As filed with the Securities and Exchange Commission on March 17, 2000
Registration No.: 333-___________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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
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
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street, 38th Floor
Philadelphia, PA 19103-7598
Telephone: (215) 994-1037 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: [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. [ ]
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. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Maximum Proposed Maximum Amount of
Title of Securities Amount to be Offering price per Aggregate Offering Registration
To be Registered Registered Share(3) price(3) Fee(4)
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<S> <C> <C> <C> <C>
Class A Common Stock,
$0.01 par value 1,402,585(1) $17.88 $25,078,219.80 $6,620.65
- ----------------------------------------------------------------------------------------------
Class A Common Stock 256,250(2) $17.88 $4,581,750.00 $1,209.58
- ----------------------------------------------------------------------------------------------
Class A Common Stock 191,397 $17.88 $3,422,178.36 $903.46
- ----------------------------------------------------------------------------------------------
Total $8,733.69
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</TABLE>
(1) 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 conversion of certain Series C Convertible Preferred
Stock of the registrant and upon exercise of certain callable 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.
(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 March 14, 2000.
(4) Calculated by multiplying the aggregate offering amount by .000264.
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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.
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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 MARCH 17, 2000
PROSPECTUS
GLOBAL TECHNOLOGIES, LTD.
1,850,232 SHARES
CLASS A COMMON STOCK
This Prospectus relates to the offer for sale from time to time of up to
1,850,232 shares of Class A Common Stock, par value $0.01 per share, of Global
Technologies, Ltd., a Delaware corporation, by some of our stockholders who, in
some cases, hold Series C Convertible Preferred Stock and warrants of the
company. Although we would receive certain benefits from the conversion of the
Series C Convertible Preferred Stock and possibly 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 Series C Convertible Preferred Stock and the warrants,
please see "Selling Stockholders" beginning on Page 21.
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 March 10, 2000 was $21 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 24.
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.
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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.................................... 15
USE OF PROCEEDS.............................................................. 21
SELLING STOCKHOLDERS......................................................... 21
PLAN OF DISTRIBUTION......................................................... 24
DISCLOSURE OF THE SEC'S POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES................................................. 25
EXPERTS...................................................................... 26
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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
and any future filings made 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.
* 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.
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* 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.
* The description of the Class A Common Stock as set forth in Global's
registration statement on Form 8-A filed with the SEC on December 31,
1994, as amended by Global's 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,
regarding our future results of operations or financial position are
forward-looking statements. In some cases, you can identify forward-looking
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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 81% 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 designs, manufactures, markets, installs and maintains advanced,
high-end, high-performance computer servers and interactive, broad-band
information and entertainment systems, including the procurement and provision
of the content available through these systems. The Network Connection's systems
are marketed primarily to hotel and time-share properties (InnView(TM)), cruise
lines (CruiseView(TM)), educational systems (EduView(R)) and corporate training
departments, and long-haul passenger train manufacturers and operators
(TrainView(TM)).
We also hold convertible preferred stock representing approximately 15% of
the outstanding common stock of U.S. Wireless Corporation on a fully converted
basis. U.S. Wireless is publicly-traded on the Nasdaq SmallCap 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)
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 InterLotto (UK) Limited, a United Kingdom company
that is licensed to operate lotteries on behalf of charities in Great Britain.
GTL Management Limited, one of Global's wholly-owned subsidiaries, has an
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exclusive contract with Inter Lotto to provide management services in connection
with the operation of these lotteries. It is anticipated that the UK lottery,
called "The Daily Number," will be launched on or about March 27, 2000. We
expect that Daily Number lottery tickets initially will be available through
approximately 3,500 terminals located in the Northeast and Northwest regions of
Great Britain, encompassing the Manchester, Liverpool and Yorkshire areas. In
addition, we plan to utilize the Internet as a vehicle for lottery play for UK
residents and product sales beginning in the second half of calendar year 2000.
Our other holdings include 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, and a 24.5%
equity interest in Donativos S.A. de C.V., a company that has developed and is
operating a gaming center in Monterrey, Mexico. We are currently assessing exit
strategies with respect to the Donativos investment.
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 Global provided or
incorporated into this prospectus.
RISKS PARTICULAR TO GLOBAL
WE PLAN TO SELL OR 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 March 10, 2000, we have a purchase commitment of approximately $6.5
million for the purchase of the hardware and software that will serve as the
network operating center of the on-line lottery system that we are currently
developing in the United Kingdom. The amount of this commitment includes the
terminals that will be installed in the retail outlets where lottery players
will be able to purchase lottery tickets. We also have obligations for
approximately an additional $4.2 million to other vendors, primarily advertising
and promotional firms, in connection with our lottery project.
We are also obligated to lend The Network Connection up to $5.0 million
pursuant to a revolving credit facility agreement. As of March 10, 2000, The
Network Connection had drawn $880,000 against this line of credit. The Network
Connection has recently received orders to install its InnView(TM) interactive
information and entertainment system in three hotels. Absent alternative sources
of financing for The Network Connection, it will likely continue to draw on the
credit facility to finance the production of some or all of the equipment
necessary for such installations, as well as to cover other commitments and
operating expenses.
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The lottery purchase commitment and related expenses, together with
projected draws under the credit facility and other operating expenses, exceed
currently available cash and cash equivalents, and short-term investments which
were $2.2 million as of March 10, 2000.
Although we recently obtained $10.0 million in equity financing from the
issuance of our Series C Convertible Preferred Stock and plan to sell or borrow
against some of our investments to cover our financial obligations, we provide
no assurance that we will be able to sell these assets at the planned times or
for the prices necessary to meet these obligations in a timely manner. Failure
to do so may force us to delay the roll-out of our lottery project, or cause us
to default under the credit facility. A delay of the lottery project or failure
to provide The Network Connection with funds would have a material adverse
effect on our lottery project, The Network Connection, and our financial
condition, and may subject us to legal liability.
