As filed with the Securities and Exchange Commission on August 15, 2000
Registration No.: 333-41096
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GLOBAL TECHNOLOGIES, LTD.
(Exact Name of Registrant as specified in its Charter)
Delaware 86-0970492
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
the Belgravia, 1811 Chestnut Street, Suite 120, Philadelphia, PA 19103
(215) 972-8191
(Address, including Zip Code, and Telephone Number, including Area Code,
of Registrant's Principal Executive Offices)
S. Lance Silver, General Counsel
Global Technologies, Ltd.
the Belgravia, 1811 Chestnut Street, Suite 120, Philadelphia, PA 19103
Telephone: (215) 972-8191
(Name and Address, including Zip Code and Telephone Number,
including Area Code, of Agent for Service)
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Copies of all communications to:
Richard P. Jaffe, Esquire
Schnader Harrison Segal & Lewis LLP
1735 Market Street, 38Th Floor
Philadelphia, PA 19103-7598
Telephone: (215) 994-1046 Telefax: (215) 994-1111
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
<PAGE>
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================================================================================
Proposed July 5 Proposed Maximum Amount of
Title of Securities Amount to be Maximum Offering Aggregate Offering Registration
To be Registered Registered price per Share price Fee(4)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock,
$0.01 par value 250,000(1) $5.96875(3) $ 1,492,187.50 (3) $393.94
Class A Common Stock,
$0.01 par value 20,000(2) $5.96875(3) $ 119,375 (3) $ 31.52
Class A Common Stock,
$0.01 par value 192,166(6) $ 3.9375(5) $ 756,653.63 (5) $199.76
------- -------------- -------
Total 462,166 $ 2,368,216.10 $625.22 (7)
============================================================================================
</TABLE>
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(1) The registrant is registering for resale by certain selling stockholders
(i) 125,0000 shares of Class A Common Stock that may be acquired by such
selling stockholders upon the conversion, redemption or payment of certain
secured convertible notes of the registrant and (ii) 125,000 shares of
Class A Common Stock that may be acquired by such selling stockholders upon
exercise of certain warrants of the registrant issued in connection with a
partial redemption of such notes. Pursuant to Rule 416 of the Securities
Act of 1933, as amended, this registration statement also registers such
additional number of shares of registrant's Class A Common Stock as may
become issuable upon any such conversion, payment, redemption or exercise
as a result of stock splits, stock dividends and similar transactions.
(2) The registrant is registering for resale by certain selling stockholders
shares of Class A Common Stock that may be acquired by such selling
stockholders upon exercise of certain warrants of the registrant. Pursuant
to Rule 416 of the Securities Act of 1933, as amended, this registration
statement also registers such additional number of shares of registrant's
Class A Common Stock as may become issuable upon exercise of the warrants
as a result of stock splits, stock dividends and similar transactions.
(3) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended. The proposed
maximum offering price per share is based upon the average of the high and
low sales prices of the Class A Common Stock as quoted on the Nasdaq
National Market System as of the close of trading on July 5, 2000.
(4) Calculated by multiplying the aggregate offering amount by .000264.
(5) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended. The proposed
maximum offering price per share is based upon the average of the high and
low sales prices of the Class A Common Stock as quoted on the Nasdaq
National Market System as of the close of trading on August 9, 2000.
(6) The registrant is registering for resale by certain selling stockholders
additional shares of class A common stock issued to such selling
stockholders in termination and settlement of certain consulting
agreements.
(7) $425.46 previously paid.
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the SEC acting pursuant to said Section 8(a), may
determine.
----------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 15, 2000
PROSPECTUS
GLOBAL TECHNOLOGIES, LTD.
462,166 SHARES
CLASS A COMMON STOCK
This Prospectus relates to the offer for sale from time to time of up to
462,166 shares of Class A Common Stock, par value $0.01 per share, of Global
Technologies, Ltd., a Delaware corporation, by (i) stockholders who hold secured
convertible notes and warrants issued in connection with a partial redemption of
such notes, (ii) other stockholders who received warrants of the company in
connection with the issuance of such notes, and (iii) stockholders who hold
shares of Class A Common Stock. Although we would receive certain benefits from
the conversion of the notes and would receive exercise proceeds from the
exercise of the warrants, we will not receive any of the proceeds from the
resale of these shares by the selling stockholders. For more information on the
selling stockholders, the notes and the warrants, please see "Selling Security
Holders" beginning on Page 24.
Global's Class A Common Stock is traded on the Nasdaq National Market under
the symbol "GTLL." The closing sale price of our Class A Common Stock as
reported by the Nasdaq National Market on August 9, 2000 was $4-1/16 per share.
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
FACTORS YOU SHOULD CONSIDER IN CONNECTION WITH ANY DECISION TO PURCHASE SHARES
IN THIS OFFERING.
The selling stockholders may sell the shares of Class A Common Stock
described in this prospectus in public or private transactions, on or off the
Nasdaq National Market, at prevailing market prices, or at privately negotiated
prices. The selling stockholders may sell shares directly to purchasers or
through brokers or dealers. Brokers or dealers may receive compensation in the
form of discounts, concessions or commissions from the selling stockholders. For
more information on how the shares may be distributed, please see "Plan of
Distribution" beginning on PAGE 28.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is ______________, 2000.
<PAGE>
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS............................. 4
AN OVERVIEW OF OUR BUSINESS................................................. 5
RISK FACTORS................................................................ 6
RISKS PARTICULAR TO GLOBAL.................................................. 6
RISKS PARTICULAR TO OUR PARTNER COMPANIES................................... 17
USE OF PROCEEDS............................................................. 24
SELLING SECURITY HOLDERS.................................................... 24
PLAN OF DISTRIBUTION........................................................ 28
DISCLOSURE OF THE SEC'S POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES.............................................. 29
LEGAL MATTERS............................................................... 30
EXPERTS..................................................................... 30
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Throughout this prospectus, "Global Technologies," "Global," "we," "us,"
and "our," and other possessive and other derivations thereof, refer to Global
Technologies, Ltd. and its consolidated subsidiaries, unless the context
otherwise requires. All trademarks and trade names appearing in this prospectus
are the property of Global, unless otherwise indicated.
This prospectus is part of a registration statement we filed with the SEC.
Global may amend or supplement this prospectus from time to time by filing
amendments or supplements as required. Please read this entire prospectus and
any amendments or supplements carefully before making your investment decision
to purchase shares in this offering. You should rely only on the information
provided in, and incorporated by reference into, this prospectus. You should not
assume that the information in this prospectus is accurate as of any date other
than the date on the front of the document. We have authorized no one to provide
you with different information. We are not making an offer of these securities
in any state where the offer is not permitted.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any such documents that we have
filed. You may do so at the Commission's public reference room, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. These documents
are also available at the following Regional Office: 7 World Trade Center, Suite
1300, New York, New York 10048. Please call the Commission at 1-800-SEC-0330 for
further information on the public reference rooms.
Our SEC filings are also available to the public on the Commission's web
site at http://www.sec.gov. Our web site can be found at http://www.gtll.com.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" into this registration
statement some of the information we have already filed with the SEC. As a
result, we can disclose important information to you by referring you to those
documents. These incorporated documents contain important business and financial
information about us that is not contained in or delivered with this prospectus.
The information incorporated by reference is considered to be part of this
prospectus. Moreover, later information filed with the SEC by us in the future
will update and supersede this information and similarly be considered to be a
part of this prospectus. We incorporate by reference the documents listed below,
all filings made by us with the SEC under Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 after the date of the initial registration
statement, as amended, and prior to effectiveness of the registration statement,
and any future filings made by us with the SEC under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934:
* Our Annual Report on Form 10-KSB for the fiscal year ended October 31,
1998.
* Our Quarterly Report on Form 10-QSB for the fiscal quarter ended
January 31, 1999.
* Our Current Report on Form 8-K filed on June 1, 1999.
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* Our Quarterly Report on Form 10-QSB for the fiscal quarter ended April
30, 1999.
* Our Amended Current Report on Form 8-K filed on August 2, 1999.
* Our Definitive Proxy Statement filed August 17, 1999.
* Our Current Report on Form 8-K filed on August 31, 1999.
* Our Definitive Proxy Statement filed September 16, 1999.
* Our Transition Report on Form 10-KSB for the transition period ended
June 30, 1999.
* Our Quarterly Report on Form 10-QSB for the fiscal quarter ended
September 30, 1999.
* Our Quarterly Report on Form 10-QSB for the fiscal quarter ended
December 31, 1999.
* Our Two Amended Quarterly Reports on Form 10-QSB for the fiscal
quarter ended December 31, 1999.
* Our Current Report on Form 8-K filed on February 28, 2000.
* Our Quarterly Report on Form 10-QSB for the fiscal quarter ended March
31, 2000.
* Our Definitive Proxy Statement filed April 17, 2000.
* The description of the Class A Common Stock as set forth in our
registration statement on Form 8-A filed with the SEC on December 31,
1994, as amended by our registration statement on Form 8-A/A filed
with the SEC on March 8, 1995, and any other amendments or reports
thereto filed with the SEC for the purpose of updating such
description.
We will provide, without charge, to each person to whom a prospectus is
delivered, a copy of these documents that are incorporated by reference into,
but not delivered with, this prospectus. You may request a copy of these filings
by writing or telephoning us at the following address:
S. Lance Silver, General Counsel
Global Technologies, Ltd.
