SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant
Filed by a Party other than the Registrant
Check the appropriate box: | |||
Preliminary Proxy Statement | Confidential, for Use of the | ||
Definitive Proxy Statement | Commission Only (as Permitted | ||
Definitive Additional Materials | by Rule 14a-6(e)(2)) | ||
Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12 |
Wire One Technologies, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required. | |||
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. | |||
(1) | Title of each class of securities to which transaction applies: | ||
(2) | Aggregate number of securities to which transaction applies: | ||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | ||
(4) | Proposed maximum aggregate value of transaction: | ||
(5) | Total fee paid: | ||
Fee paid previously with preliminary materials: | |||
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
(1) | Amount Previously Paid: | ||
(2) | Form, Schedule or Registration Statement No.: | ||
(3) | Filing Party: | ||
(4) | Date Filed: | ||
WIRE ONE TECHNOLOGIES, INC.
225 Long Avenue
Hillside, New Jersey 07205
July 21, 2003
Dear Stockholder:
We are pleased to invite you to the 2003 Annual Meeting of Stockholders of Wire One Technologies, Inc., which will be held at 9:00 a.m. local time, on Thursday, August 21, 2003, at the Holiday Inn, 304 Route 22 West, Springfield, New Jersey 07081.
At the meeting, you will be asked to approve the sale of substantially all of the assets of our Video Solutions business, pursuant to an asset purchase agreement between Wire One and Gores Technology Group. Gores has agreed to pay a total purchase price of $23 million, consisting of three components. Gores will pay us at the closing of the asset sale $20 million in cash. Gores will pay us up to an additional $2 million, subject to adjustment, at such time as the net assets of the Video Solutions business are determined pursuant to the asset purchase agreement. In addition, at closing, Gores will deliver a promissory note to us in the amount of $1 million. Gores will pay us up to an additional $2 million in cash over the two years following the closing based on the annual revenues derived from the Video Solutions business.
The enclosed notice and proxy statement contain complete information about the proposed asset sale and the other matters to be considered at the annual meeting. We are also enclosing our Form 10-K for 2002.
Sincerely, | |
/s/ Richard Reiss | |
Richard Reiss | |
Chairman and Chief Executive Officer |
WIRE ONE TECHNOLOGIES, INC.
225 Long Avenue
Hillside, New Jersey 07205
NOTICE OF THE 2003 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 21, 2003
1. | To approve the sale of substantially all of the assets of our Video Solutions business, pursuant to an asset purchase agreement between our company and Gores Technology Group. Pursuant to the terms of the asset purchase agreement, the purchase price of $23 million consists of three components. Gores will pay us at the closing of the asset sale $20 million in cash. Gores will pay us up to an additional $2 million, subject to adjustment, at such time as the net assets of the Video Solutions business are determined pursuant to the asset purchase agreement. In addition, at closing, Gores will deliver a promissory note to us in the amount of $1 million. Gores will pay us up to an additional $2 million in cash over the two years following the closing based on the annual revenues derived from the Video Solutions business. Details of this transaction and other important information are set forth in the accompanying proxy statement which you are urged to read carefully; |
2. | To approve an amendment to our certificate of incorporation to effect a change of our corporate name from “Wire One Technologies Inc.” to “Glowpoint, Inc.” immediately following consummation of the asset sale; |
3. | To elect two Class I Directors to the board of directors to serve a three-year term each; |
4. | To approve an amendment to our 2000 Stock Incentive Plan increasing the number of shares of common stock reserved for issuance thereunder from 4,400,000 to 6,500,000 shares; |
5. | To ratify the appointment of BDO Seidman, LLP as independent auditors for Wire One for fiscal 2003; |
6. | To approve an adjournment or postponement of the annual meeting, in order to solicit additional proxies, to such time and place as designated by the presiding officer of the meeting; and |
7. | To transact other business as may properly come before the meeting. |
Wire One Technologies, Inc. | |
/s/ Richard Reiss | |
Richard Reiss | |
Chairman and Chief Executive Officer |
July 21, 2003
WE URGE YOU TO COMPLETE, SIGN, DATE AND RETURN PROMPTLY THE ACCOMPANYING PROXY CARD OR TO VOTE BY TELEPHONE OR OVER THE INTERNET.
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ANNEX A ASSET PURCHASE AGREEMENT | ||
ANNEX B FAIRNESS OPINION | ||
ANNEX C AMENDED CERTIFICATE OF INCORPORATION | ||
ANNEX D 2000 STOCK INCENTIVE PLAN | ||
ANNEX E FORM OF VOTING AGREEMENT | ||
ANNEX F AUDIT COMMITTEE CHARTER |
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WIRE ONE TECHNOLOGIES, INC.
225 Long Avenue
Hillside, New Jersey 07205
PROXY STATEMENT FOR THE 2003 ANNUAL MEETING OF STOCKHOLDERS |
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stockholder who is present at a meeting and entitled to vote. Abstentions are counted as a “no” vote for any proposals submitted to stockholders for a vote, excluding the election of directors. A broker “non-vote” occurs when a broker nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary power for that particular item and has not received instructions from the beneficial owner. A broker “non-vote” will be treated as unvoted for purposes of determining the approval of any matter submitted to the stockholders for a vote. A plurality of the votes duly cast is required for the election of directors. This means that the two nominees receiving the highest number of affirmative votes will be elected. Abstentions and “broker non-votes” are not counted for purposes of the election of directors. Because the Delaware General Corporation Law requires the affirmative vote of the holders of a majority of the outstanding shares of common stock entitled to vote on the proposal to approve the sale of our Video Solutions business, a “broker non-vote” on such proposal will have the same effect as a vote against the approval of the sale of our Video Solutions business.
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SUMMARY TERM SHEET RELATING TO THE SALE OF SUBSTANTIALLY ALL OF
THE ASSETS OF OUR VIDEO SOLUTIONS BUSINESS
• | allow us to devote substantially all of our energies and resources to development of our Glowpoint network, thereby focusing on network offerings instead of equipment sales, service and maintenance; |
• | enable us to more effectively market and sell our Glowpoint network to resellers who will no longer view us as a competitor; |
• | provide an improved organizational focus; |
• | allow us to direct our focus to the potentially better overall returns from our Glowpoint network, by reducing our expenses and increasing our cash balances; |
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• | meet our need for raising cash sufficient to build out, market and implement the Glowpoint network, which the board believes will yield higher profit margins than the Video Solutions business; and |
• | provide us with capital resources to consider and assess other opportunities that the board believes may afford a superior opportunity for growth compared to the existing Video Solutions business. |
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of a purchase price adjustment will not be breached. Because future events are at times difficult to foresee, however, we can give no assurances that this adjustment will not occur.
• | all cash, cash equivalents and bank accounts (other than the transition accounts); |
• | all of our right, title and interest in and to the assets, properties, goodwill and business of every kind and description and wherever located, directly or indirectly owned by us or to which we are directly or indirectly entitled and, in any case, necessary for the operation of, or that is primarily used in, our network business; |
• | all of our rights arising under the asset purchase agreement, the bill of sale, assumption agreement, real estate agreements, transition services agreement and the Glowpoint sales agency agreement, and any other document delivered under the asset purchase agreement or in connection with the transactions contemplated thereby; |
• | trademarks, service marks and trade names relating to our network business; |
• | any of our rights to tax refunds or any prepaid taxes; |
• | any records relating to our internal governance; and |
• | any of our insurance policies or any right, title or interest we have thereunder, including any prepaid insurance premiums and all insurance benefits thereunder, including rights and proceeds, arising from or relating to the operation of the Video Solutions business prior to June 30, 2003. |
• | all liabilities to be paid or performed after the closing date that arise from or out of the performance or non-performance by Gores after the closing date of any contracts included in the assets or entered into after June 10, 2003, including under any extended warranty, customer support, upgrade or product delivery contracts for sales inventory, but not including any liabilities for any breach of such |
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obligations by us or liabilities in excess of those which are required to be set forth on our closing statement related to the Video Solutions business for future performance of the obligations to customers; and | ||
• | our accounts payable, customer deposits, deferred revenue and accrued liabilities related to the Video Solutions business, but not including any liabilities in excess of those which are required to be set forth on our closing statement or any liabilities evidencing any intercompany obligation of us and our subsidiaries. |
• | we must obtain approval by our stockholders of the sale; and |
• | we must remove as of the closing all liens placed on the assets in connection with our credit agreement with JPMorgan Chase Bank. |
• | by the mutual written consent of us and Gores; |
• | by either us or Gores if: |
– | the sale of the Video Solutions business is not completed by September 30, 2003, other than as a result of the failure by the party proposing to terminate the asset purchase agreement to perform its obligations; |
– | an order, decree or ruling is entered restraining, enjoining or otherwise prohibiting the completion of the sale of our Video Solutions business; |
– | our stockholders fail to approve the sale of our Video Solutions business by September 30, 2003; or |
– | the other party materially breaches its representations or agreements so that a closing condition would not be satisfied and the breach remains uncured 30 days following notice or the breaching party ceases to use commercially reasonable efforts to cure the breach. |
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• | our board of directors withdraws or modifies in an adverse manner its recommendation of the sale of the Video Solutions business; |
• | we fail to include in this proxy statement the approval and recommendation of our board of directors for the sale of our Video Solutions business; or |
• | our board of directors approves any transaction or series of transactions in which a party other than Gores is entitled to purchase a substantial portion of the Video Solutions business or its assets. |
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QUESTIONS AND ANSWERS ABOUT THE 2003 ANNUAL MEETING |
Q: What is the Proposal Relating to the Election of Directors that I Will Be Voting on at the Annual Meeting? |
A: You will be asked to consider and vote upon a proposal to elect the following individuals to the board of directors: James Kuster and Michael Sternberg.
Q: What is the Proposal Relating to the Sale of the Video Solutions Business that I Will Be Voting on at the Annual Meeting? |
A: You will be asked to consider and vote upon a proposal to approve the sale by us of substantially all of the assets of our Video Solutions business pursuant to the asset purchase agreement, dated June 10, 2003, between our company and Gores Technology Group. The asset purchase agreement is attached to this proxy statement as Annex A.
Q: Why Are We Proposing to Sell Our Video Solutions Business? |
A: We are proposing to sell our Video Solutions business because we believe the sale will:
• | allow us to devote substantially all of our energies and resources to development of our Glowpoint network, thereby focusing on network offerings instead of equipment sales, service and maintenance; |
• | enable us to more effectively market and sell our Glowpoint network to resellers who will no longer view us as a competitor; |
• | provide an improved organizational focus; |
• | allow us to direct our focus to the potentially better overall returns from our Glowpoint network, by reducing our expenses and increasing our cash balances; |
• | meet our need for raising cash sufficient to build out and market the Glowpoint network, which the board believes will yield higher profit margins than the Video Solutions business; and |
• | provide us with capital resources to consider and assess other opportunities that the board believes may afford a superior opportunity for rapid growth and revenues compared to the existing Video Solutions business. |
Q: Will Any of the Proceeds from the Sale of the Videoconferencing Services Business be Distributed to Me as a Stockholder? |
A: No. We intend to retain the proceeds and use them in connection with our future business plan.
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Q: What is the Proposal Relating to the Ratification of the Audit Committee’s Appointment of Independent Accountants That I Will Be Voting on at the Annual Meeting? |
A: You will be voting to ratify the audit committee’s appointment of BDO Seidman, LLP, independent accountants, as our independent auditors for the fiscal year ending December 31, 2003.
Q: What is the Proposal Relating to the Approval of an Adjournment Or Postponement of the Annual Meeting, in Order to Solicit Additional Proxies, to Such Time and Place as Designated by the Presiding Officer of the Meeting? |
A: You will be voting on whether to grant authority to adjourn or postpone the annual meeting, in order to solicit additional proxies, to a later time.
Q: Who Is Soliciting My Proxy? |
A: Your board of directors.
Q: How Does the Board Recommend that I Vote on the Matters Proposed? |
A: Your board unanimously recommends that stockholders vote “FOR” each of the proposals submitted at the annual meeting.
Q: Did We Receive a Report From a Financial Advisor Concerning the Sale of the Video Solutions Business and are There Any Important Aspects of the Process of Obtaining that Report and Conclusions in the Report That You Should Consider in Referring to the Opinion of Our Financial Advisor? |
A: Yes. In arriving at its determination that the sale of our Video Solutions business is fair to, and in the best interests of our company, the board has considered a number of factors, including an opinion of our financial advisor, Broadband Capital Management LLC. There were, however, some important aspects associated with the process of obtaining the report and conclusions in the report that you should consider when considering the opinion of Broadband, including the fact that in rendering its opinion, Broadband did not adjust the $2 million of contingent consideration to account for the time value of money or the possibility that these additional amounts will not be paid to us.
For a full description of the opinion letter that we received from Broadband, see the section titled “Opinion of Financial Advisor” on pages 17 through 18. To review the text of this letter, see Annex B to this proxy statement.
Q: Can I Still Sell My Shares? |
A: Yes. Neither the asset purchase agreement nor the sale of our Video Solutions business assets will affect your right to sell or otherwise transfer your shares of our common stock.
Q: What Will Happen If The Sale Of Our Video Solutions Business Is Not Approved? |
Q: Who is Entitled to Vote at the Annual Meeting? |
A: Only holders of record of our common stock as of the close of business on July 17, 2003 will be entitled to notice of and to vote at the annual meeting.
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Q: When and Where is the Annual Meeting? |
A: The annual meeting of our stockholders will be held at 9:00 a.m. local time, on Thursday, August 21, 2003, at the Holiday Inn, 304 Route 22 West, Springfield, New Jersey 07081.
Q: Where Can I Vote My Shares? |
A: You can vote your shares where indicated by the instructions set forth on the proxy card, including by internet or by telephone, or you can attend and vote your shares at the annual meeting of stockholders to be held on Thursday, August 21, 2003, at the Holiday Inn, 304 Route 22 West, Springfield, New Jersey 07081.
Q: If My Shares are Held in “Street Name” by My Broker, Will My Broker Vote My Shares for Me? |
A: Your broker may not be permitted to exercise voting discretion with respect to some of the matters to be acted upon. Thus, if you do not give your broker or nominee specific instructions, your shares may not be voted on those matters, and will not be counted in determining the number of shares necessary for approval. You should follow the directions provided by your broker regarding how to instruct your broker to vote your shares.
Q: May I Change My Vote After I Have Mailed My Signed Proxy Card? |
A: Yes. Just send in a written revocation or a later dated, signed proxy card before the annual meeting or simply attend the annual meeting and vote in person. Simply attending the annual meeting, however, will not revoke your proxy; you must vote at the annual meeting.
Q: What Do I Need to Do Now? |
A: Please vote your shares as soon as possible so that your shares may be represented at the annual meeting. You may vote by signing and dating your proxy card and mailing it in the enclosed return envelope or by telephone or over the internet, or you may vote in person at the annual meeting. Because a vote of a majority of our outstanding shares is required to approve the sale of our Video Solutions business, your failure to vote is the same as your voting against the sale.
Q: What are the U.S. Federal Income Tax Consequences of the Sale of Our Video Solutions Business to the Stockholders? |
A: The sale of our Video Solutions business will not result in any federal income tax consequences to our stockholders.
Q: What are the U.S. Federal Income Tax Consequences of the Sale of the Video Solutions Business to the Company? |
A: As a result of currently available U.S. federal income tax net operating loss carryforwards, we anticipate that the asset sale will not cause us to incur any U.S. federal income tax liability.
Q: Will Stockholders Have Appraisal Rights?
A: No. Under Delaware law you will have no appraisal rights as a result of the sale of our Video Solutions business.
Q: Whom Should I Call If I Have Questions? |
A: If you have questions about any of the proposals on which you are voting, you may call Chris Zigmont, our chief financial officer, at 1-603-898-0800.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
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PROPOSAL NO. 1 – SALE OF SUBSTANTIALLY ALL OF THE ASSETS USED IN
OUR VIDEO SOLUTIONS BUSINESS
Wire One Technologies, Inc. |
Gores Technology Group |
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met and decided to discontinue negotiations with the initial potential financial buyer and instead to enter into an exclusive, non-binding letter of intent with Gores.
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Reasons for the Sale of Our Video Solutions Business |
• | allow us to devote substantially all of our energies and resources to development of our Glowpoint network, thereby focusing on network offerings instead of equipment, service and maintenance; |
• | enable us to more effectively market and sell our Glowpoint network to resellers who will no longer view us as a competitor; |
• | provide an improved organizational focus; |
• | allow us to direct our focus to the potentially better overall returns from our Glowpoint network, by reducing our expenses and increasing our cash balances; |
• | meet our need for raising cash sufficient to build out, market and implement the Glowpoint network, which the board believes will yield higher profit margins than the Video Solutions business; and |
• | provide us with capital resources to consider and assess other opportunities that the board believes may afford a superior opportunity for growth compared to the existing Video Solutions business. |
– | the oral opinion provided on June 9, 2003, which was confirmed in writing by an opinion letter dated as of June 9, 2003 in connection with the preparation of this proxy statement, that we received from Broadband Capital Management LLC, our company’s financial advisor, that the consideration to be received by Wire One pursuant to the asset sale is fair from a financial point of view; |
– | the fact that Gores’ offer was superior to the other offer we received, both in terms of aggregate consideration and proposed transaction structure; |
– | the amount of cash included in Gores’ offer; |
– | the terms and conditions of the asset purchase agreement, including the fiduciary out provision negotiated by the board, which allows the board to consider unsolicited offers to purchase the Video Solutions business; |
– | the fact that the sale of our Video Solutions business must be approved by the holders of a majority of our common stock, which ensures that the board will not be taking action of which the stockholders disapprove; |
– | the risk that after the asset sale our company will have a less diversified business which would leave our company dependent on the performance of our Glowpoint network; |
– | the risk that our company could be exposed to future indemnification payments for a breach of the representations, warranties and covenants contained in the asset purchase agreement; |
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– | the risk that we may not receive, or we may only receive a portion of, the $2 million to be held back by Gores if we are required to cover purchase price adjustments because of a change in the net asset value of the assets sold; and |
– | the risk that the asset sale might not be consummated, which could result in a decline in the price of our common stock, limit our ability to grow and implement our current business strategies and, under certain circumstances, result in our paying Gores a termination fee of $1 million. |
Additional Considerations |
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holdback amount when assessing how to vote on the proposal to sell substantially all of the assets of our Video Solutions business. Using the rate the company currently earns on cash balances of 0.75% to account for the time value of money and discounting the $2 million by 10% to account for the possibility that there will be purchase price adjustments and/or indemnity claims exceeding $200,000, the assumed discounted value of the $2 million hold back amount would be approximately $1,796,278. Different assumptions pertaining to the present value discount or pertaining to the possibility of non-payment discount could provide different results. The effort to present these discounts is designed to show the impact that these types of discounts may have on a valuation of $2 million to be received in the future, and is not intended to represent what amount our company will actually receive. The board considered the possibility of purchase price adjustments and/or indemnity claims in authorizing this transaction for the reasons noted above. Nonetheless, in deciding how to vote, you may wish to value the $2 million to be received in the future using discount factors and the discounted value of $2 million may affect how you may wish to vote.
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Fairness Opinion Analyses |
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Solutions business. A range of terminal values was calculated by Broadband by applying a multiple of earnings before interest, taxes, depreciation and amortization, or EBITDA, in the final year of the forecast period. Broadband selected discount rates ranging from 18% to 26% to reflect the risk inherent in our Video Solutions business and our projections. Based on a range of terminal EBITDA multiples of 3.5x to 4.3x, the implied enterprise value of the Video Solutions business ranged from $21.6 million to $24.9 million with a midpoint of $23.3 million. In addition, Broadband presented a perpetual growth scenario whereby a range of growth rates was applied to terminal year free cash flow to determine terminal value. Based on a range of terminal growth rates ranging from 4% to 6%, the implied enterprise value of the Video Solutions business ranged from $19.5 million to $20.9 million with a midpoint of $20.2 million. Discounted cash flow analysis is a widely used valuation methodology, but it relies on numerous assumptions, including asset values and earnings growth rates, terminal values and discount rates. This analysis is not necessarily reflective of the actual value of our Video Solutions business.
Transaction Multiples | Comparable Market Multiples | ||||||||||||||||||
Video Solutions Business – Actual | Video Solutions Business – Pro-Forma | Average | Median | Hi | Low | ||||||||||||||
Comparable Company Analysis | |||||||||||||||||||
Enterprise Value as Multiple of Revenue LTM | 0.3x | 0.3x | 0.4x | 0.4x | 1.0x | 0.07x | |||||||||||||
Revenue FY 2002 | 0.3x | 0.3x | 0.4x | 0.4x | 1.1x | 0.07x | |||||||||||||
EBIT LTM | neg | neg | 6.6x | 5.1x | 14.9x | 2.4x | |||||||||||||
EBIT FY 2002 | neg | 17.1x | 7.0x | 5.5x | 14.9x | 3.3x | |||||||||||||
EBITDA LTM | neg | 8.7x | 4.1x | 3.7x | 7.2x | 1.7x | |||||||||||||
EBITDA FY 2002 | neg | 5.0x | 4.2x | 3.3x | 7.6x | 2.2x | |||||||||||||
Total Assets | 0.7x | na | 0.7x | 0.6x | 1.2x | 0.3x | |||||||||||||
Equity Value as Multiple of Common Equity | 1.2x | na | 1.8x | 1.5x | 4.0x | 0.6x |
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(1) | “LTM” is an abbreviation for last twelve months. |
(2) | “FY” is an abbreviation for fiscal year. |
(3) | “neg” indicates negative value |
(4) | “na” indicates not applicable or available |
Announced | ||
Date | Seller | Acquiror |
4/21/03 | AlphaNet Solutions Inc | CIBER Inc |
4/01/03 | Corporate PC Source In | Zones Inc |
8/14/02 | NQL Inc/Delta Computec Inc | ViewCast Corp |
4/25/02 | Comark Inc | Insight Enterprises Inc |
2/25/02 | CorpSoft Inc | Level 3 Communications Inc |
11/9/02 | NetPoint International Inc | ScanSource Inc |
5/31/01 | Currency Systems International Inc | De La Rue Plc |
11/29/00 | Lanier Worldwide Inc | Ricoh Co Ltd |
11/14/00 | SysComm International Corp | Applied Digital Solutions Inc |
11/6/00 | Bristol Retail Solutions Inc | Registry Magic Inc |
3/2/99 | Savoir Technology Group Inc | Avnet Inc |
10/25/99 | Diagraph Corp/Diagraph Asia Ltd | Linx Printing Technologies PLC |
8/5/99 | Connector Resources Unlimited Inc | Labtec Inc |
7/1/99 | Williams Conferencing | Genesys |
4/5/99 | BancTec Inc | Welsh Carson Anderson & Stowe |
3/22/99 | Lewan & Associates | Global Imaging Systems Inc |
Transaction Multiples | Comparable Statistic | ||||||||||||||||||
Video Solutions Business – Actual | Video Solutions Business – Pro-Forma | Average | Median | Hi | Low | ||||||||||||||
Comparable Transaction Analysis | |||||||||||||||||||
Total Purchase Price as Multiple of Revenue LTM | 0.3x | 0.3x | 0.5x | 0.3x | 1.7x | 0.1x | |||||||||||||
Revenue LFY | 0.3x | 0.3x | 0.5x | 0.3x | 1.7x | 0.1x | |||||||||||||
EBIT LTM | neg | neg | 7.0x | 7.4x | 29.2x | 2.8x | |||||||||||||
EBIT LFY | neg | 17.1x | 7.0x | 7.4x | 29.2x | 2.8x | |||||||||||||
EBITDA LTM | neg | 8.7x | 4.9x | 5.9x | 8.2x | 1.5x | |||||||||||||
EBITDA LFY | neg | 5.0x | 4.9x | 5.9x | 8.2x | 1.5x | |||||||||||||
(1) | “LTM is an abbreviation for the last twelve months. |
(2) | “FY” is an abbreviation for fiscal year. |
(3) | “neg” indicates negative value. |
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necessarily susceptible to a partial analysis or summary description. Broadband believes that its analyses must be considered as a whole and that selecting portions of its analyses, without considering the analyses taken as a whole, would create an incomplete view of the process underlying the analyses set forth in its opinion. In addition, Broadband considered the results of all such analyses and did not assign relative weights to any of the analyses, so the ranges of valuations resulting from any particular analysis described above should not be taken to be Broadband’s view of the actual value of our Video Solutions business.
