-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M2COmdi1qCs/knPVTKoWijEIvOIG+UI1pdvGsvvvhC+SkWpkUg0YtvYw831BCAJV npTLmgoX6hKRKcVMRKkKNg== 0000950115-99-001541.txt : 19991117 0000950115-99-001541.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950115-99-001541 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBAL TECHNOLOGIES LTD CENTRAL INDEX KEY: 0000932021 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS MANUFACTURING INDUSTRIES [3990] IRS NUMBER: 113197148 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-25668 FILM NUMBER: 99756550 BUSINESS ADDRESS: STREET 1: 1811 CHESTNUT STREET STREET 2: SUITE 120 CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2159728191 MAIL ADDRESS: STREET 1: 1811 CHESTNUT STREET STREET 2: SUITE 120 CITY: PHILADELPHIA STATE: PA ZIP: 19103 10QSB 1 QUARTERLY REPORT U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB -------------- (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 1999 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _______________ Commission File No. 0-25668 ------- GLOBAL TECHNOLOGIES, LTD. ----------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified in Its Charter) Delaware 86-0970492 - ------------------------------- ---------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation of Organization) Identification Number) 1811 Chestnut Street, Suite 120 Philadelphia, Pennsylvania 19103 ------------------------------------------------ (Address of Principal Executive Offices) (215) 972-8191 ------------------------------------------------ (Issuer's Telephone Number, Including Area Code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Class Outstanding at November 10, 1999 ----- -------------------------------- Class A common stock, $.01 par value 6,113,244 shares Class B common stock, $.01 par value -0- shares Transitional Small Business Disclosure Format Yes No X --- --- GLOBAL TECHNOLOGIES, LTD. QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1999 Index
Page ---- PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Condensed Consolidated Balance Sheets as of September 30, 1999 (unaudited) and June 30, 1999................................................ 3 Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 1999 and 1998 (unaudited)................................ 4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 1999 and 1998 (unaudited)................................ 5 Notes to Condensed Consolidated Financial Statements......................... 6 Item 2. Management's Discussion and Analysis or Plan of Operation.................... 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................................ 22 Item 2. Changes in Securities........................................................ 23 Item 4. Submission of Matters to a Vote of Security Holders.......................... 24 Item 6. Exhibits and Reports on Form 8-K............................................. 24 SIGNATURES............................................................................ 27
2 GLOBAL TECHNOLOGIES, LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, June 30, 1999 1999 ------------- ------------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 9,257,226 $ 15,521,275 Restricted cash 1,376,652 1,412,736 Investments 4,173,444 4,594,751 Accounts receivable, net of allowance of $6,544 5,113,667 128,489 Notes receivable from related parties 97,932 98,932 Inventories, net of allowance of $7,837,595 2,984,708 1,400,000 Prepaid expenses 630,465 607,900 Assets held for sale 400,000 800,000 Other current assets 380,964 470,273 ------------- ------------- Total current assets 24,415,058 25,034,356 Investments 5,903,089 5,752,599 Note receivable from related party 75,000 75,000 Property and equipment, net of accumulated depreciation of $1,055,565 and $915,901, respectively 1,353,300 1,369,392 Intangibles, net accumulated amortization of $259,122 and $74,981, respectively 6,995,493 7,119,806 Other assets 2,873,604 61,468 ------------- ------------- Total assets $ 41,615,544 $ 39,412,621 ============= ============= Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 5,394,048 $ 2,530,675 Accrued liabilities 2,548,083 2,292,609 Deferred revenue 1,155,428 365,851 Accrued product warranties 144,750 -- Current maturities of notes payable 23,473 24,391 Notes payable to related parties 68,836 68,836 ------------- ------------- Total current liabilities 9,334,618 5,282,362 Notes payable 605,650 3,467,045 Accrued litigation settlement 1,000,000 1,843,750 ------------- ------------- Total liabilities 10,940,268 10,593,157 ------------- ------------- Minority interest 1,261,460 1,165,098 Commitments and contingencies Stockholders' equity: Series A 8% Convertible preferred stock, 3,000 shares designated, issued and outstanding (liquidation preference of $1,200 per share) 30 30 Series B 8% Convertible preferred stock, 3,000 shares designated, zero shares issued and outstanding -- -- Class A common stock, one vote per share, par value $0.01 per share, 40,000,000 shares authorized; 6,113,244 and 5,460,636 shares issued and outstanding, respectively 61,132 54,606 Class B common stock, six votes per share, par value $0.01 per share, 4,000,000 shares authorized; zero shares issued and outstanding -- -- Additional paid-in capital 115,675,071 113,462,394 Accumulated other comprehensive income: Net unrealized loss on investment securities (1,415) (10,107) Accumulated deficit (86,127,012) (85,658,567) Treasury stock, at cost; 78,600 shares (193,990) (193,990) ------------- ------------- Total stockholders' equity 29,413,816 27,654,366 ------------- ------------- Total liabilities and stockholders' equity $ 41,615,544 $ 39,412,621 ============= =============
See accompanying notes to consolidated financial statements. 3 GLOBAL TECHNOLOGIES, LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months ended September 30, ----------- ----------- 1999 1998 ----------- ----------- Revenue: Equipment sales $ 5,550,560 $ 89,028 Service income 59,827 465,404 ----------- ----------- 5,610,387 554,432 ----------- ----------- Costs and expenses: Cost of equipment sales 3,420,381 283,714 Cost of service income 8,580 146,362 General and administrative expenses 2,416,965 4,847,618 Special charges -- (190,000) Depreciation and amortization expense 325,066 330,300 ----------- ----------- 6,170,992 5,417,994 ----------- ----------- Operating loss (560,605) (4,863,562) Other: Interest expense (8,651) (2,390) Interest income 303,838 591,114 Equity in loss of nonconsolidated affiliates (152,576) -- Other income (expense) 13,408 (2,628) ----------- ----------- Net loss before minority interest and preferred dividends $ (404,586) $(4,277,466) ----------- ----------- Minority interest (94,529) -- Net loss before preferred dividends $ (499,115) $(4,277,466) Cumulative dividend on preferred stock (60,000) -- ----------- ----------- Net loss attributable to common stockholders $ (559,115) $(4,277,466) =========== =========== Basic and diluted net loss per share of common stock $ (0.10) $ (0.75) =========== =========== Weighted average shares outstanding: basic and diluted 5,834,662 5,704,055 =========== ===========
See accompanying notes to consolidated financial statements. 4 GLOBAL TECHNOLOGIES, LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three months Three months ended ended September 30, September 30, 1999 1998 ------------- ------------- Cash flows from operating activities: Net loss $ (499,115) $ (4,277,466) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 325,066 330,300 Equity in loss of nonconsolidated affiliates 152,576 -- Loss applicable to minority interest 94,529 -- Special charges -- (190,000) Loss on sale of assets held for sale 4,506 -- Non cash compensation expense 85,000 -- Loss on disposals of property and equipment -- 2,629 Changes in assets and liabilities, net of acquisition: Increase in accounts receivable (4,985,178) (578,567) Increase in inventories (1,584,708) (52,820) Decrease in prepaid expenses, other current assets and other assets 54,608 66,516 Increase in accounts payable 2,822,053 32,855 Decrease in accrued liabilities (187,919) (678,059) Increase in deferred revenue 789,577 36,263 Increase in accrued product warranties 144,750 82,749 ------------ ------------ Net cash used in operating activities $ (2,784,255) $ (5,225,600) ------------ ------------ Cash flows from investing activities: Maturities of investment securities 1,450,079 1,216,653 Purchases of investment securities (1,489,085) (2,105,606) Sales of investment securities 469,005 -- Investments in affiliates (387,534) -- Payments received on related party note receivable 1,000 -- Deposits on property and equipment (2,800,000) -- Purchases of property and equipment (123,572) (51,680) Proceeds from sale of equipment -- 3,389 Proceeds from sale of assets held for sale 395,494 -- Decrease (Increase) in restricted cash 36,084 (1,153,024) Purchase of Johnny Valet, Inc. -- (688,736) Payments to purchase Series A, D and E notes (555,000) -- ------------ ------------ Net cash used in investing activities $ (3,003,529) $ (2,779,004) ------------ ------------ Cash flows from financing activities: Payments on capital lease obligations -- (20,775) Payments on notes payable (476,265) -- Purchase of treasury stock -- (1,305,004) ------------ ------------ Net cash used in financing activities $ (476,265) $ (1,325,779) ------------ ------------ Net decrease in cash and cash equivalents (6,264,049) (9,330,383) Cash and cash equivalents at beginning of period 15,521,275 38,961,896 ------------ ------------ Cash and cash equivalents at end of period $ 9,257,226 $ 29,631,513 ============ ============
See accompanying notes to consolidated financial statements. 5 GLOBAL TECHNOLOGIES, LTD. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) PART I. FINANCIAL INFORMATION Basis of Presentation (1) Principles of Consolidation The condensed consolidated financial statements include the accounts of Global Technologies, Ltd. ("Global") and its wholly-owned subsidiaries: IFT Holdings Limited, IFT Management Limited, Interactive Flight Technologies (Gibraltar) Limited, IFT Lottoco, Inc., IFT Subco, Inc., IFT Investments Limited, IFT Leasing Limited, and MTJ Corp. (inactive subsidiary that formerly operated the Company's dry cleaning business); and the majority-owned and controlled subsidiary, The Network Connection, Inc. ("TNCi") (collectively, the "Company"). The ownership interest of minority shareholders in TNCi are recorded as "minority interest" on the accompanying consolidated financial statements. TNCi was acquired by Global effective May 1, 1999 for accounting purposes (the "Transaction"). All significant intercompany accounts and transactions have been eliminated. The equity method of accounting is used for the Company's 50% or less owned affiliates (Inter Lotto (UK) Limited and Donativos S.A. de C.V.) over which the Company has the ability to exercise significant influence. The amount by which the Company's carrying value in each such affiliate exceeds its share of the underlying net assets of such equity affiliate ("Equity Goodwill") is amortized over five years on a straight-line basis from the date of acquisition which adjusts the Company's share of such affiliate's earnings or losses. The Company's investment in US Wireless Corporation is accounted for at cost ($3.0 million). The Company continually evaluates investments for indications of impairment based on the market value of each investment relative to cost, financial condition, near-term prospects of the investment, and other relative factors. If impairment is determined the carrying value is adjusted to fair value. The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) which are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures normally included in consolidated financial statements have been condensed or omitted pursuant to such rules and regulations. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto for the transition period ended June 30, 1999, included in the Company's Annual Report on Form 10-KSB. The results of operations for the three months ended September 30, 1999 are not necessarily indicative of the results to be expected for the entire fiscal year. (2) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Additionally, such estimates and assumptions affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. (3) Reverse Stock Split On October 30, 1998, the stockholders of the Company approved a one-for-three reverse stock split on the Company's Class A Common Stock and Class B Common Stock. One share was issued for each three shares held by stockholders of record as of the close of business on November 2, 1998. 6 All references to the number of shares of Class A and B Common Stock and per share amounts elsewhere in the condensed consolidated financial statements and related footnotes have been restated as appropriate to reflect the effect of the reverse split for all periods presented prior to the reverse split. (4) Notes Payable Prior to the Transaction, TNCi entered into a Secured Promissory Note with Global in the principal amount of $750,000, bearing interest at a rate of 9.5% per annum, and a related security agreement granting Global a security interest in TNCi's assets (the "Promissory Note"). The Promissory Note is convertible into shares of TNCi Series C 8% convertible preferred stock ("TNCi Series C Stock") at the discretion of Global. In July and August 1999, Global purchased all of the Series A and E notes and the Series D notes issued by TNCi (collectively, the "Series Notes"), respectively, from the holders of such notes. Concurrent with such purchase by Global, TNCi executed the fifth and sixth allonges to the Promissory Note which cancelled such Series Notes and rolled the principal balance, plus accrued but unpaid interest, penalties and redemption premiums on the Series Notes, into the principal balance of the Promissory Note. Subsequent to May 18, 1999, Global has also advanced working capital to TNCi in the form of intercompany advances. In August 1999, TNCi executed the seventh allonge to the Promissory Note which rolled the intercompany advances into the principal balance of the Promissory Note. As of September 30, 1999, the Promissory Note had a principal balance of $4.3 million which has been eliminated in consolidation. On August 24, 1999, the Board of Directors of Global approved the conversion of the Promissory Note into approximately five million shares of TNCi common stock at a price per share equal to 66.67% of the average of the five lowest last sale prices of a share of TNCi common stock as reported by the Nasdaq National Market out of the 20 trading days immediately preceding August 24, 1999. Such conversion was contingent upon receiving shareholder approval to increase the authorized share capital of TNCi. This increase was subsequently approved at the September 17, 1999 Special Meeting of TNCi shareholders. On August 24, 1999, the Company's Board of Directors approved a $5 million secured revolving credit facility by and between TNCi and Global (the "Facility"). The Facility provides that TNCi may borrow up to $5 million for working capital and general corporate purposes at the prime rate of interest plus 3%. The Facility matures in September 2001. TNCi paid an origination fee of $50,000 to Global and will pay an unused line fee of 0.5% per annum. The Facility is secured by all of the assets of Global and is convertible, at Global's option, into shares of TNCi Series C Stock. The Company executed the Facility on October 12, 1999. In September 1999, TNCi sold one of its two buildings in Alpharetta, Georgia. The net proceeds of approximately $390,000 from the sale, plus cash of approximately $80,000, were used to repay a note payable due April 2001, in the principal amount of $470,000. The sale of the second building occurred in November 1999. The net proceeds of approximately $390,000 from the sale were used to retire a note payable due 2009 in the principal amount of $217,000. In October 1999, a note payable of TNCi in the principal amount of $400,000 due September 5, 1999 was converted into 200,000 shares of TNCi common stock. (5) Preferred Stock The Company issued 3,000 shares of its Series A 8% Convertible Preferred Stock ("Series A Stock") to a third party in May 1999 in connection with the Transaction. The Series A Stock has a stated value of $1,000 per share and liquidation value of 120% of stated value. The holder of Series A Stock is entitled to receive, when, as and if declared by the Board of Directors, an annual cumulative dividend of $80 per share payable quarterly in cash or common stock. Cumulative undeclared and unpaid dividends at September 30, 1999 total $93,333 or $31.11 per share of Series A Stock. Beginning November 6, 1999, the holder may request redemption or that each share of Series A Stock be converted into Class A Common Stock at a price equal to $3.00 per share or into Series B 8% Convertible Preferred Stock (the "Series B Stock") at the rate of 1.19 shares of Series B Stock 7 for each share of Series A Stock. Global's Series B Stock is entitled to one vote for each share of Common Stock into which it may convert. There are no shares of Series B Stock outstanding. Global may redeem the Series A Stock at prices ranging from 115% to 125% of stated value, plus accrued and unpaid dividends, at any time between November 6, 1999 and May 4, 2000. If the Series A Stock is not redeemed or converted into shares of Global's Common Stock by May 5, 2000, then the Series A Stock automatically converts into shares of Series B Stock at the rate of 1.25 shares of Series B Stock for each share of Series A Stock. Shares of Series B Stock are convertible into Class A Common Stock of Global at a price per share equal to the lower of (a) 82% of Market Price (as defined in the Certificate of Rights, Preferences, and Designations of the Series B Stock) or (b) $3.00 per share of Class A Common Stock. On November 10, 1999, the Board of Directors of the Company approved the redemption of the Series A Stock as of November 6, 1999 for approximately $3.57 million, consisting of its stated value of $3 million, plus accrued and unpaid dividends of approximately $120,000 and a redemption premium of approximately $450,000. (6) Pro Forma Information Pro forma unaudited operations data assuming the TNCi acquisition had taken place on July 1, 1998 is as follows: Three Months Ended September 30, 1998 ------------------ Revenue $1,716,000 Net loss $7,550,000 Net loss per share $ 1.32 (7) Commitments and Contingencies (a) Lawsuits Swissair/MDL-1269, In Regards to an Air Crash Near Peggy's Cove, Nova Scotia. This multi-district litigation relates to the crash of Swissair Flight No. 111 on September 2, 1998 in waters near Peggy's Cove, Nova Scotia resulting in the death of all 229 people on board. The Swissair MD-11 aircraft involved in the crash was equipped with an Entertainment Network System that had been sold to Swissair by the Company. Following the crash, investigations were conducted and continue to be conducted by Canadian and United States agencies concerning the cause of the crash. No investigative agency has linked the Entertainment Network System to the crash. Estates of the victims of the crash have filed lawsuits throughout the United States against Swissair, Boeing, Dupont and various other parties, including the Company. TNCi was not a party to the contract for the Entertainment Network System, but has been named in some of the lawsuits filed by families of victims on a claim of successor liability. The Company and TNCi deny all liability for the crash. TNCi is being defended by the aviation insurer for the Company. Fidelity and Guaranty Insurance Company v. Interactive Flight Technologies, Inc., United States District Court for the District of Minnesota, CV No. 99-410. This is a declaratory judgment action where the Company and its insurers are seeking a declaration of the applicability of an excess liability policy to claims made by the estates of victims of the crash of Swissair Flight No. 111 on September 2, 1998. Federal Express Corporation v. The Network Connection, Inc., State Court of Forsyth County, State of Georgia, Civil Action File No. 99-SC-0053. This lawsuit was served on TNCi on or about July 22, 1999 by Federal Express Corporation. The suit alleges TNCi owes Federal Express approximately $110,000 for past services rendered. 8 On September 1, 1999, SAir Group invited Global to participate in a conciliation hearing before the Justice of the Peace in Kloten, Switzerland, which is the customary manner in which civil litigation is initiated in Switzerland. The document received by Global informing it of the proceeding states that the request has been filed in connection with the crash of Swissair Flight 111 primarily in order to avoid the expiration of any applicable statutes of limitations and to reserve the right to pursue further claims. The document states that further information will be supplied at the hearing. The document states that the relief sought is "possibly the equivalent of CHF 342,000,000 - in a currency to be designated by the court; each plus 5% interest with effect from September 3, 1998; legal costs and a participation to the legal fees (of the plaintiff) to be paid by the defendant." In September of 1999, Global filed a lawsuit against Barington Capital Group, L.P. ("Barington") in Maricopa County Superior Court, Arizona, seeking a declaratory judgment that no sums were owed to Barington pursuant to a Financial Advisory Service Agreement dated in October of 1998. In October of 1999, Barington filed a lawsuit on the same contract in the Supreme Court of the State of New York, County of New York, Index No. 99-604606, captioned Barington Capital Group, L.P. v. Interactive Flight Technologies, Inc., alleging that Barington is owed $1,750,471 in connection with services alleged to have been performed pursuant to the Financial Advisory Service Agreement. Global denies all liability and denies that any sums are owed to Barington. The Company is subject to other lawsuits and claims arising in the ordinary course of its business. In the Company's opinion, as of September 30, 1999, the effect of such matters will not have a material adverse effect on the Company's results of operations and financial position. (b) Carnival Agreement In September 1998, the Company entered into a Turnkey Agreement (the "Carnival Agreement") with Carnival Corporation ("Carnival"), for the purchase, installation and maintenance of its advanced cabin entertainment and management system for the cruise industry ("CruiseView") on a minimum of one Carnival Cruise Lines ship. During the four-year period commencing on the date of the Carnival Agreement, Carnival has the right to designate a limited number of additional ships for the installation of CruiseView by the Company. The cost per cabin for CruiseView purchase and installation on each ship is provided for in the Carnival Agreement. In December 1998, Carnival ordered the installation of CruiseView on one Carnival Cruise Lines "Fantasy" class ship which has been in operational use, on a test basis, since August 1999. In August 1999, Carnival ordered the installation of CruiseView on one Carnival Cruise Lines "Destiny" class ship which has been in operational use, on a test basis, since October 1999. The terms of the Carnival Agreement provide that Carnival may return the CruiseView system within the Acceptance Period, as defined in the Carnival Agreement. The acceptance periods for the "Fantasy" and "Destiny" class ships are 12 months and three months, respectively. As of September 30, 1999, the Company recorded deferred revenue of $1,155,000, reflecting amounts paid by Carnival towards the purchase price of CruiseView aboard these ships. As of September 30, 1999, the Company has not recognized any revenue in association with the Carnival Agreement. The Company would be required to repay such funds to Carnival in the event Carnival does not accept the system. Under the Carnival Agreement, the Company is required to provide a performance bond or standby letter of credit in favor of Carnival ensuring the Company's ability to repay such amounts. The Company has not provided a bond or letter of credit. Should Carnival require the Company to obtain a bond or letter of credit, the Company may be required to provide cash collateral to a financial institution to secure such obligation. (c) Letter of Credit In June 1999, the Company granted a letter of credit in the amount of $913,445 as security for the payment of certain equipment purchases made by Donativos S.A. de C.V., an affiliate of the Company. To secure this letter of credit, the Company was required to provide cash collateral with a commercial bank. Payments totaling $114,000 have been made through November 15, 1999 by the Company, effectively reducing its exposure by such amount. (d) Purchase Commitment In September 1999, IFT Leasing Limited entered into an agreement with International Lottery & Totalizator Systems, Inc., a California corporation ("ILTS"), to purchase an on-line lottery system for the operation of the Inter Lotto lotteries. The purchase price of the lottery system is $12.3 million. In addition, on the same date, IFT Management Limited entered into an eight-year facilities management agreement with ILTS to provide operational and technology support for the system. Under this agreement, IFT Management is required to make weekly payments of $72,000, plus additional amounts based on the number of installed terminals and sales volumes, upon the commencement of ticket sales through the system. Global has guaranteed the obligations of IFT Leasing Limited and IFT Management Limited under these agreements. 9 (8) Operating Segments In 1998, the Company adopted SFAS 131, which requires the reporting of operating segments using the "management approach" versus the "industry approach" previously required. The Company's reportable segments consist of TNCi and general corporate operations. TNCi's operations include development, manufacturing and marketing of computer-based entertainment and data networks, which provides users access to information, entertainment and a wide array of service options such as movies, shopping for goods and services, computer games, access to the World Wide Web and gambling, where permitted by applicable law. General corporate operations consists of developing and operating affiliate companies, most of which are engaged in telecommunications, e-commerce, networking solutions and gaming. The following summarizes information related to the Company's segments. All significant inter-segment activity has been eliminated. Assets are the owned or allocated assets used by each operating segment. Three Month Ended September 30, --------------------------------- 1999 1998 ------------ ------------ Revenue TNCi $ 5,610,387 $ 334,325 Other -- 220,107 ------------ ------------ $ 5,610,387 $ 554,432 Gross profit(a) TNCi $ 2,181,426 $ 50,355 Other -- 74,001 ------------ ------------ $ 2,181,426 $ 124,356 Operating income (loss) TNCi $ 517,635 $ (4,688,972) Other (1,078,240) (174,590) ------------ ------------ $ (560,605) $ (4,863,562) General corporate operations Equity in loss of non- consolidated affiliate $ (152,576) $ -- Net interest 295,187 588,724 Other income (expenses) 13,408 (2,628) Minority interest (94,529) -- ------------ ------------ $ 61,490 $ 586,096 Net loss $ (499,115) $ (4,277,466) Total assets TNCi $ 19,137,090 $ 5,841,955 General corporate 22,478,454 $ 35,642,381 ------------ ------------ Total Assets $ 41,615,544 $ 41,484,336 ============ ============ - ---------- (a) Gross profit is the difference between Revenue and Cost of Revenue in the consolidated statement of operations. 10 (9) Comprehensive Income Comprehensive income encompasses net income and "other comprehensive income", which includes all other non-owner transactions and events which change stockholders' equity. The Company recognized comprehensive income (loss) for the three months ended September 30, 1999 and 1998 as follows: Three Month Ended September 30, --------- ----------- 1999 1998 --------- ----------- Net loss Other comprehensive loss, net of tax: $(449,115) $(4,277,466) Net unrealized loss on investment securities (1,415) -- --------- ----------- Comprehensive loss $(450,530) $(4,277,466) ========= =========== (10) Issuance of Class A Common Stock On August 13, 1999, Company, pursuant to the First Lawrence Capital Corp. ("First Lawrence") Release and Settlement Agreement, issued 250,000 shares of Class A Common Stock to First Lawrence. Such settlement was accrued for at June 30, 1999 in the amount of $843,750. Upon the issuance of the shares of Class A Common Stock on August 13, 1999 this portion of the accrued litigation settlement was reclassified as shareholders equity. (11) Subsequent Event -- Series A 8% Convertible Preferred Stock On November 10, 1999, the Board of Directors of the Company approved redemption of the Series A Stock at its stated value of $3 million plus accrued and unpaid dividends of approximately $120,000 and a redemption premium of approximately $450,000. See note 5. 11 Item 2 -- Management's Discussion and Analysis or Plan of Operation The following discussion should be read in conjunction with, and is qualified in its entirety by, the Condensed Consolidated Financial Statements and the Notes thereto appearing elsewhere herein. Historical results are not necessarily indicative of trends in operating results for any future period. Acquisitions and Investments The Network Connection, Inc. On May 18, 1999, the Company received from The Network Connection, Inc. ("TNCi") 1,055,745 shares of its common stock and 2,495,400 shares of its Series D Convertible Preferred Stock in exchange for $4,250,000 in cash and substantially all the assets and certain liabilities of the Company's Interactive Entertainment Division ("IED"), as defined in the Asset Purchase and Sale Agreement dated April 30, 1999, as amended (the "Transaction"). The Company has consolidated the results of operations of TNCi from the date of the transaction forward. TNCi is a majority-owned subsidiary of Global whose ownership, through a combination of the Transaction and Global's purchase of TCNi Series B 8% convertible preferred stock, 110,000 shares of TNCi common stock, and of TCNi Series A, D and E convertible notes from third-party investors approximates 81% of TNCi on an if-converted common stock basis, as of September 30, 1999. TNCi is engaged in the development, manufacturing and marketing of computer-based entertainment and data networks, which provides users access to information, entertainment and a wide array of service options, such as shopping for goods and services, computer games, access to the World Wide Web, and gambling operations where permitted by applicable law. The Company primarily markets TNCi's products to academic institutions, passenger rail carriers, cruise ship lines, business jet manufacturers, hotels and corporations (for training purposes). Education TNCi has developed a high-speed multimedia server for use in the educational and training markets. Through TNCi's servers and networks, students and faculty are able to access hundreds of hours of multimedia content, search the internet, and build interactive courses. In August 1999, the Company received an approximately $5.3 million order for 195 Cheetah(TM) multimedia servers to begin the first phase of the Georgia Metropolitan Regional Education Services Agency ("MRESA") Net 2000 project. The Net 2000 Project is a three year state-wide program, whereby MRESA hopes to bring advanced multimedia learning tools and technology to all 700 Georgia schools grades K-12 in the MRESA area. Delivery and installation of all 195 servers was completed by September 30, 1999. There is no assurance that TNCi will receive any further orders in connection with the Net 2000 Project, or any orders to put its systems in other schools or corporate training environments. 12 TrainView In February 1999, the Company received an engineering design order from Alstom Transport Limited ("Alstom"), a unit of ALSTOM SA, a worldwide leader in the manufacture of high speed passenger trains, to incorporate the design of TrainView, the Company's advanced Infoactive Business and Entertainment System, into Alstom's concept high speed train design. The TrainView all-digital system proposed is an adaptation of the Company's existing system currently installed for cruise customers. The system is expected to deliver personal interactive entertainment, video/audio on demand, e-commerce for shopping, event booking, Internet and business services to the seat through the Company's TransPORTAL applications. The Company has completed its work under this engineering design order and has been paid for its services. CruiseView In September 1998, the Company entered into a Turnkey Agreement (the "Carnival Agreement") with Carnival Corporation ("Carnival") for the purchase, installation and maintenance of CruiseView on a minimum of one Carnival Cruise Lines ship. During the four-year period commencing on the date of the Carnival Agreement, Carnival has the right to designate a limited number of additional ships for the installation of CruiseView by the Company. The cost per cabin for CruiseView purchase and installation on each ship is provided for in the Carnival Agreement. Carnival exercised its right and ordered the installation of CruiseView on one Carnival Cruise Lines "Fantasy" class ship. Delivery and installation of CruiseView for the "Fantasy" class ship began in December 1998 and has been in operational use, on a test basis, since August 1999. It is expected to begin commercial operation in the quarter ending December 31, 1999. In August 1999, Carnival ordered the installation of CruiseView on one Carnival Cruise Lines "Destiny" class ship which has been in operational use, on a test basis, since October 1999. There can be no assurance, however, that Carnival will exercise its right under the Carnival Agreement to order CruiseView for installation on any additional ships. The terms of the Carnival Agreement provide that Carnival may return CruiseView systems within the Acceptance Period, as defined in the Carnival Agreement. The Acceptance Periods for the "Fantasy" and "Destiny" class ships are 12 months and three months, respectively. As of September 30, 1999, the Company recorded deferred revenue of $1,155,428, reflecting amounts paid by Carnival towards the purchase price of CruiseView aboard these ships. As of September 30, 1999, the Company has not recognized any revenue in connection with the Carnival Agreement. The Company would be required to return the funds received from Carnival in the event Carnival does not accept the system. Under the Carnival Agreement, the Company is required to provide a performance bond or standby letter of credit in favor of Carnival ensuring the Company's ability to repay such funds. The Company has not provided a bond or letter of credit. Should Carnival require the Company to obtain a bond or letter of credit, the Company may be required to provide cash collateral to a financial institution to secure such obligation. The Company has concluded that the cost of building and installing CruiseView systems in Carnival ships pursuant to the Carnival Agreement may exceed the revenue earned in connection therewith. Carnival's continuing to exercise its option for building and installing CrusieView on additional ships under the Carnival Agreement may prove unprofitable and therefore have a negative effect on the Company's working capital. The Company is currently endeavoring to renegotiate the terms of the Carnival Agreement. 