Exhibit (a)(1)
i2 TELECOM INTERNATIONAL, INC.
Offer to Exchange Outstanding Options for
Shares of Common Stock
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M.,
ATLANTA TIME ON JULY 31, 2009, UNLESS THE OFFER IS
EXTENDED.
We are offering our current and former employees and directors who hold outstanding options to purchase shares of our Common Stock (“options”) the opportunity to exchange those options for shares of our Common Stock (“shares”). Each five shares of our Common Stock underlying eligible options may be exchanged for the issuance of one share of our Common Stock without additional consideration. The offer is subject to the terms and conditions set forth in this Offer to Exchange and the related Letter of Transmittal, which, together with any amendments or supplements to either, collectively constitute the “Offer.”
You are eligible to participate in the Offer if, on July 1, 2009, you (or your delegated affiliate) hold outstanding options issued under our Amended and Restated 2004 Incentive Stock Option Plan (the “2004 Plan”) and those options do not expire or otherwise terminate before the expiration of the Offer. We refer to those options as “eligible options.”
Upon the terms and subject to the conditions set forth in this Offer to Exchange, we will issue shares to those eligible persons who elect to participate in the Offer promptly after the date on which we accept and cancel the eligible options tendered for exchange. We will only accept eligible options if they (i) are properly elected for exchange, (ii) are still outstanding and have not been exercised and have not expired or otherwise terminated when the Offer expires on the Offer expiration date, expected to be July 31, 2009, unless extended; and (iii) have not been validly withdrawn before the Offer expires on the Offer expiration date.
Your Participation Statement is included in the materials accompanying this Offer to Exchange and contains information about your eligible options, including the number of shares that you will receive in respect of your eligible options if you elect to participate in the Offer. Other than prices of our Common Stock as reported on the Over-the-Counter-Bulletin Board (the “OTCBB”) and as otherwise noted herein, share information set forth in this Offer to Exchange and in your Participation Statement reflect our recent 1:10 reverse stock split.
The shares issued in exchange for tendered eligible options will be issued as unregistered shares of our Common Stock subject to resale restrictions and will be issued promptly after the date on which we accept and cancel the eligible options properly tendered for exchange.
You are not required to exchange any options and you may elect to exchange all or a portion of your eligible options. All eligible options properly tendered, that have not been exercised and do not expire or otherwise terminate before the expiration date and not validly withdrawn before the expiration date will be exchanged for shares, upon the terms and subject to the conditions set forth in this Offer to Exchange. The Offer is not conditioned upon a minimum number of options being exchanged, but is subject to the conditions described in Section 6 of this Offer to Exchange.
Although our Board of Directors has approved the Offer, neither we nor our board make any recommendation as to whether you should exchange or refrain from exchanging your eligible options. You must make your own decision whether to elect to exchange your eligible options.
Our executive officers and directors will be eligible to participate in the Offer. As of the date of this Offer to Exchange, our executive officers and directors hold options to purchase approximately 3,973,727 shares, or 74.10% of the shares underlying the eligible options, of which Paul R. Arena, our Chairman of the Board and Chief Financial Officer, holds eligible options to purchase 1,051,803 shares, or 19.62% of the shares underlying the eligible options. We expect that our executive officers and directors, including Paul R. Arena, will participate in the Offer and will receive their pro rata portions of the shares.
Shares of our Common Stock are quoted on the OTCBB under the symbol “ITUI.OB.” On June 23, 2009, the closing price of our Common Stock was $0.05 per share. That price does not reflect the 1:10 reverse stock split effected by us in May 2009. Such closing share price would be $.50 if the reverse stock option is taken into consideration. We recommend that you obtain current market quotations for our Common Stock before deciding whether to elect to exchange your options and take into consideration the reverse stock split if it is not reflected in the current market quotation.
You should direct questions about this Offer or requests for assistance to Mr. Paul Arena, our Chief Financial Officer, at 404-567-4701.
We have not authorized any person to make any recommendation on our behalf as to whether you should tender or refrain from tendering your eligible options pursuant to the Offer. You should rely only on the information contained in this Offer to Exchange or in documents to which we have referred you.
Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of the Offer, passed upon the merits or fairness of the Offer, passed upon the adequacy or accuracy of the disclosure in or incorporated by reference in this Offer to Exchange, or determined if this Offer to Exchange is truthful or complete. Any representation to the contrary is a criminal offense.
A “Summary Term Sheet” in the form of questions and answers describing the principal terms of the Offer follows the Table of Contents. You should read this entire Offer to Exchange and the enclosed Letter of Transmittal carefully before deciding whether or not to tender your eligible options for exchange. You may want to consult with your personal financial advisor or other professional advisor regarding your individual circumstances.
The date of this Offer to Exchange is July 1, 2009.
TABLE OF CONTENTS
SUMMARY TERM SHEET
This Section contains answers to some of the questions that you may have about the Offer. We urge you to read this entire Offer to Exchange carefully because the information in this summary is not complete. Where appropriate, we have included references to the relevant sections of this Offer to Exchange to help you find a more complete description of the topics in this summary.
GENERAL QUESTIONS ABOUT THE OFFER
Q1. | What are we offering to exchange? |
We are offering eligible participants the opportunity to receive shares of our Common Stock in exchange for outstanding options. We refer to these options as “eligible options.” Your Participation Statement, which is included in the materials accompanying this Offer to Exchange, contains information about your eligible options, including the number of shares that you will receive in respect of your eligible options if you elect to exchange all of your options in the Offer. See Section 1 of this Offer to Exchange.
Q2. | Why are we making the Offer? |
First, by providing shares, we hope to reinforce the “ownership culture” among our employees and more closely align employees’ interests with those of our stockholders. Second, we expect that the Offer will reduce overhang and decrease the potential dilution that could result from the exercise of currently outstanding options. See Section 2 of this Offer to Exchange.
Q3. | Can we amend the Offer? |
Yes. We may amend the Offer, as long as we comply with applicable law. In certain circumstances, we will be required to extend the period during which you may tender eligible options if we amend the terms of the Offer. See Section 14 of this Offer to Exchange.
Q4. | What do we and our Board of Directors think of the Offer? |
Although our Board of Directors has authorized the Offer, our board recognizes that the decision to tender eligible options is an individual one that should be based on a variety of factors. Neither we nor our board is making any recommendation as to whether you should or should not participate in the Offer. You must make your own decision whether to participate in the Offer. You should consult with your personal advisors if you have questions about your financial or tax situation or whether you should participate in the Offer. See Section 2 of this Offer to Exchange.
Q5. | What other transactions are currently being conducted by us? |
We recently entered into a subscription agreement with an investor for the purchase of $3,000,000 of our newly designated Series F Preferred Stock. That subscription agreement provides that if the holders of at least eighty-five percent (85%) of the debt of Parent that is evidenced by promissory notes (which debt as of July 1, 2009 will be in the aggregate approximately $4,800,000 of principal and approximately $1,450,000 of loan fees and accrued interest) have not converted such debt into shares of the preferred stock of our newly formed subsidiary, i2 Telecom IP Holdings, Inc., a Delaware corporation (“IP Holdings”) on or prior to July 30, 2009, then upon the written request of that investor, we will convert the $3,000,000 of Series F Preferred Stock held by the Investor into a promissory note. That promissory note, if required to be issued, will have the following terms: (i) principal in the amount of $3,000,000, (ii) an interest rate of ten percent (10%) per annum; and (iii) principal and interest due and payable on demand.
Based on the foregoing, simultaneously with this Offer, we are offering to certain of our non-convertible noteholders the opportunity to exchange some or all of the principal, interest and loan fees under the notes for different series of preferred stock of IP Holdings. In some instances the noteholders will also receive cash in the
exchange. The issuance price of the preferred stock of IP Holdings is $1.00 for every $1.00 of each note being exchanged. Dividends accrue on the issuance price at a rate of 12% per annum. The preferred stock of IP Holdings has the terms, including redemption provisions, set forth in the certificate of designations for the preferred stock, which was filed as an exhibit to our Form 8-K filed on July 1, 2009.
Also, simultaneously with this Offer to exchange options, we are offering to our warrant holders, many of whom are also holders of the notes described above, the option to exchange existing warrants for shares of our Common Stock in the same ratio as in this Offer, which is one share of Common Stock for each five shares convertible under the warrants and an alternative option to reprice those warrants at an exercise price of $0.50 per share. The number of shares into which, all warrants taken together could currently convert is approximately 22,230,491. If all warrants are exchanged for shares, we will issue an additional 4,446, 099 shares of our Common Stock to the warrant holders. Our current and former employees, executive officers and directors holding outstanding warrants will be eligible to participate in the warrant offer. The warrant offer will reduce the overhang and decrease the potential dilution that could result from conversion.
