferred Stock to the extent that the issuance of Common Shares
upon the conversion of such Series A Preferred Stock, when combined with shares
of Common Stock received upon other conversions of Series A Preferred Stock by
such Holder and any other holders of Series A Preferred Stock, would exceed
19.99% of the Common Stock outstanding at the time of conversion. Within ten
(10) Business Days after the receipt of the Conversion Notice which upon
conversion would, when combined with shares of Common Stock received upon other
conversions of Series A Preferred Stock by such Holder and any other holders of
Series A Preferred Stock, exceed 19.99% of the Common Stock outstanding at the
time of conversion, the Corporation shall redeem all remaining (i.e., after
conversion of such number of shares as would result in the issuance of 19.99% of
the Common Stock) outstanding shares of Series A Preferred Stock at one hundred
thirty-five percent (135%) of the Stated Value thereof, together with all
accrued and unpaid dividends thereon, in cash, to the date of redemption.
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The number of shares of Common Stock due upon conversion of Series A
Preferred Stock shall be (i) the number of shares of Series A Preferred Stock to
be converted, multiplied by (ii) the Stated Value and divided by (iii) the
applicable Conversion Price.
SECTION 6.2 Exercise of Conversion Privilege.
(a) Conversion of the Series A Preferred Stock may be exercised, in whole
or in part, by the Holder by telecopying an executed and completed notice of
conversion in the form annexed hereto as ANNEX I (the "Conversion Notice") to
the Corporation. Each date on which a Conversion Notice is telecopied to and
received by the Corporation in accordance with the provisions of this Section
6.2 shall constitute a Conversion Date. The Corporation shall convert the
Preferred Stock and issue the Common Stock Issued at Conversion effective as of
the Conversion Date. The Conversion Notice also shall state the name or names
(with addresses) of the persons who are to become the holders of the Common
Stock Issued at Conversion in connection with such conversion. The Holder shall
deliver the shares of Series A Preferred Stock to the Corporation by express
courier within fifteen (15) days following the date on which the telecopied
Conversion Notice has been transmitted to the Corporation. Upon surrender for
conversion, the Preferred Stock shall be accompanied by a proper assignment
hereof to the Corporation or be endorsed in blank. Such endorsement shall be
signature guaranteed by a member of the Stock Transfer Agents Medallion Program.
As promptly as practicable after the later of (i) the receipt of the Conversion
Notice as aforesaid or (ii) the receipt of the Series A Preferred Stock tendered
for conversion, but in any event not more than five (5) Business Days after the
later of such events, the Corporation shall (i) issue the Common Stock issued at
Conversion in accordance with the provisions of this Article 6, and (ii) cause
to be mailed for delivery by overnight courier to the Holder (X) a certificate
or certificate(s) representing the number of Common Shares to which the Holder
is entitled by virtue of such conversion, (Y) cash, as provided in Section 6.3,
in respect of any fraction of a Share issuable upon such conversion and (Z) cash
in the amount of accrued and unpaid dividends as of the Conversion Date. Such
conversion shall be deemed to have been effected at the time at which the
Conversion Notice indicates as long as the Preferred Stock shall have been
surrendered as aforesaid at such time, and at such time the rights of the Holder
of the Preferred Stock, as such, shall cease and the Person and Persons in whose
name or names the Common Stock Issued at Conversion shall be issuable shall be
deemed to have become the holder or holders of record of the Common Shares
represented thereby. The Conversion Notice shall constitute a contract between
the Holder and the Corporation, whereby the Holder shall be deemed to subscribe
for the number of Common Shares which it will be entitled to receive upon such
conversion and, in payment and satisfaction of such subscription (and for any
cash adjustment to which it is entitled pursuant to Section 6.4), to surrender
the Preferred Stock and to release the Corporation from all liability thereon.
No cash payment aggregating less than $1.50 shall be required to be given unless
specifically requested by the Holder.
(b) If, at any time (i) the Corporation challenges, disputes or denies the
right of the Holder hereof to effect the conversion of the Preferred Stock into
Common Shares or otherwise dishonors or rejects any Conversion Notice delivered
in accordance with this Section 6.2 or (ii) any third party who is not and has
never been an Affiliate of the Holder commences any lawsuit or proceeding or
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otherwise asserts any claim before any court or public or governmental authority
which seeks to challenge, deny, enjoin, limit, modify, delay or dispute the
right of the Holder hereof to effect the conversion of the Preferred Stock into
Common Shares, then the Holder shall have the right, by written notice to the
Corporation, to require the Corporation to promptly redeem the Series A
Preferred Stock for cash at a redemption price equal to one hundred and
twenty-five percent (125%) of the Stated Value thereof together with all accrued
and unpaid dividends thereon (the "Mandatory Purchase Amount"). Under any of the
circumstances set forth above, the Corporation shall be responsible for the
payment of all costs and expenses of the Holder, including reasonable legal fees
and expenses, as and when incurred in disputing any such action or pursuing its
rights hereunder (in addition to any other rights of the Holder).
(c) The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C. ss. 101 et seq.
(the "Bankruptcy Code"). In the event the Corporation is a debtor under the
Bankruptcy Code, the Corporation hereby waives to the fullest extent permitted
any rights to relief it may have under 11 U.S.C. ss.362 in respect of the
Holder's conversion privilege. The Corporation hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. ss. 362 in
respect of the conversion of the Series A Preferred Stock. The Corporation
agrees, without cost or expense the Holder, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss. 362.
SECTION 6.3 Fractional Shares. No fractional Common Shares or scrip
representing fractional Common Shares shall be issued upon conversion of the
Series A Preferred Stock. Instead of any fractional Common Shares which
otherwise would be issuable upon conversion of the Series A Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction. No cash payment of less than $1.50 shall be required
to be given unless specifically requested by the Holder.
SECTION 6.4 Reclassification, Consolidation. Merger or Mandatory Share
Exchange. At any time while the Series A Preferred Stock remains outstanding and
any shares thereof have not been converted, in case of any reclassification or
change of Outstanding Common Shares issuable upon conversion of the Series A
Preferred Stock (other than a change in par value, or from par value to no par
value per share, or from no par value per share to par value or as a result of a
subdivision or combination of outstanding securities issuable upon conversion of
the Series A Preferred Stock) or in case of any consolidation, merger or
mandatory share exchange of the Corporation with or into another corporation
(other than a merger or mandatory share exchange with another corporation in
which the Corporation is a continuing corporation and which does not result in
any reclassification or change, other than a change in par value, or from par
value to no par value per share, or from no par value per share to par value, or
as a result of a subdivision or combination of Outstanding Common Shares upon
conversion of the Series A Preferred Stock), or in the case of any sale or
transfer to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, the Corporation, or such successor,
resulting or purchasing corporation, as the case may be, shall, without payment
of any additional consideration therefor, execute such documents as may be
reasonably required to confirm that the Holder shall have the right to convert
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its Series A Preferred Stock (upon terms and conditions not less favorable to
the Holder than those in effect pursuant to the Series A Preferred Stock) and to
receive upon such exercise, in lieu of each Common Share theretofore issuable
upon conversion of the Series A Preferred Stock, the kind and amount of shares
of stock, other securities, money or property receivable upon such
reclassification, change, consolidation, merger, mandatory share exchange, sale
or transfer by the holder of one Common Share issuable upon conversion of the
Series A Preferred Stock had the Series A Preferred Stock been converted
immediately prior to such reclassification, change, consolidation, merger,
mandatory share exchange or sale or transfer. The provisions of this Section 6.4
shall similarly apply to successive reclassifications, changes, consolidations,
mergers, mandatory share exchanges and sales and transfers. The Conversion Price
and the number of shares of Common Stock into which the Series A Preferred Stock
is convertible shall be adjusted for stock splits, combinations or other similar
events.
SECTION 6.5 Intentionally omitted.
SECTION 6.6 Optional Redemption and Conversion.
(a) At any time after November 2, 1999, (i) the Corporation shall have the
right, which may be exercised in whole or in part, to call for redemption shares
of the Series A Preferred Stock at a price equal to the Applicable Percentage
(as hereinafter defined) of the Stated Value per share, together with all
accrued and unpaid dividends thereon calculated to the date of such redemption
(the "Optional Redemption Price") and (ii) the Holder, upon notice delivered to
the Corporation, may require the Corporation to redeem the Series A Preferred
Stock, at the Optional Redemption Price. The Applicable Percentage is the sum of
one hundred five percent (105%) plus the product of twenty percent (20%)
multiplied by a fraction the numerator of which is the number of days since May
6, 1999 (but not more than 365) and the denominator of which is 365.
(b) If the Series A Preferred Stock is not redeemed by the Corporation
pursuant to subsection 6.6(a), the Holder, upon notice delivered to the
Corporation, may convert the Series A Preferred Stock that the Holder then owns
into shares of Series B Preferred Stock, with each share of Series A Preferred
Stock (including any accrued and unpaid dividends thereon) converting into 1.19
shares of Series B Preferred Stock.
(c) Any shares of Series A Preferred Stock outstanding on May 1, 2000 shall
automatically be converted into shares of Series B Preferred Stock, with each
share of Series A Preferred Stock converting into 1.25 shares of Series B
Preferred Stock.
(d) Notwithstanding anything contained in this Certificate of Designations
to the contrary, if the Corporation shall receive on or prior to April 30, 2000
a Conversion Notice pursuant to Section 6.1 or 6.2, or a notice of conversion
pursuant to Section 6.6(b), the Corporation shall nonetheless have the right, by
notice sent to the exercising Holder within seven (7) days of the Corporation's
receipt of such Conversion Notice or notice of conversion pursuant to Section
6.6(b), as the case may be, to redeem the shares which are the subject of each
such notice at the then applicable Optional Redemption Price. On the date of
mailing of the notice of redemption pursuant to the preceding sentence, the
shares called for redemption shall, for all purposes, be deemed to have been
redeemed and shall have no further rights except for the right to receive the
payment of the redemption price, and the Conversion Notice or notice of
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conversion pursuant to Section 6.6(b), as the case may be, shall be null and
void ab initio, and of no force or effect. The Corporation shall thereafter
transmit the redemption price to the respective holders thereof in accordance
with the terms of Section 6.7.
SECTION 6.7 Surrender of Preferred Stock. Upon any redemption of the Series
A Preferred Stock pursuant to Section 6.6, the Holder shall either deliver the
Series A Preferred Stock by hand to the Corporation at its principal executive
offices or surrender the same to the Corporation at such address by express
courier. Payment of the Optional Redemption Price specified in Section 6.6 shall
be made by the Corporation to the Holder against receipt of the Series A
Preferred Stock (as provided in this Section 6.7) by wire transfer of
immediately available funds to such account(s) as the Holder shall specify to
the Corporation. If payment of such redemption price is not made in full by the
Redemption Date, the Holder shall again have the right to convert the Series A
Preferred Stock as provided in Article 6 hereof.
SECTION 6.8 Redemption of Preferred Stock. Notice of redemption pursuant to
Section 6.6(a)(i) shall be given by publication at least once in a newspaper of
general circulation printed in the English language and customarily published on
each business day in the City of New York, New York. Notice of such redemption
shall also be mailed to the holders of Series A Preferred Stock of record so to
be redeemed at their respective addresses as the same shall appear on the books
of the Corporation, but no failure to mail any such notice, nor any defects
therein nor in the mailing thereof shall affect the validity of the redemption
of any such shares so to be redeemed. In case of the redemption of fewer than
all of the outstanding Shares of Series A Preferred Stock, the shares to be
redeemed shall be selected in such reasonable manner as may be prescribed by the
Board of Directors of the Corporation. Following the mailing of the notice of
redemption as provided in this Section 6.8, the holders of the Series A
Preferred Stock shall no longer be entitled to convert their Series A Preferred
stock into Common Stock or into Series B Preferred Stock nor shall they be
entitled to receive any dividends (other than as set forth in Section 6.6). On
the date of mailing of the notice of redemption, the shares called for
redemption shall, for all purposes, be deemed to have been redeemed and shall
have no further rights except for the right to receive the payment of the
redemption price. The Corporation shall thereafter transmit the redemption price
to the respective holders thereof in accordance with the terms of Section 6.7.
ARTICLE 7
VOTING RIGHTS
The holders of Series A Preferred Stock shall be entitled to notice of all
stockholders meetings in accordance with the Corporation's bylaws and the
Delaware General Corporation Law (the "DGCL"). Except as otherwise required by
law, the holders of the Series A Preferred Stock shall be entitled to vote on
all matters submitted to the stockholders for a vote, voting together with the
holders of the Common Stock as a single class, with each share of Common Stock
entitled to one vote per share and each share of Series A Preferred Stock
entitled to one vote for each share of Common Stock issuable upon conversion of
the Series A Preferred Stock as of the record date for such vote or, it no
record date is specified, as of the date of such vote.
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To the extent that under the DGCL the vote of the holders of the Series A
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the holders of at least a majority of the shares of the Series A
Preferred Stock represented at a duly held meeting at which a quorum is present
or by written consent of a majority of the shares of Series A Preferred Stock
(except as otherwise may be required under the DGCL) shall constitute the
approval of such action by the class or series, as the case may be.
ARTICLE 8
PROTECTIVE PROVISIONS
As long as shares of Series A Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the holders of at least a majority of the
then outstanding shares of Series A Preferred Stock as one class:
(a) alter or change the rights, preferences or privileges of the Series A
Preferred Stock or amend this Certificate of Designations;
(b) increase the authorized number of shares of Series A Preferred Stock;
(c) do any act or thing not authorized or contemplated by this Certificate
of Designation which would result in taxation of the holders of shares of the
Series A Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended); or
(d) make any change in the foregoing amendment provisions.
In the event holders of at least a majority of the then outstanding shares
of Series A Preferred Stock agree to allow the Corporation to alter or change
the rights, preferences or privileges of the shares of Series A Preferred Stock,
pursuant to subsection (a) above, so as to affect the Series A Preferred Stock,
then the Corporation will deliver notice of such approved change to the holders
of the Series A Preferred Stock that did not agree to such alteration or change
(the "Dissenting Holders") and Dissenting Holders shall have the right for a
period of thirty (30) days to convert their shares of Series A Preferred Stock
to Common Stock or, if the time period set forth in Section 6.6(b) has been
satisfied (unless extended by agreement pursuant to Section 6.6(c)), to Series B
Preferred Stock pursuant to the terms of this Certificate of Designation as they
exist prior to such alteration or change or continue to hold their shares of
Series A Preferred Stock.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 Loss, Theft, Destruction of Preferred Stock. Upon receipt of
evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of shares of Series A Preferred Stock and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security reasonably
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satisfactory to the Corporation, or, in the case of any such mutilation, upon
surrender and cancellation of the Series A Preferred Stock, the Corporation
shall make, issue and deliver, in lieu of such lost, stolen, destroyed or
mutilated shares of Series A Preferred Stock, new shares of Series A Preferred
Stock of like tenor. The Series A Preferred Stock shall be held and owned upon
the express condition that the provisions of this Section 9.1 are exclusive with
respect to the replacement of mutilated, destroyed, lost or stolen shares of
Series A Preferred Stock and shall preclude any and all other rights and
remedies notwithstanding any law or statute existing or hereafter enacted to the
contrary with respect to the replacement of negotiable instruments or other
securities without the surrender thereof.