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
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
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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 was removed from office
and 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.
Our $32.6 million in total assets as of December 31, 1999 included
approximately $27.5 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.
The carrying value of our partner companies is not marked to market. As such, a
decline in the market value of one of our publicly-traded partner companies may
impact our financial position by not more than the carrying value of the partner
company. However, such a decline would likely affect our stock price.
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WE HAVE A HISTORY OF LOSSES AND EXPECT CONTINUED LOSSES IN THE FORESEEABLE
FUTURE.
For the quarter ended December 31, 1999 we lost approximately $6 million.
For the quarter ended September 30, 1999 we lost approximately $0.5 million.
This loss included a profit from the approximately $5.3 million sale by The
Network Connection of 195 Cheetah(TM) 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 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 ended March 31,
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 development of our UK lottery
project, which will require significant expenditures for the hiring of
additional qualified management personnel to operate and grow the
lottery, for progress payments under the purchase agreement for the
equipment that comprises the infrastructure of the lottery, and for
the advertising and promotion of the lottery.
* 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.
* as we facilitate business arrangements among our partner companies.
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.
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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 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 March 10, 2000, we owned approximately 81% 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.
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:
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* 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 shareholder
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 shareholders.
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
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.
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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;
* 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.
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).
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We believe that we are not an investment company, as that term is defined
under the Investment Company Act, because our non-operating subsidiaries 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.
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.
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* 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 of Mexico, with respect to our
entertainment center 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.
IF WE DO NOT HAVE ENOUGH SHARES AUTHORIZED OR DO NOT OBTAIN SHAREHOLDER APPROVAL
FOR THE ISSUANCE OF CLASS A COMMON STOCK UPON CONVERSION OF OUR SERIES C
CONVERTIBLE PREFERRED STOCK IN EXCESS OF 19.999% OF OUR OUTSTANDING CLASS A
COMMON STOCK, WE MAY BE FORCED TO REDEEM THE SERIES C CONVERTIBLE PREFERRED
STOCK 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
shareholder 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 March 10, 2000 the Series C Convertible Preferred
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Stock represented only approximately 5% of our 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.
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.
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, such as the academic, cruise ship and hotel
markets, 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 negotiate more favorable terms with Carnival
Cruise Lines for the installation and operation of its CruiseView(TM)
system pursuant to the existing contract with Carnival.
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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.
The company 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;
* 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;
* the company's 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 the company's 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 the company 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
* the company's 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 six months ended December 31, 1999, The Network Connection
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generated revenues of $5.7 million on which it realized a net loss of $1.4
million. Almost all of the revenues generated came from the sale of 195
Cheetah(R) 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 $3.4 million for the six months
ended December 31, 1999. As of December 31, 1999, The Network Connection's
accumulated deficit was $84.4 million and working capital was $1.9 million.
Prior management of The Network Connection entered into an agreement with
Carnival Cruise Lines which obligates The Network Connection to install
CruiseView(TM) systems on all ships designated by Carnival through December
2002. The Network Connection has already installed systems on two Carnival
ships. The cost of building and installing CruiseView(TM) systems on Carnival
ships pursuant to that agreement may exceed the revenue The Network Connection
can earn under the agreement. Revenue is derived from up-front payments received
by The Network Connection when it installs the system and payments received
thereafter through a revenue share agreement. If Carnival requests that The
Network Connection build and install CruiseView(TM) systems on additional ships
under the agreement, The Network Connection could lose money, which would have a
negative effect on its working capital. The Network Connection is currently
endeavoring to renegotiate the terms of the agreement with Carnival, but gives
no assurance that it will be successful in doing so. In January, 2000 The
Network Connection received notice from Carnival that it desires that The
Network Connection install a CruiseView(TM) system on a third Carnival ship;
however, The Network Connection has not yet received the required deposit and
has not taken any action toward the third ship installation.
The Network Connection has received only three orders for installation of
its InnView(TM) system.
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.
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
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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
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.
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THE UK LOTTERY PROJECT IS A START-UP VENTURE, HAS GENERATED NO REVENUES, 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 has not begun operations,
has not generated any revenues, and we do not expect that it will generate any
revenues, nor can we give any assurance that it ever will, until late in the
first half of calendar year 2000. Our partner companies involved in the lottery
project are in the process of building the foundation on which to launch the
lottery business. 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 will be 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
pre-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 commences when, if ever,
ticket sales commence in connection with the lottery. The inability of the
lottery to generate revenues sufficient to cover this obligation would adversely
affect the business of our lottery partner companies.
WE HAVE WRITTEN OFF OUR LOAN TO OUR MEXICAN ENTERTAINMENT CENTER PARTNER COMPANY
AND MAY NOT RECEIVE ANY VALUE FOR THE SLOT MACHINES USED AT THE CENTER.
