-----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, SrBsu2WsCJpzwO8TKakeT6jsj0brIt/zcFAm++x3NfRvIFbxl+qarkgzjHwDKvTO YcqcsNdBDTGxqPhB/74pNA== 0000950147-00-000761.txt : 20000516 0000950147-00-000761.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950147-00-000761 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBAL TECHNOLOGIES LTD CENTRAL INDEX KEY: 0000932021 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 860970492 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-25668 FILM NUMBER: 634540 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 FOR THE QTR ENDED 3-31-00 ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB -------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 2000 [ ] 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 May 8, 2000 ----- -------------------------- Class A Common Stock, $.01 par value 10,533,654 shares Class B Common Stock, $.01 par value -0- shares Transitional Small Business Disclosure Format Yes [ ] No [X] ================================================================================ GLOBAL TECHNOLOGIES, LTD. AND SUBSIDIARIES INDEX PART I . FINANCIAL INFORMATION PAGE ---- Item 1. Consolidated Financial Statements Condensed Consolidated Balance Sheets as of March 31 , 2000 (unaudited) and June 30, 1999....................................... 3 Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended March 31, 2000 and 1999 (unaudited).... 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2000 and 1999 (unaudited).................... 5 Notes to Condensed Consolidated Financial Statements................ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................... 23 Item 2. Changes in Securities............................................... 24 Item 6. Exhibits and Reports on Form 8-K.................................... 25 SIGNATURES................................................................... 27 2 GLOBAL TECHNOLOGIES, LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, JUNE 30, ASSETS 2000 1999 ------------- ------------- (UNAUDITED) Current assets: Cash and cash equivalents $ 1,030,549 $ 15,521,275 Restricted cash 463,405 1,412,736 Investments 93,024,088 4,594,751 Accounts receivable 21,087 128,489 Notes receivable from related parties 53,551 98,932 Inventories, net of allowance of $7,837,595 5,424,359 1,400,000 Prepaid expenses 708,518 607,900 Assets held for sale -- 800,000 Deferred tax asset 28,797,214 -- Other current assets 2,818,950 470,273 ------------- ------------- Total current assets 132,341,721 25,034,356 Investments 1,818,812 5,752,599 Note receivable from related party 78,000 75,000 Property and equipment, net of accumulated depreciation of $1,388,678 and $915,901, respectively 16,206,156 1,369,392 Intangibles, net accumulated amortization of $631,293 and $74,981, respectively 6,784,844 7,119,806 Other assets 1,137,865 61,468 ------------- ------------- Total assets $ 158,367,398 $ 39,412,621 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,468,809 $ 2,530,675 Accrued liabilities 6,044,928 1,072,269 Deferred revenue 2,108,152 365,851 Accrued product warranties 291,796 -- Notes payable 6,190 24,391 Notes payable to related parties -- 68,836 ------------- ------------- Total current liabilities 11,919,875 4,062,022 Notes payable -- 3,467,045 Other liabilities 945,765 1,220,340 Accrued litigation settlement 1,000,000 1,843,750 ------------- ------------- Total liabilities 13,865,640 10,593,157 ------------- ------------- Minority interest 456,908 1,165,098 Stockholders' equity: Series A 8% Convertible preferred stock, 3,000 shares designated, zero and 3,000 shares issued and outstanding, respectively (liquidation preference of $1,200 per share) -- 30 Series C 5% Convertible preferred stock, 1,006 and zero shares issued and outstanding, respectively 10 -- Class A common stock, one vote per share, par value $0.01 per share, 40,000,000 shares authorized; 10,472,054 and 8,190,954 shares issued and outstanding, respectively 104,722 81,910 Additional paid-in capital 126,815,873 113,435,090 Accumulated other comprehensive income: Loss on foreign currency translation (196,695) -- Net unrealized gain (loss) on investments 89,962,703 (10,107) Unrealized tax benefit of NOL carryforward 28,797,214 -- Accumulated deficit (101,438,977) (85,658,567) Treasury stock, at cost -- (193,990) ------------- ------------- Total stockholders' equity 144,044,850 27,654,366 ------------- ------------- Total liabilities and stockholders' equity $ 158,367,398 $ 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 MARCH 31, NINE MONTHS ENDED MARCH 31, ----------------------------- ----------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Revenue: Equipment sales $ 590 $ -- $ 5,597,909 $ 89,028 Service income -- 290,773 59,827 1,194,248 ------------ ------------ ------------ ------------ 590 290,773 5,657,736 1,283,276 ------------ ------------ ------------ ------------ Costs and expenses: Cost of equipment sales 225,669 -- 3,680,584 283,714 Cost of service income 21,189 183,441 36,292 529,574 General and administrative expenses 8,541,879 1,908,075 14,346,353 9,776,285 Non-cash compensation expense 292,562 -- 916,612 -- Provision for doubtful accounts -- -- -- 28,647 Expenses associated with investments -- 300,000 1,656,587 300,000 Special charges -- -- -- (190,000) Depreciation and amortization expense 370,607 104,456 1,023,172 657,359 ------------ ------------ ------------ ------------ 9,451,906 2,495,972 21,659,600 11,385,579 ------------ ------------ ------------ ------------ Operating loss (9,451,316) (2,205,199) (16,001,864) (10,102,303) Other: Interest expense (5,845) (1,358) (54,120) (5,614) Interest income 48,732 406,799 573,639 1,476,229 Equity in loss of nonconsolidated affiliates (405,325) -- (1,120,776) -- Other income (expense) (15,913) 19,545 (19,697) (547,772) ------------ ------------ ------------ ------------ Net loss before minority interest (9,829,667) (1,780,213) (16,622,818) (9,179,460) ------------ ------------ ------------ ------------ Minority interest 557,576 -- 811,739 -- ------------ ------------ ------------ ------------ Net loss $ (9,272,091) $ (1,780,213) $(15,811,079) $ (9,179,460) ------------ ------------ ------------ ------------ Cumulative dividend on preferred stock (61,644) -- (61,644) -- ------------ ------------ ------------ ------------ Net loss attributable to common shareholders $ (9,333,735) $ (1,780,213) $(15,872,723) $ (9,179,460) ============ ============ ============ ============ Basic and diluted net loss per share of common stock $ (0.88) $ (0.22) $ (1.66) $ (1.20) ============ ============ ============ ============ Weighted average shares outstanding: basic and diluted 10,614,910 8,013,134 9,550,955 7,657,652 ============ ============ ============ ============
See accompanying notes to consolidated financial statements. 4 GLOBAL TECHNOLOGIES, LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS NINE MONTHS ENDED ENDED MARCH 31, MARCH 31, 2000 1999 ------------ ------------ Cash flows from operating activities: Net loss $(15,811,079) $ (9,179,460) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,023,172 657,359 Equity in loss of nonconsolidated affiliate 1,120,776 -- Non-cash expenses associated with investments 1,656,587 -- Loss applicable to minority interest (811,739) -- Special charges -- (190,000) Loss on sale of assets held for sale 37,893 -- Non-cash compensation expense 916,612 -- Loss on disposals of property and equipment -- 1,006,532 Changes in assets and liabilities, net of acquisition: Decrease (increase) in accounts receivable 107,402 (684,054) (Increase) decrease in inventories (4,024,359) 86,643 Increase in prepaid expenses (100,618) (85,108) Increase in other current assets and other assets (2,352,213) (2,880,295) Increase (decrease) in accounts payable 776,815 (575,086) Increase (decrease) in accrued liabilities 4,806,649 (881,405) Increase in deferred revenue 1,742,300 1,900,518 Increase (decrease) in accrued product warranties 291,796 (1,426,013) ------------ ------------ Net cash used in operating activities $(10,620,006) $(12,250,369) ------------ ------------ Cash flows (for) from investing activities: Maturities of investment securities 1,450,079 2,558,015 Purchases of investment securities (1,839,643) (6,048,182) Sales of investment securities 4,969,019 1,502,253 Investments in affiliates (2,108,373) -- Payments received on related party note receivable 42,381 -- Deposits on property and equipment (795,320) -- Purchases of property and equipment (15,303,425) (69,125) Proceeds from sale of equipment 3,590 14,368 Proceeds from sale of assets held for sale 762,107 -- Decrease (Increase) in restricted cash 667,181 (2,006,423) Purchase of Johnny Valet, Inc. -- (688,736) Payments to purchase Series A, D and E notes (555,000) -- ------------ ------------ Net cash used in investing activities $(12,707,404) $ (4,737,830) ------------ ------------ Cash flows from (for) financing activities: Issuance of Series C Preferred Stock 9,660,000 -- Redemption of Series A Preferred Stock (3,519,970) -- Exercise of unit purchase options 2,111,118 -- Purchase of treasury stock (1,394,960) (1,544,466) Payments on notes payable (767,525) (151,123) Issuance of stock to directors and officers 2,684,938 -- Re-purchase of outstanding warrants (296,036) -- Exercise of employee stock options 555,813 4,245 ------------ ------------ Net cash provided by (used in) financing activities $ 9,033,378 $ (1,691,344) ------------ ------------ Effect of exchange rate on cash and cash equivalents (196,694) -- ------------ ------------ Net decrease in cash and cash equivalents (14,490,726) (18,679,543) Cash and cash equivalents at beginning of period 15,521,275 38,961,896 ------------ ------------ Cash and cash equivalents at end of period $ 1,030,549 $ 20,282,353 ============ ============
See accompanying notes to consolidated financial statements. 5 GLOBAL TECHNOLOGIES, LTD. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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: GlobalTech Holdings Limited, GTL Management Limited, Interactive Flight Technologies (Gibraltar) Limited, GTL Lottoco, Inc., GTL Subco, Inc., GTL Investments, GTL Leasing Limited, Lottery Sales Company Limited, and MTJ Corp; and the majority-owned and controlled subsidiary, The Network Connection, Inc. and its wholly-owned subsidiary TNCi UK Limited ("TNCi") (collectively, the "Company"). The ownership interest of minority shareholders in TNCi are recorded as "minority interest" on the accompanying condensed 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 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 Shop4Cash.com, Inc. is accounted for at cost. The Company's investment in U.S. Wireless Corporation ("U.S. Wireless") is accounted for at fair market value as securities available for sale under FAS 115. (See Note 3.) 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 equity method of accounting requires that when it is determined that only one party in an investment has any tangible assets at risk, 100% of the equity loss should be recorded by that party without regard to the percent ownership in the investment. The Company determined during the quarter ended December 31,1999 that it retains the majority of the financial risk related to Inter Lotto and, accordingly, has recorded against their investment 100% of the loss incurred by Inter Lotto during this period before operations begin, and continues to record 100% of the loss until such time as the investment begins to return a profit. In the quarter ended December 31, 1999, the Company determined that the value of its investment in Donativos S.A. de C.V. ("Donativos") had been permanently impaired. Since the opening of its entertainment center, Donativos has not generated sufficient profits to meet its obligations to the Company under the loan and equipment financing agreements and, therefore, its ability to continue as a "going concern" was in doubt. The equity investment has been written off and a reserve for the full amount of the loans and subsequent advances to Donativos has been recorded, resulting in a charge to income of $1.7 million. On April 14, 2000 the Company entered into an agreement pursuant to which on May 10, 2000 the Company received $2.0 million from Donativos in return for cancellation of the debt owed by Donativos to Global and transfer of the equity that Global and Regal Gaming & Entertainment, Inc. ("Regal") held in Donativos to the majority shareholder of Donativos. The transaction also involved an exchange of general releases and transfer of title to the equipment in the gaming center in Monterey, Mexico from a Global subsidiary to Donativos. 6 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 Transition Report on Form 10-KSB. The results of operations for the three months and nine months ended March 31, 2000 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) INVESTMENTS Investments are classified according to the applicable accounting method at March 31, 2000 and June 30, 1999. Market value reflects the price of publicly traded securities at the close of business at the respective date. Unrealized gain (loss) reflects the excess (deficit) of market value over carrying value of publicly traded securities classified as available for sale. In March and April 2000, the Company converted its Series B Preferred Stock of U.S. Wireless Corporation ("U.S. Wireless") into 3,000,000 shares of U.S. Wireless common stock (subject to the limitations of Rule 144). As such, the Company changed its method of accounting for this investment from the cost method to classifying the investment as available for sale carried at fair market value as of March 31, 2000. Unrealized gains on this investment are reflected as a separate component of stockholders' equity. At March 31, 2000 the market price of U.S. Wireless common stock was $31 per share, resulting in a total fair market value of $93,000,000. Changes in the market price of U.S. Wireless stock will result in future adjustments to unrealized gains or losses on this investment. As of May 10, 2000, the price per share common share of U.S. Wireless common stock was $15.00, resulting in a fair market value of $45 million. The following summarizes the Company's current portion of investments by type at:
GROSS GROSS UNREALIZED UNREALIZED AMORTIZED HOLDING HOLDING FAIR COST GAINS LOSSES VALUE ---------- ----------- -------- ----------- MARCH 31, 2000 Available-for-sale: Corporate equity securities $3,037,325 $89,962,675 $ -- $93,000,000 Corporate debt securities 24,060 28 -- 24,088 ---------- ----------- -------- ----------- Total $3,061,385 $89,962,703 $ -- $93,024,088 ========== =========== ======== =========== JUNE 30, 1999 Available-for-sale: Corporate debt securities $4,604,858 $ -- $(10,107) $ 4,594,751 ========== =========== ======== ===========
Corporate equity securities consist of available for sale securities. Corporate debt securities consist of corporate bonds with a maturity greater than three months at the time of purchase. The following summarizes the Company's non-current investments at March 31, 2000: CARRYING VALUE -------------- Equity Affiliates (Approx. voting %) Inter Lotto (UK) Ltd. (27.5%) $ 818,812 Donativos S.A. de C.V. (24.5%) -- Shop-4-Cash.com, Inc. (4%) 1,000,000 ---------- Total Non-Current Investments $1,818,812 ========== (4) STOCK DIVIDEND On January 5, 2000, the Board of Directors approved a three-for-two stock split to be effected by way of a stock dividend of one share for each two shares of Common Stock held by stockholders of record as of the close of business February 15, 2000. The dividend was paid on February 29, 2000; fractional shares have been paid out in cash. All references to the number of common shares, per share amounts and stock option data elsewhere in the consolidated financial statements and related footnotes have been restated as appropriate to reflect the effect of the stock dividend for all periods presented prior to the stock dividend. (5) DEFERRED TAX ASSET As a result of the Company's change from the cost method of valuation of its investment in U.S. Wireless (See Note 3), during the quarter ended March 31, 2000, the Company determined that its deferred tax assets resulting from net operating loss carryforwards for Federal income tax purposes are more likely than not to be realized. As such, the Company has reduced its valuation allowance previously recorded for 100% of the deferred tax assets. As of June 30, 1999 the Company had a net operating loss carryforward for federal income tax purposes of approximately $73.9 million. A deferred tax asset of approximately $28.8 million has been recognized based upon an effective tax rate of 39%. (6) NOTES RECEIVABLE Prior to the reverse merger with TNCi (the "Transaction"), TNCi issued a secured promissory note to 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 was convertible into shares of TNCi's Series C 8% Convertible Preferred Stock ("TNCi Series C Stock") at the discretion of Global. The Note had an original maturity of May 14, 1999, but had been extended until September 2001. 