SECTION 9.2 Who Deemed Absolute Owner. The Corporation may deem the Person
in whose name the Series A Preferred Stock shall be registered upon the registry
books of the Corporation to be, and may treat it as, the absolute owner of the
Series A Preferred Stock for the purpose of receiving payment of dividends on
the Series A Preferred Stock, for the conversion of the Series A Preferred Stock
and for all other purposes, and the Corporation shall not be affected by any
notice to the contrary. All such payments and such conversion shall be valid and
effectual to satisfy and discharge the liability upon the Series A Preferred
Stock to the extent of the sum or sums so paid or the conversion so made.
SECTION 9.3 Notice of Certain Events. In the case of the occurrence of any
event described in Sections 6.1 or 6.6 of this Certificate of Designations, the
Corporation shall cause to be mailed to the Holder of the Series A Preferred
Stock at its last address as it appears in the Corporation's security registry,
at least twenty (20) days prior to the applicable record, effective or
expiration date hereinafter specified (or, if such twenty (20) days notice is
not possible, at the earliest possible date prior to any such record, effective
or expiration date), a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, issuance or granting of
rights, options or warrants, or if a record is not to be taken, the date as of
which the holders of record of Series A Preferred Stock to be entitled to such
dividend, distribution, issuance or granting of rights, options or warrants are
to be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of record
of Series A Preferred Stock will be entitled to exchange their shares for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up.
SECTION 9.4 Register. The Corporation shall keep at its principal office a
register in which the Corporation shall provide for the registration of the
Series A Preferred Stock. Upon any transfer of the Series A Preferred Stock in
accordance with the provisions hereof, the Corporation shall register such
transfer on the Series A Preferred Stock register.
The Corporation may deem the Person in whose name the Series A Preferred
Stock shall be registered upon the registry books of the Corporation to be, and
may treat it as, the absolute owner of the Series A Preferred Stock for the
purpose of receiving payment of dividends on the Series A Preferred Stock, for
the conversion of the Series A Preferred Stock and for all other purposes, and
the Corporation shall not be affected by any notice to the contrary. All such
payments and such conversions shall be valid and effective to satisfy and
<PAGE>
discharge the liability upon the Series A Preferred Stock to the extent of the
sum or sums so paid or the conversion or conversions so made.
SECTION 9.5 Withholding. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
A Preferred Stock.
SECTION 9.6 Headings. The headings of the Articles and Sections of this
Certificate of Designations are inserted for convenience only and do not
constitute a part of this Certificate of Designations.
<PAGE>
ANNEX I
(FORM OF CONVERSION NOTICE]
To: ___________________________________
___________________________________
___________________________________
The undersigned owner of this Series A 8% Convertible Preferred Stock (the
"Series A Preferred Stock") issued by Global Technologies, Ltd. (the
"Corporation") hereby irrevocably exercises its option to convert shares of the
Series A Preferred Stock into shares of the common stock, $.01 par value, of the
Corporation ("Common Stock"), in accordance with the terms of the Certificate of
Designations. The undersigned hereby instructs the Corporation to convert the
number of shares of the Series A Preferred Stock specified above into Shares of
Common Stock Issued at Conversion in accordance with the provisions of Article 6
of the Certificate of Designations. The undersigned directs that the Common
Stock issuable and certificates therefor deliverable upon conversion, the Series
A Preferred Stock recertificated, it any, not being surrendered for conversion
hereby, together with any check in payment for fractional Common Stock, be
issued in the name of and delivered to the undersigned unless a different name
has been indicated below. All capitalized terms used and not defined herein have
the respective meanings assigned to them in the Certificate of Designations.
Dated: __________________________
___________________________________
Signature
Fill in for registration of Series A Preferred Stock:
Please print name and address (including zip code number):
________________________________________________________________________________
________________________________________________________________________________
CERTIFICATE OF DESIGNATIONS, RIGHTS, PREFERENCES
AND LIMITATIONS
OF
SERIES B 8% CONVERTIBLE PREFERRED STOCK
OF
GLOBAL TECHNOLOGIES, LTD.
-----------
Pursuant to Section 151 of
the General Corporation Law of the State of Delaware
-----------
Global Technologies, Ltd., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Corporation on August 16, 1999 pursuant to authority of the Board of
Directors as required by Section 151 of the General Corporation Law of the State
of Delaware:
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of the Corporation (the "Board of Directors" or the "Board") in
accordance with the provisions of its Amended and Restated Certificate of
Incorporation, the Board of Directors hereby designates a series of the
Corporation's previously authorized Preferred Stock, par value $.01 per share
(the "Preferred Stock") as its Series B 8% Convertible Preferred Stock, and
hereby states the number of authorized shares, and the relative rights,
preferences, limitations, privileges, powers and restrictions thereof are and
shall be as set forth on the attached Annex A.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations, Rights, Preferences and Limitations to be signed by its duly
authorized officer as of the 16th day of August, 1999.
GLOBAL TECHNOLOGIES, LTD.
By: ____________________________________
Name: Irwin L. Gross
Title: Chairman
<PAGE>
ANNEX A
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article whenever used in
this Certificate of Designations have the following respective meanings:
(a) "ADDITIONAL CAPITAL SHARES" has the meaning set forth in Section
6.1(c).
(b) "AFFILIATE" has the meaning ascribed to such term in Rule 12b-2
under the Securities Exchange Act of 1934, as amended.
(c) "BUSINESS DAY" means a day other than Saturday, Sunday or any day
on which banks located in the State of New York are authorized or obligated to
close.
(d) "CAPITAL SHARES" means the Common Shares and any other shares of
any other class or series of common stock, whether now or hereafter authorized
and however designated, which have the right to participate in the distribution
of earnings and assets (upon dissolution, liquidation or winding-up) of the
Corporation.
(e) "COMMON SHARES" or "COMMON STOCK" means shares of Class A common
stock, $.01 par value, of the Corporation.
(f) "COMMON STOCK ISSUED AT CONVERSION" when used with reference to
the securities issuable upon conversion of the Series B Preferred Stock, means
all Common Shares now or hereafter Outstanding and securities of any other class
or series into which the Series B Preferred Stock hereafter shall have been
changed or substituted, whether now or hereafter created and however designated.
(g) "CONVERSION DATE" means any day on which all or any portion of
shares of the Series B Preferred Stock is converted in accordance with the
provisions hereof.
(h) "CONVERSION NOTICE" has the meaning set forth in Section 6.2.
(i) "CONVERSION PRICE" means on any date of determination the
applicable price for the conversion of shares of Series B Preferred Stock into
Common Shares on such day as set forth in Section 6.1.
(j) "CORPORATION" means Global Technologies, Ltd., a Delaware
corporation, and any successor or resulting corporation by way of merger,
consolidation, sale or exchange of all or substantially all of the Corporation's
assets, or otherwise.
<PAGE>
(k) "CURRENT MARKET PRICE" on any date of determination means the
closing bid price of a Common Share on such day as reported on the Nasdaq
National Market ("NASDAQ").
(l) "HOLDER" means The Shaar Fund Ltd., any successor thereto, or any
Person to which the Series B Preferred Stock is subsequently transferred in
accordance with the provisions hereof.
(m) "MARKET DISRUPTION EVENT" means any event that results in a
material suspension or limitation of trading of Common Shares on the NASDAQ.
(n) "MARKET PRICE" per Common Share means the average of the closing
bid prices of the Common Shares as reported on the NASDAQ for the five (5)
Trading Days in any Valuation Period.
(o) "OUTSTANDING" when used with reference to Common Shares or Capital
Shares (collectively, "Shares"), means, on any date of determination, all issued
and outstanding Shares, and includes all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that any such Shares directly or indirectly owned or
held by or for the account of the Corporation or any Subsidiary of the
Corporation shall not be deemed "Outstanding" for purposes hereof.
(p) "PERSON" means an individual, a corporation, a partnership, an
association, a limited liability company, an unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
(q) "SEC" means the United States Securities and Exchange Commission.
(r) "SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, all as in effect at the time.
(s) "SECURITIES PURCHASE AGREEMENT" means that certain Securities
Purchase Agreement dated as of May 6, 1999 between Interactive Flight
Technologies, Inc. and The Shaar Fund Ltd.
(t) "SERIES B PREFERRED STOCK" means the Series B 8% Convertible
Preferred Stock of the Corporation or such other convertible Preferred Stock
exchanged therefor as provided in Section 2.1.
(aa) "STATED VALUE" has the meaning set forth in Article 2.
(bb) "SUBSIDIARY" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the corporation.
<PAGE>
(cc) "TRADING DAY" means any day on which purchases and sales of
securities authorized for quotation on the NASDAQ are reported thereon and on
which no Market Disruption Event has occurred.
(dd) "VALUATION EVENT" has the meaning set forth in Section 6.1.
(ee) "VALUATION PERIOD" means the five (5) Trading Day period
immediately preceding a Conversion Date or a Divided Payment Due Date, as the
case may be.
All references to "cash" or "$" herein means currency of the United States
of America.
ARTICLE 2
DESIGNATION AND AMOUNT
SECTION 2.1
The designation of this series, which consists of 3,000 shares of Preferred
Stock, is Series B 8% Convertible Preferred Stock, the Stated Value of which is
One Thousand Dollars ($1,000) per share (the "Stated Value").
ARTICLE 3
RANK
SECTION 3.1
The Series B Preferred Stock shall rank (i) prior to the Common Stock and
the Corporation's Class B Common Stock; (ii) prior to any class or series of
capital stock of the Corporation hereafter created other than "Pari Passu
Securities" (collectively, with the Common Stock and the Class B Common Stock,
"Junior Securities"); (iii) pari passu with the Company's Series A 8%
Convertible Preferred Stock and (iv) pari passu with any class or series of
capital stock of the Corporation hereafter or contemporaneously created
specifically ranking on parity with the Series B Preferred Stock (collectively
with the Series A 8% Convertible Preferred Stock, "Pari Passu Securities").
ARTICLE 4
DIVIDENDS
SECTION 4.1
(a) (i) The Holder shall be entitled to receive, when, as and if declared
by the Board of Directors, out of funds legally available for the payment of
dividends, dividends (subject to Sections 4.1(a)(ii) hereof) at the rate of 8%
per annum (computed on the basis of a 360-day year) (the "Dividend Rate") on the
Stated Value of each share of Series B Preferred Stock on and as of the most
recent Dividend Payment Due Date (as defined below) with respect to each
Dividend Period (as defined below). Dividends on the Series B Preferred Stock
shall be cumulative from the date of issue, whether or not declared for any
reason, including if such declaration is prohibited under any indebtedness or
<PAGE>
borrowings of the Corporation or any of its Subsidiaries, or any other
contractual provision binding on the Corporation or any of its Subsidiaries, and
whether or not there shall be funds legally available for the payment thereof.
(ii) Each dividend shall be payable in equal quarterly amounts on each
March 31, June 30, September 30 and December 31 of each year (each, a "Dividend
Payment Due Date"), commencing September 30, 1999, to the holders of record of
shares of the Series B Preferred Stock, as they appear on the stock records of
the Corporation at the close of business on any record date, not more than sixty
(60) days nor less than ten (10) days preceding the payment dates thereof, as
shall he fixed by the Board of Directors. For the purposes hereof, "Dividend
Period" means the quarterly period commencing on and including the day after the
immediately preceding Dividend Payment Due Date and ending on and including the
immediately subsequent Dividend Payment Due Date. Accrued and unpaid dividends
for any past Dividend Period may be declared and paid at any time, without
reference to any Dividend Payment Due Date, to holders of record on such date,
not more than fifteen (15) days preceding the payment date thereof, as may be
fixed by the Board of Directors.
(b) The Holder shall not be entitled to any dividends in excess of the
cumulative dividends, as herein provided, on the Series B Preferred Stock.
Except as provided in this Article 4, no interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on the
Series B Preferred Stock that may be in arrears.
(c) As long as any shares of the Series B Preferred Stock are outstanding,
no dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on Pari Passu Securities for any
period unless full cumulative dividends required to be paid in cash have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for such payment on the Series B Preferred Stock
for all Dividend Periods terminating on or prior to the date of payment of the
dividend on such class or series of Pari Passu Securities. When dividends are
not paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon shares of the Series B Preferred Stock
and all dividends declared upon any other class or series of Pari Passu
Securities shall be declared ratably in proportion to the respective amounts of
dividends accumulated and unpaid on the Series B Preferred Stock and accumulated
and unpaid on such Pari Passu Securities.
(d) As long as any shares of the Series B Preferred Stock are outstanding,
no dividends shall be declared or paid or set apart for payment or other
distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation or any Subsidiary, (all such dividends, distributions,
redemptions or purchases being hereinafter referred to as a "Junior Securities
Distribution") for any consideration (or any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such stock) by the
Corporation, directly or indirectly, unless in each case (i) the full cumulative
dividends required to be paid in cash on all outstanding shares of the Series B
Preferred Stock and any other Pari Passu Securities shall have been paid or set
apart for payment for all past Dividend Periods with respect to the Series B
<PAGE>
Preferred Stock and all past Dividend Periods with respect to such Pari Passu
Securities, and (ii) sufficient funds shall have been paid or set apart for the
payment of the dividend for the current Dividend Period with respect to the
Series B Preferred Stock and the current Dividend Period with respect to such
Pari Passu Securities.