Additionally, we are currently conducting a private placement of up to $8,000,000 of our Series F Preferred Stock, of which $3,500,000 had been sold to date. The terms of the Series F Preferred Stock, as amended, have been filed as part of a Form 8-K on June 10, 2009.
See Section 2 of this Offer to Exchange
ELIGIBILITY MATTERS
Q6. | Who is eligible to participate in the Offer? |
You are eligible to participate in the Offer if, you (or your delegated affiliate) hold outstanding options issued under the 2004 Plan. See Section 1 of this Offer to Exchange.
QUESTIONS REGARDING THE SHARES
Q7. | How many shares will I receive in exchange for eligible options that I tender? |
You will receive a lesser amount of stock than the amount of eligible options you tender. Our board has determined that we will issue one share of our Common Stock in exchange for each five shares of Common Stock that are covered by eligible options that are tendered in this Offer. Fractional shares will not be issued, but will be rounded up to the next whole share. See Section 1 of this Offer to Exchange.
Q8. | Were my options effected by the recent 1:10 reverse stock split and will they be effected if the proposed 1:2 to 1:5 reverse stock split is approved at the 2009 Annual Meeting of Stockholders scheduled for June 30, 2009? |
Reverse stock splits affect all of our shareholders uniformly and do not affect any stockholder's percentage ownership interests or proportionate voting power, except to the extent that a reverse split could result in any of our shareholders receiving an extra share as a result of a fractional share. The eligible options are covered by our 2004 Plan, which provides for adjustments to options granted under the 2004 Plan in the event of stock splits. Whether or not you decide to tender your eligible options in the Offer, your eligible options were adjusted as described above as a result of the 1:10 reverse split effected in May 2009. Therefore, on the Participation Statement that you will receive along with this Offer to Exchange, you will notice that the number of shares available for exercise has decreased and the option prices have increased. If the 1:2 to 1:5 reverse split is approved at the 2009 Annual Meeting of Stockholders and our Board of Directors determines to effect that reverse split, your eligible options will also be adjusted as described above. As stated above, a reverse stock split affects all of our stockholders uniformly and does not affect any stockholder’s percentage ownership interests or proportionate voting power, except to the extent that a reverse split could result in any of our shareholders receiving an extra share as a result of a fractional share. See Section 2 of this Offer to Exchange.
Q9. | Are the shares subject to a vesting schedule? |
No. The shares you receive in the Offer will be issued promptly upon the conclusion of the Offering. See Section 1 of this Offer to Exchange.
Q10. | What are the other material differences between the options and the shares? |
The shares are different from the options because immediately upon issuance of the shares, you are the record holder of those shares. The shares of Common Stock you would receive upon the exercise of eligible options would be registered under a registration statement on Form S-8, which in most cases would mean that such Common Stock could be immediately resold by you without restrictions. The foregoing does not necessarily apply to control persons who exercise options. The shares you will receive if you participate in the exchange will be unregistered shares that are subject to a holding period and other resale restrictions, including those set forth in Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”). See Section 1 of this Offer to Exchange.
PROCEDURES FOR PARTICIPATING IN THE OFFER
Q11. | How do I tender my eligible options? |
You may tender your eligible options by completing the Letter of Transmittal that is included with this Offer to Exchange, signing it and sending the properly completed and signed form to us by one of three methods described below. For your tender to be effective, we must receive your properly completed and signed Letter of Transmittal before the expiration of the Offer, which is currently scheduled for 5:00 p.m. Atlanta time, on July 31, 2009, unless extended.
Tender by e-mail. You may tender your eligible options by e-mail by sending the properly completed and signed Letter of Transmittal as an attachment in Adobe PDF format to the following e-mail address: parena@i2Telecom.com. You may tender eligible options through e-mail 24 hours a day, 7 days a week, at any time until the expiration of the Offer.
Tender by facsimile (fax). You may also tender your eligible options by transmitting the properly completed and signed Letter of Transmittal to us by facsimile (fax) to the following number: (770) 663-8282 to the attention of Paul Arena, Chief Financial Officer. You may tender eligible options by fax 24 hours a day, 7 days a week, at any time until the expiration of the Offer.
Tender in mail. You may also tender your eligible options by mailing the properly completed and signed Letter of Transmittal to Paul Arena, 5070 Old Ellis Pointe, Suite 110, Roswell, Georgia 30076. Mailed Letters of Transmittal must be received prior to the expiration of the Offer.
See Section 3 of this Offer to Exchange.
Q12. | If I decide to tender my eligible options, do I have to tender all of my eligible options or can I tender a portion of the eligible options? |
You may exchange all or a portion of your eligible options by indicating the amount you desire to exchange in the appropriate space in the Letter of Transmittal. Any portion of an eligible option that is not tendered will be subject to your original option agreement. See Section 1 of this Offer to Exchange.
Q13. | May I exercise my vested eligible options before the expiration of the Offer? |
In general, yes. Assuming that you are not otherwise subject to legal requirements or policies that restrict your ability to exercise eligible options, you may exercise any or all of your vested eligible options at any time before the Offer expires, whether or not you have already tendered eligible options. To the extent that you exercise any of your eligible options before the Offer expires, the number of shares of our Common Stock underlying those eligible options, as reflected on your Participation Statement, will be taken into account if you tender all or a portion
of your remaining eligible options and will reduce the number of shares that you receive in exchange for your properly tendered eligible options. See Section 3 of this Offer to Exchange.
Q14. | What happens if any of my eligible options expire during the Offer? |
To the extent any of your eligible options expire before the expiration date of the Offer, the number of shares of our Common Stock underlying those eligible options, as reflected on your Participation Statement, will be taken into account if you tender all or a portion of your remaining eligible options that have not expired and will reduce the number of shares that you receive in exchange for your properly tendered eligible options. See Section 3 of this Offer to Exchange.
Q15. | May I withdraw options after I have tendered them? |
Yes. You may withdraw your previous tender of eligible options at any time before the expiration of the Offer, which is currently scheduled for 5:00 P.M., Atlanta time, on July 31, 2009. To withdraw previously tendered eligible options, you must use the same method you used to tender your eligible options. In addition, if we have not accepted your tendered eligible options by August 26, 2009, you are permitted by law to withdraw your tendered eligible options from the Offer. A Withdrawal Letter is included in the materials accompanying this Offer to Exchange. See Section 4 of this Offer to Exchange.
Q16. | Will we accept all eligible options tendered in the Offer? |
Subject to the conditions of the Offer set forth in Section 6 of this Offer to Exchange, we will accept all eligible options that have not been exercised and do not expire during the Offer and that are properly tendered by, and not validly withdrawn before, the expiration of the Offer. However, we reserve the right to reject any or all tenders of options that we determine are not in appropriate form or that it would be unlawful for us to accept. In addition, we will not be required to accept tendered eligible options if, prior to the expiration of the Offer, certain events occur or fail to occur, such that, in our reasonable judgment, it would be inadvisable for us to proceed with the Offer. These events include, among other things:
| • | changes in applicable law or regulations; |
| • | changes in accounting principles; |
| • | third-party tender offers for our Common Stock or other acquisition proposals; |
| • | adverse changes in market conditions; and |
| • | lawsuits challenging the Offer. |
These and various other events are more fully described in Section 6 of this Offer to Exchange.
The Offer is not conditioned on participation by a minimum number of eligible participants or the tender of a minimum number of eligible options. See Section 3 of this Offer to Exchange.
Q17. | How will you know if we have accepted eligible options tendered in the Offer? |
Promptly after the expiration of the Offer, and assuming that we accept eligible options tendered for exchange, we will send all eligible participants in the Offer an e-mail stating that the Offer expired and that we are accepting all eligible options that were properly tendered. This e-mail will constitute notice to you that we have accepted the eligible options that you properly tendered. See Sections 5 and 6 of this Offer to Exchange. See Section 3 of this Offer to Exchange.
Q18. | When will we issue the shares? |
If you properly tender your eligible options and we accept all eligible options properly tendered, we will issue your shares promptly after the expiration of the Offer. See Sections 5 and 8 of this Offer to Exchange.