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 several 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 7 August 1999, TNCi executed an allonge to the Promissory Note which rolled the intercompany advances into the principal balance of the Promissory Note and granted Global the ability to convert the Promissory Note directly into shares of TNCi's Common Stock, without first converting to Series C Stock, as an administrative convenience. On August 24, 1999, the Board of Directors of Global approved the conversion of the Promissory Note into approximately 4.8 million shares of TNCi's Common Stock. Such conversion was contingent upon receiving shareholder approval to increase the authorized share capital of TNCi. This increase in authorized share capital was subsequently approved at the September 17, 1999 Special Meeting of TNCi shareholders. Accordingly, TNCi has issued to Global approximately 4.8 million shares of its Common Stock based on the conversion date of August 24, 1999. Separately from the Promissory Note, in December 1999 TNCi issued 886,140 shares of its Common Stock to Global upon conversion of the TNCi Series C Stock held by Global. Also, 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 TNCi and is convertible, at Global's option, into shares of TNCi's Common Stock at a price equal to the lesser of 66.7% of the trailing five-day average share price of the preceding 20 days, or $1.50 per share, or any lesser amount at which shares of TNCi's Common Stock have been issued to third parties. Pursuant to Nasdaq rules, Global may not convert borrowings under the Facility into shares of TNCi Common Stock in excess of 19.99% of the number of shares of TNCi Common Stock outstanding as of August 24, 1999, without stockholder approval. As of March 31, 2000, $1,080,000 was outstanding under the Facility. As of March 31, 2000, the Company did not have sufficient cash for TNCi to borrow the full $5 million under the Facility. Should TNCi draw on the Facility, the Company would have to obtain financing or sell assets to meet its obligations under the Facility. Should TNCi be unable to borrow funds under the Facility, it could result in a material adverse effect on the operating results and financial condition of TNCi. (7) NOTES PAYABLE 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, was used by the Company 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 $367,000 from the sale were used to retire a note payable due 2009 in the principal amount of $217,000. In October 1999, a convertible note payable of TNCi in the principal amount of $400,000 due September 5, 1999 was converted into 200,000 shares of TNCi's Common Stock. (8) PREFERRED STOCK On November 10, 1999, the Board of Directors of the Company approved the redemption of the Series A 8% Convertible Preferred Stock ("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. Such amounts were paid on November 16, 1999 to the holder of the Series A Stock. On February 16, 2000, Global entered into an agreement for the issue of preferred stock and callable warrants in return for $10 million. The preferred stock carries a 5% cumulative dividend payable quarterly in cash or in kind. Cumulative undeclared and unpaid dividends as of March 31, 2000 total $61,644 or $6.16 per share. The preferred stock converts into Class A Common Stock at a conversion price of $17.748 per share, representing 120% of the average closing bid prices thereof over the five trading days beginning March 1, 2000 (the "Fixed Conversion Price") as adjusted for certain dilutive events. Nine months after funding, and 8 every three months thereafter, the conversion price resets to the lesser of the Fixed Conversion Price or 100% of the average of the four low trading prices over the course of the preceding 20 trading days. On April 14, 2000 the Company registered the Class A Common Stock into which the preferred stock and warrants are convertible or exercisable, as the case may be. Additionally, the Company may redeem the preferred stock for a premium under certain circumstances. As of May 10, 2000 the Series C 5% Convertible Preferred Stock ("Series C Stock") represented approximately 14% of the common stock of the Company on a fully converted basis. If the Company were required to redeem the Series C Stock, it could have a material adverse effect on the Company's financial position. (9) WARRANTS In December 1999, TNCi issued warrants to purchase 25,000 shares of TNCi Common Stock at $6.50 per share and Global issued warrants to purchase 37,500 shares of Global Class A Common Stock at $5.25 per share to Emden Consulting Corp. in exchange for certain financial advisory services. The warrants expire in December 2004. Non-cash compensation expense of $269,525 was recorded in the quarter ended December 1999. In December 1999, TNCi issued warrants to purchase 25,000 shares of TNCi Common Stock at $6.50 per share and Global issued warrants to purchase 37,500 shares of Global Class A Common Stock at $5.25 per share to Waterton Group LLC in exchange for certain financial advisory services. The warrants expire in December 2004. Non-cash compensation expense of $269,525 was recorded in the quarter ended December 1999. In December 1999, TNCi issued common stock purchase warrants to purchase 100,000 shares of TNCi Common Stock at prices ranging from $6 to $10 per share to Continental Capital & Equity Corp. in exchange for public relations and financial advisory services. The warrants vest over a period of 270 days and expire in February 2002. Non-cash compensation expense of $151,286 was recognized in the three months ended March 31, 2000 and additional non-cash compensation expense may be recognized, under variable plan accounting, over the remaining nine months of the agreement. In connection with the February 16, 2000 preferred stock offering noted above, the Company issued warrants to purchase 100,925 shares of Global's Class A Common Stock to the holders of the preferred stock. These warrants are exercisable at a price of $17.748 and expire in February 16, 2005. In connection with the February 16, 2000 preferred stock issuance, designees of Reedland Capital Partners, a division of Financial West Group, received warrants to purchase an aggregate of 50,000 shares of the Company's common stock at $17.835 per share for Reedland Capital Partners' role as sales agent. On March 13, 2000, TNCi issued 236,080 shares of its common stock in connection with the cashless exercise of common stock purchase warrants held by the former holders of TNCi's Series A and E notes. The warrants exercised represented warrants to purchase 311,525 shares of TNCi Common Stock. (10) SHARE REPURCHASES In July and August 1999, Global acquired from third parties the Series Notes (as described in Note 4) issued by TNCi in November of 1998 for consideration consisting of cash and 581,415 shares of Class A Common Stock. In connection with this transaction, Global entered into put/call agreements with the various note holders which provided them with the right to require Global to purchase any or all of their shares for an average price of $2.38 per share. Further, Global retained the right to purchase all or any of these shares held by the holder at an average price of $3.03 per share. These put and call rights could be exercised for the period from January 1, 2000 to January 10, 2000. In December, 1999, the Company determined to exercise its call rights effective January 1, 2000 and provided proper notice to the parties that it had done so. Accordingly, on February 28, 2000, the Company repurchased 464,630 of these shares at a cost of approximately $1.4 million. The repurchase of the remainder of these shares is currently the subject of litigation. See "Note 9 11(a) - Global Technologies, Ltd. v. XCEL Capital, LLC." These repurchased shares and all other shares held in Treasury Stock were retired by the Board of Directors of the Company on March 16, 2000. (11) UNIT PURCHASE OPTIONS In connection with the Company's March 6, 1995 public offering, the Company issued 140,000 Unit Purchase Options to designees of D. H. Blair Investment Banking Corporation for their role as underwriters of the offering. Each Unit Purchase Option was exercisable into one share of Class A Common Stock, One Class A Warrant and One Class B Warrant at an exercise price of $12.00 per share. Each Class A Warrant was exercisable into one share of Class A Common Stock and one additional Class B Warrant at an exercise price of $13.71 per share (as adjusted for certain dilutive events). Each Class B Warrant was exercisable into one share of Class A Common Stock at an exercise price of $19.10 per share (as adjusted for certain dilutive events). The options and underlying warrants were set to expire March 6, 2000. As of March 6, 2000, 104,458 shares of Class A Common Stock were issued as a result of the exercise of the Unit Purchase Options and 64,439 shares of Class A Common Stock were issued as a result of the exercise of Class A Warrants. No Class B Warrants were exercised and any remaining options and warrants have expired. The Company received proceeds of $2,111,118 as certain option holders executed cashless exercise. (12) OPTION GRANTS On October 8, 1999, the Compensation Committee of the Board of Directors of the Company recommended, and the Board approved, an option grant to purchase up to 1,500,000 shares of Global's Class A Common Stock to Mr. Irwin L. Gross, Chairman and Chief Executive Officer of the Company. One quarter of these options vested immediately and one quarter vest over three years. The remainder vest on the sixth anniversary of the date of grant, subject to acceleration to a three-year schedule in the event of the achievement of certain performance goals. The exercise price of the options is equal to the closing market price of the Company's Common Stock on the day prior to grant. The options expire in October 2009. Additionally, on November 10, 1999, the Compensation Committee of the Board of Directors of TNCi recommended, and the Board approved an option grant to purchase up to 500,000 shares of TNCi's Common Stock to Mr. Irwin L. Gross, Chairman and Chief Executive Officer of TNCi. One quarter of these options vested immediately and one quarter vest over three years. The remainder vest on the sixth anniversary of the date of grant, subject to acceleration to a three-year schedule in the event of the achievement of certain performance goals. The exercise price of the options is equal to the closing market price of TNCi's Common Stock on the day of grant. The options expire in October 2009. On March 6, 2000, TNCi granted options to purchase up to 800,000 shares of TNCi's Common Stock to Mr. Robert Pringle, President and Chief Operating Officer of TNCi. One fifth of these options vest on June 6, 2000, with the remainder vesting in four equal annual installments beginning March 6, 2001. Exercise price of the options is equal to the closing market price of TNCi's Common Stock on the day prior to grant, and the options expire on March 6, 2010. On March 6, 2000, TNCi granted options to purchase up to 800,000 shares of TNCi's Common Stock to Dr. Jay Rosan, an Executive Vice President of TNCi. One fifth of these options vest on June 6, 2000, with the remainder vesting in four equal annual installments beginning March 6, 2001. Exercise price of the options is equal to the closing market price of TNCi's Common Stock on the day prior to grant, and the options expire on March 6, 2010. On March 6, 2000, TNCi granted options to purchase up to 250,000 shares of TNCi's Common Stock to Mr. Richard Genzer, Chief Technology Officer of TNCi. One fifth of these options vest on June 6, 2000, with the remainder vesting in four equal annual installments beginning March 6, 2001. Exercise price of the options is equal to the closing market price of TNCi's Common Stock on the day prior to grant, and the options expire on March 6, 2010. 10 (13) 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 NINE MONTHS ENDED MARCH 31, 1999 MARCH 31, 1999 -------------- -------------- Revenue $ 121,764 $ 1,722,368 Net loss $(2,246,133) $(16,617,373) Net loss per share $ (0.29) $ (2.17) (14) COMMITMENTS AND CONTINGENCIES (a) LAWSUITS 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. Swissair/MDL-1269, IN REGARDS TO AN AIR CRASH NEAR PEGGY'S COVE, NOVA SCOTIA. This multi-district litigation, which is being overseen by the United States District Court for the Eastern Division of Pennsylvania, relates to the crash of Swissair Flight No. 111 on September 2, 1998. 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. 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 has been named in some of the lawsuits filed on a successor liability theory. The Company and TNCi deny all liability for the crash. The Company and TNCi are being defended by the aviation insurer for the Company. 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 the Company on or about July 22, 1999 by Federal Express Corporation and relates to charges incurred by prior management. The suit alleged the Company owes Federal Express approximately $110,000 for past services rendered. The Company has settled this matter for $75,000, with $25,000 having been paid on execution of the settlement agreement on March 3, 2000, $10,000 having been paid on each of April 1, 2000 and May 1, 2000 and three additional payments of $10,000 to be paid on each of June 1, 2000, July 1, 2000 and August 1, 2000. BRYAN R. CARR V. THE NETWORK CONNECTION, INC. AND GLOBAL TECHNOLOGIES, LTD., Superior Court of Georgia, Civil Action No. 99-CV-1307. Bryan R. Carr, the Company's former Chief Operating and Financial Officer and a former Director, filed a claim on November 24, 1999 alleging a breach of his employment agreement. Mr. Carr claims that he is entitled to the present value of his base salary through October 31, 2001, a share of any "bonus pool," the value of his stock options and accrued vacation time. The Company is currently defending the claim. 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. 99-6041606, 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. Barington's New 11 York suit has been stayed pending resolution of the Arizona action. Global denies all liability and denies that any sums are owed to Barington. GLOBAL TECHNOLOGIES, LTD. V. XCEL CAPITAL, LLC, United States district Court for the Eastern District of Pennsylvania, Case No. 00-CV-505. On January 27, 2000 Global filed an action against XCEL Capital, LLC ("XCEL") for specific performance and breach of contract. In the action, Global is seeking to compel XCEL and another party to tender 116,785 shares of Global Class A Common Stock to Global at $3.17 per share in accordance with XCEL `s obligations pursuant to a put/call agreement entered into between the parties on August 12, 1999. On October 25, 1999, Global filed a lawsuit against Regal (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 (and guaranteed by its principals and their spouses) to Global. The promissory note was made to secure Regal's obligations to fund cost overruns in connection with the entertainment center project undertaken by Donativos. In May 2000, this lawsuit was settled in connection with a transaction that Global engaged in with Donativos S.A. de C.V. ("Donativos") whereby Global received $2.0 million from Donativos in return for cancellation of the debt owed by Donativos to Global and transfer of the equity that Global and Regal held in Donativos to its majority shareholder (the debt and equity portions of this investment had been previously written off). In the settlement, Regal delivered to Global its shares of Donativos in return for $80,000, dismissal of this lawsuit, cancellation of the debt owed by Regal to Global and a mutual general release. A suit captioned LODGENET ENTERTAINMENT CORPORATION V. THE NETWORK CONNECTION, INC. was filed April 5, 2000 in the Circuit Court for the Second Judicial Circuit of the State of South Dakota. The action arises out of TNCi's hiring of Theodore P. Racz, a former LodgeNet Entertainment Corporation ("LodgeNet") employee, as its Senior Vice President of the Hotels & Hospitality division. LodgeNet is alleging tortious interference with contract and tortious interference with business relationships. LodgeNet is seeking to prohibit Mr. Racz from being employed by TNCi, as well as seeking damages, and fees and costs. A case captioned INTERACTIVE FLIGHT TECHNOLOGIES, INC. V. MICHAIL ITKIS was initiated on February 3, 1999 in the Superior Court of State of Arizona, in and for Maricopa County. The Company brought claims for breach of contract, unjust enrichment, breach of fiduciary duty and fraud against Mr. Itkis relating to certain items of compensation that he received in connection with his separation from the Company. The Company sought the return of the items of compensation. Mr. Itkis brought counterclaims against the Company and certain of its affiliates for breach of contract and declaratory judgment, seeking to retain the items of compensation. The parties settled this matter in May 2000 with Global paying Mr. Itkis $6,295 for certain legal expenses he incurred in defending the action and for which Global was required to provide indemnity. The Company may be subject to other lawsuits and claims arising in the ordinary course of its business. In the Company's opinion, as of March 31, 2000, 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(TM)") 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 an unspecified number of additional ships for the installation of CruiseView(TM). The cost per cabin for CruiseView(TM) purchase and installation on each ship is provided for in the Carnival Agreement. In December 1998, Carnival ordered the installation of CruiseView(TM) on one Carnival Cruise Lines "Fantasy" class ship which has been in operational use since August 1999. In August 1999, Carnival ordered the installation of CruiseView(TM) on one Carnival Cruise Lines "Destiny" class ship which has been in operational use since October 1999. Under the terms of the agreement, the Company receives payment for 50% of the sales price of the system in installments through commencement of operation of the system. Recovery of the remaining sales price of the system is to be achieved through the receipt of the Company's 50% share of net profits as defined in the Carnival Agreement, generated by the system over future periods. The terms of the Carnival Agreement provide that Carnival may return the CruiseView(TM) system within the acceptance period, as defined in the Carnival Agreement, or for breach of warranty. The acceptance period for the Fantasy and Destiny class ships are twelve months and three months, respectively, from completion of installation and testing, which occurred in February 1999 and October 1999, respectively. The initial warranty period for 12 these systems is three years. As of March 31, 2000, the Company had recorded deferred revenue of approximately $2.1 million related to the two Carnival ships. In the quarter ended March 31, 2000, the Company concluded that the cost of building and installing CruiseView(TM) systems on the existing two Carnival ships pursuant to the Carnival Agreement has exceeded the revenue that can be earned in connection therewith. Accordingly, the Company has recorded an expense of $208,146 in the period ended March 31, 2000 reflecting the excess of cost over expected revenue. Carnival's continuing to exercise its option for building and installing CruiseView(TM) on additional ships under the 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 agreement with Carnival. (See "Note 17 (b) - Subsequent Event"). (c) PURCHASE COMMITMENT In September 1999, GTL 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 base value of the lottery system being purchased from ILTS is $12.3 million of which approximately $5.5 million has yet to be paid as of March 31, 2000. In addition, on the same date, GTL Management Limited entered into an eight-year facilities management agreement with ILTS to provide operational and technology support for the system. Under this agreement, GTL Management is required, beginning April 1, 2000, 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 GTL Leasing Limited and GTL Management Limited under these agreements. (15) 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 and nine months ended March 31, 2000 and 1999 as follows:
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, ---------------------------- ---------------------------- 2000 1999 2000 1999 ------------- ----------- ------------- ----------- Net Loss $ (9,272,091) $(1,780,213) $ (15,811,079) $(9,179,460) Net unrealized gain on investment securities 89,962,969 -- 89,972,810 -- Tax benefit of NOL carryforward 28,797,214 -- 28,797,214 -- Unrealized loss on foreign currency translation (196,695) -- (196,695) -- ------------- ----------- ------------- ----------- Comprehensive gain (loss) $ 109,291,397 $(1,780,213) $ 102,762,250 $(9,179,460) ============= =========== ============= ===========
(16) 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 the design, manufacture, installation and maintenance of advanced, high-end, high-performance computer servers and interactive, broad-band information and entertainment systems, and procuring and providing the content available through these systems. These all-digital systems deliver an on-demand, multi-media experience via high-speed, high-performance Internet protocol networks. The systems are designed to provide 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 on-line gambling, where permitted by applicable law. General corporate operations consist of investing in, developing and operating or assisting in the management of 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. 13
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31, ------------------------------- ------------------------------- 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Revenue TNCi $ 590 $ -- $ 5,657,736 $ 478,065 Other -- 290,773 -- 805,211 ------------- ------------- ------------- ------------- $ 590 $ 290,773 $ 5,657,736 $ 1,283,276 Gross profit(a) TNCi $ (246,268) $ -- $ 1,940,860 $ 193,615 Other -- 107,332 -- 276,373 ------------- ------------- ------------- ------------- $ (246,268) $ 107,332 $ 1,940,860 $ 469,988 Operating income (loss) TNCi $ (2,920,725) $ (989,121) $ (4,255,304) $ (7,036,470) Other (6,530,591) (1,216,078) (11,746,560) (3,065,833) ------------- ------------- ------------- ------------- $ (9,451,316) $ (2,205,199) $ (16,001,864) $ (10,102,303) General corporate operations Equity in loss of non-consolidated affiliate $ (405,325) $ -- $ (1,120,776) $ -- Net interest 42,887 405,441 519,519 1,470,615 Other income (expenses) (15,913) 19,545 (19,697) (547,772) Minority interest 557,576 -- 811,739 -- ------------- ------------- ------------- ------------- 179,225 424,986 190,785 922,843 Net loss $ (9,272,091) $ (1,780,213) $ (15,811,079) $ (9,179,460) Total assets TNCi $ 14,434,965 $ 7,019,282 $ 14,434,965 $ 7,019,282 General corporate 143,932,433 28,762,658 143,932,433 28,762,658 ------------- ------------- ------------- ------------- Total Assets $ 158,367,398 $ 35,781,940 $ 158,367,398 $ 35,781,940 ============= ============= ============= =============
- ---------- (a) Gross profit is the difference between Revenue and Cost of Revenue in the consolidated statement of operations. (17) SUBSEQUENT EVENTS (a) CREDIT FACILITY On April 5, 2000, the Company entered into a line of credit facility with Merrill Lynch in which Merrill Lynch agreed to advance up to $10 million based upon a percentage of the value of securities pledged as collateral to secure amounts drawn under the line of credit. Principal amounts borrowed under the line, together with accrued interest at an annual rate equal to the London Inter-bank Offer Rate (LIBOR) plus 1.25%, are payable upon demand by Merrill Lynch. As of May 11, 2000, approximately $5.1 million is outstanding under the line of credit facility. To secure such borrowing, the Company has pledged to Merrill Lynch 1,000,000 shares of common stock of U.S. Wireless Corporation ("U.S. Wireless") held by the Company. If the amount owed under the Merrill Lynch credit facility at any time exceeds 35% of the market value of the shares of U.S. Wireless pledged to Merrill Lynch, the Company will be subject to a maintenance call which would require the Company to pledge additional securities which are acceptable to Merrill Lynch as collateral or require the Company to reduce the outstanding balance owed under the Merrill Lynch credit facility through payment in cash. The Company provides no assurance that the Company would have sufficient additional collateral or funds necessary to pay outstanding amounts owed under the Merrill Lynch credit facility in the event of a maintenance call or upon demand for payment by Merrill Lynch, the failure of either of which would result in the liquidation of the Company's shares of U.S. Wireless pledged to Merrill 14 Lynch to satisfy outstanding obligations under the Merrill Lynch credit facility, adverse tax consequences resulting from such liquidation, and a material adverse effect on the Company's financial condition. (b) CARNIVAL LETTER Since the installation of the CruiseView(TM) system on two Carnival cruise ships, and beginning in the quarter ended March 31, 2000, the Company has experienced costs in excess of those recoverable under the Carnival Agreement. Given these costs, and ongoing technical issues, the Company notified Carnival of its desire to renegotiate the Carnival Agreement. During these discussions, Carnival notified the Company in a letter dated April 24, 2000 that it sought to terminate the Carnival Agreement and sought to assert certain remedies thereunder. The Company and Carnival are in discussions seeking to resolve issues under the Carnival Agreement regarding recovery of amounts paid to the Company (recorded as deferred revenue), the Company's recovery of its inventory costs, potential warranty/de-installation obligations and other matters. Concurrently, the Company and Carnival are in discussions with respect to a new agreement which would cover the installation of the Company's latest CruiseView(TM) technology on the "Fantasy" class ship discussed above, and contractual terms more favorable to the Company than the Carnival Agreement, including a longer-term and multiple ship arrangement. The Company believes its new technology improves the Company's ability to create multiple new content and commerce-based revenue streams, and to establish a business relationship providing appropriate returns to each partner. However, while the Company is optimistic about the discussions, there is no assurance that the Company will be successful in reaching a mutually satisfactory resolution of the Carnival Agreement and in securing a new, more favorable long term contract with Carnival. ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. Global Technologies, Ltd. ("Global" and, collectively with its affiliate companies, the "Company") is a technology incubator that invests in, develops and assists in the management of or operates emerging growth companies in the e-commerce, networking solutions, telecommunications and gaming industries. Global currently holds approximately 80% of the outstanding common stock of The Network Connection, Inc. ("TNCi") on a fully converted basis. TNCi is publicly traded on the Nasdaq SmallCap Market under the ticker symbol "TNCX." TNCi is engaged in the business of designing, manufacturing, marketing, installing and maintaining advanced, high-end, high-performance computer servers and interactive, broad-band information and entertainment systems and providing the content available thereon. Global also holds approximately 15.25% of the outstanding common stock of U.S. Wireless Corporation ("US Wireless). US Wireless is publicly traded on the Nasdaq SmallCap Market under the ticker symbol "USWC." US Wireless has developed a proprietary, network-based wireless location technology and plans to build out a nationwide network to support its technology. Global also holds 27.5% of Inter Lotto (UK) Limited ("InterLotto") a company that is licensed to operate lotteries on behalf of charities in the United Kingdom ("UK"). Global owns 100% of GTL Management Limited ("GTL Management"), which has an exclusive contract with InterLotto to provide it management services in connection with operation of lotteries. Global holds approximately 4% of Shop4Cash.com, Inc. ("Shop4Cash"), a privately held cash-incentive Internet shopping portal with a growing base of about 250 affiliated merchants. Lastly, Global owns 24.5% of Donativos S.A. de C. V. ("Donativos"), a company that has developed and is operating a gaming center in 15 Monterrey, Mexico. On April 14, 2000 the Company entered into an agreement pursuant to which on May 10, 2000 the Company received $2.0 million from Donativos in return for cancellation of the debt owed by Donativos to Global and transfer of the equity that Global and Regal Gaming & Entertainment, Inc. ("Regal") held in Donativos to the majority shareholder of Donativos. The transaction also involved an exchange of general releases and transfer of title to the equipment in the gaming center in Monterey, Mexico from a Global subsidiary to Donativos. RESULTS OF OPERATIONS REVENUE Revenue for the quarter ended March 31, 2000 was $590, a decrease of $290,183 (or 99%) compared to revenue of $290,773 for the corresponding period of the previous fiscal year. Revenue for the nine months ended March 31, 2000 was $5,657,736, an increase of $4,374,460 (or 341%) compared to revenue of $1,283,276 for the corresponding period of the previous fiscal year. The Company elected to defer revenue of approximately $2.1 million in connection with the Carnival Agreement pending the outcome of current contract negotiations. Equipment sales generated during the three months and nine months ended March 31, 2000 were principally from the sale of 195 of TNCi's Cheetah(R) video servers in connection with the Georgia Metropolitan Regional Education Services Agency ("MRESA") Net 2000 project. Equipment sales of $89,028 during the nine months ended March 31, 1999 were generated from the sale of spare parts needed for the entertainment networks previously installed on three Swissair aircraft. Service income of $59,827 generated during the nine months ended March 31, 2000 was from system design services provided by TNCi to ALSTOM Transport LTD ("Alstom"). The Company provided these services to Alstom, but expects no further business from Alstom as they plan to create a subsidiary that would compete with the Company in the passenger rail market. Service income of $290,773 and $1,194,248 was generated during the three months and nine months ended March 31, 1999, respectively. During the nine months ended March 31, 1999, service income of $389,037 was generated from programming services provided to Swissair, the Company's share of gaming profits generated by the Swissair systems, revenue earned under the Swissair extended warranty contract, and service income of $805,211 generated by the Company's dry cleaning operations. The dry cleaning operations were acquired by prior management of the Company and disposed of by current management on May 13, 1999. There will be no further revenue under the Swissair agreements. COST OF SALES Cost of equipment sales and service income for the quarter ended March 31, 2000 were $246,858, an increase of $63,417 (or 35%) compared to cost of sales of $183,441 for the corresponding quarter of the previous fiscal year. Cost of equipment sales and service income for the nine months ended March 31, 2000 were $3,716,876, an increase of $2,903,588 (or 357%) over cost of sales of $813,288 for the corresponding period of the previous fiscal year. Cost of equipment sales for the three months and nine months ended March 31, 2000 is comprised principally of material costs and estimated warranty costs associated with the 195 TNCi Cheetah(R) video servers for the Georgia schools project. Cost of sales for the corresponding period ended March 31, 1999 includes cost of equipment sales 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; and cost of service income for production costs related to the dry cleaning operations previously owned by the Company. GENERAL AND ADMINISTRATIVE General and administrative expenses for the quarter ended March 31, 2000 were $8,541,879, an increase of $6,633,804 (or 348%) compared to expenses of $1,908,075 for the corresponding period ended March 31, 1999. General and administrative expenses for the nine months ended March 31, 2000 were $14,346,353, an increase of $4,570,068 (or 47%) compared to expenses of $9,776,285 for the corresponding period of the previous fiscal year. The increase in expenses in the current nine-month period is principally attributed to the costs of starting up GTL Management's operations in connection with the launch of the UK lottery, as well as an increase in expenses of TNCi related to personnel increases in the current quarter, offset partially by a $3.1 million severance expense recorded September 1998 for three former executives of TNCi. 16 NON-CASH COMPENSATION Non-cash compensation expense of $292,562 in the three-month period ended March 31, 2000 is related to the issuance of warrants and stock in exchange for services. Non-cash compensation of $916,612 for the nine-month period ended March 31, 2000 is comprised of an $85,000 expense for a former employee as part of a severance package as well as $ 831,612 of expense related to the issuance of warrants and stock in exchange for services. DEPRECIATION AND AMORTIZATION Depreciation and amortization expense for the quarter ended March 31, 2000 was $370,607, an increase of $266,151 (or 255%) compared to depreciation and amortization expense of $104,456 for the corresponding period in the previous fiscal year. Depreciation and amortization expense for the quarter ended March 31, 2000 are comprised of property, plant and equipment depreciation of $188,150 and intangible amortization of $182,457. Depreciation and amortization expense for the corresponding period ended March 31, 1999 was comprised of property, plant and equipment depreciation of $93,626 and intangible amortization of $10,830. The increase in depreciation and amortization expense in the current quarter can be attributed to fixed assets acquired during May 1999 as the result of the merger with TNCi, an increase in fixed asset purchases by TNCi in the current period and the depreciation of gaming equipment owned by the Company related to the Company's investment in Donativos. Depreciation and amortization expense for the nine months ended March 31, 2000 was $1,023,172, an increase of $365,813 (or 56%) compared to depreciation and amortization expense of $657,359 for the corresponding period ended March 31, 1999. Depreciation and amortization expense for the nine months ended March 31, 2000 is comprised of property, plant and equipment depreciation of $463,071 and intangible amortization of $560,101. Depreciation and amortization expense for the corresponding period ended March 31, 1999 is comprised of property, plant and equipment depreciation of $518,563 and intangible amortization of $138,796. The decrease in property, plant and equipment depreciation in the current nine-month period is a result of $1,006,532 of equipment written off during October 1998, partially offset by the depreciation of assets acquired May 1999 as a result of the TNCi merger. The increase in amortization expense in the current three-month period is due to the fact that amortization for the three-month period ended March 31, 2000 is attributed to goodwill related to the merger with TNCi, whereas amortization for the three-month period ended March 31, 1999 is attributable to the dry cleaning operations. Intangible amortization for the current nine-month period is principally attributed to goodwill related to the merger with TNCi, whereas intangible amortization for the nine-month period ended March 31, 1999 is attributed to the dry cleaning operation. SPECIAL CHARGES There were no special charges for the quarter ended March 31, 2000 or for the corresponding period ended March 31, 1999. Special charges for the nine months ended March 31, 2000 were zero compared to a credit of $190,000 during the corresponding period ended March 31, 1999. A recovery of $190,000 was recognized during September 1998 as a result of a reduction in the number of entertainment networks installed on Swissair aircraft requiring maintenance. PROVISION FOR DOUBTFUL ACCOUNTS There were no provisions for doubtful accounts for the three and nine months ended March 31, 2000 compared to $28,647 for the corresponding periods of the previous fiscal year. The provisions in