ARTICLE 5
LIQUIDATION PREFERENCE
SECTION 5.1
(a) If the Corporation shall commence a voluntary case under the Federal
bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency
or similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the Federal bankruptcy laws or any other applicable
Federal or state bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation upon liquidation, dissolution or winding up
unless prior thereto, the holders of shares of Series B Preferred Stock shall
have received the Liquidation Preference (as defined in Section 5.1(c)) with
respect to each share. If upon the occurrence of a Liquidation Event, the assets
and funds available for distribution among the holders of the Series B Preferred
Stock and holders of Pari Passu Securities shall be insufficient to permit the
payment to such holders of the preferential amounts payable thereon, then the
entire assets and funds of the Corporation legally available for distribution to
the Series B Preferred Stock and the Pari Passu Securities shall be distributed
ratably among such shares in proportion to the ratio that the Liquidation
Preference payable on the shares of Series B Preferred Stock bears to the
aggregate liquidation preferences payable on all such shares.
(b) At the option of each Holder, the sale, conveyance of disposition of
all or substantially all of the assets of the Corporation, the effectuation by
the Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is disposed of, or the
consolidation, merger or other business combination of the Corporation with or
into any other Person or Persons when the Corporation is not the survivor shall
be deemed to be a liquidation, dissolution or winding up of the Corporation
pursuant to which the Corporation shall be required to distribute, upon
consummation of and as a condition to, such transaction an amount equal to 120%,
of the Liquidation Preference with respect to each outstanding share of Series B
<PAGE>
Preferred Stock in accordance with and subject to the terms of this Article 5;
provided, that all holders of Series B Preferred Stock shall be deemed to elect
the option set forth above if at least a majority in interest of such holders
elect such option.
(c) For purposes hereof, the "Liquidation Preference" with respect to a
share of the Series B Preferred Stock shall mean an amount equal to the sum of
(i) the Stated Value thereof, plus (ii) the aggregate of all accrued and unpaid
dividends on such share of Series B Preferred Stock until the most recent
Dividend Payment Due Date; provided that, in the event of an actual liquidation,
dissolution or winding up of the Corporation, the amount referred to in clause
(ii) above shall be calculated by including accrued and unpaid dividends to the
actual date of such liquidation, dissolution or winding up, rather than the
Dividend Payment Due Date referred to above.
ARTICLE 6
CONVERSION OF PREFERRED STOCK
SECTION 6.1
Conversion; Conversion Price. At the option of the Holder, the shares of
Series B Preferred Stock may be converted, either in whole or in part, into
Common Shares (calculated as to each such conversion to the nearest 1/100th of a
share), at any time and from time to time, following the day ninety (90) days
after the date of issuance of the Series B Preferred Stock (the "Issue Date"),
at a Conversion Price equal to the lower of (i) 82.0% of the Market Price (ii)
$3.00 per Common Share or (iii) 118% of the Closing bid price of the Common
Shares as reported by NASDAQ for May 7, 1999; provided, however, that the Holder
shall not have the right to convert any shares of Series B Preferred Stock, if
at the time of any such conversion, the Holder of Common Shares in the absence
of this provision would be deemed the "beneficial owner" of 5% or more of the
then outstanding Common Shares within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended. At the Corporation's option, the
amount of accrued and unpaid dividends as of the Conversion Date, if the
Corporation elects to convert the amount of accrued and unpaid dividends as of
the Conversion Date shall not be subject to conversion but instead may be paid
in cash as of the Conversion Date; if the Corporation elects to convert the
amount of accrued and unpaid dividends at the Conversion Date in Common Stock,
the Common Stock issued to the Holder shall be valued at the Conversion Price.
Notwithstanding the previous sentence, in no event shall the Holder have the
right to convert that portion of the Series B Preferred Stock the extent that
the issuance of Common Shares upon the conversion of such Series B Preferred
Stock, when combined with shares of Common Stock received upon other conversions
of Series B Preferred Stock, would exceed 19.99% of the Common Stock outstanding
on the Conversion Date. Within ten (10) Business Days after the receipt of the
Conversion Notice which upon conversion would, when combined with shares of
Common Stock received upon other conversions of Series B Preferred Stock by such
Holder and any other holders of Series B Preferred Stock, exceed 19.99% of the
Common Stock outstanding on the Conversion Date, the Corporation shall redeem
all remaining (i.e., after conversion of such number of shares as would result
in the issuance of 19.99% of the Common Stock) outstanding shares of Series B
<PAGE>
Preferred Stock at one hundred thirty-five percent (135%) of the Stated Value
thereof, together with all accrued and unpaid dividends thereon, in cash, to the
date of redemption.
The number of shares of Common Stock due upon conversion of Series B
Preferred Stock shall be (i) the number of shares of Series B Preferred Stock to
be converted, multiplied by (ii) the Stated Value and divided by (iii) the
applicable Conversion Price.
Within two (2) Business Days of the occurrence of a Valuation Event, the
Corporation shall send notice (the "Valuation Event Notice") of such occurrence
to the Holder. Notwithstanding anything to the contrary contained herein, if a
Valuation Event occurs during any Valuation Period, a new Valuation Period shall
begin on the Trading Day immediately following the occurrence of such Valuation
Event and end on the Conversion Date; provided that, if a Valuation Event occurs
on the fifth (5th) day of any Valuation Period, then the Conversion Price shall
be the Current Market Price of the Common Shares on such day; and provided,
further, that the Holder may, in its discretion, postpone such Conversion Date
to a Trading Day which is no more than five (5) Trading Days after the
occurrence of the latest Valuation Event by delivering a notification to the
Corporation within two (2) Business Days of the receipt of the Valuation Event
Notice. In the event that the Holder deems the Valuation Period to be other than
the five (5) Trading Days immediately prior to the Conversion Date, the Holder
shall give written notice of such fact to the Corporation in the related
Conversion Notice at the time of conversion.
For purposes of this Section 6.1, a "Valuation Event" shall mean an event in
which the Corporation at any time during a Valuation Period takes any of the
following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution of its Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital Shares"),
otherwise than as provided in the foregoing Sections 6.1(a) and 6.1(b) above, at
a price per share less, or for other consideration lower, than the Current
Market Price in effect immediately prior to such issuances, or without
consideration, except for issuances under employee benefit plans consistent with
those presently in effect and issuances under presently outstanding warrants,
options or convertible securities;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable or exercisable
for Capital Shares and the consideration per share for which Additional Capital
Shares may at any time thereafter be issuable pursuant to the terms of such
convertible, exchangeable or exercisable securities shall be less than the
Current Market Price in effect immediately prior to such issuance;
<PAGE>
(f) makes a distribution of its assets or evidences of indebtedness to the
holders of its Capital Shares as a dividend in liquidation or by way of return
of capital or other than as a dividend payable out of earnings or surplus
legally available for the payment of dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Corporation's assets (other than under the circumstances provided for
in the foregoing Sections 6.1(a) through 6.1(e)); or
(g) takes any action affecting the number of Outstanding Capital Shares,
other than an action described in any of the foregoing Sections 6.1(a) through
6.1(f) hereof, inclusive which in the opinion of the Corporation's Board of
Directors, determined in good faith, would have a material adverse effect upon
the rights of the Holder at the time of a conversion of the Preferred Stock.
SECTION 6.2 Exercise of Conversion Privilege. (a) Conversion of the Series
B Preferred Stock may be exercised, in whole or in part, by the Holder by
telecopying an executed and completed notice of conversion in the form annexed
hereto as ANNEX I (the "Conversion Notice") to the Corporation. Each date on
which a Conversion Notice is telecopied to and received by the Corporation in
accordance with the provisions of this Section 6.2 shall constitute a Conversion
Date. The Corporation shall convert the Series B Preferred Stock and issue the
Common Stock Issued at Conversion effective as of the Conversion Date. The
Conversion Notice also shall state the name or names (with addresses) of the
persons who are to become the holders of the Common Stock Issued at Conversion
in connection with such conversion. The Holder shall deliver the shares of
Series B Preferred Stock to the Corporation by express courier within fifteen
(15) days following the date on which the telecopied Conversion Notice has been
transmitted to the Corporation. Upon surrender for conversion, the Series B
Preferred Stock shall be accompanied by a proper assignment thereof to the
Corporation or be endorsed in blank. Such endorsement shall be signature
guaranteed by a member of the Stock Transfer Agents Medallion Program. As
promptly as practicable after the receipt of the Conversion Notice and the
Series B Preferred Stock as aforesaid, but in any event not more than five (5)
Business Days after the Corporation's receipt of such Conversion Notice and the
Series B Preferred Stock (whichever is later), the Corporation shall (i) issue
the Common Stock Issued at Conversion in accordance with the provisions of this
Article 6, and (ii) cause to be mailed for delivery by overnight courier to the
Holder (x) a certificate or certificate(s) representing the number of Common
Shares to which the Holder is entitled by virtue of such conversion, (y) cash,
as provided in Section 6.3, in respect of any fraction of a Share issuable upon
such conversion and (z) cash in the amount of accrued and unpaid dividends as of
the Conversion Date. Such conversion shall be deemed to have been effected at
the time at which the Conversion Notice indicates as long as the Preferred Stock
shall have been surrendered as aforesaid at such time, and at such time the
rights of the Holder of the Preferred Stock, as such, shall cease and the Person
and Persons in whose name or names the Common Stock Issued at Conversion shall
be issuable shall be deemed to have become the holder or holders of record of
the Common Shares represented thereby. The Conversion Notice shall constitute a
contract between the Holder and the Corporation, whereby the Holder shall be
deemed to subscribe for the number of Common Shares which it will be entitled to
receive upon such conversion and, in payment and satisfaction of such
subscription (and for any cash adjustment to which it is entitled pursuant to
Section 6.4), to surrender the Series B Preferred Stock and to release the
<PAGE>
Corporation from all liability thereon. No cash payment aggregating less than
$1.50 shall be required to be given unless specifically requested by the Holder.
(b) If, at any time (i) the Corporation challenges, disputes or denies the
right of the Holder hereof to effect the conversion of the Series B Preferred
Stock into Common Shares or otherwise dishonors or rejects any Conversion Notice
delivered in accordance with this Section 6.2 or (ii) any third party who is not
and has never been an Affiliate of the Holder commences any lawsuit or
proceeding or otherwise asserts any claim before any court or public or
governmental authority which seeks to challenge, deny, enjoin, limit, modify,
delay or dispute the right of the Holder hereof to effect the conversion of the
Preferred Stock into Common Shares, then the Holder shall have the right, by
written notice to the Corporation, to require the Corporation to promptly redeem
the Series B Preferred Stock for cash at a redemption price equal to one hundred
twenty-five percent (125%) of the Stated Value thereof, together with all
accrued and unpaid dividends thereon (the "Mandatory Purchase Amount"). Under
any of the circumstances set forth above, the Corporation shall be responsible
for the payment of all costs and expenses of the Holder, including reasonable
legal fees and expenses, as and when incurred in disputing any such action or
pursuing its rights hereunder (in addition to any other rights of the Holder).
(c) The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C. ss.101 et seq. (the
"Bankruptcy Code"). In the event the Corporation is a debtor under the
Bankruptcy Code, the Corporation hereby waives to the fullest extent permitted
any rights to relief it may have under 11 U.S.C. ss.362 in respect of the
Holder's conversion privilege. The Corporation hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. ss.362 in
respect of the conversion of the Series B Preferred Stock. The Corporation
agrees, without cost or expense the Holder, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss.362.
SECTION 6.3 Fractional Shares. No fractional Common Shares or scrip
representing fractional Common Shares shall be issued upon conversion of the
Series B Preferred Stock. Instead of any fractional Common Shares which
otherwise would be issuable upon conversion of the Series B Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction. No cash payment of less than $1.50 shall be required
to be given unless specifically requested by the Holder.
SECTION 6.4 Reclassification, Consolidation, Merger or Mandatory Share
Exchange. At any time while the Series B Preferred Stock remains outstanding and
any shares thereof have not been converted, in case of any reclassification or
change of Outstanding Common Shares issuable upon conversion of the Series B
Preferred Stock (other than a change in par value, or from par value to no par
value per share, or from no par value per share to par value or as a result of a
subdivision or combination of outstanding securities issuable upon conversion of
the Series B Preferred Stock) or in case of any consolidation, merger or
mandatory share exchange of the Corporation with or into another corporation
(other than a merger or mandatory share exchange with another corporation in
which the Corporation is a continuing corporation and which does not result in
any reclassification or change, other than a change in par value, or from par
<PAGE>
value to no par value per share, or from no par value per share to par value, or
as a result of a subdivision or combination of Outstanding Common Shares upon
conversion of the Series B Preferred Stock), or in the case of any sale or
transfer to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, the Corporation, or such successor,
resulting or purchasing corporation, as the case may be, shall, without payment
of any additional consideration therefor, execute such documents as may
reasonably be required to confirm that the Holder shall have the right to
convert its Series B Preferred Stock (upon terms and conditions not less
favorable to the Holder than those in effect pursuant to the Series B Preferred
Stock) and to receive upon such exercise, in lieu of each Common Share
theretofore issuable upon conversion of the Series B Preferred Stock, the kind
and amount of shares of stock, other securities, money or property receivable
upon such reclassification, change, consolidation, merger, mandatory share
exchange, sale or transfer by the holder of one Common Share issuable upon
conversion of the Series B Preferred Stock had the Series B Preferred Stock been
converted immediately prior to such reclassification, change, consolidation,
merger, mandatory share exchange or sale or transfer. The provisions of this
Section 6.4 shall similarly apply to successive reclassifications, changes,
consolidations, mergers, mandatory share exchanges and sales and transfers. The
Conversion Price and the number of shares of Common Stock into which the Series
B Preferred Stock is convertible shall be adjusted for stock splits,
combinations or other similar events.
SECTION 6.5 Intentionally omitted.
SECTION 6.6 Optional Redemption Under Certain Circumstances. (a) At any
time after the date of issuance of the Series B Preferred Stock until the date
one year after the Issue Date, the Corporation, upon notice delivered to the
Holder as provided in Section 6.7, may redeem the Series B Preferred Stock (but
only with respect to such shares as to which the Holder has not theretofore
furnished a Conversion Notice in compliance with Section 6.2), at the Applicable
Percentage (as hereinafter defined) of the Stated Value per share (the "Optional
Redemption Price"), together with all accrued and unpaid dividends thereon to
the date of redemption (the "Redemption Date"). Except as set forth in this
Section 6.6 or Section 6.9, the Corporation shall not have the right to prepay
or redeem the Series B Preferred Stock. The Applicable Percentage is the sum of
one hundred five percent (105%) plus the product of twenty percent (20%)
multiplied by a fraction the numerator of which is the number of days since the
Issue Date (but not more than 365) and the denominator of which is 365.