The Belgravia, 1811 Chestnut Street, Suite 120
Philadelphia, PA 19103
Telephone number: 215-972-8191
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This prospectus, and certain information incorporated herein by reference,
include "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. This act provides a "safe harbor" for
forward-looking statements to encourage companies to provide prospective
information about themselves so long as they identify these statements as
forward-looking and provide meaningful cautionary statements identifying
important factors that could cause actual results to differ from the projected
results.
All statements other than statements of historical fact we make in this
prospectus or in any document incorporated by reference are forward-looking. In
particular, the statements herein, and in the incorporated information,
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regarding our future results of operations or financial position are
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "potential," or "continue" or
the negative of such terms or other comparable terminology.
Forward-looking statements reflect our current expectations and are
inherently uncertain. For these statements, we claim the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. You should understand that future events, in
addition to those discussed elsewhere in this prospectus, particularly under
"Risk Factors," and also in other filings made by us with the Securities and
Exchange Commission, could affect our future operations and cause our results to
differ materially from those expressed in our forward-looking statements. The
cautionary statements made in this prospectus and in the incorporated
information should be read as being applicable to all related forward-looking
statements contained in this prospectus and the incorporated information.
AN OVERVIEW OF OUR BUSINESS
We are a technology incubator that invests in, develops and manages
emerging growth companies in the e-commerce, Internet, networking solutions,
information and entertainment systems, telecommunications and gaming industries.
We currently hold common stock and convertible preferred stock representing
approximately 80% of the outstanding common stock of The Network Connection,
Inc. on a fully converted basis. The Network Connection is publicly traded on
the Nasdaq SmallCap Market under the ticker symbol "TNCX." The Network
Connection provides an Internet information and video and audio entertainment
system for the away-from-home market and has expertise in providing content,
e-commerce and connectivity for communities of people in hotels, cruise ships,
trains and corporate training centers. The Network Connection's systems are
designed to deliver to users a personal, on-demand, full-motion video and audio
experience via high performance networks in trains (TrainView'), cruise ships
(CruiseView(TM)) and hotels (InnView(TM)), as well as the education and
corporate training markets (EduView'). This is achieved by the use of TNCi's
family of Cheetah' video servers and transPORTAL tools.
We also hold 3,000,000 shares of common stock representing approximately
14% of the outstanding common stock of U.S. Wireless Corporation based on the
number of outstanding shares of U.S. Wireless common stock disclosed in its
annual report filed with the Securities and Exchange Commission on June 26,
2000. U.S. Wireless is publicly traded on the Nasdaq National Market under the
ticker symbol "USWC." U.S. Wireless has developed proprietary network-based
wireless location technology designed to enable wireless carriers and others to
provide their customers with location-based services and applications. These
services include enhanced 411 and 911 services, live navigation assistance,
asset and vehicle tracking, intelligent transportation systems, location
sensitive billing and network management systems. U.S. Wireless' RadioCamera(TM)
location system is a geographic location system that pinpoints the locations of
mobile telephone subscribers within a wireless network. The RadioCamera(TM)
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system measures the radio frequency pattern or the phase (i.e., the timing and
the amplitude path) of all the radio frequency signals from a caller to a single
cell site.
We also hold 27.5% of Inter Lotto (UK) Limited, a United Kingdom company
that is licensed to operate lotteries on behalf of charities in Great Britain.
GTL Management Limited, a wholly owned subsidiary of Global, has an exclusive
contract with Inter Lotto to provide management services in connection with the
operation of these lotteries. The UK lottery, called "The Daily Number," was
officially launched on April 4, 2000.
We also hold an approximately 4% equity interest in Shop4Cash.com, Inc., a
privately held, cash-incentive, Internet shopping portal with a growing base of
approximately 250 affiliated merchants.
RISK FACTORS
Making an investment in the Class A Common Stock of Global Technologies,
Ltd. is highly speculative and involves a high degree of risk. Before making an
investment, you should be aware of the following risk factors and should review
carefully the financial and other information about us provided or incorporated
into this prospectus.
RISKS PARTICULAR TO GLOBAL
WE PLAN TO SELL OR FURTHER BORROW AGAINST SOME OF OUR INVESTMENTS TO MEET OUR
FINANCIAL OBLIGATIONS OVER THE NEXT 90 DAYS AND THERE IS RISK THAT WE MAY NOT BE
ABLE TO DO SO AT TIMES OR PRICES NECESSARY TO MEET THESE OBLIGATIONS.
As of August 9, 2000, we had an obligation of approximately $2.9 million in
connection with the purchase of the hardware and software that serves as the
network operating center of the on-line lottery system that we have deployed in
the United Kingdom, and the terminals through which lottery players purchase
lottery tickets. In addition, we have an obligation of approximately $1.5
million in connection with the purchase of various services in support of our
on-line lottery system. Furthermore, we currently anticipate that our lottery
project will require approximately $500,000 per month in the three month period
ending October 31, 2000 to continue operations.
We are also obligated to lend The Network Connection up to $5.0 million
pursuant to a revolving credit facility agreement. As of August 9, 2000, The
Network Connection has drawn a total of $5.1 million against this line of
credit, of which we converted $1.85 million of the outstanding balance under the
facility into 1,233,333 shares of The Network Connection common stock, leaving
an outstanding balance of $3.25 million. The Network Connection has executed
contracts to install its InnView(TM) interactive information and entertainment
system in seven hotels. The Network Connection recently entered into a $12.0
million equity purchase agreement contemplating purchases of its common stock by
an investor. If The Network Connection does not obtain any proceeds from
purchases, it will likely continue to draw on the credit facility with us to
finance the production of some or all of the equipment necessary for such
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installations, as well as to cover other commitments and operating expenses. The
lottery equipment purchase and outstanding service obligations and the losses
that we expect to fund, together with projected draws under The Network
Connection credit facility and other operating expenses, exceed the sum of our
currently available cash and cash equivalents, which sum totaled $0.2 million as
of August 9, 2000.
Although we recently obtained $10.0 million in equity financing from the
issuance of our Series C Convertible Preferred Stock, obtained a $10 million
line of credit facility with Merrill Lynch, which has been secured with a pledge
of one million of our shares of common stock of U.S. Wireless, and obtained $4.0
million from the issuance of convertible notes secured by the pledge of an
additional one million of our shares of common stock of U.S. Wireless (of which
we redeemed $2.0 million of the principal amount on July 7, 2000 for a total
redemption cost of approximately $2.2 million and the issuance of warrants
described below), we plan to sell or further borrow against some of our
investments to cover our financial obligations and to continue to execute on our
business strategy of investing in, developing and managing emerging growth
companies in the e-commerce, Internet, networking solutions, information and
entertainment systems, telecommunications and gaming industries. We did not
consummate the collateral loan agreement we entered into on June 28, 2000
relating to a contemplated loan of $16.0 million against a pledge of one million
shares of our U.S. Wireless common stock, which we expected to close with
funding on or about July 12, 2000, and such collateral loan agreement has been
terminated. Accordingly, on August 9, 2000, we entered into another collateral
loan agreement relating to a loan of $12.0 million against a pledge of 1,500,000
shares of our U.S. Wireless common stock. We expect funding to occur on such
facility in two equal installments on August 16, 2000 and August 22, 2000 (a
more detailed discussion of this transaction is set forth in the third risk
factor below). We provide no assurance that funding will occur as scheduled in
connection with this loan or that we will be able to sell or borrow against
other of our assets at planned times or for prices necessary to meet our
financial obligations or to take advantage of investment or acquisition
opportunities consistent with our business strategy. Failure to do so may
prevent or delay further development of our business and/or cause us to default
under the credit facility to The Network Connection. Such failure, delay and/or
default would have a material adverse effect on the growth of our business, The
Network Connection's and our financial condition, and may subject us to legal
liability.
ONE MILLION OF OUR SHARES OF COMMON STOCK OF U.S. WIRELESS CORPORATION, WHICH WE
HAVE PLEDGED TO SECURE THE MERRILL LYNCH CREDIT FACILITY, MAY BE LIQUIDATED TO
SATISFY OUR OBLIGATIONS TO MERRILL LYNCH AND COULD ALSO RESULT IN ADVERSE TAX
CONSEQUENCES.
On April 5, 2000, we entered into a line of credit facility with Merrill
Lynch in which Merrill Lynch agreed to advance up to $10.0 million based upon a
percentage of the value of securities pledged as collateral to secure amounts
drawn under the line of credit. Principal amounts borrowed under the line,
together with accrued interest at an annual rate equal to the London Inter-bank
Offer Rate (LIBOR) plus 1.25%, are payable upon demand by Merrill Lynch. As of
August 9, 2000, we had an outstanding balance of approximately $6.9 million
under the Merrill Lynch line of credit facility. To secure such borrowing, we
have pledged 1,000,000 of our shares of common stock of U.S. Wireless to Merrill
Lynch.
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If the amount owed under the Merrill Lynch credit facility at any time
exceeds 35% of the market value of the shares of U.S. Wireless pledged to
Merrill Lynch, we will be subject to a maintenance call which would require us
to pledge additional securities which are acceptable to Merrill Lynch as
collateral or require us to reduce the outstanding balance owed under the
Merrill Lynch credit facility through payment in cash. We provide no assurance
that we would have sufficient additional collateral or funds necessary to pay
outstanding amounts owed under the Merrill Lynch credit facility in the event of
a maintenance call or upon demand for payment by Merrill Lynch, the failure of
either of which would result in the liquidation of our shares of U.S. Wireless
pledged to Merrill Lynch to satisfy outstanding obligations under the Merrill
Lynch credit facility, adverse tax consequences resulting from such liquidation,
and a material adverse effect on our financial condition.