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purpose is generally payable 90 days after the closing. As such, while $2 million is to be held back by Gores and is to be distributed to us subject to these contingencies, we may not receive the holdback funds, or the amount we actually receive may be less than the amount of the holdback.
• | loss of key employees or customers; |
• | changes in management which may impair relationships with employees and customers; |
• | failure to adjust or implement our business model; |
• | failure of our Glowpoint network service to achieve intended goals; |
• | additional expenditures required to facilitate this divestiture; and |
• | the resulting diversion of management’s attention from our day-to-day business. |
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Special Considerations Relating to Our Company If Our Video Solutions Business is Sold |
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certain that our new hires will become as productive as necessary or that we will be able to hire enough qualified individuals or retain existing employees in the future. We cannot be certain that we will be successful in our efforts to market and sell our products, and if we are not successful in building greater market awareness and generating increased sales, future results of operations will be adversely affected.
• | all finished goods, spare parts, refurbished equipment, replacement and component parts owned or stored by or for us as of the closing time: (1) including goods in transit, for potential sale by the Video Solutions business and any associated reserves and prepaid deposits for any of the same, and (2) including at customer sites, for use in connection with the provision of maintenance services as a part of the Video Solutions business; |
• | any and all accounts receivable, notes and other amounts receivable from customers and others arising from the conduct of the Video Solutions business by us before the closing date, whether or not in the ordinary course, together with any unpaid financing charges accrued thereon, and including associated reserves and earnings in excess of billings; |
• | all furniture, equipment, fixtures, leasehold improvements, tools, computers, machinery and other tangible personal property used primarily in the Video Solutions business; |
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• | our interest in all contracts relating to the Video Solutions business, and all of the related interests, privileges, claims, causes of action and options relating to the contracts and all bids and offers (including open sales orders) relating thereto; |
• | all customer, distributor, supplier and other mailing or contact lists and other sales-related, distribution-related and supply-related materials used primarily in the Video Solutions business (provided that we will remain entitled to use the lists in connection with our Video Network business, which includes, without limitation the designing, marketing, distributing, selling, installing, maintaining and supporting of the Glowpoint network and of such division’s bridging, gateway and network design operations); |
• | all labels, signs, packaging materials, promotional materials, point-of-purchase displays, sales literature, advertising, brochures, user manuals, graphics, artwork, UPC codes and all other items relating to the assets sold; |
• | all of our Video Solutions business accounting and financial records, property records, contract records, invoices, shipping, purchasing and sales records, correspondence, records, files, and personnel records of the transferred employees, and all computer software and programs and any rights thereto; |
• | certain of our rights under certain leasehold interests used in the operation of the Video Solutions business; |
• | all of our intangible rights and property associated with the Video Solutions business, including going concern value and goodwill; |
• | all governmental authorizations, permits, licenses and approvals, and all pending applications therefor or renewals thereof used in connection with the Video Solutions business, in each case to the extent transferable; |
• | all telephone and facsimile numbers, email addresses, and post office boxes used by us primarily in connection with the Video Solutions business; |
• | all guarantees, warranties, indemnities and similar rights in favor of us with respect to the Video Solutions business or any of the assets sold; |
• | all of our claims against third parties relating to the assets sold; |
• | all of our rights in respect of the assets sold relating to deposits and prepaid expenses, claims for refunds and rights to offset; and |
• | all of our rights in and to monies received by us as payment of any receivables or otherwise with respect to the Video Solutions business from June 30, 2003 until the closing date (all such monies will be deposited into transition accounts separate from our other accounts); |
Assets Retained |
• | all cash, cash equivalents and bank accounts (other than the transition accounts); |
• | all of our right, title and interest in and to the assets, properties, goodwill and business of every kind and description and wherever located, directly or indirectly owned by us or to which we are directly or indirectly entitled and, in any case, necessary for the operation of, or that is primarily used in, our Video Network business; |
• | all of our rights arising under the asset purchase agreement, the bill of sale, assumption agreement, real estate agreements, transition services agreement and the Glowpoint sales agency agreement, and any other document delivered under the asset purchase agreement or in connection with the transactions contemplated thereby; |
• | trademarks, service marks and trade names relating to our network business; |
• | any of our rights to tax refunds or any prepaid taxes; |
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• | any records relating to our internal governance; and |
• | any of our insurance policies or any right, title or interest we have thereunder, including any prepaid insurance premiums and all insurance benefits thereunder, including rights and proceeds, arising from or relating to the operation of the Video Solutions business prior to June 30, 2003. |
• | all liabilities to be paid or performed after the closing date that arise from or out of the performance or non-performance by Gores after the closing date of any contracts included in the assets or entered into after June 10, 2003, including under any extended warranty, customer support, upgrade or product delivery contracts for sales inventory, but not including any liabilities for any breach of such obligations by us or liabilities in excess of those which are required to be set forth on our closing statement related to the Video Solutions business for future performance of the obligations to customers; and |
• | our accounts payable, customer deposits, deferred revenue and accrued liabilities related to the Video Solutions business, but not including any liabilities in excess of those which are required to be set forth on our closing statement or any liabilities evidencing any intercompany obligation of us and our subsidiaries. |
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Representations and Warranties of Our Company |
• | our company is a corporation validly existing and in good standing and has the requisite power to carry on the Video Solutions business as it is now being conducted and has all requisite authority to own, lease and operate the properties constituting the Video Solutions business; |
• | our company has the requisite power to enter into the asset purchase agreement and the ancillary agreements; |
• | subject to the approval of the asset purchase agreement and the ancillary agreements by our stockholders and obtaining certain third party consents, there are no conflicts between the asset purchase agreement and our charter documents, our contracts or licenses or applicable law, nor will the asset purchase agreement or the ancillary agreements result in our payment or obligation to pay any severance, termination, “golden parachute,” or other similar payment pursuant to any employment agreement or contract or the triggering of any severance notice obligations with respect to any of the transferred employees; |
• | the financial statements provided are materially complete and correct and have been prepared in accordance with generally accepted accounting principles (except that the unaudited balance sheet of the Video Solution segment as at December 31, 2002 and March 31, 2003 and the related statement of operations for the year ended December 31, 2002 and the three months ended March 31, 2003, do not include footnotes) and present fairly, in all material respects, the financial condition of our Video Solutions business; |
• | subject to the approval of the asset purchase agreement by our stockholders and obtaining certain third party consents, there are no conflicts between the asset purchase agreement and our charter documents, our contracts or applicable law; |
• | the accounts receivable being transferred are valid and bona fide and are not subject to set-off, counterclaim or defense; |
• | the inventory being transferred is useable and saleable in the ordinary course of business of the Video Solutions business; |
• | our company has good and valid title to, or a valid leasehold or license interest in, the assets used in the operation of our Video Solutions business, except for encumbrances permitted by Gores; |
• | our company has no undisclosed liabilities, except for those reflected on the business financial statements, incurred in the ordinary course of the Video Solutions business and not required to be disclosed under generally accepted accounting principles, or incurred in connection with the asset purchase agreement; |
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• | since March 31, 2003, except as described in the asset purchase agreement, our company has conducted the Video Solutions business only in the normal and ordinary course of business consistent with past practice; |
• | there are no legal proceedings related to our Video Solutions business or the assets being purchased by Gores; |
• | our company is in material compliance with all applicable laws, including laws respecting employment and employment practices and benefits and unfair labor practices; |
• | the contracts to be transferred in connection with the asset purchase agreement are legally valid and binding on us, comprise all agreements and licenses necessary for the continued conduct of the Video Solutions business as now being conducted and have been performed by us in all material respects; |
• | our company owns, and will transfer to Gores at the closing, the rights to the intellectual property used in our Video Solutions business and is not infringing the rights of any third party; |
• | the leases for our Video Solutions business facilities are in full force and effect, have not been transferred, assigned or subleased, and we have not received any notice of any material violation of any zoning ordinance or other occupancy restriction; |
• | our company has not received any notice and has no reason to believe that any of our customers has ceased, or will cease, to use the products, equipment, goods or services of the Video Solutions business or has substantially reduced, or will substantially reduce, the use of such products, equipment, goods or services at any time, and our company has no material outstanding disputes with any customers, resellers or partners of the Video Solutions business; |
• | to our company’s knowledge, no supplier of the Video Solutions business refused to do business with our company nor stated its intention not to continue to do business with our company or Gores at any time after the closing on terms and conditions substantially similar to those used in its current sales to our company, and there are no material outstanding disputes with any suppliers; |
• | our company has paid all taxes related to the Video Solutions business and the assets and there are no liens for taxes due and payable on any of such assets or the Video Solutions business; |
• | our company has obtained all licenses necessary to carry on the Video Solutions business as currently conducted under applicable law, is in compliance will all material terms and conditions of such licenses and all such licenses are in full force and effect; |
• | our company is in compliance with all applicable environmental laws and has received no notice of any violation of such laws relating to the Video Solutions business; |
• | except for restrictions contained in the asset purchase agreement and any ancillary agreements, the Video Solutions business is not subject to any restriction limiting its ability to compete in any geographic area or with any person or which would prevent the continued operation of the Video Solutions business after June 10, 2003 as operated before such date; |
• | our company carries insurance on the assets; and |
• | except for Water Mill Partners LLC, our company is not obligated to pay any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by the asset purchase agreement or the ancillary agreements. |
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Representations and Warranties of Gores |
• | Gores is a corporation validly existing and in good standing and has the requisite power to enter into the asset purchase agreement and any ancillary agreements and to consummate the transactions contemplated by such agreements; |
• | subject to obtaining certain third party consents, there are no conflicts between the asset purchase agreement and Gores’ charter documents, contracts, licenses or applicable law; |
• | Gores is not obligated to obtain any consents as a result of entering into and performing its obligations under the asset purchase agreement and the ancillary agreements; |
• | there are no legal proceedings or any order, injunction or judgment in progress which could have a material adverse effect on Gores’ ability to consummate the transactions contemplated by the asset purchase agreement; and |
• | Gores has not paid or become obligated to pay any fee or commission to any broker, finder, investment banker, or other intermediary in connection with the transactions contemplated by the asset purchase agreement. |
• | our company will conduct the Video Solutions business in the ordinary course and consistent with past practices; |
• | our company will provide Gores with full access to our offices, facilities, books and records and to our directors, employees, agents, accountants and counsel who have any knowledge relating to the Video Solutions business, and will furnish additional financial and operating data and other information regarding the Video Solutions business and the assets as Gores may from time to time reasonably request; |
• | our company agrees to, and will cause its agents, representatives, affiliates, employees, officers and directors to, treat as confidential all confidential information relating to the Video Solutions business; |
• | each party will cooperate to prepare and file all filings and secure all necessary approvals to consummate and effect the transactions set forth in the asset purchase agreement and the ancillary agreements; |
• | our company agrees to hold after the closing any asset that by its terms is not transferable or assignable to Gores in trust exclusively for the benefit of Gores until the asset is assigned or transferred to Gores or Gores has obtained the material benefits intended to be transferred or assigned through alternative means; |
• | our company will, as soon as practicable, prepare and file with the SEC this proxy statement to obtain the required vote of our stockholders to approve the asset purchase agreement and the transactions contemplated thereby and our board of directors has agreed to recommend that our stockholders approve the asset purchase agreement and the sale of our Video Solutions business; |
• | our company will, as soon as reasonably practicable, call and hold a meeting of our stockholders for the purpose of adopting a resolution authorizing the transactions contemplated by the asset purchase agreement; |
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• | Gores waives our compliance with any applicable bulk sale or bulk transfer laws in connection with the sale of assets. We agree to indemnify Gores against any and all liabilities asserted by a third party against Gores as a result of our noncompliance with such laws; |
• | we agree to reimburse Gores for any real or personal property taxes paid by Gores relating to any portion of a taxable period ending on or before the closing date; and |
• | we agree to change our corporate name immediately after the closing and not to use any of the intellectual property relating to the Video Solutions business from and after the closing date. However, from the closing date through December 31, 2003, we may continue to use trademarks and other intellectual property relating to the Video Solutions business to inform customers, vendors and other parties about the transactions contemplated by the asset purchase agreement and in filings with the SEC and other governmental authorities. |
• | conduct the Video Solutions business in the ordinary course and consistent with our past practices; |
• | establish a separate general ledger reflecting all of the revenues and amounts payable to third parties with respect the liabilities assumed by Gores and the employees transferred to Gores; |
• | incur direct costs of the Video Solutions business only in accordance with the transition budget agreed upon by us and Gores; |
• | deposit all monies received by us as payment of any receivables or otherwise with respect to the Video Solutions business into transition accounts separate from all of our other accounts; |
• | make payment with respect to any direct costs of the Video Solutions business only from the transition accounts; |
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• | permit a Gores representative access to our facilities and properties to observe the conduct of the Video Solutions business and consider the reasonable requests of such representative with respect to the conduct of the Video Solutions business so long as such requests do not cause us to expend funds in excess of the amounts provided in the transition budget; |
• | not to enter into any agreement or obligation prohibited by the asset purchase agreement; and |
• | credit to Gores at closing, as if the Glowpoint sales agency agreement were in place when such sales were consummated, commissions on sales of products and services of our network business by employees of the Video Solutions business. |
(2) if the EBITDA of the Video Solutions business for the quarter ended September 30, 2003 is more than $1.159 million but not more than $1.318 million, then we will be entitled to an offset against payment of the transition cost amount of up to $318,000, not to exceed the transition cap; and
(3) if the EBITDA of the Video Solutions business for the quarter ended September 30, 2003 is more than $1.318 million, then we will be entitled to an offset against payment of the transition cost amount of up to $477,000, not to exceed the transition cap.
• | we must obtain approval by our stockholders of the sale; |
• | our representations and warranties and the representations and warranties of Gores must be true and correct in all material respects as of the closing; |
• | we and Gores must perform or comply with our respective covenants and other agreements in all material respects on or prior to the closing; |
• | no legal restraint or prohibition against the consummation of the sale of the Video Solutions business may be in effect; and |
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• | we and Gores must execute and deliver to each other each of the ancillary agreements, meaning the bill of sale, the assumption agreement, the real estate agreements, the transition services agreement and the Glowpoint sales agency agreement. |
• | we must remove as of the closing all liens placed on the assets in connection with our credit agreement with JPMorgan Chase Bank. |
• | any breach or inaccuracy in any representation or warranty made by us in the asset purchase agreement or the ancillary agreements; |
• | any breach of any covenant or agreement made by us in the asset purchase agreement or the ancillary agreements; or |
• | the liabilities, whether arising before or after the closing date, that Gores has not assumed. |
• | any breach or inaccuracy in any representation or warranty made by Gores in the asset purchase agreement or the ancillary agreements; |
• | any breach of any covenant or agreement made by Gores in the asset purchase agreement or the ancillary agreements; or |
• | the liabilities assumed by Gores. |
Limits on Indemnification |
Termination |
• | by the mutual written consent of us and Gores; |
• | by either us or Gores if: |
• | the sale of the Video Solutions business is not completed by September 30, 2003, other than as a result of the failure by the party proposing to terminate the asset purchase agreement to perform its obligations; |
• | an order, decree or ruling is entered restraining, enjoining or otherwise prohibiting the completion of the sale of our Video Solutions business; |
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• | our stockholders fail to approve the sale of our Video Solutions business by September 30, 2003; or |
• | the other party materially breaches its representations or agreements so that a closing condition would not be satisfied and the breach remains uncured 30 days following notice or the breaching party ceases to use commercially reasonable efforts to cure such breach. |
• | our board of directors withdraws or modifies in an adverse manner its recommendation of the sale of the Video Solutions business; |
• | we fail to include in this proxy statement the approval and recommendation of our board of directors for the sale of our Video Solutions business; or |
• | our board of directors approves any transaction or series of transactions in which a party other than Gores is entitled to purchase a substantial portion of the Video Solutions business or its assets. |
Effect of Termination |
Break-Up Fee |
• | our board of directors or any committee thereof for any reason withdraws, amends or modifies in a manner adverse to Gores its affirmative recommendation to our stockholders in favor of the adoption of the asset purchase agreement and the approval of the transaction contemplated thereby; |
• | our board of directors fails to include its affirmative recommendation in these proxy materials with respect to our company’s stockholder meeting; or |
• | our board of directors or any committee thereof approves any proposal with respect to any transaction or series of related transactions in which any party other than Gores is entitled to purchase any substantial portion of the Video Solutions business or its assets, whether by asset sale, sale of stock or other securities, spin-off, contribution, merger, consolidation, reorganization, recapitalization, liquidation or otherwise. |
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FINANCIAL HISTORY AND EFFECTS OF THE PROPOSED ASSET SALE
35
Selected Financial Data
Three Months Ended March 31, | Year Ended December 31, | |||||||||||||||||||||
2003 | 2002 | 2002 | 2001 | 2000 | 1999 | 1998 | ||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||||
Statement of Operations Information: | ||||||||||||||||||||||
Revenues | ||||||||||||||||||||||
Video Solutions | ||||||||||||||||||||||
Equipment | $ | 14,528 | $ | 14,438 | $ | 61,398 | $ | 55,638 | $ | 39,280 | $ | 11,601 | $ | 5,640 | ||||||||
Services | 3,747 | 3,654 | 15,751 | 15,294 | 7,679 | 797 | 496 | |||||||||||||||
Video Network | 2,227 | 1,100 | 5,599 | 3,480 | 1,475 | — | — | |||||||||||||||
20,502 | 19,192 | 82,748 | 74,412 | 48,434 | 12,398 | 6,136 | ||||||||||||||||
Cost of revenues | ||||||||||||||||||||||
Video Solutions | ||||||||||||||||||||||
Equipment | 11,582 | 10,316 | 47,406 | 38,332 | 26,283 | 8,029 | 3,704 | |||||||||||||||
Services | 2,030 | 1,774 | 8,618 | 8,914 | 5,271 | 549 | 317 | |||||||||||||||
Video Network | 2,294 | 970 | 5,597 | 2,898 | 1,105 | — | — | |||||||||||||||
15,906 | 13,060 | 61,621 | 50,144 | 32,659 | 8,578 | 4,021 | ||||||||||||||||
Gross margin | ||||||||||||||||||||||
Video Solutions | ||||||||||||||||||||||
Equipment | 2,946 | 4,122 | 13,992 | 17,306 | 12,997 | 3,572 | 1,936 | |||||||||||||||
Services | 1,717 | 1,880 | 7,133 | 6,380 | 2,408 | 248 | 179 | |||||||||||||||
Video Network | (67 | ) | 130 | 2 | 582 | 370 | — | — | ||||||||||||||
4,596 | 6,132 | 21,127 | 24,268 | 15,775 | 3,820 | 2,115 | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||||
Selling | 5,851 | 6,446 | 25,698 | 22,112 | 12,588 | 2,487 | 1,634 | |||||||||||||||
General and administrative | 1,653 | 1,804 | 8,159 | 12,245 | 4,121 | 1,765 | 1,310 | |||||||||||||||
Restructuring | — | — | 960 | 200 | — | — | — | |||||||||||||||
Impairment losses on goodwill | — | — | 40,012 | — | — | — | — | |||||||||||||||
Impairment losses on other long-lived assets | — | — | 1,358 | 2,684 | 1,501 | — | — | |||||||||||||||
Total operating expenses | 7,504 | 8,250 | 76,187 | 37,241 | 18,210 | 4,252 | 2,944 | |||||||||||||||
Loss from continuing operations | (2,908 | ) | (2,118 | ) | (55,060 | ) | (12,973 | ) | (2,435 | ) | (432 | ) | (829 | ) | ||||||||
Other (income) expense | ||||||||||||||||||||||
Amortization of deferred financing costs | 45 | 14 | 123 | 100 | 344 | 43 | 19 | |||||||||||||||
Interest income | (5 | ) | (19 | ) | (72 | ) | (77 | ) | (315 | ) | (23 | ) | (56 | ) | ||||||||
Interest expense | 373 | 26 | 432 | 598 | 78 | 181 | 57 | |||||||||||||||
Amortization of discount on subordinated debentures | 535 | — | 39 | — | — | — | — | |||||||||||||||
Total other expenses, net | 948 | 21 | 522 | 621 | 107 | 201 | 20 | |||||||||||||||
Loss before income taxes | (3,856 | ) | (2,138 | ) | (55,582 | ) | (13,594 | ) | (2,542 | ) | (633 | ) | (849 | ) | ||||||||
Income tax (benefit) provision | — | — | — | 200 | 511 | (105 | ) | 3 | ||||||||||||||
Net loss from continuing operations | (3,856 | ) | (2,138 | ) | (55,582 | ) | (13,794 | ) | (3,053 | ) | (528 | ) | (852 | ) | ||||||||
Loss from discontinued AV operations | (793 | ) | (420 | ) | (2,696 | ) | (396 | ) | — | — | — | |||||||||||
Income (loss) from discontinued voice operations | — | — | (287 | ) | (617 | ) | 521 | 1,592 | 75 | |||||||||||||
Gain on sale of discontinued voice operations | — | — | — | 277 | — | — | — | |||||||||||||||
Net income (loss) | (4,649 | ) | (2,558 | ) | (58,565 | ) | (14,530 | ) | (2,532 | ) | 1,064 | (777 | ) | |||||||||
Deemed dividends on series A convertible preferred stock | — | — | — | 4,434 | 13,723 | — | — | |||||||||||||||
Net income (loss) attributable to common stockholders | $ | (4,649) | $ | (2,558) | $ | (58,565) | $ | (18,964) | $ | (16,255) | $ | 1,064 | $ | (777) | ||||||||
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Selected Financial Data (cont.)