13 AirView In April 1998, the Boeing Company specified the Company's AirView data server as part of the airplane manufacturer's completion Request For Proposal (RFP) for the new B737-73Q Business Jet. In November 1998, the Company received an order from Raytheon Systems Company, a unit of Raytheon Company, which was contracted by Boeing Company, to equip the Boeing Business Jet (BBJ) B737-73Q "Demonstrator" aircraft with the Company's AirView for an Integrated Business and Entertainment System. Installation began in late 1998. There can be no assurance, however, that any additional orders for the Company's AirView system other than the Demonstrator will be received. Swissair In October, 1997, the Company entered into a revised agreement with Swissair which required the Company to install and maintain the Entertainment Network in the first, business and economy class sections of three aircraft at no cost to Swissair and in the first and business classes of another sixteen aircraft at an average price of $1.7 million per aircraft. As of October 31, 1998, the Company had completed all installations under the initial Swissair program. The Company was responsible for maintenance costs through September 1998 for all nineteen aircraft and specific software and hardware upgrades to the Entertainment Network that are not yet completed. The Swissair agreement also provided for a one-year warranty on the Entertainment Network. The Company entered into a contract dated April 1, 1998 with Swissair for $3,975,000 to extend the warranty on the installed system for a second and third year. Through May 18, 1999, the Company has been paid $707,500 under this contract. No subsequent payments have been received from Swissair. In April 1998 and October 1998, the Company entered into additional contracts with Swissair for a $4.7 million order for first and business class installations on four Swissair MD-11 aircraft that are being added to the Swissair fleet. Swissair has made payments of $1,450,000 on the $4.7 million order for the four installations. On September 2, 1998, Swissair Flight 111 crashed. The aircraft involved in the crash was an MD-11 equipped with the Entertainment Network. Despite the fact that there is no evidence that the Entertainment Network had anything to do with the crash, on October 29, 1998, the Company was notified by Swissair of the airline's decision to deactivate the Entertainment Network on all Swissair aircraft. Until April 1999, the Company and its system integrator/installation contractor had been working closely with Swissair to take the necessary steps that would allow Swissair to reactivate the systems as quickly as possible. However, by April 1999, discussions between the Company and Swissair regarding outstanding financial matters related to current accounts receivable, inventory, purchase commitments and extended warranty obligations, as well as planning discussions for an October 1999 reactivation ceased to be productive. On May 6, 1999, the Company filed a lawsuit against Swissair in the United States District Court for the District of Arizona seeking damages for Swissair's failure to honor its obligations for payment and reactivation of the Company's Entertainment Network. Swissair has failed to make payments to the Company under installation and warranty contracts and has harmed the Company's business and reputation by failing to honor its commitments to reactivate the Entertainment Network on Swissair aircraft. Even though there has been no evidence that the Entertainment Network contributed in any way to the crash of Swissair Flight No. 111 on September 2, 1998, Swissair has continued to use the unfortunate circumstances of the crash as an excuse to avoid its obligations. The Swissair agreements are not assignable to third parties under the terms of such agreements. However, in connection with the Transaction, the Company has agreed to pay to TNCi any net proceeds received from Swissair as a result of the above litigation or otherwise. Further, TNCi, as a subcontractor to the Company, will assume any operational responsibilities of the Swissair agreement in the event that such requirement arises. TNCi has not assumed any liabilities or obligations arising out of the crash of Swissair Flight No. 111. As a result of the above events, management concluded that its only source of future payment, if any, will be through the litigation process. In addition, with the deactivation of the entertainment system and Swissair's breach of its agreements with the Company, TNCi believes it will not be called upon by Swissair to perform any ongoing warranty, maintenance or development services. Swissair's actions have rendered TNCi's accounts receivable, inventory and deposits worthless. These items were written off or reserved for as of June 30, 1999. US Wireless Corporation In March 1999, the Company invested $3 million in US Wireless Corporation ("US Wireless") in exchange for 30,000 shares of Series B Preferred Stock ("US Wireless Series B"). As of September 30, 1999, the Company accounts for this investment at cost. Each share of US Wireless Series B is convertible into approximately 67 shares of common stock of US Wireless until March 2000, after which each such 14 share is convertible into 100 shares of common stock of US Wireless. Each share of US Wireless Series B is subject to mandatory conversion into 100 shares of US Wireless common stock in the event the closing price for US Wireless common stock as reported on NASDAQ is at least $5.00 per share for 30 consecutive trading days. Although the price of US Wireless common stock has exceeded $5.00 per share on several occasions, as of November 11, 1999 (when the last sale price per share was $4.66 as reported on the Nasdaq National Market), it had not done so for 30 consecutive days. The US Wireless Series B entitles the holder to receive $100 per share liquidation preference before any distributions to the holders of common stock in the event of a liquidation of US Wireless. In addition, the Company and other holders of the US Wireless Series B have, as a separate class, elected one member to US Wireless' Board of Directors and one additional individual as an observer to the Board. As a condition to making the investment, the Company also obtained certain rights relating to the registration under the Securities Act of 1933, as amended (the "Securities Act"), of those shares of common stock of US Wireless into which the US Wireless Series B held by the Company is convertible. The Company has waived its registration rights. Based on the foregoing, the Company currently beneficially owns 11.15% of the common stock of US Wireless (based on a conversion rate of 67 shares of common stock per share of US Wireless Series B) and, assuming no further share issuances until March 2000, will beneficially own 15.25% of the common stock of US Wireless at that time (based on a conversion rate of 100 shares of common stock per share of US Wireless Series B). Both percentages assume full conversion of US Wireless Series A Preferred Stock (into 560,000 shares) and US Wireless Series B (into 3,350,000 and 5,000,000 shares based on conversion at the 67 share rate and 100 share rate, respectively). The fair market value of the Company's investment in US Wireless Series B at September 30, 1999, assuming conversion into 67 shares or 100 shares of common stock for each share of US Wireless Series B and a discount of 25% (which discount might actually be higher or lower, depending upon market conditions) for potential lack of marketability of the unregistered shares, are estimated to be $6.3 million and $9.4 million, respectively. The corresponding figures as of November 11, 1999 were $7.0 million and $10.5 million, respectively. There is no assurance that the Company will realize any gain on its investment in US Wireless. Inter Lotto (UK) Limited As of September 30, 1999, the Company's investment in Inter Lotto was $1,200,967 consisting of working capital advances, notes receivable and capitalized acquisition costs. During the three month period ended September 30, 1999, the Company recorded its proportionate share of losses of Inter Lotto and Equity Goodwill amortization of $67,925 which has been recorded as equity in loss of non-consolidated affiliates in the consolidated statement of operations. IFT Leasing Limited entered into an agreement with International Lottery & Totalizator Systems, Inc., a California corporation ("ILTS"), to purchase an on-line lottery system for the operation of the Inter Lotto lotteries. The purchase price of the lottery system is $12.3 million. As of November 1999, the Company had paid $3.5 million towards this purchase price. In addition, IFT Management Limited entered into an eight-year facilities management agreement with ILTS to provide operational and technological support for the system. Under this agreement, at such time, if any, that ticket sales commence in connection with the lotteries, IFT Management Limited is required to make weekly payments to ILTS of $72,000, plus additional amounts based on the number of installed terminals in excess of 3,500 and plus a percentage of the average daily sales. Global has guaranteed the obligations of IFT Leasing Limited and IFT Management Limited under these agreements. Donativos In May 1999, the Company, through its wholly-owned subsidiary, Interactive Flight Technologies (Gibraltar) Limited, a Gibraltar company ("IFT Gibraltar"), loaned $1,632,000 to Donativos S.A. de C.V. ("Donativos") and acquired a 24.5% interest in Donativos, which has developed and is operating an entertainment center in Monterrey, Mexico. The Company accounts for this investment under the equity method. In addition to IFT Gibraltar, other partners in the venture include Regal Gaming and 15 Entertainment, Inc. ("Regal Gaming"), which also has a 24.5% interest, and Manuel G. Caldera, a Mexican national, who has a 51% interest. The IFT Gibraltar loan bears interest at an annual rate equal to the prime rate plus three percent (3%) and matures on April 30, 2001. The Company has also provided a letter of credit in the amount of $913,445 to secure payment of the purchase price of certain gaming equipment acquired by IFT Gibraltar and leased to Donativos. The obligation underlying this letter of credit has been reduced to $799,000 as of November 1999. In addition to its 24.5% equity interest in Donativos, in consideration for making the loan and providing the letter of credit, the Company will receive 25% of any profits generated by Donativos and, for a term of 10 years, the Company will have an equity interest of at least 10% in any gaming venture in which Regal Gaming, or a subsidiary or affiliate of Regal Gaming, is an investor and which relates to gaming activities in Mexico. On October 21, 1999, Donativos removed Regal Gaming as manager of the entertainment center project and terminated the management agreement pursuant to which Regal Gaming was serving as manager. An interim management team was installed and subsequently removed by the majority shareholder of Donativos on November 3, 1999. A group led by the majority shareholder of Donativos is currently managing the entertainment center, which continues to operate at a loss. Donativos is currently seeking a professional management team to run the center and plans to have one in place in December 1999. As of September 30, 1999, the Company's investment in Donativos was $1,664,854 consisting of the $1,632,000 loan receivable and capitalized acquisition costs. During the three month period ended September 30, 1999, the Company recorded its proportionate share of losses of Donativos and Equity Goodwill amortization of $84,651 which has been recorded as equity in loss of non-consolidated affiliates in the consolidated statement of operations. Results of Operations Three Months Ended September 30, 1999 versus Three Months Ended September 30, 1998 Revenue for the quarter ended September 30, 1999 was $5,610,387, an increase of $5,055,955 compared to revenue of $554,432 for the corresponding period of the previous fiscal year. Revenue for the quarter ended September 30, 1999 consisted of equipment sales of $5,550,560 and service income of $59,827. The equipment sales were principally generated from the installation of TNCi's Cheetah(TM) video servers in 195 schools in the State of Georgia. The service income was generated from system design services provided by TNCi to Alstom, a TrainView customer. Revenue for the corresponding period ended September 30, 1998 consisted of equipment sales of $89,028 and service income of $465,404. The equipment sales revenues resulted from the sale of spare parts needed for the Entertainment Networks on three Swissair aircraft. The service income includes $245,297 which was generated from programming services provided to Swissair, the Company's share of gaming profits generated by the Swissair systems and revenue earned under the Swissair extended warranty Letter of Intent; as well as $220,107 of service income generated by the Company's dry cleaning operations acquired on July 24, 1998. The dry cleaning operations were acquired by prior management of the Company and disposed of by current management. Cost of equipment sales and service income for the quarter ended September 30, 1999 was $3,428,961, an increase of $2,998,885 over cost of equipment sales and service income of $430,076 for the corresponding period ended September 30, 1998. Cost of equipment sales for the quarter ended September 30, 1999 is comprised principally of material costs and estimated warranty costs associated with the 195 TNCi Cheetah(TM) video servers for the Georgia schools project. Cost of equipment sales for the corresponding period ended September 30, 1998 is comprised of material, installation and maintenance costs, as well as estimated warranty costs and costs of upgrades to the Entertainment Networks installed in Swissair aircraft. Cost of service income for the three-month period ended September 30, 1998 is principally attributed to production costs related to the dry cleaning operations previously owned by the Company. General and administrative expenses for the quarter ended September 30, 1999 were $2,416,965, a decrease of $2,430,653 (or 50%) compared to expenses of $4,847,618 for the corresponding period ended 16 September 30, 1998. Significant components attributable to the decrease in expenses in the current period include a $3.1 million severance expense recorded September 1998 for three former executives of the Company which was offset partially by current period legal and consulting fees related to the Donativos and Inter Lotto investments. Depreciation and amortization expense for the quarter ended September 30, 1999 was $325,066, a decrease of $5,234 (or 2%) compared to depreciation and amortization expense of $330,300 for the corresponding period ended September 30, 1998. Depreciation and amortization expense for the 1999 quarter is comprised of property, plant and equipment depreciation of $139,663 and intangible amortization of $185,403. Depreciation and amortization expense for the period ended September 30, 1998 is comprised of property, plant and equipment depreciation of $330,300. There was no amortization expense for such period. The decrease in property, plant and equipment depreciation in the current period is a result of $1,006,532 of equipment written off during October 1998. Special charges for the quarter ended September 30, 1999 were zero compared to a credit of $190,000 during the corresponding period ended September 30, 1998. A recovery of $190,000 was recognized during September 1998 as a result of a reduction in the number of Entertainment Networks requiring maintenance. Interest expense was $8,651 for the quarter ended September 30, 1999 compared to $2,390 for the corresponding period ended September 30, 1998. Interest expense for the period ended September 30, 1999 can be attributed principally to long-term debt obligations, whereas interest expense for the corresponding period of the previous fiscal year is attributable to the Company's capital leases for furniture. Interest income was $303,838 for the quarter ended September 30, 1999 compared to $591,114 for the corresponding period ended September 30, 1998. The interest is attributed principally to short-term investments of working capital. The decrease in income during the current period is due to the lower average cash balance during the three-month period ended September 30, 1999 compared to the corresponding period ended September 30, 1998. Other income for the quarter ended September 30, 1999 was $13,408 and is comprised of a $5,067 gain resulting from the sale of office furniture, a $6,784 gain on the sale of a note receivable and $6,063 of sublet income for the sublease of office space; partially offset by a $4,506 loss on the sale of one of two buildings located in Alpharetta, Georgia. Other expense for the corresponding period ended September 30, 1998 was $2,628 and which resulted from a loss on the sale of equipment during the period. For the quarter ended September 30, 1999 the Company recorded its proportionate share of its equity interest in losses of Inter Lotto and Donativos in the amount of $67,925 and $84,651, respectively. Liquidity and Capital Resources At September 30, 1999, the Company had cash and cash equivalents, and short-term investments of approximately $13.4 million. The Company has a purchase commitment related to Inter Lotto in the amount of $9.5 million ($12.3 million commitment less payments of $2.8 million as of September 30, 1999) and has determined to redeem the outstanding shares of its Series A 8% Convertible Preferred Stock ("Series A Stock") for approximately $3.6 million. In addition, the Company has granted options to certain stockholders that may require the Company to repurchase their shares at an aggregate price of approximately $1.4 million. These three items, together with other capital and operating obligations of the Company, exceed currently available cash and short-term investments. The Company is seeking financing for the Inter Lotto obligation, which, if obtained, would permit the Company to continue to meet its other obligations in the ordinary course of business. In the event that financing is not obtained for Inter Lotto, the Company may need to delay the Inter Lotto project until such financing is obtained. Such a delay could have a material adverse effect on the project and on the Company (and could subject the Company to legal liability as a result of any such delay). Alternatively, the Company may seek to obtain financing against certain of its non-Inter Lotto assets. There is no assurance that the Company would be able to obtain any such financing. 17 Prior to the last fiscal year, the Company's primary source of funding had historically been through equity offerings. Subsequent to June 30, 1999, the Company obtained orders for the manufacture, delivery and installation of 195 Cheetah(TM) multimedia servers to certain Georgia schools, and a service order under the Carnival Agreement for installation of a second CruiseView system. As of November 8, 1999, all 195 servers had been delivered and the Company had received payment. The Company received installment payments from Carnival in August 1999 for the two ships currently under contract, which has been recorded as deferred revenue (the aggregate amount of which was $1.1 million at September 30, 1999). Excluding the benefit of the Georgia schools program, cash and cash equivalents, and short-term investments will continue to decrease as the Company continues to invest in inventory for the Carnival service order, invest in business development and cover overhead expenses, contribute capital into affiliate companies and complete new transactions which may not generate cash flow in the next twelve months. The combination of the Company's Series A Stock redemption and purchase commitments with respect to Inter Lotto will greatly accelerate this decrease to the extent that financing for the Inter Lotto project is not obtained. In the absence of such (or any alternative) financing, the Company will have depleted its cash and cash equivalents, and short-term investment securities early in the quarter ending March 31, 2000. The Company has concluded that the cost of building and installing CruiseView systems in Carnival ships pursuant to the Carnival Agreement may exceed the revenue earned in connection therewith. Carnival's continuing to exercise its option for building and installing CrusieView on additional ships under the Carnival Agreement may prove unprofitable and therefore have a negative effect on the Company's working capital. The Company is currently endeavoring to renegotiate the terms of the Carnival Agreement. On November 10, 1999, the Board of Directors of the Company approved the redemption of the Series A Stock for approximately $3.57 million, consisting of its stated value of $3 million, plus accrued and unpaid dividends of approximately $120,000 and a redemption premium of approximately $450,000. At the November 10, 1999 meeting of the Board of Directors of the Company, the Board approved the sale of approximately 1,035,000 shares of its Class A Common Stock to certain of the Company's directors and officers at $2.625 per share, the last sale price of a share of Class A Common Stock on November 10, 1999 as reported by the Nasdaq National Market. The Board determined the transaction to be in the best interest of the Company in order to alleviate the current liquidity strain and to provide capital for the Company to pursue an investment in an e-commerce company. The issuance was made in a private offering pursuant to Section 4(2) of the Securities Act. 18 Global may be required to commit additional funds to its affiliate companies, TNCi, Donativos and Inter Lotto, which would come from either existing working capital of the Company, or proceeds from external financing by Global or one of its subsidiaries. Global may also identify new business opportunities which may require financing. Should additional funding, if required, exceed existing resources, or should the Company not be able to raise external financing to meet its capital requirements, the Company's ability to financially support certain affiliate companies or acquire new operating companies or make new investments would be materially adversely affected. In particular, because of the cash flow deficit being experienced by Donativos, the Company has been servicing and will probably be required to continue to service, the obligations associated with its purchase of 332 slot machines without receiving corresponding timely equipment rental payments from Donativos. As of November 15, 1999, the balance due for the slot machines is approximately $799,000. Additionally, as of September 8, 1999, IFT Leasing Limited entered into an agreement to purchase $12.3 million of lottery systems in connection with its investment in Inter Lotto. As of November 11, 1999, the Company had paid $3.5 million towards the purchase price and expects to finance the balance of this commitment with debt or other financing to be obtained from a financial institution or other third party investors. No assurances can be made that such financing will be available to the Company. If the Company is unable to obtain such financing, such inability would have a material adverse effect on the Company's liquidity and may require the Company to postpone, or even cancel the lottery systems ordered pursuant to the $12.3 million agreement. A delay of the Inter Lotto project could adversely affect the project's viability. The Company also entered into a facilities management agreement for servicing of the lottery systems. Under this agreement, IFT Management Limited is required to make weekly payments to ILTS of $72,000, plus additional amounts based on the number of installed terminals in excess of 3,500 and plus a percentage of the average daily sales. The obligations under the facilities management agreement do not begin until such time, if any, that ticket sales commence in connection with the lotteries. Global has guaranteed the obligations of IFT Leasing Limited and IFT Management Limited under these agreements. On August 13, 1999, the Company and two of its officers entered into a Release and Settlement Agreement with First Lawrence Capital Corp. ("First Lawrence") whereby the Company issued 250,000 shares of its Class A Common Stock and agreed that its wholly-owned subsidiary, IFT Holdings Limited, a UK corporation ("IFT Holdings"), will pay First Lawrence 24 consecutive monthly payments of $41,667 each beginning February 1, 2000. In exchange, First Lawrence will be available to perform management consulting services to IFT Holdings. Funding for the consulting services is expected to be derived from operating cash flow of the Inter Lotto project. On August 24, 1999, the Board of Directors of Global approved a $5 million secured revolving credit facility in favor of TNCi ("the Facility"). The Facility provides that TNCi may borrow up to $5 million for working capital and general corporate purposes at an annual interest rate equal to the prime rate plus 3%. The Facility matures in September 2001. TNCi paid an origination fee of $50,000 to the Company and will pay an unused line fee of 0.5% per annum. The Facility is secured by all of the assets of TNCi and is convertible, at the Company's option, into shares of TNCi Series C Preferred Stock or TNCi Common Stock. As of September 30, 1999, no amounts were outstanding under the Facility. In the event TNCi were to borrow under the Facility, Global's financial resources for other needs would be adversely affected. A note payable of TNCi due September 5, 1999 was converted into 200,000 shares of TNCi's common stock. The terms of the Carnival Agreement provide that Carnival may return CruiseView systems within the Acceptance Period, as defined in the Carnival Agreement. The Acceptance Periods for the "Fantasy" and "Destiny" class ships on which CruiseView was installed is 12 months and three months, respectively. As of September 30, 1999, the Company recorded deferred revenue of $1,155,428, reflecting amounts paid by Carnival towards the purchase price of CruiseView aboard these ships. As of September 30, 1999, the Company has not recognized any revenue in connection with the Carnival Agreement. 19 The Company would be required to repay the funds received from Carnival in the event Carnival does not accept the system, which would have an adverse effect on liquidity. The Company is required to provide a performance bond or standby letter of credit in favor of Carnival ensuring the Company's ability to repay such funds. The Company has not provided a bond or letter of credit. If Carnival requires the Company to do so, the Company may be required to provide cash collateral to a financial institution to secure such a financial instrument. The Company has concluded the cost of building and installing CruiseView systems in Carnival ships pusuant to the Carnival Agreement may exceed the revenues earned in connection therewith. Carnival's continuing to exercise its option for building and installing CruiseView on additional ships under the Carnival Agreement may prove unprofitable and therefore have a negative effect on the Company's working capital. The Company is currently endeavoring to renegotiate the terms of the Carnival Agreement. During the three months ended September 30, 1999, the Company used $2.8 million of cash for operating activities, a decrease of $2.4 million from the $5.2 million of cash used by operating activities for the three months ended September 30, 1998. Cash utilized in operations during the three months ended September 30, 1999 resulted primarily from increases in accounts receivable and inventories, offset by increases in accounts payable and accrued product warranties. The cash used in operations during the three months ended September 30, 1998 resulted primarily from general and administrative expenses. During the three months ended September 30, 1999, restricted cash decreased by $36,084 as a result of payments made under consulting and severance agreements with a former executive of the Company. Cash flows used in investing activities were $3.0 million during the three months ended September 30, 1999. Deposits on equipment purchases in the amount of $2.8 million for the Inter Lotto project accounted for the majority of the use of cash. Purchases of investment securities and payments to purchase Series A, D and E notes of TNCi, offset by maturities of investment securities and proceeds from the sale of assets held for sale, accounted for the balance of the change. Inflation and Seasonality The Company does not believe that it is significantly impacted by inflation. The Company's operations are not seasonal in nature, except to the extent fluctuations in quarterly operating results occur due to the cyclical nature of government funding to be obtained in connection with education programs. Risks Associated With Year 2000 The commonly referred to Year 2000 ("Y2K") problem results from the fact that many existing computer programs and systems use only two digits to identify the year in the date field. These programs were designed and developed without considering the impact of a change in the century designation. If not corrected, computer applications that use a two-digit format could fail or create erroneous results in any computer calculation or other processing involving the Year 2000 or a later date. The Company has identified two main areas of Y2K risk: 1. Internal computer systems or embedded chips could be disrupted or fail, causing an interruption or decrease in productivity in the Company's operations, and 2. Computer systems or embedded chips of third parties including without limitation, financial institutions, suppliers, vendors, landlords, customers and service providers and others could be disrupted or fail, causing an interruption or decrease in the Company's ability to continue operations. The Company has performed a comprehensive review of its Y2K issues and internal systems and has received assurances from third parties on which it relies with respect to the compliance of their systems. All of the Company's application software programs are Y2K compliant. The Company presently believes that the Y2K problem will not pose significant operational problems for the Company's internal systems or that systems of third parties on which it relies will be materially adversely affected thereby. The Company also believes that incremental remediation costs, if any, to become Y2K compliant, are not material. While the Company believes that it is adequately addressing the Y2K issue, there can be no assurance that the cost and liabilities associated with the Y2K issue will not materially adversely impact its business, prospects, revenues or financial position. The Company is uncertain as to its most reasonably likely worst case Y2K scenario, and it has not developed a contingency plan to handle a worst case scenario. Forward-Looking Information This Report contains certain forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The cautionary statements made in this Report should be read as being applicable to all related forward-looking statements wherever they appear in this Report. Forward-looking statements, by their very nature, include risks and uncertainties. Accordingly, the Company's actual results could differ materially from those discussed herein. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. Such factors, many of which are beyond the control of the Company, include, without limitation, the following: resolution of the Swissair-related litigation; maintenance of the Donativos permit for operation of the Center; obtaining a secondary prize permit by Donativos for use at the Center; obtaining financing for the Inter Lotto gaming equipment; remedying or improving dramatically the cash shortfall in Donativos' operations; the inability to cover the obligations to ILTS from the operations of a start-up venture in an untried game in the UK market; the 20 Company's success in obtaining new contracts; the volume and type of work orders that are received under such contracts; the accuracy of the cost estimates for the projects; the Company's ability to complete its projects on time and within budget; levels of, and ability to collect accounts receivable; availability of trained personnel and utilization of the Company's capacity to complete work; competition and competitive pressures on pricing; and economic conditions in the United States and in other regions served by the Company. 21 PART II. OTHER INFORMATION Item 1 -- Legal Proceedings Federal Express Corporation v. The Network Connection, Inc., State Court of Forsyth County, State of Georgia, Civil Action File No. 99-V51560685. This lawsuit was served on TNCi on or about July 22, 1999 by Federal Express Corporation. The suit alleges TNCi owes Federal Express approximately $110,000 for past services rendered. Sigma Designs, Inc. ("Sigma") v. The Network Connection, Inc., United States District Court, Northern District of California, San Jose Division, Civil Action File No. 98-21149J(EAI). Sigma filed a Complaint against TNCi on December 1, 1998, alleging breach of contract and action on account. Sigma claims that TNCi failed to pay for goods that it shipped to TNCi. The matter was settled by written agreement dated January 22, 1999, contingent upon registration of TNCi stock and warrants issued to Sigma as a part of such settlement and payment by TNCi of $50,000. TNCi did not complete its obligations under the terms of the original settlement agreement. In or about May 1999, the shares of TNCi issued to Sigma as a part of the settlement of the above-referenced lawsuit were sold by Sigma to Global, the parent company of TNCi. The lawsuit was dismissed with prejudice on July 12, 1999 as a condition of Global's purchase. Hollingsead International, Inc. v. The Network Connection, Inc., State Court of Forsyth County, State of Georgia, Civil Action File No. 99S0053. Hollingsead International, Inc. ("Hollingsead") filed suit against TNCi on January 28, 1999, alleging that TNCi failed to pay invoices submitted for installation and service of audio-visual systems in its aircraft. Hollingsead sought damages in the amount of $357,850, in addition to interest at the rate of 18% per annum from March 2, 1998, attorneys' fees and punitive damages. The parties entered into a settlement agreement on or about August 5, 1999 that provided for the payment of $427,870 by TNCi, to be paid in installments, including interest accruing at 8.0% per annum from July 28, 1999 until the balance is paid. The agreement also provides for Hollingsead to pay $5,399 as reimbursement for attorneys' fees. The last installment is due on or before December 20, 1999. Under the settlement agreement, TNCi will dismiss its counterclaims with prejudice and Hollingsead will dismiss its Complaint with prejudice upon completion of all payments by TNCi. On May 5, 1999, a complaint captioned First Lawrence Capital Corp. v. James Fox, Irwin Gross and Interactive Flight Technologies, Inc., No. 7196/99 was filed in the Supreme Court of the State of New York. This is a claim made against Global arising from the hiring of James Fox, a former First Lawrence employee, by Global. First Lawrence asserts that business opportunities of First Lawrence were diverted to Global by James Fox. This case was settled pursuant to a Release and Settlement Agreement entered into on August 13, 1999, by the issuance to First Lawrence of 250,000 shares of Class A Common Stock of Global and the agreement by IFT Holdings to pay First Lawrence 24 monthly installments of $41,667 beginning February 1, 2000. In exchange, First Lawrence will be available to perform management consulting services to IFT Holdings. Eric Schindler v. Interactive Flight Technologies, Inc. et al., State Court for Fulton County, Georgia Case No. 99-V51560685. On August 18, 1999, Eric Schindler commenced a lawsuit, naming Global and TNCi as defendants. The Complaint alleges that TNCi and Global failed to pay severance pay pursuant to a written employment contract following Schindler's resignation as an employee and vice president of TNCi in May 1999. Specifically, the Complaint alleges (1) breach of contract (against TNCi), (2) conspiracy and interference with contract rights (against TNCi and Global), and (3) interference with contract rights (against Global). The Complaint seeks $85,000 in severance pay on the contract claims, unspecified damages for loss of stock options, punitive damages of at least $450,000, attorneys' fees and costs. TNCi and Global deny any liability. TNCi entered into a settlement agreement in October 1999 with Mr. Schindler whereby TNCi paid $50,000 to Mr. Schindler and all claims have been dropped. Such amount had been accrued for at September 30, 1999. On September 1, 1999, SAir Group invited Global to participate in a conciliation hearing before the Justice of the Peace in Kloten, Switzerland, which is the customary manner in which civil litigation is initiated in Switzerland. The document received by Global informing it of the proceeding states that the request has been filed in connection with the crash of Swissair Flight 111 primarily in order to avoid the expiration of any applicable statutes of limitations and to reserve the right to pursue further claims. The document states that further information will be supplied at the hearing. The document states that the relief sought is "possibly the equivalent of CHF 342,000,000 - in a currency to be designated by the court; each plus 5% interest with effect from September 3, 1998; legal costs and a participation to the legal fees (of the plaintiff) to be paid by the defendant." In September of 1999, Global filed a lawsuit against Barington Capital Group, L.P. ("Barington") in Maricopa County Superior Court, Arizona, seeking a declaratory judgment that no sums were owed to 22 Barington pursuant to a Financial Advisory Service Agreement dated in October of 1998. In October of 1999, Barington filed a lawsuit on the same contract in the Supreme Court of the State of New York, County of New York, Index No. 99-604606, captioned Barington Capital Group, L.P. v. Interactive Flight Technologies, Inc., alleging that Barington is owed $1,750,471 in connection with services alleged to have been performed pursuant to the Financial Advisory Service Agreement. Global denies all liability and denies that any sums are owed to Barington. On October 25, 1999, Global filed a lawsuit against Regal Gaming (and its principals and their spouses) in the United States District Court for the Southern District of Florida seeking judgment in favor of Global on the $500,000 promissory note made by Regal Gaming (and guaranteed by its principals and their spouses) to Global. The promissory note was made to secure Regal Gaming's obligations to fund cost overruns in connection with the entertainment center project undertaken by Donativos. The Company is subject to other lawsuits and claims arising in the ordinary course of its business. In the Company's opinion, as of September 30, 1999, the effect of such matters will not have a material adverse effect on the Company's results of operations or financial condition. Item 2 -- Changes in Securities Unregistered Issuances In 1995, the Company issued 59,259 shares of its Class B Common Stock to each of Boris, Yuri and Michail Itkis. In December 1998, Michail Itkis, and in February 1999, Boris and Yuri Itkis converted these shares to an equal number of shares of Class A Common Stock in accordance with the provisions of Class B Common Stock. These issuances were made in private offerings pursuant to Section 4(2) of the Securities Act. On July 16, 1999, Global issued an aggregate of 272,610 shares of its Class A Common Stock and cash in the amount of $555,000 to various holders of TNCi's Series A and Series E notes in exchange for such notes. The issuance was made in a private offering pursuant to Section 4(2) of the Securities Act. On August 9, 1999, Global issued an aggregate of 115,000 shares of its Class A Common Stock to various holders of TNCi's Series D notes in exchange for such notes and for warrants to purchase 70,000 shares of TNCi common stock. The issuance was made in a private offering pursuant to Section 4(2) of the Securities Act of 1933. On August 13, 1999, Global issued 250,000 shares of its Class A Common Stock to First Lawrence, pursuant to the terms of a Release and Settlement Agreement executed by First Lawrence, Global, Irwin L. Gross, James W. Fox and IFT Holdings. The issuance was made in private offering pursuant to Section 4(2) of the Securities Act. At the November 10, 1999 meeting of the Board of Directors of the Company, the Board approved the sale of approximately 1,035,000 shares of its Class A Common Stock to certain of the Company's directors and officers at $2.625 per share, the last sale price of a share of Class A Common Stock on November 10, 1999 as reported by the Nasdaq National Market. The Board determined the transaction to be in the best interest of the Company in order to alleviate the current liquidity strain 23 and to provide capital for the Company to pursue an investment in an e-commerce company. The issuance was made in a private offering pursuant to Section 4(2) of the Securities Act. Item 4 -- Submission of Matters to a Vote of Security Holders The Company held a Special Meeting of Stockholders on September 30,1999. At the meeting, the stockholders were asked to consider and approve the reincorporation of Interactive Flight Technologies, Inc. ("IFT") by means of a merger of IFT with and into Global, for purposes of (a) changing the name of IFT to Global Technologies, Ltd., and (b) electing not to be governed by Section 203 of the Delaware General Corporation Law. The stockholders approved the reincorporation proposal. There were 3,803,536 votes cast by holders of Class A Common Stock, and 1,000,000 votes cast by holders of Series A Stock, in favor of the proposal; 115,394 votes cast by holders of Class A Common Stock, and no votes cast by holders of Series A Stock, against the proposal; and 11,254 abstentions with respect to the proposal. Item 6 -- Exhibits and Reports on Form 8-K The following Index to Exhibits lists the Exhibits filed as part of this Quarterly Report on Form 10-QSB. Where so indicated, Exhibits which were previously filed are incorporated by reference. Documents filed herewith are denoted with an asterisk. 24