the previous fiscal year resulted from entertainment programming services provided to Swissair for which the Company has not been paid. INTEREST EXPENSE Interest expense was $5,845 and $54,120 for the three months and nine months ended March 31, 2000 compared to $1,358 and $5,614 for the three months and nine months ended March 31, 1999, respectively. Interest expense for the nine-month period of the current fiscal year is principally attributable to 17 prior long-term debt obligations and fees related to establishing a certificate of deposit, whereas interest expense for the corresponding period of the previous fiscal year is attributable to the Company's capital leases for furniture. INTEREST INCOME Interest income was $48,732 and $573,639 for the three and nine months ended March 31, 2000 compared to $406,799 and $1,476,229 for the three and nine months ended March 31, 1999, respectively. Interest income for the three and nine month period ended March 31, 2000 is attributed to short-term investments of working capital as well as amortization on gains related to Global's purchase of the TNCi Series A, D and E notes from the holders of such notes. Interest income for the corresponding period of the previous fiscal year is attributed principally to short-term investments of working capital. The decrease in income during the current nine-month period is due to the lower average cash balance during the nine-month period ended March 31, 2000 compared to the corresponding period ended March 31, 1999, offset partially by the amortization on the gains from the purchase of the TNCi Series A, D and E notes from their holders. EQUITY INTERESTS For the quarter ended March 31, 2000 the Company recorded its share of its equity interest in losses of Inter Lotto in the amount of $405,325. For the nine-month period ended March 31, 2000 the Company's share of equity interest in losses of Inter Lotto and Donativos was $1,036,125 and $84,651, respectively. The equity method of accounting requires that when it is determined that only one party in an investment has any tangible assets at risk, 100% of the equity loss should be recorded by that party without regard to the percent ownership in the investment. The Company has determined during the quarter ended December 31, 1999 that it retains the majority of the financial risk related to Inter Lotto and, accordingly, has recorded against their investment 100% of the loss incurred by Inter Lotto during this period before operations begin, and will continue to record 100% of the loss until such time as the investment returns a profit. INVESTMENT EXPENSE Expenses associated with investments of $1,656,587 for the nine months ended March 31, 2000 represent a reserve for the investment in Donativos. Expenses associated with investments of $300,000 for the three and nine months ended March 31, 1999 represent a $150,000 investment write-off deemed to have no value and a $150,000 standstill fee related to the Inter Lotto acquisition. OTHER EXPENSE Other expense of $15,913 and $19,697 for the three and nine months ended March 31, 2000, respectively, consist principally of losses incurred on the buyout of a capital lease for furniture, losses incurred on the sale of two buildings located in Alpharetta, Georgia on a loss incurred on the buyout of a vehicle lease. Other expense of $547,772 for the nine-month period ended March 31, 1999 resulted from furniture and equipment write-offs of $1,006,532 during October 1998, partially offset by the recovery of furniture and equipment written off in fiscal 1997. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2000, the Company had cash and cash equivalents, and short-term investments of approximately $94.1 million of which approximately $93.0 million represents the Company's investment in U.S. Wireless, which was classified as an investment available for sale and carried at fair market value as of March 31, 2000. The carrying value of this investment is subject to future fluctuations in the market price of U.S. Wireless common stock. As of May 11, 2000, the price per share of U.S. Wireless common stock was $15.00, resulting in a fair market value of $45 million. 18 On April 5, 2000, the Company entered into a line of credit facility with Merrill Lynch in which Merrill Lynch agreed to advance up to $10 million based upon a percentage of the value of securities pledged as collateral to secure amounts drawn under the line of credit. Principal amounts borrowed under the line, together with accrued interest at an annual rate equal to the London Inter-bank Offer Rate (LIBOR) plus 1.25%, are payable upon demand by Merrill Lynch. As of May 11, 2000, approximately $5.1 million is outstanding under the line of credit facility. To secure such borrowing, the Company has pledged to Merrill Lynch 1,000,000 shares of common stock of U.S. Wireless Corporation ("U.S. Wireless") held by the Company. If the amount owed under the Merrill Lynch credit facility at any time exceeds 35% of the market value of the shares of U.S. Wireless pledged to Merrill Lynch, the Company will be subject to a maintenance call which would require the Company to pledge additional securities which are acceptable to Merrill Lynch as collateral or require the Company to reduce the outstanding balance owed under the Merrill Lynch credit facility through payment in cash. The Company provides no assurance that the Company would have sufficient additional collateral or funds necessary to pay outstanding amounts owed under the Merrill Lynch credit facility in the event of a maintenance call or upon demand for payment by Merrill Lynch, the failure of either of which would result in the liquidation of the Company's shares of U.S. Wireless pledged to Merrill Lynch to satisfy outstanding obligations under the Merrill Lynch credit facility, adverse tax consequences resulting from such liquidation, and a material adverse effect on the Company's financial condition. On May 10, 2000, the Company repaid $1.9 million of the line of credit facility to satisfy a maintenance call from Merrill Lynch. The payment was made from the proceeds received in conjunction with the Donativos agreement. In February 2000, Global entered into an agreement to issue preferred stock and callable warrants in return for $10 million. The preferred stock carries a 5% cumulative dividend payable quarterly in cash or in kind. The preferred stock converts into Class A Common Stock at a conversion price equal to 120% of the average closing bid prices thereof over the five trading days beginning March 1, 2000 (the "Fixed Conversion Price"). Nine months after funding, and every three months thereafter, the conversion price resets to the lesser of the Fixed Conversion Price or 100% of the average of the four low trading prices over the course of the preceding 20 trading days. The Company has granted the purchaser of the preferred stock registration rights relating to the Class A Common Stock into which the preferred stock and warrants are convertible or exercisable, as the case may be. Additionally, the Company may redeem the preferred stock for a premium under certain circumstances. As described below, the Company has purchase commitments related to Inter Lotto in the amount of $5.5 million ($12.3 million commitment less payments of $6.8 million to date). In addition, as described below, the Company has a commitment to fund the revolving credit facility between TNCi and Global. The Company is seeking additional financing for the Inter Lotto obligations. Alternatively, the Company could seek to sell, or to further borrow against a pledge of, the unregistered shares of US Wireless or its subsidiary, TNCi, owned by the Company. 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 received orders consisting of a $5.3 million purchase order for the manufacture, delivery and installation of 195 of the Company's Cheetah(R) multimedia video servers in connection with the Georgia MRESA Net 2000 project, and a service order for installation of a second CruiseView(TM) system. In addition, in the three months-ended March 31, 2000, the Company received three orders for installation of InnView(TM) systems in hotels in California and Arizona. The Company has received the full payment of $5.3 million in connection with the Net 2000 project. The Company received installment payments from Carnival for the two ships currently under contract which has been recorded as deferred revenue (the aggregate amount of which was $2.1 million at March 31, 2000). 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 orders under the agreement with Carnival and its three hotel orders, 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. In addition, as described below, the Company's purchase commitments with respect to Inter Lotto will greatly accelerate this decrease to the extent that the Company will have depleted its cash and cash equivalents, in the quarter ending June 30, 2000, and in the absence of alternative financing, be required to sell or borrow against a pledge of its short term investment securities. 19 During the nine months ended March 31, 2000, the Company used $10.6 million of cash for operating activities, a decrease of $1.7 million from the $12.3 million of cash used by operating activities for the nine months ended March 31, 1999. Cash utilized in operations during the nine months ended March 31, 2000 resulted primarily from the net loss, increases in other current assets, other assets, inventories related to installations of InnView(TM) and prepaid expenses, partially offset by increases in accounts payable resulting from inventory purchases, accrued liabilities, deferred revenue related to the Carnival Agreement, and accrued product warranties related to the Carnival Agreement. The cash used in operations during the nine months ended March 31, 1999 resulted primarily from general and administrative expenses. Restricted cash decreased by $667,181 during the nine months ended March 31, 2000 primarily as the result of severance payments to former employees and the release of a letter of credit securing the purchase of equipment related to Donativos. Cash flows used in investing activities were $12.7 million during the nine months ended March 31, 2000. Deposits on equipment purchases for Inter Lotto accounted for the majority of the use of cash. Purchases of investment securities, offset by maturities of investment securities and proceeds from the sale of assets held for sale, along with proceeds from the sale of investment securities, and investments in affiliates accounted for the balance of the change. For the nine months ended March 31, 2000, cash provided from financing activities of $9 million resulted primarily from proceeds from the issuance of Series C Preferred Stock, sale of stock to Directors and Officers of the company and exercise of unit price options, partially offset by purchases of treasury stock as well as payments made to repurchase Series A, D and E notes and payments made on notes payable. 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 $400,000. At the November 10, 1999 meeting of the Board of Directors of the Company, the Board approved the sale of approximately 1,552,500 shares of its Class A Common Stock to certain of the Company's directors and officers at $1.75 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 liquidity strain experienced in connection with redemption of its Series A 8% Convertible Preferred Stock and to provide capital for the Company to pursue its investment in Shop4Cash.com, Inc., a privately held e-commerce company. The issuance was made in a private offering pursuant to Section 4(2) of the Securities Act. Global will be required to commit additional funds to its affiliate companies, TNCi, 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 or sale of short-term investments. Global may also identify new business opportunities that it would like to participate in, which may require financing. Should additional funding, if required, exceed existing working capital, 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. As of September 8, 1999, GTL Leasing Limited entered into an agreement to purchase $12.3 million of lottery systems in connection with its investment in Inter Lotto. As of March 31, 2000, the Company had paid $6.8 million towards the purchase price and expects to finance the balance of this commitment. 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. The Company also entered into a facilities management agreement for servicing of the lottery systems. Under this agreement, GTL Management Limited is required, beginning April 1, 2000, to make weekly payments to the provider of the lottery systems of $72,000, plus additional amounts based on the number of installed terminals in excess of 20 3,500 and a percentage of the average daily sales beginning in March 2000. Global has guaranteed the obligations of GTL Leasing Limited and GTL 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 375,000 shares of its Class A Common Stock and agreed that its wholly-owned subsidiary, GlobalTech Holdings Limited, a UK corporation ("GTL Holdings"), will pay First Lawrence 24 consecutive monthly payments of $41,667 each, beginning April 1, 2000. In exchange, First Lawrence will be available to perform management consulting services to GTL Holdings. On August 24, 1999, Global's Board of Directors approved a $5 million secured revolving credit facility 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 TNCi and is convertible, at Global's option, into shares of TNCi's Common Stock at a price equal to the lesser of 66.7% of the five day low average share price of the preceding 20 days, or $1.50 per share, or any lesser amount at which shares of TNCi's Common Stock have been issued to third parties. Pursuant to Nasdaq rules, Global may not convert borrowings under the Facility into shares of TNCi Common Stock in excess of 19.99% of the number of shares of TNCi Common Stock outstanding as of August 24, 1999, without stockholder approval. As of March 31, 2000, $1,080,000 was outstanding under the Facility. As of March 31, 2000, the Company did not have sufficient cash for TNCi to borrow the full $5 million under the Facility. Should TNCi draw on the Facility, the Company would have to obtain financing or sell assets to meet its obligations under the Facility. Should TNCi be unable to borrow funds under the Facility, it could result in a material adverse effect on the operating results and financial condition of TNCi. A note payable of TNCi due September 5, 1999 was converted into 200,000 shares of TNCi's Common Stock. On November 23, 1999, Global acquired 500,000 shares, or approximately 4% of Shop4Cash at a price of $2.00 per share. Shop4Cash is a privately held, cash-incentive, Internet shopping portal. Global has registration rights in connection with these shares. The terms of the Carnival Agreement provide that Carnival may return the CruiseView(TM) system within the acceptance period, as defined in the Carnival Agreement, or for breach of warranty. The acceptance period for the Fantasy and Destiny class ships are twelve months and three months, respectively, from completion of installation and testing, which occurred in February 1999 and October 1999, respectively. The initial warranty period for these systems is three years. As of March 31, 2000, the Company had recorded deferred revenue of approximately $2.1 million related to the two Carnival ships. In the quarter ended March 31, 2000, the Company concluded that the cost of building and installing CruiseView(TM) systems on the existing two Carnival ships pursuant to the Carnival Agreement has exceeded the revenue that can be earned in connection therewith. Accordingly, the Company has recorded an expense of $208,146 in the period ended March 31, 2000 reflecting the excess of cost over expected revenue. Carnival's continuing to exercise its option for building and installing CruiseView(TM) on additional ships under the 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 agreement with Carnival. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation (an interpretation of APB Opinion No. 25). This interpretation provides guidance regarding the application of APB Opinion 25 to Stock Compensation involving employees. This interpretation is effective July 1, 2000 and is not expected to have a material effect on the Company's consolidated financial statements. 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 with which the Company may be involved in the future, if any. 21 YEAR 2000 Many currently installed computer systems and software products were coded to accept only two digit year entries in the date code field. Consequently, subsequent to December 31, 1999, many of these systems became subject to failure or malfunction. Although the Company is not aware of any material Year 2000 issues at this time, Year 2000 problems may occur or be made known to the company in the future. Year 2000 issues may possibly affect software solutions developed by the Company or third-party software incorporated into the Company's solutions. The Company generally does not guarantee that the software licensed from third-parties by the Company's clients is Year 2000 compliant, but the company sometimes does warrant that solutions developed by the Company are Year 2000 compliant. 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: the Company's ability to successfully resolve contract issues with Carnival Corporation; resolution of the Swissair-related litigation; obtaining financing for general corporate purposes and for the Inter Lotto gaming equipment; the inability to fund draws on the credit facility between Global and TNCi; the inability to cover the obligations to the provider of the Inter Lotto lottery systems from the operations of a start-up venture in an untried game in the UK market; the ability of the Company to procure and provide compelling content for use through its systems; the Company's success in obtaining new contracts for the sale of its Cheetah(R) Servers and/or interactive information and entertainment systems; 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; reliability of technical proficiency of systems developed by the Company; the inability of TNCi to finance development of installation of system purchases; competition and competitive pressures on pricing; and economic conditions in the United States and in other regions served by the Company. 