Three Months Ended March 31, | Year Ended December 31, | |||||||||||||||||||||
2003 | 2002 | 2002 | 2001 | 2000 | 1999 | 1998 | ||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||||
Net loss from continuing operations per share: | ||||||||||||||||||||||
Basic | $ | (0.13 | ) | $ | (0.08 | ) | $ | (1.93 | ) | $ | (0.66 | ) | $ | (0.24 | ) | $ | (0.11 | ) | $ | (0.18) | ||
Diluted | $ | (0.13 | ) | $ | (0.08 | ) | $ | (1.93 | ) | $ | (0.66 | ) | $ | (0.24 | ) | $ | (0.09 | ) | $ | (0.18) | ||
Income (loss) from discontinued operations per share: | ||||||||||||||||||||||
Basic | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.10 | ) | $ | (0.04 | ) | $ | 0.04 | $ | 0.33 | $ | 0.02 | ||||
Diluted | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.10 | ) | $ | (0.04 | ) | $ | 0.04 | $ | 0.26 | $ | 0.02 | ||||
Deemed dividends per share: | ||||||||||||||||||||||
Basic | $ | — | $ | — | $ | — | $ | (0.21 | ) | $ | (1.07 | ) | $ | — | $ | — | ||||||
Diluted | $ | — | $ | — | $ | — | $ | (0.21 | ) | $ | (1.07 | ) | $ | — | $ | — | ||||||
Net income (loss) per share: | ||||||||||||||||||||||
Basic | $ | (0.16 | ) | $ | (0.09 | ) | $ | (2.03 | ) | $ | (0.91 | ) | $ | (1.27 | ) | $ | 0.22 | $ | (0.16) | |||
Diluted | $ | (0.16 | ) | $ | (0.09 | ) | $ | (2.03 | ) | $ | (0.91 | ) | $ | (1.27 | ) | $ | 0.17 | $ | (0.16) | |||
Weighted average number of common shares and equivalents outstanding: | ||||||||||||||||||||||
Basic | 29,030 | 28,323 | 28,792 | 20,880 | 12,817 | 4,910 | 4,910 | |||||||||||||||
Diluted | 29,030 | 28,323 | 28,792 | 20,880 | 12,817 | 6,169 | 4,910 | |||||||||||||||
Balance Sheet Information: | ||||||||||||||||||||||
Cash and cash equivalents | $ | 657 | $ | 3,236 | $ | 2,762 | $ | 1,689 | $ | 1,871 | $ | 60 | $ | 326 | ||||||||
Working capital | 19,076 | 33,484 | 24,940 | 15,639 | 19,921 | 4,526 | 5,702 | |||||||||||||||
Total assets | 54,534 | 105,303 | 61,502 | 104,499 | 84,372 | 10,867 | 8,923 | |||||||||||||||
Long-term debt (including current portion) | 4,236 | 65 | 5,871 | 83 | 3,128 | 2,186 | 2,444 | |||||||||||||||
Series A mandatorily redeemable convertible preferred stock | — | — | — | — | 10,371 | — | — | |||||||||||||||
Total stockholders’ equity | 32,610 | 87,069 | 36,586 | 68,909 | 49,658 | 5,194 | 3,968 |
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Unaudited Pro Forma Condensed Consolidated Financial Data |
38
Unaudited Pro Forma Consolidated Balance Sheet
Pro Forma | ||||||||||
March 31, 2003 | Adjustments | March 31, 2003 | ||||||||
Assets | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 656,707 | $ | 21,250,000 | (1) | $ | 21,906,707 | |||
Accounts receivable – net | 22,873,348 | (21,195,643 | )(2) | 1,677,705 | ||||||
Inventory – net | 7,009,204 | (7,009,204 | )(2) | — | ||||||
Net assets of discontinued operations | 3,113,964 | (2,429,994 | )(2) | 683,970 | ||||||
Other current assets | 3,236,339 | (1,548,331 | )(2) | 1,356,366 | ||||||
(331,642 | )(3) | |||||||||
Total current assets | 36,889,562 | (11,264,814 | ) | 25,624,748 | ||||||
Note receivable | — | 1,000,000 | )(1) | 1,000,000 | ||||||
Furniture, equipment and leasehold improvements – net | 14,380,595 | (2,357,976 | )(2) | 12,022,619 | ||||||
Goodwill – net | 2,547,862 | — | 2,547,862 | |||||||
Other assets | 715,547 | (194,560 | )(2) | 520,987 | ||||||
Total assets | $ | 54,533,566 | $ | (12,817,350 | ) | $ | 41,716,216 | |||
Liabilities and Stockholders’ Equity | ||||||||||
Current liabilities: | ||||||||||
Accounts payable and accrued expenses | $ | 9,803,799 | $ | (9,230,500 | )(2) | $ | 573,299 | |||
Deferred revenue | 7,884,035 | (7,395,822 | )(2) | — | ||||||
(488,213 | )(3) | |||||||||
Current portion of capital lease obligations | 125,991 | (13,533 | )(2) | 112,458 | ||||||
Total current liabilities | 17,813,825 | (17,128,068 | ) | 685,757 | ||||||
Noncurrent liabilities: | ||||||||||
Bank loan payable | 3,521,578 | — | 3,521,578 | |||||||
Capital lease obligations, less current portion | 53,901 | — | 53,901 | |||||||
Total noncurrent liabilities | 3,575,479 | — | 3,575,479 | |||||||
Total liabilities | 21,389,304 | (17,128,068 | ) | 4,261,236 | ||||||
Commitments and contingencies | ||||||||||
Subordinated debentures, net | 534,625 | — | 534,625 | |||||||
Stockholders’ equity: | ||||||||||
Preferred stock, $.0001 par value; | ||||||||||
5,000,000 shares authorized, none issued and outstanding | — | — | — | |||||||
Common Stock, $.0001 par value; 100,000,000 authorized; | ||||||||||
29,125,368 shares outstanding | 2,913 | — | 2,913 | |||||||
Treasury stock, 39,891 shares at cost | (239,742 | ) | — | (239,742 | ) | |||||
Additional paid-in capital | 131,805,026 | — | 131,805,026 | |||||||
Accumulated deficit | (98,958,560 | ) | 4,154,147 | (2) | (94,647,843 | ) | ||||
156,571 | (3) | |||||||||
Total stockholders’ equity | 32,609,637 | 4,310,718 | 36,920,355 | |||||||
Total liabilities and stockholders’ equity | $ | 54,533,566 | $ | (12,817,350 | ) | $ | 41,716,216 | |||
39
Notes to Unaudited Pro Forma Consolidated Balance Sheet
(1) | Assumes $23 million of consideration for the sale of the Video Solutions business, consisting of $22 million of cash and a $1 million note less $750,000 in transaction related fees. |
(2) | Assumes the buyer purchased assets totalling $34,735,708 and assumed liabilities totalling $16,639,855, yielding a sale of $18,095,853 of net assets of the Video Solutions business less $750,000 in transaction related fees resulting in a gain on the sale of the assets of $4,154,147. |
(3) | Assumes recognition by Wire One in our second fiscal quarter of 2003 of $488,213 of unamortized deferred revenue related to “pass-through” maintenance contracts on which we have no obligation to provide service and which are not part of the asset sale transaction. These pass-through maintenance contracts had $331,642 of unamortized deferred costs that are similarly assumed to be recognized by Wire One in our second fiscal quarter of 2003 and not deemed to be part of the asset sale transaction. |
40
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Three Months Ended March 31, 2003 | Adjustments | Pro Forma Three Months Ended March 31, 2003 | ||||||||
Net revenues | ||||||||||
Video Solutions | ||||||||||
Equipment | $ | 14,528,405 | $ | (14,528,405 | )(1) | $ | — | |||
Service | 3,747,432 | (3,747,432 | )(1) | — | ||||||
Video Network | 2,226,858 | 2,226,858 | ||||||||
20,502,695 | (18,275,837 | ) | 2,226,858 | |||||||
Cost of revenues | ||||||||||
Video Solutions | ||||||||||
Equipment | 11,582,078 | (11,582,078 | )(1) | — | ||||||
Service | 2,030,549 | (2,030,549 | )(1) | — | ||||||
Video Network | 2,294,287 | 2,294,287 | ||||||||
15,906,914 | (13,612,627 | ) | 2,294,287 | |||||||
Gross margin | ||||||||||
Video Solutions | ||||||||||
Equipment | 2,946,327 | (2,946,327 | )(1) | — | ||||||
Service | 1,716,883 | (1,716,883 | )(1) | — | ||||||
Video Network | (67,429 | ) | (67,429 | ) | ||||||
4,595,781 | (4,663,210 | ) | (67,429 | ) | ||||||
Operating expenses | ||||||||||
Selling | 5,850,942 | (4,540,403 | )(1) | 1,310,539 | ||||||
General and administrative | 1,653,089 | (442,285 | )(1) | 1,210,804 | ||||||
Total operating expenses | 7,504,031 | (4,982,688 | ) | 2,521,343 | ||||||
Loss from continuing operations | (2,908,250 | ) | 319,478 | (2,588,772) | ||||||
Other (income) expense | ||||||||||
Amortization of deferred financing costs | 45,509 | 45,509 | ||||||||
Interest income | (5,189 | ) | (5,189 | ) | ||||||
Interest expense | 373,050 | 373,050 | ||||||||
Amortization of discount on subordinated debentures | 534,625 | 534,625 | ||||||||
Total other expenses, net | 947,995 | — | 947,995 | |||||||
Net loss from continuing operations | $ | (3,856,245 | ) | $ | 319,478 | $ | (3,536,767 | ) | ||
Net loss from continuing operations per share: | ||||||||||
Basic and diluted | $ | (0.13 | ) | $ | 0.01 | $ | (0.12 | ) | ||
Weighted average number of diluted common shares | ||||||||||
Basic and diluted | 29,029,894 | 29,029,894 | 29,029,894 | |||||||
41
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Three Months Ended March 31, 2002 | Adjustments | Pro Forma Three Months Ended March 31, 2002 | ||||||||
Net revenues | ||||||||||
Video Solutions | ||||||||||
Equipment | $ | 14,438,325 | $ | (14,438,325 | )(1) | $ | — | |||
Service | 3,654,439 | (3,654,439 | )(1) | — | ||||||
Video Network | 1,099,421 | 1,099,421 | ||||||||
19,192,185 | (18,092,764 | ) | 1,099,421 | |||||||
Cost of revenues | ||||||||||
Video Solutions | ||||||||||
Equipment | 10,316,066 | (10,316,066 | )(1) | — | ||||||
Service | 1,774,477 | (1,774,477 | )(1) | — | ||||||
Video Network | 969,541 | 969,541 | ||||||||
13,060,084 | (12,090,543 | ) | 969,541 | |||||||
Gross margin | ||||||||||
Video Solutions | ||||||||||
Equipment | 4,122,259 | (4,122,259 | )(1) | — | ||||||
Service | 1,879,962 | (1,879,962 | )(1) | — | ||||||
Video Network | 129,880 | 129,880 | ||||||||
6,132,101 | (6,002,221 | ) | 129,880 | |||||||
Operating expense | ||||||||||
Selling | 6,446,554 | (5,419,987 | )(1) | 1,026,567 | ||||||
General and administrative | 1,803,637 | (651,761 | )(1) | 1,151,876 | ||||||
Total operating expenses | 8,250,191 | (6,071,748 | ) | 2,178,443 | ||||||
Loss from continuing operations | (2,118,090 | ) | 69,527 | (2,048,563 | ) | |||||
Other (income) expense | ||||||||||
Amortization of deferred financing costs | 13,757 | 13,757 | ||||||||
Interest income | (19,330) | (19,330 | ) | |||||||
Interest expense | 26,239 | 26,239 | ||||||||
Total other expenses, net | 20,666 | — | 20,666 | |||||||
Net loss from continuing operations | $ | (2,138,756 | ) | $ | 69,527 | $ | (2,069,229 | ) | ||
Net loss from continuing operations per share: | ||||||||||
Basic and diluted | $ | (0.08 | ) | $ | 0.01 | $ | (0.07 | ) | ||
Weighted average number of diluted common shares | ||||||||||
Basic and diluted | 28,323,809 | 28,323,809 | 28,323,809 | |||||||
42
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 2002 | Adjustments | Pro Forma Year Ended December 31, 2002 | ||||||||
Net revenues | ||||||||||
Video Solutions | ||||||||||
Equipment | $ | 61,397,947 | $ | (61,397,947 | )(1) | $ | — | |||
Service | 15,750,914 | (15,750,914 | )(1) | — | ||||||
Video Network | 5,599,216 | 5,599,216 | ||||||||
82,748,077 | (77,148,861 | ) | 5,599,216 | |||||||
Cost of revenues | ||||||||||
Video Solutions | ||||||||||
Equipment | 47,406,394 | (47,406,394 | )(1) | — | ||||||
Service | 8,618,078 | (8,618,078 | )(1) | — | ||||||
Video Network | 5,596,801 | 5,596,801 | ||||||||
61,621,273 | (56,024,472 | ) | 5,596,801 | |||||||
Gross margin | ||||||||||
Video Solutions | ||||||||||
Equipment | 13,991,553 | (13,991,553 | )(1) | — | ||||||
Service | 7,132,836 | (7,132,836 | )(1) | — | ||||||
Video Network | 2,415 | 2,415 | ||||||||
21,126,804 | (21,124,389 | ) | 2,415 | |||||||
Operating expenses | ||||||||||
Selling | 25,697,999 | (20,843,450 | )(1) | 4,854,549 | ||||||
General and administrative | 8,158,777 | (3,055,404 | )(1) | 5,103,373 | ||||||
Restructuring | 960,000 | (700,000 | )(2) | 260,000 | ||||||
Impairment losses on goodwill | 40,012,114 | (40,012,114 | )(3) | — | ||||||
Impairment losses on other long-lived assets | 1,357,806 | (1,357,806 | )(3) | — | ||||||
Total operating expenses | 76,186,696 | (65,968,774 | ) | 10,217,922 | ||||||
Loss from continuing operations | (55,059,892 | ) | 44,844,385 | (10,215,507 | ) | |||||
Other (income) expense | ||||||||||
Amortization of deferred financing costs | 122,680 | 122,680 | ||||||||
Interest income | (71,644 | ) | (71,644) | |||||||
Interest expense | 431,792 | 431,792 | ||||||||
Amortization of discount on subordinated debentures | 39,360 | 39,360 | ||||||||
Total other expenses, net | 522,188 | — | 522,188 | |||||||
Net loss from continuing operations | $ | (55,582,080 | ) | $ | 44,844,385 | $ | (10,737,695 | ) | ||
Net loss from continuing operations per share: | ||||||||||
Basic and diluted | $ | (1.93 | ) | $ | 1.56 | $ | (0.37 | ) | ||
Weighted average number of diluted common shares | ||||||||||
Basic and diluted | 28,792,217 | 28,792,217 | 28,792,217 | |||||||
43
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 2001 | Adjustments | Pro Forma Year Ended December 31, 2001 | ||||||||
Net Revenues | ||||||||||
Video Solutions | ||||||||||
Equipment | $ | 55,637,782 | $ | (55,637,782 | )(1) | $ | — | |||
Service | 15,293,789 | (15,293,789 | )(1) | — | ||||||
Video Network | 3,479,907 | 3,479,907 | ||||||||
74,411,478 | (70,931,571 | ) | 3,479,907 | |||||||
Cost of revenues | ||||||||||
Video Solutions | ||||||||||
Equipment | 38,331,779 | (38,331,779 | )(1) | — | ||||||
Service | 8,914,044 | (8,914,044 | )(1) | — | ||||||
Video Network | 2,898,460 | 2,898,460 | ||||||||
50,144,283 | (47,245,823 | ) | 2,898,460 | |||||||
Gross margin | ||||||||||
Video Solutions | ||||||||||
Equipment | 17,306,003 | (17,306,003 | )(1) | — | ||||||
Service | 6,379,745 | (6,379,745 | )(1) | — | ||||||
Video Network | 581,447 | 581,447 | ||||||||
24,267,195 | (23,685,748 | ) | 581,447 | |||||||
Operating expenses | ||||||||||
Selling | 22,111,672 | (19,206,035 | )(1) | 2,905,637 | ||||||
General and administrative | 12,245,463 | (2,284,783 | )(1) | 9,960,680 | ||||||
Restructuring | 200,000 | (90,000 | )(2) | 110,000 | ||||||
Amortization of goodwill | 2,683,647 | (2,581,307 | )(4) | 102,340 | ||||||
Total operating expenses | 37,240,782 | (24,162,125 | ) | 13,078,657 | ||||||
Loss from continuing operations | (12,973,587 | ) | 476,377 | (12,497,210 | ) | |||||
Other (income) expense | ||||||||||
Amortization of deferred financing costs | 99,912 | 99,912 | ||||||||
Interest income | (76,928 | ) | (76,928 | ) | ||||||
Interest expense | 598,147 | 598,147 | ||||||||
Total other expenses, net | 621,131 | — | 621,131 | |||||||
Loss before income taxes | (13,594,718 | ) | 476,377 | (13,118,341 | ) | |||||
Income tax provision | 200,000 | 200,000 | ||||||||
Net loss from continuing operations | $ | (13,794,718 | ) | $ | 476,377 | $ | (13,318,341 | ) | ||
Net loss from continuing operations per share: | ||||||||||
Basic and diluted | $ | (0.66 | ) | $ | 0.02 | $ | (0.64 | ) | ||
Weighted average number of diluted common shares | ||||||||||
Basic and diluted | 20,880,125 | 20,880,125 | 20,880,125 | |||||||
44
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 2000 | Adjustments | Pro Forma Year Ended December 31, 2000 | ||||||||
Net Revenues | ||||||||||
Video Solutions | ||||||||||
Equipment | $ | 39,280,000 | $ | (39,280,000 | )(1) | $ | — | |||
Service | 7,679,000 | (7,679,000 | )(1) | — | ||||||
Video Network | 1,475,108 | 1,475,108 | ||||||||
48,434,108 | (46,959,000 | ) | 1,475,108 | |||||||
Cost of revenues | ||||||||||
Video Solutions | ||||||||||
Equipment | 26,283,377 | (26,283,377 | )(1) | — | ||||||
Service | 5,270,530 | (5,270,530 | )(1) | — | ||||||
Video Network | 1,104,940 | 1,104,940 | ||||||||
32,658,847 | (31,553,907 | ) | 1,104,940 | |||||||
Gross margin | ||||||||||
Video Solutions | ||||||||||
Equipment | 12,996,623 | (12,996,623 | )(1) | — | ||||||
Service | 2,408,470 | (2,408,470 | )(1) | — | ||||||
Video Network | 370,168 | 370,168 | ||||||||
15,775,261 | (15,405,093 | ) | 370,168 | |||||||
Operating expenses | ||||||||||
Selling | 12,587,676 | (12,178,813 | )(1) | 408,863 | ||||||
General and administrative | 4,121,303 | (884,570 | )(1) | 3,236,733 | ||||||
Amortization of goodwill | 1,500,857 | (1,500,857 | )(4) | — | ||||||
Total operating expenses | 18,209,836 | (14,564,240 | ) | 3,645,596 | ||||||
Loss from continuing operations | (2,434,575 | ) | (840,853 | ) | (3,275,428 | ) | ||||
Other (income) expense | ||||||||||
Amortization of deferred financing costs | 343,792 | 343,792 | ||||||||
Interest income | (314,986 | ) | (314,986 | ) | ||||||
Interest expense | 78,056 | 78,056 | ||||||||
Total other expenses, net | 106,862 | — | 106,862 | |||||||
Loss before income taxes | (2,541,437 | ) | (840,853 | ) | (3,382,290 | ) | ||||
Income tax provision | 511,239 | 511,239 | ||||||||
Net loss from continuing operations | $ | (3,052,676 | ) | $ | (840,853 | ) | $ | (3,893,529 | ) | |
Net loss from continuing operations per share: | ||||||||||
Basic and diluted | $ | (0.24 | ) | $ | (0.06 | ) | $ | (0.30 | ) | |
Weighted average number of diluted common shares | ||||||||||
Basic and diluted | 12,817,158 | 12,817,158 | 12,817,158 | |||||||
45
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations
(1) | Revenues and costs specifically identifiable to the Video Solutions business. |
(2) | Restructuring costs directly attributable to the Video Solutions business. |
(3) | Impairment losses on goodwill and other long-lived assets directly attributable to the Video Solutions business. |
(4) | Amortization of goodwill directly attributable to the Video Solutions business. |
46
PROPOSAL NO. 3 -
ELECTION OF DIRECTORS
Name | Age | Position with Company | ||||
Director Nominees | ||||||
James Kuster(1)(2) | 44 | Director | ||||
Michael Sternberg(1)(2)(3) | 58 | Director | ||||
Other Directors | ||||||
Richard Reiss | 46 | Chairman and Chief Executive Officer | ||||
Leo Flotron | 43 | President, Chief Operating Officer and Director | ||||
Dean Hiltzik | 49 | Director | ||||
Lewis Jaffe | 46 | Director | ||||
Michael Toporek(1)(2)(3) | 38 | Director | ||||
Jonathan Birkhahn(4) | 49 | Director | ||||
Non-Director Executive Officers | ||||||
Christopher Zigmont | 41 | Chief Financial Officer and Executive Vice President, Finance | ||||
Michael Brandofino | 38 | Chief Technology Officer and Executive Vice President |
47
(1) | Member of the Audit Committee. |
(2) | Member of the Compensation Committee. |
(3) | Member of the Stock Option Committee. |
(4) | Mr. Birkhahn is currently a Class I director and has decided not to stand for re-election. |
Class I Director Nominees |
Directors whose Terms of Office Continue after the Annual Meeting |
48
Operating Officer of PictureTel Corporation. From September 1998 to June 2000, Mr. Jaffe was a managing director in the Boston office of Arthur Andersen LLP in the global finance practice. From January 1997 to March 1998, Mr. Jaffe was the President of C Systems, LLC, a designer and manufacturer of mobile military shelters, housing, communication, radar and missile launch systems. Mr. Jaffe completed an executive MBA program at Stanford University and holds a B.S. degree from LaSalle University.
Executive Officers |
The Board of Directors, Board Committees and Meetings |
Audit Committee |
49
committee members would not qualify as “independent.” Accordingly, we intend to obtain at least one additional director for our board and our audit committee who will qualify under these proposed amendments. Each non-employee member of our audit committee receives options to purchase 500 shares of common stock for each meeting attended. The audit committee consults and meets with our auditors and chief financial officer and accounting personnel, reviews potential conflict of interest situations where appropriate, and reports and makes recommendations to the full board of directors regarding such matters. The audit committee met three times during the year ended December 31, 2002.