We provided funding to Donativos S.A. de C.V., the entity through which the
Mexican gaming center operation is carried out, in the form of a loan of
approximately $1.6 million to develop the center. We also purchased
approximately $900,000 worth of slot machines, which we in turn leased to
Donativos for use in the center. To date, we have received no payments on the
loan or in connection with the lease. In addition, our relationship with the
majority shareholder of Donativos, a Mexican national, has broken down. We have
written off our loan to Donativos and we are currently seeking to sell our 24.5%
equity interest in that company. It is unlikely that we will be able to find a
buyer for our equity interest in Donativos, and, if we do, very likely that any
amount we receive for the interest will be far less than the amount of our
investment. Additionally, we have become aware that the Loteria Nacionale, the
governmental agency that granted the majority shareholder of Donativos the
license to run the entertainment center, is scrutinizing the business. If the
Loteria takes away the license or otherwise shuts down the entertainment center,
it would be extremely unlikely that we will be able to find a buyer for our
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equity interest in Donativos, if at all. A closure would also make it more
difficult for us to repossess our slot machines, an action that we are currently
considering. If we decide to repossess the slot machines, we may not be
successful in doing so. In addition, the process of repossession may require
costly litigation in Mexico. Furthermore, in the event that we are successful in
repossessing the slot machines, the value, if any, we could receive from selling
them would be less than what we paid for them.
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 14 patent applications with the Patent & Trademark
Office and has received notices of allowance for two 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.
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* 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 February 16, 2000, Advantage Fund II Ltd. and Koch Investment Group Ltd.
purchased an aggregate of $10,000,000 of Series C 5% Convertible Preferred Stock
and warrants from Global Technologies in a private placement transaction.
Advantage and Koch received 600 and 400 shares, respectively, of preferred stock
which may be converted into our Class A Common Stock. In addition, Advantage
received warrants to acquire 60,555 shares of our Class A Common Stock and Koch
received warrants to acquire 40,370 shares of our Class A Common Stock.
The warrants issued to Advantage and Koch are exercisable at $17.748 and
expire on February 15, 2005. The preferred stock carries a 5% cumulative
dividend payable quarterly in cash or Class A Common Stock. As of the date of
this prospectus, the preferred stock is convertible into shares of our Class A
Common Stock at $17.748 per share. On or about November 17, 2000, and each three
months thereafter while shares of the preferred stock are outstanding, the
conversion price will reset in accordance with the formula set forth in the
Certificate of Designations, Rights, Preferences and Limitations of Series C 5%
Convertible Preferred Stock of Global. The conversion price is also subject to
adjustment pursuant to the antidilution provisions set forth in such
certificate.
As long as our Class A Common Stock is listed for trading on Nasdaq, we may
not issue on conversion of the preferred stock more than 19.999% of the
outstanding Class A Common Stock immediately prior to the sale of the preferred
stock without obtaining prior stockholder approval in order to comply with
Nasdaq listing requirements. As an inducement to purchase the preferred stock,
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Irwin L. Gross, our Chairman and Chief Executive Officer, irrevocably agreed to
vote his shares in favor such approval, if necessary. Mr. Gross currently owns
approximately 20% of the outstanding shares of Class A Common Stock.
Any shares of preferred stock outstanding three years from the funding date
automatically convert into shares of Class A Common Stock at the then applicable
conversion price. The preferred stock is redeemable under certain circumstances
in which case additional warrants would be issued to the holders of the
preferred stock.
In addition, each holder of the preferred stock may not convert its
securities into shares of our common stock if after the conversion, such
holders, 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.
Since the number of shares of our common stock issuable upon conversion of
the preferred stock will change based upon fluctuations of the market price of
our common stock prior to a conversion, the actual number of shares of our
common stock that will be issued under the preferred stock, and consequently the
number of shares of our common stock that will be beneficially owned by
Advantage or Koch cannot be determined at this time. Because of this fluctuating
characteristic, we agreed to register a number of shares of our common stock
that exceeds the number of our shares of common stock currently beneficially
owned by Advantage or Koch. The number of shares of our common stock listed in
the table below as being beneficially owned by Advantage and Koch includes the
shares of our common stock that are issuable to each of them, subject to the
4.999% limitation, upon conversion of their preferred stock and exercise of
their warrants. 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.
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.
In connection with the February 2000 financing, Reedland Capital Partners,
a division of Financial West Group, received warrants to purchase 50,000 shares
of our common stock at $17.835 per share for its role as sales agent. The 50,000
shares are also being offered to the public by means of this prospectus.
SELLING STOCKHOLDERS.
The following table sets forth for each selling stockholder (i) the name of
the selling stockholder, (ii) 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 held by the selling stockholder), (iii) the number of shares
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of our Class A Common Stock offered by the selling stockholder under this
prospectus, (iv) 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 (v) 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 SHARES OUTSTANDING CLASS A
NUMBER OF SHARES NUMBER OF BENEFICIALLY COMMON STOCK
BENEFICIALLY OWNED SHARES TO BE OWNED AFTER BENEFICIALLY OWNED
NAME OF SELLING STOCKHOLDER BEFORE OFFERING SOLD IN OFFERING OFFERING AFTER OFFERING(2)
- --------------------------- --------------- ---------------------- -------- -----------------
<S> <C> <C> <C> <C>
Advantage Fund II, Ltd. (1)(3) 533,614 841,551 -0- *
Koch Investment Group Ltd. (1)(3) 533,614 561,034 -0- *
Sven Joesting (4) 22,500 22,500 -0- *
The Shaar Fund, Ltd. (5) 131,250 131,250 -0- *
Emden Consulting Corp. (6) 37,500 37,500 -0- *
Waterton Group, LLC (6) 37,500 37,500 -0- *
D.H. Blair Investment Banking (7) 37,650 17,850 19,800 *
Stanley S. Arkin (7) 124 124 -0- *
Hyman L. Schaffer (7) 16 16 -0- *
Jeffrey M. Kaplan (7) 16 16 -0- *
Howard J. Kaplan (7) 10 10 -0- *
Mark S. Cohen (7) 10 10 -0- *
Robin Breittner (7) 379 379 -0- *
Brian L. Frank (7) 394 394 -0- *
Rachel Family Partnership (7)(11) 86,189 34,340 51,849 *
Gitel Family Partnership (7) 34,338 34,338 -0- *
Alfred S. Palagonia (7) 28,570 28,570 -0- *
Martin A. Bell (7)(9) 21,000 21,000 -0- *
Alison D. Brown (7) 300 300 -0- *
J. Morton Davis (7) 40,324 17,850 22,474 *
David Nachamie (7) 500 500 -0- *
Michael Siciliano (7) 500 500 -0- *
Brain A. Wasserman (7)(10) 10,500 10,500 -0- *
Kenton E. Wood (7) 2,000 2,000 -0- *
Steven R. Monte (7) 200 200 -0- *
Reedland Capital Partners (8) 50,000 50,000 -0- *
</TABLE>
- ----------
* Less than 1%.