(b) At any time after the date of issuance of the Series B Preferred Stock,
the Holder, upon notice delivered to the Corporation, may require the
Corporation to redeem the Series B Preferred Stock, at the Applicable Percentage
of the Stated Value thereof; provided, however, if the Corporation's cash and
cash equivalents are less than $6,000,000, the redemption price shall in all
events be one hundred twenty-five percent (125%) of the Stated Value per share
of Series B Preferred Stock being redeemed, together with all accrued and unpaid
dividends thereon to the date of redemption.
SECTION 6.7 Notice of Redemption. Notice of redemption pursuant to Section
6.6(a) or (b) by the Corporation to the Holder or by the Holder to the
Corporation, respectively, shall be provided in writing (by
<PAGE>
registered mail or overnight courier at the Holder's last address appearing in
the Corporation's security registry or at the Corporation's principal place of
business, as the case may be) not less than ten (10) nor more than fifteen (15)
days prior to the Redemption Date, which notice shall specify the Redemption
Date and refer to Section 6.6 (including, a statement of the Market Price per
Common Share) and this Section 6.7.
SECTION 6.8 Surrender of Preferred Stock. Upon any redemption of the Series
B Preferred Stock pursuant to Sections 6.6 or 6.9, the Holder shall either
deliver the Series B Preferred Stock by hand to the Corporation at its principal
executive offices or surrender the same to the Corporation at such address by
express courier. Payment of the Optional Redemption Price specified in Section
6.6 shall be made by the Corporation to the Holder against receipt of the Series
B Preferred Stock (as provided in this Section 6.8) by wire transfer of
immediately available funds to such account(s), as the Holder shall specify to
the Corporation. If payment of such redemption price is not made in full by the
Mandatory Redemption Date or the Redemption Date, as the case may be, the Holder
shall again have the right to convert the Series B Preferred Stock as provided
in Article 6 hereof.
SECTION 6.9 Mandatory Conversion. On the third anniversary of the date of
the Securities Purchase Agreement (the "Mandatory Redemption Date"), the
Corporation shall redeem all Series B Preferred Stock outstanding at one hundred
and thirty-five percent (135%) of the Stated Value thereof, together with all
accrued and unpaid dividends thereon, in cash, to the date of redemption.
ARTICLE 7
VOTING RIGHTS
The holders of the Series B Preferred Stock have no voting power, except as
otherwise provided by the General Corporation Law of the State of Delaware
("DGCL"), in this Article 7, and in Article 8 below.
Notwithstanding the above, the Corporation shall provide each holder of
Series B Preferred Stock with prior notification of any meeting of the
stockholders (and copies of proxy materials and other information sent to
stockholders). In the event of any taking by the Corporation of a record of its
stockholders for the purpose of determining stockholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least thirty (30) days prior to the consummation of the transaction
or event, whichever is earlier), of the date on which any such action is to be
taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the DGCL the vote of the holders of the Series B
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
<PAGE>
consent of the holders of at least a majority of the shares of the Series B
Preferred Stock represented at a duly held meeting at which a quorum is present
or by written consent of a majority of the shares of Series B Preferred Stock
(except as otherwise may be required under the DGCL) shall constitute the
approval of such action by the class or series as the case may be. Holders of
the Series B Preferred Stock shall be entitled to notice of all stockholder
meetings or written consents (and copies of proxy materials and other
information sent to stockholders) with respect to which they would be entitled
to vote, which notice would be provided pursuant to the Corporation's bylaws and
the DGCL.
ARTICLE 8
PROTECTIVE PROVISIONS
As long as shares of Series B Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the holders of at least a majority of the
then outstanding shares of Series B Preferred Stock as one class:
(a) alter or change the rights, preferences or privileges of the Series B
Preferred Stock or amend this Certificate of Designations;
(b) create any new class or series of capital stock having a preference
over the Series B Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation ("Senior Securities") or alter or
change the rights, preferences or privileges of any Senior Securities so as to
affect adversely the Series B Preferred Stock;
(c) increase the authorized number of shares of Series B Preferred Stock;
(d) do any act or thing not authorized or contemplated by this Certificate
of Designation which would result in taxation of the holders of shares of the
Series B Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended); or
(e) make any change in the foregoing amendment provisions.
In the event holders of at least a majority of the then outstanding shares
of Series B Preferred Stock agree to allow the Corporation to alter or change
the rights, preferences or privileges of the shares of Series B Preferred Stock,
pursuant to subsection (a) above, so as to affect the Series B Preferred Stock,
then the Corporation will deliver notice of such approved change to the holders
of the Series B Preferred Stock that did not agree to such alteration or change
(the "Dissenting Holders") and Dissenting Holders shall have the right for a
period of thirty (30) days to convert their shares of Series B Preferred Stock
to Common Stock pursuant to the terms of this Certificate of Designation as they
exist prior to such alteration or change or to continue to hold their shares of
Series B Preferred Stock.
ARTICLE 9
MISCELLANEOUS
<PAGE>
SECTION 9.1 Loss, Theft, Destruction of Preferred Stock. Upon receipt of
evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of shares of Series B Preferred Stock and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Corporation, or, in the case of any such mutilation, upon
surrender and cancellation of the Series B Preferred Stock, the Corporation
shall make, issue and deliver, in lieu of such lost, stolen, destroyed or
mutilated shares of Series B Preferred Stock, new shares of Series B Preferred
Stock of like tenor. The Series B Preferred Stock shall be held and owned upon
the express condition that the provisions of this Section 9.1 are exclusive with
respect to the replacement of mutilated, destroyed, lost or stolen shares of
Series B Preferred Stock and shall preclude any and all other rights and
remedies notwithstanding any law or statute existing or hereafter enacted to the
contrary with respect to the replacement of negotiable instruments or other
securities without the surrender thereof.
SECTION 9.2 Who Deemed Absolute Owner. The Corporation may deem the Person
in whose name the Series B Preferred Stock shall be registered upon the registry
books of the Corporation to be, and may treat it as, the absolute owner of the
Series B Preferred Stock for the purpose of receiving payment of dividends on
the Series B Preferred Stock, for the conversion of the Series B Preferred Stock
and for all other purposes, and the Corporation shall not be affected by any
notice to the contrary. All such payments and such conversion shall be valid and
effectual to satisfy and discharge the liability upon the Series B Preferred
Stock to the extent of the sum or sums so paid or the conversion so made.
SECTION 9.3 Notice of Certain Events. In the case of the occurrence of any
event described in Sections 6.1, 6.6 or 6.9 of this Certificate of Designations,
the Corporation shall cause to be mailed to the Holder of the Series B Preferred
Stock at its last address as it appears in the Corporation's security registry,
at least twenty (20) days prior to the applicable record, effective or
expiration date hereinafter specified (or, if such twenty (20) days notice is
not possible, at the earliest possible date prior to any such record, effective
or expiration date), a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, issuance or granting of
rights, options or warrants, or if a record is not to be taken, the date as of
which the holders of record of Series B Preferred Stock to be entitled to such
dividend, distribution, issuance or granting of rights, options or warrants are
to be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of record
of Series B Preferred Stock will be entitled to exchange their shares for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up.
SECTION 9.4 Register. The Corporation shall keep at its principal office a
register in which the Corporation shall provide for the registration of the
Series B Preferred Stock. Upon any transfer of the Series B Preferred Stock in
accordance with the provisions hereof, the Corporation shall register such
transfer on the Series B Preferred Stock register.
The Corporation may deem the Person in whose name the Series B Preferred
Stock shall be registered upon the registry books of the Corporation to be, and
<PAGE>
may treat it as, the absolute owner of the Series B Preferred Stock for the
purpose of receiving payment of dividends on the Series B Preferred Stock, for
the conversion of the Series B Preferred Stock and for all other purposes, and
the Corporation shall not be affected by any notice to the contrary. All such
payments and such conversions shall be valid and effective to satisfy and
discharge the liability upon the Series B Preferred Stock to the extent of the
sum or sums so paid or the conversion or conversions so made.
SECTION 9.5 Withholding. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
B Preferred Stock.
SECTION 9.6 Headings. The headings of the Articles and Sections of this
Certificate of Designations are inserted for convenience only and do not
constitute a part of this Certificate of Designations.
<PAGE>
ANNEX I
[FORM OF CONVERSION NOTICE]
TO: ___________________________
___________________________
___________________________
The undersigned owner of this Series B 8% Convertible Preferred Stock (the
"Series B Preferred Stock") issued by Global Technologies, Ltd. (the
"Corporation") hereby irrevocably exercises its option to convert shares of the
Series B Preferred Stock into shares of the common stock, $.01 par value, of the
Corporation ("Common Stock"), in accordance with the terms of the Certificate of
Designations. The undersigned hereby instructs the Corporation to convert the
number of shares of the Series B Preferred Stock specified above into Shares of
Common Stock Issued at Conversion in accordance with the provisions of Article 6
of the Certificate of Designations. The undersigned directs that the Common
Stock issuable and certificates therefor deliverable upon conversion, the Series
B Preferred Stock recertificated, if any, not being surrendered for conversion
hereby, together with any check in payment for fractional Common Stock, be
issued in the name of and delivered to the undersigned unless a different name
has been indicated below. All capitalized terms used and not defined herein have
the respective meanings assigned to them in the Certificate of Designations.
Dated: _____________________________
___________________________________________
Signature
Fill in for registration of Series B Preferred Stock:
Please print name and address (including zip code number):
________________________________________________________________________________
________________________________________________________________________________
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[GRAPHIC OMITTED]
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International Lottery & Totalizator Systems, Inc.
and
IFT Leasing Limited
ILTS DATATRAK ON-LINE TURNKEY LOTTERY SYSTEM
U.K. CHARITABLE LOTTERY
PURCHASE AGREEMENT
CONTRACT NUMBER: 6295
----
<PAGE>
ILTS DATATRAK ON-LINE TURNKEY LOTTERY SYSTEM -
UK CHARITABLE LOTTERY
PURCHASE AGREEMENT
This purchase agreement (herein referred to as "Agreement"), dated September 8,
1999 is entered into between International Lottery & Totalizator Systems, Inc.,
a California corporation, United States of America having offices at 2131
Faraday Avenue, Carlsbad, California 92008, USA (herein referred to as ILTS or
"Supplier") and IFT Leasing Limited, an English Corporation, (herein referred to
as IFT or "Customer") for an on-line lottery system and associated terminals to
be installed in Great Britain.
Attached hereto and made part of this Agreement are the following schedules and
appendices:
Schedule 1 Prices and Payment Schedule
Schedule 2 Project Schedule and Customer Acceptance
Schedule 3 Hardware Products To Be Delivered
Schedule 4 Software Products To Be Delivered
Schedule 5 Services To Be Delivered
Schedule 6 Spare Parts To Be Delivered
Appendix A Final Acceptance Certificate
ARTICLE 1.0 DEFINITIONS
1.1 Hardware Products means the central system hardware, associated
third-party system, software and ILTS terminals as described in
Schedule 3.
1.2 Software Products means the central system software, terminal and
gaming software as described in Schedule 4.
1.3 Services means the related services (such as documentation, training,
installation and on-site support) as described in Schedule 5.
1.4 Deliverables means all of the Hardware Products, Software Products,
Services and Spare Parts purchased by Customer as priced in Schedule 1.
1.5 Shipment of Products means the date the Hardware Products leave
Supplier's facility en route to Customer's single, central designated
site and as recorded on Supplier's shipping documentation.
Page 1
<PAGE>
1.6 Final Acceptance means that all Deliverables have been delivered and
accepted by Customer as conforming to the final acceptance criteria as
set forth in Schedule 2.
1.7 Go-live means the date on which sales commence on the Hardware and
Software Products, which date shall be agreed upon by IFT and ILTS.
1.8 ILTS includes ILTS and any entity controlled by ILTS through stock
ownership or otherwise.
1.9 Central Site means the site where the Central System shall be located
and where ILTS (UK) will maintain its corporate offices in the United
Kingdom.
1.10 Central System means Central System Hardware and Software in the
Central Site.
1.11 Communications Network means a combination of goods and services,
including but not limited to radio, telephone, satellite or other
technologies and goods and services provided by local carriers, to form
an on-line real-time link between Central System and Terminals.
1.12 Retail Agents means those agents who have been authorized and have
entered into contracts as required for this purpose, at whose sites the
Terminal are situated.
1.13 System means the lottery processing system provided by ILTS in
accordance with this Agreement.
1.14 Terminal means the ILTS DATAMARK XClaim terminal.
1.15 "Critical Defect" means a defect that causes the system operation to be
interrupted which requires a manual restart or a corruption of data
which renders the total system unusable for the specified operation.
1.16 "Major Defect" means a defect that causes erroneous calculated results
or a required system functionality to be inoperable.
Page 2
<PAGE>
Purchase Agreement
- --------------------------------------------------------------------------------
ARTICLE 2.0 PURCHASE AND SALE OF DELIVERABLES
For the total purchase price as set forth in Schedule 1, Supplier agrees to sell
and Customer agrees to purchase the Deliverables as described in Schedules 3, 4,
5 and 6.
The payment terms are as set forth in Schedule 1 and the timetable for the
delivery, installation and acceptance of the Deliverables is set forth in
Schedule 2.
Customer acknowledges that Supplier is the exclusive provider of goods and
services for Customer's on-line lottery operations in Great Britain over the
term of the Agreement.
ARTICLE 3.0 PATENTS, COPYRIGHTS AND TRADE SECRETS
If any action or proceeding is brought against Customer for alleged infringement
of any letter patent or an infringement of proprietary rights (such as trade
secrets) by the Deliverables or any part thereof or if any allegation of
copyright infringement is made and if Customer gives Supplier notice in writing
without undue delay of any such allegations of infringement or of the
institution of any such action or proceeding and permits Supplier to answer the
allegation and to defend the action or proceeding and also if Customer gives
Supplier all information, reasonable assistance and authority required for those
purposes and does not by any action (including any admission or acknowledgment)
or omission prejudice the conduct of such defense then:
A. Supplier will at its own election either effect any settlement or
compromise which it deems reasonable or at its own expense defend any
such action or proceeding, and
B. Supplier will pay the cost of any settlement or compromise effected by
Supplier of all damages and costs awarded against Supplier and/or
Customer in any such action or proceeding, and
C. If the Deliverables or any part thereof is in such action or
proceeding held to constitute infringement and is the subject of an
injunction restraining its use or any order providing for its delivery
or destruction, Supplier shall at its own election and expense either:
i) procure for Customer the right to retain and continue to use the
Deliverables or part thereof;
ii) modify the Deliverables or part thereof so that it becomes
non-infringing, or,
iii) if the remedies in Sections (i) and (ii) are not reasonably
possible, permit Customer to obtain replacement lottery
Page 3
<PAGE>
Purchase Agreement
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terminals, central system or software which are not an
infringement, and be responsible for actual replacement costs to
Customer as a result thereof, subject to the terms and
limitations of this Agreement.