Compensation Committee |
Stock Option Committee |
50
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
James Kuster
Peter Maluso (member until April 1, 2003)
Michael Sternberg
Michael Toporek
51
EXECUTIVE COMPENSATION AND OTHER MATTERS
The table below summarizes information concerning the compensation we paid during 2002 to our Chief Executive Officer and our four other most highly paid executive officers during that year (collectively, the “Named Executive Officers”), each of whom, other than Jonathan Birkhahn, is currently a named executive officer of Wire One:
Annual Compensation | Long-term Compensation Awards | |||||||||||||||
Name and principal position | Year | Salary($) | Bonus ($) | Securities Underlying Options | All Other Compensation ($) | |||||||||||
Richard Reiss, Chief Executive Officer and Chairman of the Board | 2002 | $ | 379,250 | $ | 75,000 | (1) | — | $ | 5,764 | (3) | ||||||
2001 | $ | 345,000 | $ | 135,000 | 1,537,500 | (2) | $ | 5,764 | (3) | |||||||
2000 | $ | 275,000 | $ | 135,000 | — | — | ||||||||||
Leo Flotron, President, Chief Operating Officer and Director | 2002 | $ | 346,875 | $ | — | 192,500 | (4) | — | ||||||||
2001 | $ | 325,000 | $ | 193,935 | (5) | 240,000 | — | |||||||||
2000 | $ | 157,917 | $ | 157,237 | (6) | — | — | |||||||||
Jonathan Birkhahn, Executive Vice President Business Affairs, General Counsel, Secretary and Director | 2002 | $ | 246,164 | $ | — | 51,500 | — | |||||||||
2001 | $ | 238,125 | $ | — | — | — | ||||||||||
2000 | $ | 20,236 | $ | — | 250,000 | — | ||||||||||
Christopher Zigmont, Chief Financial Officer and Executive Vice President, Finance | 2002 | $ | 188,654 | $ | — | 50,500 | — | |||||||||
2001 | $ | 175,000 | $ | — | 190,000 | — | ||||||||||
2000 | $ | 80,000 | $ | 35,000 | 100,000 | — | ||||||||||
Michael Brandofino, Chief Technology Officer and Executive Vice President | 2002 | $ | 183,938 | $ | — | 64,875 | — | |||||||||
2001 | $ | 165,000 | $ | 25,000 | (7) | 100,000 | — | |||||||||
2000 | $ | 37,692 | $ | 6,250 | — | — | ||||||||||
(1) | Formula bonus as set forth in Mr. Reiss’s employment agreement (see “Employment Agreements” and “Compensation Committee Report on Executive Compensation”). |
(2) | Includes the extension of the term of a previously granted option to purchase 1,237,500 shares of common stock (see “Compensation Committee Report on Executive Compensation”). |
(3) | Amount reflects premiums paid for a life insurance policy. |
(4) | Includes the extension of the term of a previously granted option to purchase 123,750 shares of common stock. |
(5) | Amount is in respect of services rendered in 2000. |
(6) | Amount consists of $73,424 and $83,813 in respect of services rendered in 1999 and 2000, respectively. |
(7) | One-time cash bonus in connection with the anniversary of commencement of Mr. Brandofino’s employment. |
52
The following table sets forth information regarding stock options granted pursuant to our stock option plan during 2002 to each of the named executive officers.
Name | Number of underlying options granted | Percent of total options granted to employees in fiscal year 2002 | Exercise or base price (per share) | Expiration Date | Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term | |||||||||||||||||
0% | 5% | 10% | ||||||||||||||||||||
Richard Reiss | — | — | — | — | $ | — | $ | — | $ | — | ||||||||||||
— | — | — | — | $ | — | $ | — | $ | — | |||||||||||||
Leo Flotron | 50,000 | 4.1 | % | $ | 4.40 | February 25, 2012 | $ | — | $ | 358,357 | $ | 570,623 | ||||||||||
18,750 | 1.6 | % | $ | 1.13 | July 22, 2012 | $ | — | $ | 34,512 | $ | 54,955 | |||||||||||
123,750 | (1) | 10.2 | % | $ | 0.53 | December 19, 2003 | $ | — | $ | 106,835 | $ | 170,117 | ||||||||||
Jonathan Birkhahn | 20,000 | 1.7 | % | $ | 4.40 | February 25, 2012 | $ | — | $ | 143,343 | $ | 228,249 | ||||||||||
6,500 | 0.5 | % | $ | 1.13 | July 22, 2012 | $ | — | $ | 11,964 | $ | 19,051 | |||||||||||
25,000 | 2.1 | % | $ | 1.80 | October 9, 2012 | $ | — | $ | 73,300 | $ | 116,718 | |||||||||||
Christopher Zigmont | 25,500 | 2.1 | % | $ | 1.13 | July 22, 2012 | $ | — | $ | 46,937 | $ | 74,739 | ||||||||||
25,000 | 2.1 | % | $ | 1.80 | October 9, 2012 | $ | — | $ | 73,300 | $ | 116,718 | |||||||||||
Michael Brandofino | 20,000 | 1.7 | % | $ | 4.40 | February 25, 2012 | $ | — | $ | 143,343 | $ | 228,249 | ||||||||||
15,000 | 1.2 | % | $ | 3.04 | April 24, 2012 | $ | — | $ | 74,278 | $ | 118,275 | |||||||||||
29,875 | 2.5 | % | $ | 1.13 | July 22, 2012 | $ | — | $ | 54,989 | $ | 87,562 |
(1) | Consists of the extension of the term of a previously granted option to purchase 123,750 shares of common stock. |
Aggregated Option Exercises In Fiscal 2002 And Fiscal Year-End Option Values
The following table sets forth information concerning the value of unexercised in-the-money options held by the Named Executive Officers as of December 31, 2002.
Name | Shares Acquired on Exercise | Value Realized | Number of Securities Underlying Unexercised Options at Fiscal Year-End | $ Value of Unexercised In-The-Money Options at Fiscal Year-End | |||||||||||||||
Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||
Richard Reiss | 32,857 | $ | 209,299 | 1,565,233 | 226,410 | $ | 292,791.69 | $ | 52,776.00 | ||||||||||
Leo Flotron | 33,000 | $ | 156,750 | 725,142 | 235,358 | $ | 1,434,243.50 | $ | 44,789.00 | ||||||||||
Jonathan Birkhahn | — | — | 187,500 | 114,000 | $ | — | $ | 35,540.00 | |||||||||||
Christopher Zigmont | — | — | 156,870 | 208,630 | $ | — | $ | 67,080.00 | |||||||||||
Michael Brandofino | — | — | — | 164,875 | $ | — | $ | 49,592.50 |
Directors who are not executive officers or employees of Wire One receive a director’s fee of options to purchase 1,000 shares of common stock for each board meeting attended and 500 shares of common stock for each audit, compensation or stock option committee meeting attended, whether in person or by telephone, and options to purchase 4,000 shares of common stock for attendance in person at the annual meeting of stockholders.
We entered into employment agreements with certain of our executive officers, pursuant to which Mr. Reiss serves as Chief Executive Officer, Mr. Flotron serves as President and Chief Operating Officer,
53
Mr. Zigmont serves as Chief Financial Officer and Executive Vice President, Finance and Mr. Brandofino serves as Executive Vice President and Chief Technology Officer. The following is a summary of the material terms and conditions of such agreements and is subject to the detailed provisions of the respective agreements attached as exhibits to our filings with the Securities and Exchange Commission.
Employment Agreement with Richard Reiss |
Employment Agreement with Leo Flotron |
54
Employment Agreement with Michael Brandofino |
Consulting Agreement with Jonathan Birkhahn |
Consulting Agreement with Kelly Harman |
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION |
55
compensation in the form of stock options and various other benefits and (4) manage compensation based on skill, knowledge, effort and responsibility needed to perform a particular job successfully.
Executive Compensation |
Compensation of the Chief Executive Officer |
Internal Revenue Code Section 162(m) Limitation |
56
performance based compensation paid to our company’s executive officers in 2002 did not, in the case of any such officer, exceed the $1 million per year limit. The compensation committee generally intends to limit the dollar amount of all non-performance based compensation payable to our executive officers to no more than $1 million per year.
Respectfully submitted,
Peter Maluso (member until April 1, 2003)
James Kuster
Michael Sternberg
Michael Toporek
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
57
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
• | each person (or group within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) known by us to own beneficially 5% or more of the common stock; |
• | our company’s directors and named executive officers; and |
• | all directors and executive officers of our company as a group. |
Name and address of beneficial owners (1) | Number of Shares Owned (2) | Percentage of Outstanding Shares | |||||
Executive Officers and Directors: | |||||||
Richard Reiss | 5,092,250 | (3) | 16.4 | % | |||
Leo Flotron | 1,243,500 | (4) | 4.1 | % | |||
Dean Hiltzik | 168,950 | (5) | * | ||||
James Kuster | 526,544 | (6) | 1.8 | % | |||
Lewis Jaffe | 182,500 | (7) | * | ||||
Jonathan Birkhahn | 219,166 | (8) | * | ||||
Michael Sternberg | 11,000 | (9) | * | ||||
Michael Toporek | 16,000 | (10) | * | ||||
Christopher A. Zigmont | 260,500 | (11) | * | ||||
Michael Brandofino | 106,243 | (12) | * | ||||
All directors and executive officers as a group (10 people) | 7,826,653 | (13) | 26.6 | % | |||
5% Owners: | |||||||
Coghill Capital Management, L.L.C. | 1,631,396 | (14) | 5.5 | % | |||
One North Wacker, Suite 4725 Chicago, IL 60606 | |||||||
Sargon Capital International Fund Ltd. | 1,541,500 | 5.2 | % | ||||
c/o Sargon Capital, LLC 6 Louis Drive Montville, NJ 07045 |
* Less than 1% |
(1) | Unless otherwise noted, the address of each of the persons listed is c/o Wire One Technologies, Inc., 225 Long Avenue, Hillside, NJ 07205. |
(2) | Unless otherwise indicated by footnote, the named persons have sole voting and investment power with respect to the shares of common stock beneficially owned. |
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(3) | Includes 1,559,643 shares subject to presently exercisable stock options and 82,500 shares held by a trust for the benefit of Mr. Reiss’s children, of which he is the trustee. |
(4) | Includes 847,500 shares subject to presently exercisable stock options. |
(5) | Includes 78,200 shares subject to presently exercisable stock options. |
(6) | Includes 23,500 shares subject to presently exercisable stock options. Mr. Kuster’s shares also include 498,044 shares held by Crest Communications Partners, LP and Crest Entrepreneurs Fund LP. Mr. Kuster is a managing director of Crest Communications Holdings, LLC and disclaims beneficial ownership of Wire One shares held by Crest Communications Partners, LP and Crest Entrepreneurs Fund LP. |
(7) | Includes 182,500 shares subject to presently exercisable stock options. |
(8) | Includes 219,166 shares subject to presently exercisable stock options. |
(9) | Includes 11,000 shares subject to presently exercisable stock options. |
(10) | Includes 16,000 shares subject to presently exercisable stock options. |
(11) | Includes 260,500 shares subject to presently exercisable stock options. |
(12) | Includes 103,208 shares subject to presently exercisable stock options. |
(13) | Includes 3,301,217 shares subject to presently exercisable stock options. |
(14) | Ownership information is based on the Schedule 13G filed by Coghill Capital Management, L.L.C. on February 10, 2003. |
(15) | Ownership information is based on the Schedule 13G filed by Sargon Capital International Fund Ltd. on May 19, 2003. |
Section 16(a) Beneficial Ownership Reporting Compliance |
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PROPOSAL NO. 4 -
APPROVAL OF AMENDMENT TO THE 2000 STOCK INCENTIVE PLAN
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Plan Benefits |
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The benefits to be received pursuant to the amendment to the 2000 plan by our executive officers, directors and employees are not determinable at this time.
Certain Federal Income Tax Consequences |
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83(b) election whereby the recipient elects to be taxed at the grant date at ordinary income rates on the difference between the fair market value of the stock on the grant or purchase date (such valuation taking into account only those restrictions, if any, on the stock and the risk of forfeiture thereof that will never lapse) and any amount paid by the recipient for the stock.
Equity Compensation Plan Information |
Number of securities to be issued upon exercise of outstanding options, warrants, and rights | Weighted-average exercise price of outstanding options, warrants, and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflecting in column (a)) | ||||||||
Plan Category | ||||||||||
Equity compensation plans approved by security holders | 5,072,044 | $ | 3.24 | 519,190 | ||||||
Equity compensation plans not approved by security holders | 1,937,377 | $ | 2.64 | 0 | ||||||
Total | 7,009,421 | $ | 3.08 | 519,190 | ||||||
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PROPOSAL NO. 5 -
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
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PROPOSAL NO. 6 -
ADJOURNMENT OR POSTPONEMENT OF THE ANNUAL MEETING
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STOCK PERFORMANCE GRAPH
INDEXED STOCK QUOTES | 12/31/1997 | 12/31/1998 | 12/31/1999 | 12/31/2000 | 12/31/2001 | 12/31/2002 | |||||||||||||
Wire One Technologies, Inc. | 100.000 | 48.101 | 51.265 | 46.208 | 62.987 | 28.253 | |||||||||||||
The Nasdaq National Market Index | 100.000 | 139.631 | 259.134 | 157.323 | 124.202 | 85.045 | |||||||||||||
Nasdaq Telecommunications Index | 100.000 | 163.376 | 331.181 | 151.155 | 77.179 | 35.483 | |||||||||||||
STOCK QUOTES | 12/31/1997 | 12/31/1998 | 12/31/1999 | 12/31/2000 | 12/31/2001 | 12/31/2002 | |||||||||||||
Wire One Technologies, Inc. | 9.875 | 4.750 | 5.062 | 4.563 | 6.220 | 2.79 | |||||||||||||
The Nasdaq National Market Index | 1,570.350 | 2,192.690 | 4,069.310 | 2,470.520 | 1,950.400 | 1,335.51 | |||||||||||||
Nasdaq Telecommunications Index | 306.600 | 500.910 | 1,015.400 | 463.440 | 236.630 | 108.79 |
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ANNEX A
ASSET PURCHASE AGREEMENT
Between
WIRE ONE TECHNOLOGIES, INC.
as Seller
and
GORES TECHNOLOGY GROUP
as Buyer
Dated as of June 10, 2003
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ASSET PURCHASE AGREEMENT
W I T N E S S E T H:
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from all landlords and lenders (if required by the applicable loan documents) having an interest in any Seller Occupied Business Facility, in customary form and substance.
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(a) Sale and Conveyance of the Assets. Subject to the terms and conditions of this Agreement, Seller hereby sells, assigns, transfers and conveys to Buyer the following assets and properties relating to the Business (collectively, the “Assets”): |
(i) all Inventory as of the Closing Time, including without limitation as set forth on Section 2.1(a)(i) of the Disclosure Schedule; |
(ii) all Receivables as of the Closing Time, including without limitation as set forth on Section 2.1(a)(ii) of the Disclosure Schedule; |
(iii) all Business Intellectual Property owned by Seller and all Business Intellectual Property licensed to Seller (to the extent transferable), including without limitation as set forth on Section 2.1(a)(iii) of the Disclosure Schedule; |
(iv) all furniture, equipment, fixtures, leasehold improvements, tools, computers, machinery and other tangible personal property used primarily in the Business, including without limitation as set forth on Section 2.1(a)(iv) of the Disclosure Schedule (the “Fixed Assets”); | ||
(v) Seller’s interest in all personal property leases, rental agreements, sales and purchase orders and acknowledgments, customer license and maintenance agreements, third party product agreements, third party supply agreements and any and all other contracts or binding agreement |
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primarily relating to the Business (the “Contracts”) and all of Seller’s interests (including rights to refund and offset), privileges, claims, causes of action and options relating to the Contracts or any portion thereof, and all bids and offers (including open sales orders) relating thereto, including without limitation as set forth on Section 2.1(a)(v) of the Disclosure Schedule; | ||
(vi) all customer, distributor, supplier and other mailing or contact lists and other sales-related, distribution-related and supply-related materials used primarily in the Business (the “Lists”) (provided that Seller shall, following the Closing, remain entitled to use the Lists in connection with Seller’s Network Business, subject to Seller’s compliance with Section 5.8 in connection with such use); provided that Buyer shall also receive copies of all lists used in the Business; |
(vii) all labels, signs, packaging materials, promotional materials, point-of-purchase displays, sales literature, advertising, brochures, user manuals, graphics, artwork (in each case, in paper and electronic format), UPC codes and all other items relating to the Assets; |
(viii) all books of account, general and financial records, copies of tax records, property records, contract records, copies of (subject to the requirements and limitations of law) personnel records of the Transferred Employees, invoices, shipping, purchasing and sales records, correspondence and other documents, records and files and all computer software and programs and any rights thereto relating to the Business (in each case in paper or electronic format), excluding, without limitation, the organization documents, minute and stock record books and the corporate seal of Seller; |
(ix) certain rights of Seller under certain leasehold interests used in the operation of the Business and listed on Section 2.1(a)(ix) of the Disclosure Schedule attached hereto and made a part hereof (the “Leases”); |
(x) all of the intangible rights and property of Seller associated with the Business, including going concern value and goodwill associated with the Business; |
(xi) all governmental authorizations, permits, licenses and approvals, and all pending applications therefor or renewals thereof used in connection with the Business, in each case to the extent transferable to Buyer; |
(xii) all telephone and facsimile numbers, email addresses, and post office boxes used by Seller primarily in connection with the Business as set forth on Section 2.1(a)(xii) of the Disclosure Schedule; |
(xiii) all guarantees, warranties, indemnities and similar rights in favor of Seller with respect to the Business or any of the Assets; |
(xiv) all claims of Seller against third parties relating to the Assets, whether choate or inchoate, known or unknown, contingent or noncontingent; |
(xv) all rights of Seller in respect of the Assets relating to deposits and prepaid expenses, claims for refunds and rights to offset; and |
(xvi) all rights in and to the Transition Accounts. |
(b) Excluded Assets. Anything to the contrary notwithstanding, the Assets shall not include any of the following rights, properties or assets (the “Excluded Assets”): |
(i) all cash, cash equivalents and bank accounts (other than the Transition Accounts); |
(ii) all right, title and interest in and to assets, properties, goodwill and business of every kind and description and wherever located, whether tangible or intangible, real, personal or mixed, directly or indirectly owned by Seller or to which Seller is directly or indirectly entitled and, in any case, necessary for the operation of, or that is primarily used in, Seller’s network division (including without limitation the designing, marketing, distributing, selling, installing, maintaining and supporting of the Glowpoint network and of such division’s bridging, gateway and network design operations) (collectively, “Seller’s Network Business”); |
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(iii) all rights of Seller arising under the Acquisition Documents; |
(iv) trademarks, service marks and trade names relating to Seller’s Network Business; |
(v) any rights of Seller to Tax Refunds or any accrued prepaid Taxes; |
(vi) any records relating to the internal governance of Seller; and |
(vii) any insurance policies of Seller or any right, title or interest of Seller thereunder, including any prepaid insurance premiums and all insurance benefits thereunder, including rights and proceeds, arising from or relating to the operation of the Business prior to the Measurement Date. |
(a) Purchase Price. Subject to the terms and conditions of this Agreement, in reliance upon the representations, warranties and agreements of Seller contained herein, and in full consideration of the aforesaid sale, conveyance and delivery of the Assets, the purchase price (the “Purchase Price”) shall be an amount equal to $23,000,000, as adjusted pursuant to Section 2.3, payable by Buyer to Seller in immediately available funds to the Purchase Price Bank Account, as follows: (i) $20,000,000 at Closing (the “Cash Payment”), as adjusted pursuant to Section 2.3; (ii) $2,000,000 (the “Holdback Amount”) at such time as the Net Assets are fully and finally determined pursuant to Section 2.3(d); (iii) an unsecured promissory note in the principal amount of $1,000,000, such promissory note to be substantially in the form of Exhibit 2.2(a) attached hereto (the “Note”); |
(b) Post-Closing Additional Payments. Purchaser shall pay to Seller such additional payments as are required by Section 2.5. |
(c) Allocation of Purchase Price. Exhibit 2.2(c) attached hereto is a preliminary allocation of the Purchase Price among the Assets. Promptly following the Closing, the final allocation (the “Final Allocation”) will be prepared by Buyer in a manner consistent with the Exhibit attached hereto and presented to Seller for Seller’s approval, which approval shall not be unreasonably withheld. Seller and Buyer each agree (a) to report the sale of the Purchased Assets for Tax purposes in accordance with the allocations set forth on the Final Allocation and to follow the allocations set forth on the Final Allocation in determining and reporting their liabilities for any Taxes, (b) without limitation, not to take any position inconsistent with such allocations on any of its Tax Returns, and (c) to timely file federal tax Form 8594 with the applicable Tax Return for the year of this transaction reflecting such Purchase Price allocations. |
(d) Assumption of Liabilities. Except as specifically provided herein, Buyer is not assuming, or becoming responsible for, any liabilities, obligations or debts of Seller and, except as set forth herein, Seller shall remain liable for all of its liabilities, obligations and debts. On the terms and subject to the conditions of this Agreement, Buyer is hereby assuming the following liabilities of Seller (collectively, the “Assumed Liabilities”): |
(i) any Liabilities to be paid or performed after the Closing Date that arise from or out of the performance or non-performance by Buyer after the Closing Date of any Contracts included in the Assets and as set forth in Sections 2.1(a)(iv) or 2.1(a)(v) of the Disclosure Schedule hereto or entered into after the date hereof in accordance with the terms hereof, including under any such extended warranty, customer support, upgrade or product delivery contracts for Sales Inventory, but not including (1) any liability, obligation or commitment of Seller for any breach thereof by Seller or a predecessor-in-interest occurring prior to the Closing Date or on or after the Closing Date solely with respect to any obligations of Seller or such predecessor-in-interest arising under any such contract prior to the Closing Date, or (2) liabilities as of the Closing Date of the type required by GAAP to be reflected on the Closing Statement for future performance of such obligations in excess of the amount with respect thereto as reflected on the Closing Statement (as finally determined); and |
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(ii) the accounts payable, customer deposits, deferred revenue and accrued liabilities listed on Section 2.2(d)(ii) of the Disclosure Schedule, but not including any such liability to the extent that (A) it exceeds the amount with respect thereto set forth on the Closing Statement (as finally determined) and (B) it evidences any intercompany obligation of the Seller and its subsidiaries. |
(e) Except for the Assumed Liabilities specifically set forth in Section 2.2(d) above, Seller shall retain, and shall remain responsible for paying, performing and discharging when due, and Buyer shall not assume or have any responsibility for, all Liabilities of Seller as of the Closing Date (collectively, the “Excluded Liabilities”). |
(a) No later than ten business days after the Measurement Date, Seller shall deliver to Buyer a good faith estimate substantially in the form of Exhibit 2.3(a), reasonably acceptable to Buyer, of a statement of the Assets and the Assumed Liabilities of the Business as of the Measurement Date (the “Closing Statement”), prepared in accordance with GAAP, and including a computation in accordance with such data of the estimated Net Assets of the Business as of the Measurement Date, together with the detailed work papers which support the Estimated Closing Statement. The Cash Payment shall be decreased by the amount by which the sum of the Net Assets at the Measurement Date is less than $15,000,000 (the “Closing Cash Adjustment”). |
(b) Buyer shall have the right to review the books and records of Seller and the Business for a period of ninety (90) days after the Closing Date (or such reasonable extension thereof as approved by Seller, such approval not to be unreasonably withheld) to verify and confirm the accuracy thereof. If, after such review, Buyer agrees with the Closing Statement, Buyer shall promptly (and in any event within ninety (90) days after the Closing Date or approved extension) notify Seller of its agreement. If, after such review, Buyer objects to the Closing Statement, Buyer shall promptly (and in any event within ninety (90) days after the Closing Date or approved extension) provide Seller with a statement indicating the basis for its objections, and Buyer and Seller shall meet and confer in an effort to resolve such disagreement in good faith. |
(c) In the event that Buyer and Seller are unable to resolve a disagreement with respect to the Closing Statement within ten (10) days following the date of Buyer’s objection (or such longer period as Buyer and Seller may agree), the Net Assets shall be determined by PricewaterhouseCoopers LLP or such other independent firm of certified public accountants mutually agreeable to Buyer and Seller (the “Accountants”). If issues in dispute are submitted to the Accountants for resolution, (i) each party shall furnish to the Accountants such work papers and other documents and information relating to the disputed issues as the Accountants may request and are available to that party, and shall be afforded the opportunity to present to the Accountants any material relating to the determination and to discuss the determination with the Accountants; (ii) the determination by the Accountants of the Net Assets as set forth in a notice delivered to both parties by the Accountants, will be binding and conclusive on the parties; and (iii) the fees and expenses of the Accountants for such determination shall be paid by the parties based upon the degree to which the Accountants accept the respective positions of the parties. For example, if it is Buyer’s position that the adjustment owed by Seller to Buyer is $300, Seller’s position that the adjustment owed by Seller to Buyer is $100 and the Accountants’ finding that the adjustment owed by Seller to Buyer is $150, then Buyer shall pay 75% (300-150 / 300-100) of the Accountants’ fees and expenses and Seller shall pay 25% (150-100 / 300-100) of the Accountants’ fees and expenses. Other than the expense of retaining the Accountants, the expense of preparing the Closing Statement shall be borne by Seller. | |
(d) Upon the determination of the Net Assets pursuant to either the agreement of the parties or the determination of the Accountants, the parties shall recompute the Net Assets and the Purchase Price using the Net Assets as so agreed or determined (the “Final Cash Adjustment”). Within three (3) business days of such agreement or determination, in the event that the Purchase Price based on the Closing Cash Adjustment exceeds the Purchase Price based on the Final Cash Adjustment, then Buyer shall deduct the amount of such excess from the Holdback Amount and promptly pay the remainder, if | |
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any, of the Holdback Amount, together with interest thereon at the rate of 5% from the date on which any dispute is submitted to the Accountants pursuant to subsection (c) above through and including the date of payment, to Seller by wire transfer of immediately available funds. If the amount of such excess exceeds the Holdback Amount, Seller will promptly pay to Buyer by wire transfer of immediately available funds, the amount by which such excess exceeds the Holdback Amount, together with interest thereon at the rate of 5% from the date on which any dispute is submitted to the Accountants pursuant to subsection (c) above through and including the date of payment. If the Cash Payment was decreased under Section 2.3(a) and the Purchase Price based on the Final Cash Adjustment exceeds the Purchase Price based on the Closing Cash Adjustment, the Buyer shall promptly pay such excess to Seller by wire transfer of immediately available funds. |