(1) Pursuant to the terms of our recent financing with Advantage and Koch, we
are obligated to include in the registration statement covering this
prospectus such number of shares of Class A Common Stock equal to the sum
of (i) 200% of the number of shares of Class A Common Stock issuable upon
conversion in full of the Series C Convertible Preferred Stock, assuming
for such purposes that such preferred shares are outstanding for three
years and that such conversion occurred on March 17, 2000, the date of
filing of this registration statement with the Commission, and (ii) the
number of shares of Class A Common Stock issuable upon exercise in full of
the callable warrants held by such selling stockholders.
23
<PAGE>
(2) Percentages are based on 10,674,421 shares of Class A Common Stock
outstanding as of March 10, 2000.
(3) The number of shares beneficially owned by Advantage and Koch respectively
represent the number of shares underlying their warrants plus the number of
shares underlying their Series C Convertible Preferred Stock. Advantage and
Koch may not convert their Series C Convertible Preferred Stock if doing so
would cause them to beneficially own more than 4.999% of the outstanding
shares of common stock on a fully converted basis. For a more detailed
discussion of this restriction, please read about our "Recent Financing"
above.
(4) Sven Joesting was issued his shares of our Class A Common Stock on July 28,
1999 as a fee for investment banking services provided to us.
(5) The Shaar Fund, Ltd. owns warrants exercisable for 131,250 shares of our
Class A Common Stock at an exercise price of $2.00 per share. These
warrants expire on May 10, 2004.
(6) Each of Emden Consulting Corp. and Waterton Group, LLC owns warrants
exercisable for 37,500 shares of our Class A Common Stock at an exercise
price of $5.25 per share. These warrants expire on December 23, 2004. Each
of Emden and Waterton was issued these warrants in consideration of certain
financial advisory services provided to us.
(7) Each stockholder was issued shares upon the exercise of Unit Purchase
Options issued on March 6, 1995 in connection with the public offering of
2,800,000 Units. Each Unit consisted of one share Class A Common Stock and
two warrants exercisable into Class A Common Stock. The shares have
registration rights, and have not previously been registered.
(8) Reedland owns warrants exercisable for 50,000 shares of our Class A Common
Stock at an exercise price of $17.835 per share. These warrants expire on
February 15, 2005. Reedland was issued these warrants in consideration of
certain financial advisory services provided to us.
(9) Mr. Bell disclaims beneficial ownership of 375,000 shares of Class A Common
Stock owned by First Lawrence Corp. of which he is an officer and minority
shareholder.
(10) Mr. Wasserman disclaims beneficial ownership of 375,000 shares of Class A
Common Stock owned by First Lawrence Corp. of which he is a minority
shareholder.
(11) Includes 51,849 shares reported in the Schedule 13G (Amendment No. 2) of
Ruki Renov filed October 25, 1999, as adjusted for our 3:2 stock dividend,
upon which we have relied in making this disclosure. Mrs. Renov controls
the Rachel Family Partnership.
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;
24
<PAGE>
* 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.
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 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 $7,500 of the fees and disbursements of counsel
to the selling stockholders. 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.
25
<PAGE>
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
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.
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 Global 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
the affairs of Global or that information contained herein is correct as of any
time subsequent to the date hereof.
26
<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 Global, are
estimated as follows:
SEC registration fee $ 8,733.69
Legal services and expenses 25,000.00
Accounting services 5,000.00
Miscellaneous 5,000.00
-----------
Total $ 43,733.69
===========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, we have broad
powers to indemnify its 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 its 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 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(4) Convertible Preferred Stock Purchase Agreement among Registrant
and the Investors signatory thereto, dated as of February 16,
2000
4.2(4) Certificate of Designations, Rights, Preferences and Limitations
of Series C
4.3(4) Callable Warrant issued to holders of Series C Convertible
Preferred Stock of Global
4.4* Registration Rights Agreement dated February 16, 2000 between the
Registrant and the investors signatory thereto
4.5(1) Warrant Agreement, dated as of March 7, 1995 among the
Registrant, D.H. Blair and American Stock Transfer and Trust
Company
4.6(2) Amendment to March 7, 1995 Warrant Agreement entered into among
the Registrant, D.H.and American Stock Transfer and Trust Company
4.7(2) Warrant Agreement, dated as of October 24, 1996 among the
Registrant, D.H. Blair and American Stock Transfer and Trust
Company
4.8(2) Amendment to October 24, 1996 Warrant Agreement among the
Registrant, D.H. Blair and American Stock Transfer and Trust
Company
4.9(1) Form of Underwriter's Unit Purchase Option
4.10(3) Stock Purchase Warrant Issued to The Shaar Fund Ltd. dated May
10, 1999
4.11(3) Registration Rights Agreement dated May 6, 1999 between the
Registrant and The Shaar Fund Ltd.