Supplier shall not be under any of the obligations specified pursuant to
sub-paragraph C. above in either of the following events:
A. any infringement or allegation thereof is based upon the use of the
Deliverables or part thereof in combination with equipment or other
devices not made or supplied by Supplier or in any manner for which
the Deliverables or part thereof was not supplied; or
B. Customer enters into any compromise or settlement in respect of any
such action or proceeding without Supplier's prior written consent.
The provisions of this Article 3.0 shall survive termination or expiration of
this Agreement.
ARTICLE 4.0 EXCLUSIVITY AND CONFIDENTIAL INFORMATION
4.1 Exclusivity. For so long as this Agreement remains in effect:
A. Supplier shall not supply Computer hardware, software or services to
any person or entity other than Customer for use for or in connection
with the conduct of a lottery or similar gaming programs (not
including sports betting such as horse racing or football) anywhere in
England, Scotland and Wales, and
B. Customer shall not obtain computer hardware, software or services
(which are available or reasonably can be made available from
Supplier) for use for or in connection with the conduct of a lottery
or similar gaming programs anywhere in England, Scotland and Wales
from any person or entity other than Supplier.
This Section 4.1 and the exclusivity provisions herein shall terminate and be of
no further effect on the second anniversary of the date of this Agreement if, by
such second anniversary, the System is not in place and operating.
4.2 Confidential Information. Customer acknowledges that information
relating to the technical and operational aspects of the Deliverables
is confidential to Supplier. Customer shall not, and shall take all
reasonable steps to insure that its employees and agents do not,
without the prior written consent of Supplier, divulge any information
relating to technical or operational aspects of the Deliverables or the
terms of this Agreement to any third party except as required by law.
Page 4
<PAGE>
Purchase Agreement
- --------------------------------------------------------------------------------
Supplier acknowledges that Customer's technology and all aspects of the
operation of Customer's business is confidential to Customer and that
any disclosure thereof could not be rectified. Supplier shall not, and
shall take all reasonable steps to insure that its employees and agents
do not, without the prior written consent of customer, divulge any
information relating to Customer's system or the terms of this
Agreement to any third party except as required by law.
Customer agrees not to disclose any confidential information relating
to Supplier's Hardware or Software Products for a period of eight (8)
years after the term of this Agreement.
Customer and Supplier agree that mutual strict confidentiality will
apply to the terms and conditions of this Agreement, except as required
by law.
ARTICLE 5.0 TITLE, POSSESSION, QUIET ENJOYMENT, RISK OF LOSS
Risk of loss or damage in respect of the Hardware Products shall pass to
Customer upon shipment by Supplier of each item of Hardware Products. Title to
each item of Hardware Products shall pass to Customer upon shipment to such site
as has been specified by Customer, provided that Customer's payments are up to
date in accordance with the payment schedule set out in Schedule 1, Section
1.2.1.
Customer agrees that until the purchase price for the Hardware Products is paid
in full:
A. Supplier shall retain a security interest in the Hardware Products,
and
B. Supplier shall have all the remedies of a secured party under the
Arizona Uniform Commercial Code or other applicable Arizona law
(including the filing of any U.C.C. notices) and Supplier may, upon
default by Customer, require Customer to assemble the secured property
and turn it over to Supplier at a place designated by Supplier.
Customer hereby expressly waives and releases all rights to have any
of the secured property marshalled upon the exercise of any remedies
under this section of the Agreement, and,
C. the Hardware Products shall be installed and used and shall not be
removed from Customer's place of business without the prior written
consent of Supplier, and,
D. Customer shall not sell, pledge, mortgage, assign, transfer, lease,
sublet, loan, license, part with possession of, or encumber the
Deliverables or any part thereof or permit or suffer or attempt to do
any of the acts aforesaid without the prior written consent of
Supplier.
Page 5
<PAGE>
Purchase Agreement
- --------------------------------------------------------------------------------
E. Customer will provide proof of adequate insurance to cover the loss of
Hardware Products during the period of installation prior to final
payment.
Until payment in full of the total purchase price as specified in Schedule 1,
Customer:
A. will comply with all laws relating in any way to the use, operation or
maintenance of the Deliverables;
B. will grant Supplier the right to inspect the Deliverables at any
reasonable time upon due notice; and
C. shall not make any alterations, additions, modifications or
improvements to the Hardware Products without the prior written
consent of Supplier.
After payment in full of the total purchase price as specified in Schedule 1,
Supplier shall take no action which impairs Customer's right to the possession
and use of the Deliverables except to the extent required to protect Supplier's
interest in software and confidential information.
ARTICLE 6.0 TAXES
Prices and fees are exclusive of, and Customer, as the importer, is responsible
for, all applicable taxes, duties, assessments and value added tax (VAT) on the
sale, license or use of the Deliverables. Supplier is responsible for all U.S.
taxes and export taxes and Customer is responsible for all import taxes required
to deliver the Deliverables to the Customer's facilities.
ARTICLE 7.0 IMPORTATION, SHIPPING, FREIGHT AND INSURANCE
Hardware Products will be delivered Free Carrier (FCA according to Incoterms
1990) Supplier's facilities. Customer will be responsible for transportation
charges and for insurance on the Hardware Products at rates in effect at the
time of this Agreement. Customer may elect to have Supplier obtain on its behalf
such insurance by providing specific written notice to Supplier.
Supplier will arrange for all of the necessary documentation for shipping goods.
If shipping is routed by Customer, Supplier will honor those commitments. If the
selection of routing of shipments is made by Supplier, Supplier will make
reasonable efforts to obtain the best service at the most reasonable costs for
both parties. Supplier can also supply a list of potential freight forwarders if
requested by Customer.
Supplier will arrange for all shipping documents and export licenses (as
required) to be generated and processed. To assist Customer and Supplier,
Supplier maintains:
Page 6
<PAGE>
Purchase Agreement
- --------------------------------------------------------------------------------
A. a database of documentation in the management of incoming and outgoing
shipments (purchase orders, return for repairs and project management
reports), and
B. contacts with United States government agencies to keep abreast of all
new or changed export regulations, and
C. contracts with local customs house brokers who assist in the clearance
of incoming shipments through United States Customs.
Supplier will prepare and process all necessary paperwork to obtain validated
export licenses and monitors the use thereof. Where applicable, Customer must
apply for and obtain a valid import license. All duties, import/export fees and
associated costs of shipment are Customer's responsibility.
ARTICLE 8.0 TRAVEL AND PER DIEM
Supplier is responsible for all project air travel and Supplier's expenses to
perform on-site services set out in Schedule 5.
ARTICLE 9.0 PAYMENT METHOD
Invoices will be transmitted to Customer by facsimile on the date shown on the
invoice and this is the date of invoice. Upon special request, the original of
the invoice can be mailed to Customer for backup or for required business
practice. Customer invoices are to be sent to:
Interactive Flight Technologies, Inc.
1811 Chestnut Street
Philadelphia, Pennsylvania 19103 USA
Attention: James Fox
and payment shall be made by wire transfer to:
International Lottery & Totalizator Systems, Inc
c/o First National Bank
1620 Fifth Avenue
San Diego, CA 92101 U.S.A.
ABA # 122 238 938
Account No. 5502 1158
Payments past due thirty (30) days will bear a late charge fee at the rate of
one and one-half percent (1.5%) per month or portion thereof accumulative.
Page 7
<PAGE>
Purchase Agreement
- --------------------------------------------------------------------------------
Payment is deemed to have been effected on the day when Supplier's bank account
has been credited with the payment.
All invoices are payable in U.S. Dollars
ARTICLE 10.0 WARRANTY
10.1 Supplier Hardware Products Warranty. Supplier warrants that all
Hardware Products will be new and not used nor reconditioned and that
Supplier will cause all manufacturer's warranties of Hardware products
to be transferred to and for the benefit of Customer.
10.2 Supplier Software Products Warranty. Supplier warrants to Customer that
the Supplier Software Products designated as warranted will conform to
the specifications in Schedule 4 and all other documentation provided
by Supplier for or in connection with the Software Products, when
operated in conjunction with properly operating Hardware Products as
specified in Schedule 3. Supplier warrants that the Software Products
do not contain any "kill" or other such disabling devices.
The warranty period for Supplier Software Products is twelve (12)
months, commencing on the date of Final Acceptance. Supplier does not
warrant that the execution of Software shall be uninterrupted or
error-free.
10.3 Third Party Vendor Products Warranty. Supplier warrants the proper
performance of all third-party vendor products to the same extent as if
they were manufactured by Supplier. For third-party vendor software
products utilized as part of or incorporated into Supplier's software
products, Supplier agrees to provide first level support of the
software and use its best efforts to fix, cause to have fixed, or
provide a work around solution for any defects in the third-party
vendor's software.
10.4 System Coordination. Supplier warrants that the Hardware Products and
Software Products are fully compatible and will function together as a
unified computer system to perform the functions contemplated by this
Agreement, subject to the limitations set forth herein.
10.5 Year 2000 Compliance. Supplier warrants that the System is Year 2000
compliant.
10.6 Limitation of Warranty. The warranties provided in sections 10.1, 10.2
and 10.3 are limited warranties and do not apply to:
A. conditions resulting from improper use, by anyone other than
Supplier or its representatives of Supplier Hardware or Software
Products or operation of Supplier Hardware outside the specified
environmental conditions, or
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B. conditions resulting from causes, not caused by Supplier or its
representatives, external to Supplier Hardware or Software
Products after delivery, or
C. conditions resulting from modifications to Supplier Hardware or
Software Products other than modifications made by Supplier, or
D. consumable components such as lamps, fuses, printheads and other
expendable items above their minimum specified lives.
10.7 Documentation, Training and Other Services. Supplier warrants that the
Services delivered will be provided in a workmanlike manner in
accordance with Schedule 5.
ARTICLE 11.0 SOFTWARE LICENSE
Customer receives no right to use any Software Product except by a grant of a
software license by Supplier. Title to the Software Products and source code
shall remain with Supplier.
11.1 Grant of Software License. Supplier grants Customer a software license
for the use of Software Products in Great Britain as provided below.
This software license is granted per the central system as defined in
Schedule 3. Supplier grants no software licenses whatsoever, either
explicitly or implicitly, except by this contract for a software
license, for Software Products supplied by Supplier with Hardware
Products or in connection with Services. Customer agrees to comply with
and not deliberately modify or make inoperable any feature which is
incorporated in the Software Products to prevent access to software
which has not been licensed to Customer.
11.2 Software Execution. Customer, Customer's representatives and agents may
execute the Software Products and may load, copy or transmit the
Software Products, in whole or in part, only as necessary for
execution. Customer, Customer's representatives and agents may make
archival copies of the Software Products as provided under the
copyright laws of the United States. Customer, Customer's
representatives and agents agree to reproduce all legal notices,
including but not limited to proprietary notices and notices mandated
by governmental entities, on all complete or partial copies or
transmissions of the Software Products. Software Product usage may not
exceed the license or the number of users for which Customer is
licensed.
11.3 Access to Software Products. Customer may make the Software Products
available to its representatives, employees and agents to the extent
necessary or appropriate to exercise its license hereunder.
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11.4 Personal, Non-exclusive License. Customer's license is personal and
non-exclusive, and may not be transferred without Supplier's express
written consent but may be assigned to subsidiaries or controlled
affiliates of Customer upon notice to Supplier, but without its prior
consent.
11.5 License Limitation, Reverse Engineering. Software Products are
proprietary to Supplier. Supplier transfers no title to or ownership of
any Software Products to Customer or to any third party. Except as
explicitly set forth in these terms and conditions, Customer shall not
execute, use, copy or modify the Software Products nor disclose any
part of the Software Products. Customer shall not decompile or reverse
assemble the Software Products, or analyze or otherwise examine the
Software Products, including any hardware or firmware implementation of
the Software Products for the purpose of reverse engineering.
11.6 License Termination. Customer, Customer's representatives and agents
shall use the Software Products only in the ordinary course of their
business as an operator. This software license shall commence on the
date that the Software Products are delivered to Customer and, except
as set forth herein, shall terminate pursuant to the provisions of
Article 17 relating to termination. Supplier may terminate any licenses
granted and any Software Product orders placed hereunder if Customer
neglects or fails in a substantial respect to perform or observe any of
its material obligations to Supplier hereunder, and such condition is
not remedied within thirty (30) days after written notice has been
given to Customer. Termination, whether by Supplier or Customer, shall
apply to all versions of the Software Products licensed for execution
hereunder. Before any termination by Customer becomes effective, and in
the event of any termination by Supplier, Customer shall:
A. return to Supplier any license furnished by Supplier by this
Agreement or under any separate agreement, and
B. destroy all copies of all versions of the Software Products in
Customer's possession, and
C. remove all portions of all versions of the Software Products for
any adaptations made by Customer and destroy such portions, and
D. certify in writing that all copies, including all those included
in Customer's adaptations, have been destroyed.
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ARTICLE 12.0 HARDWARE SUBSTITUTION
Customer will permit the substitution of component parts of the Hardware
Products and variations from the design characteristics and/or performance
capabilities of the Hardware Products so long as such substitution is necessary
due to factors beyond Supplier's reasonable control such as unavailability of a
component or industry design changes and/or the variations do not have a
negative effect on performance or functional capabilities.
ARTICLE 13.0 INDEMNITIES AND LIMITS ON LIABILITY
Each party hereby indemnifies and holds harmless and shall keep the other party
indemnified and held harmless to the extent permitted under existing law, from
and against all damages, costs, actions, claims and demands whatsoever,
including reasonable legal fees, which may be recovered or made against the
first party by any person including members of the public, for any injury they
may sustain (i) while in or upon any building or structure or any part thereof
or any other location in which the Deliverables or any part thereof is installed
or from which they are operated or in connection with a party's use or operation
of the Deliverables or any part thereof or (ii) any act or omission of the other
party or its employees or agents unless the injury is caused by the first party
or the first party's employees willful or negligent act or omission, provided
that, this indemnity shall not extend to any injury suffered by the first
party's staff which shall be covered by insurance arranged by the first party at
its cost.