(a) Closing. The closing (the “Closing”) of the purchase and sale of the Assets provided for in this Agreement shall take place at the offices of Morrison & Foerster LLP at 10:00 a.m. New York time on the second Business Day following the satisfaction or waiver of all other conditions to the obligations of the parties set forth in Article VII (other than those conditions which by their terms are to be satisfied or waived as of the Closing), or at such other place or at such other time or on such other date as Seller and Buyer may mutually agree upon in writing (the day on which the Closing takes place being the “Closing Date”). All transactions occurring at the Closing shall be deemed to have occurred simultaneously as of the Closing Time, and no one transaction shall be complete until all transactions have been completed. |
(b) Closing Deliveries by Seller. On the terms and subject to the conditions of this Agreement, at and as of the Closing, Seller shall deliver or cause to be delivered to Buyer: |
(i) the Bill of Sale and such other instruments, in customary form and substance, as may reasonably be requested by Buyer to transfer the Assets to Buyer or evidence such transfer on the public records; |
(ii) an executed counterpart of the Assumption Agreement; |
(iii) an executed counterpart of each of the Real Estate Agreements required to be executed by Seller; |
(iv) an executed counterpart of the Transition Services Agreement; and |
(v) the certificates and other documents required to be delivered pursuant to Section 7.2. |
(c) Closing Deliveries by Buyer. |
(i) On the terms and subject to the conditions of this Agreement, at and as of the Closing, Buyer shall deliver to Seller: |
(ii) the Cash Payment, payable by wire transfer in immediately available funds to the Purchase Price Bank Account; |
(iii) an executed counterpart of the Assumption Agreement; |
(iv) an executed counterpart of each of the Real Estate Agreements required to be executed by Buyer; |
(v) an executed counterpart of the Transition Services Agreement; and |
(d) the certificates and other documents required to be delivered pursuant to Section 7.1. |
(a) Buyer shall pay to Seller within sixty (60) days following the last day of each of the first two (2) years after the Closing Date ending on June 30, 2004 and June 30, 2005, respectively, additional payments equal to five percent (5.0%) of the sum of (1) Total Net Revenues plus (2) the annual revenues |
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derived from the Pierce Technology Services, Inc. (formerly Forgent Networks, Inc.) videoconferencing services business for such year in excess of Ninety-Six Million Dollars ($96,000,000) (the “Additional Payments”); provided, however, that in no event shall Buyer be obligated to pay Seller additional payments pursuant to this Section such that the aggregate amount of such payments would exceed Two Million Dollars ($2,000,000), and provided further, that upon a sale of substantially all of the assets of the Business by Buyer prior to June 30, 2005, whether by merger, sale of stock or sale of assets, for total consideration that is greater than Thirty-Five Million Dollars ($35,000,000), Buyer shall pay to Seller Two Million Dollars ($2,000,000) less the sum of any Additional Payments previously paid. Concurrently with each payment, Buyer shall provide Seller with a certificate, signed by its chief financial officer, showing the computation of such payment. | |
(b) Each payment under Section 2.5(a) shall be accompanied by a reasonably detailed statement of the computation of the amount thereof. Not more than once in any calendar year, Seller shall have the right to audit any of Buyer’s books of account, documents, records, papers and files relating to the payments under Section 2.5(a). Seller shall complete such audit within sixty (60) days of its commencement. If Seller has any objections to the computations, Seller will deliver detailed statements describing its objections to Buyer within twenty (20) days after the completion of such audit. The parties will use their reasonable efforts to resolve any such Seller’s objections. If, however, the parties do not obtain final resolution of this matter within 20 days after Buyer has received the statements of objections, the dispute shall be referred to the Accountants. The parties will cooperate with the Accountants. The Accountants’ determination of such payment shall be binding upon all parties. Buyer and Seller will share responsibility for the fees and expenses of the Accountants based on the degree to which the Accountants accept the respective positions of the parties, as conclusively determined by the Accountants. For example, if it is Buyer’s position that the payment owed by Buyer to Seller is $100, Seller’s position that the payment owed by Buyer to Seller is $300 and the Accountants’ finding that the payment owed by Buyer to Seller is $250, then Buyer shall pay 75% (i.e., (250-100/300-100) of the Accountants’ fees and expenses and Seller shall pay 25% (i.e., (300-250/300-100)) of the Accountants’ fees and expenses. |
ARTICLE III
REPRESENTATIONS AND
WARRANTIES OF SELLER
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(a) Financial Statements. Seller has delivered to Buyer: (i) (A) an audited balance sheet of Seller as of December 31, 2000, 2001 and 2002, and the related audited statements of operations, stockholders’ equity and cash flows, including in the related notes thereto, accompanied by the report thereon of BDO Seidman L.L.P., independent certified public accountants and (B) the unaudited balance sheet of the Seller and the related statements of operations, stockholders’ equity and cash flows as at March 31, 2003 (the “Financial Statements”); and (ii) the unaudited balance sheet of the Business as at December 31, 2002 and March 31, 2003 and the related statement of operations for the year ended December 31, 2002 and the three months ended March 31, 2003 (the “Business Financial Statements”). The Financial Statements and the Business Financial Statements are in accordance with the books, records and accounts of Seller maintained with respect to the Business, were prepared pursuant to the related work papers, are complete and correct, and fairly present in all material respects the financial condition and the results of operations of Seller and the Business, as the case may be, at the dates and for periods referred to in such financial statements, all in accordance with GAAP consistently applied, except that the Business Financial Statements do not include footnotes. The Financial Statements and Business Financial Statements are attached hereto as Section 3.5 of the Disclosure Schedule. The Business Financial Statements do not reflect the operations of any entity or business other than the Business. |
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(a) Since March 31, 2003, except as set forth in Section 3.11 of the Disclosure Schedule, the Business has been conducted only in the normal and ordinary course of business consistent with past practice and there has not been: |
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(i) any contingent obligation incurred by way of guaranty, endorsement, indemnity, warranty or otherwise by Seller relating to the Business, except customary warranties arising under Contracts entered into in the normal and ordinary course of the Business or except by endorsement of negotiable instruments for deposit or collection in the normal and ordinary course of the Business; |
(ii) any increase in the rate of fixed or percentage compensation payable or to become payable by Seller to any of the Business’ officers or employees or agents whose total compensation for services rendered is currently at an annual rate of more than $100,000; or any bonus, other additional salary, percentage compensation or other like benefit granted, made or accrued to the benefit of any of the officers, employees or agents of the Business, or any employee welfare, pension, retirement, severance or similar payment or arrangements for the benefit of officers, employees or agents of the Business made or agreed to by Seller; |
(iii) any damage, destruction or loss by fire or other casualty, whether or not covered by insurance, affecting the Business or the properties relating to the Business, or of any items carried on the books of Seller relating to the Business at more than $50,000; |
(iv) any discharge or satisfaction by Seller of any lien, charge or encumbrance relating to the Assets; |
(v) any subjection of the Assets by Seller to any lien or encumbrance of any kind or any waiver by Seller of any material right relating to the Business; |
(vi) any labor trouble which has materially and adversely affected the Business or, to the best knowledge of Seller, the prospects of the Business; |
(vii) any purchase commitments by Seller relating to the Business in excess of the Business’ normal requirements or its normal operating inventories or at a higher than current market price; |
(viii) any transfer, lease or other disposition by Seller of any fixed or capital asset of the type that would have been included in the Assets had there been no such transfer, lease or disposition or any acquisition of any fixed or capital asset included in the Assets in an amount in excess of $50,000 except, in each case, in the ordinary course of the Business; |
(ix) any material amendment, rescission, or notice of termination of any contract, lease or other agreement or any agreement to settle any litigation, action or proceeding before any court or governmental body relating to the Business or the properties of the Business; |
(x) any cancellation or compromise of claims of Seller relating to the Business other than in the normal and ordinary course of the Business; |
(xi) any transfer or grant by Seller of any rights under any lease, license or agreement, Patent, invention, Trademark, trade name, service mark or copyright relating to the Business or with respect to any know-how relating to the Business or any modification with respect to any such agreement or proprietary right; |
(xii) any material adverse change in the business relationship of Seller with any customer of the Business who constituted 5% or more of the Business’ revenues for the calendar year ended December 31, 2002 or any material adverse change in relations of Seller with the employees, agents or suppliers of the Business; |
(xiii) any capital expenditure (or series of capital expenditures) that is either material or outside the ordinary course of business; |
(xiv) any failure to repay any material obligation when due related to the Business; |
(xv) any material change in the manner of conducting the Business, or any delayed payment of any material amount of accounts payable or accelerated collection of any material amount of accounts receivable; |
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(xvi) any material revaluation by the Seller of any of the assets or liabilities of the Business, including without limitation, any material write-offs, material increases or decreases in any reserves or any material write-up of the value of inventory, property, plant, equipment, or any other Asset; |
(xvii) any Material Adverse Effect; |
(xviii) any material change with respect to the management of the Business; or |
(xix) any agreement entered into or any commitment made to take any of the types of actions described in subparagraphs (i) through (xviii) above. |
(i) any contract or other instrument calling for a financial commitment by Seller of an amount or value of more than $50,000 over the life of the contract; |
(ii) any agreement, contract or commitment that involves the payment by any party thereto of more than $50,000 annually, unless cancelable by Seller without penalty to it on not more than ninety days’ notice; |
(iii) any employment contracts, arrangements or policies, deferred compensation, severance, change-in-control or other plan or arrangement (including without limitation any collective bargaining contract or union agreement) relating to the Transferred Employees; |
(iv) any leases, sales contracts, and other agreements with respect to any property included in the Assets, except for leases of personal property involving less than $50,000 per year; |
(v) any agreement, contract or commitment to be performed relating to capital expenditures in excess of $50,000; |
(vi) any agreement, indenture or instrument relating to indebtedness for borrowed money or the deferred purchase price of property (excluding trade payables in the ordinary course of business, and personal property leases for telephones, copy machines, facsimile machines and other office equipment having aggregate annual lease payments per machine of $10,000 or less); |
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(vii) any material loan or advance to or investment in, any Person, or any agreement, contract or commitment relating to the making of any such loan, advance or investment or any agreement, contract or commitment involving a sharing of profits; |
(viii) any guarantee or other contingent liability in respect of any indebtedness or obligation of any Person (other than in the ordinary course of business) or any contingent liability in excess of $50,000; |
(ix) any management service, consulting or any other similar type of contract, involving payments of more than $50,000 annually, unless terminable by Seller without penalty or payment on not more than ninety days’ notice; |
(x) any agreement, contract or commitment limiting the ability of Seller to engage in the Business or to compete with any Person in the Business; |
(xi) any agreement, contract or commitment requiring Seller to indemnify or hold harmless (a) any Person other than purchase orders, revenue earning contracts and other agreements entered into in the ordinary course of business or (ii) any purchaser and/or any licensee with respect to the Business Intellectual Property; |
(xii) any partnership, joint venture or joint operating agreement; or |
(xiii) any material amendment, modification or supplement in respect of any of the foregoing. |
(a) Seller owns, and shall transfer to Buyer at Closing, all of the Business Intellectual Property identified as owned on Section 2.1(a)(iii) of the Disclosure Schedule and has valid licenses for, and shall, to the extent transferable, transfer to Buyer at Closing, all of the Business Intellectual Property identified as licensed on Section 2.1(a)(iii) of the Disclosure Schedule. The Business Intellectual Property encompasses all Intellectual Property primarily used in or necessary for the operation of the Business as presently conducted or proposed to be conducted. Seller has no registered Trademarks and service marks, reserved trade names, registered copyrights, issued Patents, or applications for any of the foregoing, used in or necessary for the operation of the Business. |
(b) Seller has used its best efforts to protect the trade secrets of the Business. There has been no material unauthorized disclosure of any trade secrets of the Business by any person or entity. |
(c) All personnel, including employees, agents, consultants, and contractors, who have contributed to or participated in the conception and development of Seller’s Intellectual Property with respect to the Business, have (i) been party to a “work-for-hire” arrangement or agreement with Seller, in accordance with applicable federal and state law, that by its terms accords to Seller ownership of all tangible and intangible property thereby arising, (ii) executed appropriate instruments of assignment in favor of Seller as assignee that by their terms convey to Seller ownership of all tangible and intangible property thereby arising, and (iii) acknowledged and agreed that such property is and shall remain the sole and exclusive property of Seller and is and shall not be used or disclosed other than as specifically authorized by Seller. |
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(d) No Intellectual Property right or other claims have been asserted by any person or entity to the use of any Asset, and Seller is not aware of any valid basis for any such claim. To the best knowledge of Seller, the use of any Asset by Seller does not infringe on the Intellectual Property rights or other rights of any person or entity. |
(e) As of the Closing Date, all Business Intellectual Property transferred and assigned to Buyer pursuant to this Agreement is and shall be useable in the same form as on the Closing Date, under the same circumstances as on the Closing Date, and in the ordinary course of the Business as such business actually has been operated prior to the Closing Date. |
(f) Seller (i) has good and marketable title to each intangible Asset owned by Seller, including, but not limited to, each item of Intellectual Property used in and material to, or necessary for the operation of, the Business, free and clear of any Encumbrance, and (ii) is the sole and rightful owner of all right, title and interest in and to each such intangible Asset, and has the unrestricted right to market, license and otherwise exploit each such intangible Asset. |
(a) Section 3.16 of the Disclosure Schedule sets forth a list of all Seller Occupied Business Facility Leases, including the address of each respective Seller Occupied Business Facility, the name of the landlord, the date of the lease and of each amendment thereto. Seller has provided Buyer with true and complete copies of each Seller Occupied Business Facility Lease; no term or condition of any such lease has been modified, amended or waived except as shown in such copies; each such lease constitutes the entire agreement of the landlord and the tenant thereunder; and there are no other agreements or arrangements whatsoever relating to the use or occupancy of any of the Seller Occupied Business Facilities. Seller has not transferred or assigned any interest in any Seller Occupied Business Facilities Lease, nor has Seller subleased or otherwise granted rights of use or occupancy of any of the Seller Occupied Business Facilities to any other person or entity. |
(b) Each Seller Occupied Business Facility Lease is in full force and effect, all rents and other payments due to date under each lease have been paid in full, and no breach or default by Seller or, to Seller’s knowledge, by the landlord thereunder, exists, nor to Seller’s knowledge has any event or condition occurred which would with the giving of notice or the passage of time or both constitute a breach or default, under any Seller Occupied Business Facility Lease. No party has disputed or repudiated any provision of the Seller Occupied Business Facility Leases. |
(c) Seller has not received any notice of any material violation of any applicable zoning ordinance, building code, planning law or regulation, use or occupancy restriction, or violation of any thereof, or any condemnation action or proceeding with respect thereto. |
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not to continue to do business with Seller or Buyer, as successor to the Business, at any time after the Closing on terms and conditions substantially similar to those used in its current sales to Seller, whether as a result of the transactions contemplated hereby or otherwise. There are no outstanding disputes with any suppliers, other than disputes that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(a) Section 3.19 of the Disclosure Schedule sets forth a complete and accurate list of all Employee Benefit Plans for the benefit of any employee of or consultant to Seller who is involved in the Business, indicating the sponsor of such plan. Seller has furnished or made available to Buyer a true and complete copy of each such Employee Benefit Plan, all summary descriptions and evidence of any registration in respect thereof. Each such Employee Benefit Plan has been administered in accordance with its terms and all understandings, written or oral, between Seller and the employees of, and consultants to, Seller who are involved in the Business and complies in all material respects with and has been administered in all material respects in compliance with the provisions of all applicable Laws. Seller has received no notice that any Employee Benefit Plan set forth on Section 3.19 of the Disclosure Schedule is not in compliance with the provisions of ERISA, the applicable provisions of the Internal Revenue Code and all other applicable laws. There is no pending or threatened legal action, proceeding or investigation against or involving any such Employee Benefit Plan. None of the Employee Benefit Plans provides benefits to retired employees or consultants or the beneficiaries or dependants of retired employees or consultants. |
(b) Seller has received no notice that any of the Benefit Plans or any trust created thereunder or any trustee or administrator thereof has engaged in a transaction which might subject any such trustee or administrator, or any party dealing with any such Benefit Plan or trust, to the Tax on prohibited transactions imposed by Section 4975 of the Code. |
(a) Section 3.21 of the Disclosure Schedule contains a complete and accurate list of the Employees as of the date of this Agreement, showing for each such Employee (i) name, (ii) age, (iii) location of employment (iv) the salary and wages payable and other benefits which Seller is obligated to provide (whether at present or in the future), or, in the case of stock option grants, has prior to the date hereof granted, to each such employee, and including, if any, particulars of all profit sharing, incentive and, bonus arrangements to which Seller is a party, (v) the Employee’s job title, (vi) the date of hire, (vii) leave status (including type of leave), if not active, (viii) visa status, if applicable, (ix) any existing employment, consulting contracts or severance arrangements or termination notice periods which constitute contractual obligations of Seller with respect to the Employees, and (x) the participation in and level of benefit entitlement applicable to each of the employees under the Employee Benefit Plans. Seller has not improperly classified any of the Employees identified as independent contractors or leased employees. Except as set forth on Section 3.21 of the Disclosure Schedule, no Employee is on long-term disability leave, extended absence or receiving benefits pursuant to workers’ compensation legislation. All current assessments under workers’ compensation legislation in relation to the Business have been |
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paid or accrued and Seller has not been subject to any special or penalty assessment with respect to the Business under such legislation which has not been paid. | |
(b) All Employees are under written obligation to Seller to maintain in confidence all confidential or proprietary information acquired by them related to the Business in the course of their employment and to assign to Seller all inventions made by them within the scope of their employment related to the Business during such employment. |
(a) (i) All material Tax Returns required to be filed with respect to the Business or the Assets have been filed in a timely manner (within any applicable extension periods); (ii) all Taxes shown to be due on such Tax Returns have been timely paid in full or will be timely paid in full by the due date thereof, other than Taxes for which adequate accruals have been provided in the Financial Statements; (iii) Seller has fully paid and discharged all Taxes due on or before the date hereof that are related to the Business or the Assets; and (iv) Seller has withheld all Taxes it is required to withhold in respect of its employees. |
(b) No Tax liens have been filed with respect to the Business or Assets and no material claims are being asserted in writing with respect to any Taxes relating to the Business or the Assets. |
(c) The transactions contemplated by this Agreement will not give rise to (i) the creation of any Encumbrances other than Permitted Encumbrances against the Assets or the Business in respect of any Taxes. |
(d) Except as set forth on Section 3.22(c) of the Disclosure Schedules, Seller has not received written notification from any Governmental Authority that any Action is pending or threatened for any audit, examination, deficiency, assessment or collection from Seller of any Taxes related to the Business, including jurisdictions where Seller does not file Tax Returns. No unresolved claim for any deficiency, assessment or collection of any Taxes related to the Business has been asserted against Seller, and all resolved assessments of Taxes related to the Business have been paid. No issues have been raised by the relevant taxing authorities in any audit that are of a recurring nature and that would have an effect upon the Taxes of the Business. |
(e) On the Business Financial Statements, reserves and allowances have been provided, adequate to satisfy all Liabilities for Taxes relating to the Business for periods (or any portion of a period) through the date of the Business Financial Statements and no Tax liabilities relating to the Business have been incurred since that date other than in the ordinary course of business as set forth on the Closing Statement. |
(f) To the extent relevant to the Assets or the Business, there is no contract, agreement, plan or arrangement to which Seller is a party that, individually or collectively, could reasonably be expected to give rise to the payment of any amount that would not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code. |
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permits and authorizations (collectively, the “Licenses”) held by Seller and relating to the Business. Seller has obtained all Licenses necessary to carry on the Business as currently conducted under applicable federal, state, local or foreign law and timely application for the renewal of such Licenses has been made for any of such as are scheduled to expire prior to or within ten (10) days after the Closing. Seller is in compliance with all material terms and conditions of all such Licenses. All of the Licenses are in full force and effect and no Action or claim is pending nor, to the knowledge of Seller, is threatened to revoke or terminate any License or declare any License invalid in any material respect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
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ARTICLE V
ADDITIONAL AGREEMENTS
(a) Seller covenants and agrees that, except as described in Section 5.1(a) of the Disclosure Schedule, from the date hereof through the Closing Date, Seller shall conduct the Business in the |
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ordinary course and consistent with Seller’s past practice. Without limiting the generality of the foregoing, except as described in Section 5.1(a) of the Disclosure Schedule, Seller shall, with respect to the Business, (i) continue its promotional activities, and pricing and purchasing policies, in accordance with past practice; (ii) not shorten or lengthen the customary payment cycles for any of its Receivables; (iii) preserve intact the business organization of the Business, (iv) keep available to Buyer the services of the Transferred Employees, (v) continue in full force and effect without material modification all existing policies or binders of insurance and employee benefit arrangements currently maintained in respect of the Business and (vi) maintain satisfactory relationships with its customers, suppliers and with other persons with which it has a business relationship. | |
(b) From the date hereof through and including the Closing, Seller shall not (i) modify, amend or terminate any Material Contract or exercise or waive any material right or option thereunder; (ii) grant or otherwise create or consent to the creation of any easement, covenant, restriction, assessment or charge affecting any Seller Occupied Business Facility or any part thereof; or (iii) convey, assign, sublease, license or otherwise transfer all or any portion of any Seller Occupied Business Facility or any interest or rights therein, or (iv) make any material changes in the construction or condition of any such facility. |
(c) Without limiting the generality of the foregoing, Seller covenants and agrees that, through the Closing Date, Seller shall not, without the prior written consent of Buyer, take or undertake or incur or permit to exist any of the acts, transactions, events or occurrences specified in Section 3.11. |
(a) From the date hereof until the Closing, upon reasonable notice, Seller shall and shall cause each of its officers, directors, employees, agents, accountants and counsel to: (i) afford the officers, employees and authorized agents, accountants, counsel and representatives of Buyer reasonable access, during normal business hours, to the offices, facilities, books and records of Seller and to those officers, directors, employees, agents, accountants and counsel of Seller who have any knowledge relating to the Business and (ii) furnish to the officers, employees and authorized agents, accountants, counsel and representatives of Buyer such additional financial and operating data and other information regarding the Business and the Assets as Buyer may from time to time reasonably request. |