On July 17, 2000, we received a maintenance call for approximately $493,000
under the Merrill Lynch credit facility. In order to satisfy such maintenance
call, Irwin Gross, our Chief Executive Officer, pledged personal assets to
Merrill Lynch. Subsequent to the inclusion of these pledged assets, on August 9,
2000, we received an additional maintenance call for approximately $347,000,
which has temporarily been waived by Merrill Lynch pending our receipt of
funding under the collateral loan agreement we entered into on August 9, 2000
referred to in the immediately preceding risk factor.
ANOTHER FIVE HUNDRED THOUSAND OF OUR SHARES OF COMMON STOCK OF U.S. WIRELESS
CORPORATION, WHICH WE HAVE PLEDGED TO SECURE THE SECURED CONVERTIBLE NOTES, MAY
BE LIQUIDATED TO SATISFY OUR OBLIGATIONS TO THE HOLDERS OF THE NOTES AND COULD
ALSO RESULT IN ADVERSE TAX CONSEQUENCES.
On June 8, 2000, we issued $4.0 million of secured convertible notes to
Advantage Fund II Ltd. and Koch Investment Group, Ltd. The notes bear interest
at 6% per annum and mature on December 7, 2001. The notes are convertible into
shares of our Class A Common Stock at a conversion rate of two dollars per
share, subject to customary adjustments. To secure such borrowing, we pledged
1,000,000 of our shares of common stock of U.S. Wireless to the holders of the
notes. One event of default under the notes occurs if U.S. Wireless common stock
trades at less than $5.00 per share at any time during each of five trading days
(which need not be consecutive) within any consecutive 30-day period and certain
other conditions are met. A default by us under the notes would allow the
holders to accelerate our repayment obligations. Our failure to repay on an
accelerated basis in a default situation could result in the liquidation of our
shares of U.S. Wireless pledged in connection with the issuance of the notes to
satisfy outstanding obligations under the notes, adverse tax consequences
resulting from such liquidation, and a material adverse effect on our financial
condition. On July 7, 2000, we redeemed $2.0 million of the principal amount of
these notes. In connection with this redemption, the lenders released to us
500,000 shares of U.S. Wireless common stock previously held as collateral. The
notes require that in connection with such redemption we issue warrants for
125,000 shares, in the aggregate, of our Class A Common Stock to the holders of
the notes. These warrants have a four-year term and an exercise price of $4.00
per share. For a more detailed discussion of this transaction, see "Selling
Security Holders" on Page 24 below.
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THE REMAINING ONE AND ONE-HALF MILLION OF OUR THREE MILLION SHARES OF COMMON
STOCK OF U.S. WIRELESS CORPORATION, WHICH WE HAVE AGREED TO PLEDGE TO SECURE A
$12.0 MILLION LOAN, MAY BE LIQUIDATED TO SATISFY OUR OBLIGATIONS TO THE LENDERS
AND COULD ALSO RESULT IN ADVERSE TAX CONSEQUENCES.
On August 9, 2000, we entered into a collateral loan agreement in
connection with a $12.0 million loan from an institutional lender. This loan is
expected to be funded in two equal installments on August 16, 2000 and August
22, 2000, at which time we will issue promissory notes to the lender in the
aggregate principal amount of $12.0 million. The loan will bear interest at
prime rate, be payable monthly in arrears, and mature in one year. We currently
contemplate using the proceeds of this loan for potential acquisitions, working
capital and other corporate purposes, and to satisfy the August 9, 2000
maintenance call on the Merrill Lynch credit facility discussed above. To secure
such borrowing, we have agreed to pledge 1,500,000 of our shares of common stock
of U.S. Wireless to the lender. A default by us on any of our obligations under
the collateral loan agreement or promissory note, could result in the
liquidation of our shares of U.S. Wireless pledged as security for the loan to
satisfy outstanding loan obligations, adverse tax consequences resulting from
such liquidation, and a material adverse effect on our financial condition.
OUR PARTNER COMPANIES ARE GROWING RAPIDLY AND WE MAY HAVE DIFFICULTY ASSISTING
THEM MANAGE THEIR GROWTH.
Our partner companies have grown, and we expect them to continue to grow
rapidly. This growth requires our partner companies to:
* hire new employees;
* aggressively advertise and promote their products and services;
* modify and expand the current array of products and services offered;
and
* push product into new markets where we believe that significant market
share and profitability may be achieved.
Such growth is placing a strain on the limited resources of our partner
companies and the limited resources we can allocate to assist them. The funds
required to support this growth may require us to forego acquisition
opportunities that would otherwise be consistent with our business strategy of
investing in, developing and managing emerging growth companies in the
e-commerce, Internet, networking solutions, information and entertainment
systems, telecommunications and gaming industries.
WE ARE A DEFENDANT IN A MULTI-DISTRICT CLASS ACTION LAWSUIT THAT IF DECIDED
ADVERSELY TO US COULD RESULT IN A LOSS OF OUR ASSETS.
The business strategy under former management was the development,
assembly, installation and operation of computer-based, in-flight entertainment
networks that provided passengers the opportunity to view movies, play computer
games and gamble, where legally permissible, through an in-seat video
touch-screen. The main contract with respect to that entertainment network was
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with Swissair. On September 2, 1998, Swissair flight 111 crashed. The aircraft
involved in the crash was a McDonnell Douglas MD-11 equipped with the
entertainment network developed by former management. A large number of claims
have been filed by the families of the victims of the crash. These claims have
been consolidated into a multi-district class action litigation in which we,
together with Swissair, Boeing, DuPont and a number of other companies, are a
defendant. Our aviation insurer is defending us in the action. We have $10.0
million in insurance coverage related to the action. We also have an umbrella
policy for an additional $10.0 million in coverage; however, we are currently
litigating the applicability of this policy to the action. If we do not settle
the multi-district litigation within our policy limits, or if we are found
liable for an amount in excess of these limits, our business would be adversely
affected. If found liable for an amount substantially in excess of the limits of
our coverage, we could lose all of our assets.
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH YOU MAY EVALUATE US.
We were formed in February 1994. Until May 1998, we were engaged in the
business of development, assembly, installation and operation of computer-based,
in-flight entertainment networks, at which time former management decided to
exit that business and to pursue opportunities in the dry-cleaning industry. In
September 1998, the former board of directors of Global resigned from office and
was replaced by our current board. The current board then appointed a new
management team and put together our current business strategy of investing in,
developing and managing emerging growth companies in the e-commerce, Internet,
networking solutions, information and entertainment systems, telecommunications
and gaming industries.
We have a limited operating history under our new business strategy and new
management on which you will be able to evaluate our business and prospects.
Each of our partner companies is in the early stage of its development. Our
business and prospects must be considered in light of the risk, expense and
difficulties frequently encountered by companies in early stages of development,
particularly companies in new and rapidly evolving markets such as e-commerce,
Internet, networking solutions and telecommunications. If we are unable to
effectively allocate our resources and help grow existing partner companies, we
may be unable to execute our business strategy and our stock price may be
adversely affected.
OUR BUSINESS DEPENDS ENTIRELY ON THE PERFORMANCE OF OUR PARTNER COMPANIES, WHICH
IS UNCERTAIN.
We own interests in and help our partner companies operate their respective
businesses. Each of our partner companies is engaged in a different operating
business, and consequently is subject to a set of risks particular to its
business. Material risks relating to our partner companies are set forth below
under "Risks Particular to our Partner Companies." If our partner companies do
not succeed, the value of our investments in such companies and our stock price
could decline.
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Our $158.4 million in total assets as of March 31, 2000 included
approximately $129.3 million of assets of our consolidated subsidiaries and
investments in our other partner companies. The carrying value of our partner
company ownership interests includes our original acquisition cost and the
effect of accounting for certain of our partner companies under the equity
method of accounting. The carrying value of our partner companies will be
impaired and decrease if one or more of our partner companies do not succeed.
Also, the carrying value of our investment in U.S. Wireless is marked to market,
and, therefore, a decline in its market price will impact our financial
position. Our other publicly traded investment, The Network Connection, is not
marked to market, and, as such, a decline in the market value of that company
will not impact our financial position. However, such a decline would likely
affect our stock price.
WE HAVE A HISTORY OF LOSSES AND EXPECT CONTINUED LOSSES IN THE FORESEEABLE
FUTURE.
For the quarters ended March 31, 2000, December 31, 1999 and September 30,
1999 we lost approximately $9.3 million, $6.0 million and $0.5 million,
respectively. The September quarter loss included a profit from the
approximately $5.3 million sale by The Network Connection of 195 Cheetah'
multimedia video servers to schools in Georgia. Without the effect of this gain
on our net results we would have incurred significantly greater losses for that
quarter. We changed our fiscal year end from October 31 to June 30. For the
eight-month transition period ended June 30, 1999 we lost $2.4 million. In
addition, under prior management, we incurred net losses of $7.3 million in 1998
and $51.0 million in 1997. Excluding the effect of any future non-operating
gains, we expect to continue to incur losses for the foreseeable future and, if
we ever have profits, we may not be able to sustain them.