22 PART II. OTHER INFORMATION ITEM 1 -- LEGAL PROCEEDINGS 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. Swissair/MDL-1269, IN REGARDS TO AN AIR CRASH NEAR PEGGY'S COVE, NOVA SCOTIA. This multi-district litigation, which is being overseen by the United States District Court for the Eastern Division of Pennsylvania, relates to the crash of Swissair Flight No. 111 on September 2, 1998. 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. 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 has been named in some of the lawsuits filed on a successor liability theory. The Company and TNCi deny all liability for the crash. The Company and TNCi are being defended by the aviation insurer for the Company. A suit captioned LODGENET ENTERTAINMENT CORPORATION V. THE NETWORK CONNECTION, INC. was filed April 5, 2000 in the Circuit Court for the Second Judicial Circuit of the State of South Dakota. The action arises out of TNCi's hiring of Theodore P. Racz, a former LodgeNet Entertainment Corporation ("LodgeNet") employee, as its Senior Vice President of the Hotels & Hospitality division. LodgeNet is alleging tortious interference with contract and tortious interference with business relationships. LodgeNet is seeking to prohibit Mr. Racz from being employed by TNCi, as well as seeking damages, and fees and costs. 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 the Company on or about July 22, 1999 by Federal Express Corporation and relates to charges incurred by prior management. The suit alleged the Company owes Federal Express approximately $110,000 for past services rendered. The Company has settled this matter for $75,000, with $25,000 having been paid on execution of the settlement agreement on March 3, 2000, $10,000 having been paid on each of April 1, 2000 and May 1, 2000 and three additional payments of $10,000 to be paid on each of June 1, 2000, July 1, 2000 and August 1, 2000. BRYAN R. CARR V. THE NETWORK CONNECTION, INC. AND GLOBAL TECHNOLOGIES, LTD., Superior Court of Georgia, Civil Action No. 99-CV-1307. Bryan R. Carr, the Company's former Chief Operating and Financial Officer and a former Director, filed a claim on November 24, 1999 alleging a breach of his employment agreement. Mr. Carr claims that he is entitled to the present value of his base salary through October 31, 2001, a share of any "bonus pool," the value of his stock options and accrued vacation time. The Company is currently defending the claim. GLOBAL TECHNOLOGIES, LTD. V. XCEL CAPITAL, LLC, United States District Court for the Eastern District of Pennsylvania, Case No. 00-CV-505. On January 27, 2000 Global filed an action against XCEL Capital, LLC ("XCEL") for specific performance and breach of contract. In the action, Global is seeking to compel XCEL to tender 116,785 shares of Global Class A Common Stock to Global at $3.17 per share in accordance with XCEL's obligations pursuant to a put/call agreement entered into between the parties on August 12, 1999. 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. 99-6041606, 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. Barington's New York suit has been stayed pending resolution of the Arizona action. Global denies all liability and denies that any sums are owed to Barington. October 25, 1999, Global filed a lawsuit against Regal Gaming & Entertainment, Inc. ("Regal") (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 (and guaranteed by its principals and their spouses) to Global. The promissory note 23 was made to secure Regal's obligations to fund cost overruns in connection with the entertainment center project undertaken by Donativos. In May 2000, this lawsuit was settled in connection with a transaction that Global engaged in with Donativos S.A. de C.V. ("Donativos") whereby Global received $2.0 million from Donativos in return for cancellation of the debt owed by Donativos to Global and transfer of the equity that Global and Regal held in Donativos to its majority shareholder (the debt and equity portions of this investment had been previously written off). In the settlement, Regal delivered to Global its shares of Donativos in return for $80,000, dismissal of this lawsuit, cancellation of the debt owed by Regal to Global and a mutual general release. A case captioned INTERACTIVE FLIGHT TECHNOLOGIES, INC. V. MICHAIL ITKIS was initiated on February 3, 1999 in the Superior Court of State of Arizona, in and for Maricopa County. The Company brought claims for breach of contract, unjust enrichment, breach of fiduciary duty and fraud against Mr. Itkis relating to certain items of compensation that he received in connection with his separation from the Company. The Company sought the return of the items of compensation. Mr. Itkis brought counterclaims against the Company and certain of its affiliates for breach of contract and declaratory judgment, seeking to retain the items of compensation. The parties settled this matter in May 2000 with Global paying Mr. Itkis $6,295 for certain legal expenses he incurred in defending the action and for which Global was required to provide indemnity. The Company may be subject to other lawsuits and claims arising in the ordinary course of its business. In the Company's opinion, as of March 31, 2000, 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 connection with the Company's February 2000 financing, designees of Reedland Capital Partners, a division of Financial West Group, received warrants to purchase an aggregate of 50,000 shares of the Company's common stock at $17.835 per share for Reedland Capital Partners' role as sales agent. These warrants were issued in a transaction exempt from the registration provisions of the Securities Act of 1933 as amended (the "Act"), pursuant to Section 4(2) thereof. On March 13, 2000, TNCi issued 236,080 shares of its common stock in connection with the cashless exercise of common stock purchase warrants held by the former holders of Series A and E notes. The warrants exercised represented warrants to purchase 311,525 shares of TNCi Common Stock. These shares were issued in a transaction exempt from the registration provisions of the Securities Act pursuant to Section 4(2) thereof. On February 16, 2000, Global sold 10,000 shares of its Series C Stock and callable warrants to two institutional investors for $9.7 million (net of $300,000 paid to the intermediary for the transaction, which also received warrants to purchase 50,000 shares of Class A Common Stock). The transaction is exempt from the registration provisions of the Securities Act pursuant to Section 4(2) thereof. The Series C Stock converts into shares of Class A Common Stock the Fixed Conversion Price. Nine months after funding, and every three months thereafter, the conversion price resets to the lesser of the Fixed Conversion Price or 100% of the average of the four low trading prices over the course of the preceding 20 trading days. Any outstanding shares of Series C Stock automatically convert to Class A Common Stock at the then applicable conversion price on the third anniversary of funding. The warrants are exercisable for 100,925 shares of Class A Common Stock at an exercise price of $17.748 and expire on February 16, 2005. The purchasers of the Series C Stock and warrants were granted registration rights in connection with the transaction. The shares of Class A Common Stock underlying the Series C Stock and warrants were registered on a Registration Statement on Form S-3 that was declared effective by the Commission on April 17, 2000 at 10:30 a.m. Eastern Standard Time. Issuance of the Unit Purchase Options and Warrants was in a transaction exempt from the registration provisions of the Securities Act pursuant to Section 4(2) thereof. In connection with the Company's March 6, 1995 public offering, the Company issued 140,000 Unit Purchase Options to designees of D. H. Blair Investment Banking Corporation for their role as underwriters of the offering. Each Unit Purchase Option was exercisable into one share of Class A Common Stock, One Class A Warrant and One Class B Warrant at an exercise price of $12.00 per share. Each Class A Warrant was exercisable into one share of Class A Common Stock and one additional Class B Warrant at an exercise price of $13.71 per share (as adjusted for certain dilutive events). Each Class B Warrant was exercisable into one share of Class A Common Stock at an exercise price of $19.10 per share (as adjusted for certain dilutive events). The options and underlying warrants were set to expire in March 6, 2000. 24 As of March 6, 2000, 104,458 shares of Class A Common Stock were issued as a result of the exercise of the Unit Purchase Options and 64,439 shares of Class A Common Stock were issued as a result of the exercise of Class A Warrants. No Class B Warrants were exercised and any remaining options and warrants have expired. The Company received proceeds of $2,111,019 as certain option holders executed cashless exercise. On March 6, 2000 the Company issued 169,897 shares of its Class A Common Stock as a result of the exercise of the Unit Purchase Options and Warrants described above. Pursuant to stock registration rights granted to the option holders, the shares of Class A Common Stock were registered on a Registration Statement on Form S-3 that was declared effective by the Commission on April 17, 2000 at 10:30 a.m. Eastern Standard Time. On March 6, 2000, TNCi granted options to purchase up to 800,000 shares of TNCi's Common Stock to Mr. Robert Pringle, President and Chief Operating Officer of TNCi. One fifth of these options vest on June 6, 2000, with the remainder vesting in four equal annual installments beginning March 6, 2001. Exercise price of the options is equal to the closing market price of TNCi's Common Stock on the day prior to grant, and the options expire on March 6, 2010. These options were granted in a transaction exempt from the registration provisions of the Securities Act pursuant to Section 4(2) thereof. On March 6, 2000, TNCi granted options to purchase up to 800,000 shares of TNCi's Common Stock to Dr. Jay Rosan, an Executive Vice President of TNCi. One fifth of these options vest on June 6, 2000, with the remainder vesting in four equal annual installments beginning March 6, 2001. Exercise price of the options is equal to the closing market price of TNCi's Common Stock on the day prior to grant, and the options expire on March 6, 2010. These options were granted in a transaction exempt from the registration provisions of the Securities Act pursuant to Section 4(2) thereof. On March 6, 2000, TNCi granted options to purchase up to 250,000 shares of TNCi's Common Stock to Mr. Richard Genzer, Chief Technology Officer of TNCi. One fifth of these options vest on June 6, 2000, with the remainder vesting in four equal annual installments beginning Manrch 6, 2001. Exercise price of the options is equal to the closing market price of TNCi's Common Stock on the day prior to grant, and the options expire on March 6, 2010. These options were granted in a transaction exempt from the registration provisions of the Securities Act pursuant to Section 4(2) thereof. 25 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. (a) EXHIBITS EXHIBIT NO. DESCRIPTION - ----------- ----------- 3.1 Certificate of Ownership and Merger. (1) 3.2 Amended and Restated certificate of Incorporation of the Registrant. (1) 3.3 Certificate of Amended and Restated Certificate of Incorporation af Registrant dated November 2, 1998. (4) 3.4 Certificate of Designations, Preferences, and Rights of Series A Convertible Preferred Stock of the Registrant. (4) 3.5 Certificate of Designations, Preferences, and Rights of Series B Convertible Preferred Stock of the Registrant. (4) 3.6 By-Laws of the Registrant. (1) 4.1 Warrant Agreement, dated as of March 7, 1995 among the Registrant, D. H. Blair Investment Banking Corp. and American Stock Transfer & Trust Company. (1) 4.2 Amendment to March 7. 1995 Warrant Agreement, among the Registrant, D. H. Blair Investment Banking Corp. and American Stock Transfer & Trust Company. (2) 4.3 Warrant Agreement, dated as of October 24, 1996 among the Registrant, D. H. Blair Investment Banking Corp. and American Stock Transfer & Trust Company. (2) 4.4 Amendment to October 24, 1996 Warrant Agreement, amoung the Registrant, D. H. Blair Investment Banking Corp., and American Stock Transfer & Trust Company. (2) 4.5 Form of Underwriter's Unit Purchase Option. (1) 4.6 Stock Purchase Warrant dated as of November 7, 1996 issued to FortuNet, Inc. (2) 4.7 Stock Purchase Warrant dated as of November 12, 1996 issued to Houlihan Lokey Howard & Zukin.. (2) 4.8 Form of Warrant issued to The Shaar Fund Ltd. Dated May 10, 1999. (3) 4.9 Registration Rights Agreement dated May 6, 1999 between the Registrant and The Shaar Fund Ltd. (3) 4.10 Convertible Preferred Stock Purchase Agreement among Registrant and the Investors signatory thereto, dated as of February 16, 2000 (5) 4.11 Certificate of Designations, Rights, Preferences and Limitations of Series C Convertible Preferred Stock of Global Technologies, Ltd. (5) 4.12 Callable Warrant issued to holders of Series C Convertible Preferred Stock of Global Technologies, Ltd. (5) 4.13 Registration Rights Agreement dated February 16, 2000 between the Registrant and the Investors Signatory thereto, dated as of February 16, 2000 (5) 4.14 Warrant Agreement, dated as of March 7, 1995 among the Registrant, D.H. Blair Investment Banking Corp. and American Stock Transfer & Trust Company (5) 26 EXHIBIT NO. DESCRIPTION - ----------- ----------- 4.15 Amendment to March 7, 1995 Warrant Agreement entered into among the Registrant, D.H. Blair Investment Banking Corp., and American Stock Transfer & Trust Company (5) 4.16 Warrant Agreement, dated as of October 24, 1996 among the Registrant, D.H. Blair Investment Banking Corp. and American Stock Transfer & Trust Company (5) 4.17 Amendment to October 24, 1996 Warrant Agreement among the Registrant, D.H. Blair Investment Banking Corp., and American Stock Transfer & Trust Company (5) 4.18 Form of Underwriter's Unit Purchase Option (5) 4.19 Stock Purchase Warrant Issued to The Shaar Fund Ltd. dated May 10, 1999 (5) 4.20 Registration Rights Agreement dated May 6, 1999 between the Registrant and The Shaar Fund Ltd. (5) 10.41 Employment Agreement between Robert Pringle and The Network Connection, Inc., dated March 6, 2000. * 10.42 Option Agreement between Robert Pringle and The Network Connection, Inc., dated March 6, 2000. * 10.43 Registration Rights Agreement between The Network Connection, Inc. and Robert Pringle, Jay Rosan, and Richard Genzer, dated March 6, 2000. * 27 Financial Data Schedule. * - ------------ * Filed herewith. (1) Incorporated by reference from the Registrant's Registration Statement on Form SB-2, Registration No. 33-86928. (2) Incorporated by reference from the Registrant's Registration Statement on Form S-3, Registration No. 333-14013. (3) Incorporated by reference from the Registrant's Quarterly Report on Form 10-QSB for the fiscal quarter ended January 31, 1997, filed with the Securities and Exchange Commission on March 17, 1997, File No. 0-25668. (4) Incorporated by reference from the Registrant's Quarterly Report on Form 10-QSB for the fiscal quarter ended April 30, 1999, filed with the Securities and Exchange Commission on June 14, 1999, File No. 0-25668. (5) Incorporated by reference from the Registrant's Registration Statement on Form S-3/A, Registration No. 333-32772. (b) REPORTS ON FORM 8-K The Company filed a report on Form 8-K on February 28, 2000, relating to the $10 million equity financing through the issuance of Series C 5% Preferred Stock. 27 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: May 14, 2000 GLOBAL TECHNOLOGIES, LTD. By: /s/ Irwin L. Gross --------------------------- Irwin L. Gross Chief Executive Officer By: /s/ Patrick J. Fodale --------------------------- Patrick J. Fodale Chief Financial Officer 28 INDEX OF EXHIBITS EXHIBIT NO. DESCRIPTION - ----------- ----------- 3.1 Certificate of Ownership and Merger. (1) 3.2 Amended and Restated certificate of Incorporation of the Registrant. (1) 3.3 Certificate of Amended and Restated Certificate of Incorporation af Registrant dated November 2, 1998. (4) 3.4 Certificate of Designations, Preferences, and Rights of Series A Convertible Preferred Stock of the Registrant. (4) 3.5 Certificate of Designations, Preferences, and Rights of Series B Convertible Preferred Stock of the Registrant. (4) 3.6 By-Laws of the Registrant. (1) 4.1 Warrant Agreement, dated as of March 7, 1995 among the Registrant, D. H. Blair Investment Banking Corp. and American Stock Transfer & Trust Company. (1) 4.2 Amendment to March 7. 