Customer acknowledges that the Deliverables may contain magnetic memories or
other devices in which substantial data may be accumulated. Supplier shall not
become liable to Customer or anyone else if any such data is lost or rendered
inaccurate, other than by the acts or omissions of Supplier or any of its
agents, regardless of the cause of any such loss or inaccuracy. Supplier shall
not be liable to Customer or any other person in tort for any act, omission,
occurrence or event causing loss, damage or injury to person or property in
connection with Supplier's obligations under this Agreement, or its exercise of
any rights or privileges hereunder, unless caused by gross negligence or
intentional misconduct of Supplier. In no event, whether in contract, warranty,
tort (including negligence), or otherwise, shall either party be liable to the
other or any other person for indirect, incidental, special or consequential
damages including, but not limited to, loss of actual or anticipated profits or
revenues, loss of use of products, loss of data, cost of capital, cost of
substitute products, facilities or services, downtime costs, or claims of the
other party for such damages, including in connection with providing or failing
to provide the Deliverables or arising out of the use of the Deliverables.
Supplier's liability to Customer for any cause whatsoever shall be limited to
the lesser of one million U.S. Dollars ($1,000,000) or the purchase price paid
to Supplier for the Deliverables that are the subject of Customer's claim. This
limitation will apply regardless of the form of action, whether contract or
tort, including without limitation negligence. The foregoing limitation does not
apply to damages resulting from personal injury caused by Supplier's negligence
as limited above.
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Reference is made to Schedule 2, Section 2.2.
Any action against Supplier must be brought within twelve (12) months after the
cause of action arises.
ARTICLE 14.0 LIABILITIES AND REMEDIES
A. Supplier's entire liability and Customer's remedies are as set
forth in this article, except as otherwise provided in this
Agreement. These remedies are the Customer's exclusive remedies
and are in lieu of any other remedy at law or in equity. In all
situations involving performance or non-performance of Software
Products furnished hereunder, Customer's remedy is (i) repair or
replacement by Supplier (at Supplier's option) of defective
Supplier Hardware Products if notified by Customer of the defect
within the warranty period, or (ii) remedy by Supplier of a
non-conformance of Software during the stated warranty period.
Subject to Subparagraph B, if Supplier fails to perform its
warranty or service responsibilities, or if Customer has any
other claim related to Deliverables purchased or licensed from
Supplier, Customer shall be entitled to recover only direct
damages and only up to the limits set forth in this Agreement.
B. If after a reasonable period under the circumstances (not to
exceed 60 days) after written notice from Customer, Supplier is
unable to effect a repair or replacement or a remedy which cures
a Critical Defect or Major Defect for which Supplier is
responsible under this Agreement, Customer shall be entitled to
have access to and to use all portions of the System (including
the Source Code held in escrow under Article 16.0) to endeavor by
itself or its contractors to effect such a cure, and the rights
obtained by Customer for such purpose under its software license
with Supplier shall continue on a perpetual basis. If Customer
proceeds under this Paragraph, it shall be entitled only to
recover direct damages suffered thereby, subject to the terms and
limits of this Agreement.
ARTICLE 15.0 FORCE MAJEURE
15.1 Either party shall not be liable for any delay in performing any
obligation hereunder for any cause beyond its reasonable control,
including but not limited to strike an labor disputes, accidents, war,
invasion, riot, rebellion, civil commotion, insurrection, any act
(including without limitation any injunctive or restraining act) or
judgement of any court granted in any legal proceeding, fire, wind,
lightning, explosion, act of government or faults or delays by
subcontractors to provide service due to circumstances such as those
cited above but not including increased costs (Force Majeure).
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15.2 If either party is delayed in performance due to Force Majeure, it
shall as soon as possible give the other party written notice of its
claim for an extension of time. The other party shall grant reasonable
extension(s) of time for completion of the Agreement or any part
thereof, provided that all reasonable action has been taken by the
delayed party to prevent such delay from extending the time for
completion of the delayed part's obligations hereunder.
ARTICLE 16.0 ESCROW OF SOURCE CODE
Supplier, accompanied by, at Customer's option, Customer or Customer's
representative, shall deliver a copy of the Software Products source code
(Source Code) and associated design specifications to a designated escrow agent
located in England. The Source Code and associated design specifications will be
held by such escrow agent to be immediately released from escrow to Customer
only if Supplier:
A. ceases conducting business in the normal course, or
B. has an action brought against it by its creditors for its
inability to pay its debts, or
C. enters into compulsory or voluntary liquidation (other than for
the purposes of effecting a reconstruction or amalgamation in
such manner that the company resulting from such reconstruction
or amalgamation, if a different legal entity, shall agree to be
bound by and assume the obligations of Supplier under this
Agreement), or
D. compounds with or convenes a meeting of its creditors, or
E. has a receiver or manager or an administrator appointed of its
assets, in each case, which is not discharged or dismissed with
sixty (60) days, or
F. ceases for any reason to carry on business.
G. has failed to perform its obligations under this Agreement and is
subject to a notice and proceedings by Customer under Article
14.0B.
Such holding of escrow materials will continue for the term of the Facilities
Management Agreement between ILTS (UK) and IFT Management Limited, Contract No.
6296, dated September 8, 1999 ("Facilities Management Agreement").
The Escrow Agent fees will be equally shared between Customer and Supplier.
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ARTICLE 17.0 TERMINATION
17.1 IFT may terminate this Agreement if:
17.1.1 ILTS should enter into liquidation or receivership, or be
declared bankrupt, or enter into any composition or
similar arrangement with its creditors, said termination
to take effect immediately upon receipt of written notice
of termination; or
17.1.2 ILTS breaches a material provision of this Agreement and
fails to cure such breach within forty-five (45) days (or
such longer period of time as is provided in this
Agreement) after receipt by ILTS of written notice
specifying such breach; or;
17.2 ILTS may terminate this Agreement if:
17.2.1 IFT should enter into liquidation or receivership, or be
declared bankrupt, or enter into any composition or
similar arrangement with its creditors, said termination
to take effect immediately upon receipt of written notice
of termination by IFT;
17.2.2 IFT breaches a material provision of this Agreement and
fails to cure such breach within forty-five (45) days (or
such longer period of time as is provided in this
Agreement) after receipt by IFT of written notice
specifying such breach; or,
17.3 In the event of termination of this Agreement by either party, the
terminating party may cease its performance hereunder and may (a)
recover from the other party the unpaid balance of all sums due under
this Agreement as of the date of such termination, (b) recover from the
other party any actual damages due to the default, including but not
limited to its reasonable attorneys' fees and judicial costs incurred
in enforcing its rights hereunder, and, (c) terminate the other party's
rights under this Agreement.
ARTICLE 18.0 CHANGE CONTROL PROCEDURE
Changes to this Agreement will be controlled, documented, defined and
implemented utilizing a consistent process and form to be mutually agreed upon
between Supplier and Customer.
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ARTICLE 19.0 SEVERABILITY AND AMENDMENT
19.1 Severability. The parties acknowledge that the provisions contained
herein (including without limitation any relating to confidential
information) are required for the reasonable protection of the business
interest of the parties. The illegality, invalidity or unenforceability
of any provision of this Agreement under any applicable law shall not
effect its legality, validity or enforceability under the law of any
other jurisdiction nor the legality, validity or enforceability of any
other provision, and to this end, the provisions thereof are declared
to be severable.
19.2 Amendment. Each of the parties agrees that this Agreement will be
amended to the extent necessary to comply with all governmental laws,
regulations and directives
ARTICLE 20.0 TERM
Except as otherwise provided in Articles 3.0, 4.0 and 11.0, this Agreement shall
be co-terminus with the Facilities Management Agreement.
ARTICLE 21.0 ENTIRE AGREEMENT
This Agreement embodies the entire agreement between the parties and supersedes
in its entirety all previous understandings, agreements, and representations
between the parties oral or written with respect to the subject matter hereof.
This Agreement may not be amended or modified except by an instrument in writing
duly executed on behalf of the parties. Any waiver of any breach of this
Agreement shall be limited to the particular instance and shall not operate or
be deemed to waive any future breach. Any representation or statement not
contained in this Agreement shall not be binding upon Supplier as a warranty or
otherwise.
ARTICLE 22.0 ASSIGNMENT
This Agreement shall not be assigned by either party without the prior written
consent of the other party. Notwithstanding the foregoing, it is agreed that
either party may assign its rights under this Agreement ("Assignor") to one of
its affiliates authorized to do business in Great Britain (the "Assignee"),
provided that:
(a) the full and faithful performance by the Assignee of its obligations
under the Agreement in accordance with the terms and conditions of the
Agreement shall unconditionally be guaranteed by the Assignor. In the
event of failure of the Assignee to perform any obligations under this
Agreement, the Assignor shall immediately perform such obligations,
and,
(b) the non-assigning party shall receive copies of all documentation evidencing
such assignment.
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ARTICLE 23.0 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
substantive laws of the State of Arizona. The venue for any proceeding brought
to enforce or interpret this Agreement shall be Phoenix, Arizona, and the
parties to this Agreement consent to the jurisdiction of the federal and state
courts located in the State of Arizona. The provisions of the United Nations
Convention on Contracts for the International Sale of Goods is applicable to
this Agreement.
ARTICLE 24.0 NOTICES, NOTIFICATION NAMES AND ADDRESSES
Any notice given hereunder shall be deemed sufficient if given in writing by a
party to the other party, to the attention of the Chief Executive Officer (or
such individual as a party may designate in writing), of such party in either
case directed to the addresses set forth below (or such other notice as either
party may specify using like notice); and shall be deemed delivered and received
upon actual receipt, or twenty-four (24) hours after dispatch by facsimile
transmission, with receipt of facsimile confirmation, provided that an original
copy of said notice is mailed by registered mail no later than the next business
day following dispatch by facsimile.
24.1 Customer Information
Name: IFT Leasing Limited
Address: c/o Richards Butler
Beaufort House
15 St. Botolph Street
London, England EC 3A 7EE
Contact: David Boutcher
24.2 Supplier Information
Name: International Lottery & Totalizator Systems, Inc.
Address: 2131 Faraday Avenue
Carlsbad CA 92008-7297 USA
Telephone: (001) 760-931-4000 Fax: (001) 760-931-1789
ARTICLE 25.0 HEADINGS
Section headings of this Agreement are for convenience only and shall neither
form a part nor affect the interpretation hereof.
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ARTICLE 26.0 APPOINTMENT OF PROJECT MANAGER
Supplier shall appoint at its own cost a suitably qualified and competent person
as a Project Manager to plan and oversee the scheduling and control of all tasks
to be performed by the Supplier and for all coordination with any third parties
involved.
ARTICLE 27.0 AUTHORIZATION TO EXECUTE AGREEMENT
Each party has full power and authority to enter into and perform this
Agreement, and the person signing this Agreement on behalf of each party has
been properly authorized and empowered to enter into this Agreement. Each party
acknowledges it has read this Agreement, understands, and agrees to be bound
by it.
Customer: Supplier:
IFT Leasing Limited International Lottery & Totalizator
c/o Richards Butler Systems, Inc.
Beaufort House 2131 Faraday Avenue
15 St. Botolph Street Carlsbad, California 92008-7297
London, England EC 3A 7EE United States of America
James W. Fox M. Mark Michalko
- ------------ ----------------
Signed Signed
James W. Fox M. Mark Michalko
- ------------ ----------------
Printed Name Printed Name
President President
- ------------ ----------------
Title Title
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[Schedules intentionally deleted]
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APPENDIX A
FINAL ACCEPTANCE CERTIFICATE
IFT hereby certifies to ILTS
that the Final Acceptance
as specified under this
Agreement has been
successfully completed.
Certificate issued by, for and on behalf of IFT:
- -------------------------------------------------- ---------------------
Signed Date:
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ILTS, UK Ltd.
and
IFT Management Limited
ILTS DATATRAK ON-LINE TURNKEY LOTTERY SYSTEM
U.K. CHARITABLE LOTTERY
FACILITIES MANAGEMENT AGREEMENT
CONTRACT NUMBER: _6296__
<PAGE>
UK CHARITABLE LOTTERY
FACILITIES MANAGEMENT AGREEMENT
This Facilities Management Agreement (herein referred to as "Agreement"), dated
September 8, ___________, 1999 is entered into between ILTS UK Ltd., a United
Kingdom corporation having offices at 6 Lodge Close, Cowley, Upbridge UB8, 2FS,
England (herein referred to as "ILTS UK" or "Supplier") and IFT Management
Limited, an English Corporation , (herein referred to as "IFT") for an on-line
lottery system and associated terminals to be installed in Great Britain.
WHEREAS, IFT is a party to a contract under which it manages certain of the
activities and affairs of InterLotto (UK) Ltd. ("Inter Lotto"), an organization
granted a certificate by The Gaming Board for Great Britain to manage a
society's lottery or a local lottery in pursuance to the Lotteries and Amusement
Act of 1976, as amended by the National Lottery etc. Act 1993;
WHEREAS, IFT Leasing Limited ("IFT Leasing") has executed a turn key purchase
agreement dated September 8_______________ , 1999 with International Lottery &
Totalizator Systems, Inc. (ILTS) pursuant to which ILTS will provide IFT Leasing
with Terminals, a Central System and Games ("Purchase Agreement"), which items
IFT Leasing will lease to IFT for use for the Inter Lotto lotteries;
NOW THEREFORE, in consideration of the mutual promises contained herein and
intending to be legally bound, IFT and ILTS UK agree as follows:
ARTICLE 1.0 INTRODUCTION
1.1 DEFINITIONS
1.1.1 "Central Site" shall mean the site where the Central System shall be
located.
1.1.2 "Central System" shall mean Central System Hardware and Software in
the Central Site.
1.1.3 "Central System Hardware" and "Peripheral Equipment" shall mean a
system with the required peripheral equipment necessary to operate
the computerized lottery processing system.
1.1.4 "Communications Network" shall mean a combination of goods and
services, including but not limited to radio, telephone, satellite or
other technologies and goods and services provided by local carriers,
to form an on-line "real time" link between the Central System and
the Terminals.
1.1.5 "Effective Date" shall mean that date this Agreement is signed by
duly authorized representatives of both parties.
<PAGE>
1.1.6 "Games" shall mean the on-line lottery game software, which shall
include a daily numbers game and a lotto type game.
1.1.7 "Go-live Day" shall mean the date on which sales commence on the
System, which date shall be agreed upon by IFT and ILTS, subject to
Section 2.2 herein.
1.1.8 "Retail Agents" shall mean those agents who have been authorized and
entered into contracts as required for this purpose, at whose sites
the Terminals are situated.
1.1.9 "Software" shall mean, ILTS' DataTrak Central System and
Communications Network software and firmware, or any third- party
software and firmware which has been licensed to ILTS, as may be made
available for the operation of the System during the Term of this
Agreement and any extensions thereof, as such software may be
modified by ILTS or said third party from time to time.