We expect to have a significant net loss for the quarter and year ended
June 30, 2000. Our expenses will increase as we continue to implement our
business model. Specifically, expenses will increase:
* in the event we hire additional employees and lease more office space
to broaden our partner company support capabilities;
* in connection with the continued operation of our UK lottery project,
which will require significant expenditures for progress payments
under the purchase agreement for the equipment that comprises the
infrastructure of the lottery, and for payments to the company that
manages and maintains the infrastructure;
* with respect to The Network Connection, in the event that it continues
to draw on the credit facility for funds to hire additional management
personnel and to finance production and installation of its systems
and other operating expenses;
* as we explore acquisition opportunities and alliances with other
companies; and
* as we facilitate business arrangements among our partner companies.
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Expenses are also expected to increase due to the potential effect of
goodwill amortization and other charges resulting from potential future
acquisitions. If any of these and other expenses are not accompanied by
increased revenue, our losses will be greater than we anticipate.
OUR REVENUES ARE SUBSTANTIALLY DEPENDENT ON OUR OPERATING SUBSIDIARIES.
Our consolidated financial statements include our accounts and the accounts
of our wholly-owned subsidiaries:
* GlobalTech Holdings Limited
* GTL Management Limited
* Interactive Flight Technologies (Gibraltar) Limited
* GTL Lottoco, Inc.
* GTL Subco, Inc.
* GTL Investments
* GTL Leasing Limited
* Lottery Sales Company Limited
* MTJ Corp.
and our majority-owned and controlled subsidiary, The Network Connection, and
its wholly-owned subsidiary TNCi UK Limited. The ownership interest of minority
shareholders in The Network Connection are recorded as "minority interest" on
our condensed consolidated financial statements. We generally would not
consolidate with our results of operations the results of operations of a
partner company in which we held less than a 50% voting interest and otherwise
did not maintain management control.
For the quarters ended March 31, 2000, December 31 and September 30, 1999,
the revenues of The Network Connection represented 100% of our total revenues,
and for the eight-month transition period ended June 30, 1999, revenues from The
Network Connection represented approximately 61% of our revenues.
At August 9, 2000, we owned approximately 80% of the aggregate voting
interests of The Network Connection. If our voting ownership of any of our
operating subsidiaries, particularly The Network Connection, were to decrease
below 50% and we did not maintain management control, we would most likely not
continue to consolidate their results of operations with our results of
operations. While this would affect our earnings per share only to the extent of
our ownership change, the presentation of our consolidated statement of
operations and balance sheet would change dramatically. In addition,
fluctuations and decreases in the revenues of any of our subsidiaries,
particularly The Network Connection, will have a correlative effect on our
revenues.
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WE MAY NOT HAVE OPPORTUNITIES TO ACQUIRE INTERESTS IN ADDITIONAL COMPANIES.
We may be unable to identify companies that complement our strategy. Even
if we identify a company that complements our strategy, we may be unable to
acquire an interest in the company for many reasons, including:
* failure to agree on the terms of the acquisition;
* incompatibility between our management and management of the company;
* competition from other potential acquirers; and
* lack of capital resources needed to acquire an interest in the
company.
If we cannot acquire interests in additional companies, our strategy to
build a network of technology partner companies that will enhance stockholder
value may not succeed.
WE MAY BE UNABLE TO MANAGE NEWLY ACQUIRED PARTNER COMPANIES.
We plan to continue to acquire interests in e-commerce, Internet,
telecommunications, networking solutions and gaming companies to complement our
business strategy. Any additional acquisitions will likely place strain on our
limited resources and our ability to manage our partner companies. Risks related
to future acquisitions include:
* disruption in our ongoing support of our partner companies,
distracting our management and other resources and making it difficult
to maintain our standards, controls and procedures;
* acquisition of interests in companies in markets in which we have
little experience; and
* increased debt or issuance of equity securities to fund future
acquisitions, which may be dilutive to existing stockholders.
OUR SUCCESS DEPENDS UPON OUR SENIOR MANAGEMENT AND THE KEY PERSONNEL OF OUR
PARTNER COMPANIES.
Our success depends upon the continued employment of and performance by our
senior management, particularly our Chairman and Chief Executive Officer, Irwin
L. Gross, and the key personnel of our partner companies. It could have a
material adverse effect on us if our senior management team do not continue
their relationships with us, or if our partner companies are unable to hire and
retain a sufficient number of qualified management, professional, technical and
marketing personnel.
THE MARKET PRICE FOR OUR STOCK IS AND WILL LIKELY CONTINUE TO BE VOLATILE.
The market price for our stock has been volatile and has fluctuated
significantly to date. The trading price of our stock is likely to continue to
be highly volatile. In addition, the stock market in general and the market for
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technology companies in particular, have experienced extreme price and volume
fluctuations. These broad market and industry factors may materially and
adversely affect the market price of our common stock, regardless of our actual
operating performance. In the past, following periods of volatility in the
market price of a company's securities, securities class-action litigation has
often been instituted against such companies. Such litigation, if instituted,
could result in substantial costs and a diversion of management's attention and
resources, which would have a material adverse effect on our business, financial
condition and results of operations.
FLUCTUATIONS IN OUR QUARTERLY RESULTS WILL LIKELY CAUSE FLUCTUATIONS IN OUR
STOCK PRICE.
We expect that our quarterly results will fluctuate significantly due to
many factors, including:
* the operating results of our operating subsidiaries;
* changes in equity, losses or income and amortization of goodwill
related to the acquisition or divestiture of interests in partner
companies;
* changes in our methods of accounting for our partner company
interests, which may result from changes in our ownership percentages
of our partner companies;
* changes in the market price of our investment in U.S. Wireless, which
is marked to market;
* sales of equity securities by our partner companies, which could cause
us to recognize gains or losses under applicable accounting rules;
* the pace of development or a decline in growth of the markets in which
our partner companies operate and competition with respect to the
technologies, products and services offered by our partner companies;
* exchange rate fluctuations, to the extent that we generate revenues
from foreign operations;
* intense competition from other potential acquirers of prospective
partner companies, which could increase our cost of acquiring
interests in additional companies; and
* our ability effectively to manage our growth and the growth of our
partner companies.
If our operating results in one or more quarters do not meet securities
analysts' or your expectations, the price of our stock could decrease. In
addition, we expect that the price of our common stock will fluctuate in
response to announcements by us or our competitors with respect to acquisitions,
divestitures and other corporate developments.
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WE MAY HAVE TO BUY, SELL OR RETAIN ASSETS WHEN WE WOULD OTHERWISE NOT WISH TO IN
ORDER TO AVOID REGISTRATION UNDER THE INVESTMENT COMPANY ACT OF 1940.
Generally, a company may be required to register under the Investment
Company Act and comply with significant restrictions if its investment
securities exceed 40% of the company's total assets, or if it holds itself out
as being primarily engaged in the business of investing, reinvesting or trading
in securities. A company is generally not required to register under the
Investment Company Act if less than 45% of its total assets consist of, and less
than 45% of its net income is derived from, securities other than government
securities and securities of majority-owned subsidiaries and companies primarily
controlled by it.
We believe that we are not an investment company, as that term is defined
under the Investment Company Act, because our interests in partner companies
that are not majority owned or primarily controlled by us make up less than 45%
of our total assets and net income. It is not feasible for us to register as an
investment company because the Investment Company Act regulations are
inconsistent with our strategy of acquiring interests in, developing, operating
and managing our partner companies. As the values of our currently held
investment and non-investment securities change, and if we acquire additional
investment securities, it is possible that we could be subject to regulation
under the Investment Company Act. If that were to happen, we could ask for
exemptive relief from the Securities and Exchange Commission. We are also able
to rely once every three years on a one-year temporary exemption from the
registration requirements of the Investment Company Act. If we were not able to
obtain exemptive relief and the one-year temporary exemption were no longer
available, we might need to take certain actions to avoid regulation under the
Investment Company Act. We might be compelled to acquire additional income or
loss generating assets that we might not otherwise have acquired, be forced to
forego opportunities to acquire interests in companies that would be important
to our strategy or be forced to forego the sale of minority interests we would
otherwise want to sell. In addition, we might need to sell some assets
considered to be investment securities, including interests in partner
companies. Any of these actions could adversely affect our business.
WE MAY BE UNABLE TO OBTAIN MAXIMUM VALUE FOR OUR PARTNER COMPANY INTERESTS.
We have significant positions in our partner companies. While we do not
anticipate selling significant portions of our investments in our partner
companies in the foreseeable future, if we were to divest all or part of an
investment in a partner company, we may not receive maximum value for this
position. For partner companies with publicly traded stock, we may be unable to
sell our interest, or portions thereof, at then-quoted market prices.
Furthermore, for those partner companies that do not have publicly traded stock,
the realizable value of our interests may ultimately prove to be lower than the
carrying value currently reflected in our consolidated financial statements.
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OUR GLOBAL PRESENCE EXPOSES US TO CULTURAL DIFFERENCES, CURRENCY FLUCTUATIONS
AND POLITICAL INSTABILITY.
We have invested in foreign operations and may consider additional projects
outside the United States. Our international presence exposes us to several
risks, including the following:
* CULTURAL DIFFERENCES. In transacting business in foreign countries, we
seek to partner with entities from those countries and to hire
professional consultants to help us determine whether products and
services we propose to offer will be accepted by the people who live
there. This process does not, however, ensure acceptance. Our failure
to choose acceptable products and services to offer abroad will have
an adverse effect on our business.
* CURRENCY FLUCTUATIONS. When we purchase interests in non-United States
partner companies for cash, we will likely have to pay for the
interests using the currency of the country where the prospective
partner company is located. Similarly, although it is our intention to
act as a long-term partner to our partner companies, if we sold an
interest in a non-United States partner company we might receive
foreign currency. To the extent that we transact in foreign
currencies, fluctuations in the relative value of these currencies and
the United States dollar may adversely impact our financial results.