5.1* Legal Opinion of Mesirov Gelman Jaffe Cramer & Jamieson, LLP
23.1* Consent of Mesirov Gelman Jaffe Cramer & Jamieson, LLP (included
in legal opinion filed as Exhibit 5.1
23.2* Consent of KPMG LLP
- ----------
* Filed herewith
(1) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2, Registration No. 33-86928.
(2) Incorporated by reference from the Registrant's Registration Statement on
Form S-3, Registration No. 333-14013.
(3) Incorporated by reference from the Registrant's Transition Report on Form
10-KSB for the transition period ended June 30, 1999, filed with the
Securities and Exchange Commission on October 28, 1999, File No. 0-25668.
(4) Incorporated by reference from the Registrant's Current Report on Form 8-K
dated February 16, 2000, filed with the Securities and Exchange Commission
on February 28, 2000, File No. 0-25668.
II-2
<PAGE>
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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Philadelphia, Commonwealth of Pennsylvania on March
17, 2000.
GLOBAL TECHNOLOGIES, LTD.
Date: March 17, 2000 By: /s/ Irwin L. Gross
---------------------------------------
Irwin L. Gross, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Date: Signature and Title
- ----- -------------------
March 17, 2000 /s/ Irwin L. Gross
---------------------------------------
Irwin L. Gross, Chief Executive Officer
and Chairman of the Board of Directors
(principal executive officer)
March 17, 2000 /s/ Patrick J. Fodale
---------------------------------------
Patrick J. Fodale, Vice President and
Chief Financial Officer
(principal financial and accounting
officer)
March 17, 2000 /s/ Charles T. Condy
---------------------------------------
Charles T. Condy, Director
March 17, 2000 /s/ M. Moshe Porat
---------------------------------------
M. Moshe Porat, Director
March 17, 2000 /s/ Stephen Schachman
---------------------------------------
Stephen Schachman, Director
II-4
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and entered
into as of February 16, 2000, among Global Technologies, Ltd., a Delaware
corporation (the "Company"), and the investors signatory hereto (each such
investor is a "Purchaser" and all such investors are, collectively, the
"PURCHASERS").
This Agreement is made pursuant to the Convertible Preferred Stock Purchase
Agreement, dated as of the date hereof among the Company and the Purchasers (the
"PURCHASE AGREEMENT").
The Company and the Purchasers hereby agree as follows:
1. DEFINITIONS
Capitalized terms used and not otherwise defined herein that are defined in
the Purchase Agreement shall have the meanings given such terms in the Purchase
Agreement. As used in this Agreement, the following terms shall have the
following meanings:
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "CONTROL," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "AFFILIATED," "CONTROLLING" and "CONTROLLED" have meanings
correlative to the foregoing.
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York or the Commonwealth of Pennsylvania generally are authorized or
required by law or other government actions to close.
"CERTIFICATE OF DESIGNATION" shall have the meaning set forth in the
Purchase Agreement.
"CLOSING DATE" shall have the meaning set forth in the Purchase Agreement.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's Class A common stock, $.01 par value per
share, or such securities that such stock shall hereafter be reclassified into.
"EFFECTIVENESS DATE" means (i) with respect to the Registrable Securities
issuable upon conversion of the Shares and exercise of the Warrants, the 90th
day following the Closing Date and (ii) with respect to the Registrable
Securities issuable upon exercise of the Redemption Warrants, the 90th day
following the issuance of Redemption Warrants.
<PAGE>
"EFFECTIVENESS PERIOD" shall have the meaning set forth in Section 2(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FILING DATE" means (i) with respect to the Registrable Securities issuable
upon conversion of the Shares and exercise of the Warrants, the 30th day
following the Closing Date and (ii) with respect to the Registrable Securities
issuable upon exercise of the Redemption Warrants, the 30th day following the
issuance of Redemption Warrants.
"HOLDER" or "HOLDERS" means the holder or holders, as the case may be, from
time to time of Registrable Securities.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 5(c).
"INDEMNIFYING PARTY" shall have the meaning set forth in Section 5(c).
"LOSSES" shall have the meaning set forth in Section 5(a).
"PERSON" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"PROCEEDING" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition).
"PROSPECTUS" means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
"REDEMPTION WARRANTS" means the common stock purchase warrants issuable to
the Purchasers pursuant to Section 6(c) of the Certificate of Designations.
"REGISTRABLE SECURITIES" means the shares of Common Stock issuable upon
conversion in full of the Shares and exercise in full of the Warrants and the
Redemption Warrants.
"REGISTRATION STATEMENT" means the registration statement and any
additional registration statements contemplated by Section 2(a), including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
2
<PAGE>
"RULE 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"RULE 415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"RULE 424" means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SHARES" means the shares of the Company's Series C Convertible Preferred
Stock, $.01 par value, issued to the Purchasers pursuant to the Purchase
Agreement.
"SPECIAL COUNSEL" means one special counsel to the Holders, for which the
Holders will be reimbursed by the Company pursuant to Section 4.
"WARRANTS" shall mean the Common Stock purchase warrants issued to the
Holders pursuant to the Purchase Agreement.