1995 Warrant Agreement, among the Registrant, D. H. Blair Investment Banking Corp. and American Stock Transfer & Trust Company. (2) 4.3 Warrant Agreement, dated as of October 24, 1996 among the Registrant, D. H. Blair Investment Banking Corp. and American Stock Transfer & Trust Company. (2) 4.4 Amendment to October 24, 1996 Warrant Agreement, amoung the Registrant, D. H. Blair Investment Banking Corp., and American Stock Transfer & Trust Company. (2) 4.5 Form of Underwriter's Unit Purchase Option. (1) 4.6 Stock Purchase Warrant dated as of November 7, 1996 issued to FortuNet, Inc. (2) 4.7 Stock Purchase Warrant dated as of November 12, 1996 issued to Houlihan Lokey Howard & Zukin.. (2) 4.8 Form of Warrant issued to The Shaar Fund Ltd. Dated May 10, 1999. (3) 4.9 Registration Rights Agreement dated May 6, 1999 between the Registrant and The Shaar Fund Ltd. (3) 4.10 Convertible Preferred Stock Purchase Agreement among Registrant and the Investors signatory thereto, dated as of February 16, 2000 (5) 4.11 Certificate of Designations, Rights, Preferences and Limitations of Series C Convertible Preferred Stock of Global Technologies, Ltd. (5) 4.12 Callable Warrant issued to holders of Series C Convertible Preferred Stock of Global Technologies, Ltd. (5) 4.13 Registration Rights Agreement dated February 16, 2000 between the Registrant and the Investors Signatory thereto, dated as of February 16, 2000 (5) 4.14 Warrant Agreement, dated as of March 7, 1995 among the Registrant, D.H. Blair Investment Banking Corp. and American Stock Transfer & Trust Company (5) 4.15 Amendment to March 7, 1995 Warrant Agreement entered into among the Registrant, D.H. Blair Investment Banking Corp., and American Stock Transfer & Trust Company (5) 4.16 Warrant Agreement, dated as of October 24, 1996 among the Registrant, D.H. Blair Investment Banking Corp. and American Stock Transfer & Trust Company (5) EXHIBIT NO. DESCRIPTION - ----------- ----------- 4.17 Amendment to October 24, 1996 Warrant Agreement among the Registrant, D.H. Blair Investment Banking Corp., and American Stock Transfer & Trust Company (5) 4.18 Form of Underwriter's Unit Purchase Option (5) 4.19 Stock Purchase Warrant Issued to The Shaar Fund Ltd. dated May 10, 1999 (5) 4.20 Registration Rights Agreement dated May 6, 1999 between the Registrant and The Shaar Fund Ltd. (5) 10.41 Employment Agreement between Robert Pringle and The Network Connection, Inc., dated March 6, 2000. * 10.42 Option Agreement between Robert Pringle and The Network Connection, Inc., dated March 6, 2000. * 10.43 Registration Rights Agreement between The Network Connection, Inc. and Robert Pringle, Jay Rosan, and Richard Genzer, dated March 6, 2000. * 27 Financial Data Schedule. * - ------------ * Filed herewith. (1) Incorporated by reference from the Registrant's Registration Statement on Form SB-2, Registration No. 33-86928. (2) Incorporated by reference from the Registrant's Registration Statement on Form S-3, Registration No. 333-14013. (3) Incorporated by reference from the Registrant's Quarterly Report on Form 10-QSB for the fiscal quarter ended January 31, 1997, filed with the Securities and Exchange Commission on March 17, 1997, File No. 0-25668. (4) Incorporated by reference from the Registrant's Quarterly Report on Form 10-QSB for the fiscal quarter ended April 30, 1999, filed with the Securities and Exchange Commission on June 14, 1999, File No. 0-25668. (5) Incorporated by reference from the Registrant's Registration Statement on Form S-3/A, Registration No. 333-32772. EX-10.41 2 EMPLOYMENT AGREEMENT WITH ROBERT PRINGLE EMPLOYMENT AGREEMENT THIS AGREEMENT IS EFFECTIVE AS OF MARCH 6, 2000, BETWEEN THE NETWORK CONNECTION, INC. ("COMPANY") AND ROBERT PRINGLE ("EXECUTIVE"). WITNESSETH: 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 President and Chief Operating 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. Within 30 days after six months of employment under this Agreement have elapsed, the Board of Directors of Company shall convene a meeting in order to consider promotion of Executive to the position of Chief Executive Officer, based upon his performance to date. (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 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 3% 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 March 6, 2000, and ending on March 5, 2003, 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 renegotiated. 4. COMPENSATION. (a) 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 a cash bonus for each year that Executive's employment continues under this Agreement. The amount of this bonus shall be dependent and based upon the achievement of certain corporate objectives that shall be determined mutually by Executive and Company, and shall be in an amount of up to 50% of Executive's annual base salary. It is anticipated that these corporate objectives will be tied at least in part to fiscal year performance. The bonus shall be payable within 60 days of the end of the fiscal year to which it relates. The first bonus pursuant to this section would therefore be payable by August 31, 2000 (Company's fiscal year end is June 30), and shall be prorated to take into account the period of time during fiscal year 2000 that Executive actually worked with Company. Likewise, in the event that this Agreement is not renewed at the end of its term and Executive is entitled to bonus under this section for fiscal year 2003, such bonus shall be prorated in the same manner. (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. (d) Company will provide Executive with an automobile allowance of $500 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 Eight Hundred Thousand (800,000) shares of the Company's common stock, par value $0.001 per share, at an exercise price per share equal to the last sale price of a share of such common stock as of the close of business on the day prior to the execution and delivery of this Agreement, as reported by Nasdaq, pursuant to a separate Stock Option Grant Agreement (the "Plan"). 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 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. 2 7. TERMINATION WITHOUT CAUSE, UPON TERMINATION OF COMPANY'S BUSINESS, AND AFTER CHANGE IN CONTROL. If (i) Company shall terminate Executive without Cause (as defined in Paragraph 8 below), (ii) Company shall discontinue the business operation in which Executive is employed, or (iii) there is a Change in Control (as hereinafter defined) and as a result of such Change in Control, the Executive leaves the employ of Company 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 one-half his annual base salary, to be paid in accordance with the regular payroll practices of Company; (B) notwithstanding anything to the contrary contained in the Plan, the vesting of the installment of options that except for the termination of employment would have been the next to vest, shall be accelerated to the date of termination and shall thereafter be exercisable in accordance with the Plan; and (C) continue to provide Executive with family medical and dental coverage for a period of six months. In addition, in the event of termination of Executive pursuant to this Paragraph, the restrictions of subparagraph 10(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) other than Irwin L. Gross or Global Technologies, Ltd., 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 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; 3 (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 addition; (c) conviction of a felony, materially adversely affecting Company or 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; and (g) the Executive's material breach of this Agreement in any other respect, provided that the Company notifies the Executive in writing indicating with reasonable detail the nature of the breach and the Executive fails to cure the breach or render it non-material within 15 days after receipt of notice. 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. 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 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. 4 10. NONCOMPETITION, TRADE SECRETS, ETC. (a) During the term of this Agreement and for a period of one 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 definitively planned by Company, at the time of the termination of Executive's employment. However, nothing contained in this Paragraph 10 shall prevent Executive from holding for investment no more than three percent of any class of equity securities of a company whose securities are traded on a national securities exchange or 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 9 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. The limitations of this paragraph shall not apply to any information that has become previously disclosed to the public by the Company or has become public knowledge other than by a breach of this Agreement. (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. (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 5 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. 11. 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. In the event, however, that Executive is named a defendant in any legal action or proceeding alleging a breach of the non-compete, non-solicitation or confidentiality provisions of his employment contract with Aetna US Healthcare in connection with his employment hereunder, Company agrees to indemnify and hold Executive harmless against any claims, damages, losses, judgments, expenses, costs or other liabilities (including, without limitation, reasonable attorneys' fees) arising therefrom. 12. INDEMNIFICATION. Company maintains and shall continue to maintain Directors and Officers Errors and Omission coverage with a minimum coverage of at least 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. 13. 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, 6 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. (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: The Network Connection, Inc. 1811 Chestnut Street Suite 120 Philadelphia, PA 19103 Attention: Chief Executive Officer (ii) If to Executive: Robert Pringle -------------------------------------- -------------------------------------- -------------------------------------- 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 party 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. 7 (h) Entire Agreement. This Agreement 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 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. 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. THE NETWORK CONNECTION, INC. By: /s/ Irwin L. Gross ------------------------------------ Irwin L. Gross, Chairman and Chief Executive Officer EXECUTIVE: /s/ Robert Pringle ---------------------------------------- Robert Pringle 9 EXHIBIT "A" Under Paragraph 11, Noncompetition, Trade Secrets, Etc., the geographic area shall be as follows: Worldwide EX-10.42 3 STOCK OPTION GRANT AGR. - ROBERT PRINGLE STOCK OPTION GRANT AGREEMENT The stock option represented by this STOCK OPTION GRANT AGREEMENT is granted as of the 6th day of March 2000, by The Network Connection, Inc., a Georgia corporation (the "Company"), to Robert Pringle ("Grantee"). BACKGROUND A. Grantee is President and Chief Operating Officer of Company. B. Pursuant to the terms of an employment agreement entered into between the Company and Grantee of even date herewith (the "Employment Agreement"), and in order to induce Grantee to enter into the Employment Agreement, incentivize Grantee with respect to the future success of the Company and to encourage him to perform at increasing levels of effectiveness and use his best efforts to promote the growth and profitability of the Company, and in consideration of services to be performed, Company desires to afford Grantee an opportunity to purchase shares of its common stock, par value $0.001 per share ("Common Stock"), as hereinafter provided. C. Any capitalized terms used but not defined herein shall have the meanings attributed thereto in the Employment Agreement. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: 1. Grant of Option. In order to incentivize Grantee with respect to the future success of the Company and to encourage him to perform at increasing levels of effectiveness and use his best efforts to promote the growth and profitability of the Company, the Company hereby irrevocably grants to Grantee the right and option to purchase (the "Option") all or any part of an aggregate of Eight Hundred Thousand (800,000) shares of Common Stock (the "Option Shares") at a price per share equal to $9.00, which is the last sale price for shares of Common Stock on the day prior to the day hereof as reported by Nasdaq (the "Option Price"), during the Option Period (as defined below) and subject to the conditions hereinafter set forth. 2. Option Period. The Option may be exercised in accordance with the provisions of Paragraphs 4 and 5 hereof during the Option Period, which shall begin on the date hereof and shall end on the Option Expiration Date defined in Paragraph 3 hereof. All rights to exercise the Option shall terminate on the Option Expiration Date. 3. Option Expiration Date. The Option Expiration Date shall be March 6, 2010. 4. Exercise of Option. (a) The Option shall vest, and shall be exercisable as set forth in the following table, provided that any portion of this Option which becomes exercisable in any year, but is not exercised in such year, may be carried forward and exercised in any future year until the Option Expiration Date, subject to earlier termination as provided in Paragraph 6 hereof: From and after: Number of Shares Exercisable --------------- ---------------------------- June 6, 2000 160,000 March 6, 2001 160,000 March 6, 2002 160,000 March 6, 2003 160,000 March 6, 2004 160,000 (b) Notwithstanding anything to the contrary contained herein, Grantee may purchase all or any portion of the unexercised balance of this Option immediately prior to, or upon, the effective date of a Change of Control (as defined in the following sentence). A "Change of Control" of the Company shall mean any transaction or series of related transactions that results in a change in the control of the Company, including, without limitation: (i) a merger or consolidation of the Company into or with any other entity when the Company is not the surviving entity of such merger or consolidation; (ii) the acquisition, directly or indirectly, by any individual, entity or "group" (as defined in Section 13(d) of the Securities and Exchange Act of 1934, as amended) (other than the Company, any subsidiary thereof, any employee benefit plan of the Company, or any entity holding shares or other securities of the Company for or pursuant to the terms of such a plan) (an "Acquirer"), of stock or options, or any combination thereof, entitling the Acquirer to cast 50% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate class vote) entitled to be cast by all stockholders of the Company in an election of the Board of Directors of the Company; (iii) the acquisition, directly or indirectly, by an Acquirer of a majority of the total equity interest of the Company; (iv) the sale or other disposition of assets of the Company equal to 33.33% or more of the value of the Company's assets at the time of such sale or disposition, unless the stockholders of the Company, immediately prior to such sale or disposition, hold at least a majority of the voting power of each surviving, resulting or acquiring corporation which, immediately following the transaction, holds any of such sold or disposed assets; (v) the election to the Board of Directors of the Company of individuals who would constitute a majority of the members of the Board elected at any meeting of stockholders or by written consent (without consideration of the rights of any class of stock to elect directors by a separate class vote), where the election or the nomination for election by the Company's stockholders of such directors was not approved by a vote of at least a majority of the directors in office immediately prior to such election or nomination; or 2 (vi) the formation of a joint venture or partnership with the Company for the purpose of effecting a transfer of control of, or a material interest in, the Company (such merger, consolidation, sale or other transaction listed in subparagraphs (i) through (vi) being hereinafter referred to as a "Transaction"). There shall be excluded from the foregoing any Transaction as a result of which (A) the holders of Common Stock prior to the Transaction retain or acquire securities constituting a majority of the outstanding voting common stock of the acquiring or surviving corporation or other entity in substantially the same proportions that they owned Common Stock in the Company prior to the Transaction, and (B) no single person or entity owns more than half of the outstanding voting common stock of the acquiring or surviving corporation or other entity. For purposes of this Paragraph 4, voting common stock of the acquiring or surviving corporation or other entity that is issuable upon conversion of convertible securities or upon exercise of warrants or options shall be considered outstanding, and all securities that vote in the election of directors (other than solely as the result of a default in the making of any dividend or other payment) shall be deemed to constitute that number of shares of voting common stock which is equivalent to the number of such votes that may be cast by the holders of such securities. 5. Manner of Exercise. Exercise of the Option, or any portion thereof, shall be by written notice to the Company pursuant to Paragraph 12 hereof. The notice shall be accompanied by payment in full in cash, stock of the Company, or other property (including notes or other contractual obligations of Grantee to make payment on a deferred basis, and/or through "cashless exercise arrangements," to the extent permitted by applicable law), or a combination thereof, in an amount equal to the product obtained by multiplying the number of Option Shares with respect to which the Option is then being exercised by the Option Price. Upon receipt of such notice and payment, the Company shall, as soon as practicable thereafter, deliver a certificate or certificates representing the Option Shares purchased. The certificate or certificates shall be delivered to or upon the written order of the Grantee. Upon such exercise and regardless of the fact that a certificate or certificates representing the Option Shares purchased shall not yet have been issued, Grantee or his legal representative, legatees or distributees, as the case may be, shall be deemed to be a holder of any shares subject to this Option, provided that the written notice and payment required by this Paragraph 5 have been delivered to Company. The Option Shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and non-assessable. 