1.1.10 "System" shall mean the lottery processing system provided by ILTS
in accordance with the Purchase Agreement, comprised of equipment and
Software as described in Section 1.2 (a).
1.1.11 "Terminal" shall mean the ILTS XClaim terminal.
1.1.12 "Installed Terminals" shall mean the number of ILTS terminals which
are shown as 'active' (i.e. able to sell lottery tickets) on the ILTS
DataTrak central system database at the end of the accounting week.
1.1.13 "Weekly On-Line Net Sales" shall mean the total weekly on-line
sales for all retailers, less cancellations.
1.1.14 "Average Weekly On-line Sales" shall mean the Weekly On-Line Net
Sales divided by the number of Installed Terminals at end of
accounting week.
1.1.15 "Critical Defect" means a defect that causes the system operation to
be interrupted which requires a manual restart or a corruption of
data which renders the total system unusable for the specified
operation.
1.1.16 "Major Defect" means a defect that causes erroneous calculated
results or a required system functionality to be inoperable.
<PAGE>
1.2 SCOPE OF WORK TO BE PERFORMED
(a) Commencing on the Go-live date, ILTS UK shall maintain and operate the
System on behalf of IFT, all as more specifically set forth herein.
Said System shall be comprised of the following:
(i) the Central System Hardware and Peripheral Equipment;
(ii) the number of Terminals as determined under the Purchase
Agreement;
(iii) the Communications Network (operational management); and,
(iv) the Software;
all as more fully described in the Purchase Agreement.
(b) ILTS UK shall provide IFT with the following services, as more
specifically set forth herein:
(i) operation of the System, including without limitation the
operation of the Central System and the management of the
Communications Network,
(ii) training of Retail Agent trainers and provision of related
documentation;
(iii) installation of terminals at Retail Agents locations, and
(iv) hardware and software maintenance.
(c) It is the intention of the parties that ILTS UK shall perform work and
services reasonably required properly to operate System and this
Agreement shall be construed accordingly.
(d) ILTS UK shall perform the all services to be provided under this
Agreement in a professional and competent manner, consistent with
standards in the trade for quality services.
ARTICLE 2.0 IMPLEMENTATION
2.1 CENTRAL SITE.. In coordination with ILTS UK, IFT will lease a Central Site
and notify ILTS UK within forty-five (45) days of the Effective Date, which
Central Site will be equipped and furnished in a manner mutually agreed
upon by IFT and ILTS UK.
<PAGE>
2.2 START-UP INSTALLATION. ILTS UK shall cause the installation of the Central
System and Peripheral Equipment at the Central Site, and the Terminals at
locations of Retail Agents. The parties shall use their best efforts to
implement the System in order that sales shall commence no later than one
hundred eighty (180) days from the later of: (i) the date that ILTS UK
receives the names and locations of a minimum of one thousand (1000)
approved and appointed Retail Agents from IFT; or, (ii) the date that ILTS
UK receives IFT's written approval of ILTS UK's Software specifications;
or; (iii) the date upon which there is a Communications Network available
to it to operate the System. ILTS UK shall install by the Go-live date at
least eighty percent (80%) of those approved and appointed Retail Agents
whose names have been received by ILTS UK on the date set forth in
paragraph (i) above.
No later than ninety (90) days after the Go-Live date, IFT shall supply
ILTS UK with the names of the remaining approved Retail Agent locations
representing the balance, if any, of the number of terminals, excluding
spare terminals, ordered under the Purchase Agreement.
2.3 RETAIL AGENT LOCATIONS. ILTS UK and IFT shall mutually determine the
criteria for the selection of Retail Agent locations, taking into account
such factors as economic feasibility, the ability to meet minimum sales
objectives, and the ability to make use of available physical and
communications infrastructure. ILTS UK shall review those Retail Agents
proposed for approval and appointment by IFT using the aforementioned
criteria, and shall make recommendations to IFT regarding approval and
appointment based upon that review. Notwithstanding the foregoing, the
selection of Retail Agents shall be IFT's responsibility.
2.4 TRAINING. ILTS UK shall provide orientation training to IFT personnel and
to Retailer Trainers concerning the operation of Terminals, including the
provision of training material and Terminal operating manuals. Such
training shall be performed in Great Britain at locations and times to be
agreed upon by the parties. ILTS UK shall not be responsible for the travel
and living expenses of IFT personnel or Retail Agents in connection with
such training.
2.5 MARKETING LAUNCH SUPPORT. IFT shall purchase point-of-sale materials for
each Retail Agent location at a minimum limit of US $25 per Retail Agent
location.
ARTICLE 3.0 ILTS UK ON-GOING OPERATIONS
3.1 CENTRAL SITE. ILTS UK shall be responsible for staffing and operating the
Central Site, and for providing, or causing to be provided, maintenance for
all equipment contained therein, including, but not limited to, Central
System Hardware and any communications equipment.
<PAGE>
3.2 COMMUNICATIONS NETWORK. ILTS UK shall be responsible for maintaining, or
causing to be maintained, the Communications Network, and for coordinating
with the necessary authorities for the maintenance of their portion of the
Communications Network, if necessary. All costs, such as recurring monthly
charges, new installation and maintenance, associated with the retailer
communications network are the responsibility of IFT.
3.3 ON-GOING INSTALLATION. ILTS UK shall install additional Terminals, in
site-ready locations, requested by IFT, in a timely manner. Additional
terminals cost to IFT is reflected in the Purchase Agreement .
3.4 ON-GOING TRAINING. IFT or their designee shall provide training to new
Retail Agents and refresher training to existing Retail Agents after
Go-live concerning the operation of Terminals.
3.5 TERMINAL-MAINTENANCE. ILTS UK shall be responsible for providing, or
causing to be provided, maintenance and repair of the Terminals including,
but not limited to, providing for the operation of the Retail Agent help
desk (HOTLINE), provision of field repair service, staffing, equipping and
operation of a repair depot(s) and provision of depot(s) repair service.
ILTS UK will accumulate and periodically provide to IFT, information on
Retail Agent problem calls and their resolution. IFT will also promptly
procure spare parts from ILTS upon submission of a purchase request by ILTS
UK. IFT purchase and maintain a reasonable spare terminal complement for
ILTS UK use.
3.6 CONSUMABLES. IFT shall provide and deliver, or cause to be delivered to
Retail Agents, all on-line lottery ticket stock and play slips necessary to
play the lottery games provided under the Purchase Agreement.
3.7 Access to On-line Lottery System. Through ILTS' DataTrak Central System
Software package, ILTS UK shall provide IFT with access to information on
the status of the System and the Retail Agent network, including periodic
reports as agreed upon by the parties.
3.8 PHYSICAL ACCESS TO FACILITY. IFT and its agents will have access, as
desired, to the facilities where the System is maintained. IFT will
provide, in advance, notification to ILTS UK of those persons authorized to
enter the facilities where the System is maintained. Unauthorized persons
must be accompanied by IFT or ILTS authorized personnel.
3.9 SOFTWARE SUPPORT
3.9.1 ILTS UK shall maintain an exact and up-to-date copy of the Software
at its Great Britain software facility to be confirmed annually upon
written request by IFT.
<PAGE>
3.9.2 Following implementation of the System, ILTS UK shall make such
Software modifications and enhancements, including new Games, as the
parties shall agree upon in writing. For modifications and
enhancements to existing software, ILTS shall charge standard rates.
For new games or features, ILTS will provide IFT with a quotation
based on defined requirements. but IFT shall bear all reasonable
associated costs with such Software changes. ILTS UK shall provide
Software modifications and enhancements as follows:
(a) IFT shall use good faith efforts to consolidate its requests for
Software enhancements and modifications. ILTS UK shall not,
without its written consent, be required to develop or install
more than one (1) new Software project at a time;
(b) Upon receipt bby ILTS UKILTS UK from IFT of a written request for
development of new Software or for Software modifications or
enhancements, ILTS UK shall, within sixty (60) days from receipt
of the written request, develop Game designs, specifications,
procedures and pricing. Upon approval by IFT of said designs,
specifications, and procedures and pricing, the parties shall
within two (2) weeks set a mutually agreeable implementation
schedule; and,
(c) If any new, modified or enhanced Software provided in accordance
with this Section 3.8 would require additional Central System,
Terminal or other equipment or would overload the capacity of the
Central System and/or Terminals, the reasonable cost of any such
additional hardware and other costs to increase the capacity of
the Terminals shall be the responsibility of IFT.
3.9.3 ILTS UK shall maintain a 24-hour telephone software "Hotline" to a
reasonable number of experienced ILTS software personnel so that any
questions or problems relating to the Software can be addressed at
any time.
3.9.4 ILTS UK shall resolve any Software problems and related operation
problems caused by Software malfunctions.
3.9.5 IFT hereby acknowledges that the Software support services provided
hereunder by ILTS UK shall only apply to: (i) the provision of
Software and Software support services for hardware provided by ILTS
under this Agreement; and, (ii) the provision of Software support
services for ILTS Software or any third party Software provided by
ILTS. The Software support services provided by ILTS UK shall not
apply to any part of the ILTS Software which has been modified,
altered, added to, adjusted or repaired by any unauthorized person
and/or not in accordance with ILTS' express prior written approval.
<PAGE>
3.10 RELATIONS WITH RETAIL AGENTS
3.10.1 ILTS UK will be responsible for developing and maintaining high
quality effective relationships with all Retail Agents.
3.10.2 In order to accomplish this objective, ILTS UK shall provide the
following in order to develop and maintain high quality,
professional, service-oriented, effective working relationships
with Retail Agents:
(a) Monitor and use its best efforts to minimize Retail Agents'
complaints about training, terminal operations and repair;
(b) Provide for the operation of a Retail Agent help desk
(HOTLINE);
(c) Conduct training programs during start-up for all ILTS UK or
ILTS staff working with Retail Agents for the purpose of
developing professionalism, a service orientation, and
excellent Retail Agent relations; and,
(d) Establish an effective procedure for a Retail Agent to express
complaints about ILTS UK HOTLINE operation, and training and
services of and for ILTS UK to respond to such complaints.
3.11 CONSULTATION SERVICES. At the request of IFT, ILTS and/or ILTS UK
shall provide consultation services to IFT as reasonably requested in
connection with IFT's efforts of enhancing sales.
ARTICLE 4.0 RESPONSIBILITIES
4.1 AUTHORIZATION TO SIGN AGREEMENT AND CONDUCT LOTTERY. IFT warrants that: (i)
it is authorized to enter into and execute this Agreement; (ii) the persons
executing this Agreement on behalf of IFT are authorized to do so; and (iii)
Inter Lotto holds a certificate of authority to conduct a lottery in the
United Kingdom. IFT shall maintain its operating agreement with Inter Lotto
at all times during the term hereof.
4.2 RETAIL AGENTS. IFT shall be responsible for selecting and appointing Retail
Agents, both at implementation of the System and on an on-going basis. IFT
shall use its best efforts to provide ILTS UK with the names and locations
of at least twoone thousand five hundred (21,5000) approved and appointed
Retail Agentss , within at least ninetysixty (960) days following the
Effective Date.
4.3 RETAIL AGENT SITES. IFT shall require Retail Agents to prepare and maintain
retail Terminal sites in accordance with reasonable ILTS UK retailer site
<PAGE>
preparation and installation specifications, including but not limited to
installation of all specified power and Communication Network hookups,
whether telephone or radio related.
4.4 AUTHORIZATIONS. In the event that it is or shall become required by law, the
parties shall cooperate as necessary in registering this Agreement with any
required governmental entities in Great Britain and in obtaining any other
governmental and other third party authorizations as may be required in
order that ILTS UK may remit any amounts paid to it hereunder out of Great
Britain or convert any such funds, in whole or in part, to United States
dollars in a timely manner.
4.5 DRAWINGS. IFT shall be responsible for all activities in connection with
conducting winning number draws, including but not limited to game close
procedures, acquiring such equipment, services and other materials as may be
required to conduct such draws and broadcast on radio/television or publish,
winning numbers drawings in conjunction with the on-line lottery Games, and
disseminate winning numbers information.
4.6 PERSONNEL AND FACILITIES. ILTS UK shall maintain personnel and resources in
order to perform its obligations under this Agreement and in connection with
the operation of the on-line lottery processing system in a timely manner.
4.7 COLLECTION AND SETTLEMENT. As between IFT and ILTS UK, IFT shall be
responsible for all matters relating to collection of funds from Retail
Agents, including all collection procedures. ILTS UK shall provide IFT or
their designee with bank settlement (EFT) tapes on a timely basis for
collection of funds from retailer accounts. IFT agrees that ILTS UK shall be
paid all compensation owed in accordance with Article 5 hereof regardless of
whether IFT has collected all amounts due from the Retail Agents.
ARTICLE 5.0 COMPENSATION
5.1 In consideration for the on-line lottery management services provided
hereunder by ILTS UK, IFT shall pay ILTS UK a Facility Management Fee as set
forth in Attachment A hereto. The compensation set forth in Attachment A is
exclusive of applicable tax. All payments made to ILTS UK under this
Agreement shall be paid in British Pounds.
5.2 ILTS UK shall submit a weekly invoice to IFT following the close of ILTS
UK's operating week, which ILTS UK shall define prior to the Go-live day.
Said invoice shall indicate the amount of compensation and applicable tax
due in accordance with Section 5.1 hereof. IFT shall pay the amount set
forth in the invoice within five (5) business days of receipt of the
invoice.
5.3 Payments made by IFT hereunder shall be by wire transfer to a bank, which
shall be designated by ILTS UK in writing, or by such other means as may be
acceptable to ILTS UK.
<PAGE>
5.4 If IFT Payments past due thirty (30) days will bear a late charge fee at the
rate of one and one-half percent (1.5%) per month or portion thereof
accumulative. Payment is deemed to have been effected on the day when
Supplier's bank account has been credited with the payment.
5.5 ILTS UK shall be entitled to a cost-of-living increase in fees at each
anniversary year of the Agreement. This increase will apply only to the
Fixed Weekly Fee in effect at that time . The index used will be a UK
standard mutually agreed upon by both parties.
ARTICLE 6.0 TERM AND TERMINATION
6.1 TERM. This Agreement shall become effective on the Effective Date and shall
expire eight (8) years from the Go-live day ("Term") and shall continue for
successive one-year renewal periods unless one party notifies the other
party one hundred twenty days (120) prior to the end of the initial term or
of a successive term of its intent not to continue the Agreement for a
successive term.
