SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): Commission File Number:
August 23, 1999 1-10210
eGLOBE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3486421
(State or other jurisdiction (IRS Employer
of incorporation) Identification Number)
1250 24TH STREET, N.W., SUITE 725
WASHINGTON, D.C. 20037
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,including area code:
(202) 822-8981
(Former name or former address, if changed since last report)
NOT APPLICABLE
eGLOBE, INC.
ITEM 5 OTHER EVENTS
GENERAL
eGlobe, Inc., (the "Company") took several significant actions
after August 17, 1999 in response to decisions by Nasdaq regarding the listing
of the Company's Common Stock on the Nasdaq National Market. The purpose of this
filing is to disclose in more detail the Nasdaq decisions, discuss the actions
taken by the Company, and present an unaudited pro forma condensed
consolidated balance sheet as of July 31, 1999 that reflects those actions as
well as the Company's acquisition in early August of the Network Operating
Center and related switching and transmission facilities of Swiftcall USA, Inc.
LISTING ON THE NASDAQ NATIONAL MARKET
The Company was notified by a letter from Nasdaq at the end of
the business day on August 17, 1999 that trading in the Common Stock would be
moved from the Nasdaq National Market to the OTC Bulletin Board on Wednesday,
August 18, 1999. The Company immediately requested reconsideration of the
decision, and the Common Stock of the Company resumed trading on the Nasdaq
National Market effective at the opening of trading on Monday, August 23, 1999.
The Company's continued listing on the Nasdaq National Market is subject to its
maintaining compliance with certain requirements imposed by Nasdaq that are
related to the amount of "net tangible assets" reported by the Company on its
balance sheet.
As a result of the restructuring of the Company in 1998 and
the initiation of its growth plan at the beginning of 1999, the Company's
compliance with the net tangible asset requirement of the Nasdaq National Market
continued listing criteria became an issue which needed to be resolved between
Nasdaq and the Company. Net tangible assets, as defined by Nasdaq, equals assets
minus liabilities and minus goodwill. Following an inquiry by Nasdaq to the
Company, written submissions by the Company, and a hearing before a Nasdaq
listing qualifications panel, Nasdaq concluded in July and advised the Company
on August 10, 1999 that the Company had presented a plan which would enable it
to comply with all requirements for continued listing on an ongoing basis.
Accordingly, Nasdaq continued the listing of the Company's securities on the
Nasdaq National Market.
The August 10 determination required that the Company
demonstrate that it was implementing the plan by (1) reporting, on its 10-Q for
the quarter ended June 30, 1999, a minimum of $9.9 million in net tangible
assets, and (2) making a public filing with the SEC by October 15, 1999
reporting $20.0 million in net tangible assets.
On August 16, 1999, the Company filed its quarterly report on
Form 10-Q containing a June 30, 1999 unaudited condensed consolidated balance
sheet with pro forma adjustments. The Form 10-Q reported what the Company
believed to be net tangible assets of $10.5 million. However, on August 17,
Nasdaq informed the Company that it failed to satisfy the $9.9 million net
tangible asset
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requirement set by the panel. This decision resulted from the treatment of $3
million of the Company's redeemable preferred stock by Nasdaq as a liability for
purposes of the tangible net asset calculation; the Company (reflecting the
required balance sheet treatment pursuant to GAAP) had not treated this
redeemable preferred stock as a liability. Such redeemable preferred stock was
reflected outside of Stockholders Equity as temporary equity.
In seeking reconsideration and in discussions with Nasdaq
relative to the reconsideration, the Company recognized the need to further
restructure its balance sheet, in response to the Nasdaq treatment of redeemable
stock. After consultations with Nasdaq, it under took several actions which are
elaborated below and which resulted in a positive decision on Friday, August 20
by Nasdaq to return the Company to its National Market Listing. In restoring the
Company to its listing, Nasdaq required the Company to meet two specific
requirements for continued listing. The Company must make a public filing with
the SEC by September 3, 1999 which includes a July 31, 1999 unaudited condensed
consolidated balance sheet evidencing a minimum of $9.9 million of net tangible
assets. The Company must make a further filing by October 15, 1999 which
includes an August 31, 1999 unaudited condensed consolidated balance sheet
evidencing a minimum of $20.0 million of net tangible assets.
The Nasdaq August 20, 1999 letter is attached hereto as
Exhibit 99.1 and the press release issued by the Company regarding the above on
August 20, 1999 is attached hereto as Exhibit 99.2.