* COMPLIANCE WITH LAWS. We are subject to the laws of the UK, with
respect to our lottery project, and may become subject to the laws and
regulations of other foreign countries in the future. These laws are
different than those of the United States and we are less familiar
with them. We must go to the expense of hiring legal counsel in each
foreign country in which we operate to comply with their laws and
regulations. The laws of these foreign countries may change at any
time, which would likely require us to incur additional legal expenses
to comply with such changes, or could even force us to discontinue
operations.
* POLITICAL INSTABILITY. We have, and may in the future purchase,
interests in foreign partner companies that are located, or transact
business in, parts of the world that experience political instability.
Political instability may have an adverse impact on the subject
country's economy, and may limit or eliminate a partner company's
ability to conduct business.
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IF WE DO NOT HAVE ENOUGH SHARES AUTHORIZED OR DO NOT OBTAIN STOCKHOLDER APPROVAL
FOR THE ISSUANCE OF CLASS A COMMON STOCK UPON CONVERSION OF OUR SERIES C
CONVERTIBLE PREFERRED STOCK AND/OR SECURED CONVERTIBLE NOTES IN EXCESS OF
19.999% OF OUR OUTSTANDING CLASS A COMMON STOCK, WE MAY BE FORCED TO REDEEM THE
SERIES C CONVERTIBLE PREFERRED STOCK AND/OR THE SECURED CONVERTIBLE NOTES FROM
THE HOLDERS.
Pursuant to the terms of the convertible preferred stock purchase agreement
that we entered to with Advantage Fund II Ltd. and Koch Investment Group Ltd. on
February 16, 2000, in the event of a "triggering event," as defined in the
Certificate of Designations, relating to the Series C Convertible Preferred
Stock, such as if we do not have enough shares of Class A Common Stock
authorized for issuance upon conversion of the Preferred Stock or do not obtain
stockholder approval for the issuance of Class A Common Stock upon conversion of
our Series C Convertible Preferred Stock held by these investors in excess of
19.999% of the outstanding shares of Class A Common Stock immediately prior to
consummation of the sale of the Series C Convertible Preferred Stock as required
under the Nasdaq listing rules and regulations, we may be forced to redeem the
Series C Convertible Preferred Stock from them. We may not have the resources
available to do so. As of August 9, 2000 the Series C Convertible Preferred
Stock represented approximately 6% of our Class A Common Stock on a fully
converted basis. If we were required to redeem the Series C Convertible
Preferred Stock, it could have a material adverse effect on our business. The
same risks are present in the event that we default on our obligations under the
private placement purchase agreement that we entered into with, or the secured
convertible notes that we issued to, Advantage and Koch on June 8, 2000. As of
August 9, 2000, after the redemption of $2 million of the secured convertible
notes, the remaining secured convertible notes represented approximately 9.5% of
our Class A Common Stock on a fully converted basis. For a more detailed
discussion of this transaction, see "Selling Security Holders" on PAGE 24 below.
WE FACE GENERAL RISKS RELATED TO DOING BUSINESS THAT ARE BEYOND OUR CONTROL.
Our success will depend in part on certain factors that are beyond our
control and that cannot clearly be predicted at this time. These factors include
general economic conditions, both nationally and internationally, changes in tax
laws, fluctuating operating expenses, changes in governmental regulations,
changes in technology, and trade laws.
RISKS PARTICULAR TO OUR PARTNER COMPANIES
FLUCTUATION IN THE PRICE OF THE COMMON STOCK OF OUR PUBLICLY TRADED PARTNER
COMPANIES COULD AFFECT THE PRICE OF OUR STOCK.
The Network Connection and U.S. Wireless are our two publicly traded
partner companies. The price of their common stock has been highly volatile. The
market value of our holdings in these partner companies changes with these
fluctuations. Fluctuations in the price of The Network Connection's and U.S.
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Wireless' common stock are likely to affect the price of our Class A Common
Stock.
THE NETWORK CONNECTION. The price of The Network Connection's common stock
may fluctuate in response to announcements by it or its competitors regarding
sales of products and services, product enhancements and other corporate
developments. The Network Connection's results of operations, and accordingly
the price of its common stock, may be adversely affected by the following
factors:
* the company's ability to implement its new business strategy, which
requires obtaining and expending a great deal of capital to develop
compelling content and new applications for its interactive
entertainment and information technologies, and to penetrate new
markets;
* the company's ability to integrate, retain and manage the new
management team that it has put in place to lead it in the
implementation of its new business strategy;
* the company's ability to generate revenues from the markets in which
it is currently operating, and to do so on a profitable basis;
* the company's ability to procure and provide desirable content through
its interactive entertainment and information systems; and
* the company's ability to favorably resolve its issues with Carnival
Cruise Lines relating to recovery by Carnival of amounts paid to the
company, recorded as deferred revenue, the company's recovery of its
inventory costs, potential warranty/de-installation obligations,
discussions with respect to a new agreement between the company and
Carnival which would cover the installation of the company's latest
CruiseView(TM) technology on a Carnival ship and contractual terms
more favorable to the company than the previous agreement with
Carnival, including a longer-term and multiple ship arrangement. While
the company is optimistic about the discussions, there is no assurance
that it will be successful in reaching a mutually satisfactory
resolution of these issues and in securing a new, more favorable long
term contract with Carnival.
U.S. WIRELESS. U.S. Wireless currently has no revenues because it is in the
process of developing networks to support its proprietary wireless location
technology, RadioCamera(TM), which is designed to enable wireless carriers and
others to provide their customers with location-based services and applications.
U.S. Wireless developed its RadioCamera(TM) technology to capitalize on the
market that it expects to develop in response to the Federal Communication
Commission's mandate, which requires geolocation of mobile phone subscribers
dialing 911. The price of U.S. Wireless' common stock may be adversely affected
by the following factors:
* additional mandates or other legislation or regulation negatively
affecting the FCC mandate;
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* the development of the market for wireless location technologies,
which currently is almost completely dependent upon the FCC mandate;
* results of the testing of its RadioCamera(TM) wireless
location-technology;
* U.S.Wireless' ability to build out a nationwide network to allow for
use of the RadioCamera(TM) system on a nationwide basis, which will
require substantial capital commitment, and developing additional
applications and offerings of value-added services in connection with
the RadioCamera(TM) technology;
* the level of acceptance of U.S. Wireless' RadioCamera(TM) technology
as a solution to the FCC mandate and of any additional services the
company develops for use in connection with that technology;
* announcements by U.S. Wireless or its competitors with respect to
system and service enhancements, strategic and other agreements, and
other corporate developments;
* competitors' abilities to develop and implement their systems in
response to the FCC mandate, and the level of acceptance of
competitors' systems, in the event that any are developed and
implemented; and
* U.S. Wireless' ability to obtain the financing necessary for it to
carry out its business plan.
An additional factor that may affect the volatility of the stock price of
either of our publicly traded partner companies is the extent to which there are
outstanding shares available for resale and derivative securities outstanding
that could convert to shares available for resale. The sale of a significant
number of shares of either of our publicly traded partner companies into the
market could cause a decrease in the price per share of that partner company.
THE NETWORK CONNECTION HAS A HISTORY OF LOSSES AND EXPECTS CONTINUED LOSSES.
The Network Connection generated revenues of $11.1 million and $18.8
million for the fiscal years ended October 31, 1997 and 1998, respectively, and
realized net losses for those years of $53.2 million and $7.2 million,
respectively. For the eight-month transition period ended June 30, 1999, The
Network Connection generated revenues of $0.9 million, and realized net income
of $2.3 million. This net income was due entirely to reversal of prior accruals.
For the nine months ended March 31, 2000, The Network Connection generated
revenues of $5.7 million on which it realized a net loss of $4.3 million. Almost
all of the revenues generated in the nine months ended March 31, 2000 came from
the sale of 195 Cheetah' video servers in connection with the Georgia
Metropolitan Regional Education Services Agency (MRESA) Net 2000 project.
Without these sales, The Network Connection would have had a loss of $6.3
million for that period. As of March 31, 2000, The Network Connection's
accumulated deficit was $87.4 million and working capital was $0.1 million.
Prior management of The Network Connection entered into an agreement with
Carnival Cruise Lines, which obligated The Network Connection to install
CruiseView(TM) systems on all ships designated by Carnival through December
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2002. Since the installation of the CruiseView(TM) system on two Carnival cruise
ships, and beginning in the quarter ended March 31, 2000, the Network Connection
experienced costs in excess of those recoverable under the Carnival agreement.
Given these costs, and ongoing technical issues, The Network Connection notified
Carnival of its desire to renegotiate their agreement. During these discussions,
Carnival notified The Network Connection in a letter dated April 24, 2000 that
it sought to terminate the agreement and sought to assert certain remedies
thereunder. The Network Connection and Carnival are in discussions seeking to
resolve issues under the agreement regarding recovery of amounts paid by
Carnival recorded as deferred revenue, The Network Connection's recovery of its
inventory costs, potential warranty/de-installation obligations and other
matters. Concurrently, The Network Connection and Carnival are in discussions
with respect to a new agreement that would cover the installation of the latest
CruiseView(TM) technology on a Carnival ship, and contractual terms more
favorable to The Network Connection than the previous agreement, including a
longer-term and multiple ship arrangement. While The Network Connection is
optimistic about the discussions, there is no assurance that it will be
successful in reaching a mutually satisfactory resolution of the Carnival issues
and in securing a new, more favorable long-term contract with Carnival.