You will be the record holder of your shares and they will be registered in your name on the books and records maintained for us by the transfer agent for our Common Stock (currently Continental Stock Transfer and Trust Company).
Q19. | What will happen to my eligible options if I decide not to participate in the Offer? |
If you choose not to participate in the Offer, you will retain your eligible options without change to the exercise price, the number of shares or the terms and conditions of each award as currently in effect. These terms and conditions are set forth in the relevant stock option award agreements for those awards. See Section 3 of this Offer to Exchange.
Q20. | Is there anything I need to do if I decide not to tender my options? |
No. See Section 3 of this Offer to Exchange.
Q21. | Will I have to pay taxes when I tender my options and receive my shares? |
If you are a U.S. taxpayer, you will receive shares in exchange for your properly tendered eligible options. You will recognize ordinary income when your shares are issued after the closing of the Offer, in an amount equal to the fair market value of the shares on the issue date. We will determine the fair market value of the shares based on the closing price of our Common Stock on the OTCBB on the relevant date. The ordinary income resulting from the issuance of shares will be subject to income and payroll withholding tax and will be reflected on your Form W-2 that will be reported to the Internal Revenue Service for this year. For more information, see Section 13 of this Offer to Exchange.
If you are considering tendering into the Offer, we urge you to consult an independent professional tax advisor to determine the tax consequences to you of participating in the Offer.
Q22. | When will the Offer expire? Can it be extended, and if so, how will I be notified if it is extended? |
The Offer will expire at 5:00 P.M., Atlanta time, on July 31, 2009, unless we extend it. We may, in our discretion, extend the Offer at any time. If we extend the Offer, we will make a public announcement of the extension no later than 9:00 A.M., Atlanta time, on the next business day after the last previously scheduled or announced expiration of the Offer. See Section 14 of this Offer to Exchange.
Q23. | Is there any information about i2 Telecom that I should be aware of? |
Before making your decision, you should carefully review the information in this Offer to Exchange, including the information about us set forth and referred to in Section 9 of this Offer to Exchange.
Q24. | Who can I talk to if I have questions about the Offer? |
We have not authorized anyone to make any recommendation as to whether you should tender or refrain from tendering your eligible options pursuant to the Offer. If anyone makes any such recommendation, you must not rely upon that recommendation as having been authorized by us. You should rely only on the information contained in this Offer to Exchange or in documents to which we have referred you. See Section 3 of this Offer to Exchange.
You should direct questions about this Offer or requests for assistance to Paul Arena, our Chief Financial Officer, at 404-567-4701.
RISK FACTORS
Risks of Participating in the Offer
Participating in the Offer involves a number of potential risks, including those described below. This list highlights some of the risks and is not exhaustive. Eligible participants should carefully consider these and other risks and are encouraged to speak with their investment and tax advisors as necessary before deciding whether to participate in the Offer. In addition, we urge you to read this Offer to Exchange and the enclosed Letter of Transmittal carefully and in their entirety before you decide whether to participate in the Offer.
If the trading price of our Common Stock increases after the date your tendered eligible options are canceled pursuant to the Offer, you could end up worse off than if you had not participated in the Offer.
If you choose to tender your eligible options in the Offer, the number of shares you will receive will be less than the number of shares of our Common Stock underlying your tendered eligible options. As a result, there is an amount of potential appreciation of our Common Stock that, if achieved, would result in it being to your economic benefit to have chosen not to tender your eligible options in the Offer. The amount by which our Common Stock would have to appreciate in order for this result to occur depends on the exercise prices of your eligible options, the number of options in each of your awards of eligible options and the number of shares that you receive in exchange for your tendered eligible options. We can give no assurance that over time the value of your shares will be equal to or greater than the gain you might have been able to realize upon exercise of the eligible options you tender in the Offer.
The exchange ratio was determined by our Board of Directors without the use of an option pricing model. The use of an option pricing model might have resulted in a different exchange ratio.
The exchange ratio for the number of shares you will receive in exchange for your eligible options, as reflected on your Participation Statement, was determined by our Board of Directors without the use of an option pricing model, which is a commonly used model for valuing stock options. Option pricing models use various assumptions in determining the value of stock options including, expected life, volatility, the risk-free rate and the dividend yield.
The use of an option pricing model might have resulted in your being entitled to receive a larger number of shares.
Business and Other Risks
For a description of risks related to our business, our indebtedness and our Common Stock, please see the information under the heading “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2008, and our subsequent quarterly reports on Form 10-Q, each filed with the SEC and incorporated herein by reference.
THE OFFER
1. | Number of Shares; Expiration Date |
We are offering our current and former employees and directors the opportunity to exchange their outstanding options to purchase shares of our Common Stock (“options”) that were granted under our Amended and Restated 2004 Stock Incentive Plan (the “2004 Plan”) for shares of our Common Stock (“shares”). Pursuant to the terms and conditions of this Offer, there are options to purchase 5,362,015 shares issued under the 2004 Plan that are eligible to be surrendered for exchange pursuant to the Offer. Each five shares underlying eligible options may be exchanged for one share of our Common Stock, rounded up to the nearest whole number of shares. The offer is subject to the terms and conditions set forth in this Offer to Exchange and the related Letter of Transmittal, which, together with any amendments or supplements to either, collectively constitute the “Offer.”
You are eligible to participate in the Offer if, on July 1, 2009, you (or your delegated affiliate) hold outstanding options issued under 2004 Plan. Upon the terms and subject to the conditions set forth in this Offer to Exchange, we will issue shares to those eligible persons who elect to participate in the Offer promptly after the date on which we accept and cancel the eligible options tendered for exchange. We will only accept eligible options if they (i) are properly elected for exchange, (ii) are still outstanding and have not been exercised and have not expired or otherwise terminated when the Offer expires on the expiration date (as defined below); and (iii) have not been validly withdrawn before the Offer expires on the expiration date.
Our Board of Directors has determined that we will exchange one share for each five shares underlying eligible options. Your Participation Statement, which is being sent to you with the materials accompanying this Offer to Exchange, contains information about your eligible options, including the number of restricted shares that you will receive in respect of your eligible options if you elect to exchange all of your options in the Offer. The information set forth in your Participation Statement reflects the 1:10 reverse stock split we effected in May 2009.
If you exercise any of your eligible options before the Offer expires, the number of shares that you will receive if you participate in the Offer will be reduced to reflect your exercise. Additionally, if any of your eligible options expire before the expiration date of the Offer, the number of shares that you receive if you participate in the Offer will be reduced to reflect such expiration.
The shares issued in exchange for tendered eligible options will not be issued under the 2004 Plan. Instead, the shares you receive will be unregistered shares subject to resale restrictions, including those set forth in Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”).
You will not be required to pay cash for the shares you will receive. However, you will be required to satisfy any withholding tax liability upon the shares. Unless otherwise permitted by the compensation committee of our Board of Directors, you must satisfy this obligation by paying us funds in satisfaction of the withholding obligation. As part of the Letter of Transmittal, if you are an employee and you elect to exchange eligible options for shares you will be agreeing that we will withhold 1/12 of the withholding tax on such shares for the twelve pay periods following the closing of the Offer and if your employment terminates for any reason before all twelve withholding payments have been made the remaining withholding amount shall be deducted from your final paycheck.
You are not required to exchange any options. Additionally, you may exchange all or a portion of your eligible options. All options, or portions thereof, that do not expire during the Offer and are properly tendered and not validly withdrawn before the expiration date will be exchanged for shares, upon the terms and subject to the conditions set forth in this Offer to Exchange. The Offer is not conditioned upon a minimum number of options being exchanged, but is subject to the conditions described in Section 6 of this Offer to Exchange.
The term “expiration date” means 5:00 P.M., Atlanta time, on July 31, 2009, unless and until we, in our sole discretion, extend the period of time during which the Offer will remain open. If we extend the period of time during which the Offer remains open, the terms “expiration date” will refer to the latest time and date at which the Offer expires. See Section 14 of this Offer to Exchange for a description of our rights to extend, delay, terminate and
amend the Offer and Section 6 of this Offer to Exchange for a description of our rights to accept all of the properly tendered eligible options or to reject them all.
2. | Purpose of the Offer; Other Transactions |
Purpose of the Offer.
The Offer is intended to accomplish a number of important objectives.