(a) Exhibits Exhibit No. Description Page No. - ----------- ----------- -------- 2 Agreement and Plan of Merger by and between Interactive Flight Technologies, Inc. and Global Technologies, Ltd., dated as of August 16, 1999.* 3.1 Amended and Restated Certificate of Incorporation of Global Technologies, Ltd., filed with the Secretary of State of the State of Delaware on August 13, 1999.* 3.2 Amended and Restated By-Laws of Global Technologies, Ltd.* 4.1 Certificate of Designations, Rights, Preferences and Limitations of Series A 8% Convertible Preferred Stock of Global Technologies, Ltd.* 4.2 Certificate of Designations, Rights, Preferences and Limitations of Series B 8% Convertible Preferred Stock of Global Technologies, Ltd.* 10.27 Registration Rights Agreement dated July 1999 with respect to shares issued pursuant to the Securities Purchase Agreement dated as of June 25, 1999, for the purchase of TNCi Series A and Series E Notes.(1) 10.28 Form of Put/Call Agreement dated July 1999.(1) 10.29 Securities Purchase Agreement dated August 9, 1999 for the purchase of TNCi Series D Notes.(1) 10.30 Form of Warrant Purchase Agreement dated August 9, 1999 between Global Technologies, Ltd. and certain TNCi warrant holders.(1) 10.31 Registration Rights Agreement dated August 12, 1999 among Global Technologies, Ltd., XCEL Capital, LLC and Elaine Martin.(1) 10.32 Registration Rights Agreement dated August 12, 1999 among Global Technologies, Ltd., Robert E. Benninger, Jr., Sara Anne Benninger, Will Brantley and Elaine Martin.(1) 10.33 Form of Put/Call Agreement dated August 12, 1999 with respect to shares issued pursuant to the Warrant Purchase Agreement between Global Technologies, Ltd. and certain TNCi warrant holders.(1) 10.34 Employment Agreement between Global Technologies, Ltd. and James W. Fox, dated as of January 1, 1999.(1) 10.35 Employment Agreement between Global Technologies, Ltd. and Irwin L. Gross, dated as of October 1, 1999.* 10.36 Purchase Agreement between IFT Leasing Limited and International Lottery and Totalizator Systems, Inc. regarding purchase of ILTS Datatrak On-Line Turnkey Lottery System, dated September 8, 1999.* 10.37 Facilities Management Agreement between IFT Management Limited and International Lottery and Totalizator Systems, Inc. regarding operational and technical support management of ILTS Datatrak On-Line Turnkey Lottery System, dated September 8, 1999.* 10.38 Guarantee by Global Technologies, Ltd. of the obligations of IFT Leasing Limited and IFT Management Limited under the Purchase Agreement and Facilities Management Agreement, respectively.* 27 Financial Data Schedule.* 99.13 Fifth Allonge to Secured Promissory Note, dated July 16, 1999.(1) 99.14 Sixth Allonge to Secured Promissory Note, dated August 9, 1999.(1) 99.15 Seventh Allonge to Secured Promissory Note, dated August 24, 1999.(1)
25 - ------------ * Filed herewith. (1) Incorporated by reference from Global Technologies, Ltd.'s Annual Report on Form 10-KSB for the Transition Period ended June 30, 1999, filed with the Securities and Exchange Commission on October 13, 1999, File No. 0-25668. (b) Reports on Form 8-K On August 3, 1999, the Company filed a Report on Form 8-K announcing the change of its fiscal year end from October 31 to June 30, and on July 30, 1999 filed an amendment to a Report on Form 8-K filed with respect to the TNCi transaction to include required pro forma and other financial information in connection therewith. 26 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 15, 1999 GLOBAL TECHNOLOGIES, LTD. By: /s/ IRWIN L. GROSS ------------------------------------ Irwin L. Gross Chief Executive Officer By: /s/ Morris C. Aaron ------------------------------------ Morris C. Aaron Executive Vice President & Chief Financial Officer 27 EX-2 2 AGREEMENT AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (hereinafter called the "Merger Agreement") is made as of August 16, 1999, by and between Interactive Flight Technologies, Inc., a Delaware corporation ("Oldco"), and Global Technologies, Ltd., a Delaware corporation ("Newco"). Oldco and Newco are sometimes referred to herein as the "Constituent Corporations." The Board of Directors of each of the Constituent Corporations deems it advisable and to the advantage of its respective Constituent Corporation that Oldco merge with and into Newco upon the terms and conditions herein provided. NOW, THEREFORE, the parties do hereby adopt the plan encompassed by this Merger Agreement and do hereby agree that Oldco shall merge with and into Newco on the following terms, conditions and other provisions: I. TERMS AND CONDITIONS 1.1 Merger. Oldco shall be merged with and into Newco, and Newco shall be the surviving corporation (the "Surviving Corporation") effective upon the date and time when this Merger Agreement, or a Certificate of Merger in lieu thereof, is filed with the Secretary of State of the State of Delaware (the "Effective Date"). 1.2 Internal Revenue Code Qualifications. For Federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code, as amended. 1.3 Succession. On the Effective Date, the Surviving Corporation shall succeed to all of the rights, privileges, powers and property, including without limitation all rights, privileges, franchises, patents, trademarks, licenses, registrations and other assets of every kind and description, of Oldco in the manner of and as more fully set forth in the General Corporation Law of the State of Delaware (the "DGCL"). 1.4 Common Stock of Oldco and Newco. On the Effective Date, by virtue of the merger and without any further action on the part of the Constituent Corporations or their stockholders, (i) each share of Class A Common Stock of Oldco, par value $.01 per share ("Oldco Common Stock"), issued and outstanding immediately prior thereto shall be changed and converted into one fully paid and nonassessable share of Class A Common Stock of the Surviving Corporation, par value $.01 per share, (ii) each share of Newco Common Stock issued and outstanding immediately prior thereto shall be cancelled and returned to the status of authorized but unissued shares and (iii) each share of Oldco Common Stock issued but held in the treasury of Oldco shall be canceled. 1.5 Preferred Stock of Oldco and Newco. On the Effective Date, by virtue of the merger and without any further action on the part of the Constituent Corporations or their stockholders, each share of Series A Preferred Stock of Oldco, issued and outstanding immediately prior thereto shall be changed and converted into one fully paid and nonassessable share of Series A Preferred Stock of the Surviving Corporation. 1.6 Stock Certificates. On and after the Effective Date, all of the outstanding certificates which prior to that time represented shares of Oldco capital stock shall be deemed for all purposes to evidence ownership of and to represent the shares of capital stock of the Surviving Corporation into which the shares of Oldco capital stock represented by such certificates have been converted as herein provided and shall be so registered on the books and records of the Surviving Corporation or its transfer agent. The registered owner of any such outstanding stock certificate shall, until such certificate shall have been surrendered for transfer or otherwise accounted for to the Surviving Corporation or its transfer agent, have and be entitled to exercise any voting or other right with respect to and to receive any dividend or other distribution upon the shares of such capital stock evidenced by such outstanding certificate as above provided. 1.7 Options. On the Effective Date, Newco will assume and continue all of Oldco's stock option plans, including but not limited to the Interactive Flight Technologies, Inc. 1994 Stock Option Plan and 1997 Stock Option Plan, and any other options, warrants or rights to acquire Oldco Common Stock and the outstanding and unexercised portions of all options, warrants or rights to acquire Oldco Common Stock shall become options for, warrants or rights to acquire the same number and kind of shares of common stock of the Surviving Corporation with no other changes in the terms and conditions of such options, warrants or rights to acquire, including exercise prices, and upon the Effective Date, the Surviving Corporation shall assume the outstanding and unexercised portions of such options, warrants or rights to acquire and the obligations of Oldco with respect thereto. II. CERTIFICATE OF INCORPORATION AND BY-LAWS 2.1 Certificate of Incorporation. The Certificate of Incorporation of Newco shall be the Certificate of Incorporation of the Surviving Corporation (the "Newco Charter"). 2.2 By-laws. The By-laws of Newco in effect on the Effective Date shall be the By-laws of the Surviving Corporation without change or amendment until further amended in accordance with the provisions thereof and applicable law. III. DIRECTORS AND OFFICERS 3.1 Directors. The directors of Oldco shall be the directors of the Surviving Corporation. 3.2 Officers. The officers of Oldco shall be the officers of the Surviving Corporation to serve at the pleasure of its Board of Directors. IV. MISCELLANEOUS 4.1 Further Assurances. From time to time, as and when required by Newco or by its successors and assigns, there shall be executed and delivered on behalf of Oldco such deeds and other instruments, and there shall be taken or caused to be taken by it such further and other action, as shall be appropriate or necessary in order to vest or perfect in or to conform of record or otherwise, in Newco the title to and possession of all the property, interests, assets, rights, privileges, immunities powers, franchises, and authority of Oldco and otherwise to carry out the purposes of this Merger Agreement, and the officers and directors of Newco are fully authorized in the name and on behalf of Oldco or otherwise to take any and all such action and to execute and deliver any and all such deeds and other instruments. 4.2 Amendment. At any time before or after approval by the stockholders of the Constituent Corporations, this Merger Agreement may be amended in any manner (except as otherwise provided by the DGCL) as may be determined in the judgment of the respective Boards of Directors of Newco and Oldco to be necessary, desirable or expedient. 4.3 Termination. At any time before the Effective Date, this Merger Agreement may be terminated and the merger may be terminated by the Board of Directors of either Oldco or Newco or both, notwithstanding the approval of this Merger Agreement by the stockholders of Oldco and Newco. 4.4 Counterparts. In order to facilitate the filing and recording of this Merger Agreement, the same may be executed in any number of counterparts, each of which shall be deemed to be an original. IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved by the Board of Directors of Oldco and Newco, is hereby executed on behalf of each Constituent Corporation by its duly authorized officer. INTERACTIVE FLIGHT TECHNOLOGIES, INC. By: James W. Fox _____________________________ GLOBAL TECHNOLOGIES, LTD. By: James W. Fox _____________________________ EX-3.1 3 RESTATED CERTIFICATE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NEW IFT CORPORATION (Pursuant to Sections 241 and 245 of the General Corporation Law of the State of Delaware) It is certified that: 1. The name of the corporation is New IFT Corporation (the "Corporation"). The date of filing of the original Certificate of Incorporation of the Corporation with the Secretary of State of the State of Delaware was January 20, 1999. 2. The Certificate of Incorporation be and it hereby is amended and restated in its entirety entirely to read as set forth below. 3. The provisions of the Certificate of Incorporation of the Corporation as herein amended are hereby restated and integrated into the single instrument which is hereinafter set forth, and which is entitled Amended and Restated Certificate of Incorporation of New IFT Corporation. 4. The Corporation has not received any payment for any of its stock. 5. The amendments and the restatement herein certified have been duly adopted by the sole Director in the manner and by the vote prescribed by Section 241 and Section 245 of the General Corporation Law of the State of Delaware, only one (1) director having been named in the Certificate of Incorporation and no directors having been elected. 6. The Certificate of Incorporation of the Corporation, as amended and restated herein, shall at the effective time of this Amended and Restated Certificate of Incorporation, read as follows: ARTICLE ONE NAME The name of the Corporation is GLOBAL TECHNOLOGIES, LTD. (the "Corporation"). ARTICLE TWO REGISTERED OFFICE The address of the Corporation's registered office in the State of Delaware is c/o The Prentice-Hall Corporation System, Inc., 1013 Centre Road, in the City of Wilmington, County of New Castle, State of Delaware. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc. ARTICLE THREE PURPOSES The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. ARTICLE FOUR CAPITAL STRUCTURE 4.1 Authorized Shares. The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty-nine million (49,000,000), consisting of three classes of capital stock: (a) 40,000,000 shares of Class A Common Stock, par value $.01 per share (the "Class A Shares"); (b) 4,000,000 shares of Class B Common Stock, par value $.01 per share (the "Class B Shares"); and (c) 5,000,000 shares of Preferred Stock, par value $.01 per share (the "Preferred Shares"). 4.2 Designations, Preferences, etc. The designations, preferences, powers and rights, and the qualifications, limitations and restrictions thereof, of the capital stock of the Corporation shall be as set forth in ARTICLE FIVE AND ARTICLE SIX below. ARTICLE FIVE COMMON SHARES 5.1 Identical Rights. Except as otherwise expressly provided in this ARTICLE FIVE, all Common Shares shall be identical and shall entitle the holders thereof to the same rights and privileges. 5.2 Stock Splits. The Corporation shall not in any manner subdivide (by any stock split, reclassification, stock dividend, recapitalization, or otherwise) or combine the outstanding shares of one class of Common Shares unless the outstanding shares of all classes of Common Shares shall be proportionately subdivided or combined. 5.3 Liquidation Rights. Upon any voluntary or involuntary liquidation, dissolution, or winding up of the affairs of the Corporation, after payment shall have been made to holders of outstanding Preferred Shares, if any, of the full amount to which they are entitled pursuant to the Certificate of Incorporation, the holders of Common Shares shall be entitled, to the exclusion of the holders of the Preferred Shares, if any, to share ratably, in accordance with the number of Common Shares held by each such holder, in all remaining assets of the Corporation available for distribution among the holders of Common Shares, whether such assets are capital, surplus, or earnings. For the purposes of this Paragraph 5.3, neither the consolidation or merger of the Corporation with or into any other corporation or corporations in which the stockholders of the Corporation receive capital stock and/or securities (including debt securities) of the acquiring corporation (or of the direct or indirect parent corporation of the acquiring corporation) nor the sale, lease or transfer of the Corporation, shall be deemed to be a voluntary or involuntary liquidation, dissolution, or winding up of the Corporation as those terms are used in this Paragraph 5.3. 5.4 Voting Rights. (a) The holders of the Class A Shares and the Class B Shares shall vote as a single class on all matters submitted to a vote of the stockholders, with each Class A Share being entitled to one (1) vote and each Class B Share being entitled to six (6) votes, except as otherwise provided by law. (b) The holders of Class A Shares and Class B Shares are not entitled to cumulative votes in the election of any directors. 5.5 Preemptive or Subscription Rights. No holder of Common Shares shall be entitled to preemptive or subscription rights. 5.6 Conversion Rights. (a) Automatic Conversion. Each Class B Share shall (subject to receipt of any and all necessary approvals) convert automatically into one fully paid and non-assessable Class A Share (i) upon its sale, gift, or other transfer to a party other than a Principal Stockholder (as defined below) or an Affiliate of a Principal Stockholder (as defined below), (ii) upon the death of the Class B Stockholder holding such Class B Share, unless the Class B Shares are transferred by operation of law to a Principal Stockholder or an Affiliate of a Principal Stockholder, or (iii) in the event of a sale, gift, or other transfer of a Class B Share to an Affiliate of a Principal Stockholder, upon the death of the transferor. Each of the foregoing automatic conversion events shall be referred to hereinafter as an "Event of Automatic Conversion." For purposes of this ARTICLE FIVE, "Principal Stockholder" includes any of Donald H. Goldman, Steven M. Fieldman, Lance Fieldman, Yuri Itkis, Michall Itkis and Boris Itkis and an "Affiliate of a Principal Stockholder" is a person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. For purposes of this definition, "control," when used with respect to any specified person, means the power to direct or cause the direction of the management, and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise. Without limitation, an Affiliate also includes the estate of such individual. (b) Voluntary Conversion. Each Class B Share shall be convertible at the option of the holder, for no additional consideration, into one fully paid and non-assessable Class A Share at any time. (c) Conversion Procedure. Promptly upon the occurrence of an Event of Automatic Conversion such that Class B shares are converted automatically into Class A Shares, or upon the voluntary conversion by the holder, the holder of such shares shall surrender the certificate or certificates therefor, duly endorsed in blank or accompanied by proper instruments of transfer, at the office of the Corporation or of any transfer agent for the Class A Shares, and shall give written notice to the Corporation at such office (i) stating that the shares are being converted pursuant to an Event of Automatic Conversion into Class A Shares as provided in subparagraph 5.6(a) hereof or a voluntary conversion as provided in subparagraph 5.6(b) hereof, (ii) specifying the Event of Automatic Conversion (and, if the occurrence of such event is within the control of the transferor, stating the transferor's intent to effect an Event of Automatic Conversion) or whether such conversion is voluntary, (iii) identifying the number of Class B Shares being converted, and (iv) setting out the name or names (with addresses) and denominations in which the certificate or certificates for Class A Shares shall be issued and including instructions for delivery thereof. Delivery of such notice together with the certificates representing the Class B Shares shall obligate the Corporation to issue such Class A Shares and the Corporation shall be justified in relying upon the information and the certification contained in such notice and shall not be liable for the result of any inaccuracy with respect thereto. Thereupon, the Corporation or its transfer agent shall promptly issue and deliver at such stated address to such holder or to the transferee of Class B Shares a certificate or certificates for the number of Class A Shares to which such holder or transferee is entitled, registered in the name of such holder, the designee of such holder or transferee, as specified in such notice. To the extent permitted by law, conversion pursuant to (i) an Event of Automatic Conversion shall be deemed to have been effected as of the date on which the Event of Automatic Conversion occurred or (ii) a voluntary conversion shall be deemed to have been effected as of the date the Corporation receives the written notice pursuant to this subparagraph (c) (each date being the "Conversion Date"). The person entitled to receive the Class A Shares issuable upon such conversion shall be treated for all purposes as the record holder of such Class A Shares at and as of the Conversion Date, and the right of such person as the holder of Class B Shares shall cease and terminate at and as of the Conversion Date, in each case without regard to any failure by the holder to deliver the certificates or the notice by this subparagraph (c). (d) Unconverted Shares. In the event of the conversion of fewer than all of the Class B Shares evidenced by a certificate surrendered to the Corporation in accordance with the procedures of this Paragraph 5.6, the Corporation shall execute and deliver to or upon the written order of the holder of such certificate, without charge to such holder, a new certificate evidencing the number of Class B Shares not converted. (e) Reissue of Shares. Class B Shares that are converted into Class A Shares as provided herein shall be retired and canceled and shall not be reissued. (f) Reservation. The Corporation hereby reserves and shall at all times reserve and keep available, out of its authorized and unissued Class A Shares, for the purpose of effecting conversions, such number of duly authorized Class A Shares as shall from time to time be sufficient to effect the conversion of all outstanding Class B Shares. The Corporation convenants that all the Class A Shares so issuable shall, when so issued, be duly and validly issued, fully paid and non-assessable, and free from liens and charges with respect to the issue. The Corporation will take all such action as may be necessary to assure that all such Class A Shares may be so issued without violation of any applicable law or regulation, or any of the requirements of any national securities exchange upon which the Class A Shares may be listed. The Corporation will not take any action that results in any adjustment of the conversion ratio if the total number of Class A Shares issued and issuable after such action upon conversion of the Class B Shares would exceed the total number of Class A Shares then authorized by the Amended and Restated Certificate of Incorporation, as amended. ARTICLE SIX PREFERRED SHARES The Preferred Shares may be issued from time to time in one or more series. The Board of Directors of the Corporation is hereby expressly authorized to provide, by resolution or resolutions duly adopted by it prior to issuances, for the creation of each such series and to fix the designation and the powers, preferences, rights, qualifications, limitations and restrictions relating to the shares of each such series. The authority of the Board of Directors with respect to each series of Preferred Shares shall include, but not be limited to, determining the following: (a) the designation of such series, the number of shares to constitute such series and the stated value if different from the par value thereof; (b) whether the shares of such series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights, which may be general or limited; (c) the dividends, if any, payable on such series, whether any such dividends shall be cumulative, and if so, from what dates, the conditions and dates upon which such dividends shall be payable, and the preference or relation which such dividends shall bear to the dividends payable on any shares of stock of any other class or any other series of Preferred Shares; (d) whether the shares of such series shall be subject to redemption by the Corporation, and, if so, the times, prices and other conditions of such redemption; (e) the amount or amounts payable upon shares of such series upon, and the rights of the holders of such series in, the voluntary or involuntary liquidation, dissolution or winding up, or upon any distribution of the assets, of the Corporation; (f) whether the shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and the manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares of such series for retirement or other corporate purposes and the terms and provisions relating to the operation thereof; (g) whether the shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or other series of Preferred Shares or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange; (h) the limitations and restrictions, if any, to be effective while any shares of such series are outstanding upon the payment of the dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by the Corporation of, the Common Shares or shares of stock of any other class or any other series of Preferred Shares; (i) the conditions or restrictions, if any, upon the creation of indebtedness of the Corporation or upon the issue of any additional stock, including additional shares of such series or of any other series of Preferred Shares or of any other class; and (j) any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions, thereof. The powers, preferences and relative, participating, optional and other special rights of each series of Preferred Shares, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. All shares of any one series of Preferred Shares shall be identical in all respects with all other shares of such series, except that shares of any one series issued at different times may differ as to the dates from which dividends thereof shall be cumulative. ARTICLE SEVEN LIMITATION OF LIABILITY OF DIRECTORS No director of the Corporation shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that nothing contained in this ARTICLE SEVEN shall eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended. This ARTICLE SEVEN may not be amended or modified to increase the liability of a director, or repealed, except upon the affirmative vote of the holders of 75% or more of the outstanding Common Shares. No such amendment, modification, or repeal shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment, modification, or repeal. ARTICLE EIGHT INDEMNIFICATION The Corporation shall, to the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended from time to time, indemnify and reimburse all persons whom it may indemnify and reimburse pursuant thereto. The indemnification provided for herein shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any By-Law of the Corporation, agreement, vote of stockholders or disinterested directors, or otherwise. ARTICLE NINE CLASSIFIED BOARD OF DIRECTORS 9.1 The Board of Directors shall consist of five (5) members. Such number of Directors may be changed from time to time by resolutions of the Board of Directors, except as otherwise provided by law or the Amended and Restated Certificate of Incorporation. Any Director may resign at any time upon written notice to the Corporation. Directors need not be stockholders. 9.2 The Board of Directors shall be divided into three (3) classes, as nearly equal in numbers as the then total number of Directors constituting the entire Board permits with the term of office of one (1) class expiring each year. At the 1999 Annual Meeting of Stockholders, Directors of the first class shall be elected to hold office for a term expiring at the next succeeding Annual Meeting, Directors of the second class shall be elected to hold office for a term expiring at the second succeeding Annual Meeting, and Directors of the third class shall be elected to hold office for a term expiring at the third succeeding Annual Meeting. Subject to the foregoing, at each Annual Meeting of Stockholders the successors to the class of Directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding Annual Meeting. ARTICLE TEN BY-LAWS The Board of Directors is expressly empowered to adopt, amend or repeal the By-Laws of the Corporation. ARTICLE ELEVEN AMENDMENTS The Corporation reserves the right to amend or repeal any provisions contained in the Amended and Restated Certificate of Incorporation at any time in the manner now or hereafter prescribed in the Amended and Restated Certificate of Incorporation and by the laws of the State of Delaware, and all rights herein conferred upon stockholders are granted subject to such reservation. ARTICLE TWELVE BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS The Corporation elects not to be governed by Section 203 of the General Corporation of the State of Delaware. The above restatement was duly adopted in accordance with the provisions of Sections 241 and 245 of the General Corporation Law of the State of Delaware. Executed on August 13, 1999. NEW IFT CORPORATION By: Irwin L. Gross ________________________________ Irwin L. Gross, Sole Director EX-3.2 4 BY-LAWS GLOBAL TECHNOLOGIES, LTD. BY-LAWS ARTICLE I - OFFICES 1.1 Registered Office. The registered office of the corporation shall be at such place within the State of Delaware as the Board of Directors may from time to time determine. 1.2 Other Offices. The corporation may also have offices at such other places as the Board of Directors may from time to time appoint or the activities of the corporation may require. ARTICLE II - CORPORATE SEAL 2.1 Seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its incorporation, and the words "Corporate Seal, Delaware." If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Secretary, an Assistant Secretary, Treasurer or an Assistant Treasurer. ARTICLE III - STOCKHOLDERS' MEETINGS 3.1 Annual Meeting. There shall be an annual meeting of the stockholders during October of each year, at such time and place as the Board of Directors may determine. At the annual meeting, the stockholders shall elect directors and transact such other business as may properly be brought before the meeting. 3.2 Special Meetings. Special meetings of the stockholders may be called at any time for any purpose not prohibited by law or the Certificate of Incorporation by the Chairman of the Board, the President, Board of Directors, or stockholders entitled to cast a majority of the votes which all stockholders are entitled to vote at the meeting, by submitting a written request therefor, stating the object of the meeting, to the Secretary. The Secretary shall fix the time and place of the meeting, which shall be not later then 60 days after the receipt of the request. If the Secretary shall neglect or fail so to set the time and place of the meeting, the persons or entities calling the meeting may do so. Business transacted at all special meetings shall be confined to the object stated in the request therefor, and matters directly related and germane thereto. 3.3 Notice. (a) Written notice of every meeting of the stockholders, stating the place, time and hour thereof, shall be given to each stockholder not less than ten days nor more than sixty days prior to the date of the meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the corporation). Notice of a special meeting shall state the nature of the business to be transacted. (b) When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, then notice shall be given in 2 conformity with Subsection (a) of this Section 3.3. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. 3.4 Quorum. At all meetings of the stockholders, the holders of a majority of the issued and outstanding shares entitled to vote, present in person or represented by proxy, shall constitute a quorum. If a meeting of stockholders cannot be organized because of the absence of a quorum, the stockholders present in person or by proxy may adjourn the meeting to such time and place as they may determine. Except as otherwise provided in these By-Laws, the Certificate of Incorporation, or applicable law, the acts of the holders of a majority of shares entitled to vote, present in person or by proxy, and voting at a meeting having a quorum shall be the acts of the stockholders. 3.5 Organization. Such person as the Board of Directors may have designated or, in the absence of such a person, the chief executive officer of the corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the corporation, the secretary of the meeting shall be such person as the chairman appoints. 3.6 Conduct of Business. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him in order. 3 3.7 Proxies and Voting. (a) At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing filed in accordance with the procedure established for the meeting. (b) Each stockholder shall have one vote for every share of stock entitled to vote which is registered in his name on the record date for the meeting, except as otherwise provided herein or required by law. (c) All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or by his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. (d) All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law, all other matters shall be determined by a majority of the votes cast. 3.8 Voting List. The officer having charge of the transfer books for shares of the corporation shall prepare, at least ten days before each meeting of stockholders, an alphabetical list of the names and addresses of and shares held by the stockholders entitled to vote at the meeting. The list shall be open for inspection for any purpose, germane to the meeting, during usual business hours, 4 for a period of at least ten days prior to the meeting at either a place within the city in which the meeting will be held or at the place of the meeting. The list should also be produced and kept open for inspection by stockholders at the time and place of the meeting. 3.9 Inspectors of Elections. The Board of Directors may, before a meeting of stockholders, appoint one or three Inspector(s) (who need not be stockholders) for such meeting. If no such Inspector(s) of Election are appointed, the chairman of the meeting may, and on the request of any stockholder or his proxy shall, make such appointment. If Inspector(s) are appointed at the request of one or more stockholders or proxies, the stockholders present and entitled to vote shall determine whether there will be one or three Inspectors. The Inspector(s) of Election shall take such action as may be necessary or proper fairly to conduct the election to vote and shall report in writing on any matter they determine, executing a certificate of any fact they find, if requested by the chairman of the meeting or any stockholder. No person who is a candidate for office shall act as an Inspector of Election. 3.10 Consent of Stockholders in Lieu of Meeting. Any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. 5 ARTICLE IV - SHARE CERTIFICATES 4.1 Form of Certificate. The certificate of shares of the corporation shall state the name of the registered holder; the number, class, and series (if any) of the shares represented; and the par value of each share or the absence of par value, as appropriate. Each certificate shall be numbered and registered in a share register in the order issued. 4.2 Signature. Each share certificate shall be signed by the Chairman of the Board or the President and by the Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer, and sealed with the corporate seal. When a certificate is signed by a transfer agent or registrar, the signature of an authorized officer may be facsimile. If an officer who has signed a certificate, personally or by facsimile, ceases to be an officer before the certificate is delivered, the certificate may be issued as if the signatory remained in office. 4.3 Lost, Stolen or Destroyed Certificates. The Board of Directors shall cause the issuance of a new certificate as a replacement for a certificate claimed to have been lost, wrongfully taken, or destroyed upon submission of an affidavit of the person making the claim of the loss, wrongful taking, or destruction. The Board of Directors may, in its discretion, require as a condition to the issuance of a replacement certificate that the owner of the certificate advertise the loss in such manner as the Board may determine and/or give the corporation a bond in such sum and with such sureties as the Board may direct as indemnity against any claim that may be made against the corporation with respect to the certificate claimed to have been lost, destroyed, or wrongfully taken. 6 4.4 Transfer of Shares. Upon surrender to the corporation or its transfer agent of a share certificate duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 4.5 Closing Transfer Books. The Board of Directors may fix a record date for the determination of the stockholders entitled to notice of and to vote at a meeting, to receive payment of a dividend or distribution, to receive an allotment of rights, or to exercise rights in respect to a change, conversion or exchange of shares. In such case, only the stockholders of record on the record date shall be entitled to notice of or to vote at or participate in such meeting or activity or event, notwithstanding any transfer of any shares on the books of the corporation after the record date. If the Board of Directors closes the transfer books during such period, it shall so notify each stockholder in writing. The record date may not be more than 60 days nor less than 10 days prior to the meeting, activity, or event to which it relates. 