The Network Connection has executed contracts to install its InnView(TM)
system only in seven hotels.
We do not believe that The Network Connection's sales to date are
sufficient to determine whether there is meaningful demand for its products. The
Network Connection intends to continue to devote significant resources to its
sales and marketing efforts in an effort to promote interest in its products.
There is no assurance that The Network Connection will be successful with these
efforts or that significant market demand for its products will ever develop.
DELISTING OF THE COMMON STOCK OF THE NETWORK CONNECTION FROM TRADING ON THE
NASDAQ SMALLCAP MARKET WOULD REDUCE THE MARKETABILITY OF OUR HOLDINGS IN THE
NETWORK CONNECITON.
The Network Connection common stock is listed for trading on the Nasdaq
SmallCap Market under the symbol "TNCX." A listed company may be delisted if it
fails to maintain minimum levels of stockholders' equity, shares publicly held,
bid price, number of stockholders or aggregate market value, or if it violates
other aspects of its listing agreement. At March 31, 2000 The Network Connection
did not satisfy the minimum level of net tangible assets required to be listed
($2.0 million), nor did The Network Connection have sufficient non-affiliate
market capitalization ($35.0 million) or net income ($500,000 for two of the
past three years). The Network Connection is seeking additional capital and
attempting to effect other equity transactions to, among other things, increase
its net tangible assets to at least the minimum level required. There can be no
assurance that it will be able to raise this additional capital, or if it is
able to raise additional capital, that such capital will be on terms
satisfactory to it, or to effect other equity transactions currently under
consideration. If The Network Connection fails to satisfy the criteria for
continued listing, its common stock may be delisted.
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If The Network Connection common stock is delisted, public trading, if any,
would thereafter be conducted in the over-the-counter market in the so-called
"pink sheets," or on the NASD's "Electronic Bulletin Board." In this event, it
may be more difficult to dispose of, or even to obtain quotations as to the
price of, The Network Connection common stock and the price, if any, offered for
its common stock may be substantially reduced. A decline in the market value of
The Network Connection will not impact our financial position. However, such a
decline would likely affect our stock price.
MANY OF OUR PARTNER COMPANIES OPERATE IN MARKETS CHARACTERIZED BY RAPID
TECHNOLOGICAL CHANGE.
The markets in which many of our partner companies operate are
characterized by rapid technological change, frequent new product and service
introductions and evolving industry standards. Significant technological changes
could render their existing technologies, products and services obsolete. Growth
and intense competition in the networking solutions, telecommunications and
e-commerce markets exacerbate these conditions. If our technology-oriented
partner companies are unable to successfully respond to these developments or do
not respond in a cost-effective way, our business, financial condition and
operating results could be adversely affected. To be successful, these partner
companies must adapt to their rapidly changing markets by continually improving
the responsiveness, services and features of their products and services and by
developing new features to meet the needs of their customers. Our success will
depend, in part, on the abilities of our partner companies to enhance their
existing products and services and develop new offerings and technology that
address the needs of their customers. Our technology-oriented partner companies
will also need to respond to technological advances and emerging industry
standards in a cost-effective and timely manner.
OUR TECHNOLOGY ORIENTED PARTNER COMPANIES' PRODUCTS COULD EXPERIENCE TECHNICAL
DIFFICULTIES.
The products of our technology-oriented partner companies are highly
specialized and involve intricate technologies and electronic components that
may be subject to technical difficulties. These technical difficulties could
occur at any time as a result of component malfunction or some other reason.
Although our technology oriented partner companies generally utilize quality
control procedures and test products before marketing them, there is no
assurance that all defects will be identified. We believe that reliability will
be an important consideration for customers of our partner companies. Failure to
detect and prevent defects and design flaws in the products of these partner
companies could adversely affect our business, financial condition and operating
results.
THE SUCCESS OF OUR TECHNOLOGY-ORIENTED PARTNER COMPANIES IS DEPENDENT TO A LARGE
DEGREE ON THE ACCEPTANCE OF E-COMMERCE AS A MEANS OF DOING BUSINESS.
The success of our technology-oriented partner companies is dependent on
the continued growth of intranets and the Internet as media for commercial
transactions. The development of the e-commerce market is in its early stages.
If widespread commercial acceptance of e-commerce and use of the Internet does
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not continue to develop, or if intranets and the Internet do not develop as
effective media for providing products and services, our technology-oriented
partner companies may not succeed.
A number of factors could impede acceptance of e-commerce and the Internet
as a medium for doing business, including:
* the unwillingness of businesses to shift from traditional processes to
intranet-based and/or Internet-based processes;
* the failure to continue the development of the necessary network
infrastructure for substantial growth in usage of the Internet;
* increased government regulation or taxation may adversely affect the
viability of intranets and the Internet as media for commercial
transactions; and
* the growth in bandwidth may not keep pace with the growth in on-line
traffic, which could result in slower response times for the users of
intranet-based and Internet-based commercial transactions.
THE UK LOTTERY PROJECT IS A START-UP VENTURE, HAS GENERATED INSIGNIFICANT
REVENUES SINCE LAUNCH, IS BASED ON A GAME NEVER TRIED IN THE UK, AND MUST
GENERATE SUFFICIENT CASH FLOW TO PAY A LARGE WEEKLY CONTRACTUAL OBLIGATION.
Our UK lottery project is a start-up venture. It began operations on March
27, 2000, and was officially launched on April 4, 2000 in conjunction with the
start of a media campaign. The UK lottery project has generated insignificant
revenues to date, and we can give no assurance that it will ever generate
meaningful revenues. Our partner companies involved in the lottery project have
installed the approximately 3,500 terminals that complete Phase I of the
project, and continue to promote the lottery and redistribute unproductive
terminals to other retail outlets in an effort to maximize ticket sales. The
lottery business and its prospects, therefore, must be considered in light of
the risk, expense and difficulties frequently encountered by companies in early
stages of development. In addition, the game on which the lottery is based has
never been offered in the UK. We therefore have no basis on which to determine
the level of acceptance, if any, that the game will achieve. If our lottery
partner companies are unsuccessful in carrying out any post-launch tasks, or, in
the event that the lottery does not achieve a significant degree of acceptance,
the business of our lottery partner companies would be materially adversely
affected, which, in turn, would have a material adverse effect on our business.
Additionally, GTL Management Limited, a subsidiary of ours, entered into an
agreement with International Lottery and Totalizator Systems, Inc. pursuant to
which International Lottery and Totalizator Systems will provide certain
facilities management services and technological support in connection with the
networking hardware, software and terminals that we, through another subsidiary,
purchased from them and that will serve as the infrastructure of the lottery.
This agreement requires that we pay them $72,000 per week, plus additional
amounts based on any terminals in excess of 3,500 being installed and a
percentage of average daily sales. This obligation commenced on March 27, 2000
22
<PAGE>
with the sale of the first ticket in connection with the lottery. Including the
weekly payments required under this agreement, we currently anticipate that the
lottery enterprise will require funding of approximately $500,000 per month in
the three month period ending October 31, 2000 to continue operations. The
inability of the lottery to generate revenues sufficient to cover our
obligations would adversely affect the business of our lottery partner
companies.
ALL OF OUR PARTNER COMPANIES COULD BE ADVERSELY AFFECTED BY COMPETITION IN THE
MARKETS IN WHICH THEY OPERATE.
The markets in which our partner companies operate are highly competitive.
Many of the competitors of our partner companies have longer operating histories
and significantly greater financial, technical, marketing and other resources
than they do. These competitors are therefore able to respond more quickly and
efficiently to new or changing opportunities, technologies and customer
requirements. For instance, with respect to our UK lottery project, the National
Lottery of the United Kingdom has been operating a weekly lottery for at least
five years and is extremely well funded. The National Lottery does not currently
operate a lottery game similar to the lottery we expect to offer, but it would
have a distinct competitive advantage if it chose and received the necessary
regulatory approval to do so. If our partner companies' products and services do
not achieve a significant level of acceptance in the marketplace, or their
competitors develop products and services rendering theirs obsolete, our partner
companies, and, in turn, we, would be adversely affected.
INTELLECTUAL PROPERTY ISSUES, GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES THAT
COULD AFFECT OUR PARTNER COMPANIES.
* INTELLECTUAL PROPERTY. Our partner companies utilize certain
proprietary technologies and other intellectual property that are
valuable to them. They protect this intellectual property in a variety
of ways, such as through patent, trademark and copyright law. U.S.
Wireless has filed 18 patent applications with the Patent & Trademark
Office and has received three issued patents and has received notices
of allowance for another four of these applications. There is no
assurance that any of the remaining patents will be granted. In
addition, our partner companies rely on confidentiality agreements
with key employees to prevent disclosure of important intellectual
property to third parties. There is no assurance that any of these
protections will prove sufficient to prevent third parties from using
our partner companies' intellectual property either through legal or
illegal means. Use by third parties of intellectual property of one of
our partner companies could adversely affect that partner company's
business. In addition, we give no assurance that any particular aspect
of any of our partner companies' intellectual property will not be
claimed to infringe the intellectual property rights of a third party.
Intellectual property infringement litigation for or against any of
our partner companies would likely have an adverse effect on that
partner company's business.