The Company believes that it has met the $9.9 million net
tangible asset requirement. The Company believes that it will meet the $20.0
million net tangible asset requirement, through a combination of financings and
acquisitions in which it plans to issue equity securities. There is no
assurance, however, that Nasdaq will not differ with the Company's analysis
regarding the $9.9 million net tangible asset requirement, that the Company will
be able to satisfy the $20.0 million net tangible asset requirement, or that
Nasdaq will not impose subsequent and different requirements. If the Company is
unable to meet the requirements, the Common Stock likely would be transferred to
the Nasdaq SmallCap Market or OTC Bulletin Board. If such an event occurs, the
liquidity of the Common Stock could be impaired, the Common Stock could be
subject to price fluctuations upon such transfer and the Company could
experience greater difficulty in raising capital or making acquisitions using
its equity securities.
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RECENT TRANSACTIONS
Acquisition of Network Operating Center. On August 9, 1999 the
Company announced the acquisition of the Network Operating Center ("NOC") and
related switching and transmission facilities of Swiftcall USA, Inc. Combined
with operating facilities of the Network Services division of eGlobe in Reston,
Virginia, the NOC gives the Company a gateway for its growing Internet voice and
fax business, as well as an enhanced facility for circuit-switched telephone
services. The Company acquired the NOC for an aggregate purchase price of
$3,430,000, consisting of (i)$3,290,000 due in two equal payments on December 3,
1999 and June 2, 2000 payable in shares of common stock and (ii) direct
acquisition costs of approximately $140,000. The acquisition was accounted for
using the purchase method of accounting. The preliminary allocation reflects the
preliminary estimates of the fair value of the assets acquired and liabilities
assumed based on management's review and third-party appraisals. The final
purchase price allocation will be determined as additional information becomes
available. In August 1999, the Company borrowed the remaining $1.5 million under
its $20.0 million secured note agreement and used $1.1 million to prepay a
certain Swiftcall lease.
Issuance of Preferred Stock to Prepay $4 million of
$20 million note to EXTL Investors. On the basis of agreements reached on August
18, 1999, the Company will issue to EXTL Investors 40 shares of 5% Series J
Cumulative Convertible Preferred Stock (the "Series J Preferred Stock"), as
prepayment of $4 million of the outstanding $20 million secured note issued to
EXTL Investors. The carrying value of the $4.0 million note, net of unamortized
discount of $2.1 million, was approximately $1.9 million. The excess of the fair
value of the Series J Preferred over the carrying value of the note of $2.1
million will be recorded as a loss on debt extinguishment in September 1999. The
$4.0 million prepayment was allocated to reflect a reduction of $649,000 in the
current portion of the note with the remainder to reduce long-term maturities.
Terms of Series J Preferred Stock.
The conversion of the debt to Series J Preferred
Stock has been irrevocably agreed. Final documentation is substantially
completed and is expected to be executed in the next several days. The terms of
the Series J Preferred Stock as currently agreed are outlined below.
Voting Rights. The holders of the Series J Preferred
Stock do not have voting rights, unless otherwise provided by Delaware
corporation law or unless dividends payable on the Series J Preferred Stock are
in arrears for six quarters, at which time the Series J Preferred Stock would be
entitled to vote as a separate class to elect one director to the Company's
Board of Directors at the next stockholders' meeting. The affirmative vote of
66-2/3% of the holders of the Series J Preferred Stock is required for the
issuance of any class or series of stock of the Company ranking senior to or on
a parity with the Series J Preferred Stock as to dividends or rights on
liquidation, winding up and dissolution.
Liquidation Rights. The holders of the Series J
Preferred Stock are entitled, together with any preferred stock ranking on a
parity with the Series J Preferred Stock, to a liquidation preference over the
Common Stock and any junior preferred stock, but after payment of all
preferential amounts due holders of senior preferred stock, equal to $100,000
per share, plus any accrued and unpaid dividends.
Dividends. The Series J Preferred Stock carries an
annual dividend of 5% which is payable quarterly, beginning December 31, 2000,
if declared by the Company's Board of Directors. If the Board of Directors does
not declare dividends, they accrue and remain payable. All dividends that would
accrue through December 31, 2000 on each share of Series J Preferred Stock,
whether or not then accrued, will be payable in full upon conversion of such
share of Series J Preferred Stock. No dividends may be granted on Common Stock
or any preferred stock ranking junior to the Series J Preferred Stock until all
accrued but unpaid dividends on the Series J Preferred Stock are paid in full.