(b) In order to facilitate the resolution of any claims made against or incurred by Seller prior to the Closing or for any other reasonable purpose, for a period of four years after the Closing, Buyer shall (i) retain the books and records which are transferred to Buyer pursuant to this Agreement relating to periods prior to the Closing in a manner reasonably consistent with the prior practices of Seller and (ii) upon reasonable notice, afford the officers, employees and authorized agents and representatives of Seller reasonable access (including the right to make photocopies at Seller’s expense), during normal business hours, to such books and records. |
(c) In order to facilitate the resolution of any claims made by or against or incurred by Buyer after the Closing or for any other reasonable purpose, for a period of four years following the Closing, Seller shall (i) retain all books and records which are not transferred to Buyer pursuant to this Agreement and which relate to the Business for periods prior to the Closing and which shall not otherwise have been delivered to Buyer and (ii) upon reasonable notice, afford the officers, employees and authorized agents and representatives of Buyer, reasonable access (including the right to make photocopies at Buyer’s expense), during normal business hours, to such books and records. |
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(a) Each of Buyer and Seller shall use its reasonable best efforts to obtain all authorizations, consents, orders and approvals of all Governmental Authorities and officials that may be or become necessary for its execution and delivery of, and the performance of its obligations pursuant to, this Agreement and the Ancillary Agreements and will cooperate fully with the other party in promptly seeking to obtain all such authorizations, consents, orders and approvals. |
(b) Seller shall give promptly such notices to third parties and use its reasonable best efforts to obtain such third party consents as Buyer may reasonably deem necessary or desirable in connection with the transactions contemplated by this Agreement and the Ancillary Agreements, including, without limitation, all third party consents that are reasonably necessary or desirable in connection with the transfer of the Material Contracts. |
(c) Buyer shall cooperate and use all reasonable efforts to assist Seller in giving such notices and obtaining such consents; provided, however, that Buyer shall have no obligation to give any guarantee or other consideration of any nature in connection with any such notice or consent or to consent to any change in the terms of any Material Contract which Buyer in its sole discretion may deem adverse to the interests of Buyer or the Business. |
(d) Notwithstanding anything to the contrary set forth in this Agreement or in any of the Ancillary Agreements, nothing contained in this Agreement or in any of the Ancillary Agreements shall be construed as, or constitute, an attempt, agreement or other undertaking to transfer or assign to Buyer any asset, property or right that would otherwise constitute an Asset, but that by its terms is not transferable or assignable to Buyer pursuant to this Agreement without the consent, waiver, approval, authorization, qualification or other order of one or more third parties and such consent, waiver, approval, authorization, qualification or other order is not obtained prior to the Closing (each, a “Non-Transferable Asset”). | |
(e) From and after the Closing and, with respect to each Non-Transferable Asset, until the earlier to occur of (i) such time as such Non-Transferable Asset shall be properly and lawfully transferred or assigned to Buyer pursuant hereto and (ii) such time as the material benefits intended to be transferred or assigned to Buyer pursuant hereto have been procured by alternative means pursuant to Section 5.4(f), (A) such Non-Transferable Asset shall be held by Seller in trust exclusively for the benefit of Buyer, and (B) Seller shall cooperate in any good faith, reasonable arrangement designed to provide or cause to be provided for Buyer the material benefits intended to be transferred or assigned to Buyer under such Non-Transferable Asset and, in furtherance thereof, to the extent permitted under the terms of such Non-Transferable Asset and under applicable Law (1) Buyer shall use commercially reasonable efforts to perform and discharge all of the Liabilities of Seller under the terms of such Non-Transferable Asset in effect as of the Closing and (2) Seller shall use commercially reasonable efforts to provide or cause to be provided to Buyer all of the benefits of Seller under the terms of such Non-Transferable Asset in |
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effect as of the Closing, including by promptly paying to Buyer any monies received by Seller from and after the Closing under such Non-Transferable Asset attributable to the performance of Buyer thereunder. | |
(f) In the event that Seller is unable to obtain any consent from a third Person, as requested by Buyer, under any Non-Transferable Asset after the Closing Date through the use of commercially reasonable efforts, (i) Buyer shall be entitled to procure the material rights and benefits of Seller under the terms of such Non-Transferable Asset in effect as of the Closing by alternative means, including, without limitation, by entering into new Contracts with third parties or otherwise, and (ii) Seller shall pay to Buyer the reasonable fees, expenses and other costs incurred in connection with procuring such rights and benefits; provided, however, that in the event that Buyer shall exercise its rights under this Section 5.4(f) in respect of any Non-Transferable Asset, the obligations of Seller under Section 5.4(e) in respect of such Non-Transferable Asset shall thereupon cease and expire. |
(a) Seller shall, as soon as practicable following the date hereof (but allowing for its compliance with its obligations under the third sentence of this Section 5.5), prepare and file with the SEC a proxy statement (the “Proxy Statement”) to obtain the required vote of Seller’s stockholders to approve this Agreement and the transactions contemplated hereby. Seller will cause the Proxy Statement to be mailed to Seller’s stockholders as promptly as practicable. No filing of, or amendment or supplement to, or correspondence to the SEC or its staff with respect to, the Proxy Statement will be made by Seller without providing Buyer a reasonable opportunity to review and comment thereon. Seller will advise Buyer, promptly after it receives notice thereof, of any request by the SEC for the amendment of the Proxy Statement or comments thereon and responses thereto or requests by the SEC for additional information. If at any time prior to the effectiveness of the Proxy Statement any information relating to Seller or Buyer, or any of their respective affiliates, officers or directors, should be discovered by Seller or Buyer which should be set forth in an amendment or supplement to the Proxy Statement, so that any of such documents would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the party which discovers such information shall promptly notify the other party hereto and an appropriate amendment or supplement describing such information shall be promptly filed with the SEC and, to the extent required by law, disseminated to the stockholders of Seller. Each of the parties hereto shall cause the Proxy Statement to comply as to form and substance to such party in all material respects with the applicable requirements of (i) the Exchange Act, (ii) the Securities Act, and (iii) the rules and regulations of the Nasdaq. |
(b) (i) The Board of Directors of Seller shall recommend that Seller’s stockholders vote at the Seller Stockholders’ Meeting (as defined below) in favor of the adoption of a resolution authorizing the transactions contemplated by this Agreement; (ii) the Proxy Statement shall include a statement to the effect that the Board of Directors of Seller has recommended that Seller’s stockholders vote at the Seller Stockholders’ Meeting in favor of the adoption of a resolution authorizing the transactions contemplated by this Agreement, and (iii) neither the Board of Directors of Seller nor any committee thereof shall withhold, withdraw, amend or modify, or propose or resolve to withhold, withdraw, amend or modify, in a manner adverse to Buyer, the recommendation of the Board of Directors of Seller that its stockholders vote at the Seller Stockholders’ Meeting in favor of the adoption of a resolution authorizing the transactions contemplated by this Agreement. |
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(a) In partial consideration of the payment of the Purchase Price, Seller covenants and agrees that for a period of three years commencing upon the Closing Date, Seller shall not, directly or indirectly, (i) engage in, carry on, manage, operate, perform or control the management or operation of any Seller Restricted Business in any portion of the territory (the “Restricted Territory”) consisting of the world, or (ii) own any equity interest in any Person that is engaged in, carries on, manages, operates, performs or controls the management or operations of any Seller Restricted Business in the Restricted Territory. |
(b) For purposes of this Section 5.8, the term “Seller Restricted Business” means any business engaged in the Business. |
(c) Notwithstanding Section 5.8(a), it will not constitute a breach of this Section 5.8 for Seller to acquire (including through a merger other corporate transaction), invest in or own equity interests in any Person engaged in, carrying on, managing, operating, performing or controlling the management or operation of a Seller Restricted Business, so long as (i) Seller does not own, directly or indirectly, in the aggregate in excess of 4.99% of the outstanding equity interests of such Person, (ii) the common stock of such Person is listed on a national securities exchange or traded on an over-the-counter market and (iii) Seller does not, directly or indirectly, manage, operate or control the management or operation of such Person or any Seller Restricted Business of such Person. | |
(d) Buyer and Seller acknowledge and agree that compliance with the covenants contained in this Section 5.8 is necessary to protect Buyer and that a breach of any such covenant would result in irreparable and continuing damage for which there would be no adequate remedy at Law. Seller agrees that in the event of any adjudicated breach of such covenant, Buyer shall be entitled to injunctive relief and to such other and further relief as is proper under the circumstances. If any court of competent jurisdiction determines any of the foregoing covenants to be unenforceable with respect to the term thereof or the scope of the subject matter or geography covered thereby, then such covenant shall |
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nonetheless be enforceable by such court against Seller or other relevant Person upon such shorter term or within such lesser scope as may be determined by the court to be reasonable and enforceable. | |
(e) Seller further covenants and agrees that, without the prior written consent of Buyer, Seller will not, for a period of one year commencing upon the Closing Date, solicit for employment, as an employee, officer, agent, consultant, advisor, or in any other capacity whatsoever, any then-current employee of the Business or any person who has been an employee of the Business at any time within the six month period preceding such time. As used herein, “solicit” means contact or communicate in any manner whatsoever, including, but not limited to, contacts or communications by or through intermediaries, agents, contractors, representatives, or other parties, provided that nothing herein shall be construed to prohibit Seller from (i) placing advertisements for employment that are aimed at the public at large in any newspaper, trade magazine, or other periodical in general circulation, or (ii) responding to any unsolicited inquiry by any Buyer employee concerning employment. |
(f) Buyer acknowledges that, notwithstanding any other provisions of this Agreement, this Section 5.8 shall in no event be binding upon or otherwise apply to any successor to or assignee of any of the assets of Seller, whether by merger, consolidation, asset sale or other form of transaction (such Section 5.8 being automatically deemed to expire with respect to such assets upon the consummation of any such transaction); provided, however, that in the event that any of the entities listed on Schedule 5.8 (the “Restricted Buyers”) becomes the successor to or assignee of any of the assets of Seller through any of the foregoing transactions, Seller shall pay to Buyer a fee of $5 million in consideration for Buyer’s waiver of this Section 5.8 with respect to such Restricted Buyer, which payment shall be Buyer’s sole and exclusive remedy for any such transaction by Seller with any Restricted Buyer. |
(g) Nothing in this Agreement shall in any way restrict Seller from continuing to engage in, carry on, manage, operate, perform or control the management or operation of Seller’s Network Operations, as those operations currently exist and evolve in response to technological, market and other developments. |
(a) In partial consideration for the Assets, Buyer covenants and agrees that for a period of three years commencing upon the Closing Date, Buyer shall not, directly or indirectly, (i) market or sell services competitive to those of Seller’s Network Business provided by any of the competitors of Seller listed on Schedule 5.9 (the “Restricted Competitors”), (ii) acquire or own any equity interest in any of the Restricted Competitors in a transaction that would result in Buyer marketing services which are competitive to Seller’s Network Business; provided, however, that Buyer may market or sell services of Seller or acquire any of the Restricted Competitors upon payment by Buyer to Seller of a one-time fee of $5 million in consideration for the permanent waiver by Seller of this Section 5.9, which payment shall be Seller’s sole and exclusive remedy for Buyer’s marketing or sale of such services of any Restricted Competitor. |
(b) Buyer and Seller acknowledge and agree that compliance with the covenants contained in this Section 5.9 is necessary to protect Seller and that a breach of any such covenant would result in irreparable and continuing damage for which there would be no adequate remedy at Law. Buyer agrees that in the event of any adjudicated breach of such covenant, Seller shall be entitled to injunctive relief and to such other and further relief as is proper under the circumstances. If any court of competent jurisdiction determines any of the foregoing covenants to be unenforceable with respect to the term thereof or the scope of the subject matter or geography covered thereby, then such covenant shall nonetheless be enforceable by such court against Buyer or other relevant Person upon such shorter term or within such lesser scope as may be determined by the court to be reasonable and enforceable. | |
(c) Buyer further covenants and agrees that, with the exception of employees and former employees of the Business, without the prior written consent of Seller, Buyer will not, for a period of one year commencing upon the Closing Date, solicit for employment, as an employee, officer, agent, consultant, advisor, or in any other capacity whatsoever, any then-current employee of the Seller or any person who has been an employee of the Seller at any time within the six month period preceding such time. As used herein, “solicit” means contact or communicate in any manner whatsoever, including, but not |
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limited to, contacts or communications by or through intermediaries, agents, contractors, representatives, or other parties, provided that nothing herein shall be construed to prohibit Buyer from (i) placing advertisements for employment that are aimed at the public at large in any newspaper, trade magazine, or other periodical in general circulation, or (ii) responding to any unsolicited inquiry by any Buyer employee concerning employment. |
(a) Property Taxes. In the case of any real or personal property Taxes (or other similar Taxes) attributable to the Assets which returns cover a taxable period commencing before the Closing Date and ending thereafter, Buyer shall prepare such returns and make all payments required with respect to any such return, provided, however, Seller will promptly reimburse Buyer upon receipt of a copy of the filed Tax Return to the extent any payment made by Buyer relates to that portion of the taxable period ending on or before the Closing Date which amount shall be determined and prorated on a per diem basis. |
(b) Cooperation. To the extent relevant to the Business or the Assets, each party shall (i) provide the other with such assistance as may reasonably be required in connection with the preparation of any Tax Return and the conduct of any audit or other examination by any taxing authority or in connection with judicial or administrative proceedings relating to any liability for Taxes and (ii) retain and provide the other with all records or other information that may be relevant to the preparation of any Tax Returns, or the conduct of any audit or examination, or other proceeding relating to Taxes. Seller shall retain all documents, including prior years’ Tax Returns, supporting work schedules and other records or information with respect to all sales, use and employment tax returns and, absent the receipt by Seller of the relevant tax clearance certificates, shall not destroy or otherwise dispose of any such records for four years after Closing without the prior written consent of Buyer. Seller, upon request, shall use its reasonable efforts to provide or obtain from any taxing authority any certificate or other document necessary to mitigate, reduce or eliminate any Taxes (including additions thereto or interest and penalties thereon) that otherwise would be imposed with respect to the transactions contemplated in this Agreement. Buyer, upon request, shall use its reasonable efforts to provide or obtain from any taxing authority any certificate or other document necessary to mitigate, reduce or eliminate any Taxes (including additions thereto or interest and penalties thereon) that otherwise would be imposed with respect to the transactions contemplated in this Agreement. |
(c) Transfer Taxes. Notwithstanding anything else herein, Buyer and Seller shall each be responsible for and pay when due one half of any and all transfer, documentary, sales, use or other similar Taxes assessed upon or with respect to the transfer of the Assets to Buyer and all documentary or recording fees with respect thereto. |
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(a) Except as set forth in the following sentence, from and after the Closing, Seller shall not use any of the Business Intellectual Property. From the Closing Date through and including December 31, 2003, Seller may continue (i) to use and refer to Trademarks and other Business Intellectual Property for purposes of informing customers, vendors and other parties with which Seller continues to deal about the transactions contemplated by this Agreement, the Seller’s changed corporate name, and the like and (ii) to refer to Trademarks and the Business in any filings with SEC or other Governmental Authority or in any other historical context. |
(b) Immediately after the Closing, Seller shall change its corporate name, and amend its charter accordingly, to one not using any trademark, service mark, trade dress, logo, trade name or corporate name contained in the Business Intellectual Property or any trademark, service mark, trade dress, logo, trade name or corporate name similar or related thereto. As promptly as practicable following the Closing, Seller shall remove any Business Intellectual Property from letterheads and other materials remaining in its possession or under its control, and Seller shall not use or put into use after the Closing any materials that bear any trademark, service mark, trade dress, logo, trade name or corporate name contained in the Business Intellectual Property or any trademark, service mark, trade dress, logo, trade name or corporate name similar or related thereto. Buyer acknowledges that the corporate name “Glowpoint Inc.” or any name similar or related thereto complies with the requirements of this subparagraph. |
(a) Definitions. As used in this Section 5.14, the following terms shall have the following meanings: |
(i) “Corporate Cost Allocations” shall mean the internal allocations of Seller for costs of the Business in the amounts set forth in the Transition Budget; |
(ii) “Direct Costs” means amounts payable to third parties with respect to the Assumed Liabilities and the Transferred Employees and excludes any internal corporate cost allocations of Seller; |
(iii) “Fixed Direct Costs” means Direct Costs identified as such in the Transition Budget; |
(iv) “Monthly Transition Amount” means an amount equal to $159,000; |
(v) “Representative” means any one of a reasonable number of representatives appointed by the Purchaser and identified as such to Seller to carry out the purposes of this Section 5.14; |
(vi) “Transition Accounts” has the meaning set forth in subsection (b)(iv) below; |
(vii) “Transition Budget” means the expense budget of the Business set forth on Schedule 5.14; |
(viii) “Transition Cap” means the Monthly Transition Amount times the actual number of calendar months elapsed in the Transition Period, prorated for any partial calendar month; |
(ix) “Transition Cost Amount” means an aggregate amount of Fixed Direct Costs plus Corporate Cost Allocations that exceed the aggregate amount of Fixed Direct Costs plus Corporate Cost Allocations in the Transition Budget; |
(x) “Transition Period” means the period commencing on the Measurement Date and ending on the Closing Date; and |
(xi) “Variable Direct Costs” means the variable Direct Costs identified as such on the Transition Budget. |
(b) During the Transition Period, unless otherwise authorized or directed by the Representative, the Seller shall: |
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(i) conduct the Business in accordance with Section 5.1; |
(ii) have established and maintain a separate general ledger reflecting all of the revenues and Direct Costs of the Business, which ledger is capable of being directly accessed by Buyer at all times during the Transition Period; |
(iii) incur Fixed Direct Costs only in accordance with the Transition Budget; |
(iv) deposit all monies received by Seller as payment of any Receivables or otherwise with respect to the Business into bank accounts separate from all other accounts of the Seller (the “Transition Accounts”); |
(v) make payment with respect to any Direct Costs only from the Transition Accounts, and make no payment with respect to any costs other than Direct Costs from the Transition Accounts; |
(vi) procure that no monies are transferred from the Transition Accounts to any other account of Seller; |
(vii) permit the Representative access to the Seller’s facilities and properties to observe fully the conduct of the Business and shall provide the Representative with all information and materials necessary to enable the Representative to make reasonably informed assessments regarding the Business of the type which the Representative would make if the Representative were responsible for the operations of the Business, including without limitation daily cash reports, weekly revenue reports and periodic management reports reasonably requested by the Representative; and |
(viii) consider the reasonable requests of the Representative with respect to the conduct of the Business so long as such requests do not cause Seller to expend funds in excess of the amounts provided in the Transition Budget. |
(c) In addition, from the Measurement Date to the Closing Date Seller shall not: |
(i) fail to deposit and hold all monies received by the Seller with respect to the Business on or after the Measurement Date into the Transition Account, or expend any funds in the Transition Account other than for the benefit of the Business in accordance with the Transition Budget; or |
(ii) authorize or enter into any agreement, arrangement, commitment or obligation to take any action prohibited by this Section, Section 3.11 or Section 5.1. |
(d) Within thirty (30) business days following the Closing Date, Seller shall prepare and deliver to Purchaser the following accounting statements (the “Transition Statements”), together with the detailed work papers and documentation which supports the Transition Statements: (i) an income statement of the Business for the period commencing on the Measurement Date and ending on the Closing Date, separately stating the revenues and Direct Costs; (ii) a statement of the Assets and Assumed Liabilities of the Business as of the Closing Date; (iii) a reconciliation of such statements to the Closing Statement; (iv) bank statements, bank reconciliations and detailed transaction history for all Transition Accounts. Buyer shall have the right to review the books and records of Seller and the Business for a period of ninety (90) days after receiving the Transition Statements (or such reasonable extension thereof as approved by Seller, such approval not to be unreasonably withheld) to verify and confirm the accuracy thereof. If, after such review, Buyer agrees with the Transition Statements, Buyer shall promptly (and in any event within ninety (90) days after receiving the Transition Statements or approved extension thereof) notify Seller of its agreement. If, after such review, Buyer objects to the Transition Statements, Buyer shall promptly (and in any event within ninety (90) days after receiving the Transition Statements or approved extension thereof) provide Seller with a statement indicating the basis for its objections, and Buyer and Seller shall meet and confer in an effort to resolve such disagreement in good faith. |
(e) In the event that Buyer and Seller are unable to resolve a disagreement with respect to the Transition Statements within ten (10) days following the date of Buyer’s objection (or such longer period as Buyer and Seller may agree), the Transition Expenses shall be determined by the Accountants according to the procedure in Section 2.3(c). Other than the expense of retaining the Accountants, the expense of preparing the Transition Statements shall be borne by Seller. |
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(f) Within three (3) business days after the determination of the Transition Statements pursuant to either the agreement of the parties or the determination of the Accountants: in the event that there has been a Transition Cost Amount according to the Transition Statements as so determined, Seller shall pay in cash to Buyer the amount of such Transition Cost Amount, except as follows: |
(1) if the EBITDA of the Business for the quarter ended September 30, 2003 is at least $1,000,000 million but not more than $1,159,000, then Seller shall be entitled to an offset against payment of the Transition Cost Amount of up to $159,000, not to exceed the Transition Cap; |
(2) if the EBITDA of the Business for the quarter ended September 30, 2003 is more than $1,159,000 but not more than $1,318,000, then Seller shall be entitled to an offset against payment of the Transition Cost Amount of up to $318,000, not to exceed the Transition Cap; and |
(3) if the EBITDA of the Business for the quarter ended September 30, 2003 is more than $1,318,000, then Seller shall be entitled to an offset against payment of the Transition Cost Amount of up to $477,000, not to exceed the Transition Cap. |
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ARTICLE VII
CONDITIONS TO CLOSING
(a) Stockholder Approval. This Agreement shall have been duly approved by the holders of a majority of the outstanding shares of Seller, in accordance with applicable law and the Certificate of Incorporation and Bylaws of Seller; |
(b) Representations and Warranties. The representations and warranties of Buyer contained in this Agreement shall be true and correct as of the Closing, except to the extent that the failure to be so true and correct does not, and would not reasonably be expected to, have a material adverse effect on the business, operations, assets, liabilities, prospects, results of operations or the condition (financial or otherwise) of Buyer. Seller shall have received a certificate of Buyer, signed for and on behalf of Buyer and in its name by a duly authorized officer thereof, to the foregoing effect; |
(c) Covenants. The covenants and other agreements to be performed or complied with by Buyer on or prior to the Closing shall have been performed or complied with by Buyer in all material respects, and Seller shall have a received a certificate from Buyer, signed for and on behalf of Buyer and in its name by a duly authorized officer thereof, certifying as to the foregoing; |