23
<PAGE>
* GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES. Our partner companies
are subject, both directly or indirectly, to various laws and
governmental regulations relating to their businesses. Our partner
companies that operate abroad are subject to the laws and regulations
of foreign countries with which we are not familiar. We believe that
our partner companies maintain compliance with these laws and
regulations, and that, while there is expense incurred in doing so,
these laws and regulations do not have a material impact on the
operations of our partner companies; however, as a result of rapid
technology growth and other related factors, laws and regulations may
be adopted which significantly impact our partner companies'
businesses, and, in turn, our business.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the Class A Common Stock
offered pursuant to this prospectus by the selling stockholders. We may receive
exercise proceeds from the issuance of shares to the selling stockholders upon
exercise of the warrants held by certain of the selling stockholders, which
proceeds would be used for general working capital.
SELLING SECURITY HOLDERS
RECENT FINANCING
On June 8, 2000, Advantage Fund II Ltd. and Koch Investment Group Ltd.
purchased an aggregate of $4,000,000 of secured convertible notes from us in a
private placement transaction. Advantage and Koch received two notes each, which
may be converted into our Class A Common Stock at a conversion price of $2.00
per share, subject to customary anti-dilution adjustments. As described below,
Advantage and Koch received warrants in connection with a partial redemption of
the notes on July 7, 2000. Only a portion of the shares underlying the notes
that remain outstanding and all of the shares underlying the warrants issued in
connection with stock redemption are being offered pursuant to this prospectus
as more fully described below.
The notes mature on December 7, 2001 and bear interest at 6% per annum
payable at maturity or on conversion in cash or stock, but only if a
registration statement covering such stock has been filed and is effective.
Stock is valued for interest payment purposes at the average of the last sale
prices per share as reported by Nasdaq for each of the five days preceding the
date on which the interest payment is made. The notes are redeemable by us at
any time and from time to time, for a premium that increases with the length of
time that the notes are outstanding, and the issuance of warrants or stock, also
based on how long the notes are outstanding. We redeemed $2.0 million of the
aggregate principal amount of the notes on July 7, 2000 for a total redemption
cost of approximately $2.2 million and the issuance of certain warrants. The
warrants issued in connection with the redemption are exercisable for, in the
aggregate, 125,000 shares of our Class A Common Stock at an exercise price of $4
per share until July 7, 2004. The notes were secured by a pledge of 1,000,000 of
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<PAGE>
our shares of the common stock of U.S. Wireless, 500,000 of which were returned
to us in connection with our redemption.
We are obligated to register the shares of our Class A Common Stock
issuable upon any conversion, redemption or payment of the notes, as well as any
shares underlying the warrants issued in connection with the partial redemption
of such notes described above. The remaining principal amount of the notes is
currently convertible into, in the aggregate, 1,000,000 shares of our Class A
Common Stock. Pursuant to an agreement with Advantage and Koch entered into in
connection with the redemption described above, we are not currently registering
more than 125,000 of the shares of our Class A Common Stock issuable upon the
conversion, redemption or payment of the notes because we intended to redeem the
remaining principal amount of the notes by August 7, 2000. This agreement has
been amended to extend the date by which we must redeem such remaining principal
amount of the notes in order to avoid being required to register the 1,000,000
shares into which the remaining principal amount may be converted, to August 18,
2000. In connection with any such redemption, we shall be required to issue to
the holders of the notes, in the aggregate, 125,000 shares of our Class A Common
Stock, in which case the shares to be sold in the offering by each of the
holders of the notes would represent the sum of the shares underlying the
warrants discussed above and the shares issued in connection with such
redemption. If we fail to so redeem the notes, we will amend this Registration
Statement or file an additional Registration Statement to include the estimated
number of additional shares of our Class A Common Stock issuable upon any
conversion, redemption or payment of the notes.
Neither holder of the notes or related warrants may convert them into or
exercise them for shares of our Class A Common Stock if after the conversion or
exercise, such holder, together with any of its affiliates, would beneficially
own over 4.999% of the outstanding shares of our common stock. This restriction
may be waived by each holder on not less than 61 days' notice to us.
On February 16, 2000, Advantage and Koch purchased $10 million of our
Series C 5% Convertible Preferred Stock. As long as our Class A Common Stock is
listed for trading on Nasdaq, we may not , without obtaining prior stockholder
approval in order to comply with Nasdaq listing requirements, issue in
connection with the conversion or payment of the notes more than 2,065,000
shares of our Class A Common Stock (approximately 19.999% of the outstanding
Class A Common Stock immediately prior to the sale of the notes) less any shares
of that stock previously issued (i) on conversion of the Series C Preferred
Stock held by Advantage and Koch or (ii) the exercise of warrants received in
connection with any redemption of such preferred stock at an exercise price less
than the closing sale price of a share of our Class A Common Stock on February
15, 2000. The Class A Common Stock underlying the Series C 5% Convertible
Preferred Stock is not being offered under this prospectus.
Genesee International Inc., of which Mr. Donald R. Morken is the
controlling stockholder, has voting and investment power over the securities
beneficially owned by Advantage. Koch Industries, Inc., of which Messrs. Charles
Koch and David Koch are controlling stockholders, have voting and investment
power over the securities beneficially owned by Koch.
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<PAGE>
In connection with the issuance of the convertible secured notes, designees
of Reedland Capital Partners, a division of Financial West Group, received
warrants to purchase an aggregate of 20,000 shares of our common stock at
$5.8125 per share for Reedland Capital Partners' role as sales agent. The 20,000
shares underlying these warrants are also being offered to the public by means
of this prospectus.
TERMINATION AND SETTLEMENT OF ITKIS AND GOLDMAN CONSULTING AGREEMENTS
On July 31, 2000, we entered into separate Termination and Settlement
Agreements between us, The Network Connection, Ocean Castle Partners LLC, Irwin
L. Gross, and each of Yuri Itkis and Donald Goldman terminating each of Mr.
Itkis' and Mr. Goldman's Consulting Agreement, dated September 30, 1998, with
Ocean Castle Partners and providing for the release of any and all potential
claims which may have been asserted by Messrs. Itkis and Goldman under their
respective Consulting Agreements.
Irwin L. Gross, our Chief Executive Officer, is a principal of Ocean Castle
Partners, LLC which maintains administrative offices for our Chief Executive
Officer, Corporate Secretary and certain other employees. During the year ended
October 31, 1998, Ocean Castle executed the Consulting Agreements with each of
Mr. Itkis and Mr. Goldman, who were two of our principal stockholders at the
time. In connection with our acquisition of The Network Connection, the rights
and obligations of Ocean Castle under the Consulting Agreements were assumed by
The Network Connection Inc. The Consulting Agreements required payments
aggregating $1,000,000 to each of Messrs. Itkis and Goldman through December
2003 in exchange for advisory services. As of June 30, 1999, The Network
Connection determined that the Consulting Agreements had no future value due to
The Network Connection shift away from in-flight entertainment into alternative
markets such as leisure cruise and passenger rail transport. Only limited
services were provided in 1999 and no future services were utilized.
Accordingly, The Network Connection recorded a charge to general and
administrative expenses in the transition period ended June 30, 1999 of $1.6
million representing the balance due under such Consulting Agreements.
Pursuant to the terms of the Termination and Settlement Agreements, we have
issued to each of Mr. Itkis and Mr. Goldman 96,083 shares of our Class A Common
Stock in consideration of termination of each of their Consulting Agreements and
full and complete release of any and all potential claims that each of Mr. Itkis
and Mr. Goldman may have asserted against us, Interactive Flight Technologies,
Inc., The Network Connection and Ocean Castle under his respective Consulting
Agreement. In each case, such number of shares was determined on the basis of a
negotiated settlement payment of $552,478, at a per share price equal to the
average of the closing "bid" and "asked" prices of our Class A Common Stock on
the Nasdaq National Market on each of the ten trading days ending two days prior
to the date of the Termination and Settlement Agreements.
In addition, we have agreed to adjust such initial number of shares
delivered to each of Mr. Itkis and Mr. Goldman by (i) determining the average of
the closing "bid" and "asked" prices of our Class A Common Stock on Nasdaq
National Market on each of the ten trading days ending two trading days prior to
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<PAGE>
the effective date of this Registration Statement, and (ii) dividing 552,478 by
such final average price. The number of shares included in this Registration
Statement represents the initial shares issued to each of Mr. Itkis and Mr.
Goldman pursuant to the terms of each of their Termination and Settlement
Agreements. Any additional shares issued in connection with the adjustments will
not be registered. The Termination and Settlement Agreements include provisions
restricting the amount of shares which may be sold at any time. Each of Mr.
Itkis and Mr. Goldman has agreed that at any time after the effective date of
this Registration Statement, he will have the right to sell 40% of his initial
shares and final adjustment shares, and, thereafter, after the end of the month
in which any such sale takes place, he will not sell more that 15,000 of his
initial shares and/or final adjustment shares during each subsequent calendar
month, on a cumulative basis, until all of his initial shares and/or final
adjustment shares have been sold.
SELLING STOCKHOLDERS
The following table sets forth for each selling stockholder (a) the name of
the selling stockholder, (b) the number of shares of our Class A Common Stock
owned by the selling stockholder before the offering (in some cases, as noted in
the footnotes to the table, some or all shares underlie convertible preferred
stock or warrants, and/or secured convertible notes held by the selling
stockholder), (c) the number of shares of our Class A Common Stock offered by
the selling stockholder under this prospectus, (d) the number of shares of our
Class A Common Stock that will be owned by the selling stockholder assuming that
all shares of our Class A Common Stock registered hereby on that stockholder's
behalf are sold, and (e) the percentage of our outstanding shares of Class A
Common Stock that those remaining shares will represent. Each of the selling
stockholders is a party to an agreement by which we agreed to register their
shares of our Class A Common Stock. Registration of these shares enables the
selling stockholders to sell the shares from time to time in any manner
described in "Plan of Distribution" below, but does not necessarily mean that
the selling stockholders will sell all or any of the shares.