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Conversion. The shares of Series J Preferred Stock
are convertible, at the holder's option, into shares of the Common Stock at any
time at a conversion price equal to the most recent closing market price prior
to the date of agreement. The shares of Series J Preferred Stock are also
convertible into Common Stock at a lower price upon a change of control (as
defined) if the market price of the Common Stock on the date immediately
preceding the change of control is less than the conversion price. The shares of
Series J Preferred Stock will automatically be converted into shares of Common
Stock, on the earliest to occur of (x) the first date as of which the last
reported sales price of the Common Stock on Nasdaq is $5.00 or more for any 20
consecutive trading days during any period in which Series J Preferred Stock is
outstanding, (y) the date that 80% or more of the Series J Preferred Stock the
Company have issued has been converted into Common Stock, or (z) the Company
completes a public offering of equity securities at a price of at least $3.00
per share and with gross proceeds to the Corporation of at least $20 million.
The Certificate of Designations of Series J Preferred
Stock provides for adjustments to the number of shares issuable upon conversion
in the event of certain dividends and distributions to holders of Common Stock,
certain reclassifications of the Common Stock, stock splits, combinations and
mergers and similar transactions and certain changes of control. In addition,
the Certificate of Designations of the Series J Preferred Stock provides for
adjustment to the conversion price if the Company sells stock for less than the
conversion price.
No Redemption. The shares of the Series J Preferred
Stock are not subject to optional or mandatory redemption.
Exchange of New Preferred Stock for Series G Cumulative
Convertible Redeemable Preferred Stock. On the basis of agreements reached on
August 19, 1999, the Company issued 30 shares of 5% Series K Cumulative
Convertible Preferred Stock (the "Series K Preferred Stock") in exchange for the
share of its Series G Cumulative Convertible Redeemable Preferred Stock (the
"Series G Redeemable") held by American United Global, Inc. Nasdaq determined
that the Series G Redeemable, which was valued at $3,006,411 on the Company's
June 30, 1999 unaudited condensed consolidated balance sheet, should be treated
as a liability for the tangible net asset calculation which reduced the
Company's net tangible asset calculation set forth in its quarterly report filed
on August 16, 1999. The exchange of the Series G Redeemable for the
nonredeemable Series K Preferred should permit the Series K Preferred Stock to
be classified as equity rather than a liability on the Company's July 31, 1999
unaudited condensed consolidated balance sheet.
Terms of Series K Preferred Stock
Voting Rights. The holders of the Series K Preferred
Stock do not have voting rights, unless otherwise provided by Delaware
corporation law or unless dividends payable on the Series K Preferred Stock are
in arrears for six quarters, at which time the Series K Preferred Stock would be
entitled to vote as a separate class to elect one director to the Company's
Board of Directors at the next stockholders' meeting. The affirmative vote of
66-2/3% of the holders of the
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Series K Preferred Stock is required for the issuance of any class or series of
stock of the Company ranking senior to or on a parity with the Series K
Preferred Stock as to dividends or rights on liquidation, winding up and
dissolution.
Liquidation Rights. The holders of the Series K
Preferred Stock are entitled, together with any preferred stock ranking on a
parity with the Series K Preferred Stock, to a liquidation preference over the
Common Stock and any junior preferred stock, but after payment of all
preferential amounts due holders of senior preferred stock, equal to $100,000
per share, plus any accrued and unpaid dividends.
Dividends. The Series K Preferred Stock carries a
annual dividend of 5% which is payable quarterly, beginning December 31, 2000,
if declared by the Company's Board of Directors. If the Board of Directors does
not declare dividends, they accrue and remain payable. All dividends that would
accrue through December 31, 2000 on each share of Series K Preferred Stock,
whether or not then accrued, will be payable in full upon conversion of such
share of Series K Preferred Stock. No dividends may be granted on Common Stock
or any preferred stock ranking junior to the Series K Preferred Stock until all
accrued but unpaid dividends on the Series K Preferred Stock are paid in full.
Conversion. The shares of Series K Preferred Stock
are convertible, at the holder's option, into shares of the Common Stock at any
time at a conversion price equal to the most recent closing market price prior
to agreement. The shares of Series K Preferred Stock are also convertible into
Common Stock at a lower price upon a change of control (as defined) if the
market price of the Common Stock on the date immediately preceding the change of
control is less than the conversion price. The shares of Series K Preferred
Stock will automatically be converted into shares of Common Stock, on the
earliest to occur of (x) the first date as of which the last reported sales
price of the Common Stock on Nasdaq is $5.00 or more for any 20 consecutive
trading days during any period in which Series K Preferred Stock is outstanding,
(y) the date that 80% or more of the Series K Preferred Stock the Company have
issued has been converted into Common Stock, or (z) the Company completes a
public offering of equity securities at a price of at least $3.00 per share and
with gross proceeds to the Corporation of at least $20 million.