6. Rights in Event of Death, Disability or Termination of Employment. (a) DEATH. If Grantee's employment is terminated because of death while employed by the Company, then the installment of Options that would have been the next to vest at the time of such termination shall automatically vest as of the date immediately prior to such termination (without any action on the part of the Company or the Grantee). After such a termination, Grantee's estate or legal representatives shall have through the Option Expiration Date to exercise any vested but unexercised Options. Subject to the first sentence of this paragraph (a), any Options that remain unvested at the time of termination shall automatically terminate and be cancelled (without any action on the part of the Company). (b) DISABILITY. If Grantee is terminated from his employment with the Company by reason of disability in accordance with the Employment Agreement, then the installment of Options that would have been the next to vest at the 3 time of such termination shall automatically vest as of the date immediately prior to such termination (without any action on the part of the Company or the Grantee). After such a termination, Grantee shall have through the Option Expiration Date to exercise any vested but unexercised Options. Subject to the first sentence of this paragraph (b), any Options that remain unvested at the time of termination shall automatically terminate and be cancelled (without any action on the part of the Company). (c) CAUSE OR RESIGNATION. If Grantee is terminated from his employment with the Company for Cause (as defined in the Employment Agreement) in accordance with the Employment Agreement or voluntarily leaves the employ of the Company other than for Good Reason (as defined in the Employment Agreement) prior to expiration of the Employment Agreement, then all unvested Options shall automatically terminate and be cancelled (without any action on the part of the Company) on the effective date of termination. In addition, Grantee shall have the opportunity on the date of such termination for Cause or Grantee's voluntarily leaving the employ of the Company to exercise all vested but unexercised Options. All vested Options not exercised on such date shall thereafter automatically expire (without any action on the part of the Company). (d) WITHOUT CAUSE. If Grantee is terminated from his employment without Cause or terminates his employment with Company for Good Reason (as defined in the Employment Agreement) in accordance with the Employment Agreement, then the installment of Options that would have been the next to vest at the time of such termination shall automatically vest as of the date immediately prior to such termination (without any action on the part of the Company or the Grantee). After such a termination, Grantee shall have through the Option Expiration Date to exercise any vested but unexercised Options. Subject to the first sentence of this subparagraph (d), any Options that remain unvested at the time of termination shall automatically terminate and be cancelled (without any action on the part of the Company). 7. Option Shares to be Purchased for Investment. Unless Company has notified Grantee pursuant to Paragraph 12 hereof that a registration statement covering the Option Shares has become effective under the Securities Act of 1933, as amended (the "Act"), it shall be a condition to the exercise of the Option that the Option Shares acquired upon such exercise be acquired for investment and not with a view to distribution. If requested by the Company upon advice of its counsel that the same is necessary or desirable, the Grantee shall, at the time of purchase of the Option Shares, deliver to the Company Grantee's written representation that Grantee (a) is purchasing the Option Shares for his own account for investment, and not with a view to public distribution or with any present intention of reselling any of the Option Shares (other than a distribution or resale which, in the opinion of counsel satisfactory to the Company, may be made without violating the registration provisions of the Act); (b) has been advised and understands that (i) the Option Shares have not been registered under the Act and are subject to restrictions on transfer and (ii) the Company is under no obligation to register the Option Shares under the Act or to take any action which would make available to the Grantee any exemption from such registration except as may be provided in the Registration Rights Agreement of even date herewith between the Company and certain shareholders, including the Grantee; and (c) has been advised and understands that such Option Shares may not be transferred without compliance with all applicable federal and state securities laws. 4 8. Changes in Capital Structure. The number of Option Shares covered by this Option and the Option Price shall automatically (without any action on the part of the Company) be equitably adjusted in the event (the "Event") of (i) the payment of any dividend payable in, or the making of any distribution of, Common Stock to holders of record of Common Stock, which increases the outstanding Common Stock; (ii) any stock split, combination of shares, recapitalization or other similar change; (iii) the merger or consolidation of the Company into or with any other entity; or (iv) the reorganization, dissolution, liquidation or winding up of the Company. Grantee shall be entitled, upon the exercise of the Option, to receive such new, additional or other shares of stock of any class, or other property (including, without limitation, cash and/or securities of any successor entity), as Grantee would have been entitled to receive as a matter of law in connection with such Event had Grantee held the Option Shares on the record date set for such Event. The Company shall have the authority to reasonably determine the adjustments to be made under this Paragraph 8 and any such reasonable determination shall be final, binding and conclusive. 9. Legal Requirements. If the listing, registration or qualification of the Option Shares upon any securities exchange or under any federal or state law, or the consent or approval of any governmental regulatory body is necessary as a condition of or in connection with the purchase of the Option Shares, the Company shall not be obligated to issue or deliver the certificates representing the Option Shares as to which the Option has been exercised unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained. This Option does not hereby impose on the Company a duty to so list, register, qualify, or effect or obtain consent or approval. If registration is considered unnecessary by the Company or its counsel, the Company may cause a legend to be placed on the certificates for the Option Shares being issued calling attention to the fact that they have been acquired for investment and have not been registered, such legend to read as follows: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED UNLESS THERE IS A REGISTRATION STATEMENT IN EFFECT COVERING SUCH SECURITIES OR THERE IS AVAILABLE AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS." 10. No Obligation to Exercise Option. The Grantee shall be under no obligation to exercise the Option. 11. Transfer. The Option is not transferable by Grantee other than by will or by the laws of descent and distribution in the event of the Grantee's death, in which event the Option may be exercised by the heirs or legal representatives of the Grantee as provided herein. The Option may be exercised during the lifetime of the Grantee only by the Grantee. Any attempt at assignment, transfer, pledge or disposition of the Option contrary to the provisions hereof 5 or the levy of any execution, attachment or similar process upon the Option shall be null and void and without effect. Any exercise of the Option by a person other than the Grantee shall be accompanied by appropriate proofs of the right of such person to exercise the Option. 12. Notices. All notices required or permitted hereunder shall be in writing and shall be deemed to be properly given when personally delivered to the party entitled to receive the notice or when sent by certified or registered mail, postage prepaid, properly addressed to the party entitled to receive such notice at the address stated below; or when sent via facsimile transmission with confirmation of transmission or via electronic mail, provided that in both of the foregoing situations a copy of the notice so transmitted is sent to the party entitled to receive such notice via first-class mail, postage prepaid at the address stated below: If to Company: The Network Connection, Inc. 1811 Chestnut Street, Suite 120 Philadelphia, PA 19103 Attention: Chairman and Chief Executive Officer Facsimile: (215) 972-8183 E-mail: oceancastle@erols.com If to Grantee: Robert Pringle -------------------------------------- -------------------------------------- -------------------------------------- Either party hereto may change such party's address, facsimile number or e-mail address by sending notice thereof to the other party by any of the methods set out above, provided that such change shall not be deemed effective as against the party to whom it is sent until the notice containing such change is actually received by such party. 13. Administration. This Option has been granted pursuant to the Employment Agreement and is subject to the terms and provisions thereof. All questions of interpretation and application of this Option shall be determined by the Company, and such determination shall be final, binding and conclusive. 14. Not an Employment or Service Contract. Nothing in this Option shall be construed as an agreement by the Company, express or implied, to employ Grantee or contract for Grantee's services, to restrict the right of the Company to discharge Grantee or cease contracting for Grantee's services or to modify, extend or otherwise affect in any manner whatsoever, the terms of any employment agreement or contract for services which may exist between the Grantee and the Company. 15. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 16. Governing Law. This Agreement shall be governed by and construed under the laws of the State of Delaware without regard to conflicts of laws principles. 6 17. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 18. Amendment. This Agreement may not be amended except by an instrument in writing signed by the parties. 7 IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the date first above written. THE NETWORK CONNECTION, INC. By: /s/ Irwin L. Gross ------------------------------------ Irwin L. Gross Chairman and Chief Executive Officer /s/ Robert Pringle ------------------------------------ Robert Pringle 8 EX-10.43 4 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT dated as of March 6, 2000 among The Network Connection, Inc., a Georgia corporation (referred to as "Company"), and Robert Pringle, Jay Rosan and Richard Genzer (each referred to as a "Shareholder," and collectively, as "Shareholders"). BACKGROUND Shareholders have purchased shares of Company's Common Stock, $0.001 par value per share ("Shares"), pursuant to exercise of options granted pursuant to Employment Agreements with each of the Shareholders dated as of March 6, 2000 and Stock Option Grant Agreements with each of the Shareholders of even date with the Employment Agreements, and Company's obligations in this Agreement are a part of the consideration to Shareholders under the Employment Agreements. NOW, THEREFORE, in consideration of the premises and intending to be legally bound, the parties hereto agree as follows: Section 1. Definitions. The following terms shall have the following meanings: "ACT" means the Securities Act of 1933, as amended, and any successor statute, and the rules and regulations promulgated thereunder. "BUSINESS DAY" means a day on which the New York Stock Exchange is open for business. "INDEMNIFIED PERSONS" shall have the meaning given in Section 8 hereof. "MAXIMUM AMOUNT" shall have the meaning given in Section 5 hereof. "MINIMUM AMOUNT" means at least 375,000 Registerable Shares, such number to be equitably adjusted in the event of a stock split, stock dividend, combination or reclassification of Shares. "NASDAQ" means the Nasdaq SmallCap Market of The Nasdaq Stock Market, Inc. "PIGGYBACK REGISTRATION" shall mean registration under the Act pursuant to Section 2 hereof. "PIGGYBACK REQUEST" means a written request to Company pursuant to Section 2 hereof for the registration of Registerable Shares pursuant to the Act. "PRIORITY" shall have the meaning given in Section 5 hereof. "REGISTRATION EXPENSES" shall have the meaning given in Section 4 hereof. "REGISTERABLE SHARES" means the 1,850,000 Shares of the Shareholders covered by this Agreement, such number to be equitably adjusted in the event of a stock split, stock dividend, combination or reclassification of Shares. "SELLING EXPENSES" shall have the meaning given in Section 4 hereof. "SHAREHOLDER" and "SHAREHOLDERS" shall have the meaning given in the heading of this Agreement. "SHARES" means Common Stock, $0.001 par value, of Company. "SEC" means the Securities and Exchange Commission. 1 Section 2. Piggyback Registration. If at any time after the date hereof, Company proposes to register Shares under the Act for sale to the public by Company or any other person (except as provided in Section 6 hereof), Company shall, not less than twenty (20) days prior to the proposed date of filing of a registration statement under the Act, give written notice to Shareholders of its intention to do so. A Piggyback Request from any Shareholder shall state the number of Registerable Shares to be registered and the intended plan of distribution thereof. If the Company receives a Piggyback Request from a Shareholder within ten (10) days after Company's notice under this Subsection 2, Company, subject to the conditions and limitations of Section 3 hereof, will use commercially reasonable efforts to cause the Registerable Shares covered by the Piggyback Request to be so registered under the Act in the proposed registration statement if the proposed registration statement becomes effective, but Company shall have no obligation to cause, or use any efforts to cause, any such registration statement to become effective. Registerable Shares covered by a Piggyback Request shall be sold pursuant to the same plan of distribution that applies to the majority of the other Shares covered by such registration statement, except to the extent that Company otherwise agrees in writing. The rights to Piggyback Registration granted by this Section 2 may be exercised on no more than three occasions. Section 3. Registration Procedures. (a) If Company is effecting piggyback registration under the provisions of Section 2 of any Registerable Shares, Company will as promptly as practicable: (i) Comply with Rule 424 under the Act relating to filing of prospectuses and furnish to each seller and to each underwriter such number of conformed copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as such persons reasonably may request in order to facilitate the public sale of the Registerable Shares covered by such registration statement. (ii) If the offering is to be underwritten, Company and each seller of Registerable Shares shall enter into a written agreement with any managing underwriter selected in the manner herein provided in such form and containing such provisions as are satisfactory to Company and such seller of Registerable Shares (such satisfaction not to be withheld unreasonably), and as are customary in the securities business for such an arrangement between such underwriter, such seller and corporations of Company's size and investment stature. (iii) Give Shareholders two days' advance notice of its anticipated filing date of the registration statement and amendments thereto. (b) Notwithstanding the foregoing, Company may delay filing a registration statement otherwise required to be filed pursuant to this Agreement, and may withhold efforts to cause a registration statement covering Registerable Shares to become effective for a period of up to ninety (90) days, if Company determines in good faith that such registration statement might (1) interfere with or affect the negotiation or completion of any transaction that is being contemplated by Company (whether or not a final decision has been made to undertake such transaction) at the time the right to delay is exercised, or (2) involve initial or continuing disclosure obligations that might not be in the best interest of Company's shareholders. If, after a registration statement becomes effective, Company notifies Shareholders that Company considers it appropriate for the registration statement to be amended or supplemented, Shareholders shall suspend any further sales of Registerable Shares until Company advises them that the registration statement has been amended or supplemented. Company may give such advice if there exists at any time material non-public information relating to Company that, in the reasonable opinion of Company's Board of Directors, would be prejudicial to Company or its shareholders if disclosed at that time. Company agrees with Shareholders that it will use commercially reasonable efforts to amend or supplement the registration statement, as required to permit sales of the Registerable Shares covered thereby to resume within ninety (90) days after it has given the notice referred to in the preceding sentence. (c) In connection with each registration hereunder, each Shareholder will (i) furnish promptly to Company in writing such information with respect to himself and the proposed distribution by him as reasonably shall be requested by Company in order to assure compliance with federal and applicable state securities laws, and (ii) comply with all applicable rules promulgated by the SEC or any securities exchange (including the Nasdaq SmallCap Market). 