We believe that an effective and competitive employee incentive program is imperative for the success of our business. We rely on our experienced and productive employees and their efforts to help us achieve our business objectives. Stock options constitute a key component of our incentive and retention programs because we believe that equity compensation encourages employees to act like owners of the business, motivating them to work toward our success and rewarding their contributions by allowing them to benefit from increases in the value of our shares.
Due to the decline of our stock price, many of our employees now hold stock options with exercise prices significantly higher than the current market price of our Common Stock. Although we continue to believe that stock options are an important component of our employees’ total compensation, many of our employees view their existing stock options as having little or no value due to the significant excess of the exercise prices over the current market price of our Common Stock. As a result, for many employees, these stock options are ineffective at providing the incentives and retention value that we believe are necessary to motivate and retain our employees.
We believe that the Offer is important for us because it will permit us to:
• Enhance long-term shareholder value by providing greater assurance that we will be able to retain experienced and productive employees, by improving the morale of our employees, and by aligning the interests of our employees more fully with the interests of our shareholders.
• Meaningfully reduce the total number of shares subject to outstanding stock options relative to our outstanding shares of Common Stock, or “overhang,” by replacing the shares subject to eligible options with a lesser number of shares of Common Stock. Stock options with exercise prices significantly higher than our current stock price do not serve the interests of our shareholders, nor do they provide the benefits intended by our equity compensation program.
• Recapture value from compensation costs that we already are incurring with respect to outstanding underwater options. We believe it is not an efficient use of our resources to recognize compensation expense on options that are not perceived by our employees as providing value. By replacing stock options that have little or no retention or incentive value with shares of Common Stock that will provide retention value while not creating additional compensation expense, we will be making efficient use of our resources.
Other Transactions.
We regularly evaluate various strategic opportunities, including acquisitions and dispositions. We intend to continue to selectively pursue acquisitions and other transactions that would help us to achieve our business goals. However, subject to the foregoing, and except as otherwise disclosed below, elsewhere in this Offer to Exchange or in our filings with the SEC, we presently have no plans, proposals or negotiations that relate to or would result in:
| • | any extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving us or any of our subsidiaries; |
| • | any purchase, sale or transfer of a material amount of our or our subsidiaries’ assets; |
• any material change in our present dividend rate or policy, or our indebtedness or capitalization;
| • | any change in the our Board of Directors or management including, but not limited to, any plans or proposals to change the number or the term of directors or to fill any existing vacancies on the board or to change any material term of the employment contract of any executive officer; |
| • | any other material change in our corporate structure or business; |
| • | our Common Stock not being authorized for quotation in an automated quotation system operated by a national securities association; |
| • | our Common Stock becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934; |
| • | the suspension of our obligation to file reports pursuant to Section 15(d) of the Securities Exchange Act of 1934; |
| • | the acquisition by any person of additional securities of ours, or the disposition of our securities; or |
| • | any change in our Articles of Incorporation or Bylaws, or any actions which may impede the acquisition of control of us by any person. |
We are currently undertaking a number of transactions in addition to this Offer to Exchange options. We recently entered into a subscription agreement with an investor for the purchase of $3,000,000 of our newly designated Series F Preferred Stock. That subscription agreement provides that if the holders of at least eighty-five percent (85%) of the debt of Parent that is evidenced by promissory notes (which debt as of July 1, 2009 will be in the aggregate approximately $4,800,000 of principal and $1,450,000 of loan fees and accrued interest) have not converted such debt into shares of the Preferred Stock of our newly formed subsidiary, i2 Telecom IP Holdings, Inc., a Delaware corporation (“IP Holdings”) on or prior to July 1, 2009, then upon the written request of that investor, we will convert the $3,000,000 of Series F Preferred Stock into a promissory note. That promissory note, if required to be issued, will have the following terms: (i) principal in the amount of $3,000,000, (ii) an interest rate of ten percent (10%) per annum; and (iii) principal and interest due and payable on demand.
Based on the foregoing, simultaneously with this Offer, we are offering to certain of our existing noteholders the opportunity to exchange some or all of the principal, interest and loan fees under the notes for different series of preferred stock of IP Holdings. In some instances the noteholders will also receive cash in the exchange. The issuance price of the preferred stock of IP Holdings is $1.00 for every $1.00 of each note being exchanged. Dividends accrue on the issuance price at a rate of 12% per annum. The preferred stock of IP Holdings has the terms, including redemption provisions, set forth in the certificate of designations for the preferred stock, which was filed as an exhibit to our Form 8-K filed on June 29, 2009.
As part of the note exchange described above, we had i2 Telecom International, Inc., a Delaware corporation and our wholly-owned subsidiary (“i2 Delaware”), transferred substantially all of its intellectual property to IP Holdings.
Also simultaneously with this Offer we are offering to our warrant holders, many of whom are also holders of the notes described above, the option to exchange existing warrants for shares of our Common Stock in the same ratio as in this Offer, which is one share of Common Stock for each five shares convertible under the warrants and an alternative option to reprice those warrants at an exercise price of $0.50 per share. The number of shares into which all warrants taken together could currently convert is approximately 22,230,491. If all warrants are exchanged for shares, we will issue an additional 4,446,099 shares of our Common Stock to the warrant holders. Our current and former employees, executive officers and directors holding outstanding warrants will be eligible to participate in the warrant offer. We are conducting the warrant offer in order to reduce the overhang and decrease the potential dilution that could result from conversion. Additionally, some of the warrants were issued in connection with notes that we are converting into shares of preferred stock of a newly formed subsidiary as described below.
Additionally, we are currently conducting a private placement of up to $8,000,000 of our Series F Preferred Stock, of which $3,500,000 had been sold to date. The terms of the Series F Preferred Stock, as amended, have been filed as part of a Form 8-K on June 29, 2009.
Reverse stock splits affect all of our shareholders uniformly and do not affect any stockholder's percentage ownership interests or proportionate voting power, except to the extent that a reverse split could result in any of our shareholders receiving an extra share as a result of a fractional share. The eligible options are covered by our 2004 Plan, which provides for adjustments to options granted under the Plan in the event of stock splits. Whether or not you decide to tender your eligible options in the Offer, your eligible options were adjusted as described above as a result of the 1:10 reverse split effected in May 2009. Therefore, on the Participation Statement that you will receive along with this Offer to Exchange, you will notice that the number of shares available for exercise has decreased and the option prices have increased. If the 1:2 to 1:5 reverse split is approved at the 2009 Annual Meeting of Stockholders and our Board of Directors to determine to effect that reverse split, your eligible options will also be adjusted as described above. As stated above, a reverse stock split affects all of our stockholders uniformly and does not affect any stockholder’s percentage ownership interests or proportionate voting power, except to the extent that a reverse split could result in any of our shareholders receiving an extra share as a result of a fractional share.
3. | Procedures; Acceptance of Options |
You may tender your eligible options by completing the Letter of Transmittal that is included with this Offer to Exchange, signing it and sending the properly completed and signed form and your option agreement(s) to us by one of three methods described below. For your tender to be effective, we must receive your properly completed and signed Letter of Transmittal before the expiration of the Offer.
| • | Tender by e-mail. You may tender your eligible options by e-mail by sending the properly completed and signed Letter of Transmittal as an attachment in Adobe PDF format to the following e-mail address: parena@i2Telecom.com. You may tender eligible options through e-mail 24 hours a day, 7 days a week, at any time until the expiration of the Offer. If you decide to tender by e-mail, you will need to access a scanner that will generate an image of your properly completed and signed Letter of Transmittal and your option agreement(s) in Adobe PDF format, so that you can attach the PDF file to your e-mail. We will e-mail a confirmation to your e-mail address you provide in the Letter of Transmittal, within two business days of our receipt of your tender. |
| • | Tender by facsimile (fax). You may also tender your eligible options by transmitting the properly completed and signed Letter of Transmittal to us by facsimile (fax) to the following number: (770) 663-8282 Attention: Paul Arena. You may tender eligible options by fax 24 hours a day, 7 days a week, at any time until the expiration of the Offer. We will e-mail a confirmation to you to your e-mail address you provide in the Letter of Transmittal, within two business days of our receipt of your tender. |
| • | Tender by mail. You may also tender your eligible options by mail by mailing the properly completed and signed Letter of Transmittal to Paul Arena, 5070 Old Ellis Pointe, Suite 110, Roswell, Georgia 30076. Mailed Letters of Transmittal must be received prior to the expiration of the Offer. We will e-mail a confirmation to you to your e-mail address you provide in the Letter of Transmittal, within two business days of our receipt of your tender. |
Regardless of the method you use to tender your eligible options, you must indicate what portion of your eligible options you are tendering in the appropriate space in the Letter of Transmittal. If you are tendering all of the eligible options under your option agreements, then those option agreements will be null and void when we accept the eligible options that you properly tender. If you tender less than all of the eligible options under your option agreements, then your eligible option agreements will be modified to reduce the number of shares underlying those options by the number of shares your are tendering.