The Certificate of Designations of Series K
Preferred Stock provides for adjustments to the number of shares issuable upon
conversion in the event of certain dividends and distributions to holders of
Common Stock, certain reclassifications of the Common Stock, stock splits,
combinations and mergers and similar transactions and certain changes of
control. In addition, the Certificate of Designations of the Series K Preferred
Stock provides for adjustment to the conversion price if the Company sells stock
for less than the conversion price.
No Redemption. The shares of the Series K Preferred
Stock are not subject to optional or mandatory redemption.
The Exchange Agreement and Certificate of Designations of
Series K Preferred Stock are attached hereto as Exhibits 2.1 and 4.1.
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Exercise of Warrants. Pursuant to agreements reached on August
19, 1999, holders of warrants exercised them and purchased 712,518 shares of
Common Stock for an aggregate purchase price of $716,254.
The effect of these transactions on the Company's Unaudited
Condensed Consolidated balance sheet is an addition to stockholders' equity.
Sale of Restricted Stock. Pursuant to agreement on August 25,
1999, a shareholder of the Company purchased 160,257 shares of restricted Common
Stock for an aggregate purchase price of $250,000. The effect of this
transaction on the Company's unaudited condensed consolidated balance sheet is
an addition to equity.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
eGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JULY 31, 1999
eGLOBE
AS OF 7/31/99 ADJUSTMENTS PRO FORMA
----------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents $ 3,451,350 $ 1,366,000 (2) $ 4,817,350
Accounts receivable, net 8,598,206 - 8,598,206
Other current assets 1,540,956 - 1,540,956
=========== =========== ===========
TOTAL CURRENT ASSETS 13,590,512 1,366,000 14,956,512
=========== =========== ===========
PROPERTY AND EQUIPMENT, NET 12,381,115 4,937,000 (1) 17,318,115
GOODWILL, NET 15,067,196 - 15,067,196
OTHER INTANGIBLES, NET 12,488,113 - 12,488,113
OTHER ASSETS 1,874,935 (140,000) (1) 1,734,935
=========== =========== ===========
TOTAL ASSETS $ 55,401,871 $ 6,163,000 $ 61,564,871
=========== =========== ===========
LIABILITIES, REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 7,882,883 $ 407,000 (1)(2) $ 8,289,883
Accrued expenses 7,678,822 - 7,678,822
Notes payable principally related to acquisitions 1,125,000 - 1,125,000
Note payable and current maturities of long-term debt 6,205,198 (649,000) (3) 5,556,198
Other current liabilities 2,784,099 - 2,784,099
=========== =========== ===========
TOTAL CURRENT LIAIBLITIES 25,676,002 (242,000) 25,434,002
=========== =========== ===========
LONG-TERM DEBT, NET OF CURRENT MATURITIES 8,586,091 269,000 (3) 8,855,091
=========== =========== ===========
TOTAL LIABILITIES 34,262,093 27,000 34,289,093
=========== =========== ===========
REDEEMABLE PREFERRED STOCK 3,021,411 (3,021,411) (4) -
=========== =========== ===========
STOCKHOLDERS' EQUITY
Preferred stock 1,913 - 1,913
Common stock 20,063 1,000 (5) 21,063
Additional paid-in capital 67,325,885 7,986,411 (4)(5) 75,312,296
Stock to be issued 978,690 3,290,000 (1) 4,268,690
Accumulated deficit (50,397,079) (2,120,000) (5) (52,517,079)
Accumulated other comprehensive loss 188,895 - 188,895
=========== =========== ===========
TOTAL STOCKHOLDERS' EQUITY 18,118,367 9,157,411 27,275,778
=========== =========== ===========
TOTAL LIABILITIES, REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY $ 55,401,871 $ 6,163,000 $ 61,564,871
=========== =========== ===========
See notes to the pro forma condensed consolidated balance sheet
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eGLOBE, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
The transactions described in Item 5, "Other Transactions", are discussed below:
(a) In August 1999, the Company acquired Swiftcall for an aggregate
purchase price of $3,430,000, consisting of (i) $3,290,000 due in
two equal payments on December 3, 1999 and June 2, 2000 payable in
shares of common stock and (ii) direct acquisition costs of
approximately $140,000. The acquisition was accounted for using
the purchase method of accounting. The preliminary allocation
reflects the preliminary estimates of the fair value of the assets
acquired and liabilities assumed based on management's review and
third-party appraisals. The final purchase price allocation will
be determined as additional information becomes available.