2 Section 4. Expenses. All expenses incurred by Company in complying with Sections 2 hereof, including without limitation all registration and filing fees, printing expense, fees and disbursements of counsel and independent public accountants for Company, fees and expenses (including counsel fees) incurred in connection with complying with state securities or "blue sky" laws (other than those which by law must be paid by the selling security holders), fees of securities exchanges or the National Association of Securities Dealers, Inc., fees of transfer agents and registrars, but excluding any Selling Expenses, are called "Registration Expenses." All underwriting discounts, selling commissions and transfer taxes applicable to the sale of outstanding shares and any legal fees and expenses of counsel or other advisers and agents of Shareholder are called "Selling Expenses." Company will pay all Registration Expenses. All Selling Expenses shall be borne by Shareholder. Section 5. Marketing Arrangements (a) If (i) a Shareholder requests registration of Registerable Shares, (ii) the offering proposed to be made is to be an underwritten public offering, and (iii) the managing underwriter of such public offering furnishes a written opinion that the total amount of securities to be included in such offering would exceed the maximum amount of securities (the "Maximum Amount") (as specified in such opinion) which can be marketed at a price reasonably related to the then current market value of such securities (or the anticipated market price, if no trading market then exists) and without materially and adversely affecting such offering or the trading market for Shares, then Company, Shareholders and other holders of Shares desiring to register their Shares by such registration shall have a right to participate in such offering in the following order of priority (a "Priority") until the number of Shares included in the offering reaches the Maximum Amount, and no additional Shares will be included in the registration statement. First Priority shall be to Company for Shares to be sold for the account of Company. Second Priority shall be to holders of Company securities who have a contractual right granted to such holders prior to the date hereof to have Shares registered pursuant to a registration statement initiated on their request or demand (regardless of whether or not such holder or holders have initiated the registration statement with respect to which Shareholders seek to exercise their piggyback rights hereunder). Third Priority shall be to holders of Shares who have a contractual right granted to such holders on or prior to the date hereof to have their Shares registered pursuant to piggyback or incidental rights on terms comparable to Section 2 hereof (in a registration statement that such holders do not have a right to initiate), including Shareholders who have Piggyback Rights under this Agreement. Fourth Priority shall be to all other holders of Shares in any sequence that may be agreed upon among the holders of such Shares and/or Company. To the extent that some but not all of the Shares owned by persons within any of the Priorities listed above are not included within the Maximum Amount, the Shares to be included in the registration statement shall be allocated pro rata to holders in such Priority in proportion to the respective numbers of Shares each such person in such Priority wishes to include in the registration statement. (b) Company represents and warrants that it has not granted any registration rights or entered into any agreements obligating it to register any of its securities under the Act that are inconsistent with the foregoing priorities. (c) In connection with any underwritten public offering of Company's equity securities, Shareholders agree that they will agree in writing to any restrictions on the sale of Registerable Shares owned by them that are requested by the managing underwriter, for a period not to exceed one hundred and thirty (130) days commencing ten (10) days prior to the anticipated commencing date of the underwritten public offering; provided, however, that such restrictions shall not relate to Registerable Shares being registered, nor shall such restrictions be imposed unless restrictions at least as burdensome are imposed on each executive officer (as defined under the Securities Exchange Act of 1934) or director of Company. Section 6. Exceptions to Company's Obligations. The right to Piggyback Registration shall not apply, unless Company otherwise agrees in writing, to any registration statement: 3 (a) To be filed on a registration form which is unavailable for the registration of Registerable Shares; (b) Relating primarily to Shares to be offered pursuant to (i) an employee benefit plan, or (ii) a dividend or interest reinvestment plan (including such a plan that has an open enrollment or cash investment feature); (c) Relating to Shares to be issued in the acquisition of another business, through a merger, consolidation, exchange of securities or otherwise; (d) Relating to Company securities to be issued for a consideration other than solely cash; (e) Relating to Company securities to be offered primarily to existing security holders of Company, through a "rights offering" or otherwise; (f) Relating primarily to Company securities to be issued on the exercise of options, warrants and similar rights, or on the conversion or exchange of other securities, issued by the Company or any other person; provided, however that this exception to a Shareholder's Piggyback Registration rights will apply only in the case of a third-party financing transaction and then only to the extent that the exception or restriction is imposed by the third-party; (g) Relating primarily to debt securities of Company, including debt securities that are convertible or exchangeable for equity securities of Company; or (h) That may become effective automatically upon filing with the SEC pursuant to Rule 462 under the Act or otherwise. Section 7. Termination of Registration Rights. Notwithstanding the foregoing provisions, Company's obligation to register Registerable Shares under this Agreement shall terminate as to any particular Registerable Shares (a) on March 6, 2005, (b) when such Registerable Shares have been sold in an offering registered under the Act or in a sale exempt from registration under the Act, (c) when such Registerable Shares shall have been effectively registered under the Act for a period of at least ninety (90) days, or (d) when a written opinion, to the effect that such Registerable Shares may be sold without registration under the Act and without restriction as to the quantity and manner of such sales, shall have been received from counsel for Company which counsel is reasonably acceptable to the owner of such Registerable Shares (which satisfaction shall not be withheld unreasonably). Section 8. Indemnification. (a) In the event of any registration of Registerable Shares under the Act pursuant to this Agreement, Company will, and hereby does, indemnify and hold harmless, to the fullest extent permitted by law, Shareholders, each person or entity that participates as an underwriter or qualified independent underwriter/pricer ("independent underwriter"), if any, in the offering or sale of such securities, each officer, director or partner of such underwriter or independent underwriter, and each other person, if any, who controls any Shareholder or any such underwriter within the meaning of the Act (collectively, the "Indemnified Persons"), against any and all losses, claims, damages or liabilities, joint or several, and expenses (including reasonable fees of counsel and any amounts paid in any settlement effected with Company's consent, which consent shall not be unreasonably withheld) to which such Indemnified Persons may become subject under the Act, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof), or expenses arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement under which Registerable Shares were registered under the Act or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary, final or summary prospectus, together with the documents incorporated by reference therein (as amended or supplemented if Company shall have filed with the SEC any amendment thereof or supplement thereto), or the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (iii) any violation by Company of any federal or state 4 rule or regulation applicable to Company and relating to action required of or inaction by Company in connection with any such registration. Company will reimburse Indemnified Persons for any reasonable legal or any other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding. Notwithstanding the foregoing, Company shall not be liable to any Indemnified Person to the extent that any such loss, claim, damage, liability (or action or proceeding, whether commenced or threatened, in respect thereof) or expense arises out of or is based upon (i) any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to Company by or on behalf of any such Indemnified Person, for use in the preparation of the registration statement or (ii) the failure of any such Indemnified Person to comply with any legal requirement applicable to any such Indemnified Person to deliver a copy of a prospectus or any supplements or amendments thereto after Company has made such documents available to such persons, and it is established that delivery of such prospectus, supplement or amendment would have cured the defect giving rise to such loss, claim, damage, liability or expense. Such indemnity and reimbursement of expenses shall remain in full force and effect following the transfer of Registerable Shares by any Shareholder. (b) Company, as a condition to including any Registerable Shares in any registration statement filed in accordance with this Agreement, shall have received an undertaking reasonably satisfactory to it from the prospective seller of such Registerable Shares and any underwriter or independent underwriter, to indemnify and hold harmless (in the same manner and to the same extent as set forth in Subsection 8(a)) Company and its directors and officers and each person controlling Company within the meaning of the Act and all other prospective sellers and their respective directors, officers, general and limited partners and controlling persons with respect to any statement or alleged statement in or omission from such registration statement, any preliminary, final or summary prospectus contained therein, or any amendment or supplement thereto, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to Company or its representatives by or on behalf of such seller or underwriter for use in the preparation of such registration statement; provided, however, that the aggregate amount which any Shareholder shall be required to pay pursuant to such undertaking shall be limited to the amount of the net proceeds received by such person upon the sale of the Registerable Shares pursuant to the registration statement giving rise to such claim. (c) Promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Section 8, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Section 8, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party; and provided further that the indemnifying party shall not be entitled to so participate or so assume the defense if, in the indemnified party's reasonable judgment, a conflict of interest between the indemnified party and the indemnifying party exists in respect of such claim. After notice from the indemnifying party to such indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 8 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof unless the indemnifying party has failed to assume the defense of such claim or to employ counsel reasonably satisfactory to such indemnified party; and provided further, that the indemnified party shall have the right to employ counsel to represent such indemnified party if, in such indemnified party's reasonable judgment, a conflict of interest between the indemnified party and the indemnifying party exists in respect of such claim, and in that event the fees and expenses of such separate counsel shall be paid by the indemnifying party; and provided further, that if, in the reasonable judgment of the indemnified party, a conflict of interest between such indemnified party and any other indemnified party exists in respect of such claims, such indemnified parties shall be entitled to additional counsel or counsels and the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels. No indemnified party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimants or plaintiffs to such indemnified party of a release from all liability in respect to such claim or litigation. No indemnifying party will be liable for any settlement effected without its prior written consent. 5 (d) If the indemnification provided for in this Section 8 is unavailable or insufficient to hold harmless an indemnified party under Subsections 8(a) and (b), then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in Subsections 8(a) and (b) in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other hand in connection with statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 8 were to be determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the first sentence of this Section 8. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this Section 8 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim (which shall be limited as provided in Subsection 8(c) if the indemnifying party has assumed the defense of any such action in accordance with the provisions thereof which is the subject of this Section 8). No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding anything in this Section 8 to the contrary, no indemnifying party (other than Company) shall be required pursuant to this Section 8 to contribute any amount in excess of the proceeds received by such indemnifying party from the sale of Registerable Shares in the offering to which the losses, claims, damages or liabilities of the indemnified parties relate. (e) The provisions of this Section 8 shall be in addition to any other rights to indemnification or contribution which any indemnified party may have pursuant to law or contract and shall remain in full force and effect following the transfer of the Registerable Shares by any such party. (f) Indemnification similar to that specified in the preceding provisions of this Section 8 (with appropriate modifications) shall be given by Company and Shareholders with respect to any required registration or other qualification of securities under any state securities and blue sky laws. Section 9. Compliance with Rule 144. At the request of any Shareholder, if he proposes to sell Registerable Shares in compliance with Rule 144 under the Act, or any similar Rule, Company shall (a) forthwith furnish to such holder a written statement as to its compliance with the filing requirements of the SEC as set forth in such Rule and (b) make such additional filings with the SEC as will enable Shareholder to make sales of Registerable Shares pursuant to such Rule. Section 10. Miscellaneous. (a) Binding and Benefit. 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 or obligations under this Agreement without the prior written consent of the other parties hereto; provided, however, that the obligation to register Registerable Shares shall be enforceable by direct or remote transferees of Registerable Shares now owned by a Shareholder only if the transfer results from the death of any person, a gift made without consideration or the transfer of all or substantially all of the assets of an entity, by merger, consolidation, asset sale or otherwise. (b) Communications from Shareholders. If Shares are owned of record jointly by two or more persons, Company may rely on any communication signed by one such person. Company may ignore communications given by persons who purport to own Registerable Shares beneficially unless such communications are confirmed by a record owner, and it may ignore any communications from a record owner that conflict with previously received communications from another person who is at the relevant time also a record owner of the same Registerable Shares. (c) 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 6 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. (d) 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. (e) 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: The Network Connection, Inc. 1811 Chestnut Street Suite 120 Philadelphia, PA 19103 Attention: Chairman and Chief Executive Officer (ii) If to any Shareholder: To the address of such Shareholder contained in the records of the Company. 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. (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 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 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. "Business Days" shall be all days that are not Saturdays, Sundays or Holidays. 7 IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. THE NETWORK CONNECTION, INC. By: /s/ Irwin L. Gross ------------------------------------- Irwin L. Gross Chairman and Chief Executive Officer /s/ Robert Pringle ------------------------------------- Robert Pringle /s/ Jay Rosan ------------------------------------- Jay Rosan /s/ Richard Genzer ------------------------------------- Richard Genzer 8 EX-27 5 FINANCIAL DATA SCHEDULE
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. 9-MOS JUN-30-2000 JUL-01-1999 MAR-31-2000 1,030,549 93,024,088 21,087 0 5,424,359 132,341,721 17,594,834 1,388,678 158,367,398 11,919,875 0 0 10 104,722 144,940,118 158,367,398 5,597,909 5,657,736 3,680,584 3,716,876 17,942,724 0 54,120 (15,811,079) 0 (15,811,079) 0 0 0 (15,811,079) (1.66) (1.66)
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