<TABLE>
<CAPTION>
Percentage of
Number of Number of Outstanding Class
Shares Number of Shares a Common Stock
Beneficially Shares to Beneficially Beneficially
Owned Before be Sold Owned After Owned After
Name of Selling Stockholder Offering in Offering Offering Offering (3)
--------------------------- -------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Advantage Fund II, Ltd. 521,612(1) 125,000(2) -0- *
Koch Investment Group Ltd. 521,612(1) 125,000(2) -0- *
Robert K. Schacter (4) 47,600 13,600 -0- *
Thomas J. Griesel (4) 11,900 3,400 -0- *
Financial West Group (4) 3,500 1,000 -0- *
Donald & Co. Securities, Inc. (4) 2,100 600 -0- *
Andrew Reiser (4) 4,200 1,200 -0- *
Edward F. Duffy (4) 700 200 -0- *
Yuri Itkis (5) 282,469 96,083 186,386 1.7%
Donald Goldman 109,016 96,083 12,933 *
</TABLE>
----------
* Less than 1%
(1) The number of shares of our Common Stock listed as being beneficially owned
by Advantage and Koch includes the shares of our Class A Common Stock that
are issuable to each of them, subject to the 4.999% limitation described
27
<PAGE>
above, upon conversion of their preferred stock, exercise of their warrants
and conversion, payment and/or redemption of their notes. However, the
4.999% limitation would not prevent Advantage or Koch from acquiring and
selling in excess of 4.999% of our common stock through a series of
conversions and sales under the preferred stock and acquisitions and sales
under the warrants, and conversions and sales of the notes.
(2) The number of shares to be sold in the offering by each of Advantage and
Koch represents (i) 62,500 shares issuable upon the conversion, payment
and/or redemption of the secured convertible notes that each of them
purchased from us on June 8, 2000 in the transaction described above in
"Recent Financing" and (ii) 62,500 shares issuable upon the exercise of the
warrants issued in connection with the partial redemption of the notes
described above in "Recent Financing". We currently intend to redeem the
remaining notes outstanding within 30 days in which event we would be
required to issue, in the aggregate, 125,000 shares of our Class A Common
Stock to the holders of the notes in connection with such redemption , in
which case the 125,000 shares to be sold in the offering by each of
Advantage and Koch would represent the sum of the shares underlying the
warrants discussed above and the shares issued in connection with such
redemption.
(3) Percentages are based on 10,587,200 shares of Class A Common Stock
outstanding as of August 9, 2000.
(4) Designees of Reedland Capital Partners, which received warrants exercisable
for an aggregate of 20,000 shares of our Class A Common Stock at an
exercise price of $5.8125 per share in consideration of certain financial
advisory services provided to us. These warrants expire on June 8, 2004.
(5) Yuri Itkis is the father of Michael Itkis, the former Chief Executive
Officer of Interactive Flight Technologies, Inc. Yuri Itkis' beneficial
holdings include 184,971 shares of Class A common stock and options to
purchase 72,498 shares of Class A common stock held by him directly, and
options to purchase 25,000 shares of Class A common stock held by FortuNet,
Inc., a corporation controlled by Mr. Itkis.
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Class A Common Stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling stockholders may use any one or more of
the following methods when selling shares:
* ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
* block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
* purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
* an exchange distribution in accordance with the rules of the
applicable exchange;
* privately negotiated transactions;
* broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
* a combination of any such methods of sale; and
* any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
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<PAGE>
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser, in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling stockholders and any broker-dealers or agents that are involved
in selling the shares may be deemed to be "underwriters" within the meaning of
the Securities Act of 1933 in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration
of the shares, including up to $15,000 of the fees and disbursements of counsel
to the selling stockholders holding convertible notes and the warrants issued in
connection therewith. We have agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
DISCLOSURE OF THE SEC'S POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Our bylaws provide that we will indemnify our directors, officers,
employees and agents to the fullest extent permitted by Delaware law. In
addition, our certificate of incorporation provides that, to the fullest extent
permitted by Delaware law, our directors will not be liable for monetary damages
for breach of the directors' fiduciary duty to us and our stockholders. This
provision of the certificate of incorporation does not eliminate the duty of
care. In appropriate circumstances, equitable remedies such as an injunction or
other forms of non-monetary relief are available under Delaware law. This
provision also does not affect a director's responsibilities under any other
laws, such as the federal securities laws.
Each director will continue to be subject to liability for:
* breach of the director's duty of loyalty to us;
* acts or omissions not in good faith or involving intentional
misconduct;
* knowing violations of law;
* any transaction from which the director derived an improper personal
benefit;
* improper transactions between the director and us; and
* improper distributions to stockholders and improper loans to directors
and officers.
In addition to the protections provided by our bylaws and certificate of
incorporation, we have entered into employment agreements with certain of our
executive officers that provide them with indemnity against expenses and losses
incurred in connection with certain with certain claims brought against them. We
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<PAGE>
maintain approximately $20.0 million of coverage under a directors' and
officers' liability insurance policy.
There is no pending litigation or proceeding involving a director or
officer as to which indemnification is being sought. We are not aware of any
pending or threatened litigation that may result in claims for indemnification
by any director or officer. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to our directors, officers and
control persons pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act of 1933, and is, therefore,
unenforceable.
LEGAL MATTERS
The validity of the shares being offered pursuant to this prospectus will
be passed upon for us by Schnader Harrison Segal & Lewis LLP, Philadelphia,
Pennsylvania.
EXPERTS
The consolidated financial statements of Global Technologies, Ltd. as of
June 30, 1999 and October 31, 1998, and for the transition period ended June 30,
1999 and each of the years in the two year period ended October 31, 1998 have
been incorporated by reference in this prospectus in reliance upon the report of
KPMG LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
----------
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by us or the selling shareholders. This
prospectus does not constitute an offer to sell or a solicitation of an offer to
buy to any person in any jurisdiction in which such offer or solicitation would
be unlawful or to any person to whom it is unlawful. Neither the delivery of
this prospectus nor any offer or sale made hereunder shall, under any
circumstances, create any implication that there has been no change in our
affairs or that information contained herein is correct as of any time
subsequent to the date hereof.
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<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the offering, which are to be borne by us, are estimated as
follows:
SEC registration fee $ 625.22
Legal services and expenses 15,000.00
Accounting services 10,000.00
Miscellaneous 5,000.00
==========
Total $30,625.22
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, we have broad
powers to indemnify our directors and officers against liabilities they may
incur in such capacities, including liabilities under the Securities Act.
Our Certificate of Incorporation provides for the elimination of liability
for monetary damages for breach of the directors' fiduciary duty of care to us
and our stockholders. These provisions do not eliminate the directors' duty of
care and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to us, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for any
transaction from which the director derived an improper personal benefit, and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law. The provision does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
In addition to the protections provided by our bylaws and certificate of
incorporation, we have entered into employment agreements with certain of our
executive officers that provide them with indemnity against expenses and losses
incurred in connection with certain claims brought against them. We maintain
approximately $20.0 million of coverage under a directors' and officers'
liability insurance policy.
II-1
<PAGE>
ITEM 16. EXHIBITS
Exhibit No. Description
----------- -----------
4.1* Private Placement Purchase Agreement among Registrant and the
Investors signatory thereto, dated as of June 8, 2000
4.2* Form of Secured Convertible Note issued to Investors
4.3* Form of Warrant to be issued to holders of Secured Convertible
Notes in the event of certain redemptions
5.1 Legal Opinion of Schnader Harrison Segal & Lewis LLP
23.1 Consent of Schnader Harrison Segal & Lewis LLP (included in legal
opinion filed as Exhibit 5.1)
23.2 Consent of KPMG LLP
99.1 Form of Termination and Settlement Agreement with Yuri Itkis
99.2 Form of Termination and Settlement Agreement with Donald Goldman
----------
* Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement; (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement;
PROVIDED, HOWEVER, that clauses (1)(i) and (1)(ii) above do not apply if
the information required to be included in the post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of those securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered that remain unsold at the end of the
offering.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Philadelphia, Commonwealth of Pennsylvania on August 11, 2000.
GLOBAL TECHNOLOGIES, LTD.
Date: August 11, 2000 By: /s/ Irwin L. Gross
-----------------------------------
Irwin L. Gross, Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
Date Signature and Title
---- -------------------
Date: August 11, 2000 By: /s/ Irwin L. Gross
-----------------------------------
Irwin L. Gross, Chief Executive
Officer and Chairman of the Board
of Directors (principal executive
officer)
August 11, 2000 /s/ Patrick J. Fodale
-----------------------------------
Patrick J. Fodale, Vice President
and Chief Financial Officer
(principal financial and accounting
officer)
August 10, 2000 /s/ James W. Fox
-----------------------------------
James W. Fox, President, Chief
Operating Officer and Director
August 10, 2000 /s/ Charles T. Condy
-----------------------------------
Charles T. Condy, Director
August 10, 2000 /s/ M. Moshe Porat
-----------------------------------
M. Moshe Porat, Director
August 10, 2000 /s/ Stephen Schachman
-----------------------------------
Stephen Schachman, Director
II-3