We will be deemed to have accepted eligible options that are validly tendered and not properly withdrawn if and when we send all eligible participants in the Offer an e-mail stating that the Offer expired and that we are
accepting all eligible options that were properly tendered. This e-mail will constitute notice to you that we have accepted the eligible options that you properly tendered.
You should carefully review this Offer to Exchange and the Letter of Transmittal before deciding whether to tender your eligible options. You also may wish to discuss whether to tender your eligible options with your financial, tax or other personal advisors.
Determination of Validity; Rejection of Options; Waiver of Defects; No Obligation to Give Notice of Defects. We will determine all questions as to who is an eligible participant, the number of shares subject to eligible options and the validity, form, eligibility (including time of receipt) and acceptance of any tender of eligible options. The determination of these matters by us will be final and binding on all parties.
We may reject any eligible options tendered to the extent we determine that the eligible options were not properly tendered or that it would be unlawful to accept the tendered eligible options. We may waive any defect or irregularity in any tender or withdrawal with respect to any particular eligible options or any particular eligible participant. No eligible options will be properly tendered until the eligible participant tendering the eligible options has cured all defects or irregularities or we have waived them. Neither we nor any other person is obligated to give notice of any defects or irregularities involved in the exchange of any eligible options, and no one will be liable for failing to give notice of any defects or irregularities.
Our Acceptance Constitutes an Agreement. Your tender of eligible options pursuant to the procedures described in this Offer to Exchange constitutes your acceptance of the terms and conditions of the Offer. Subject to the conditions set forth in Section 6 of this Offer to Exchange, our acceptance of eligible options that are properly tendered will form a binding agreement between us and you on the terms and subject to the conditions of this Offer effective as of the expiration of the Offer.
Effect on Existing Options. If you decide not to tender your eligible options, you will retain your outstanding eligible options without change to the exercise price, the number of shares, or the terms and conditions of each award as currently in effect, and the option agreements evidencing these options will continue in effect in accordance with their existing terms and conditions. If you tender eligible options, but no longer are an eligible participant when the Offer expires, your tender will be automatically withdrawn and the option agreements evidencing your outstanding eligible options will continue in effect in accordance with their existing terms and conditions. If you properly tender all eligible options, upon our acceptance of those eligible options tendered in the Offer, the option agreements evidencing the grant of those options will be deemed null and void and those options will be canceled. If you properly tender less than all eligible options, upon our acceptance of those eligible options tendered in the Offer, the option agreements evidencing the grant of those options will be automatically amended to reduce the number of options available for exercise by the number of options you tendered.
Exercises of Eligible Options Prior to Expiration of the Offer. Assuming that you are not otherwise subject to legal requirements or policies that restrict your ability to exercise eligible options (in which case you will have received communications to that effect), you may exercise any or all of your vested eligible options at any time before the Offer expires, whether or not you have already tendered eligible options. To the extent that you exercise any of your eligible options before the Offer expires, the number of shares of our Common Stock underlying those eligible options, as reflected on your Participation Statement, will be taken into account if you tender your remaining eligible options and will reduce the number of shares that you receive in exchange for your properly tendered eligible options.
Expiration of Options During the Offer. To the extent any of your eligible options expire before the Offer expires, the value attributed to, and the number of shares of our Common Stock underlying, those eligible options, as reflected on your Participation Statement, will be taken into account if you tender all or a portion of your remaining eligible options that have not expired and will reduce the number of shares that you receive in exchange for your properly tendered eligible options.
Questions About the Offer. You should direct questions about the Offer to Paul Arena, our Chief Financial Officer, at 404-567-4701. We will address your questions during regular business hours (Atlanta time), Monday
through Friday for so long as the Offer is open. Also see the question and answer section at the front of this Offer to Exchange for answers to some of the questions you may have about the Offer.
Data Privacy. By submitting a Letter of Transmittal to us, you acknowledge that all information you provide in the Letter of Transmittal is being given with your consent for the express purpose of participating in the Offer. You further acknowledge that we may share any such information with third parties to the extent necessary to effect your participation in the Offer, including, without limitation, the grant of shares to you in exchange for your tendered eligible options.
Solicitations. Paul Arena, our Chief Financial Officer, is expected to engage in solicitations related to the Offer, but will not receive any compensation specifically related to such solicitations.
We have not authorized any person to make any recommendation on our behalf as to whether you should tender or refrain from tendering your eligible options pursuant to the Offer. You should rely only on the information contained in this Offer to Exchange or in documents to which we have referred you.
4. | Withdrawal Rights |
You may withdraw eligible options you previously have tendered by following the procedures described in this Section 4. The procedures described in this Section 4 are the only procedures you may use to withdraw previously tendered eligible options. You may withdraw your eligible options at any time before the expiration of the Offer, which is currently scheduled for 5:00 P.M., Atlanta time, on July 31, 2009.
If the Offer is extended by us beyond its currently scheduled expiration, you may withdraw your tendered eligible options at any time until the extended expiration of the Offer. In addition, if we have not accepted your tendered eligible options by August 26, 2009, you are permitted by law to withdraw your tendered eligible options from the Offer.
To withdraw previously tendered eligible options, you must use the same method you used to tender your eligible options. If you tendered options by sending a Letter of Transmittal to us by e-mail, fax or mail, then to withdraw your tender you must send us a properly completed and signed Withdrawal Letter by e-mail, fax or mail, as applicable. The same e-mail address, fax number and physical address that are available for tenders are available for withdrawals. For your withdrawal to be effective, we must receive your properly completed and signed Withdrawal Letter before the expiration of the Offer. A Withdrawal Letter is included in the materials accompanying this Offer to Exchange.
If you withdraw previously tendered eligible options, regardless of method, you will receive an e-mail message confirming your withdrawal within two business days of our receipt of your Withdrawal Letter.
In order to withdraw your tender of any of your eligible options, you must withdraw your tender of all of your eligible options.
If you have withdrawn your tender of eligible options, and before the expiration of the Offer you want to re-tender into the Offer with respect to some or all eligible options, you must properly re-tender such eligible options, in accordance with the procedures set forth in Section 3. You may choose to re-tender your eligible options any time before the expiration of the Offer. You are not required to use the same tender method (e-mail, fax or mail) that you used for your original tender.
Neither we nor any other person is obligated to give notice of any defects or irregularities in any withdrawal, and no one will be liable for failing to give notice of any defects or irregularities. We will determine, in our discretion, all questions as to the form and validity, including time of receipt, of withdrawals. Our determinations of these matters will be final and binding.
5. | Acceptance of Options for Cancellation; Issuance of Shares |
On the terms and subject to the conditions of the Offer, if we accept all properly tendered eligible options in accordance with Section 3 of this Offer to Exchange, we will accept for exchange and will cancel the portion of eligible options that were properly tendered, did not expire and were not validly withdrawn before the Offer expires. We will issue the shares promptly following the expiration of the Offer. By properly tendering for exchange all of your eligible options, the option agreements evidencing your tendered eligible options will be deemed null and void. If you properly tender less than all eligible options, upon our acceptance of those eligible options tendered in the Offer, the option agreements evidencing the grant of those options will be automatically amended to reduce the number of options available for exercise by the number of options you tendered.
6. | Conditions of the Offer |
Promptly following the expiration of the Offer (which will be 5:00 P.M., Atlanta time, on July 31, 2009, unless we extend the Offer), subject to satisfaction of conditions set forth below, we will accept all eligible options that are properly tendered. If the conditions set forth below are not satisfied, we may reject all (but not less than all) eligible options that are properly tendered. If we reject all eligible options that are properly tendered, we will promptly communicate such rejection to all holders of eligible options by public announcement. Following such a rejection, all of your current options will remain subject to their current terms and conditions and you will not receive any shares.