(d) Legality. No court or other Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and has the effect of rendering the consummation of the transactions contemplated hereby illegal or otherwise prohibiting the consummation of the transactions contemplated hereby; and |
(e) Ancillary Agreements. Buyer shall have executed and delivered to Seller each of the Ancillary Agreements to which Buyer is a party. |
(a) Stockholder Approval. This Agreement shall have been duly approved by the holders of a majority of the outstanding shares of Seller, in accordance with applicable law and the Certificate of Incorporation and Bylaws of Seller; |
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(b) Representations and Warranties. The representations and warranties of Seller contained in this Agreement shall be true and correct as of the Closing, except to the extent that the failure to be so true and correct does not, and would not reasonably be expected to, have a Material Adverse Effect. Buyer shall have received a certificate of Seller, signed for and on behalf of Seller and in its name by a duly authorized officer thereof, to the foregoing effect; |
(c) Covenants. The covenants and other agreements to be performed or complied with by Seller on or prior to the Closing shall have been performed or complied with by Seller in all material respects, and Buyer shall have a received a certificate from Seller, signed for and on behalf of Seller and in its name by a duly authorized officer thereof, certifying as to the foregoing; |
(d) Legality. No court or other Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and has the effect of rendering the consummation of the transactions contemplated hereby illegal or otherwise prohibiting the consummation of the transactions contemplated hereby; |
(e) Ancillary Agreements. Seller shall have executed and delivered to Buyer each of the Ancillary Agreements to which they are a party; |
(f) Removal of Liens. Seller shall have provided evidence reasonably satisfactory to Buyer of the removal as of Closing of all liens placed on the Assets in connection with the Company’s credit agreement with JPMorgan Chase Bank; and |
(g) Consents and Approvals. Buyer and Seller shall have received, each in form and substance reasonably satisfactory to Buyer, all authorizations, consents, orders and approvals of all Governmental Authorities and officials, and all third party consents, which Buyer in its reasonable judgment deems necessary for the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements, except to the extent that the failure to obtain any such authorizations, consents, orders and approvals does not, and would not reasonably be expected to, have a Material Adverse Effect (after giving effect, without limitation, to Sections 5.4 (d), (e) and (f)). |
(a) Seller shall indemnify and hold harmless Buyer and its Affiliates, officers, directors, employees, agents, successors and assigns (each a “Buyer Indemnified Party”) for any and all Liabilities, losses, damages, claims, costs and expenses, interest, awards, judgments and penalties (including, without limitation, attorneys’ and consultants’ fees and expenses) actually suffered or incurred by them |
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(including, without limitation, any Action brought or otherwise initiated by any of them) (a “Loss”), arising out of or resulting from: | ||||
(i) | the breach or inaccuracy of any representation or warranty made by Seller contained in the Acquisition Documents; or |
(ii) | the breach of any covenant or agreement by Seller contained in the Acquisition Documents; or |
(iii) | Liabilities, whether arising before or after the Closing Date, that are not expressly assumed by Buyer pursuant to this Agreement, including, without limitation: | ||||
(A) | Liabilities arising from or related to any failure to comply with laws relating to bulk transfers or bulk sales with respect to the transactions contemplated by this Agreement (notwithstanding the waiver contained in Section 5.10); and | ||||
(B) | the Excluded Liabilities. |
To the extent that Seller’s undertakings set forth in this Section 8.2 may be declared or held to be unenforceable under applicable Law, Seller shall contribute the maximum amount that it is permitted to contribute under applicable Law to the payment and satisfaction of all Losses incurred by any Buyer Indemnified Party for which Seller is obligated to provide indemnification hereunder. |
(b) Buyer shall indemnify and hold harmless Seller and its Affiliates, officers, directors, employees, agents, successors and assigns (each a “Seller Indemnified Party) for any and all Losses arising out of or resulting from: |
(i) | the breach or inaccuracy of any representation or warranty made by Buyer contained in the Acquisition Documents; or |
(ii) | the breach of any covenant or agreement by Buyer contained in the Acquisition Documents; or |
(iii) | the Assumed Liabilities. |
To the extent that Buyer’s undertakings set forth in this Section 8.2 may be declared or held to be unenforceable under applicable Law, Buyer shall contribute the maximum amount that it is permitted to contribute under applicable Law to the payment and satisfaction of all Losses incurred by any Seller Indemnified Party for which Buyer is obligated to provide indemnification hereunder. | |
(c) A Buyer Indemnified Party or a Seller Indemnified Party, as the case may be (hereinafter referred to as an “Indemnified Party”), shall give the indemnifying party (the “Indemnifying Party”) notice of any matter which an Indemnified Party has determined has given or could give rise to a right of indemnification under this Agreement, within 60 days of such determination, stating the amount of the Loss, if known, and method of computation thereof, and containing a reference to the provisions of this Agreement in respect of which such right of indemnification is claimed or arises. The obligations and Liabilities of the parties under this Article VIII with respect to Losses arising from claims of any third party which are subject to the indemnification provided for in this Article VIII (“Third Party Claims”) shall be governed by and contingent upon the following additional terms and conditions: if an Indemnified Party shall receive notice of any Third Party Claim, the Indemnified Party shall give the Indemnifying Party notice of such Third Party Claim within 30 days of the receipt by the Indemnified Party of such notice; provided, however, that the failure to provide such notice shall not release the Indemnifying Party from any of its obligations under this Article VIII except to the extent the Indemnifying Party is materially prejudiced by such failure and shall not relieve the Indemnifying Party from any other obligation or liability that it may have to any Indemnified Party otherwise than under this Article VIII. If an Indemnifying Party acknowledges in writing its irrevocable and unconditional obligation to indemnify the Indemnified Party hereunder against any Losses that may result from such Third Party Claim, then the Indemnifying Party shall be entitled to assume and control the defense of such Third Party Claim at its expense and through counsel of its choice if it gives notice of its intention to do so to the Indemnified Party within twenty days of the receipt of such notice from the Indemnified |
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Party; provided, however, that if there exists or is reasonably likely to exist a conflict of interest that would make it inappropriate in the reasonable judgment of the Indemnified Party for the same counsel to represent both the Indemnified Party and the Indemnifying Party, then the Indemnified Party shall be entitled to retain its own counsel, in each jurisdiction for which the Indemnified Party reasonably determines counsel is required, at the expense of the Indemnifying Party. In the event an Indemnifying Party exercises the right to undertake any such defense against any such Third Party Claim as provided above, the Indemnified Party shall cooperate with the Indemnifying Party in such defense and make available to the Indemnifying Party, at the Indemnifying Party’s expense, all witnesses, pertinent records, materials and information in the Indemnified Party’s possession or under the Indemnified Party’s control relating thereto as is reasonably required by the Indemnifying Party. Similarly, in the event the Indemnified Party is, in accordance with the foregoing provisions, conducting the defense against any such Third Party Claim, the Indemnifying Party shall cooperate with the Indemnified Party in such defense and make available to the Indemnified Party, at the Indemnifying Party’s expense, all such witnesses, records, materials and information in the Indemnifying Party’s possession or under the Indemnifying Party’s control relating thereto as is reasonably required by the Indemnified Party. No such Third Party Claim may be settled by the Indemnifying Party without the written consent of the Indemnified Party if such settlement would entail any admission of liability by, or any restrictions upon the future conduct of, such Indemnified Party. |
ARTICLE IX
TERMINATION AND WAIVER
(a) by the mutual written consent of Seller and Buyer; or |
(b) by either Seller or Buyer if the Closing has not occurred by September 30, 2003; provided, however, that the right to terminate this Agreement under this Section 9.1(b) shall not be available to any party whose action or failure to act shall have been the cause of, or shall have resulted in, the failure of the Closing to occur on or prior to such date and such action or failure to act constitutes a breach of this Agreement; or |
(c) by Buyer or Seller if Seller’s stockholders have not, by September 30, 2003, adopted a resolution authorizing the transactions contemplated by this Agreement under applicable Law; or |
(d) by either Buyer or Seller in the event that any Governmental Authority shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and nonappealable; or | |
(e) by Seller, upon a material breach of this Agreement by Buyer, or if any representation or warranty of Buyer shall have been untrue or inaccurate when made or shall have become untrue or inaccurate such that, in the aggregate, in the case of such representations and warranties, such untruths |
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(f) by Buyer, upon a material breach of this Agreement on the part of Seller, or if any representation or warranty of Seller shall have been untrue or inaccurate when made or shall have become untrue or inaccurate such that, in the aggregate, in the case of such representations and warranties, such untruths or inaccuracies could reasonably be expected to result in Seller’s inability to satisfy the conditions to Buyer’s obligation to consummate the transactions contemplated by this Agreement, provided, that if such untruth or inaccuracy in Seller’s representations and warranties or breach by Seller is curable by Seller through exercise of its commercially reasonable efforts, then Buyer may not terminate this Agreement pursuant to this Section 9.1(f) until the earlier of (i) the expiration of a thirty (30) day period after delivery of written notice from Buyer to Seller of such untruth or inaccuracy or breach, and (ii) Seller ceasing to exercise commercially reasonable efforts to cure such untruth or inaccuracy or breach, provided, that Seller continues to exercise commercially reasonable efforts to cure such untruth or inaccuracy or breach (it being understood that Buyer may not terminate this Agreement pursuant to this Section 9.1(f) if such untruth or inaccuracy or breach by Seller is cured during such thirty-day period); or |
(g) by Buyer if, between the date hereof and the time scheduled for the Closing Seller makes a general assignment for the benefit of creditors, or any proceeding shall be instituted by Seller seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up or reorganization, arrangement, adjustment, protection, relief or composition of its debts under any Law relating to bankruptcy, insolvency or reorganization; |
(h) by Seller, upon the occurrence of a Triggering Event; or |
(i) by Buyer if, at any time prior to the adoption and approval of this Agreement by the required vote of the stockholders of Seller, a Triggering Event with respect to the Business shall have occurred. |
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If to Seller: | |||
Wire One Technologies, Inc. 225 Long Avenue Hillside, NJ 07205 Attention: Richard Reiss, Chief Executive Officer Telephone No.: (973) 391-2085 Telecopier No.: (973) 391-9776 |
With copies to: | |||
Morrison & Foerster LLP 1290 Avenue of the Americas New York, New York 10104 Attention: Michael J.W. Rennock, Esq. Telephone No.: (212) 468-8000 Telecopier No.: (212) 468-7900 |
If to Buyer: | |||
Gores Technology Group c/o 6260 Lookout Road Boulder, CO 80301 ttention: Chief Financial Officer Telephone: (303) 531-3100 Telecopier: (303) 531-3200 |
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With copies to: | |||
c/o Gores Technology Group 10877 Wilshire Blvd., Suite 1805 Los Angeles, CA 90024 Attention: General Counsel Telephone: (310) 209-3010 Telecopier No.: (310) 443-2149 |
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such assignment or delegation shall relieve Buyer of its joint and several responsibilities for performance of its obligations under this Agreement. |
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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WIRE ONE TECHNOLOGIES, INC., Seller | ||||
By: /s/ Richard Reiss Name: Richard Reiss Title: CEO & Chairman | ||||
GORES TECHNOLOGY GROUP, Buyer | ||||
By: /s/ Brent Bradley Name: Brent Bradley Title: Vice President & Assistant Secretary |
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ANNEX B |
FAIRNESS OPINION
June 9, 2003
Board of Directors
Wire One Technologies, Inc.
225 Long Avenue
P.O. Box 794
Hillside, NJ 07205
Members of the Board:
(1) | Reviewed the financial terms and conditions as stated in the Agreement; |
(2) | Reviewed the unaudited actual and pro forma financial statements of Video Solutions business for the years ended December 31, 2002 and 2001; |
(3) | Reviewed certain financial projections for the Video Solutions business provided to us by the Company; |
(4) | Reviewed certain other information on the Video Solutions business made available to us by the Company; |
(5) | Discussed with members of senior management of the Company certain information relating to the aforementioned and other matters which we have deemed relevant to our inquiry; |
(6) | Reviewed public information with respect to companies in lines of business we believe to be generally comparable to the Video Solutions business; |
(7) | Reviewed the financial terms and other information of certain business combinations involving companies in lines of businesses we believe to be generally comparable to the those of the Company; and |
(8) | Performed other such financial studies, analyses and investigations as we deemed appropriate. |
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Very truly yours,
/s/ Broadband Capital Management LLC
BROADBAND CAPITAL MANAGEMENT LLC
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ANNEX C
PROPOSED AMENDMENT TO THE COMPANY’S CERTIFICATE
OF INCORPORATION REGARDING NAME CHANGE
CERTIFICATE OF AMENDMENT
TO
THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
WIRE ONE TECHNOLOGIES, INC.
WIRE ONE TECHNOLOGIES, INC. | |
Name: | |
Title: |
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ANNEX D |
WIRE ONE TECHNOLOGIES, INC.
2000 STOCK INCENTIVE PLAN
(a) “Administrator” means the board or any of the Committees appointed to administer the Plan. |
(b) “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act. |
(c) “Applicable Laws” means the legal requirements relating to the administration of stock incentive plans, if any, under applicable provisions of federal securities laws, state corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any foreign jurisdiction applicable to Awards granted to residents therein. |
(d) “Award” means the grant of an Option, SAR, Dividend Equivalent Right, Restricted Stock, Performance Unit, Performance Share, or other right or benefit under the Plan. |
(e) “Award Agreement” means the written agreement evidencing the grant of an Award executed by the Company and the Grantee, including any amendments thereto. |
(f) “Board” means the board of directors of the Company. |
(g) “Cause” means, with respect to the termination by the Company or a Related Entity of the Grantee’s Continuous Service, that such termination is for “Cause” as such term is expressly defined in a then-effective written agreement between the Grantee and the Company or such Related Entity, or in the absence of such then-effective written agreement and definition, is based on, in the determination of the Administrator, the Grantee’s: (i) refusal or failure to act in accordance with any specific, lawful direction or order of the Company or a Related Entity; (ii) unfitness or unavailability for service or unsatisfactory performance (other than as a result of Disability); (iii) performance of any act or failure to perform any act in bad faith and to the detriment of the Company or a Related Entity; (iv) dishonesty, intentional misconduct or material breach of any agreement with the Company or a Related Entity; or (v) commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person. At least 30 days prior to the termination of the Grantee’s Continuous Service pursuant to (i) or (ii) above, the Administrator shall provide the Grantee with notice of the Company’s or such Related Entity’s intent to terminate, the reason therefor, and an opportunity for the Grantee to cure such defects in his or her service to the Company’s or such Related Entity’s satisfaction. During this 30 day (or longer) period, no Award issued to the Grantee under the Plan may be exercised or purchased. |
(h) “Change in Control” means a change in ownership or control of the Company effected through either of the following transactions: |
(i) the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s stockholders which a majority of the Continuing Directors who are not Affiliates or Associates of the offeror do not recommend such stockholders accept, or |
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(ii) a change in the composition of the board over a period of thirty-six (36) months or less such that a majority of the board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for board membership, to be comprised of individuals who are Continuing Directors. |
(i) “Code” means the Internal Revenue Code of 1986, as amended. |
(j) “Committee” means any committee appointed by the board to administer the Plan. |
(k) “Common Stock” means the Common Stock of the Company. |
(l) “Company” means Wire One Technologies, Inc., a Delaware corporation. |
(m) “Consultant” means any person (other than an Employee or a Director, solely with respect to rendering services in such person’s capacity as a Director) who is engaged by the Company or any Related Entity to render consulting or advisory services to the Company or such Related Entity. |
(n) “Continuing Directors” means members of the board who either (i) have been board members continuously for a period of at least thirty-six (36) months or (ii) have been board members for less than thirty-six (36) months and were elected or nominated for election as board members by at least a majority of the board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board. |
(o) “Continuous Service” means that the provision of services to the Company or a Related Entity in any capacity of Employee, Director or Consultant, is not interrupted or terminated. Continuous Service shall not be considered interrupted in the case of (i) any approved leave of absence, (ii) transfers among the Company, any Related Entity, or any successor, in any capacity of Employee, Director or Consultant, or (iii) any change in status as long as the individual remains in the service of the Company or a Related Entity in any capacity of Employee, Director or Consultant (except as otherwise provided in the Award Agreement). An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave. For purposes of each Incentive Stock Option granted under the Plan, if such leave exceeds ninety (90) days, and reemployment upon expiration of such leave is not guaranteed by statute or contract, then the Incentive Stock Option shall be treated as a Non-Qualified Stock Option on the day three (3) months and one (1) day following the expiration of such ninety (90) day period. |
(p) “Corporate Transaction” means any of the following transactions: |
(i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated; |
(ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company (including the capital stock of the Company’s subsidiary corporations); |
(iii) approval by the Company’s shareholders of any plan or proposal for the complete liquidation or dissolution of the Company; |
(iv) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger; or |
(v) acquisition by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities (whether or not in a transaction also constituting a Change in Control), but excluding any such transaction that the Administrator determines shall not be a Corporate Transaction. |
(q) “Director” means a member of the board or the board of directors of any Related Entity. |
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(r) “Disability” means a Grantee would qualify for benefit payments under the long-term disability policy of the Company or the Related Entity to which the Grantee provides services regardless of whether the Grantee is covered by such policy. If the Company or the Related Entity to which the Grantee provides service does not have a long-term disability plan in place, “Disability” means that a Grantee is permanently unable to carry out the responsibilities and functions of the position held by the Grantee by reason of any medically determinable physical or mental impairment. A Grantee will not be considered to have incurred a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the Administrator in its discretion. |
(s) “Dividend Equivalent Right” means a right entitling the Grantee to compensation measured by dividends paid with respect to Common Stock. |
(t) “Employee” means any person, including an Officer or Director, who is an employee of the Company or any Related Entity. The payment of a director’s fee by the Company or a Related Entity shall not be sufficient to constitute “employment” by the Company. |
(u) “Exchange Act” means the Securities Exchange Act of 1934, as amended. |
(v) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows: |
(i) Where there exists a public market for the Common Stock, the Fair Market Value shall be (A) the closing price for a Share for the last market trading day prior to the time of the determination (or, if no closing price was reported on that date, on the last trading date on which a closing price was reported) on the stock exchange determined by the Administrator to be the primary market for the Common Stock or the Nasdaq National Market, whichever is applicable or (B) if the Common Stock is not traded on any such exchange or national market system, the average of the closing bid and asked prices of a Share on the Nasdaq Small Cap Market for the day prior to the time of the determination (or, if no such prices were reported on that date, on the last date on which such prices were reported), in each case, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or |
(ii) In the absence of an established market for the Common Stock of the type described in (i), above, the Fair Market Value thereof shall be determined by the Administrator in good faith. |
(w) “Good Reason” means the occurrence after a Corporate Transaction, Change in Control or a Related Entity Disposition of any of the following events or conditions unless consented to by the Grantee: |
(i) (A) a change in the Grantee’s status, title, position or responsibilities which represents an adverse change from the Grantee’s status, title, position or responsibilities as in effect at any time within six (6) months preceding the date of a Corporate Transaction, Change in Control or Related Entity Disposition or at any time thereafter or (B) the assignment to the Grantee of any duties or responsibilities which are inconsistent with the Optionee’s status, title, position or responsibilities as in effect at any time within six (6) months preceding the date of a Corporate Transaction, Change in Control or Related Entity Disposition or at any time thereafter; or |
(ii) reduction in the Grantee’s base salary to a level below that in effect at any time within six (6) months preceding the date of a Corporate Transaction, Change in Control or Related Entity Disposition or at any time thereafter. |
(x) “Grantee” means an Employee, Director or Consultant who receives an Award pursuant to an Award Agreement under the Plan. | |
(y) “Immediate Family” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Grantee’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent (50%) of the beneficial interest, a foundation in which these persons (or the Grantee) control the |
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(z) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. |
(aa) “Non-Qualified Stock Option” means an Option not intended to qualify as an Incentive Stock Option. |
(bb) “Officer” means a person who is an officer of the Company or a Related Entity within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. |
(cc) “Option” means an option to purchase Shares pursuant to an Award Agreement granted under the Plan. |
(dd) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code. |
(ee) “Performance Shares” means Shares or an Award denominated in Shares which may be earned in whole or in part upon attainment of performance criteria established by the Administrator. |
(ff) “Performance Units” means an Award which may be earned in whole or in part upon attainment of performance criteria established by the Administrator and which may be settled for cash, Shares or other securities or a combination of cash, Shares or other securities as established by the Administrator. |
(gg) “Plan” means this 2000 Stock Incentive Plan. |
(hh) “Related Entity” means any Parent, Subsidiary and any business, corporation, partnership, limited liability company or other entity in which the Company, a Parent or a Subsidiary holds a substantial ownership interest, directly or indirectly. |
(ii) “Related Entity Disposition” means the sale, distribution or other disposition by the Company, a Parent or a Subsidiary of all or substantially all of the interests of the Company, a Parent or a Subsidiary in any Related Entity effected by a sale, merger or consolidation or other transaction involving that Related Entity or the sale of all or substantially all of the assets of that Related Entity, other than any Related Entity Disposition to the Company, a Parent or a Subsidiary. |
(jj) “Restricted Stock” means Shares issued under the Plan to the Grantee for such consideration, if any, and subject to such restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture provisions, and other terms and conditions as established by the Administrator. |
(kk) “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor thereto. |
(ll) “SAR” means a stock appreciation right entitling the Grantee to Shares or cash compensation, as established by the Administrator, measured by appreciation in the value of Common Stock. |
(mm) “Share” means a share of the Common Stock. |
(nn) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code. |
(a) Subject to the provisions of Section 10, below, the maximum aggregate number of Shares which may be issued pursuant to all Awards (including Incentive Stock Options) is 3,000,000 Shares. The Shares to be issued pursuant to Awards may be authorized, but unissued, or reacquired Common Stock. | |
(b) Any Shares covered by an Award (or portion of an Award) which is forfeited or canceled, expires or is settled in cash, shall be deemed not to have been issued for purposes of determining the |
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maximum aggregate number of Shares which may be issued under the Plan. Shares that actually have been issued under the Plan pursuant to an Award shall not be returned to the Plan and shall not become available for future issuance under the Plan, except that if unvested Shares are forfeited, or repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. |
(a) Plan Administrator. |
(i) Administration with Respect to Directors and Officers. With respect to grants of Awards to Directors or Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws and to permit such grants and related transactions under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. |
(ii) Administration With Respect to Consultants and Other Employees. With respect to grants of Awards to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. The board may authorize one or more Officers to grant such Awards and may limit such authority as the board determines from time to time. |