4.6 Registered Stockholders. The corporation shall be entitled to treat the holder of record of any shares as the holder in fact for all purposes and shall not be bound to recognize any claim to or interest in such shares on the part of any other person. The corporation shall not be liable for any improper or impermissible registration or transfer of shares which are or to be registered in the name of a fiduciary or its nominee unless the corporation had actual knowledge that the fiduciary or nominee are committing a breach of trust in 7 requesting such registration or transfer, or the corporation had knowledge of such facts that its participation in the registration or transfer amounts to bad faith. 4.7 Regulations. The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. ARTICLE V - BOARD OF DIRECTORS 5.1 General Powers. The business and affairs of the corporation shall be managed by the Board of Directors, and all powers of the corporation are hereby granted to and vested in the Board of Directors, except as otherwise expressly provided in these By-Laws or in the Certificate of Incorporation or by law. 5.2 Composition. There shall be such number of directors, not fewer than three (3) nor more than eleven (11), as the Board may from time to time determine by resolution. 5.3 Classified Board; Term. The Board of Directors shall be divided into three (3) classes, as nearly equal in number as the then total number of directors constituting the entire Board permits with the term of office of one (1) class expiring each year. At the initial annual meeting of stockholders of the corporation, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting of stockholders, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting of stockholders, and directors of the third class shall be elected to hold office for a term expiring at the 8 third succeeding annual meeting of stockholders. Subject to the foregoing, at each annual meeting of stockholders the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting of stockholders. 5.4 Regular Meetings. The Board may hold regular meetings at such times and places as it may determine. 5.5 Special Meetings. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, the President or by one of the Directors, by submitting a written request therefor, stating the object of the meeting, to the Secretary. The Secretary shall set the time and place of the meeting, which shall be held not later than 30 days after the receipt of the request. If the Secretary shall neglect or refuse to set the time and place of the meeting, the person or persons calling the meeting may do so. Business transacted at all special meetings shall be confined to the objects stated in the request therefor and matters directly related and germane thereto. 5.6 Annual Meeting. There shall be an annual meeting of the Board of Directors following each annual meeting of the stockholders. At the annual meeting, the Board of Directors shall elect officers and transact such other business as may be properly brought before the meeting. 5.7 Notices. Written notice of regular and annual meetings of the Board of Directors, stating the time and place thereof shall be given to all directors at least five days prior to the date of the meeting. Written notice of special meetings of the Board of Directors shall be given to each director at least 48 9 hours prior to the time of the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. 5.8 Quorum. A majority of the members of the Board of Directors shall constitute a quorum for the transaction of business, and the acts of a majority of directors present and voting at a meeting at which a quorum is present shall be the acts of the Board of Directors. In the event that a quorum is not present at any meeting of the Board of Directors, the directors present may adjourn the meeting without any notice of the time and place of the adjourned meeting except for announcement at the meeting at which adjournment is taken. 5.9 Vacancies. If the office of a director shall become vacant for any reason, including an increase in the number of directors, the remaining directors shall elect a successor, who shall hold office for the unexpired term for which the vacancy occurred or until his or her successor is duly qualified and seated. A majority of the remaining directors shall constitute a quorum for purposes of filling the vacancy on the Board of Directors. 5.10 Removal. Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, except that when cumulative voting is permitted, if less than the entire Board is to be removed, no director may be removed without cause if the votes cast against his or her removal would be sufficient to elect him if then cumulatively voted at an election of the entire 10 Board of Directors, or, if there be classes of directors, at an election of the class of directors of which he is a part. ARTICLE VI - COMMITTEES 6.1 Establishment. The Board of Directors by a vote of a majority of the whole Board, may establish one or more standing or special committees, including without limitation an executive committee. Except as otherwise provided in these By-Laws, the Certificate of Incorporation, or applicable law, any committee may exercise such powers and authority of the Board of Directors in the management of the business and affairs of the corporation as may, from time to time, be determined. 6.2 Committee Members. The Board of Directors shall appoint all committee members and committee chairpersons, each Committee to consist of one or more directors, and may appoint alternates for any member or chairperson of any committee. In the absence or disqualification of any member of any committee and any alternate member in his place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may be unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. 6.3 Conduct of Business. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, 11 except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings, one-third of the members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. ARTICLE VII - OFFICERS 7.1 Officers. The officers of the corporation shall be chosen by the Board of Directors and shall be a Chairman of the Board, a President, a Treasurer, a Secretary, and such Vice Presidents and assistant officers as the Board of Directors may determine that the corporation requires. All officers shall be natural persons of full age, and any two or more offices may be held by the same person. 7.2 Election and Term. (a) The Chairman of the Board, the President, each Vice President, Treasurer and Secretary shall be elected by the Board of Directors at its annual meeting and shall serve for a term of one year, or until their respective successors are duly elected and qualified. All assistant officers shall be elected or appointed at such times and for such terms as the Board of Directors may determine. (b) Any vacancy in any office shall be filled by the Board of Directors. 12 7.3 Chairman of the Board. The Chairman of the Board shall be the Chief Executive Officer of the corporation. He or she shall preside at all meetings of the stockholders and Board of Directors. He or she shall act as a liaison from and a spokesman for the Board of Directors. He or she shall participate in long range planning for the corporation. He or she shall see that all resolutions and orders of the Board of Directors are carried into effect. He or she, in general, shall perform all duties incident to and have responsibility for the management of the corporation, with the right to execute on behalf of the corporation all bonds, mortgages, contracts, and other documents, except where such documents are required by law to be otherwise executed or when the execution thereof shall be delegated by the Board of Directors to another officer. 7.4 President. The President shall be the Chief Operating and Administrative Officer of the Corporation. He or she shall manage the day to day operations of the Corporation and administer the general direction of the affairs of the Corporation except as otherwise determined by the Board. He or she shall perform the duties and powers of the Chairman of the Board during the absence or disability of the Chairman of the Board, and such other duties and powers as the Board of Directors shall designate. 7.5 Vice Presidents. The Vice Presidents, if any, in such order as the Board may determine, shall act in all cases for and as the President in the President's absence, disability, or incapacity, and shall perform such other duties as may be delegated to any of them by the Board of Directors, the Chairman of the Board or the President. 13 7.6 Treasurer. The Treasurer shall have custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects of the corporation in separate accounts or depositories in the name of and to the credit of the corporation as shall be designated by the Board of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors for such disbursements and shall render to the Board of Directors, whenever it may so require it, an account of all his or her transactions as Treasurer and of the financial condition of the corporation. 7.7 Secretary. The Secretary shall attend all meetings of the Board of Directors and record all votes of the corporation and the minutes of all transactions in a book to be kept for that purpose and perform like duties for committees of the Board of Directors, if and when required. He or she shall give, or cause to be given, notice of all meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the President. He or she shall keep, or cause to be kept, in safe custody the corporate seal and, when authorized to do so by the Board of Directors, affix the same to any instrument requiring it and attest to it by his or her signature. 7.8 Assistant Officers. Assistant officers shall perform such functions and have such responsibilities as the Board of Directors may determine. 14 7.9 Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof. 7.10 Removal. Any officer of the corporation may be removed at any time, with or without cause, by the Board of Directors. 7.11 Action with Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, the Chairman of the Board, the President or any officer of the corporation authorized by the Board of Directors shall have power to vote and otherwise act on behalf of the corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this corporation may hold securities and otherwise to exercise any and all rights and powers which this corporation may possess by reason of its ownership of securities in such other corporation. ARTICLE VIII - INDEMNIFICATION 8.1 Indemnification. The corporation shall indemnify every director and officer and may indemnify any employee or agent to the full extent permitted by the General Business Corporation Law of the State of Delaware and all amendments and successor provisions thereto, and such statutory provisions and all amendments and successor provisions thereto are incorporated herein by reference; provided that this Article VIII shall not exclude any other rights to which such party may be entitled, whether by agreement, vote of stockholders, or otherwise. 15 ARTICLE IX - NOTICES 9.1 Form of Notice. Whenever written notice is required or permitted, by these By-Laws or otherwise, to be given to any person or entity, it may be given either personally or by sending a copy thereof by first class mail, postage prepaid, or by telegram, charges prepaid, to the address of the appropriate person or entity as it appears on the books of the corporation. If the notice is sent by mail or telegraph, it shall be deemed to have been given when deposited in the United States Mail or with a telegraph office for transmission. 9.2 Waiver of Notice. Whenever a written notice is required, by these By-Laws or otherwise, a waiver of such notice in writing, signed by the person or persons or on behalf of the entity or entities entitled to receive the notice shall be deemed equivalent to the giving of such notice, whether the waiver is signed before or after the time required for such notice. Except as otherwise required by law, the waiver of notice need not state the business to be transacted at nor the purpose of the meeting, except that the waiver of notice of a special meeting of the stockholders or the Board of Directors shall specify the general nature of the business to be transacted at the meeting. Attendance at any meeting shall constitute waiver of notice of such meeting, except where a person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of business because the meeting was not called or convened upon proper notice. 16 ARTICLE X - MISCELLANEOUS PROVISIONS 10.1 Fiscal Year. The fiscal year of the corporation shall begin on the first day of July in each year. 10.2 Participation by Telecommunications. One or more persons may participate in a meeting of the Board of Directors or of any committee by means of a conference telephone or similar communications equipment by which all persons participating in the meeting can hear one another. Participation in a meeting pursuant to this section shall constitute the presence in person at such meeting. 10.3 Dividends. The Board of Directors may, at any meeting, declare dividends upon the shares of the corporation to be paid in cash, property or shares, subject to any limitations in the Certificate of Incorporation or applicable law. 10.4 Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these by-laws, facsimile signatures of any officer or officers of the corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. 10.5 Reliance upon Books, Reports and Records. Each director, each member of any committee designated by the Board of Directors and each officer of the corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the corporation, including reports made to the corporation by any of its officers, by an independent certified public accountant, or by an appraiser selected with reasonable care. 17 10.6 Time Periods. In applying any provision of these by-laws which require that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included. ARTICLE XI - AMENDMENTS 11.1 Amendments. The Board of Directors shall have the power to amend, alter, or repeal all or any part of these By-laws, subject to the power of the stockholders to change such action. ************ 18 EX-10.35 5 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS AGREEMENT is effective as of October 1, 1999, between GLOBAL TECHNOLOGIES, LTD. (f.k.a. Interactive Flight Technologies, Inc.) ("Company") and Irwin L. Gross ("Executive"). W I T N E S S E T H: Company wishes to employ Executive and Executive wishes to enter into the employ of Company on the terms and conditions contained in this Agreement. NOW, THEREFORE, in consideration of the facts, mutual promises and covenants contained herein and intending to be legally bound hereby, Company and Executive agree as follows: 1. Employment. Company hereby employs Executive and Executive hereby accepts employment by Company for the period and upon the terms and conditions contained in this Agreement. 2. Office and Duties. (a) The Executive is engaged hereunder as the Company's Chairman of the Board and Chief Executive Officer and agrees to perform the duties and services incident to that position. The Executive will report to the Board of Directors of Company on a regular basis. (b) Throughout the term of this Agreement, Executive shall devote substantially all of his working time, energy, skill and best efforts to the performance of his duties hereunder in a manner which will faithfully and diligently further the business and interests of Company. The foregoing shall not be construed, however, as preventing the Executive from investing his assets in such form or manner as will not require services on the part of the Executive in the operations of the business in which such investment is made that would materially interfere with his obligations hereunder, and provided such business is not in competition with the company or, if in competition, such business has a class of securities registered under the Securities Exchange Act of 1934 and the interest of Executive therein is solely that of an investor owning not more than 5% of any class of the outstanding equity securities of such business. 3. Term. This Agreement shall be for a term of thirty-six (36) months, commencing as of October 1, 1999, and ending on September 30, 2002, unless sooner terminated as hereinafter provided. This Agreement shall terminate at the end of the original term, provided, however, that the parties hereto shall, at least sixty (60) days prior to the end of the term hereof, use their best efforts to determine whether the Agreement will be renewed or negotiated. 4. Compensation. (a) In recognition and consideration of the contributions that Executive has made to the Company during the period from September 15, 1998 to September 30, 1999, during which period of time Executive received no compensation from the Company, Executive shall be paid Two Hundred and Fifty Thousand Dollars ($250,000). For all services to be rendered by Executive to Company pursuant to this Agreement, Executive shall receive an annual base salary of Two Hundred and Fifty Thousand Dollars ($250,000), payable in accordance with Company's regular payroll practices in effect from time to time. (b) In addition to Executive's base salary, Company shall pay to Executive, on April 30 and October 31 for the preceding six-month periods ending on March 31 and September 30 of each year during the term of this Agreement, such bonuses or other additional compensation as the Board of Directors may determine based upon the achievement of the goals assigned to Executive as set forth in a Board-approved Business Plan or as may otherwise be determined or agreed to by the Board. Subject to the achievement of the assigned goals, the total and aggregate bonuses to be paid to Executive in any year during the term of this Agreement should not be less than twenty percent (20%) of Executive's annual salary. (c) Throughout the term of this Agreement and as long as they are kept in force by Company, Executive shall be entitled to participate in and receive the benefits of any profit sharing or retirement plans and any health, life, accident or disability insurance plans or programs made available to other similarly situated executives of Company. Specifically, Executive shall be provided family medical and dental coverage at Company's expense. Executive shall be entitled to four (4) weeks paid vacation during each year of the term of this Agreement. Company shall pay Executive for any unused vacation at December 31st of each year. (d) Company will provide Executive with an automobile allowance of $1000 per month and Company will reimburse Executive for all reasonable expenses incurred by Executive in connection with the performance of Executive's duties hereunder, including mobile phone and club memberships, upon receipt of vouchers therefor and in accordance with Company's regular reimbursement procedures and practices in effect from time to time. (e) The Company shall grant to Executive options to purchase up to an aggregate of One Million (1,000,000) shares of the Company's common stock, par value $.01 per share ("Common Stock"). One quarter of the options shall vest as of the date hereof. Another quarter of the options will vest, subject to certain conditions, as follows: eighty-three thousand three hundred thirty-four (83,334) on October 8, 2000; eighty-three thousand three hundred thirty-three (83,333) on October 8, 2001; and eighty-three thousand three hundred thirty-three (83,333) on October 8, 2002. The balance of the options shall vest, subject to the achievement of certain performance milestones and certain other conditions, as follows: one hundred sixty-six thousand, six hundred sixty-seven (166,667) on October 8, 2000; one hundred sixty-six thousand, six hundred sixty-six (166,666) on October 8, 2001; and one hundred sixty-six thousand, six hundred sixty-six (166,666) on October 8, 2002. The exercise price of the options shall be equal to the closing sale price (or closing bid if no sales were reported) of a share of Common Stock as reported by the Nasdaq National Market on October 7, 1999 (or the next trading day in the event there is no trading on such date). The options shall be for a term of ten (10) years from the date of the grant of such options. 5. Disability. If Executive becomes unable to perform his duties hereunder due to partial or total disability or incapacity resulting from a mental or physical illness, injury or any other cause ("Disability"), Company will continue the payment of Executive's base salary at its then current rate for a period of twelve (12) weeks following the date Executive is first unable to perform his duties due to such disability or incapacity. Thereafter, Company shall have no obligation for 2 base salary or other compensation payments to Executive during the continuance of such disability or incapacity, except as provided in the Company's disability policy, if any. 6. Death. If Executive dies, all payments hereunder shall cease at the end of the month in which Executive's death shall occur and Company shall have no further obligations or liabilities hereunder to Executive's estate or legal representative or otherwise. 7. Termination of Company's Business. If (i) Company shall discontinue the business operation in which Executive is employed, Company may immediately terminate Executive's employment upon written notice, or (ii) there is a Change in Control (as hereinafter defined), and as a result of such Change in Control, the Executive is terminated without Cause (as defined in Paragraph 8 below) or leaves for Good Reason (as hereinafter defined), then, on the occurrence of any of such events, Company shall have no further obligations or liabilities hereunder to Executive, except Company shall (A) pay Executive an amount equal to two times the remaining base salary due the Executive for the then current term, but in no event shall Executive receive less than his base salary for one year, to be paid in accordance with the regular payroll practices of Company; and (B) continue to provide Executive with family medical and dental coverage for a period of 12 months. In addition, in the event of termination of the Executive pursuant to this Paragraph, the restrictions of subparagraph 11(a) shall terminate. (a) Change in Control. The term "Change in Control" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A issued under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as in effect as of the date hereof, or if Item 6(e) is no longer in effect, any subsequent regulation issued under the Exchange Act for a similar purpose, whether or not the Company is subject to such reporting requirements; provided that, without limitation, such a change in control shall be deemed to have occurred if: (i) any "person" is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to the date of the Agreement), individuals who at the beginning of such period constitute the Board of Directors, and any new director, whose election by the Board or nomination or election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for elections was previously approved, cease for any reason to constitute a majority of the Board; or (iii) the business of the Company is disposed of by the Company pursuant to a liquidation, sale of assets of the Company, or otherwise. (b) Good Reason. "Good Reason" shall mean the occurrence after a Change in Control of any of the following events without the Executive's express written consent: (i) any change in the Executive's title, authorities, responsibilities (including reporting responsibilities), which represent a demotion from his status, title, position or responsibilities (including reporting responsibilities) as in effect immediately prior to the Change in Control; the assignment to him of any duty or work responsibilities which, in his reasonable 3 judgment, are inconsistent with such status, title, position or work responsibilities; or any removal of the Executive from or failure to appoint or reelect him to any of such positions, except in connection with the termination of his employment for Disability, retirement or Cause, as a result of the Executive's death or by him other than for Good Reason; (ii) a reduction by the Company in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time; or (iii) the failure of the Company to obtain a satisfactory agreement from any successor or assign of the Company to assume and agree to perform this Agreement. 8. Termination For Cause. Company may discharge the Executive and thereby terminate his employment hereunder for the following reasons (for "Cause"): (a) habitual intoxication; (b) habitual illegal drug use or drug addiction; (c) conviction of a felony, materially adversely affecting Company where such conviction significantly impairs the Executive's ability to perform his duties hereunder; (d) while acting in his capacity as Executive of Company, knowingly engaging in any unlawful activity which could materially adversely affect the Company; (e) gross insubordination, gross negligence, or willful and knowing violation of any expressed direction or regulation established by Company which is materially injurious to the business or reputation of Company; (f) misappropriation of corporate funds or other acts of dishonesty; (g) the Executive's material breach of this Agreement in any other respect. In the event that Company discharges the executive for Cause, Company shall pay to Executive the portion, if any, of the Executive's base salary for the period up to the date of termination which remains unpaid. The Company shall have no further obligation or liability under this Agreement. 9. Termination Without Cause. In the event Company terminates this Agreement without Cause at any time, the Company's sole liability for compensation to Executive shall be to pay the Executive two times the remaining balance of the base salary due the Executive for the remainder of the then current term to be paid in accordance with the regular payroll practices of Company, and to provide Executive with family medical and dental coverage for the same period. In addition, in the event of termination of the Executive pursuant to this Paragraph, the restrictions of subparagraph 11(a) shall terminate. 10. Company Property. All advertising, sales, manufacturers' and other materials or articles or information, including without limitation data processing reports, customer sales analyses, invoices, price lists or information, samples, budgets, business plans, strategic plans, financing applications, reports, memoranda, correspondence, financial statements, and any other materials or data of any kind furnished to Executive by Company or developed by Executive on 4 behalf of Company or at Company's direction or for Company's use or otherwise in connection with Executive's employment hereunder, are and shall remain the sole and confidential property of Company; if Company requests the return of any such materials at any time during or at or after the termination of Executive's employment, Executive shall immediately deliver the same to Company. 11. Noncompetition, Trade Secrets, Etc. (a) During the term of this Agreement and for a period of one (1) year after the termination of his employment with Company for any reason whatsoever, Executive shall not directly or indirectly induce or attempt to influence any executive of Company to terminate his or her employment with Company and shall not engage in (as a principal, partner, director, officer, agent, executive, consultant or otherwise) or be financially interested in any business operating within the geographical area described in Exhibit "A", attached hereto, which is involved in business activities which are the same as, similar to, or in competition with business activities carried on by Company, or being definitely planned by Company, at the time of the termination of Executive's employment. However, nothing contained in this Paragraph 11 shall prevent Executive from holding for investment no more than five percent (5%) of any class of equity securities of a company whose securities are traded on a national securities exchange or on the NASDAQ System. (b) During the term of this Agreement and at all times thereafter, Executive shall not use for his personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm, association or company other than the Company, any material referred to in Paragraph 10 above or any information regarding the business methods, business policies, procedures, techniques, research or development projects or results, trade secrets, or other knowledge or processes of or developed by the Company or any names and addresses of customers or clients, any data on or relating to past, present or prospective customers or clients, or any other confidential information relating to or dealing with the business operations or activities of Company, made known to Executive or learned or acquired by Executive while in the employ of Company. (c) Any and all reports, plans, budgets, writings, inventions, improvements, processes, procedures and/or techniques which Executive may make, conceive, discover or develop, either solely or jointly with any other person or persons, at any time during the term of this Agreement, whether during working hours or at any other time and whether at the request or upon the suggestion of the Company or otherwise, which relate to or are useful in connection with any business now or hereafter carried on or contemplated by the Company, including developments or expansions of its present fields of operations, shall be the sole and exclusive property of Company. Executive shall make full disclosure to Company of all such reports, plans, budgets, writings, inventions, improvements, processes, procedures and techniques, and shall do everything reasonably necessary or desirable to vest the absolute title thereto in Company. Executive shall write and prepare all specifications and procedures regarding such inventions, improvements, processes, procedures and techniques and otherwise aid and assist Company so that Company can prepare and present applications for copyright or Letters Patent therefor and can secure such copyright or Letters Patent wherever possible, as well as reissues, renewals, and extensions thereof, and can obtain the record title to such copyright or patents so that Company shall be the sole and absolute owner thereof in all countries in which it may desire to have copyright or patent protection. Executive shall not be entitled to any additional or special compensation or reimbursement regarding any and all such writings, inventions, improvements, processes, procedures and techniques. 5 (d) Executive acknowledges that the restrictions contained in the foregoing subparagraphs (a), (b) and (c), in view of the nature of the business in which Company is engaged, are reasonable and necessary in order to protect the legitimate interests of Company, and that any violation thereof would result in irreparable injuries to Company, and Executive therefore acknowledges that, in the event of his violation of any of these restrictions, Company shall be entitled to obtain from any court of competent jurisdiction preliminary and permanent injunctive relief as well as damages and an equitable accounting of all earnings, profits and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies to which Company may be entitled. (e) If the period of time or the area specified in subparagraph (a) above should be adjudged unreasonable in any proceeding, then the period of time shall be reduced by such amount of time or the area shall be reduced by the elimination of such portion thereof or both so that such restrictions may be enforced in such area and for such time as is adjudged to be reasonable. If Executive violates any of the restrictions contained in such subparagraph (a), the restrictive period shall not run in favor of Executive from the time of the commencement of any such violation until such time as such violation shall be cured by Executive to the satisfaction of Company. 12. Prior Agreements. Executive represents to Company (a) that there are no restrictions, agreements or understandings whatsoever to which Executive is a party which would prevent or make unlawful his execution of this Agreement or his employment hereunder, (b) that his execution of this Agreement and his employment hereunder shall not constitute a breach of any contract, agreement or understanding, oral or written, to which he is a party or by which he is bound and (c) that he is free and able to execute this Agreement and to enter into employment by Company. 13. Indemnification. Company shall maintain a Directors and Officers Errors and Omission Policy with a minimum coverage of Fifteen Million Dollars ($15,000,000). Any deductible and all other costs and expenses which may be incurred by Executive as a result of his acting in his capacity as an Officer of the Company shall be paid by Company. 14. Miscellaneous. (a) Indulgences, Etc. Neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver. (b) Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement (including, without limitation, provisions concerning limitations of actions), shall be governed by and construed in accordance with the laws of the State of Delaware, notwithstanding any conflict-of-laws doctrines of any jurisdiction to the contrary, and without the aid of any canon, custom or rule of law requiring construction against the draftsman. 6 (c) Notices. All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received only when delivered (personally, by courier service such as FedEx or by other messenger) against receipt or upon actual receipt of registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below: (i) If to Company: Global Technologies, Ltd. 1811 Chestnut Street Suite 120 Philadelphia, PA 19103 Attention: President (ii) If to Executive: Irwin L. Gross 722 Pine Street Philadelphia, PA 19106 In addition, notice by mail shall be by air mail if posted outside of the continental United States. Either party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this subparagraph for the giving of notice. (d) Exhibits. All Exhibits attached hereto are hereby incorporated by reference into, and made a part of, this Agreement. (e) Binding Nature of Agreement; No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns, except that no party may assign or transfer its rights nor delegate its obligations under this Agreement without the prior written consent of the other parties hereto. (f) Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. (g) Provisions Separable. The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. (h) Entire Agreement. This Agreement (together with the Stock Option Grant Agreement between the Company and Executive dated October 8, 1999) contains the entire understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express 7 or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. (i) Paragraph Headings. The Paragraph and subparagraph headings in this Agreement have been inserted for convenience of reference only; they form no part of this Agreement and shall not affect its interpretation. (j) Gender, Etc. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate. (k) Number of Days. In computing the number of days for purposes of this Agreement, all days shall be counted, including Saturdays, Sundays and Holidays; provided, however, that if the final day of any time period falls on a Saturday, Sunday or Holiday, then the final day shall be deemed to be the next day which is not a Saturday, Sunday or Holiday. For purposes of this Agreement, the term "Holiday" shall mean a day, other than a Saturday or Sunday, on which national banks with branches in the Commonwealth of Pennsylvania are or may elect to be closed. (l) Expenses of the Parties. Company shall be responsible for up to $4,000 in legal expenses incurred in the negotiation and preparation of this Agreement. 8 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered in Philadelphia, Pennsylvania, as of the date first above written. GLOBAL TECHNOLOGIES, LTD. By: James W. Fox ------------------------------- JAMES W. FOX, President and COO EXECUTIVE: Irwin L. Gross ----------------------------------- IRWIN L. GROSS 9 EXHIBIT "A" Under Paragraph 11, Noncompetition, Trade Secrets, Etc., the geographic area shall be as follows: Worldwide 10 EX-4.1 6 CERTIFICATE OF DESIGNATIONS CERTIFICATE OF DESIGNATIONS, RIGHTS, PREFERENCES AND LIMITATIONS OF SERIES A 8% CONVERTIBLE PREFERRED STOCK OF GLOBAL TECHNOLOGIES, LTD. ----------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware ----------- Global Technologies, Ltd., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), hereby certifies that the following resolutions were adopted by the Board of Directors of the Corporation on August 16, 1999 pursuant to authority of the Board of Directors as required by Section 151 of the General Corporation Law of the State of Delaware: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Corporation (the "Board of Directors" or the "Board") in accordance with the provisions of its Amended and Restated Certificate of Incorporation, the Board of Directors hereby designates a series of the Corporation's previously authorized Preferred Stock, par value $.01 per share (the "Preferred Stock") as its Series A 8% Convertible Preferred Stock, and hereby states the number of authorized shares, and the relative rights, preferences, limitations, privileges, powers and restrictions thereof are and shall be as set forth on the attached Annex A. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designations, Rights, Preferences and Limitations to be signed by its duly authorized officers as of the 16th day of August, 1999. GLOBAL TECHNOLOGIES, LTD. By: ____________________________________ Name: Irwin L. Gross Title: Chairman ANNEX A ARTICLE 1 DEFINITIONS SECTION 1.1 Definitions. The terms defined in this Article whenever used in this Certificate of Designations have the following respective meanings: (a) "AFFILIATE" has the meaning ascribed to such term in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. (b) "BUSINESS DAY" means a day other than Saturday, Sunday or any day on which banks located in the State of New York are authorized or obligated to close. (c) "COMMON SHARES" or "COMMON STOCK" means shares of Class A common stock, $.01 par value, of the Corporation. (d) "COMMON STOCK ISSUED AT CONVERSION" when used with reference to the securities issuable upon conversion of the Series A Preferred Stock, means all Common Shares now or hereafter outstanding and securities of any other class or series into which the Series A Preferred Stock hereafter shall have been changed or substituted, whether now or hereafter created and however designated. (e) "CONVERSION DATE" means any day on which all or any portion of shares of the Series A Preferred Stock is converted in accordance with the provisions hereof. (f) "CONVERSION NOTICE" has the meaning set forth in Section 6.2. (g) "CONVERSION PRICE" means on any date of determination the applicable price for the conversion of shares of Series A Preferred Stock into Common Shares on such day as set forth in Section 6.1. (h) "CORPORATION" means Global Technologies, Ltd., a Delaware corporation, and any successor or resulting corporation by way of merger, consolidation, sale or exchange of all or substantially all of the Corporation's assets, or otherwise. (i) "HOLDER" means The Shaar Fund Ltd., any successor thereto, or any Person to whom the Series A Preferred Stock is subsequently transferred in accordance with the provisions hereof. (j) "OUTSTANDING" when used with reference to Common Shares (the "Shares"), means, on any date of determination, all issued and outstanding Shares, and includes all such Shares issuable in respect of outstanding scrip or any certificates representing fractional interests in such Shares; provided, however, that any such Shares directly or indirectly owned or held by or for the account of the Corporation or any Subsidiary of the Corporation shall not be deemed "Outstanding" for purposes hereof. (k) "PERSON" means an individual, a corporation, a partnership, an association, a limited liability company, an unincorporated business organization, a trust or other entity or organization, and any government or political subdivision or any agency or instrumentality thereof. (l) "SEC" means the United States Securities and Exchange Commission. (m) "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder, all as in effect at the time. (n) "SERIES A PREFERRED STOCK" means the Series A 8% Convertible Preferred Stock of the Corporation or such other convertible Preferred Stock exchanged therefor as provided in Section 2.1. (o) "STATED VALUE" has the meaning set forth in Article 2. (p) "SUBSIDIARY" means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are owned directly or indirectly by the Corporation. All references to "cash" or "$" herein means currency of the United States of America. ARTICLE 2 DESIGNATION AND AMOUNT SECTION 2.1 The designation of this series, which consists of 3,000 shares of Preferred Stock, is Series A 8% Convertible Preferred Stock, the Stated Value of which is One Thousand Dollars ($1,000) per share (the "Stated Value"). ARTICLE 3 RANK SECTION 3.1 The Series A Preferred Stock shall rank (i) prior to the Common Stock and the Corporation's Class B Common Stock; (ii) prior to any class or series of capital stock of the Corporation hereafter created other than "Pari Passu Securities" (collectively, with the Common Stock and the Class B Common Stock, "Junior Securities") and (iii) pari passu with any class or series of capital stock of the Corporation hereafter or contemporaneously created specifically ranking on parity with the Series A Preferred Stock ("Pari Passu Securities"). ARTICLE 4 DIVIDENDS SECTION 4.1 (a) (i) The Holder shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available for the payment of dividends, dividends (subject to Sections 4.1 (a)(ii) hereof) at the rate of 8% per annum (computed on the basis of a 360-day year) (the "Dividend Rate") on the Stated Value of each share of Series A Preferred Stock on and as of the most recent Dividend Payment Due Date (as defined below) with respect to each Dividend Period (as defined below). Dividends on the Series A Preferred Stock shall be cumulative from the date of issue, whether or not declared for any reason, including if such declaration is prohibited under any indebtedness or borrowings of the Corporation or any of its Subsidiaries, or any other contractual provision binding on the Corporation or any of its Subsidiaries, and whether or not there shall be funds legally available for the payment thereof. (ii) Each dividend shall be payable in equal quarterly amounts on each March 31, June 30, September 30 and December 31 of each year (each, a "Dividend Payment Due Date"), commencing September 30, 1999, to the holders of record of shares of the Series A Preferred Stock, as they appear on the stock records of the Corporation at the close of business on any record date, not more than sixty (60) days nor less than ten (10) days preceding the payment dates thereof, as shall be fixed by the Board of Directors. For the purposes hereof, "Dividend Period" means the quarterly period commencing on and including the day after the immediately preceding Dividend Payment Due Date and ending on and including the immediately subsequent Dividend Payment Due Date. Accrued and unpaid dividends for any past Dividend Period may be declared and paid at any time, without reference to any Dividend Payment Due Date, to holders of record on such date, not more than fifteen (15) days preceding the payment date thereof, as may be fixed by the Board of Directors. (b) The Holder shall not be entitled to any dividends in excess of the cumulative dividends, as herein provided, on the Series A Preferred Stock. Except as provided in this Article 4, no interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series A Preferred Stock that may be in arrears. (c) As long as any shares of the Series A Preferred Stock are outstanding, no dividends, except as described in the next succeeding sentence, shall be declared or paid or set apart for payment on Pari Passu Securities for any period unless full cumulative dividends required to be paid in cash have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Series A Preferred Stock for all Dividend Periods terminating on or prior to the date of payment of the dividend on such class or series of Pari Passu Securities. When dividends are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all dividends declared upon shares of the Series A Preferred Stock and all dividends declared upon any other class or series of Pari Passu Securities shall be declared ratably in proportion to the respective amounts of dividends accumulated and unpaid on the Series A Preferred Stock and accumulated and unpaid on such Pari Passu Securities. (d) As long as any shares of the Series A Preferred Stock are outstanding, no dividends shall be declared or paid or set apart for payment or other distribution declared or made upon Junior Securities, nor shall any Junior Securities be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of shares of Common Stock made for purposes of an employee incentive or benefit plan (including a stock option plan) of the Corporation or any Subsidiary, (all such dividends, distributions, redemptions or purchases being hereinafter referred to as a "Junior Securities Distribution") for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation, directly or indirectly, unless in each case (i) the full cumulative dividends required to be paid in cash on all outstanding shares of the Series A Preferred Stock and any other Pari Passu Securities shall have been paid or set apart for payment for all past Dividend Periods with respect to the Series A Preferred Stock and all past Dividend Periods with respect to such Pari Passu Securities, and (ii) sufficient funds shall have been paid or set apart for the payment of the dividend for the current Dividend Period with respect to the Series A Preferred Stock and the current Dividend Period with respect to such Pari Passu Securities. ARTICLE 5 LIQUIDATION PREFERENCE SECTION 5.1 (a) If the Corporation shall commence a voluntary case under the Federal bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency or similar law, or consent to the entry of an order for relief in an involuntary case under any law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Corporation shall be entered by a court having jurisdiction in the premises in an involuntary case under the Federal bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency or similar law resulting in the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a period of thirty (30) consecutive days and, on account of any such event, the Corporation shall liquidate, dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve or wind up (each such event being considered a "Liquidation Event"), no distribution shall be made to the holders of any shares of capital stock of the Corporation upon liquidation, dissolution or winding up unless prior thereto, the holders of shares of Series A Preferred Stock shall have received the Liquidation Preference (as defined in Section 5.1(c)) with respect to each share. If upon the occurrence of a Liquidation Event, the assets and funds available for distribution among the holders of the Series A Preferred Stock and holders of Pari Passu Securities shall be insufficient to permit the payment to such holders of the preferential amounts payable thereon, then the entire assets and funds of the Corporation legally available for distribution to the Series A Preferred Stock and the Pari Passu Securities shall be distributed ratably among such shares in proportion to the ratio that the Liquidation Preference payable on the shares of Series A Preferred Stock bears to the aggregate liquidation preferences payable on all such shares. (b) At the option of each Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Corporation, the effectuation by the Corporation of a transaction or series of related transactions in which more than 50% of the voting power of the Corporation is disposed of, or the consolidation, merger or other business combination of the Corporation with or into any other Person or Persons when the Corporation is not the survivor shall be deemed to be a liquidation, dissolution or winding up of the Corporation pursuant to which the Corporation shall be required to distribute, upon consummation of and as a condition to, such transaction an amount equal to 120% of the Liquidation Preference with respect to each outstanding share of Series A Preferred Stock in accordance with and subject to the terms of this Article 5; provided, that all holders of Series A Preferred Stock shall be deemed to elect the option set forth above if at least a majority in interest of such holders elect such option. (c) For purposes hereof, the "Liquidation Preference" with respect to a share of the Series A Preferred Stock shall mean an amount equal to the sum of (i) the Stated Value thereof, plus (ii) the aggregate of all accrued and unpaid dividends on such share of Series A Preferred Stock until the most recent Dividend Payment Due Date; provided that, in the event of an actual liquidation, dissolution or winding up of the Corporation, the amount referred to in clause (ii) above shall be calculated by including accrued and unpaid dividends to the actual date of such liquidation, dissolution or winding up, rather than the Dividend Payment Due Date referred to above. ARTICLE 6 CONVERSION OF PREFERRED STOCK SECTION 6.1 Conversion; Conversion Price. At the option of the Holder, the shares of Series A Preferred Stock may be converted, either in whole or in part, into Common Shares (calculated as to each such conversion to the nearest 1/100th of a share), at any time, and from time to time on or after November 2, 1999 at a Conversion Price equal to $3.00 per share. Notwithstanding the previous sentence, in no event shall the Holder have the right to convert that portion of the Series A Preferred Stock to the extent that the issuance of Common Shares upon the conversion of such Series A Preferred Stock, when combined with shares of Common Stock received upon other conversions of Series A Preferred Stock by such Holder and any other holders of Series A Preferred Stock, would exceed 19.99% of the Common Stock outstanding at the time of conversion. Within ten (10) Business Days after the receipt of the Conversion Notice which upon conversion would, when combined with shares of Common Stock received upon other conversions of Series A Preferred Stock by such Holder and any other holders of Series A Preferred Stock, exceed 19.99% of the Common Stock outstanding at the time of conversion, the Corporation shall redeem all remaining (i.e., after conversion of such number of shares as would result in the issuance of 19.99% of the Common Stock) outstanding shares of Series A Preferred Stock at one hundred thirty-five percent (135%) of the Stated Value thereof, together with all accrued and unpaid dividends thereon, in cash, to the date of redemption. The number of shares of Common Stock due upon conversion of Series A Preferred Stock shall be (i) the number of shares of Series A Preferred Stock to be converted, multiplied by (ii) the Stated Value and divided by (iii) the applicable Conversion Price. SECTION 6.2 Exercise of Conversion Privilege. (a) Conversion of the Series A Preferred Stock may be exercised, in whole or in part, by the Holder by telecopying an executed and completed notice of conversion in the form annexed hereto as ANNEX I (the "Conversion Notice") to the Corporation. Each date on which a Conversion Notice is telecopied to and received by the Corporation in accordance with the provisions of this Section 6.2 shall constitute a Conversion Date. The Corporation shall convert the Preferred Stock and issue the Common Stock Issued at Conversion effective as of the Conversion Date. The Conversion Notice also shall state the name or names (with addresses) of the persons who are to become the holders of the Common Stock Issued at Conversion in connection with such conversion. The Holder shall deliver the shares of Series A Preferred Stock to the Corporation by express courier within fifteen (15) days following the date on which the telecopied Conversion Notice has been transmitted to the Corporation. Upon surrender for conversion, the Preferred Stock shall be accompanied by a proper assignment hereof to the Corporation or be endorsed in blank. Such endorsement shall be signature guaranteed by a member of the Stock Transfer Agents Medallion Program. As promptly as practicable after the later of (i) the receipt of the Conversion Notice as aforesaid or (ii) the receipt of the Series A Preferred Stock tendered for conversion, but in any event not more than five (5) Business Days after the later of such events, the Corporation shall (i) issue the Common Stock issued at Conversion in accordance with the provisions of this Article 6, and (ii) cause to be mailed for delivery by overnight courier to the Holder (X) a certificate or certificate(s) representing the number of Common Shares to which the Holder is entitled by virtue of such conversion, (Y) cash, as provided in Section 6.3, in respect of any fraction of a Share issuable upon such conversion and (Z) cash in the amount of accrued and unpaid dividends as of the Conversion Date. Such conversion shall be deemed to have been effected at the time at which the Conversion Notice indicates as long as the Preferred Stock shall have been surrendered as aforesaid at such time, and at such time the rights of the Holder of the Preferred Stock, as such, shall cease and the Person and Persons in whose name or names the Common Stock Issued at Conversion shall be issuable shall be deemed to have become the holder or holders of record of the Common Shares represented thereby. The Conversion Notice shall constitute a contract between the Holder and the Corporation, whereby the Holder shall be deemed to subscribe for the number of Common Shares which it will be entitled to receive upon such conversion and, in payment and satisfaction of such subscription (and for any cash adjustment to which it is entitled pursuant to Section 6.4), to surrender the Preferred Stock and to release the Corporation from all liability thereon. No cash payment aggregating less than $1.50 shall be required to be given unless specifically requested by the Holder. (b) If, at any time (i) the Corporation challenges, disputes or denies the right of the Holder hereof to effect the conversion of the Preferred Stock into Common Shares or otherwise dishonors or rejects any Conversion Notice delivered in accordance with this Section 6.2 or (ii) any third party who is not and has never been an Affiliate of the Holder commences any lawsuit or proceeding or otherwise asserts any claim before any court or public or governmental authority which seeks to challenge, deny, enjoin, limit, modify, delay or dispute the right of the Holder hereof to effect the conversion of the Preferred Stock into Common Shares, then the Holder shall have the right, by written notice to the Corporation, to require the Corporation to promptly redeem the Series A Preferred Stock for cash at a redemption price equal to one hundred and twenty-five percent (125%) of the Stated Value thereof together with all accrued and unpaid dividends thereon (the "Mandatory Purchase Amount"). Under any of the circumstances set forth above, the Corporation shall be responsible for the payment of all costs and expenses of the Holder, including reasonable legal fees and expenses, as and when incurred in disputing any such action or pursuing its rights hereunder (in addition to any other rights of the Holder). (c) The Holder shall be entitled to exercise its conversion privilege notwithstanding the commencement of any case under 11 U.S.C. ss. 101 et seq. (the "Bankruptcy Code"). In the event the Corporation is a debtor under the Bankruptcy Code, the Corporation hereby waives to the fullest extent permitted any rights to relief it may have under 11 U.S.C. ss.362 in respect of the Holder's conversion privilege. The Corporation hereby waives to the fullest extent permitted any rights to relief it may have under 11 U.S.C. ss. 362 in respect of the conversion of the Series A Preferred Stock. The Corporation agrees, without cost or expense the Holder, to take or consent to any and all action necessary to effectuate relief under 11 U.S.C. ss. 362. SECTION 6.3 Fractional Shares. No fractional Common Shares or scrip representing fractional Common Shares shall be issued upon conversion of the Series A Preferred Stock. Instead of any fractional Common Shares which otherwise would be issuable upon conversion of the Series A Preferred Stock, the Corporation shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction. No cash payment of less than $1.50 shall be required to be given unless specifically requested by the Holder. SECTION 6.4 Reclassification, Consolidation. Merger or Mandatory Share Exchange. At any time while the Series A Preferred Stock remains outstanding and any shares thereof have not been converted, in case of any reclassification or change of Outstanding Common Shares issuable upon conversion of the Series A Preferred Stock (other than a change in par value, or from par value to no par value per share, or from no par value per share to par value or as a result of a subdivision or combination of outstanding securities issuable upon conversion of the Series A Preferred Stock) or in case of any consolidation, merger or mandatory share exchange of the Corporation with or into another corporation (other than a merger or mandatory share exchange with another corporation in which the Corporation is a continuing corporation and which does not result in any reclassification or change, other than a change in par value, or from par value to no par value per share, or from no par value per share to par value, or as a result of a subdivision or combination of Outstanding Common Shares upon conversion of the Series A Preferred Stock), or in the case of any sale or transfer to another corporation of the property of the Corporation as an entirety or substantially as an entirety, the Corporation, or such successor, resulting or purchasing corporation, as the case may be, shall, without payment of any additional consideration therefor, execute such documents as may be reasonably required to confirm that the Holder shall have the right to convert its Series A Preferred Stock (upon terms and conditions not less favorable to the Holder than those in effect pursuant to the Series A Preferred Stock) and to receive upon such exercise, in lieu of each Common Share theretofore issuable upon conversion of the Series A Preferred Stock, the kind and amount of shares of stock, other securities, money or property receivable upon such reclassification, change, consolidation, merger, mandatory share exchange, sale or transfer by the holder of one Common Share issuable upon conversion of the Series A Preferred Stock had the Series A Preferred Stock been converted immediately prior to such reclassification, change, consolidation, merger, mandatory share exchange or sale or transfer. The provisions of this Section 6.4 shall similarly apply to successive reclassifications, changes, consolidations, mergers, mandatory share exchanges and sales and transfers. The Conversion Price and the number of shares of Common Stock into which the Series A Preferred Stock is convertible shall be adjusted for stock splits, combinations or other similar events. SECTION 6.5 Intentionally omitted. SECTION 6.6 Optional Redemption and Conversion. (a) At any time after November 2, 1999, (i) the Corporation shall have the right, which may be exercised in whole or in part, to call for redemption shares of the Series A Preferred Stock at a price equal to the Applicable Percentage (as hereinafter defined) of the Stated Value per share, together with all accrued and unpaid dividends thereon calculated to the date of such redemption (the "Optional Redemption Price") and (ii) the Holder, upon notice delivered to the Corporation, may require the Corporation to redeem the Series A Preferred Stock, at the Optional Redemption Price. The Applicable Percentage is the sum of one hundred five percent (105%) plus the product of twenty percent (20%) multiplied by a fraction the numerator of which is the number of days since May 6, 1999 (but not more than 365) and the denominator of which is 365. (b) If the Series A Preferred Stock is not redeemed by the Corporation pursuant to subsection 6.6(a), the Holder, upon notice delivered to the Corporation, may convert the Series A Preferred Stock that the Holder then owns into shares of Series B Preferred Stock, with each share of Series A Preferred Stock (including any accrued and unpaid dividends thereon) converting into 1.19 shares of Series B Preferred Stock. (c) Any shares of Series A Preferred Stock outstanding on May 1, 2000 shall automatically be converted into shares of Series B Preferred Stock, with each share of Series A Preferred Stock converting into 1.25 shares of Series B Preferred Stock. (d) Notwithstanding anything contained in this Certificate of Designations to the contrary, if the Corporation shall receive on or prior to April 30, 2000 a Conversion Notice pursuant to Section 6.1 or 6.2, or a notice of conversion pursuant to Section 6.6(b), the Corporation shall nonetheless have the right, by notice sent to the exercising Holder within seven (7) days of the Corporation's receipt of such Conversion Notice or notice of conversion pursuant to Section 6.6(b), as the case may be, to redeem the shares which are the subject of each such notice at the then applicable Optional Redemption Price. On the date of mailing of the notice of redemption pursuant to the preceding sentence, the shares called for redemption shall, for all purposes, be deemed to have been redeemed and shall have no further rights except for the right to receive the payment of the redemption price, and the Conversion Notice or notice of conversion pursuant to Section 6.6(b), as the case may be, shall be null and void ab initio, and of no force or effect. The Corporation shall thereafter transmit the redemption price to the respective holders thereof in accordance with the terms of Section 6.7. SECTION 6.7 Surrender of Preferred Stock. Upon any redemption of the Series A Preferred Stock pursuant to Section 6.6, the Holder shall either deliver the Series A Preferred Stock by hand to the Corporation at its principal executive offices or surrender the same to the Corporation at such address by express courier. Payment of the Optional Redemption Price specified in Section 6.6 shall be made by the Corporation to the Holder against receipt of the Series A Preferred Stock (as provided in this Section 6.7) by wire transfer of immediately available funds to such account(s) as the Holder shall specify to the Corporation. If payment of such redemption price is not made in full by the Redemption Date, the Holder shall again have the right to convert the Series A Preferred Stock as provided in Article 6 hereof. SECTION 6.8 Redemption of Preferred Stock. Notice of redemption pursuant to Section 6.6(a)(i) shall be given by publication at least once in a newspaper of general circulation printed in the English language and customarily published on each business day in the City of New York, New York. Notice of such redemption shall also be mailed to the holders of Series A Preferred Stock of record so to be redeemed at their respective addresses as the same shall appear on the books of the Corporation, but no failure to mail any such notice, nor any defects therein nor in the mailing thereof shall affect the validity of the redemption of any such shares so to be redeemed. In case of the redemption of fewer than all of the outstanding Shares of Series A Preferred Stock, the shares to be redeemed shall be selected in such reasonable manner as may be prescribed by the Board of Directors of the Corporation. Following the mailing of the notice of redemption as provided in this Section 6.8, the holders of the Series A Preferred Stock shall no longer be entitled to convert their Series A Preferred stock into Common Stock or into Series B Preferred Stock nor shall they be entitled to receive any dividends (other than as set forth in Section 6.6). On the date of mailing of the notice of redemption, the shares called for redemption shall, for all purposes, be deemed to have been redeemed and shall have no further rights except for the right to receive the payment of the redemption price. The Corporation shall thereafter transmit the redemption price to the respective holders thereof in accordance with the terms of Section 6.7. ARTICLE 7 VOTING RIGHTS The holders of Series A Preferred Stock shall be entitled to notice of all stockholders meetings in accordance with the Corporation's bylaws and the Delaware General Corporation Law (the "DGCL"). Except as otherwise required by law, the holders of the Series A Preferred Stock shall be entitled to vote on all matters submitted to the stockholders for a vote, voting together with the holders of the Common Stock as a single class, with each share of Common Stock entitled to one vote per share and each share of Series A Preferred Stock entitled to one vote for each share of Common Stock issuable upon conversion of the Series A Preferred Stock as of the record date for such vote or, it no record date is specified, as of the date of such vote. To the extent that under the DGCL the vote of the holders of the Series A Preferred Stock, voting separately as a class or series as applicable, is required to authorize a given action of the Corporation, the affirmative vote or consent of the holders of at least a majority of the shares of the Series A Preferred Stock represented at a duly held meeting at which a quorum is present or by written consent of a majority of the shares of Series A Preferred Stock (except as otherwise may be required under the DGCL) shall constitute the approval of such action by the class or series, as the case may be. ARTICLE 8 PROTECTIVE PROVISIONS As long as shares of Series A Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by the DGCL) of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock as one class: (a) alter or change the rights, preferences or privileges of the Series A Preferred Stock or amend this Certificate of Designations; (b) increase the authorized number of shares of Series A Preferred Stock; (c) do any act or thing not authorized or contemplated by this Certificate of Designation which would result in taxation of the holders of shares of the Series A Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or any comparable provision of the Internal Revenue Code as hereafter from time to time amended); or (d) make any change in the foregoing amendment provisions. In the event holders of at least a majority of the then outstanding shares of Series A Preferred Stock agree to allow the Corporation to alter or change the rights, preferences or privileges of the shares of Series A Preferred Stock, pursuant to subsection (a) above, so as to affect the Series A Preferred Stock, then the Corporation will deliver notice of such approved change to the holders of the Series A Preferred Stock that did not agree to such alteration or change (the "Dissenting Holders") and Dissenting Holders shall have the right for a period of thirty (30) days to convert their shares of Series A Preferred Stock to Common Stock or, if the time period set forth in Section 6.6(b) has been satisfied (unless extended by agreement pursuant to Section 6.6(c)), to Series B Preferred Stock pursuant to the terms of this Certificate of Designation as they exist prior to such alteration or change or continue to hold their shares of Series A Preferred Stock. ARTICLE 9 MISCELLANEOUS SECTION 9.1 Loss, Theft, Destruction of Preferred Stock. Upon receipt of evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of shares of Series A Preferred Stock and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security reasonably satisfactory to the Corporation, or, in the case of any such mutilation, upon surrender and cancellation of the Series A Preferred Stock, the Corporation shall make, issue and deliver, in lieu of such lost, stolen, destroyed or mutilated shares of Series A Preferred Stock, new shares of Series A Preferred Stock of like tenor. The Series A Preferred Stock shall be held and owned upon the express condition that the provisions of this Section 9.1 are exclusive with respect to the replacement of mutilated, destroyed, lost or stolen shares of Series A Preferred Stock and shall preclude any and all other rights and remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement of negotiable instruments or other securities without the surrender thereof. SECTION 9.2 Who Deemed Absolute Owner. The Corporation may deem the Person in whose name the Series A Preferred Stock shall be registered upon the registry books of the Corporation to be, and may treat it as, the absolute owner of the Series A Preferred Stock for the purpose of receiving payment of dividends on the Series A Preferred Stock, for the conversion of the Series A Preferred Stock and for all other purposes, and the Corporation shall not be affected by any notice to the contrary. All such payments and such conversion shall be valid and effectual to satisfy and discharge the liability upon the Series A Preferred Stock to the extent of the sum or sums so paid or the conversion so made. SECTION 9.3 Notice of Certain Events. In the case of the occurrence of any event described in Sections 6.1 or 6.6 of this Certificate of Designations, the Corporation shall cause to be mailed to the Holder of the Series A Preferred Stock at its last address as it appears in the Corporation's security registry, at least twenty (20) days prior to the applicable record, effective or expiration date hereinafter specified (or, if such twenty (20) days notice is not possible, at the earliest possible date prior to any such record, effective or expiration date), a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, issuance or granting of rights, options or warrants, or if a record is not to be taken, the date as of which the holders of record of Series A Preferred Stock to be entitled to such dividend, distribution, issuance or granting of rights, options or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is expected to become effective, and the date as of which it is expected that holders of record of Series A Preferred Stock will be entitled to exchange their shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. SECTION 9.4 Register. The Corporation shall keep at its principal office a register in which the Corporation shall provide for the registration of the Series A Preferred Stock. Upon any transfer of the Series A Preferred Stock in accordance with the provisions hereof, the Corporation shall register such transfer on the Series A Preferred Stock register. The Corporation may deem the Person in whose name the Series A Preferred Stock shall be registered upon the registry books of the Corporation to be, and may treat it as, the absolute owner of the Series A Preferred Stock for the purpose of receiving payment of dividends on the Series A Preferred Stock, for the conversion of the Series A Preferred Stock and for all other purposes, and the Corporation shall not be affected by any notice to the contrary. All such payments and such conversions shall be valid and effective to satisfy and discharge the liability upon the Series A Preferred Stock to the extent of the sum or sums so paid or the conversion or conversions so made. SECTION 9.5 Withholding. To the extent required by applicable law, the Corporation may withhold amounts for or on account of any taxes imposed or levied by or on behalf of any taxing authority in the United States having jurisdiction over the Corporation from any payments made pursuant to the Series A Preferred Stock. SECTION 9.6 Headings. The headings of the Articles and Sections of this Certificate of Designations are inserted for convenience only and do not constitute a part of this Certificate of Designations. ANNEX I (FORM OF CONVERSION NOTICE] To: ___________________________________ ___________________________________ ___________________________________ The undersigned owner of this Series A 8% Convertible Preferred Stock (the "Series A Preferred Stock") issued by Global Technologies, Ltd. (the "Corporation") hereby irrevocably exercises its option to convert shares of the Series A Preferred Stock into shares of the common stock, $.01 par value, of the Corporation ("Common Stock"), in accordance with the terms of the Certificate of Designations. The undersigned hereby instructs the Corporation to convert the number of shares of the Series A Preferred Stock specified above into Shares of Common Stock Issued at Conversion in accordance with the provisions of Article 6 of the Certificate of Designations. The undersigned directs that the Common Stock issuable and certificates therefor deliverable upon conversion, the Series A Preferred Stock recertificated, it any, not being surrendered for conversion hereby, together with any check in payment for fractional Common Stock, be issued in the name of and delivered to the undersigned unless a different name has been indicated below. All capitalized terms used and not defined herein have the respective meanings assigned to them in the Certificate of Designations. Dated: __________________________ ___________________________________ Signature Fill in for registration of Series A Preferred Stock: Please print name and address (including zip code number): ________________________________________________________________________________ ________________________________________________________________________________ EX-4.2 7 CERTIFICATE OF DESIGNATIONS CERTIFICATE OF DESIGNATIONS, RIGHTS, PREFERENCES AND LIMITATIONS OF SERIES B 8% CONVERTIBLE PREFERRED STOCK OF GLOBAL TECHNOLOGIES, LTD. ----------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware ----------- Global Technologies, Ltd., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), hereby certifies that the following resolutions were adopted by the Board of Directors of the Corporation on August 16, 1999 pursuant to authority of the Board of Directors as required by Section 151 of the General Corporation Law of the State of Delaware: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Corporation (the "Board of Directors" or the "Board") in accordance with the provisions of its Amended and Restated Certificate of Incorporation, the Board of Directors hereby designates a series of the Corporation's previously authorized Preferred Stock, par value $.01 per share (the "Preferred Stock") as its Series B 8% Convertible Preferred Stock, and hereby states the number of authorized shares, and the relative rights, preferences, limitations, privileges, powers and restrictions thereof are and shall be as set forth on the attached Annex A. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designations, Rights, Preferences and Limitations to be signed by its duly authorized officer as of the 16th day of August, 1999. GLOBAL TECHNOLOGIES, LTD. By: ____________________________________ Name: Irwin L. Gross Title: Chairman ANNEX A ARTICLE 1 DEFINITIONS SECTION 1.1 Definitions. The terms defined in this Article whenever used in this Certificate of Designations have the following respective meanings: (a) "ADDITIONAL CAPITAL SHARES" has the meaning set forth in Section 6.1(c). (b) "AFFILIATE" has the meaning ascribed to such term in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. (c) "BUSINESS DAY" means a day other than Saturday, Sunday or any day on which banks located in the State of New York are authorized or obligated to close. (d) "CAPITAL SHARES" means the Common Shares and any other shares of any other class or series of common stock, whether now or hereafter authorized and however designated, which have the right to participate in the distribution of earnings and assets (upon dissolution, liquidation or winding-up) of the Corporation. (e) "COMMON SHARES" or "COMMON STOCK" means shares of Class A common stock, $.01 par value, of the Corporation. (f) "COMMON STOCK ISSUED AT CONVERSION" when used with reference to the securities issuable upon conversion of the Series B Preferred Stock, means all Common Shares now or hereafter Outstanding and securities of any other class or series into which the Series B Preferred Stock hereafter shall have been changed or substituted, whether now or hereafter created and however designated. (g) "CONVERSION DATE" means any day on which all or any portion of shares of the Series B Preferred Stock is converted in accordance with the provisions hereof. (h) "CONVERSION NOTICE" has the meaning set forth in Section 6.2. (i) "CONVERSION PRICE" means on any date of determination the applicable price for the conversion of shares of Series B Preferred Stock into Common Shares on such day as set forth in Section 6.1. (j) "CORPORATION" means Global Technologies, Ltd., a Delaware corporation, and any successor or resulting corporation by way of merger, consolidation, sale or exchange of all or substantially all of the Corporation's assets, or otherwise. (k) "CURRENT MARKET PRICE" on any date of determination means the closing bid price of a Common Share on such day as reported on the Nasdaq National Market ("NASDAQ"). (l) "HOLDER" means The Shaar Fund Ltd., any successor thereto, or any Person to which the Series B Preferred Stock is subsequently transferred in accordance with the provisions hereof. (m) "MARKET DISRUPTION EVENT" means any event that results in a material suspension or limitation of trading of Common Shares on the NASDAQ. (n) "MARKET PRICE" per Common Share means the average of the closing bid prices of the Common Shares as reported on the NASDAQ for the five (5) Trading Days in any Valuation Period. (o) "OUTSTANDING" when used with reference to Common Shares or Capital Shares (collectively, "Shares"), means, on any date of determination, all issued and outstanding Shares, and includes all such Shares issuable in respect of outstanding scrip or any certificates representing fractional interests in such Shares; provided, however, that any such Shares directly or indirectly owned or held by or for the account of the Corporation or any Subsidiary of the Corporation shall not be deemed "Outstanding" for purposes hereof. (p) "PERSON" means an individual, a corporation, a partnership, an association, a limited liability company, an unincorporated business organization, a trust or other entity or organization, and any government or political subdivision or any agency or instrumentality thereof. (q) "SEC" means the United States Securities and Exchange Commission. (r) "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder, all as in effect at the time. (s) "SECURITIES PURCHASE AGREEMENT" means that certain Securities Purchase Agreement dated as of May 6, 1999 between Interactive Flight Technologies, Inc. and The Shaar Fund Ltd. (t) "SERIES B PREFERRED STOCK" means the Series B 8% Convertible Preferred Stock of the Corporation or such other convertible Preferred Stock exchanged therefor as provided in Section 2.1. (aa) "STATED VALUE" has the meaning set forth in Article 2. (bb) "SUBSIDIARY" means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are owned directly or indirectly by the corporation. (cc) "TRADING DAY" means any day on which purchases and sales of securities authorized for quotation on the NASDAQ are reported thereon and on which no Market Disruption Event has occurred. (dd) "VALUATION EVENT" has the meaning set forth in Section 6.1. (ee) "VALUATION PERIOD" means the five (5) Trading Day period immediately preceding a Conversion Date or a Divided Payment Due Date, as the case may be. All references to "cash" or "$" herein means currency of the United States of America. ARTICLE 2 DESIGNATION AND AMOUNT SECTION 2.1 The designation of this series, which consists of 3,000 shares of Preferred Stock, is Series B 8% Convertible Preferred Stock, the Stated Value of which is One Thousand Dollars ($1,000) per share (the "Stated Value"). ARTICLE 3 RANK SECTION 3.1 The Series B Preferred Stock shall rank (i) prior to the Common Stock and the Corporation's Class B Common Stock; (ii) prior to any class or series of capital stock of the Corporation hereafter created other than "Pari Passu Securities" (collectively, with the Common Stock and the Class B Common Stock, "Junior Securities"); (iii) pari passu with the Company's Series A 8% Convertible Preferred Stock and (iv) pari passu with any class or series of capital stock of the Corporation hereafter or contemporaneously created specifically ranking on parity with the Series B Preferred Stock (collectively with the Series A 8% Convertible Preferred Stock, "Pari Passu Securities"). ARTICLE 4 DIVIDENDS SECTION 4.1 (a) (i) The Holder shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available for the payment of dividends, dividends (subject to Sections 4.1(a)(ii) hereof) at the rate of 8% per annum (computed on the basis of a 360-day year) (the "Dividend Rate") on the Stated Value of each share of Series B Preferred Stock on and as of the most recent Dividend Payment Due Date (as defined below) with respect to each Dividend Period (as defined below). Dividends on the Series B Preferred Stock shall be cumulative from the date of issue, whether or not declared for any reason, including if such declaration is prohibited under any indebtedness or borrowings of the Corporation or any of its Subsidiaries, or any other contractual provision binding on the Corporation or any of its Subsidiaries, and whether or not there shall be funds legally available for the payment thereof. (ii) Each dividend shall be payable in equal quarterly amounts on each March 31, June 30, September 30 and December 31 of each year (each, a "Dividend Payment Due Date"), commencing September 30, 1999, to the holders of record of shares of the Series B Preferred Stock, as they appear on the stock records of the Corporation at the close of business on any record date, not more than sixty (60) days nor less than ten (10) days preceding the payment dates thereof, as shall he fixed by the Board of Directors. For the purposes hereof, "Dividend Period" means the quarterly period commencing on and including the day after the immediately preceding Dividend Payment Due Date and ending on and including the immediately subsequent Dividend Payment Due Date. Accrued and unpaid dividends for any past Dividend Period may be declared and paid at any time, without reference to any Dividend Payment Due Date, to holders of record on such date, not more than fifteen (15) days preceding the payment date thereof, as may be fixed by the Board of Directors. (b) The Holder shall not be entitled to any dividends in excess of the cumulative dividends, as herein provided, on the Series B Preferred Stock. Except as provided in this Article 4, no interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series B Preferred Stock that may be in arrears. (c) As long as any shares of the Series B Preferred Stock are outstanding, no dividends, except as described in the next succeeding sentence, shall be declared or paid or set apart for payment on Pari Passu Securities for any period unless full cumulative dividends required to be paid in cash have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Series B Preferred Stock for all Dividend Periods terminating on or prior to the date of payment of the dividend on such class or series of Pari Passu Securities. When dividends are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all dividends declared upon shares of the Series B Preferred Stock and all dividends declared upon any other class or series of Pari Passu Securities shall be declared ratably in proportion to the respective amounts of dividends accumulated and unpaid on the Series B Preferred Stock and accumulated and unpaid on such Pari Passu Securities. (d) As long as any shares of the Series B Preferred Stock are outstanding, no dividends shall be declared or paid or set apart for payment or other distribution declared or made upon Junior Securities, nor shall any Junior Securities be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of shares of Common Stock made for purposes of an employee incentive or benefit plan (including a stock option plan) of the Corporation or any Subsidiary, (all such dividends, distributions, redemptions or purchases being hereinafter referred to as a "Junior Securities Distribution") for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation, directly or indirectly, unless in each case (i) the full cumulative dividends required to be paid in cash on all outstanding shares of the Series B Preferred Stock and any other Pari Passu Securities shall have been paid or set apart for payment for all past Dividend Periods with respect to the Series B Preferred Stock and all past Dividend Periods with respect to such Pari Passu Securities, and (ii) sufficient funds shall have been paid or set apart for the payment of the dividend for the current Dividend Period with respect to the Series B Preferred Stock and the current Dividend Period with respect to such Pari Passu Securities. ARTICLE 5 LIQUIDATION PREFERENCE SECTION 5.1 (a) If the Corporation shall commence a voluntary case under the Federal bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency or similar law, or consent to the entry of an order for relief in an involuntary case under any law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Corporation shall be entered by a court having jurisdiction in the premises in an involuntary case under the Federal bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency or similar law resulting in the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a period of thirty (30) consecutive days and, on account of any such event, the Corporation shall liquidate, dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve or wind up (each such event being considered a "Liquidation Event"), no distribution shall be made to the holders of any shares of capital stock of the Corporation upon liquidation, dissolution or winding up unless prior thereto, the holders of shares of Series B Preferred Stock shall have received the Liquidation Preference (as defined in Section 5.1(c)) with respect to each share. If upon the occurrence of a Liquidation Event, the assets and funds available for distribution among the holders of the Series B Preferred Stock and holders of Pari Passu Securities shall be insufficient to permit the payment to such holders of the preferential amounts payable thereon, then the entire assets and funds of the Corporation legally available for distribution to the Series B Preferred Stock and the Pari Passu Securities shall be distributed ratably among such shares in proportion to the ratio that the Liquidation Preference payable on the shares of Series B Preferred Stock bears to the aggregate liquidation preferences payable on all such shares. (b) At the option of each Holder, the sale, conveyance of disposition of all or substantially all of the assets of the Corporation, the effectuation by the Corporation of a transaction or series of related transactions in which more than 50% of the voting power of the Corporation is disposed of, or the consolidation, merger or other business combination of the Corporation with or into any other Person or Persons when the Corporation is not the survivor shall be deemed to be a liquidation, dissolution or winding up of the Corporation pursuant to which the Corporation shall be required to distribute, upon consummation of and as a condition to, such transaction an amount equal to 120%, of the Liquidation Preference with respect to each outstanding share of Series B Preferred Stock in accordance with and subject to the terms of this Article 5; provided, that all holders of Series B Preferred Stock shall be deemed to elect the option set forth above if at least a majority in interest of such holders elect such option. (c) For purposes hereof, the "Liquidation Preference" with respect to a share of the Series B Preferred Stock shall mean an amount equal to the sum of (i) the Stated Value thereof, plus (ii) the aggregate of all accrued and unpaid dividends on such share of Series B Preferred Stock until the most recent Dividend Payment Due Date; provided that, in the event of an actual liquidation, dissolution or winding up of the Corporation, the amount referred to in clause (ii) above shall be calculated by including accrued and unpaid dividends to the actual date of such liquidation, dissolution or winding up, rather than the Dividend Payment Due Date referred to above. ARTICLE 6 CONVERSION OF PREFERRED STOCK SECTION 6.1 Conversion; Conversion Price. At the option of the Holder, the shares of Series B Preferred Stock may be converted, either in whole or in part, into Common Shares (calculated as to each such conversion to the nearest 1/100th of a share), at any time and from time to time, following the day ninety (90) days after the date of issuance of the Series B Preferred Stock (the "Issue Date"), at a Conversion Price equal to the lower of (i) 82.0% of the Market Price (ii) $3.00 per Common Share or (iii) 118% of the Closing bid price of the Common Shares as reported by NASDAQ for May 7, 1999; provided, however, that the Holder shall not have the right to convert any shares of Series B Preferred Stock, if at the time of any such conversion, the Holder of Common Shares in the absence of this provision would be deemed the "beneficial owner" of 5% or more of the then outstanding Common Shares within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended. At the Corporation's option, the amount of accrued and unpaid dividends as of the Conversion Date, if the Corporation elects to convert the amount of accrued and unpaid dividends as of the Conversion Date shall not be subject to conversion but instead may be paid in cash as of the Conversion Date; if the Corporation elects to convert the amount of accrued and unpaid dividends at the Conversion Date in Common Stock, the Common Stock issued to the Holder shall be valued at the Conversion Price. Notwithstanding the previous sentence, in no event shall the Holder have the right to convert that portion of the Series B Preferred Stock the extent that the issuance of Common Shares upon the conversion of such Series B Preferred Stock, when combined with shares of Common Stock received upon other conversions of Series B Preferred Stock, would exceed 19.99% of the Common Stock outstanding on the Conversion Date. Within ten (10) Business Days after the receipt of the Conversion Notice which upon conversion would, when combined with shares of Common Stock received upon other conversions of Series B Preferred Stock by such Holder and any other holders of Series B Preferred Stock, exceed 19.99% of the Common Stock outstanding on the Conversion Date, the Corporation shall redeem all remaining (i.e., after conversion of such number of shares as would result in the issuance of 19.99% of the Common Stock) outstanding shares of Series B Preferred Stock at one hundred thirty-five percent (135%) of the Stated Value thereof, together with all accrued and unpaid dividends thereon, in cash, to the date of redemption. The number of shares of Common Stock due upon conversion of Series B Preferred Stock shall be (i) the number of shares of Series B Preferred Stock to be converted, multiplied by (ii) the Stated Value and divided by (iii) the applicable Conversion Price. Within two (2) Business Days of the occurrence of a Valuation Event, the Corporation shall send notice (the "Valuation Event Notice") of such occurrence to the Holder. Notwithstanding anything to the contrary contained herein, if a Valuation Event occurs during any Valuation Period, a new Valuation Period shall begin on the Trading Day immediately following the occurrence of such Valuation Event and end on the Conversion Date; provided that, if a Valuation Event occurs on the fifth (5th) day of any Valuation Period, then the Conversion Price shall be the Current Market Price of the Common Shares on such day; and provided, further, that the Holder may, in its discretion, postpone such Conversion Date to a Trading Day which is no more than five (5) Trading Days after the occurrence of the latest Valuation Event by delivering a notification to the Corporation within two (2) Business Days of the receipt of the Valuation Event Notice. In the event that the Holder deems the Valuation Period to be other than the five (5) Trading Days immediately prior to the Conversion Date, the Holder shall give written notice of such fact to the Corporation in the related Conversion Notice at the time of conversion. For purposes of this Section 6.1, a "Valuation Event" shall mean an event in which the Corporation at any time during a Valuation Period takes any of the following actions: (a) subdivides or combines its Capital Shares; (b) makes any distribution of its Capital Shares; (c) issues any additional Capital Shares (the "Additional Capital Shares"), otherwise than as provided in the foregoing Sections 6.1(a) and 6.1(b) above, at a price per share less, or for other consideration lower, than the Current Market Price in effect immediately prior to such issuances, or without consideration, except for issuances under employee benefit plans consistent with those presently in effect and issuances under presently outstanding warrants, options or convertible securities; (d) issues any warrants, options or other rights to subscribe for or purchase any Additional Capital Shares and the price per share for which Additional Capital Shares may at any time thereafter be issuable pursuant to such warrants, options or other rights shall be less than the Current Market Price in effect immediately prior to such issuance; (e) issues any securities convertible into or exchangeable or exercisable for Capital Shares and the consideration per share for which Additional Capital Shares may at any time thereafter be issuable pursuant to the terms of such convertible, exchangeable or exercisable securities shall be less than the Current Market Price in effect immediately prior to such issuance; (f) makes a distribution of its assets or evidences of indebtedness to the holders of its Capital Shares as a dividend in liquidation or by way of return of capital or other than as a dividend payable out of earnings or surplus legally available for the payment of dividends under applicable law or any distribution to such holders made in respect of the sale of all or substantially all of the Corporation's assets (other than under the circumstances provided for in the foregoing Sections 6.1(a) through 6.1(e)); or (g) takes any action affecting the number of Outstanding Capital Shares, other than an action described in any of the foregoing Sections 6.1(a) through 6.1(f) hereof, inclusive which in the opinion of the Corporation's Board of Directors, determined in good faith, would have a material adverse effect upon the rights of the Holder at the time of a conversion of the Preferred Stock. SECTION 6.2 Exercise of Conversion Privilege. (a) Conversion of the Series B Preferred Stock may be exercised, in whole or in part, by the Holder by telecopying an executed and completed notice of conversion in the form annexed hereto as ANNEX I (the "Conversion Notice") to the Corporation. Each date on which a Conversion Notice is telecopied to and received by the Corporation in accordance with the provisions of this Section 6.2 shall constitute a Conversion Date. The Corporation shall convert the Series B Preferred Stock and issue the Common Stock Issued at Conversion effective as of the Conversion Date. The Conversion Notice also shall state the name or names (with addresses) of the persons who are to become the holders of the Common Stock Issued at Conversion in connection with such conversion. The Holder shall deliver the shares of Series B Preferred Stock to the Corporation by express courier within fifteen (15) days following the date on which the telecopied Conversion Notice has been transmitted to the Corporation. Upon surrender for conversion, the Series B Preferred Stock shall be accompanied by a proper assignment thereof to the Corporation or be endorsed in blank. Such endorsement shall be signature guaranteed by a member of the Stock Transfer Agents Medallion Program. As promptly as practicable after the receipt of the Conversion Notice and the Series B Preferred Stock as aforesaid, but in any event not more than five (5) Business Days after the Corporation's receipt of such Conversion Notice and the Series B Preferred Stock (whichever is later), the Corporation shall (i) issue the Common Stock Issued at Conversion in accordance with the provisions of this Article 6, and (ii) cause to be mailed for delivery by overnight courier to the Holder (x) a certificate or certificate(s) representing the number of Common Shares to which the Holder is entitled by virtue of such conversion, (y) cash, as provided in Section 6.3, in respect of any fraction of a Share issuable upon such conversion and (z) cash in the amount of accrued and unpaid dividends as of the Conversion Date. Such conversion shall be deemed to have been effected at the time at which the Conversion Notice indicates as long as the Preferred Stock shall have been surrendered as aforesaid at such time, and at such time the rights of the Holder of the Preferred Stock, as such, shall cease and the Person and Persons in whose name or names the Common Stock Issued at Conversion shall be issuable shall be deemed to have become the holder or holders of record of the Common Shares represented thereby. The Conversion Notice shall constitute a contract between the Holder and the Corporation, whereby the Holder shall be deemed to subscribe for the number of Common Shares which it will be entitled to receive upon such conversion and, in payment and satisfaction of such subscription (and for any cash adjustment to which it is entitled pursuant to Section 6.4), to surrender the Series B Preferred Stock and to release the Corporation from all liability thereon. No cash payment aggregating less than $1.50 shall be required to be given unless specifically requested by the Holder. (b) If, at any time (i) the Corporation challenges, disputes or denies the right of the Holder hereof to effect the conversion of the Series B Preferred Stock into Common Shares or otherwise dishonors or rejects any Conversion Notice delivered in accordance with this Section 6.2 or (ii) any third party who is not and has never been an Affiliate of the Holder commences any lawsuit or proceeding or otherwise asserts any claim before any court or public or governmental authority which seeks to challenge, deny, enjoin, limit, modify, delay or dispute the right of the Holder hereof to effect the conversion of the Preferred Stock into Common Shares, then the Holder shall have the right, by written notice to the Corporation, to require the Corporation to promptly redeem the Series B Preferred Stock for cash at a redemption price equal to one hundred twenty-five percent (125%) of the Stated Value thereof, together with all accrued and unpaid dividends thereon (the "Mandatory Purchase Amount"). Under any of the circumstances set forth above, the Corporation shall be responsible for the payment of all costs and expenses of the Holder, including reasonable legal fees and expenses, as and when incurred in disputing any such action or pursuing its rights hereunder (in addition to any other rights of the Holder). (c) The Holder shall be entitled to exercise its conversion privilege notwithstanding the commencement of any case under 11 U.S.C. ss.101 et seq. (the "Bankruptcy Code"). In the event the Corporation is a debtor under the Bankruptcy Code, the Corporation hereby waives to the fullest extent permitted any rights to relief it may have under 11 U.S.C. ss.362 in respect of the Holder's conversion privilege. The Corporation hereby waives to the fullest extent permitted any rights to relief it may have under 11 U.S.C. ss.362 in respect of the conversion of the Series B Preferred Stock. The Corporation agrees, without cost or expense the Holder, to take or consent to any and all action necessary to effectuate relief under 11 U.S.C. ss.362. SECTION 6.3 Fractional Shares. No fractional Common Shares or scrip representing fractional Common Shares shall be issued upon conversion of the Series B Preferred Stock. Instead of any fractional Common Shares which otherwise would be issuable upon conversion of the Series B Preferred Stock, the Corporation shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction. No cash payment of less than $1.50 shall be required to be given unless specifically requested by the Holder. SECTION 6.4 Reclassification, Consolidation, Merger or Mandatory Share Exchange. At any time while the Series B Preferred Stock remains outstanding and any shares thereof have not been converted, in case of any reclassification or change of Outstanding Common Shares issuable upon conversion of the Series B Preferred Stock (other than a change in par value, or from par value to no par value per share, or from no par value per share to par value or as a result of a subdivision or combination of outstanding securities issuable upon conversion of the Series B Preferred Stock) or in case of any consolidation, merger or mandatory share exchange of the Corporation with or into another corporation (other than a merger or mandatory share exchange with another corporation in which the Corporation is a continuing corporation and which does not result in any reclassification or change, other than a change in par value, or from par value to no par value per share, or from no par value per share to par value, or as a result of a subdivision or combination of Outstanding Common Shares upon conversion of the Series B Preferred Stock), or in the case of any sale or transfer to another corporation of the property of the Corporation as an entirety or substantially as an entirety, the Corporation, or such successor, resulting or purchasing corporation, as the case may be, shall, without payment of any additional consideration therefor, execute such documents as may reasonably be required to confirm that the Holder shall have the right to convert its Series B Preferred Stock (upon terms and conditions not less favorable to the Holder than those in effect pursuant to the Series B Preferred Stock) and to receive upon such exercise, in lieu of each Common Share theretofore issuable upon conversion of the Series B Preferred Stock, the kind and amount of shares of stock, other securities, money or property receivable upon such reclassification, change, consolidation, merger, mandatory share exchange, sale or transfer by the holder of one Common Share issuable upon conversion of the Series B Preferred Stock had the Series B Preferred Stock been converted immediately prior to such reclassification, change, consolidation, merger, mandatory share exchange or sale or transfer. The provisions of this Section 6.4 shall similarly apply to successive reclassifications, changes, consolidations, mergers, mandatory share exchanges and sales and transfers. The Conversion Price and the number of shares of Common Stock into which the Series B Preferred Stock is convertible shall be adjusted for stock splits, combinations or other similar events. SECTION 6.5 Intentionally omitted. SECTION 6.6 Optional Redemption Under Certain Circumstances. (a) At any time after the date of issuance of the Series B Preferred Stock until the date one year after the Issue Date, the Corporation, upon notice delivered to the Holder as provided in Section 6.7, may redeem the Series B Preferred Stock (but only with respect to such shares as to which the Holder has not theretofore furnished a Conversion Notice in compliance with Section 6.2), at the Applicable Percentage (as hereinafter defined) of the Stated Value per share (the "Optional Redemption Price"), together with all accrued and unpaid dividends thereon to the date of redemption (the "Redemption Date"). Except as set forth in this Section 6.6 or Section 6.9, the Corporation shall not have the right to prepay or redeem the Series B Preferred Stock. The Applicable Percentage is the sum of one hundred five percent (105%) plus the product of twenty percent (20%) multiplied by a fraction the numerator of which is the number of days since the Issue Date (but not more than 365) and the denominator of which is 365. (b) At any time after the date of issuance of the Series B Preferred Stock, the Holder, upon notice delivered to the Corporation, may require the Corporation to redeem the Series B Preferred Stock, at the Applicable Percentage of the Stated Value thereof; provided, however, if the Corporation's cash and cash equivalents are less than $6,000,000, the redemption price shall in all events be one hundred twenty-five percent (125%) of the Stated Value per share of Series B Preferred Stock being redeemed, together with all accrued and unpaid dividends thereon to the date of redemption. SECTION 6.7 Notice of Redemption. Notice of redemption pursuant to Section 6.6(a) or (b) by the Corporation to the Holder or by the Holder to the Corporation, respectively, shall be provided in writing (by registered mail or overnight courier at the Holder's last address appearing in the Corporation's security registry or at the Corporation's principal place of business, as the case may be) not less than ten (10) nor more than fifteen (15) days prior to the Redemption Date, which notice shall specify the Redemption Date and refer to Section 6.6 (including, a statement of the Market Price per Common Share) and this Section 6.7. SECTION 6.8 Surrender of Preferred Stock. Upon any redemption of the Series B Preferred Stock pursuant to Sections 6.6 or 6.9, the Holder shall either deliver the Series B Preferred Stock by hand to the Corporation at its principal executive offices or surrender the same to the Corporation at such address by express courier. Payment of the Optional Redemption Price specified in Section 6.6 shall be made by the Corporation to the Holder against receipt of the Series B Preferred Stock (as provided in this Section 6.8) by wire transfer of immediately available funds to such account(s), as the Holder shall specify to the Corporation. If payment of such redemption price is not made in full by the Mandatory Redemption Date or the Redemption Date, as the case may be, the Holder shall again have the right to convert the Series B Preferred Stock as provided in Article 6 hereof. SECTION 6.9 Mandatory Conversion. On the third anniversary of the date of the Securities Purchase Agreement (the "Mandatory Redemption Date"), the Corporation shall redeem all Series B Preferred Stock outstanding at one hundred and thirty-five percent (135%) of the Stated Value thereof, together with all accrued and unpaid dividends thereon, in cash, to the date of redemption. ARTICLE 7 VOTING RIGHTS The holders of the Series B Preferred Stock have no voting power, except as otherwise provided by the General Corporation Law of the State of Delaware ("DGCL"), in this Article 7, and in Article 8 below. Notwithstanding the above, the Corporation shall provide each holder of Series B Preferred Stock with prior notification of any meeting of the stockholders (and copies of proxy materials and other information sent to stockholders). In the event of any taking by the Corporation of a record of its stockholders for the purpose of determining stockholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed liquidation, dissolution or winding up of the Corporation, the Corporation shall mail a notice to each holder, at least thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such action is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. To the extent that under the DGCL the vote of the holders of the Series B Preferred Stock, voting separately as a class or series as applicable, is required to authorize a given action of the Corporation, the affirmative vote or consent of the holders of at least a majority of the shares of the Series B Preferred Stock represented at a duly held meeting at which a quorum is present or by written consent of a majority of the shares of Series B Preferred Stock (except as otherwise may be required under the DGCL) shall constitute the approval of such action by the class or series as the case may be. Holders of the Series B Preferred Stock shall be entitled to notice of all stockholder meetings or written consents (and copies of proxy materials and other information sent to stockholders) with respect to which they would be entitled to vote, which notice would be provided pursuant to the Corporation's bylaws and the DGCL. ARTICLE 8 PROTECTIVE PROVISIONS As long as shares of Series B Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by the DGCL) of the holders of at least a majority of the then outstanding shares of Series B Preferred Stock as one class: (a) alter or change the rights, preferences or privileges of the Series B Preferred Stock or amend this Certificate of Designations; (b) create any new class or series of capital stock having a preference over the Series B Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Corporation ("Senior Securities") or alter or change the rights, preferences or privileges of any Senior Securities so as to affect adversely the Series B Preferred Stock; (c) increase the authorized number of shares of Series B Preferred Stock; (d) do any act or thing not authorized or contemplated by this Certificate of Designation which would result in taxation of the holders of shares of the Series B Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or any comparable provision of the Internal Revenue Code as hereafter from time to time amended); or (e) make any change in the foregoing amendment provisions. In the event holders of at least a majority of the then outstanding shares of Series B Preferred Stock agree to allow the Corporation to alter or change the rights, preferences or privileges of the shares of Series B Preferred Stock, pursuant to subsection (a) above, so as to affect the Series B Preferred Stock, then the Corporation will deliver notice of such approved change to the holders of the Series B Preferred Stock that did not agree to such alteration or change (the "Dissenting Holders") and Dissenting Holders shall have the right for a period of thirty (30) days to convert their shares of Series B Preferred Stock to Common Stock pursuant to the terms of this Certificate of Designation as they exist prior to such alteration or change or to continue to hold their shares of Series B Preferred Stock. ARTICLE 9 MISCELLANEOUS SECTION 9.1 Loss, Theft, Destruction of Preferred Stock. Upon receipt of evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of shares of Series B Preferred Stock and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security reasonably satisfactory to the Corporation, or, in the case of any such mutilation, upon surrender and cancellation of the Series B Preferred Stock, the Corporation shall make, issue and deliver, in lieu of such lost, stolen, destroyed or mutilated shares of Series B Preferred Stock, new shares of Series B Preferred Stock of like tenor. The Series B Preferred Stock shall be held and owned upon the express condition that the provisions of this Section 9.1 are exclusive with respect to the replacement of mutilated, destroyed, lost or stolen shares of Series B Preferred Stock and shall preclude any and all other rights and remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement of negotiable instruments or other securities without the surrender thereof. SECTION 9.2 Who Deemed Absolute Owner. The Corporation may deem the Person in whose name the Series B Preferred Stock shall be registered upon the registry books of the Corporation to be, and may treat it as, the absolute owner of the Series B Preferred Stock for the purpose of receiving payment of dividends on the Series B Preferred Stock, for the conversion of the Series B Preferred Stock and for all other purposes, and the Corporation shall not be affected by any notice to the contrary. All such payments and such conversion shall be valid and effectual to satisfy and discharge the liability upon the Series B Preferred Stock to the extent of the sum or sums so paid or the conversion so made. SECTION 9.3 Notice of Certain Events. In the case of the occurrence of any event described in Sections 6.1, 6.6 or 6.9 of this Certificate of Designations, the Corporation shall cause to be mailed to the Holder of the Series B Preferred Stock at its last address as it appears in the Corporation's security registry, at least twenty (20) days prior to the applicable record, effective or expiration date hereinafter specified (or, if such twenty (20) days notice is not possible, at the earliest possible date prior to any such record, effective or expiration date), a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, issuance or granting of rights, options or warrants, or if a record is not to be taken, the date as of which the holders of record of Series B Preferred Stock to be entitled to such dividend, distribution, issuance or granting of rights, options or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is expected to become effective, and the date as of which it is expected that holders of record of Series B Preferred Stock will be entitled to exchange their shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. SECTION 9.4 Register. The Corporation shall keep at its principal office a register in which the Corporation shall provide for the registration of the Series B Preferred Stock. Upon any transfer of the Series B Preferred Stock in accordance with the provisions hereof, the Corporation shall register such transfer on the Series B Preferred Stock register. The Corporation may deem the Person in whose name the Series B Preferred Stock shall be registered upon the registry books of the Corporation to be, and may treat it as, the absolute owner of the Series B Preferred Stock for the purpose of receiving payment of dividends on the Series B Preferred Stock, for the conversion of the Series B Preferred Stock and for all other purposes, and the Corporation shall not be affected by any notice to the contrary. All such payments and such conversions shall be valid and effective to satisfy and discharge the liability upon the Series B Preferred Stock to the extent of the sum or sums so paid or the conversion or conversions so made. SECTION 9.5 Withholding. To the extent required by applicable law, the Corporation may withhold amounts for or on account of any taxes imposed or levied by or on behalf of any taxing authority in the United States having jurisdiction over the Corporation from any payments made pursuant to the Series B Preferred Stock. SECTION 9.6 Headings. The headings of the Articles and Sections of this Certificate of Designations are inserted for convenience only and do not constitute a part of this Certificate of Designations. ANNEX I [FORM OF CONVERSION NOTICE] TO: ___________________________ ___________________________ ___________________________ The undersigned owner of this Series B 8% Convertible Preferred Stock (the "Series B Preferred Stock") issued by Global Technologies, Ltd. (the "Corporation") hereby irrevocably exercises its option to convert shares of the Series B Preferred Stock into shares of the common stock, $.01 par value, of the Corporation ("Common Stock"), in accordance with the terms of the Certificate of Designations. The undersigned hereby instructs the Corporation to convert the number of shares of the Series B Preferred Stock specified above into Shares of Common Stock Issued at Conversion in accordance with the provisions of Article 6 of the Certificate of Designations. The undersigned directs that the Common Stock issuable and certificates therefor deliverable upon conversion, the Series B Preferred Stock recertificated, if any, not being surrendered for conversion hereby, together with any check in payment for fractional Common Stock, be issued in the name of and delivered to the undersigned unless a different name has been indicated below. All capitalized terms used and not defined herein have the respective meanings assigned to them in the Certificate of Designations. Dated: _____________________________ ___________________________________________ Signature Fill in for registration of Series B Preferred Stock: Please print name and address (including zip code number): ________________________________________________________________________________ ________________________________________________________________________________ EX-10.36 8 PURCHASE AGREEMENT - ------------------------------------------------------------------------------ [GRAPHIC OMITTED] - ------------------------------------------------------------------------------ International Lottery & Totalizator Systems, Inc. and IFT Leasing Limited ILTS DATATRAK ON-LINE TURNKEY LOTTERY SYSTEM U.K. CHARITABLE LOTTERY PURCHASE AGREEMENT CONTRACT NUMBER: 6295 ---- ILTS DATATRAK ON-LINE TURNKEY LOTTERY SYSTEM - UK CHARITABLE LOTTERY PURCHASE AGREEMENT This purchase agreement (herein referred to as "Agreement"), dated September 8, 1999 is entered into between International Lottery & Totalizator Systems, Inc., a California corporation, United States of America having offices at 2131 Faraday Avenue, Carlsbad, California 92008, USA (herein referred to as ILTS or "Supplier") and IFT Leasing Limited, an English Corporation, (herein referred to as IFT or "Customer") for an on-line lottery system and associated terminals to be installed in Great Britain. Attached hereto and made part of this Agreement are the following schedules and appendices: Schedule 1 Prices and Payment Schedule Schedule 2 Project Schedule and Customer Acceptance Schedule 3 Hardware Products To Be Delivered Schedule 4 Software Products To Be Delivered Schedule 5 Services To Be Delivered Schedule 6 Spare Parts To Be Delivered Appendix A Final Acceptance Certificate ARTICLE 1.0 DEFINITIONS 1.1 Hardware Products means the central system hardware, associated third-party system, software and ILTS terminals as described in Schedule 3. 