We will not be required to accept for exchange any eligible options tendered and may terminate the Offer, subject to applicable securities laws, if at any time on or after the commencement of the Offer and before the expiration of the Offer, we determine that any of the following events shall have occurred and, in our reasonable judgment, the occurrence of the event makes it inadvisable for us to proceed with the Offer or to accept eligible options tendered for exchange:
(a) any action or proceeding by any government or governmental, regulatory or administrative agency, authority or tribunal or any other person, domestic or foreign, before any court, authority, agency or tribunal, is threatened (in writing), instituted or pending that directly or indirectly:
(i) challenges the making of the Offer, the acquisition of any or all of the eligible options pursuant to the Offer, the exchange of shares for such eligible options, or otherwise relates in any manner to the Offer; or
(ii) in our reasonable judgment, could materially and adversely affect our business, condition (financial or otherwise), income, operations or prospects, or otherwise materially impair in any way the contemplated future conduct of our business or materially impair the contemplated benefits of the Offer to us;
(b) any action threatened (in writing), pending or taken, or any approval, exemption or consent is withheld, or any statute, rule, regulation, judgment, order or injunction threatened (in writing), proposed, sought, promulgated, enacted, entered, amended, enforced or deemed to be applicable to the Offer or us by any court or any authority, agency or tribunal that, in our reasonable judgment, would or might directly or indirectly:
(i) make the acceptance for exchange of any or all of the eligible options illegal or otherwise restrict or prohibit consummation of the Offer or that otherwise relates in any manner to the Offer;
(ii) delay or restrict our ability, or render us unable, to accept for exchange any or all of the eligible options;
| (iii) | materially impair the contemplated benefits of the Offer to us; or |
(iv) materially and adversely affect our business, condition (financial or other), income, operations or prospects of our subsidiaries, taken as whole, or otherwise materially impair in any way the contemplated future conduct of our business;
| (c) | there shall have occurred: |
(i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market;
(ii) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States (whether or not mandatory);
(iii) the commencement or material escalation of a war, armed hostilities or other international or national crisis directly or indirectly involving the United States;
(iv) any limitation (whether or not mandatory) by any governmental, regulatory or administrative agency or authority on, or any event that, in our reasonable judgment, might affect the extension of credit by banks or other lending institutions in the United States;
(v) any significant decrease or increase in the market price of the shares of our Common Stock;
(vi) any change in the general political, market, economic or financial conditions in the United States or abroad that could, in our reasonable judgment, have a material adverse effect on our business, condition (financial or other), operations or prospects or on the trading in the our Common Stock;
(vii) any change in the general political, market, economic or financial conditions in the United States or abroad that could have a material adverse effect on our business, condition (financial or other), operations or prospects or that, in our reasonable judgment, makes it inadvisable to proceed with the Offer; or
(viii) in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof;
(d) a tender or exchange offer with respect to some or all of our Common Stock, or a merger or acquisition proposal for us, is proposed, announced or made by another person or entity or shall have been publicly disclosed, or we shall have learned that:
(i) any person, entity or “group” (within the meaning of Section 13(d)(3) of the Exchange Act) shall have acquired or proposed to acquire beneficial ownership of more than 5% of the outstanding shares of any class of our Common Stock, or any new group shall have been formed that beneficially owns more than 5% of the outstanding shares of any class of our Common Stock (other than any such person, entity or group who has filed a Schedule 13D or Schedule 13G with the SEC on or before the date we commence the Offer); or
(ii) any person, entity or group shall have filed a Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or made a public announcement reflecting an intent to acquire us or any of our assets or securities(other than in connection with a transaction to which we have agreed); or
(iii) any change or changes shall have occurred in our business, condition (financial or other), assets, income, operations, prospects or stock ownership that, in our reasonable judgment, is or may be
material to us or may materially impair or impact the benefits that we believe we will receive from the Offer.
The conditions to the Offer are for our benefit. We may assert them in our discretion regardless of the circumstances giving rise to them prior to the expiration of the Offer. We may waive them, in whole or in part, at any time and from time to time prior to the expiration of the Offer, in our discretion, whether or not we waive any other condition to the Offer. In the event that we waive a condition for any particular eligible participant, we will waive that condition for all eligible participants. Our failure at any time to exercise any of these rights will not be deemed a waiver of any such rights. The waiver of any of these rights with respect to particular facts and circumstances will not be deemed a waiver with respect to any other. Any determination that we make concerning the events described in this Section 6 will be final and binding upon all interested persons, including you.
7. | Price Range of Our Common Stock |
The eligible options subject to the Offer are not publicly traded. However, upon exercise of an eligible option, the option holder becomes a holder of our Common Stock. Our Common Stock is traded on the Over-the-Counter Bulletin Board (the “OTCBB”) under the symbol “ITUI.OB.” On June 23, 2009, the closing price of our Common Stock as reported by the OTCBB was $0.05. That price does not reflect the 1:10 reverse stock split effected by us in May 2009. Such closing share price would be $.50 if the reverse stock option is taken into consideration. As of such date, there were approximately 28,894,093 shares of our Common Stock outstanding, which number does reflect the reverse stock split. The following table shows, for the periods indicated, the high and low sales prices per share of our Common Stock as reported on the OTCBB and the highs and lows of the reverse stock split deal is taken into account.
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| OTCBB |
| OTCBB with Reverse Split Reflected | |||||||
Quarter ended |
| High |
| Low |
| High |
| Low | |||
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Fiscal Year 2009 |
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March 31, 2008 |
| $ | 0.12 |
| $ | 0.03 | $ | 1.20 | $ | 0.30 | |
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Fiscal Year 2008 |
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December 31, 2008 |
| $ | 0.10 |
| $ | 0.04 | $ | 1.00 | $ | 0.40 | |
September 30, 2008 |
| $ | 0.17 |
| $ | 0.08 | $ | 1.70 | $ | 0.80 | |
June 30, 2008 |
| $ | 0.17 |
| $ | 0.08 | $ | 1.70 | $ | 0.80 | |
March 31, 2008 |
| $ | 0.14 |
| $ | 0.07 | $ | 1.40 | $ | 0.70 | |
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Fiscal Year 2007 |
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December 31, 2007 |
| $ | 0.19 |
| $ | 0.06 | $ | 1.90 | $ | 0.60 | |
September 30, 2007 |
| $ | 0.16 |
| $ | 0.05 | $ | 1.60 | $ | 0.50 | |
June 30, 2007 |
| $ | 0.17 |
| $ | 0.09 | $ | 1.70 | $ | 0.90 | |
March 31, 2007 |
| $ | 0.30 |
| $ | 0.09 | $ | 3.00 | $ | 0.90 | |
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We recommend that you obtain current market quotations for our Common Stock before deciding whether to tender your eligible options for shares in the Offer and take into consideration the reverse stock split if it is not reflected in the current market quotation. At the same time, you should consider that the current market price of our Common Stock may provide little or no basis for predicting what the market price of our Common Stock will be on the date of issuance of the shares or any time in the future.
Because the fluctuating share price could affect your decision of whether to tender your eligible options for exchange in the Offer, you may wish to discuss its effect on the value of your eligible options with a personal financial advisor.
8. | Source and Amount of Consideration; Terms of Shares |
Consideration
If you properly tender eligible options, you will receive shares as set forth in Section 1 of this Offer to Exchange.
The shares issued will be unregistered shares of our Common Stock subject to restrictions on resale, including Rule 144 of the Securities Act.
Pursuant to the terms and conditions of the Offer, there are eligible options to purchase 5,362,015 shares of our Common Stock. Were all of these eligible options properly tendered and accepted by us, we would issue an aggregate of 1,072,403 shares in connection with the Offer.
Terms of Shares
Shares. Shares issued in the Offer will be issued and outstanding shares of our Common Stock. You will have the right to transfer or sell the shares, subject to applicable securities laws. Shares of our Common Stock have voting rights.
You will be the record holder of your shares and they will be registered in your name on the books and records maintained for us by the transfer agent for our Common Stock (currently Continental Stock Transfer and Trust Company).
The following statements regarding the Washington Business Corporation Act (the “WBCA”) and our Articles of Incorporation and Bylaws are brief summaries, and may not contain all the information important to you. For a more complete description of our capital stock, you should carefully read the detailed provisions of the WBCA as well as our Articles of Incorporation and Bylaws.
Under our Articles of Incorporation, our authorized capital stock consists of 500,000,000 shares of Common Stock, no par value per share, and 5,000,000 shares of preferred stock, of which the Board of Directors has designated 10,000 shares as Preferred Stock Series F.