(iii) Administration Errors. In the event an Award is granted in a manner inconsistent with the provisions of this subsection (a), such Award shall be presumptively valid as of its grant date to the extent permitted by the Applicable Laws. |
(b) Powers of the Administrator. Subject to Applicable Laws and the provisions of the Plan (including any other powers given to the Administrator hereunder), and except as otherwise provided by the Board, the Administrator shall have the authority, in its discretion: |
(i) to select the Employees, Directors and Consultants to whom Awards may be granted from time to time hereunder; |
(ii) to determine whether and to what extent Awards are granted hereunder; |
(iii) to determine the number of Shares or the amount of other consideration to be covered by each Award granted hereunder; |
(iv) to approve forms of Award Agreements for use under the Plan; |
(v) to determine the terms and conditions of any Award granted hereunder; |
(vi) to amend the terms of any outstanding Award granted under the Plan, provided that any amendment that would adversely affect the Grantee’s rights under an outstanding Award shall not be made without the Grantee’s written consent; |
(vii) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan, including without limitation, any notice of Award or Award Agreement, granted pursuant to the Plan; |
(viii) to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions and to afford Grantees favorable treatment under such laws; provided, however, that no Award shall be granted under any such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the Plan; and |
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(ix) to take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate. |
(a) Type of Awards. The Administrator is authorized under the Plan to award any type of arrangement to an Employee, Director or Consultant that is not inconsistent with the provisions of the Plan and that by its terms involves or might involve the issuance of (i) Shares, (ii) an Option, a SAR or similar right with a fixed or variable price related to the Fair Market Value of the Shares and with an exercise or conversion privilege related to the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or (iii) any other security with the value derived from the value of the Shares. Such awards include, without limitation, Options, SARs, sales or bonuses of Restricted Stock, Dividend Equivalent Rights, Performance Units or Performance Shares, and an Award may consist of one such security or benefit, or two (2) or more of them in any combination or alternative. |
(b) Designation of Award. Each Award shall be designated in the Award Agreement. In the case of an Option, the Option shall be designated as either an Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of Shares subject to Options designated as Incentive Stock Options which become exercisable for the first time by a Grantee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options, to the extent of the Shares covered thereby in excess of the foregoing limitation, shall be treated as Non-Qualified Stock Options. For this purpose, Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the date the Option with respect to such Shares is granted. |
(c) Conditions of Award. Subject to the terms of the Plan, the Administrator shall determine the provisions, terms, and conditions of each Award including, but not limited to, the Award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, Shares, or other consideration) upon settlement of the Award, payment contingencies, and satisfaction of any performance criteria. The performance criteria established by the Administrator may be based on any one of, or combination of, increase in share price, earnings per share, total stockholder return, return on equity, return on assets, return on investment, net operating income, cash flow, revenue, economic value added, personal management objectives, or other measure of performance selected by the Administrator. Partial achievement of the specified criteria may result in a payment or vesting corresponding to the degree of achievement as specified in the Award Agreement. |
(d) Acquisitions and Other Transactions. The Administrator may issue Awards under the Plan in settlement, assumption or substitution for, outstanding awards or obligations to grant future awards in connection with the Company or a Related Entity acquiring another entity, an interest in another entity or an additional interest in a Related Entity whether by merger, stock purchase, asset purchase or other form of transaction. |
(e) Deferral of Award Payment. The Administrator may establish one or more programs under the Plan to permit selected Grantees the opportunity to elect to defer receipt of consideration upon exercise of an Award, satisfaction of performance criteria, or other event that absent the election would entitle the Grantee to payment or receipt of Shares or other consideration under an Award. The Administrator may establish the election procedures, the timing of such elections, the mechanisms for payments of, and accrual of interest or other earnings, if any, on amounts, Shares or other consideration so deferred, and such other terms, conditions, rules and procedures that the Administrator deems advisable for the administration of any such deferral program. |
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(f) Award Exchange Programs. The Administrator may establish one or more programs under the Plan to permit selected Grantees to exchange an Award under the Plan for one or more other types of Awards under the Plan on such terms and conditions as determined by the Administrator from time to time. |
(g) Separate Programs. The Administrator may establish one or more separate programs under the Plan for the purpose of issuing particular forms of Awards to one or more classes of Grantees on such terms and conditions as determined by the Administrator from time to time. |
(h) Early Exercise. The Award Agreement may, but need not, include a provision whereby the Grantee may elect at any time while an Employee, Director or Consultant to exercise any part or all of the Award prior to full vesting of the Award. Any unvested Shares received pursuant to such exercise may be subject to a repurchase right in favor of the Company or a Related Entity or to any other restriction the Administrator determines to be appropriate. |
(i) Term of Award. The term of each Award shall be the term stated in the Award Agreement, provided, however, that the term of an Incentive Stock Option shall be no more than ten (10) years from the date of grant thereof. However, in the case of an Incentive Stock Option granted to a Grantee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Award Agreement. |
(j) Transferability of Awards. Incentive Stock Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Grantee, only by the Grantee; provided, however, that the Grantee may designate a beneficiary of the Grantee’s Incentive Stock Option in the event of the Grantee’s death on a beneficiary designation form provided by the Administrator. Other Awards may be transferred by gift or through a domestic relations order to members of the Grantee’s Immediate Family to the extent provided in the Award Agreement or in the manner and to the extent determined by the Administrator. |
(k) Time of Granting Awards. The date of grant of an Award shall for all purposes be the date on which the Administrator makes the determination to grant such Award, or such other date as is determined by the Administrator. Notice of the grant determination shall be given to each Employee, Director or Consultant to whom an Award is so granted within a reasonable time after the date of such grant. |
(a) Exercise or Purchase Price. The exercise or purchase price, if any, for an Award shall be as follows: |
(i) In the case of an Incentive Stock Option: |
(A) granted to an Employee who, at the time of the grant of such Incentive Stock Option owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be not less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant; or |
(B) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. |
(ii) In the case of a Non-Qualified Stock Option, the per Share exercise price shall be not less than eighty-five percent (85%) of the Fair Market Value per Share on the date of grant unless otherwise determined by the Administrator. |
(iii) In the case of other Awards, such price as is determined by the Administrator. |
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(iv) Notwithstanding the foregoing provisions of this Section 7(a), in the case of an Award issued pursuant to Section 6(d), above, the exercise or purchase price for the Award shall be determined in accordance with the principles of Section 424(a) of the Code. |
(b) Consideration. Subject to Applicable Laws, the consideration to be paid for the Shares to be issued upon exercise or purchase of an Award including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). In addition to any other types of consideration the Administrator may determine, the Administrator is authorized to accept as consideration for Shares issued under the Plan the following, provided that the portion of the consideration equal to the par value of the Shares must be paid in cash or other legal consideration permitted by the Delaware General Corporation Law: |
(i) cash; |
(ii) check; |
(iii) delivery of Grantee’s promissory note with such recourse, interest, security, and redemption provisions as the Administrator determines as appropriate; |
(iv) surrender of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Administrator may require (including withholding of Shares otherwise deliverable upon exercise of the Award) which have a Fair Market Value on the date of surrender or attestation equal to the aggregate exercise price of the Shares as to which said Award shall be exercised (but only to the extent that such exercise of the Award would not result in an accounting compensation charge with respect to the Shares used to pay the exercise price unless otherwise determined by the Administrator); |
(v) with respect to Options, payment through a broker-dealer sale and remittance procedure pursuant to which the Grantee (A) shall provide written instructions to a Company designated brokerage firm to effect the immediate sale of some or all of the purchased Shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased Shares and (B) shall provide written directives to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale transaction; or |
(vi) any combination of the foregoing methods of payment. |
(c) Taxes. No Shares shall be delivered under the Plan to any Grantee or other person until such Grantee or other person has made arrangements acceptable to the Administrator for the satisfaction of any foreign, federal, state, or local income and employment tax withholding obligations, including, without limitation, obligations incident to the receipt of Shares or the disqualifying disposition of Shares received on exercise of an Incentive Stock Option. Upon exercise of an Award, the Company shall withhold or collect from Grantee an amount sufficient to satisfy such tax obligations. |
(a) Procedure for Exercise; Rights as a Stockholder. |
(i) Any Award granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator under the terms of the Plan and specified in the Award Agreement. | ||
(ii) An Award shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Award by the person entitled to exercise the Award and full payment for the Shares with respect to which the Award is exercised, including, to the extent selected, use of the broker-dealer sale and remittance procedure to pay the purchase price as provided in Section 7(b)(v). Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to Shares subject to an Award, notwithstanding the exercise of |
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an Option or other Award. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Award. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in the Award Agreement or Section 10, below. | ||
(b) Exercise of Award Following Termination of Continuous Service. |
(i) An Award may not be exercised after the termination date of such Award set forth in the Award Agreement and may be exercised following the termination of a Grantee’s Continuous Service only to the extent provided in the Award Agreement. |
(ii) Where the Award Agreement permits a Grantee to exercise an Award following the termination of the Grantee’s Continuous Service for a specified period, the Award shall terminate to the extent not exercised on the last day of the specified period or the last day of the original term of the Award, whichever occurs first. |
(iii) Any Award designated as an Incentive Stock Option to the extent not exercised within the time permitted by law for the exercise of Incentive Stock Options following the termination of a Grantee’s Continuous Service shall convert automatically to a Non- Qualified Stock Option and thereafter shall be exercisable as such to the extent exercisable by its terms for the period specified in the Award Agreement. |
(a) Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares pursuant thereto shall comply with all Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to such compliance. |
(b) As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws. |
(a) In the event of any Corporate Transaction, each Award which is at the time outstanding under the Plan automatically shall become fully vested and exercisable and be released from any restrictions on transfer (other than transfer restrictions applicable to Options) and repurchase or forfeiture rights, immediately prior to the specified effective date of such Corporate Transaction, for all of the Shares at the time represented by such Award. Effective upon the consummation of the Corporate Transaction, all |
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outstanding Awards under the Plan shall terminate. However, all such Awards shall not terminate if the Awards are, in connection with the Corporate Transaction, assumed by the successor corporation or Parent thereof. In addition, an outstanding Award under the Plan shall not so fully vest and be exercisable and released from such limitations if and to the extent: (i) such Award is, in connection with the Corporate Transaction, either assumed by the successor corporation or Parent thereof or replaced with a comparable Award with respect to shares of the capital stock of the successor corporation or Parent thereof or (ii) such Award is to be replaced with a cash incentive program of the successor corporation which preserves the compensation element of such Award existing at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to such Award; provided, however, that such Award (if assumed), the replacement Award (if replaced), or the cash incentive program automatically shall become fully vested, exercisable and payable and be released from any restrictions on transfer (other than transfer restrictions applicable to Options) and repurchase or forfeiture rights immediately upon termination of the Grantee’s Continuous Service (substituting the successor employer corporation for “Company or Related Entity” for the definition of “Continuous Service”) if such Continuous Service is terminated by the successor company without Cause or voluntarily by the Grantee with Good Reason within twelve (12) months of the Corporate Transaction. The determination of Award comparability above shall be made by the Administrator. | |
(b) Following a Change in Control (other than a Change in Control which also is a Corporate Transaction) and upon the termination of the Continuous Service of a Grantee if such Continuous Service is terminated by the Company or Related Entity without Cause or voluntarily by the Grantee with Good Reason within twelve (12) months of a Change in Control, each Award of such Grantee which is at the time outstanding under the Plan automatically shall become fully vested and exercisable and be released from any restrictions on transfer (other than transfer restrictions applicable to Options) and repurchase or forfeiture rights, immediately upon the termination of such Continuous Service. |
(c) Effective upon the consummation of a Related Entity Disposition, for purposes of the Plan and all Awards, the Continuous Service of each Grantee who is at the time engaged primarily in service to the Related Entity involved in such Related Entity Disposition shall be deemed to terminate and each Award of such Grantee which is at the time outstanding under the Plan automatically shall become fully vested and exercisable and be released from any restrictions on transfer (other than transfer restrictions applicable to Options) and repurchase or forfeiture rights for all of the Shares at the time represented by such Award and be exercisable in accordance with the terms of the Award Agreement evidencing such Award. However, such Continuous Service shall be not be deemed to terminate if such Award is, in connection with the Related Entity Disposition, assumed by the successor entity or its Parent. In addition, such Continuous Service shall not be deemed to terminate and an outstanding Award under the Plan shall not so fully vest and be exercisable and released from such limitations if and to the extent: (i) such Award is, in connection with the Related Entity Disposition, either to be assumed by the successor entity or its parent or to be replaced with a comparable Award with respect to interests in the successor entity or its parent or (ii) such Award is to be replaced with a cash incentive program of the successor entity which preserves the compensation element of such Award existing at the time of the Related Entity Disposition and provides for subsequent payout in accordance with the same vesting schedule applicable to such Award; provided, however, that such Award (if assumed), the replacement Award (if replaced), or the cash incentive program automatically shall become fully vested, exercisable and payable and be released from any restrictions on transfer (other than transfer restrictions applicable to Options) and repurchase or forfeiture rights immediately upon termination of the Grantee’s Continuous Service (substituting the successor employer entity for “Company or Related Entity” for the definition of “Continuous Service”) if such Continuous Service is terminated by the successor entity without Cause or voluntarily by the Grantee with Good Reason within twelve (12) months of the Related Entity Disposition. The determination of Award comparability above shall be made by the Administrator. |
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term of ten (10) years unless sooner terminated. Subject to Section 17, below, and Applicable Laws, Awards may be granted under the Plan upon its becoming effective.
(a) The board may at any time amend, suspend or terminate the Plan. To the extent necessary to comply with Applicable Laws, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. |
(b) No Award may be granted during any suspension of the Plan or after termination of the Plan. |
(c) Any amendment, suspension or termination of the Plan (including termination of the Plan under Section 12, above) shall not affect Awards already granted, and such Awards shall remain in full force and effect as if the Plan had not been amended, suspended or terminated, unless mutually agreed otherwise between the Grantee and the Administrator, which agreement must be in writing and signed by the Grantee and the Company. |
(a) The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. |
(b) The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. |
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ANNEX E |
FORM OF VOTING AGREEMENT
June 10, 2003
Gores Technology Group
10877 Wilshire Boulevard, Suite 1805
Los Angeles, CA 90024
Gentlemen:
(a) vote any of the Shares, or cause or permit any of the Shares to be voted, in favor of any other asset sale, consolidation, plan of liquidation, sale of assets, reclassification or other transaction involving Wire One. |
(b) sell or otherwise transfer any of the Shares, or cause or permit any of the Shares to be sold or otherwise transferred (i) pursuant to any tender offer, exchange offer or similar proposal made by any Person other than Gores or an affiliate of Gores, (ii) to any Person seeking to obtain control of Wire One or any substantial portion of the assets of Wire One or to any other Person (other than Gores or an affiliate of Gores) under circumstances where such sale or transfer may reasonably be expected to assist a person seeking to obtain such control or (iii) for the purpose of avoiding the obligations of the undersigned under this Agreement. |
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Very truly yours,
By:
Name:____________________________
Title:_____________________________
Accepted and Agreed to:
GORES TECHNOLOGY GROUP
By:
Name:____________________________
Title:_____________________________
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ANNEX F
CHARTER OF THE AUDIT COMMITTEE
WIRE ONE TECHNOLOGIES, INC.
COMMITTEE MEMBERSHIP
(i) each of the Members must be able to read and understand fundamental financial statements, including the Company’s balance sheet, income statement, and cash flow statement or must become able to do so within a reasonable time period after his or her appointment to the Committee; | |||
(ii) at least one (1) of the Members must have past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background, including a current or past position as a chief executive or financial officer or other senior officer with financial oversight responsibilities; and | |||
(iii) each Member must be either (a) an independent director or (b) the Board must determine it to be in the best interests of the Company and its stockholders to have one (1) director who is not independent, and the Board must disclose the reasons for its determination in the Company’s first annual proxy statement or information statement subsequent to such determination, as well as the nature of the relationship between the Company and director. Under such circumstances the Company may appoint one (1) director who is not independent to the Committee, so long as the director is not a current employee or officer, or an immediate family member of a current employee or officer. |
DUTIES AND RESPONSIBILITIES
1. | Review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval; |
2. | Review the annual audited financial statements with management, including a review of major issues regarding accounting and auditing principles and practices, and evaluate the adequacy of internal controls that could significantly affect the Company’s financial statements; |
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3. | Review an analysis prepared by management and the independent auditor of significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements; |
4. | Review with management and the independent auditor the Company’s quarterly financial statements prior to the filing of its Form 10-Q; |
5. | Meet periodically with management to review the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures; |
6. | Review major changes to the Company’s auditing and accounting principles and practices as suggested by the independent auditor, internal auditors or management; |
7. | Recommend to the Board the appointment of the independent auditor, which firm is ultimately accountable to the Committee and the Board; |
8. | Approve the fees to be paid to the independent auditor; |
9. | Receive periodic reports from the independent auditor regarding the auditor’s independence consistent with Independence Standards Board Standard 1, discuss such reports with the auditor, and if deemed necessary by the Committee, take or recommend that the full Board take appropriate action to oversee the independence of the auditor; |
10. | Evaluate together with the Board the performance of the independent auditor and, if deemed necessary by the Committee, recommend that the Board replace the independent auditor; |
11. | Review the appointment of, and any replacement of, the senior internal auditing executive; |
12. | Review the significant reports to management prepared by the internal auditing department and management’s responses; |
13. | Meet with the independent auditor prior to the audit to review the planning and staffing of the audit; |
14. | Obtain from the independent auditor assurance that Section 10A of the Securities Exchange Act of 1934 has not been implicated. |
15. | Obtain reports from management, the Company’s senior internal auditing executive and the independent auditor that the Company’s subsidiary/foreign affiliated entities are in conformity with applicable legal requirements, including the Foreign Corrupt Practices Act. |
16. | Discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit. |
17. | Review with the independent auditor any problems or difficulties the auditor may have encountered, any management letter provided by the auditor, and the Company’s response to that letter. Such review should include: |
a. | Any difficulties encountered in the course of the audit work, including any restrictions on the scope of activities or access to required information; |
b. | Any changes required in the planned scope of the internal audit; and |
c. | The internal audit department responsibilities, budget and staffing. |
18. | Prepare the report required by the rules of the Securities and Exchange Commission to be included in the Company’s annual proxy statement in accordance with the requirements of Item 306 of Regulation S-K and Item 7(e)(3) of Schedule 14A; |
19. | Advise the Board with respect to the Company’s policies and procedures regarding compliance with applicable laws and regulations; |
20. | Review with the Company’s outside counsel and general counsel legal matters that may have a material impact on the financial statements, the Company’s compliance policies and any material reports or inquiries received from regulators or governmental agencies; |
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21. | Review related party transactions for potential conflict of interest; and |
22. | Provide oversight and review of the Company’s asset management policies, including an annual review of the Company’s investment policies and performance for cash and short-term investments. |
23. | While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles. This is the responsibility of management and the independent auditor. Nor is it the duty of the Committee to conduct investigations, to resolve disagreements, if any, between management and the independent auditor or to assure compliance with laws and regulations. |
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THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF WIRE ONE TECHNOLOGIES, INC.
FOR THE 2003 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 21, 2003
(Continued and to be signed on the reverse side)
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
WIRE ONE TECHNOLOGIES, INC.
August 21, 2003
This Proxy when properly executed will be voted in the manner directed herein by the undersigned stockholder. If no direction is made, this Proxy will be voted FOR the nominees in Proposal No. 1, and FOR ratification of the independent auditors in Proposal No. 5, and as said proxies deem advisable on such other matters as may properly come before the meeting.
1. | PROPOSAL NO. 1: APPROVAL OF THE SALE OF WIRE ONE’S VIDEO SOLUTIONS BUSINESS TO GORES TECHNOLOGY GROUP PURSUANT TO THE ASSET PURCHASE AGREEMENT: |
[ ] FOR | [ ] AGAINST |
2. | PROPOSAL NO. 2: APPROVAL OF AN AMENDMENT TO THE COMPANY’S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND TO ITS AMENDED AND RESTATED BYLAWS TO EFFECT A CHANGE OF THE COMPANY’S CORPORATE NAME FROM “WIRE ONE TECHNOLOGIES, INC.” TO “GLOWPOINT, INC.” IMMEDIATELY FOLLOWING CONSUMMATION OF THE ASSET SALE: |
[ ] FOR | [ ] AGAINST |
3. | PROPOSAL NO. 3: ELECTION OF DIRECTORS: |
[ ] FOR all nominees listed below (except as indicated) | [ ] WITHHOLD AUTHORITY to vote for all nominees listed below |
James Kuster Michael Sternberg |
4. | PROPOSAL NO. 4: APPROVAL OF AN AMENDMENT TO THE 2000 STOCK INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE THEREUNDER FROM 4,400,000 TO 6,500,000: |
[ ] FOR | [ ] AGAINST | [ ] ABSTAIN |
5. | PROPOSAL NO. 5: RATIFICATION OF BDO SEIDMAN, LLP AS WIRE ONE’S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2003: |
[ ] FOR | [ ] AGAINST | [ ] ABSTAIN |
6. | PROPOSAL NO. 6: APPROVAL OF AN ADJOURNMENT OR POSTPONEMENT OF THE ANNUAL MEETING, IN ORDER TO SOLICIT ADDITIONAL PROXIES, TO SUCH TIME AND PLACE AS DESIGNATED BY THE PRESIDING OFFICER OF THE MEETING: |
[ ] FOR | [ ] AGAINST | [ ] ABSTAIN |
DATED: __________________, 2003 _______________________________ _______________________________ |
This Proxy should be marked, dated and signed by the stockholder(s) exactly as his or her name appears hereon, and returned promptly in the enclosed envelope. Persons signing in a fiduciary capacity should so indicate. If shares are held by joint tenants or as community property, both should sign.