(b) In August 1999, the Company borrowed the remaining $1.5 million
under its $20.0 million secured note agreement and used $1.1
million to prepay a certain Swiftcall lease.
(c) Based on an agreement signed on September 2, 1999, the Company
plans to issue 40 shares of 5% Series J Cumulative Convertible
Preferred Stock ("Series J Preferred") valued at $4.0 million as
prepayment of $4.0 million of the outstanding $20.0 million
secured note agreement. The carrying value of the $4.0 million
note, net of unamortized discount of $2.1 million, is
approximately $1.9 million. The excess of the fair value of the
Series J Preferred over the carrying value of the note of $2.1
million will be recorded as a loss on debt extinguishment in
September 1999. The $4.0 million prepayment was allocated to
reflect a reduction of $649,000 in the current portion of the
note with the remainder to reduce long-term maturities.
(d) On September 3, 1999, the Company issued 30 shares of 5% Series K
Cumulative Convertible Preferred Stock ("Series K Preferred") in
exchange for the share of Series G Cumulative Convertible
Redeemable Preferred Stock ("Series G Preferred").
(e) On August 25, 1999, a stockholder of the Company purchased
160,257 shares of restricted common stock for an aggregate
purchase price of $250,000.
(f) In August 1999, the Company received proceeds of $716,000 from the
exercise of warrants to acquire 712,518 shares of common stock.
The following pro forma adjustments to the unaudited pro forma condensed
consolidated balance sheet are as if the above transactions occurred as of July
31, 1999:
(1)To reflect the acquisition of Swiftcall. The components of the purchase
price and its preliminary allocation to the assets and liabilities
acquired are as follows:
COMPONENTS OF PURCHASE PRICE:
Common stock to be issued $ 3,290,000
Direct acquisition costs 140,000
------------------
TOTAL PURCHASE PRICE 3,430,000
ALLOCATION OF PURCHASE PRICE:
Property and equipment (4,937,000)
Current liabilities 1,507,000
------------------
TOTAL $ -
==================
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eGLOBE, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(2)Adjustments to cash:
Proceeds from exercise of warrants (See Note 5) $ 716,000
Proceeds from common stock purchase (See Note 5) 250,000
Proceeds from notes payable 1,500,000
Payment of for Swiftcall liabilities (1,100,000)
------------------
$ 1,366,000
==================
(3)Adjustments to debt: Notes payable/
current maturities
of long-term debt Long-term debt, net
-----------------------------------------
Proceeds from notes payable under secured note agreement $ - $ 1,500,000
Prepayment of secured notes, with Series J Preferred Stock
net of unamortized discount of $2,120,000 (See Note 5) (649,000) (1,231,000)
-------------------------------------
$ (649,000) $ 269,000
=====================================
(4) Adjustment to Redeemable Preferred Stock (See Note 5):
Exchange of Series G Redeemable Preferred Stock for Series
K Preferred Stock $ (3,021,411)
==================
(5)Other adjustments to Stockholders' Equity: Additional Accumulated
Common Stock Paid-in Capital Deficit
-----------------------------------------------------
Issuance of common stock under warrants agreements $ 1,000 $ 715,000 $ -
Issuance of common stock under purchase agreement - 250,000 -
Issuance of Series J Preferred Stock - 4,000,000 (2,120,000)
Issuance of Series K Preferred Stock (See Note 4) - 3,021,411 -
-----------------------------------------------------
$ 1,000 $ 7,986,411 $ (2,120,000)
=====================================================
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(c) Exhibits.
2.1 Exchange Agreement dated as of September 3, 1999 by and between
eGlobe, Inc. and American United Global, Inc.
4.1 Certificate of Designations for 5% Series K Cumulative Convertible
Preferred Stock
99.1 Letter from the Nasdaq, dated August 20, 1999, regarding the
Company's re-listing on Nasdaq National Market.
99.2 Press Release, dated August 20, 1999, regarding the Company's
re-listing on Nasdaq National Market.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
eGLOBE, INC.
Date: September 3, 1999 By: /s/ Graeme S.R. Brown
------------------------------
Graeme S.R. Brown
Associate General Counsel and
Assistant Secretary
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EXHIBIT INDEX
Exhibit Description
- ------- -----------
2.1 Exchange Agreement dated as of [September 2], 1999 by and between
eGlobe, Inc. and American United Global, Inc.
4.1 Certificate of Designations for 5% Series K Cumulative Convertible
Preferred Stock
99.1 Letter from the Nasdaq, dated August 20, 1999, regarding the
Company's re-listing on Nasdaq National Market.
99.2 Press Release, dated August 20, 1999, regarding the Company's
re-listing on Nasdaq National Market.
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