1.2 Software Products means the central system software, terminal and gaming software as described in Schedule 4. 1.3 Services means the related services (such as documentation, training, installation and on-site support) as described in Schedule 5. 1.4 Deliverables means all of the Hardware Products, Software Products, Services and Spare Parts purchased by Customer as priced in Schedule 1. 1.5 Shipment of Products means the date the Hardware Products leave Supplier's facility en route to Customer's single, central designated site and as recorded on Supplier's shipping documentation. Page 1 1.6 Final Acceptance means that all Deliverables have been delivered and accepted by Customer as conforming to the final acceptance criteria as set forth in Schedule 2. 1.7 Go-live means the date on which sales commence on the Hardware and Software Products, which date shall be agreed upon by IFT and ILTS. 1.8 ILTS includes ILTS and any entity controlled by ILTS through stock ownership or otherwise. 1.9 Central Site means the site where the Central System shall be located and where ILTS (UK) will maintain its corporate offices in the United Kingdom. 1.10 Central System means Central System Hardware and Software in the Central Site. 1.11 Communications Network means a combination of goods and services, including but not limited to radio, telephone, satellite or other technologies and goods and services provided by local carriers, to form an on-line real-time link between Central System and Terminals. 1.12 Retail Agents means those agents who have been authorized and have entered into contracts as required for this purpose, at whose sites the Terminal are situated. 1.13 System means the lottery processing system provided by ILTS in accordance with this Agreement. 1.14 Terminal means the ILTS DATAMARK XClaim terminal. 1.15 "Critical Defect" means a defect that causes the system operation to be interrupted which requires a manual restart or a corruption of data which renders the total system unusable for the specified operation. 1.16 "Major Defect" means a defect that causes erroneous calculated results or a required system functionality to be inoperable. Page 2 Purchase Agreement - -------------------------------------------------------------------------------- ARTICLE 2.0 PURCHASE AND SALE OF DELIVERABLES For the total purchase price as set forth in Schedule 1, Supplier agrees to sell and Customer agrees to purchase the Deliverables as described in Schedules 3, 4, 5 and 6. The payment terms are as set forth in Schedule 1 and the timetable for the delivery, installation and acceptance of the Deliverables is set forth in Schedule 2. Customer acknowledges that Supplier is the exclusive provider of goods and services for Customer's on-line lottery operations in Great Britain over the term of the Agreement. ARTICLE 3.0 PATENTS, COPYRIGHTS AND TRADE SECRETS If any action or proceeding is brought against Customer for alleged infringement of any letter patent or an infringement of proprietary rights (such as trade secrets) by the Deliverables or any part thereof or if any allegation of copyright infringement is made and if Customer gives Supplier notice in writing without undue delay of any such allegations of infringement or of the institution of any such action or proceeding and permits Supplier to answer the allegation and to defend the action or proceeding and also if Customer gives Supplier all information, reasonable assistance and authority required for those purposes and does not by any action (including any admission or acknowledgment) or omission prejudice the conduct of such defense then: A. Supplier will at its own election either effect any settlement or compromise which it deems reasonable or at its own expense defend any such action or proceeding, and B. Supplier will pay the cost of any settlement or compromise effected by Supplier of all damages and costs awarded against Supplier and/or Customer in any such action or proceeding, and C. If the Deliverables or any part thereof is in such action or proceeding held to constitute infringement and is the subject of an injunction restraining its use or any order providing for its delivery or destruction, Supplier shall at its own election and expense either: i) procure for Customer the right to retain and continue to use the Deliverables or part thereof; ii) modify the Deliverables or part thereof so that it becomes non-infringing, or, iii) if the remedies in Sections (i) and (ii) are not reasonably possible, permit Customer to obtain replacement lottery Page 3 Purchase Agreement - -------------------------------------------------------------------------------- terminals, central system or software which are not an infringement, and be responsible for actual replacement costs to Customer as a result thereof, subject to the terms and limitations of this Agreement. Supplier shall not be under any of the obligations specified pursuant to sub-paragraph C. above in either of the following events: A. any infringement or allegation thereof is based upon the use of the Deliverables or part thereof in combination with equipment or other devices not made or supplied by Supplier or in any manner for which the Deliverables or part thereof was not supplied; or B. Customer enters into any compromise or settlement in respect of any such action or proceeding without Supplier's prior written consent. The provisions of this Article 3.0 shall survive termination or expiration of this Agreement. ARTICLE 4.0 EXCLUSIVITY AND CONFIDENTIAL INFORMATION 4.1 Exclusivity. For so long as this Agreement remains in effect: A. Supplier shall not supply Computer hardware, software or services to any person or entity other than Customer for use for or in connection with the conduct of a lottery or similar gaming programs (not including sports betting such as horse racing or football) anywhere in England, Scotland and Wales, and B. Customer shall not obtain computer hardware, software or services (which are available or reasonably can be made available from Supplier) for use for or in connection with the conduct of a lottery or similar gaming programs anywhere in England, Scotland and Wales from any person or entity other than Supplier. This Section 4.1 and the exclusivity provisions herein shall terminate and be of no further effect on the second anniversary of the date of this Agreement if, by such second anniversary, the System is not in place and operating. 4.2 Confidential Information. Customer acknowledges that information relating to the technical and operational aspects of the Deliverables is confidential to Supplier. Customer shall not, and shall take all reasonable steps to insure that its employees and agents do not, without the prior written consent of Supplier, divulge any information relating to technical or operational aspects of the Deliverables or the terms of this Agreement to any third party except as required by law. Page 4 Purchase Agreement - -------------------------------------------------------------------------------- Supplier acknowledges that Customer's technology and all aspects of the operation of Customer's business is confidential to Customer and that any disclosure thereof could not be rectified. Supplier shall not, and shall take all reasonable steps to insure that its employees and agents do not, without the prior written consent of customer, divulge any information relating to Customer's system or the terms of this Agreement to any third party except as required by law. Customer agrees not to disclose any confidential information relating to Supplier's Hardware or Software Products for a period of eight (8) years after the term of this Agreement. Customer and Supplier agree that mutual strict confidentiality will apply to the terms and conditions of this Agreement, except as required by law. ARTICLE 5.0 TITLE, POSSESSION, QUIET ENJOYMENT, RISK OF LOSS Risk of loss or damage in respect of the Hardware Products shall pass to Customer upon shipment by Supplier of each item of Hardware Products. Title to each item of Hardware Products shall pass to Customer upon shipment to such site as has been specified by Customer, provided that Customer's payments are up to date in accordance with the payment schedule set out in Schedule 1, Section 1.2.1. Customer agrees that until the purchase price for the Hardware Products is paid in full: A. Supplier shall retain a security interest in the Hardware Products, and B. Supplier shall have all the remedies of a secured party under the Arizona Uniform Commercial Code or other applicable Arizona law (including the filing of any U.C.C. notices) and Supplier may, upon default by Customer, require Customer to assemble the secured property and turn it over to Supplier at a place designated by Supplier. Customer hereby expressly waives and releases all rights to have any of the secured property marshalled upon the exercise of any remedies under this section of the Agreement, and, C. the Hardware Products shall be installed and used and shall not be removed from Customer's place of business without the prior written consent of Supplier, and, D. Customer shall not sell, pledge, mortgage, assign, transfer, lease, sublet, loan, license, part with possession of, or encumber the Deliverables or any part thereof or permit or suffer or attempt to do any of the acts aforesaid without the prior written consent of Supplier. Page 5 Purchase Agreement - -------------------------------------------------------------------------------- E. Customer will provide proof of adequate insurance to cover the loss of Hardware Products during the period of installation prior to final payment. Until payment in full of the total purchase price as specified in Schedule 1, Customer: A. will comply with all laws relating in any way to the use, operation or maintenance of the Deliverables; B. will grant Supplier the right to inspect the Deliverables at any reasonable time upon due notice; and C. shall not make any alterations, additions, modifications or improvements to the Hardware Products without the prior written consent of Supplier. After payment in full of the total purchase price as specified in Schedule 1, Supplier shall take no action which impairs Customer's right to the possession and use of the Deliverables except to the extent required to protect Supplier's interest in software and confidential information. ARTICLE 6.0 TAXES Prices and fees are exclusive of, and Customer, as the importer, is responsible for, all applicable taxes, duties, assessments and value added tax (VAT) on the sale, license or use of the Deliverables. Supplier is responsible for all U.S. taxes and export taxes and Customer is responsible for all import taxes required to deliver the Deliverables to the Customer's facilities. ARTICLE 7.0 IMPORTATION, SHIPPING, FREIGHT AND INSURANCE Hardware Products will be delivered Free Carrier (FCA according to Incoterms 1990) Supplier's facilities. Customer will be responsible for transportation charges and for insurance on the Hardware Products at rates in effect at the time of this Agreement. Customer may elect to have Supplier obtain on its behalf such insurance by providing specific written notice to Supplier. Supplier will arrange for all of the necessary documentation for shipping goods. If shipping is routed by Customer, Supplier will honor those commitments. If the selection of routing of shipments is made by Supplier, Supplier will make reasonable efforts to obtain the best service at the most reasonable costs for both parties. Supplier can also supply a list of potential freight forwarders if requested by Customer. Supplier will arrange for all shipping documents and export licenses (as required) to be generated and processed. To assist Customer and Supplier, Supplier maintains: Page 6 Purchase Agreement - -------------------------------------------------------------------------------- A. a database of documentation in the management of incoming and outgoing shipments (purchase orders, return for repairs and project management reports), and B. contacts with United States government agencies to keep abreast of all new or changed export regulations, and C. contracts with local customs house brokers who assist in the clearance of incoming shipments through United States Customs. Supplier will prepare and process all necessary paperwork to obtain validated export licenses and monitors the use thereof. Where applicable, Customer must apply for and obtain a valid import license. All duties, import/export fees and associated costs of shipment are Customer's responsibility. ARTICLE 8.0 TRAVEL AND PER DIEM Supplier is responsible for all project air travel and Supplier's expenses to perform on-site services set out in Schedule 5. ARTICLE 9.0 PAYMENT METHOD Invoices will be transmitted to Customer by facsimile on the date shown on the invoice and this is the date of invoice. Upon special request, the original of the invoice can be mailed to Customer for backup or for required business practice. Customer invoices are to be sent to: Interactive Flight Technologies, Inc. 1811 Chestnut Street Philadelphia, Pennsylvania 19103 USA Attention: James Fox and payment shall be made by wire transfer to: International Lottery & Totalizator Systems, Inc c/o First National Bank 1620 Fifth Avenue San Diego, CA 92101 U.S.A. ABA # 122 238 938 Account No. 5502 1158 Payments past due thirty (30) days will bear a late charge fee at the rate of one and one-half percent (1.5%) per month or portion thereof accumulative. Page 7 Purchase Agreement - -------------------------------------------------------------------------------- Payment is deemed to have been effected on the day when Supplier's bank account has been credited with the payment. All invoices are payable in U.S. Dollars ARTICLE 10.0 WARRANTY 10.1 Supplier Hardware Products Warranty. Supplier warrants that all Hardware Products will be new and not used nor reconditioned and that Supplier will cause all manufacturer's warranties of Hardware products to be transferred to and for the benefit of Customer. 10.2 Supplier Software Products Warranty. Supplier warrants to Customer that the Supplier Software Products designated as warranted will conform to the specifications in Schedule 4 and all other documentation provided by Supplier for or in connection with the Software Products, when operated in conjunction with properly operating Hardware Products as specified in Schedule 3. Supplier warrants that the Software Products do not contain any "kill" or other such disabling devices. The warranty period for Supplier Software Products is twelve (12) months, commencing on the date of Final Acceptance. Supplier does not warrant that the execution of Software shall be uninterrupted or error-free. 10.3 Third Party Vendor Products Warranty. Supplier warrants the proper performance of all third-party vendor products to the same extent as if they were manufactured by Supplier. For third-party vendor software products utilized as part of or incorporated into Supplier's software products, Supplier agrees to provide first level support of the software and use its best efforts to fix, cause to have fixed, or provide a work around solution for any defects in the third-party vendor's software. 10.4 System Coordination. Supplier warrants that the Hardware Products and Software Products are fully compatible and will function together as a unified computer system to perform the functions contemplated by this Agreement, subject to the limitations set forth herein. 10.5 Year 2000 Compliance. Supplier warrants that the System is Year 2000 compliant. 10.6 Limitation of Warranty. The warranties provided in sections 10.1, 10.2 and 10.3 are limited warranties and do not apply to: A. conditions resulting from improper use, by anyone other than Supplier or its representatives of Supplier Hardware or Software Products or operation of Supplier Hardware outside the specified environmental conditions, or Page 8 Purchase Agreement - -------------------------------------------------------------------------------- B. conditions resulting from causes, not caused by Supplier or its representatives, external to Supplier Hardware or Software Products after delivery, or C. conditions resulting from modifications to Supplier Hardware or Software Products other than modifications made by Supplier, or D. consumable components such as lamps, fuses, printheads and other expendable items above their minimum specified lives. 10.7 Documentation, Training and Other Services. Supplier warrants that the Services delivered will be provided in a workmanlike manner in accordance with Schedule 5. ARTICLE 11.0 SOFTWARE LICENSE Customer receives no right to use any Software Product except by a grant of a software license by Supplier. Title to the Software Products and source code shall remain with Supplier. 11.1 Grant of Software License. Supplier grants Customer a software license for the use of Software Products in Great Britain as provided below. This software license is granted per the central system as defined in Schedule 3. Supplier grants no software licenses whatsoever, either explicitly or implicitly, except by this contract for a software license, for Software Products supplied by Supplier with Hardware Products or in connection with Services. Customer agrees to comply with and not deliberately modify or make inoperable any feature which is incorporated in the Software Products to prevent access to software which has not been licensed to Customer. 11.2 Software Execution. Customer, Customer's representatives and agents may execute the Software Products and may load, copy or transmit the Software Products, in whole or in part, only as necessary for execution. Customer, Customer's representatives and agents may make archival copies of the Software Products as provided under the copyright laws of the United States. Customer, Customer's representatives and agents agree to reproduce all legal notices, including but not limited to proprietary notices and notices mandated by governmental entities, on all complete or partial copies or transmissions of the Software Products. Software Product usage may not exceed the license or the number of users for which Customer is licensed. 11.3 Access to Software Products. Customer may make the Software Products available to its representatives, employees and agents to the extent necessary or appropriate to exercise its license hereunder. Page 9 Purchase Agreement - -------------------------------------------------------------------------------- 11.4 Personal, Non-exclusive License. Customer's license is personal and non-exclusive, and may not be transferred without Supplier's express written consent but may be assigned to subsidiaries or controlled affiliates of Customer upon notice to Supplier, but without its prior consent. 11.5 License Limitation, Reverse Engineering. Software Products are proprietary to Supplier. Supplier transfers no title to or ownership of any Software Products to Customer or to any third party. Except as explicitly set forth in these terms and conditions, Customer shall not execute, use, copy or modify the Software Products nor disclose any part of the Software Products. Customer shall not decompile or reverse assemble the Software Products, or analyze or otherwise examine the Software Products, including any hardware or firmware implementation of the Software Products for the purpose of reverse engineering. 11.6 License Termination. Customer, Customer's representatives and agents shall use the Software Products only in the ordinary course of their business as an operator. This software license shall commence on the date that the Software Products are delivered to Customer and, except as set forth herein, shall terminate pursuant to the provisions of Article 17 relating to termination. Supplier may terminate any licenses granted and any Software Product orders placed hereunder if Customer neglects or fails in a substantial respect to perform or observe any of its material obligations to Supplier hereunder, and such condition is not remedied within thirty (30) days after written notice has been given to Customer. Termination, whether by Supplier or Customer, shall apply to all versions of the Software Products licensed for execution hereunder. Before any termination by Customer becomes effective, and in the event of any termination by Supplier, Customer shall: A. return to Supplier any license furnished by Supplier by this Agreement or under any separate agreement, and B. destroy all copies of all versions of the Software Products in Customer's possession, and C. remove all portions of all versions of the Software Products for any adaptations made by Customer and destroy such portions, and D. certify in writing that all copies, including all those included in Customer's adaptations, have been destroyed. Page 10 Purchase Agreement - -------------------------------------------------------------------------------- ARTICLE 12.0 HARDWARE SUBSTITUTION Customer will permit the substitution of component parts of the Hardware Products and variations from the design characteristics and/or performance capabilities of the Hardware Products so long as such substitution is necessary due to factors beyond Supplier's reasonable control such as unavailability of a component or industry design changes and/or the variations do not have a negative effect on performance or functional capabilities. ARTICLE 13.0 INDEMNITIES AND LIMITS ON LIABILITY Each party hereby indemnifies and holds harmless and shall keep the other party indemnified and held harmless to the extent permitted under existing law, from and against all damages, costs, actions, claims and demands whatsoever, including reasonable legal fees, which may be recovered or made against the first party by any person including members of the public, for any injury they may sustain (i) while in or upon any building or structure or any part thereof or any other location in which the Deliverables or any part thereof is installed or from which they are operated or in connection with a party's use or operation of the Deliverables or any part thereof or (ii) any act or omission of the other party or its employees or agents unless the injury is caused by the first party or the first party's employees willful or negligent act or omission, provided that, this indemnity shall not extend to any injury suffered by the first party's staff which shall be covered by insurance arranged by the first party at its cost. Customer acknowledges that the Deliverables may contain magnetic memories or other devices in which substantial data may be accumulated. Supplier shall not become liable to Customer or anyone else if any such data is lost or rendered inaccurate, other than by the acts or omissions of Supplier or any of its agents, regardless of the cause of any such loss or inaccuracy. Supplier shall not be liable to Customer or any other person in tort for any act, omission, occurrence or event causing loss, damage or injury to person or property in connection with Supplier's obligations under this Agreement, or its exercise of any rights or privileges hereunder, unless caused by gross negligence or intentional misconduct of Supplier. In no event, whether in contract, warranty, tort (including negligence), or otherwise, shall either party be liable to the other or any other person for indirect, incidental, special or consequential damages including, but not limited to, loss of actual or anticipated profits or revenues, loss of use of products, loss of data, cost of capital, cost of substitute products, facilities or services, downtime costs, or claims of the other party for such damages, including in connection with providing or failing to provide the Deliverables or arising out of the use of the Deliverables. Supplier's liability to Customer for any cause whatsoever shall be limited to the lesser of one million U.S. Dollars ($1,000,000) or the purchase price paid to Supplier for the Deliverables that are the subject of Customer's claim. This limitation will apply regardless of the form of action, whether contract or tort, including without limitation negligence. The foregoing limitation does not apply to damages resulting from personal injury caused by Supplier's negligence as limited above. Page 11 Purchase Agreement - -------------------------------------------------------------------------------- Reference is made to Schedule 2, Section 2.2. Any action against Supplier must be brought within twelve (12) months after the cause of action arises. ARTICLE 14.0 LIABILITIES AND REMEDIES A. Supplier's entire liability and Customer's remedies are as set forth in this article, except as otherwise provided in this Agreement. These remedies are the Customer's exclusive remedies and are in lieu of any other remedy at law or in equity. In all situations involving performance or non-performance of Software Products furnished hereunder, Customer's remedy is (i) repair or replacement by Supplier (at Supplier's option) of defective Supplier Hardware Products if notified by Customer of the defect within the warranty period, or (ii) remedy by Supplier of a non-conformance of Software during the stated warranty period. Subject to Subparagraph B, if Supplier fails to perform its warranty or service responsibilities, or if Customer has any other claim related to Deliverables purchased or licensed from Supplier, Customer shall be entitled to recover only direct damages and only up to the limits set forth in this Agreement. B. If after a reasonable period under the circumstances (not to exceed 60 days) after written notice from Customer, Supplier is unable to effect a repair or replacement or a remedy which cures a Critical Defect or Major Defect for which Supplier is responsible under this Agreement, Customer shall be entitled to have access to and to use all portions of the System (including the Source Code held in escrow under Article 16.0) to endeavor by itself or its contractors to effect such a cure, and the rights obtained by Customer for such purpose under its software license with Supplier shall continue on a perpetual basis. If Customer proceeds under this Paragraph, it shall be entitled only to recover direct damages suffered thereby, subject to the terms and limits of this Agreement. ARTICLE 15.0 FORCE MAJEURE 15.1 Either party shall not be liable for any delay in performing any obligation hereunder for any cause beyond its reasonable control, including but not limited to strike an labor disputes, accidents, war, invasion, riot, rebellion, civil commotion, insurrection, any act (including without limitation any injunctive or restraining act) or judgement of any court granted in any legal proceeding, fire, wind, lightning, explosion, act of government or faults or delays by subcontractors to provide service due to circumstances such as those cited above but not including increased costs (Force Majeure). Page 12 Purchase Agreement - -------------------------------------------------------------------------------- 15.2 If either party is delayed in performance due to Force Majeure, it shall as soon as possible give the other party written notice of its claim for an extension of time. The other party shall grant reasonable extension(s) of time for completion of the Agreement or any part thereof, provided that all reasonable action has been taken by the delayed party to prevent such delay from extending the time for completion of the delayed part's obligations hereunder. ARTICLE 16.0 ESCROW OF SOURCE CODE Supplier, accompanied by, at Customer's option, Customer or Customer's representative, shall deliver a copy of the Software Products source code (Source Code) and associated design specifications to a designated escrow agent located in England. The Source Code and associated design specifications will be held by such escrow agent to be immediately released from escrow to Customer only if Supplier: A. ceases conducting business in the normal course, or B. has an action brought against it by its creditors for its inability to pay its debts, or C. enters into compulsory or voluntary liquidation (other than for the purposes of effecting a reconstruction or amalgamation in such manner that the company resulting from such reconstruction or amalgamation, if a different legal entity, shall agree to be bound by and assume the obligations of Supplier under this Agreement), or D. compounds with or convenes a meeting of its creditors, or E. has a receiver or manager or an administrator appointed of its assets, in each case, which is not discharged or dismissed with sixty (60) days, or F. ceases for any reason to carry on business. G. has failed to perform its obligations under this Agreement and is subject to a notice and proceedings by Customer under Article 14.0B. Such holding of escrow materials will continue for the term of the Facilities Management Agreement between ILTS (UK) and IFT Management Limited, Contract No. 6296, dated September 8, 1999 ("Facilities Management Agreement"). The Escrow Agent fees will be equally shared between Customer and Supplier. Page 13 Purchase Agreement - -------------------------------------------------------------------------------- ARTICLE 17.0 TERMINATION 17.1 IFT may terminate this Agreement if: 17.1.1 ILTS should enter into liquidation or receivership, or be declared bankrupt, or enter into any composition or similar arrangement with its creditors, said termination to take effect immediately upon receipt of written notice of termination; or 17.1.2 ILTS breaches a material provision of this Agreement and fails to cure such breach within forty-five (45) days (or such longer period of time as is provided in this Agreement) after receipt by ILTS of written notice specifying such breach; or; 17.2 ILTS may terminate this Agreement if: 17.2.1 IFT should enter into liquidation or receivership, or be declared bankrupt, or enter into any composition or similar arrangement with its creditors, said termination to take effect immediately upon receipt of written notice of termination by IFT; 17.2.2 IFT breaches a material provision of this Agreement and fails to cure such breach within forty-five (45) days (or such longer period of time as is provided in this Agreement) after receipt by IFT of written notice specifying such breach; or, 17.3 In the event of termination of this Agreement by either party, the terminating party may cease its performance hereunder and may (a) recover from the other party the unpaid balance of all sums due under this Agreement as of the date of such termination, (b) recover from the other party any actual damages due to the default, including but not limited to its reasonable attorneys' fees and judicial costs incurred in enforcing its rights hereunder, and, (c) terminate the other party's rights under this Agreement. ARTICLE 18.0 CHANGE CONTROL PROCEDURE Changes to this Agreement will be controlled, documented, defined and implemented utilizing a consistent process and form to be mutually agreed upon between Supplier and Customer. Page 14 Purchase Agreement - -------------------------------------------------------------------------------- ARTICLE 19.0 SEVERABILITY AND AMENDMENT 19.1 Severability. The parties acknowledge that the provisions contained herein (including without limitation any relating to confidential information) are required for the reasonable protection of the business interest of the parties. The illegality, invalidity or unenforceability of any provision of this Agreement under any applicable law shall not effect its legality, validity or enforceability under the law of any other jurisdiction nor the legality, validity or enforceability of any other provision, and to this end, the provisions thereof are declared to be severable. 19.2 Amendment. Each of the parties agrees that this Agreement will be amended to the extent necessary to comply with all governmental laws, regulations and directives ARTICLE 20.0 TERM Except as otherwise provided in Articles 3.0, 4.0 and 11.0, this Agreement shall be co-terminus with the Facilities Management Agreement. ARTICLE 21.0 ENTIRE AGREEMENT This Agreement embodies the entire agreement between the parties and supersedes in its entirety all previous understandings, agreements, and representations between the parties oral or written with respect to the subject matter hereof. This Agreement may not be amended or modified except by an instrument in writing duly executed on behalf of the parties. Any waiver of any breach of this Agreement shall be limited to the particular instance and shall not operate or be deemed to waive any future breach. Any representation or statement not contained in this Agreement shall not be binding upon Supplier as a warranty or otherwise. ARTICLE 22.0 ASSIGNMENT This Agreement shall not be assigned by either party without the prior written consent of the other party. Notwithstanding the foregoing, it is agreed that either party may assign its rights under this Agreement ("Assignor") to one of its affiliates authorized to do business in Great Britain (the "Assignee"), provided that: (a) the full and faithful performance by the Assignee of its obligations under the Agreement in accordance with the terms and conditions of the Agreement shall unconditionally be guaranteed by the Assignor. In the event of failure of the Assignee to perform any obligations under this Agreement, the Assignor shall immediately perform such obligations, and, (b) the non-assigning party shall receive copies of all documentation evidencing such assignment. Page 15 Purchase Agreement - -------------------------------------------------------------------------------- ARTICLE 23.0 GOVERNING LAW This Agreement shall be governed by and construed in accordance with the substantive laws of the State of Arizona. The venue for any proceeding brought to enforce or interpret this Agreement shall be Phoenix, Arizona, and the parties to this Agreement consent to the jurisdiction of the federal and state courts located in the State of Arizona. The provisions of the United Nations Convention on Contracts for the International Sale of Goods is applicable to this Agreement. ARTICLE 24.0 NOTICES, NOTIFICATION NAMES AND ADDRESSES Any notice given hereunder shall be deemed sufficient if given in writing by a party to the other party, to the attention of the Chief Executive Officer (or such individual as a party may designate in writing), of such party in either case directed to the addresses set forth below (or such other notice as either party may specify using like notice); and shall be deemed delivered and received upon actual receipt, or twenty-four (24) hours after dispatch by facsimile transmission, with receipt of facsimile confirmation, provided that an original copy of said notice is mailed by registered mail no later than the next business day following dispatch by facsimile. 