6.2 TERMINATION.
6.2.1 IFT may terminate this Agreement if:
(a) ILTS or ILTS UK should enter into liquidation or receivership, or be
declared bankrupt, or enter into any composition or similar
arrangement with its creditors, said termination to take effect
immediately upon receipt of written notice of termination; or,
(b) ILTS UK breaches a material provision of this Agreement and fails to
cure such breach within forty-fivesixty (4560) days after receipt by
ILTS UK of written notice specifying such breach; or,
(c) In accordance with Schedule 2, Section 2.2 of the Purchase Agreement,
if IFT Leasing declines acceptance of the System and terminates the
Purchase Agreement; or
(d) If IFT Leasing terminates the Purchase Agreement under Section 17.1 of
the Purchase Agreement.
6.2.2 ILTS UK may terminate this Agreement if:
(a) IFT fails to maintain its contract with InterLotto or InterLotto
ceases to have authorization to operate a computerized lottery,
including but not limited to the on-line Games contemplated by this
<PAGE>
Agreement. If the cessation of authorization is reasonably curable,
termination will take effect if IFT fails to effect a cure within
forty-fivesixty (4560) days after written notice to ILTS UK;
otherwise, such termination to take effect immediately upon the
receipt by IFT of written notice thereof;
(b) IFT should enter into liquidation or receivership, or be declared
bankrupt, or enter into any composition or similar arrangement with
its creditors, said termination to take effect immediately upon
receipt IFT of written notice of termination by, or;
(c) IFT breaches a material provision of this Agreement and fails to cure
such breach within sixty (60) days after receipt by IFT of written
notice specifying such breach.
6.2.3 In the event of termination of this Agreement by either
partyILTS UK, the terminating party ILTS UK may cease its performance
hereunder and may:
(i) recover from the other party IFT the unpaid balance of all sums
due under this Agreement as of the date of such termination;
(ii) recover from the other party IFT any damages due to the default,
including but not limited to its reasonable attorneys' fees and
judicial costs incurred in enforcing its rights hereunder; and,
(iii) terminate the other party's rights under this Agreement. Upon
the default of IFT, ILTS UK shall have such other and further
remedies and rights as may be available at law or in equity by
reason of such default.
ARTICLE 7.0 EXCLUSIVITY AND CONFIDENTIALITY
7.1 EXCLUSIVITY. For so long as this Agreement remains in effect:
(a) ILTS UK shall not supply or provide computer software, management,
facilities or related services to any person or entity other than IFT
for or in connection with the conduct of a lottery or similar gaming
programs (not including sports betting such as horse racing or
football) anywhere in England, Scotland and Wales, andthe United
Kingdom;
(b) IFT shall not obtain computer software, management, facilities or
related services (which are available or reasonably can be made
available from ILTS UK) for or in connection with the conduct of
lottery or similar gaming programs anywhere in England, Scotland and
Walesthe United Kingdom from any person or entity other than ILTS UK.
7.2 CONFIDENTIALITY. As used herein, "Confidential Information" means all
information (including, without limiting the foregoing, all engineering,
programming and other technical and commercial information and know-how,
sales contacts and marketing strategy) directly or indirectly disclosed by
one party to the other pursuant to or in connection with this Agreement
(including, without limiting the foregoing, any negotiations preceding this
Agreement), provided that said information is descriptive of or used or
useful in connection with the creation, development, modification,
<PAGE>
production, testing, maintenance, marketing or other use of confidential
information. "Confidential Information" as defined herein shall not include
information, which is:
(a) widely known to the public or within the computer and/or gaming
industries, without any fault of the party to whom it is disclosed
(for the purposes of this Section 6.1), the "Recipient"); or,
(b) already known to the Recipient at the time that said information is
disclosed to the Recipient by the party owning or disclosing the
information (for the purposes of this Section 6.1, the "Discloser"),
provided that said knowledge is documented by records in the
Recipient's possession predating such disclosure.
7.2.1 Each Recipient hereby acknowledges that all Confidential Information is
vital to the Discloser's business and success. Therefore, each Recipient
agrees that it shall at all times keep all Confidential Information in the
strictest of confidence. Each Recipient further agrees that it shall never
disclose, indirectly, in whole or in part, alone or in conjunction with
others, any Confidential Information to anyone, other than to that
Recipient's employees with a need to know such Confidential Information
for purposes contemplated by this Agreement.
7.2.2 Each Recipient further agrees that neither that Recipient nor any
Recipient employee shall in any way (directly or indirectly, in whole or
in part, alone or in conjunction with others) disclose, use or copy in any
medium, any Confidential Information without the Discloser's prior
specific written authorization.
7.2.3 Each Recipient shall take all reasonable measures to protect the
confidentiality of Confidential Information. Without limiting the
foregoing, each Recipient shall employ security measures and a degree of
care regarding Confidential Information which are at least as protective
as those employed by that Recipient regarding its own proprietary property
and confidential information.
The provisions of thisis Section Article 7.2 0 shall survive the
termination or expiration of the Agreement for aa five (5) year period.
ARTICLE 8.0 CUSTOMER'S REMEDY
If for any reason other than a breach of contract by IFT, ILTS fail or cease to
provide services to be provided in this Agreement in a manner which prevents IFT
from conducting lottery operation in the manner contemplated by this Agreement
in a material respect, IFT shall retain the right to terminate this Agreement
and to use the equipment, facilities, software, and documentation for those
items owned by ILTS and which are necessary to provide contractual services and
<PAGE>
to recover damages from ILTS UK, subject to the terms and limits of this
Agreement. Said right shall be limited to the right of IFT to possess and make
use of such solely for the use and benefit of IFT in maintaining, altering and
improving the operational characteristics of the programs and systems being used
under the contract. In such an event, all software programs, documentation,
operating instructions, facilities, hardware, and the like, including
modifications or alterations thereof, shall be kept in confidence and shall be
returned together with all copies to ILTS upon termination of the Facilities
Management Agreement term.
If there has been a determination, mutually agreed upon by IFT and ILTS, that
continuity of ILTS' operations are in jeopardy and this provision may be
applicable, ILTS shall provide training to IFT in the operation of the System,
at IFT's request.
ARTICLE 9.0 FORCE MAJEURE
9.1 Each party shall not be liable for any delay in performing any obligation
hereunder for any cause beyond its reasonable control, including but not
limited to strike and labor disputes, accidents, war, invasion, riot,
rebellion, civil commotion, insurrection, any act (including without
limitation any injunctive or restraining act) or judgement of any court
granted in any legal proceeding, fire, wind, lightning, explosion, act of
government or faults or delays by subcontractors to provide service due to
circumstances such as those cited above but not including increased costs
("Force Majeure"). Notwithstanding the foregoing, it shall not be deemed to
be Force Majeure if any of the events set forth in Section 6.2.2 (a) herein
occur.
9.2 If either party is delayed in performance due to Force Majeure, it shall as
soon as possible give the other party written notice of its claim for an
extension of time. The other party shall grant reasonable extension (s) of
time for completion of this Agreement or any part thereof, provided that all
reasonable action has been taken by the delayed party to prevent such delay
from extending the time for completion of the delayed party's obligations
hereunder.
ARTICLE 10.0 GENERAL
10.1 COMPLIANCE. Each party hereby agrees that it shall neither offer to make
nor authorize any offer or payment directly or indirectly to any person
who is an official, member, employee or agent of the government of the
United Kingdom, or of any municipality or instrumentality thereof
("Government"), for the purpose of inducing such person to (a) use his
influence with such Government or (b) fail to perform his official
functions, in either case to assist any party or in obtaining or retaining
business for or with, or directing business to any person, or influencing
legislation or regulations of the Government. Each party agrees that its
activities under this Agreement may be subject to the laws of the United
States and the United Kingdom, and that it shall comply fully with such
laws as may be applicable.
<PAGE>
10.2 COOPERATION OF THE PARTIES. The parties agree to cooperate fully, to act
reasonably, to work in good faith and to mutually assist each other in the
performance of this Agreement, it being mutually understood that it is to
be benefit of both parties that this Agreement be as profitable as
possible for each party. The parties shall meet from time to time upon the
reasonable written request of either to confer, in good faith, amicably
and in a businesslike manner with respect to fulfilling this Agreement and
resolving any problems which may arise.
10.3 RELATIONSHIP OF PARTIES. The parties to this Agreement are and will be
acting in their individual capacities and not as agents, employees,
partners, joint venturers or associates of one another. The employees or
agents of one party shall not be deemed or construed to be the employees
or agents of the other party for any purpose whatsoever.
10.4 Liability. ILTS UK shall never be liable for special, indirect or
consequential damages or any damages whatsoever resulting from loss of
use, data or profits, arising out of or in connection with this Agreement
or the use of performance of the System, whether in an action of contract,
tort (including negligence) or otherwise. The provisions of Articles 13.0
and 14.0 of the Purchase Agreement relating to indemnities, limits of
liability and remedies are incorporated in this Agreement for the term of
this Agreement.
10.5 This Agreement and the related Purchase Agreement embody the entire
agreement between the parties and supersede in their entirety all previous
understandings, agreements, and representations between the parties, oral
or written with respect to the subject matter hereof. This Agreement may
not be amended or modified except by an instrument in writing duly
executed on behalf of the parties. Any waiver of any breach of this
Agreement shall be limited to the particular instance and shall not
operate or be deemed to waive any future breach. Any representation or
statement not contained in this Agreement shall not be binding as a
warranty or otherwise.
10.6 CONTROL PROCEDURE. Changes to this Agreement will be controlled,
documented, defined and implemented utilizing a consistent process and
form to be mutually agreed upon between IFT and ILTS UK.
10.7 ASSIGNMENT. This Agreement shall not be assigned by either party without
the prior written consent of the other party. Notwithstanding the
foregoing, it is agreed that either party may assign its rights and
obligations under this Agreement ("Assignor") to one of its
subsidiariesaffiliates authorized to do business in Great Britain (the
"Assignee"), provided that:
(a) The full and faithful performance by the Assignee of its obligations
under the Agreement in accordance with the terms and conditions of the
Agreement shall be unconditionally guaranteed by the Assignor. In the
<PAGE>
event of a failure of the Assignee to perform any obligations under
this Agreement, the Assignor shall immediately perform such
obligations, and;
(b) The non-assigning party shall receive copies of all documentation
evidencing such assignment.
<PAGE>
10.8 Notices. Any notice given hereunder shall be deemed sufficient if given in
writing by a party to the other party, to the attention of the Chief
Executive Officer (or such other individual as a party may designate in
writing), of such party in either case directed to the addresses set forth
in Section 9.14 of this at the head of this Agreement (or such other
notice as either party may specify using like notice), and shall be deemed
delivered and received upon actual receipt, or twenty-four (24) hours
after dispatch by facsimile transmission, with receipt of facsimile
confirmation, provided that an original copy of said notice is mailed by
registered mail no later than the next business day following dispatch by
facsimile.
10.9 Severability. The parties acknowledge that the provisions contained
herein(including without limitation any relating to Confidential
Information) are required for the reasonable protection of the business
interests of the parties. The illegality, invalidity or unenforceability
of any provision of this Agreement under any applicable law shall not
affect its legality, validity or enforceability under the law of any other
jurisdiction nor the legality, validity or enforceability of any other
provision, and to this end the provisions hereof are declared to be
severable.
10.10 AMENDMENT. Each of the parties agrees that this Agreement will be amended
to the extent necessary to comply with all governmental laws, regulations
and directives.
10.11 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the substantive laws of England and Wales. The venue for
any proceeding brought to enforce or interpret this Agreement shall be in
the appropriate tribunals in London, England, and the parties to this
Agreement consent to the jurisdiction of those tribunals. The provisions
of the United Nations Convention on Contracts for the International Sale
of Goods is applicable to this Agreement.
10.12 HEADINGS. Section headings of this Agreement are for convenience only and
shall neither form a part nor affect the interpretation hereof.
<PAGE>
10.13 AUTHORIZATION TO EXECUTE AGREEMENT. Each party has full power and
authority to enter into and perform this Agreement, and the person signing
this Agreement on behalf of each party has been properly authorized and
empowered to enter into this Agreement. Each party acknowledges it has
read this Agreement, understands, and agrees to be bound by it.
IFT Management Limited ILTS UK Ltd.
c/o Richards Butler c/o International Lottery &
Beaufort House Totalizator Systems, Inc.
15 St. Botolph Street 2131 Faraday Avenue
London, England EC 3A 7EE Carlsbad, California
United States of America
James W. Fox M. Mark Michalko
------------------------ -----------------------------
Signed Signed
James W. Fox M. Mark Michalko
------------------------ -----------------------------
Printed Name Printed Name
President President
------------------------ -----------------------------
Title Title
<PAGE>
[Attachment intentionally deleted]
GUARANTIES
Interactive Flight Technologies, Inc. hereby guaranties, as surety, the
payment and performance when due of all payments and obligations to be paid or
performed by IFT Leasing Limited under the Purchase Agreement ("the Purchase
Agreement"), dated September 8, 1999 between IFT Leasing Limited and
International Lottery & Totalizator Systems, Inc. ("ILTS") and under the
Facilities Management Agreement ("the Facilities Agreement"), dated September 8,
1999, between IFT Management Limited and ILTS, U.K. Ltd.
ILTS hereby guaranties, as surety, the payment and performance when due of
all payments and obligations to be paid or performed by ILTS, U.K. Ltd. under
the Facilities Agreement.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:_______________________________________
INTERNATIONAL LOTTERY &
TOTALIZATOR SYSTEMS, INC.
By:_______________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND IN THE COMPANY'S
10-QSB FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 9,257,226
<SECURITIES> 4,173,444
<RECEIVABLES> 5,120,211
<ALLOWANCES> 6,544
<INVENTORY> 2,984,708
<CURRENT-ASSETS> 24,415,058
<PP&E> 2,408,865
<DEPRECIATION> 1,055,565
<TOTAL-ASSETS> 41,615,544
<CURRENT-LIABILITIES> 9,334,618
<BONDS> 0
0
30
<COMMON> 61,132
<OTHER-SE> 29,352,654
<TOTAL-LIABILITY-AND-EQUITY> 41,615,544
<SALES> 5,550,560
<TOTAL-REVENUES> 5,610,387
<CGS> 3,420,381
<TOTAL-COSTS> 3,428,961
<OTHER-EXPENSES> 2,742,031
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,651
<INCOME-PRETAX> (499,115)
<INCOME-TAX> 0
<INCOME-CONTINUING> (499,115)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (499,115)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
</TABLE>