2. SHELF REGISTRATION
(a) On or prior to each Filing Date, the Company shall prepare and file
with the Commission a "Shelf" Registration Statement covering the resale of all
Registrable Securities relating thereto for an offering to be made on a
continuous basis pursuant to Rule 415. The Registration Statement shall be on
Form S-3 (except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall be on
another appropriate form in accordance herewith as the Holders may consent) and
shall contain (except if otherwise directed by the Holders) and subject to
comments by the Commission the "Plan of Distribution" attached hereto as ANNEX
A. The Company shall use its best efforts to cause each Registration Statement
required to be filed hereunder to be declared effective under the Securities Act
as promptly as possible after the filing thereof, but in any event prior to each
applicable Effectiveness Date, and shall use its best efforts to keep such
Registration Statement continuously effective under the Securities Act until the
date which is two years after the date that such Registration Statement is
declared effective by the Commission or such earlier date when all Registrable
Securities covered by such Registration Statement have been sold or may be sold
without volume restrictions pursuant to Rule 144(k) as determined by the counsel
to the Company pursuant to a written opinion letter to such effect, addressed
and acceptable to the Company's transfer agent and the affected Holders (the
"EFFECTIVENESS PERIOD"), PROVIDED, that the Company shall not be deemed to have
used its best efforts to keep the Registration Statement effective during the
Effectiveness Period if it voluntarily takes any action that would result in the
Holders not being able to sell the Registrable Securities covered by such
3
<PAGE>
Registration Statement during the Effectiveness Period, unless such action is
required under applicable law or the Company has filed a post-effective
amendment to the Registration Statement and the Commission has not declared it
effective.
(b) The initial Registration Statement required to be filed hereunder shall
include (but not be limited to and subject to comment by the Commission) a
number of shares of Common Stock equal to no less than the sum of (i) 200% of
the number of shares of Common Stock issuable upon conversion in full of the
Shares, assuming for such purposes that such Shares are outstanding for three
years and that such conversion occurred on the Closing Date, the Filing Date or
the date the Company files an acceleration request (if permissible under the
Securities Act without the filing of a pre-effective amendment) with the
Commission relating to the Registration Statement, whichever yields the lowest
Conversion Price (as defined in the Certificate of Designation) and (ii) the
number of shares of Common Stock issuable upon exercise in full of the Warrants.
(c) If (a) a Registration Statement is not filed on or prior to the
applicable Filing Date (if the Company files such Registration Statement without
affording the Holder the opportunity to review and comment on the same as
required by Section 3(a) hereof, the Company shall not be deemed to have
satisfied this clause (a)), or (b) the Company fails to file with the Commission
a request for acceleration in accordance with Rule 461 promulgated under the
Securities Act, within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that a
Registration Statement will not be "reviewed," or not subject to further review,
or (c) the Registration Statement filed hereunder is not declared effective by
the Commission on or prior to the 30th day following the applicable
Effectiveness Date, or (d) after a Registration Statement is filed with and
declared effective by the Commission, such Registration Statement ceases to be
effective as to all Registrable Securities at any time prior to the expiration
of the Effectiveness Period without being succeeded within ten (10) Trading Days
by an amendment to such Registration Statement or by a subsequent Registration
Statement filed with and declared effective by the Commission, or (e) the Common
Stock shall be delisted or suspended from trading on the Nasdaq National Market
("NASDAQ") or on either of the New York Stock Exchange, American Stock Exchange
or Nasdaq SmallCap Market (each, a "SUBSEQUENT MARKET") for more than five (5)
consecutive Trading Day days, or (f) the conversion rights of the Holders
pursuant to the Certificate of Designation are suspended for any reason, or (g)
an amendment to a Registration Statement is not filed by the Company with the
Commission within ten (10) days of the Commission's notifying the Company that
such amendment is required in order for such Registration Statement to be
declared effective (any such failure or breach being referred to as an "EVENT,"
and for purposes of clauses (a), (c), (f) the date on which such Event occurs,
or for purposes of clause (b) the date on which such five (5) day period is
exceeded, or for purposes of clauses (d) and (g) the date which such 10 Trading
Day-period is exceeded, or for purposes of clause (e) the date on which such
five (5) Trading Day-period is exceeded, being referred to as "EVENT DATE"),
then, on the Event Date and each monthly anniversary thereof until the
applicable Event is cured, the Company shall pay to each Holder a sum equal
to1.5% of the purchase price paid by such Holder pursuant to the Purchase
Agreement, in cash, as liquidated damages and not as a penalty. If the Company
fails to pay any liquidated damages pursuant to this Section in full within
seven (7) days after the date payable, the Company will pay interest thereon at
a rate of 18% per annum (or such lesser maximum amount that is permitted to be
4
<PAGE>
paid by applicable law) to the Holder, accruing daily from the end of such seven
day period until such amounts, plus all such interest thereon, are paid in full.
The liquidated damages pursuant to the terms hereof shall apply on a pro-rata
basis for any portion of a month prior to the cure of an Event.
3. REGISTRATION PROCEDURES
In connection with the Company's registration obligations hereunder, the
Company shall:
(a) Not less than five Business Days prior to the filing of the
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall, (i) furnish to the
Holders c/o their Special Counsel copies of all such documents proposed to be
filed, which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such Holders and
their Special Counsel, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the reasonable opinion of respective counsel to conduct a
reasonable investigation within the meaning of the Securities Act. The Company
shall not file the Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities and their Special Counsel shall reasonably object,
provided, the Company is notified of such objection no later than 3 Business
Days after the Holders have been so furnished copies of such documents.
(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement and the Prospectus used
in connection therewith as may be necessary to keep the Registration Statement
continuously effective as to the applicable Registrable Securities for the
Effectiveness Period; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement, and as so supplemented or
amended to be filed pursuant to Rule 424; (iii) respond as promptly as
reasonably possible, and in any event within fifteen days, to any comments
received from the Commission with respect to the Registration Statement or any
amendment thereto and as promptly as reasonably possible provide the Holders c/o
their Special Counsel true and complete copies of all correspondence from and to
the Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) File additional Registration Statements if the number of Registrable
Securities at any time exceeds 85% of the number of shares of Common Stock then
registered in a Registration Statement. The Company shall have twenty days to
file such additional Registration Statements after notice of such requirement
which is given by the Holders.