24.1 Customer Information Name: IFT Leasing Limited Address: c/o Richards Butler Beaufort House 15 St. Botolph Street London, England EC 3A 7EE Contact: David Boutcher 24.2 Supplier Information Name: International Lottery & Totalizator Systems, Inc. Address: 2131 Faraday Avenue Carlsbad CA 92008-7297 USA Telephone: (001) 760-931-4000 Fax: (001) 760-931-1789 ARTICLE 25.0 HEADINGS Section headings of this Agreement are for convenience only and shall neither form a part nor affect the interpretation hereof. Page 16 Purchase Agreement - -------------------------------------------------------------------------------- ARTICLE 26.0 APPOINTMENT OF PROJECT MANAGER Supplier shall appoint at its own cost a suitably qualified and competent person as a Project Manager to plan and oversee the scheduling and control of all tasks to be performed by the Supplier and for all coordination with any third parties involved. ARTICLE 27.0 AUTHORIZATION TO EXECUTE AGREEMENT Each party has full power and authority to enter into and perform this Agreement, and the person signing this Agreement on behalf of each party has been properly authorized and empowered to enter into this Agreement. Each party acknowledges it has read this Agreement, understands, and agrees to be bound by it. Customer: Supplier: IFT Leasing Limited International Lottery & Totalizator c/o Richards Butler Systems, Inc. Beaufort House 2131 Faraday Avenue 15 St. Botolph Street Carlsbad, California 92008-7297 London, England EC 3A 7EE United States of America James W. Fox M. Mark Michalko - ------------ ---------------- Signed Signed James W. Fox M. Mark Michalko - ------------ ---------------- Printed Name Printed Name President President - ------------ ---------------- Title Title Page 17 Page 18 [Schedules intentionally deleted] Page 19 APPENDIX A FINAL ACCEPTANCE CERTIFICATE IFT hereby certifies to ILTS that the Final Acceptance as specified under this Agreement has been successfully completed. Certificate issued by, for and on behalf of IFT: - -------------------------------------------------- --------------------- Signed Date: Page 20 EX-10.37 9 MATERIAL CONTRACTS ILTS, UK Ltd. and IFT Management Limited ILTS DATATRAK ON-LINE TURNKEY LOTTERY SYSTEM U.K. CHARITABLE LOTTERY FACILITIES MANAGEMENT AGREEMENT CONTRACT NUMBER: _6296__ UK CHARITABLE LOTTERY FACILITIES MANAGEMENT AGREEMENT This Facilities Management Agreement (herein referred to as "Agreement"), dated September 8, ___________, 1999 is entered into between ILTS UK Ltd., a United Kingdom corporation having offices at 6 Lodge Close, Cowley, Upbridge UB8, 2FS, England (herein referred to as "ILTS UK" or "Supplier") and IFT Management Limited, an English Corporation , (herein referred to as "IFT") for an on-line lottery system and associated terminals to be installed in Great Britain. WHEREAS, IFT is a party to a contract under which it manages certain of the activities and affairs of InterLotto (UK) Ltd. ("Inter Lotto"), an organization granted a certificate by The Gaming Board for Great Britain to manage a society's lottery or a local lottery in pursuance to the Lotteries and Amusement Act of 1976, as amended by the National Lottery etc. Act 1993; WHEREAS, IFT Leasing Limited ("IFT Leasing") has executed a turn key purchase agreement dated September 8_______________ , 1999 with International Lottery & Totalizator Systems, Inc. (ILTS) pursuant to which ILTS will provide IFT Leasing with Terminals, a Central System and Games ("Purchase Agreement"), which items IFT Leasing will lease to IFT for use for the Inter Lotto lotteries; NOW THEREFORE, in consideration of the mutual promises contained herein and intending to be legally bound, IFT and ILTS UK agree as follows: ARTICLE 1.0 INTRODUCTION 1.1 DEFINITIONS 1.1.1 "Central Site" shall mean the site where the Central System shall be located. 1.1.2 "Central System" shall mean Central System Hardware and Software in the Central Site. 1.1.3 "Central System Hardware" and "Peripheral Equipment" shall mean a system with the required peripheral equipment necessary to operate the computerized lottery processing system. 1.1.4 "Communications Network" shall mean a combination of goods and services, including but not limited to radio, telephone, satellite or other technologies and goods and services provided by local carriers, to form an on-line "real time" link between the Central System and the Terminals. 1.1.5 "Effective Date" shall mean that date this Agreement is signed by duly authorized representatives of both parties. 1.1.6 "Games" shall mean the on-line lottery game software, which shall include a daily numbers game and a lotto type game. 1.1.7 "Go-live Day" shall mean the date on which sales commence on the System, which date shall be agreed upon by IFT and ILTS, subject to Section 2.2 herein. 1.1.8 "Retail Agents" shall mean those agents who have been authorized and entered into contracts as required for this purpose, at whose sites the Terminals are situated. 1.1.9 "Software" shall mean, ILTS' DataTrak Central System and Communications Network software and firmware, or any third- party software and firmware which has been licensed to ILTS, as may be made available for the operation of the System during the Term of this Agreement and any extensions thereof, as such software may be modified by ILTS or said third party from time to time. 1.1.10 "System" shall mean the lottery processing system provided by ILTS in accordance with the Purchase Agreement, comprised of equipment and Software as described in Section 1.2 (a). 1.1.11 "Terminal" shall mean the ILTS XClaim terminal. 1.1.12 "Installed Terminals" shall mean the number of ILTS terminals which are shown as 'active' (i.e. able to sell lottery tickets) on the ILTS DataTrak central system database at the end of the accounting week. 1.1.13 "Weekly On-Line Net Sales" shall mean the total weekly on-line sales for all retailers, less cancellations. 1.1.14 "Average Weekly On-line Sales" shall mean the Weekly On-Line Net Sales divided by the number of Installed Terminals at end of accounting week. 1.1.15 "Critical Defect" means a defect that causes the system operation to be interrupted which requires a manual restart or a corruption of data which renders the total system unusable for the specified operation. 1.1.16 "Major Defect" means a defect that causes erroneous calculated results or a required system functionality to be inoperable. 1.2 SCOPE OF WORK TO BE PERFORMED (a) Commencing on the Go-live date, ILTS UK shall maintain and operate the System on behalf of IFT, all as more specifically set forth herein. Said System shall be comprised of the following: (i) the Central System Hardware and Peripheral Equipment; (ii) the number of Terminals as determined under the Purchase Agreement; (iii) the Communications Network (operational management); and, (iv) the Software; all as more fully described in the Purchase Agreement. (b) ILTS UK shall provide IFT with the following services, as more specifically set forth herein: (i) operation of the System, including without limitation the operation of the Central System and the management of the Communications Network, (ii) training of Retail Agent trainers and provision of related documentation; (iii) installation of terminals at Retail Agents locations, and (iv) hardware and software maintenance. (c) It is the intention of the parties that ILTS UK shall perform work and services reasonably required properly to operate System and this Agreement shall be construed accordingly. (d) ILTS UK shall perform the all services to be provided under this Agreement in a professional and competent manner, consistent with standards in the trade for quality services. ARTICLE 2.0 IMPLEMENTATION 2.1 CENTRAL SITE.. In coordination with ILTS UK, IFT will lease a Central Site and notify ILTS UK within forty-five (45) days of the Effective Date, which Central Site will be equipped and furnished in a manner mutually agreed upon by IFT and ILTS UK. 2.2 START-UP INSTALLATION. ILTS UK shall cause the installation of the Central System and Peripheral Equipment at the Central Site, and the Terminals at locations of Retail Agents. The parties shall use their best efforts to implement the System in order that sales shall commence no later than one hundred eighty (180) days from the later of: (i) the date that ILTS UK receives the names and locations of a minimum of one thousand (1000) approved and appointed Retail Agents from IFT; or, (ii) the date that ILTS UK receives IFT's written approval of ILTS UK's Software specifications; or; (iii) the date upon which there is a Communications Network available to it to operate the System. ILTS UK shall install by the Go-live date at least eighty percent (80%) of those approved and appointed Retail Agents whose names have been received by ILTS UK on the date set forth in paragraph (i) above. No later than ninety (90) days after the Go-Live date, IFT shall supply ILTS UK with the names of the remaining approved Retail Agent locations representing the balance, if any, of the number of terminals, excluding spare terminals, ordered under the Purchase Agreement. 2.3 RETAIL AGENT LOCATIONS. ILTS UK and IFT shall mutually determine the criteria for the selection of Retail Agent locations, taking into account such factors as economic feasibility, the ability to meet minimum sales objectives, and the ability to make use of available physical and communications infrastructure. ILTS UK shall review those Retail Agents proposed for approval and appointment by IFT using the aforementioned criteria, and shall make recommendations to IFT regarding approval and appointment based upon that review. Notwithstanding the foregoing, the selection of Retail Agents shall be IFT's responsibility. 2.4 TRAINING. ILTS UK shall provide orientation training to IFT personnel and to Retailer Trainers concerning the operation of Terminals, including the provision of training material and Terminal operating manuals. Such training shall be performed in Great Britain at locations and times to be agreed upon by the parties. ILTS UK shall not be responsible for the travel and living expenses of IFT personnel or Retail Agents in connection with such training. 2.5 MARKETING LAUNCH SUPPORT. IFT shall purchase point-of-sale materials for each Retail Agent location at a minimum limit of US $25 per Retail Agent location. ARTICLE 3.0 ILTS UK ON-GOING OPERATIONS 3.1 CENTRAL SITE. ILTS UK shall be responsible for staffing and operating the Central Site, and for providing, or causing to be provided, maintenance for all equipment contained therein, including, but not limited to, Central System Hardware and any communications equipment. 3.2 COMMUNICATIONS NETWORK. ILTS UK shall be responsible for maintaining, or causing to be maintained, the Communications Network, and for coordinating with the necessary authorities for the maintenance of their portion of the Communications Network, if necessary. All costs, such as recurring monthly charges, new installation and maintenance, associated with the retailer communications network are the responsibility of IFT. 3.3 ON-GOING INSTALLATION. ILTS UK shall install additional Terminals, in site-ready locations, requested by IFT, in a timely manner. Additional terminals cost to IFT is reflected in the Purchase Agreement . 3.4 ON-GOING TRAINING. IFT or their designee shall provide training to new Retail Agents and refresher training to existing Retail Agents after Go-live concerning the operation of Terminals. 3.5 TERMINAL-MAINTENANCE. ILTS UK shall be responsible for providing, or causing to be provided, maintenance and repair of the Terminals including, but not limited to, providing for the operation of the Retail Agent help desk (HOTLINE), provision of field repair service, staffing, equipping and operation of a repair depot(s) and provision of depot(s) repair service. ILTS UK will accumulate and periodically provide to IFT, information on Retail Agent problem calls and their resolution. IFT will also promptly procure spare parts from ILTS upon submission of a purchase request by ILTS UK. IFT purchase and maintain a reasonable spare terminal complement for ILTS UK use. 3.6 CONSUMABLES. IFT shall provide and deliver, or cause to be delivered to Retail Agents, all on-line lottery ticket stock and play slips necessary to play the lottery games provided under the Purchase Agreement. 3.7 Access to On-line Lottery System. Through ILTS' DataTrak Central System Software package, ILTS UK shall provide IFT with access to information on the status of the System and the Retail Agent network, including periodic reports as agreed upon by the parties. 3.8 PHYSICAL ACCESS TO FACILITY. IFT and its agents will have access, as desired, to the facilities where the System is maintained. IFT will provide, in advance, notification to ILTS UK of those persons authorized to enter the facilities where the System is maintained. Unauthorized persons must be accompanied by IFT or ILTS authorized personnel. 3.9 SOFTWARE SUPPORT 3.9.1 ILTS UK shall maintain an exact and up-to-date copy of the Software at its Great Britain software facility to be confirmed annually upon written request by IFT. 3.9.2 Following implementation of the System, ILTS UK shall make such Software modifications and enhancements, including new Games, as the parties shall agree upon in writing. For modifications and enhancements to existing software, ILTS shall charge standard rates. For new games or features, ILTS will provide IFT with a quotation based on defined requirements. but IFT shall bear all reasonable associated costs with such Software changes. ILTS UK shall provide Software modifications and enhancements as follows: (a) IFT shall use good faith efforts to consolidate its requests for Software enhancements and modifications. ILTS UK shall not, without its written consent, be required to develop or install more than one (1) new Software project at a time; (b) Upon receipt bby ILTS UKILTS UK from IFT of a written request for development of new Software or for Software modifications or enhancements, ILTS UK shall, within sixty (60) days from receipt of the written request, develop Game designs, specifications, procedures and pricing. Upon approval by IFT of said designs, specifications, and procedures and pricing, the parties shall within two (2) weeks set a mutually agreeable implementation schedule; and, (c) If any new, modified or enhanced Software provided in accordance with this Section 3.8 would require additional Central System, Terminal or other equipment or would overload the capacity of the Central System and/or Terminals, the reasonable cost of any such additional hardware and other costs to increase the capacity of the Terminals shall be the responsibility of IFT. 3.9.3 ILTS UK shall maintain a 24-hour telephone software "Hotline" to a reasonable number of experienced ILTS software personnel so that any questions or problems relating to the Software can be addressed at any time. 3.9.4 ILTS UK shall resolve any Software problems and related operation problems caused by Software malfunctions. 3.9.5 IFT hereby acknowledges that the Software support services provided hereunder by ILTS UK shall only apply to: (i) the provision of Software and Software support services for hardware provided by ILTS under this Agreement; and, (ii) the provision of Software support services for ILTS Software or any third party Software provided by ILTS. The Software support services provided by ILTS UK shall not apply to any part of the ILTS Software which has been modified, altered, added to, adjusted or repaired by any unauthorized person and/or not in accordance with ILTS' express prior written approval. 3.10 RELATIONS WITH RETAIL AGENTS 3.10.1 ILTS UK will be responsible for developing and maintaining high quality effective relationships with all Retail Agents. 3.10.2 In order to accomplish this objective, ILTS UK shall provide the following in order to develop and maintain high quality, professional, service-oriented, effective working relationships with Retail Agents: (a) Monitor and use its best efforts to minimize Retail Agents' complaints about training, terminal operations and repair; (b) Provide for the operation of a Retail Agent help desk (HOTLINE); (c) Conduct training programs during start-up for all ILTS UK or ILTS staff working with Retail Agents for the purpose of developing professionalism, a service orientation, and excellent Retail Agent relations; and, (d) Establish an effective procedure for a Retail Agent to express complaints about ILTS UK HOTLINE operation, and training and services of and for ILTS UK to respond to such complaints. 3.11 CONSULTATION SERVICES. At the request of IFT, ILTS and/or ILTS UK shall provide consultation services to IFT as reasonably requested in connection with IFT's efforts of enhancing sales. ARTICLE 4.0 RESPONSIBILITIES 4.1 AUTHORIZATION TO SIGN AGREEMENT AND CONDUCT LOTTERY. IFT warrants that: (i) it is authorized to enter into and execute this Agreement; (ii) the persons executing this Agreement on behalf of IFT are authorized to do so; and (iii) Inter Lotto holds a certificate of authority to conduct a lottery in the United Kingdom. IFT shall maintain its operating agreement with Inter Lotto at all times during the term hereof. 4.2 RETAIL AGENTS. IFT shall be responsible for selecting and appointing Retail Agents, both at implementation of the System and on an on-going basis. IFT shall use its best efforts to provide ILTS UK with the names and locations of at least twoone thousand five hundred (21,5000) approved and appointed Retail Agentss , within at least ninetysixty (960) days following the Effective Date. 4.3 RETAIL AGENT SITES. IFT shall require Retail Agents to prepare and maintain retail Terminal sites in accordance with reasonable ILTS UK retailer site preparation and installation specifications, including but not limited to installation of all specified power and Communication Network hookups, whether telephone or radio related. 4.4 AUTHORIZATIONS. In the event that it is or shall become required by law, the parties shall cooperate as necessary in registering this Agreement with any required governmental entities in Great Britain and in obtaining any other governmental and other third party authorizations as may be required in order that ILTS UK may remit any amounts paid to it hereunder out of Great Britain or convert any such funds, in whole or in part, to United States dollars in a timely manner. 4.5 DRAWINGS. IFT shall be responsible for all activities in connection with conducting winning number draws, including but not limited to game close procedures, acquiring such equipment, services and other materials as may be required to conduct such draws and broadcast on radio/television or publish, winning numbers drawings in conjunction with the on-line lottery Games, and disseminate winning numbers information. 4.6 PERSONNEL AND FACILITIES. ILTS UK shall maintain personnel and resources in order to perform its obligations under this Agreement and in connection with the operation of the on-line lottery processing system in a timely manner. 4.7 COLLECTION AND SETTLEMENT. As between IFT and ILTS UK, IFT shall be responsible for all matters relating to collection of funds from Retail Agents, including all collection procedures. ILTS UK shall provide IFT or their designee with bank settlement (EFT) tapes on a timely basis for collection of funds from retailer accounts. IFT agrees that ILTS UK shall be paid all compensation owed in accordance with Article 5 hereof regardless of whether IFT has collected all amounts due from the Retail Agents. ARTICLE 5.0 COMPENSATION 5.1 In consideration for the on-line lottery management services provided hereunder by ILTS UK, IFT shall pay ILTS UK a Facility Management Fee as set forth in Attachment A hereto. The compensation set forth in Attachment A is exclusive of applicable tax. All payments made to ILTS UK under this Agreement shall be paid in British Pounds. 5.2 ILTS UK shall submit a weekly invoice to IFT following the close of ILTS UK's operating week, which ILTS UK shall define prior to the Go-live day. Said invoice shall indicate the amount of compensation and applicable tax due in accordance with Section 5.1 hereof. IFT shall pay the amount set forth in the invoice within five (5) business days of receipt of the invoice. 5.3 Payments made by IFT hereunder shall be by wire transfer to a bank, which shall be designated by ILTS UK in writing, or by such other means as may be acceptable to ILTS UK. 5.4 If IFT Payments past due thirty (30) days will bear a late charge fee at the rate of one and one-half percent (1.5%) per month or portion thereof accumulative. Payment is deemed to have been effected on the day when Supplier's bank account has been credited with the payment. 5.5 ILTS UK shall be entitled to a cost-of-living increase in fees at each anniversary year of the Agreement. This increase will apply only to the Fixed Weekly Fee in effect at that time . The index used will be a UK standard mutually agreed upon by both parties. ARTICLE 6.0 TERM AND TERMINATION 6.1 TERM. This Agreement shall become effective on the Effective Date and shall expire eight (8) years from the Go-live day ("Term") and shall continue for successive one-year renewal periods unless one party notifies the other party one hundred twenty days (120) prior to the end of the initial term or of a successive term of its intent not to continue the Agreement for a successive term. 6.2 TERMINATION. 6.2.1 IFT may terminate this Agreement if: (a) ILTS or ILTS UK should enter into liquidation or receivership, or be declared bankrupt, or enter into any composition or similar arrangement with its creditors, said termination to take effect immediately upon receipt of written notice of termination; or, (b) ILTS UK breaches a material provision of this Agreement and fails to cure such breach within forty-fivesixty (4560) days after receipt by ILTS UK of written notice specifying such breach; or, (c) In accordance with Schedule 2, Section 2.2 of the Purchase Agreement, if IFT Leasing declines acceptance of the System and terminates the Purchase Agreement; or (d) If IFT Leasing terminates the Purchase Agreement under Section 17.1 of the Purchase Agreement. 6.2.2 ILTS UK may terminate this Agreement if: (a) IFT fails to maintain its contract with InterLotto or InterLotto ceases to have authorization to operate a computerized lottery, including but not limited to the on-line Games contemplated by this Agreement. If the cessation of authorization is reasonably curable, termination will take effect if IFT fails to effect a cure within forty-fivesixty (4560) days after written notice to ILTS UK; otherwise, such termination to take effect immediately upon the receipt by IFT of written notice thereof; (b) IFT should enter into liquidation or receivership, or be declared bankrupt, or enter into any composition or similar arrangement with its creditors, said termination to take effect immediately upon receipt IFT of written notice of termination by, or; (c) IFT breaches a material provision of this Agreement and fails to cure such breach within sixty (60) days after receipt by IFT of written notice specifying such breach. 6.2.3 In the event of termination of this Agreement by either partyILTS UK, the terminating party ILTS UK may cease its performance hereunder and may: (i) recover from the other party IFT the unpaid balance of all sums due under this Agreement as of the date of such termination; (ii) recover from the other party IFT any damages due to the default, including but not limited to its reasonable attorneys' fees and judicial costs incurred in enforcing its rights hereunder; and, (iii) terminate the other party's rights under this Agreement. Upon the default of IFT, ILTS UK shall have such other and further remedies and rights as may be available at law or in equity by reason of such default. ARTICLE 7.0 EXCLUSIVITY AND CONFIDENTIALITY 7.1 EXCLUSIVITY. For so long as this Agreement remains in effect: (a) ILTS UK shall not supply or provide computer software, management, facilities or related services to any person or entity other than IFT for or in connection with the conduct of a lottery or similar gaming programs (not including sports betting such as horse racing or football) anywhere in England, Scotland and Wales, andthe United Kingdom; (b) IFT shall not obtain computer software, management, facilities or related services (which are available or reasonably can be made available from ILTS UK) for or in connection with the conduct of lottery or similar gaming programs anywhere in England, Scotland and Walesthe United Kingdom from any person or entity other than ILTS UK. 7.2 CONFIDENTIALITY. As used herein, "Confidential Information" means all information (including, without limiting the foregoing, all engineering, programming and other technical and commercial information and know-how, sales contacts and marketing strategy) directly or indirectly disclosed by one party to the other pursuant to or in connection with this Agreement (including, without limiting the foregoing, any negotiations preceding this Agreement), provided that said information is descriptive of or used or useful in connection with the creation, development, modification, production, testing, maintenance, marketing or other use of confidential information. "Confidential Information" as defined herein shall not include information, which is: (a) widely known to the public or within the computer and/or gaming industries, without any fault of the party to whom it is disclosed (for the purposes of this Section 6.1), the "Recipient"); or, (b) already known to the Recipient at the time that said information is disclosed to the Recipient by the party owning or disclosing the information (for the purposes of this Section 6.1, the "Discloser"), provided that said knowledge is documented by records in the Recipient's possession predating such disclosure. 7.2.1 Each Recipient hereby acknowledges that all Confidential Information is vital to the Discloser's business and success. Therefore, each Recipient agrees that it shall at all times keep all Confidential Information in the strictest of confidence. Each Recipient further agrees that it shall never disclose, indirectly, in whole or in part, alone or in conjunction with others, any Confidential Information to anyone, other than to that Recipient's employees with a need to know such Confidential Information for purposes contemplated by this Agreement. 7.2.2 Each Recipient further agrees that neither that Recipient nor any Recipient employee shall in any way (directly or indirectly, in whole or in part, alone or in conjunction with others) disclose, use or copy in any medium, any Confidential Information without the Discloser's prior specific written authorization. 7.2.3 Each Recipient shall take all reasonable measures to protect the confidentiality of Confidential Information. Without limiting the foregoing, each Recipient shall employ security measures and a degree of care regarding Confidential Information which are at least as protective as those employed by that Recipient regarding its own proprietary property and confidential information. The provisions of thisis Section Article 7.2 0 shall survive the termination or expiration of the Agreement for aa five (5) year period. ARTICLE 8.0 CUSTOMER'S REMEDY If for any reason other than a breach of contract by IFT, ILTS fail or cease to provide services to be provided in this Agreement in a manner which prevents IFT from conducting lottery operation in the manner contemplated by this Agreement in a material respect, IFT shall retain the right to terminate this Agreement and to use the equipment, facilities, software, and documentation for those items owned by ILTS and which are necessary to provide contractual services and to recover damages from ILTS UK, subject to the terms and limits of this Agreement. Said right shall be limited to the right of IFT to possess and make use of such solely for the use and benefit of IFT in maintaining, altering and improving the operational characteristics of the programs and systems being used under the contract. In such an event, all software programs, documentation, operating instructions, facilities, hardware, and the like, including modifications or alterations thereof, shall be kept in confidence and shall be returned together with all copies to ILTS upon termination of the Facilities Management Agreement term. If there has been a determination, mutually agreed upon by IFT and ILTS, that continuity of ILTS' operations are in jeopardy and this provision may be applicable, ILTS shall provide training to IFT in the operation of the System, at IFT's request. ARTICLE 9.0 FORCE MAJEURE 9.1 Each party shall not be liable for any delay in performing any obligation hereunder for any cause beyond its reasonable control, including but not limited to strike and labor disputes, accidents, war, invasion, riot, rebellion, civil commotion, insurrection, any act (including without limitation any injunctive or restraining act) or judgement of any court granted in any legal proceeding, fire, wind, lightning, explosion, act of government or faults or delays by subcontractors to provide service due to circumstances such as those cited above but not including increased costs ("Force Majeure"). Notwithstanding the foregoing, it shall not be deemed to be Force Majeure if any of the events set forth in Section 6.2.2 (a) herein occur. 9.2 If either party is delayed in performance due to Force Majeure, it shall as soon as possible give the other party written notice of its claim for an extension of time. The other party shall grant reasonable extension (s) of time for completion of this Agreement or any part thereof, provided that all reasonable action has been taken by the delayed party to prevent such delay from extending the time for completion of the delayed party's obligations hereunder. ARTICLE 10.0 GENERAL 10.1 COMPLIANCE. Each party hereby agrees that it shall neither offer to make nor authorize any offer or payment directly or indirectly to any person who is an official, member, employee or agent of the government of the United Kingdom, or of any municipality or instrumentality thereof ("Government"), for the purpose of inducing such person to (a) use his influence with such Government or (b) fail to perform his official functions, in either case to assist any party or in obtaining or retaining business for or with, or directing business to any person, or influencing legislation or regulations of the Government. Each party agrees that its activities under this Agreement may be subject to the laws of the United States and the United Kingdom, and that it shall comply fully with such laws as may be applicable. 10.2 COOPERATION OF THE PARTIES. The parties agree to cooperate fully, to act reasonably, to work in good faith and to mutually assist each other in the performance of this Agreement, it being mutually understood that it is to be benefit of both parties that this Agreement be as profitable as possible for each party. The parties shall meet from time to time upon the reasonable written request of either to confer, in good faith, amicably and in a businesslike manner with respect to fulfilling this Agreement and resolving any problems which may arise. 10.3 RELATIONSHIP OF PARTIES. The parties to this Agreement are and will be acting in their individual capacities and not as agents, employees, partners, joint venturers or associates of one another. The employees or agents of one party shall not be deemed or construed to be the employees or agents of the other party for any purpose whatsoever. 10.4 Liability. ILTS UK shall never be liable for special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, arising out of or in connection with this Agreement or the use of performance of the System, whether in an action of contract, tort (including negligence) or otherwise. The provisions of Articles 13.0 and 14.0 of the Purchase Agreement relating to indemnities, limits of liability and remedies are incorporated in this Agreement for the term of this Agreement. 10.5 This Agreement and the related Purchase Agreement embody the entire agreement between the parties and supersede in their entirety all previous understandings, agreements, and representations between the parties, oral or written with respect to the subject matter hereof. This Agreement may not be amended or modified except by an instrument in writing duly executed on behalf of the parties. Any waiver of any breach of this Agreement shall be limited to the particular instance and shall not operate or be deemed to waive any future breach. Any representation or statement not contained in this Agreement shall not be binding as a warranty or otherwise. 10.6 CONTROL PROCEDURE. Changes to this Agreement will be controlled, documented, defined and implemented utilizing a consistent process and form to be mutually agreed upon between IFT and ILTS UK. 10.7 ASSIGNMENT. This Agreement shall not be assigned by either party without the prior written consent of the other party. Notwithstanding the foregoing, it is agreed that either party may assign its rights and obligations under this Agreement ("Assignor") to one of its subsidiariesaffiliates authorized to do business in Great Britain (the "Assignee"), provided that: (a) The full and faithful performance by the Assignee of its obligations under the Agreement in accordance with the terms and conditions of the Agreement shall be unconditionally guaranteed by the Assignor. In the event of a failure of the Assignee to perform any obligations under this Agreement, the Assignor shall immediately perform such obligations, and; (b) The non-assigning party shall receive copies of all documentation evidencing such assignment. 10.8 Notices. Any notice given hereunder shall be deemed sufficient if given in writing by a party to the other party, to the attention of the Chief Executive Officer (or such other individual as a party may designate in writing), of such party in either case directed to the addresses set forth in Section 9.14 of this at the head of this Agreement (or such other notice as either party may specify using like notice), and shall be deemed delivered and received upon actual receipt, or twenty-four (24) hours after dispatch by facsimile transmission, with receipt of facsimile confirmation, provided that an original copy of said notice is mailed by registered mail no later than the next business day following dispatch by facsimile. 10.9 Severability. The parties acknowledge that the provisions contained herein(including without limitation any relating to Confidential Information) are required for the reasonable protection of the business interests of the parties. The illegality, invalidity or unenforceability of any provision of this Agreement under any applicable law shall not affect its legality, validity or enforceability under the law of any other jurisdiction nor the legality, validity or enforceability of any other provision, and to this end the provisions hereof are declared to be severable. 10.10 AMENDMENT. Each of the parties agrees that this Agreement will be amended to the extent necessary to comply with all governmental laws, regulations and directives. 10.11 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the substantive laws of England and Wales. The venue for any proceeding brought to enforce or interpret this Agreement shall be in the appropriate tribunals in London, England, and the parties to this Agreement consent to the jurisdiction of those tribunals. The provisions of the United Nations Convention on Contracts for the International Sale of Goods is applicable to this Agreement. 10.12 HEADINGS. Section headings of this Agreement are for convenience only and shall neither form a part nor affect the interpretation hereof. 10.13 AUTHORIZATION TO EXECUTE AGREEMENT. Each party has full power and authority to enter into and perform this Agreement, and the person signing this Agreement on behalf of each party has been properly authorized and empowered to enter into this Agreement. Each party acknowledges it has read this Agreement, understands, and agrees to be bound by it. IFT Management Limited ILTS UK Ltd. c/o Richards Butler c/o International Lottery & Beaufort House Totalizator Systems, Inc. 15 St. Botolph Street 2131 Faraday Avenue London, England EC 3A 7EE Carlsbad, California United States of America James W. Fox M. Mark Michalko ------------------------ ----------------------------- Signed Signed James W. Fox M. Mark Michalko ------------------------ ----------------------------- Printed Name Printed Name President President ------------------------ ----------------------------- Title Title [Attachment intentionally deleted] EX-10.38 10 GUARANTIES GUARANTIES Interactive Flight Technologies, Inc. hereby guaranties, as surety, the payment and performance when due of all payments and obligations to be paid or performed by IFT Leasing Limited under the Purchase Agreement ("the Purchase Agreement"), dated September 8, 1999 between IFT Leasing Limited and International Lottery & Totalizator Systems, Inc. ("ILTS") and under the Facilities Management Agreement ("the Facilities Agreement"), dated September 8, 1999, between IFT Management Limited and ILTS, U.K. Ltd. ILTS hereby guaranties, as surety, the payment and performance when due of all payments and obligations to be paid or performed by ILTS, U.K. Ltd. under the Facilities Agreement. INTERACTIVE FLIGHT TECHNOLOGIES, INC. By:_______________________________________ INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC. By:_______________________________________ EX-27 11 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND IN THE COMPANY'S 10-QSB FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS JUN-30-2000 JUL-01-1999 SEP-30-1999 9,257,226 4,173,444 5,120,211 6,544 2,984,708 24,415,058 2,408,865 1,055,565 41,615,544 9,334,618 0 0 30 61,132 29,352,654 41,615,544 5,550,560 5,610,387 3,420,381 3,428,961 2,742,031 0 8,651 (499,115) 0 (499,115) 0 0 0 (499,115) (.10) (.10)
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