Common Stock. There were 28,894,093 shares of Common Stock issued and outstanding as of June 22, 2009. In addition, we have reserved a total of (i) 27,592,406 shares of Common Stock for issuance upon exercise of outstanding warrants and options; (ii) 7,000,000 shares of Common Stock for issuance upon conversion of the outstanding shares of Preferred Stock Series F; and (iii) 113,096 shares of Common Stock for issuance upon conversion of notes. Please see Section 2 above for information regarding our simultaneous offer to exchange warrants and notes. All shares of Common Stock now outstanding are fully paid and nonassessable.
The holders of Common Stock:
• have equal ratable rights to dividends from funds legally available therefore, when, as and if declared by the Board of Directors, subject to the rights of the preferred stock;
• are entitled to share ratably in all assets available for distribution to holders of Common Stock upon liquidation, dissolution or winding up of our affairs;
• do not have preemptive, subscription or conversion rights, and there are no redemption or sinking fund provisions applicable thereto; and
| • | are entitled to one vote per share on all matters on which our shareholders may vote. |
The holders of our Common Stock do not have cumulative voting rights.
Tax Consequences. You should refer to Section 13 of this Offer to Exchange for a discussion of the material U.S. federal income tax consequences of the acquisition of shares for eligible participants. In all cases, we recommend that you consult with a professional tax advisor to determine the tax consequences of your participation in the Offer.
9. | Information About i2 Telecom |
Through our subsidiary, i2 Telecom International, Inc., a Delaware corporation, we provide low-cost telecommunications access to our subscribers by employing next-generation VoIP technology. This access is provided through our VoiceStick®, MyGlobalTalk™ and micro gateway adapters. By downloading our VoiceStick® software or using the VoiceStick® USB drive, our subscribers are able to use their computers as telephones. MyGlobalTalk™ allows users to take advantage of the benefits of Internet telephony to make international and long distance cellular calls independent of wireless carrier, smartphone handset make, or voice/data plan for as low as two cents per minute anywhere in the world. Non-smartphone users can enjoy the same benefits by using the MyGlobalTalk™ Bridge, also available online at www.myglobaltalk.com. Our products allow our subscribers to call anywhere in the world at rates that are usually far below long distance telephone rates.
Our principal executive offices are located at 5070 Old Ellis Pointe, Suite 110, Roswell, Georgia 30076, and our telephone number is (404) 567-4750.
Summarized Financial Information
The following table sets forth audited summarized consolidated historical financial data as of and for the years ended December 31, 2007 and December 31, 2008 and unaudited summarized consolidated historical financial data as of and for the three months ended March 31, 2009. The information presented below has been derived from the consolidated financial statements included in our annual report on Form 10-K for the fiscal year ended December 31, 2008 (the “Annual Report”) and the unaudited consolidated financial statements included in our quarterly report on Form 10-Q for the period ended March 31, 2009 (the “Quarterly Report”), each of which are incorporated herein by reference. The information presented below should be read together with those consolidated financial statements and the notes related thereto in the Annual Report and Quarterly Report, as well as the sections of the Annual Report and Quarterly Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” See Section 16 for instructions on how you may obtain copies of the Annual Report and the Quarterly Report.
| Three Months Ended | Year Ended |
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| 2009 | 2008 | 2008 | 2007 |
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| (Unaudited) |
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Statement of Operations Data: |
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Revenue | 132,142 | $157,456 | $629,824 | $865,151 |
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Gross Profit (loss) | 6,091 | (24,781) | (75,669) | (141,722) |
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Loss From Operations | (1,591,465) | (1,076,741) | (7,143,484) | (7,479,763) |
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Net Loss | (1,705,759) | (1,197,394) | (2,937,520) | (9,088,752) |
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Net Loss to Common Shareholders | (1,705,759) | (1,203,394) | (2,949,520) | (9,414,184) |
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Weighted Average Common Shares:(1) | 273,573,543 | 184,633,838 | 216,097,421 | 138,451,762 |
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Basic Earnings (loss) Per Common Share:(1) | (.01) | (.01) | (.01) | (.07) |
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Diluted income (loss) per common share:(1) | N/A | N/A | N/A | N/A |
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Balance Sheet Data: |
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Current assets | 323,721 | 264,286 | 403,310 | 459,366 |
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Noncurrent assets | 3,899,275 | 3,245,555 | 4,080,861 | 3,476,514 |
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Current liabilities | 6,941,059 | 7,278,489 | 5,881,659 | 6,528,954 |
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Noncurrent liabilities | 0 | 0 | 0 | 0 |
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(1) These amounts do not reflect the 1:10 reverse stock split we affected in May 2009. |
Book value per share. The book value per share of our Common Stock as of March 31, 2009 was $-0.00988.
Ratio of earnings to fixed charges. We had net losses for the three months ended March 31, 2009 and 2008, as well as for the years ended December 31, 2008 and 2007. Therefore, our earnings were insufficient to cover our fixed charges for such periods, and we are unable to calculate the ratios of earnings to fixed charges for such periods. The dollar amounts of the deficiencies are $1.7 million for the quarter ended March 31, 2009, $1.2 million for quarter ended March 31, 2008, $2.9 million for year ended December 31, 2008 and $9.1 million for the year ended December 31, 2007.
10. | Interests of Directors and Officers; Transactions and Arrangements Concerning Our Securities |
Interests of Directors and Officers. Our executive officers and directors will be eligible to participate in the Offer. We expect that our executive officers and directors will participate in the Offer and will receive shares set forth in the table below.
As of June 24, 2009, we had a total of 28,894,093 shares of Common Stock issued and outstanding, which is the only issued and outstanding voting equity security of the Company. The following table sets forth, as of June 23, 2009, for each of our executive officers and directors, their titles, the number of eligible options they currently hold, the percentage of all eligible options, and the number of shares they will receive should they participate in the Offer. The business address of each director and executive officer set forth above is:c/oi2 Telecom International, Inc., 5070 Old Ellis Pointe, Suite 110, Roswell, GA 30076 and the business telephone number of each director and executive officer is(404) 567-4750.
Name | # of Eligible Options |
| % of all Eligible Options |
| # of Restricted Shares to be Issued if all Eligible Options are Exchanged | |||
Paul R. Arena Director, Chairman of the Board, Chief Financial Officer and Secretary | 1,051,803 |
| 19.6% |
| 210,361 |
| ||
Andrew L. Berman Director, Chief Executive Officer | 750,000 |
| 14.0% |
| 150,000 |
| ||
Timothy McGeehan Director | 250,000 |
| 4.7% |
| 50,000 |
| ||
Bruce C. Friedman Director | 300,000 |
| 5.6% |
| 50,000 |
| ||
Frederick D. Mapp Director | 200,000 |
|
3.7% |
| 40,000 |
| ||
Michael D. Reardon Director | 200,000 |
| 3.7% |
| 40,000 |
| ||
Audrey Braswell Director | 143,219 |
| 2.7% |
| 28,644 |
| ||
Christopher Miltenberger President and Chief Operating Officer | 600,000 |
| 11.2% |
| 120,000 |
| ||
Douglas F. Bender General Manager, Senior Vice President Engineering | 478,705 |
| 8.9% |
| 95,741 |
| ||
Totals | 3,973,727 |
| 74.10% |
| 794,746 |
| ||
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|
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The Company entered into Employment Agreements with each of Andrew L. Berman, Paul R. Arena, Christopher R. Miltenberger, and Douglas F. Bender on April 20, 2009, each of which were amended on June 24, 2009. Please see Exhibits (d)(9), (d)(10), (d)(11) and (d)(12) to the Schedule TO for copies of the Employment Agreements and Exhibits (d)(21), (d)(22), (d)(23) and (d)(24) to the Schedule TO for copies of amendments to each Employment Agreement. The Employment Agreement with Mr. Berman provides for, among other things: (i) employment as Chief Executive Officer of the Company; (ii) a two-year term, subject to annual extensions at the option of the Company; (iii) a base salary of $275,000, and an annual bonus of up to 50% of such base salary; and (iv) a grant of 400,000 stock options, at an exercise price of $0.70 per share, which options shall have a five-year term, and 100,000 of which vest 1/36 over three-years, and the remaining 300,000 of which will vest upon the attainment of certain performance hurdles.