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(d) Notify the Holders of Registrable Securities to be sold c/o their
Special Counsel as promptly as reasonably possible (and, in the case of (i)(A)
below, not less than five Business Days prior to such filing) and (if requested
by any such Person) confirm such notice in writing no later than one Business
Day following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement (the Company shall provide true and complete copies
thereof and all written responses thereto to each of the Holders); and (C) with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective; (ii) of any request by the Commission or any other
Federal or state governmental authority for amendments or supplements to the
Registration Statement or Prospectus or for additional information; (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) if at any time any of the
representations and warranties of the Company contained in any agreement
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event or passage
of time that makes the financial statements included in the Registration
Statement ineligible for inclusion therein or any statement made in the
Registration Statement or Prospectus or any document incorporated or deemed to
be incorporated therein by reference is untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(e) Use its best efforts to avoid the issuance of, or, if issued, obtain
the withdrawal of (i) any order suspending the effectiveness of the Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(f) Furnish to each Holder c/o their Special Counsel, without charge, at
least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.
(g) Promptly deliver to each Holder, without charge, as many copies of the
Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons may reasonably request. The
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders in connection with the
offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto.
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(h) Prior to any public offering of Registrable Securities, use its best
efforts to register or qualify or cooperate with the selling Holders and their
Special Counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder requests in writing, to
keep each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, that the
Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be delivered to
a transferee pursuant to a Registration Statement, which certificates shall be
free, to the extent permitted by the Purchase Agreement, of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any such Holders may request.
(j) Upon the occurrence of any event contemplated by Section 3(d)(vi), as
promptly as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(k) Comply with all applicable rules and regulations of the Commission.
(l) The Company may require each selling Holder to furnish to the Company a
certified statement as to the number of shares of Common Stock beneficially
owned by such Holder and, if requested by the Commission, the controlling person
thereof.
4. REGISTRATION EXPENSES. All fees and expenses incident to the performance
of or compliance with this Agreement by the Company shall be borne by the
Company whether or not any Registrable Securities are sold pursuant to the
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the NASDAQ and any Subsequent Market on which the
Common Stock is then listed for trading, and (B) in compliance with applicable
state securities or Blue Sky laws (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and of
printing prospectuses if the printing of prospectuses is requested by the
holders of a majority of the Registrable Securities included in the Registration
Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and
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disbursements of counsel for the Company and Special Counsel for the Holders (in
the case of the latter, up to a maximum of $7,500), (v) Securities Act liability
insurance, if the Company so desires such insurance, and (vi) fees and expenses
of all other Persons retained by the Company in connection with the consummation
of the transactions contemplated by this Agreement. In addition, the Company
shall be responsible for all of its internal expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit and the fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange as required hereunder.
5. INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents, brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and attorneys' fees) and expenses (collectively, "Losses"),
as incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading, except to the extent, but only to the extent,
that (1) such untrue statements or omissions are based solely upon information
regarding such Holder furnished in writing to the Company by such Holder
expressly for use therein, or to the extent that such information relates to
such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus or in any amendment or supplement thereto or (2) in the case of an
occurrence of an event of the type specified in Section 3(d)(ii)-(vi), the use
by such Holder of an outdated or defective Prospectus after the Company has
notified such Holder in writing that the Prospectus is outdated or defective and
prior to the receipt by such Holder of the Advice contemplated in Section 6(e).
The Company shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.
(b) INDEMNIFICATION BY HOLDERS. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
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<PAGE>
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus or to the extent that such information relates to
such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus, or in any amendment or supplement thereto or to the extent such Loss
was directly caused by such Holder's failure, subsequent to its receipt of the
Advice contemplated in Section 6(e), to discontinue disposition of the
Registrable Securities pursuant to Section 6(e) and such Loss would have been
avoided by such Holder's compliance with Section 6(e). For purposes hereof, each
Holder by signing this Agreement hereby expressly approves in writing the Plan
of Distribution attached hereto as Annex A. In no event shall the liability of
any selling Holder hereunder be greater in amount than the dollar amount of the
net proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"INDEMNIFIED PARTY"), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any
such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
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<PAGE>
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable fees
and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) CONTRIBUTION. If a claim for indemnification under Section 5(a) or 5(b)
is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
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The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. MISCELLANEOUS
(a) REMEDIES. In the event of a breach by the Company or by a Holder, of
any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. Neither the Company nor any of its
subsidiaries has entered, as of the date hereof, nor shall the Company or any of
its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as and to the extent specified in Schedule 6(b)
hereto, neither the Company nor any of its subsidiaries has previously entered
into any agreement granting any registration rights with respect to any of its
securities to any Person.
(c) NO PIGGYBACK ON REGISTRATIONS. Except as and to the extent specified in
Schedule 6(b) hereto, neither the Company nor any of its security holders (other
than the Holders in such capacity pursuant hereto) may include securities of the
Company in the Registration Statement other than the Registrable Securities, and
the Company shall not after the date hereof enter into any agreement providing
any such right to any of its security holders.
(d) COMPLIANCE. Each Holder covenants and agrees that it will comply with
the prospectus delivery requirements of the Securities Act as applicable to it
in connection with sales of Registrable Securities pursuant to the Registration
Statement.
(e) DISCONTINUED DISPOSITION. Each Holder agrees by its acquisition of such
Registrable Securities that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in Sections 3(d)(ii), 3(d)(iii),
3(d)(iv), 3(d)(v) or 3(d)(vi), such Holder will forthwith discontinue
disposition of such Registrable Securities under the Registration Statement
until such Holder's receipt of the copies of the supplemented Prospectus and/or
amended Registration Statement contemplated by Section 3(j), or until it is
advised in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement. The
Company may provide appropriate stop orders to enforce the provisions of this
paragraph.
(f) PIGGY-BACK REGISTRATIONS. (i) Subject to Section 6(f)(ii), if at any
time during the Effectiveness Period there is not an effective Registration
Statement covering all of the Registrable Securities and the Company shall
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determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, then the Company
shall send to each Holder written notice of such determination and, if within
fifteen days after receipt of such notice, any such Holder shall so request in
writing, the Company shall include in such registration statement all or any
part of such Registrable Securities such holder requests to be registered.
(ii) If (A) the offering proposed to be made is to be an underwritten
public offering, and (B) the managing underwriter of such public offering
furnishes a written opinion that the total amount of securities to be included
in such offering would exceed the maximum amount of securities (the "Maximum
Amount") (as specified in such opinion) which can be marketed at a price
reasonably related to the then current market value of such securities (or the
anticipated market price, if no trading market then exists) and without
materially and adversely affecting such offering or the trading market for
Common Stock, then the Company, the Holders and other holders of Common Stock
desiring to register their Common Stock by such registration shall have a right
to participate in such offering in the following order of priority (a
"Priority") until the number of Common Stock included in the offering reaches
the Maximum Amount, and no additional Common Stock will be included in the
registration statement. First Priority shall be to the Company for Common Stock
to be sold for the account of the Company. Second Priority shall be to holders
of Common Stock who have a contractual right granted to such holders prior to
the date hereof to have Common Stock registered pursuant to a registration
statement initiated on their request or demand. Third Priority shall be to
holders of Common Stock who have a contractual right granted to such holder on
or prior to the date hereof to have their Common Stock registered pursuant to
piggyback or incidental rights on terms comparable to Section 6(f)(i) hereof (in
a registration statement that such holders do not have a right to initiate),
including Holders who have piggyback rights under this Agreement. Fourth
Priority shall be to all other holders of Common Stock in any sequence that may
be agreed upon among the holders of such Common Stock and/or the Company. To the
extent that some but not all of the Common Stock owned by persons within any of
the Priorities listed above are not included within the Maximum Amount, the
Common Stock to be included in the registration statement shall be allocated pro
rata to holders in such Priority in proportion to the respective numbers of
shares of Common Stock each such person in such Priority wishes to include in
the registration statement.
(g) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by the Company and the Holders of
at least two-thirds of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders and that does not directly or indirectly affect the rights of other
Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however, that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.
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(h) NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 8:00 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in the Purchase Agreement later than 8:00 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
If to the Company: Global Technologies, Ltd.
1811 Chestnut Street, Suite 120
Philadelphia, PA 19103
Facsimile No.: (215) 972-8183
Attn: Chief Financial Officer/General Counsel
With copies to: Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street
Philadelphia, PA 19103
Facsimile No.: (215) 994-1111
Attn: Richard P. Jaffe, Esq.
If to a Purchaser: To the address set forth under such
Purchaser's name on the signature pages hereto.
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears
in the stock transfer books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(i) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each Holder. The Company may not assign its
rights or obligations hereunder without the prior written consent of each
Holder. Each Holder may assign their respective rights hereunder in the manner
and to the Persons as permitted under the Purchase Agreement.
(j) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
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<PAGE>
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(k) GOVERNING LAW. The corporate laws of Delaware shall govern all issues
concerning the relative rights of the Company and its stockholders. All other
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof.
(l) CUMULATIVE REMEDIES. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.
(m) SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their reasonable efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(n) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(o) SHARES HELD BY THE COMPANY AND ITS AFFILIATES. Whenever the consent or
approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its Affiliates
(other than any Holder or transferees or successors or assigns thereof if such
Holder is deemed to be an Affiliate solely by reason of its holdings of such
Registrable Securities) shall not be counted in determining whether such consent
or approval was given by the Holders of such required percentage.
(p) INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of any other Purchaser hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.
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SIGNATURE PAGES TO FOLLOW]
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IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
GLOBAL TECHNOLOGIES, LTD.
By: /s/ Patrick J. Fodale
------------------------------------
Name: Patrick J. Fodale
Title: Vice President
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SIGNATURE PAGES OF PURCHASERS TO FOLLOW]
<PAGE>
ADVANTAGE FUND II LTD.
By:
------------------------------------
Name:
Title:
Address for Notice:
c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Facsimile: 011-599-9732-2008
Attention: W.R. Weber
With copies to:
Genesee International Inc.
10500 NE 8th Street
Suite 1920
Bellevue, WA 98004
Facsimile: (425) 462-4645
Attention: Christopher Purrier
Robinson Silverman Pearce Aronsohn
& Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630 and
(212) 541-1432
Attn: Eric L. Cohen, Esq.
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SIGNATURE PAGE FOR PURCHASER FOLLOWS]
<PAGE>
KOCH INVESTMENT GROUP LTD.
By:
------------------------------------
Name:
Title:
Address for Notice:
4111 East 37th Street North
Wichita, Kansas 67270
Facsimile: (316) 828-7947
Attention: Josh Taylor
<PAGE>
ANNEX A
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 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.
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 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.
The company is required to pay all fees and expenses incident to the
registration of the shares, including up to $7,500 of the fees and disbursements
of counsel to the selling stockholders. The company has agreed to indemnify the
selling stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
INDEPENDENT AUDITORS' CONSENT
The Stockholders and Board of Directors
Global Technologies, Ltd.:
We consent to the use of our reports incorporated by reference herein and to the
reference to our firm under the heading "Experts" in the registration statement
on Form S-3.
/s/ KPMG LLP
Phoenix, Arizona
March 16, 2000