The Employment Agreement with Mr. Arena provides for, among other things: (i) employment as Executive Chairman of the Board, Chief Financial Officer and Secretary of the Company; (ii) a two-year term, subject to annual extensions at the option of the Company; (iii) a base salary of $275,000, and an annual bonus of up to 50% of such base salary; and (iv) a grant of 400,000 stock options, at an exercise price of $0.70 per share, which options shall have a five-year term, and 100,000 of which vest 1/36 over three-years, and the remaining 300,000 of which will vest upon the attainment of certain performance hurdles.
The Employment Agreement with Mr. Miltenberger provides for, among other things: (i) employment as President and Chief Operating Officer of the Company; (ii) a two-year term, subject to annual extensions at the option of the Company; (iii) a base salary of $200,000 and an annual bonus of up to 50% of such base salary; and (iv) a grant of 200,000 stock options, at an exercise price of $0.50 per share, which options shall have a five-year term, and 50,000 of which vest 1/36 over three-years, and the remaining 150,000 of which will vest upon the attainment of certain performance hurdles.
The Employment Agreement with Mr. Bender provides for, among other things: (i) employment as Senior Vice President and General Manager of the Company; (ii) a two-year term, subject to annual extensions at the option of the Company; (iii) a base salary of $150,000, and an annual bonus of up to 50% of such base salary; and (iv) a grant of 200,000 stock options, at an exercise price of $0.70 per share, which options shall have a five-year term, and 50,000 of which vest 1/36 over three-years, and the remaining 150,000 of which will vest upon the attainment of certain performance hurdles.
The stock option amounts for the Employment Agreements above have been adjusted to reflect the 1:10 reverse split in May 2009.
Transactions and Arrangements Concerning Our Securities. Please see Schedule A of this Offer to Exchange, which is incorporated herein by reference, for a description of transactions involving our securities.
Other than as otherwise disclosed in this Offer to Exchange, including Schedule A, neither we nor any of our directors or executive officers engaged in transactions involving the eligible options during the 60 days prior to the commencement of the Offer. For more detailed information concerning our executive officers and directors and their beneficial ownership of our Common Stock, you can consult our proxy statement for the 2009 Annual Meeting, which we filed with the SEC on May 21, 2009. See Section 16of this Offer to Exchange for instructions as to how you can view or obtain a copy of the proxy statement.
Other than as otherwise disclosed in this Offer to Exchange, including Schedule A, neither we nor, to our knowledge, any of our named executive officers, members of our board or any person holding a controlling interest in us is a party to any agreement, arrangement or understanding with respect to any of our securities.
11. | Status of Options We Acquire in the Offer; Accounting Consequences of the Offer |
If you properly tender all eligible options, upon our acceptance of those eligible options tendered in the Offer, the option agreements evidencing the grant of those options will be deemed null and void and those options will be canceled. If you properly tender less than all eligible options, upon our acceptance of those eligible options
tendered in the Offer, the option agreements evidencing the grant of those options will be automatically amended to reduce the number of options available for exercise by the number of options you tendered.
The fair value of a share will be equal to the closing price of our Common Stock on the date of issuance. Under SFAS No. 123 (revised 2004) “Share-Based Payment,” the exchange of options under the Offer is treated as a modification of the existing eligible options for accounting purposes. Accordingly, we will recognize; (i) the unamortized compensation cost of the surrendered eligible options, or (ii) the discounted exercise price, and the incremental compensation cost of the replacement stock issued in the Exchange Offer at the time of issuance. The incremental compensation will be measured as the excess, if any, of the fair value of stock granted to employees in exchange for exchanged eligible options, measured as of the date the stock is issued, over the fair value of the eligible options surrendered in exchange for the stock, measured immediately prior to the cancellations. Further, we will take into consideration previous accounting treatment of the options as a possible off-set or recovery of previous non-cash compensation expenses, if any, on our financial statements.
Since these factors cannot be predicted with any certainty at this time and will not be known until the expiration of the Offer, we cannot predict the exact amount of any incremental compensation expense that may result from the Offer. We do not expect to recognize material incremental compensation expense for financial reporting purposes as a result of the Offer.
12. | Legal Matters; Regulatory Approvals |
We are not aware of any license or regulatory permit that appears to be material to our business that might be adversely affected by the Offer, or of any approval or other action by any government or regulatory authority or agency that is required for the acquisition or ownership of the eligible options as described in this Offer to Exchange. If any approval or action should be required, we presently intend to seek the approval or take the action. This could require us to delay the acceptance of eligible options tendered pursuant to the Offer. We cannot assure you that we would be able to obtain any required approval or take any other required action. Our failure to obtain any required approval or take any required action might result in harm to our business. Our obligation under the Offer to accept properly tendered eligible options and to issue shares is subject to the conditions described in Section 6 of this Offer to Exchange.
13. | Material United States Tax Consequences |
The following summary is a description of certain material U.S. federal income tax consequences of the Offer to eligible participants who are U.S. taxpayers. The discussion is for general information only and does not consider all aspects of federal income taxation that may be relevant to the Offer in light of such eligible participant’s personal circumstances and is not intended to be complete. In particular, this discussion does not address the U.S. federal income tax consequences of subsequent ownership of our Common Stock by Offer participants who do not hold the stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”), or the U.S. federal income tax consequences of participating in the Offer by eligible participants subject to special treatment under the federal income tax laws, such as:
| • | former citizens or residents of the United States; |
| • | persons subject to the alternative minimum tax; and |
| • | dealers in securities or foreign currency. |
Moreover, this summary does not address any aspect of U.S. federal tax law other than income taxation and does not describe any state, local or non-U.S. tax laws that may be applicable to eligible participants. We have based this discussion on the Code, its legislative history, Treasury Regulations thereunder and administrative and judicial interpretations thereof, as of the date hereof, all of which are subject to change, possibly on a retroactive basis.
If you are considering tendering into the Offer, you should consult an independent tax advisor regarding the application of United States federal income tax laws, as well as other federal tax laws and the laws of any state, local or non-U.S. taxing jurisdiction, to your particular situation.
As used herein, the term “U.S. taxpayer” means an eligible participant who, for U.S. federal income tax purposes, is:
| • | an individual who is a citizen or resident alien of the United States; |
| • | a corporation (or other entity treated as a corporation for United States federal income tax purposes) organized or created in or under the laws of the United States, any state thereof or the District of Columbia; |
| • | an estate, the income of which is subject to United States federal income tax regardless of its source; or |
| • | a trust (i) if a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of the substantial decisions of the trust, or (ii) that has a valid election in place to be treated as a United States person. |
The treatment of a partner in an entity treated as a partnership for United States federal income tax purposes that holds our Common Stock generally will depend on the status and tax situs of the partner and the activities of the partnership.
Exchange. Eligible participants who tender options and receive Common Stock will recognize ordinary income. The amount of ordinary income you recognize will be equal to the fair market value of the shares received. We intend to determine the fair market value of the shares based on the closing price of our Common Stock on the OTCBB on the date the shares are issued after the closing of the Offer or, if no sales are reported on that date, on the most recent date on which sales were reported. At the time you recognize ordinary income due to the issuance of Common Stock, you will have a U.S. federal income tax obligation with respect to that income. You will be responsible for paying such a tax obligation at the appropriate time. As discussed below, in the case of eligible employees, we must withhold on the ordinary income recognized.
Dividends on Common Stock Received in the Offer. Any distributions with respect to the shares of our Common Stock, to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles), will constitute dividends for U.S. federal income tax purposes. Distributions in excess of our current and accumulated earnings and profits (as determined under U.S. federal income tax principles) will first constitute a return of capital that is applied against and reduces the U.S. taxpayer’s adjusted tax basis in our Common Stock (determined on a share by share basis), and thereafter will be treated as gain realized on the sale or other disposition of our Common Stock, as described below.
Sale (or Other Taxable Disposition) of the Shares of Our Common Stock Received in the Offer. Upon the sale or other taxable disposition of the Common Stock, a U.S. taxpayer generally will recognize taxable gain or loss equal to the difference between the amount realized on the sale or other taxable disposition and the U.S. taxpayer’s tax basis in the Common Stock. Gain or loss recognized on the sale or other taxable disposition of Common Stock generally will be capital gain or loss and will be long-term capital gain or loss if, at the time of sale or other taxable disposition, the Common Stock has been held for more than one year. A U.S. taxpayer’s basis in the Common Stock is equal to the fair market value at the time of issuance of the shares of our Common Stock that you receive in the Offer. The deductibility of capital losses is subject to limitations.
Information Reporting, Withholding and Backup Withholding. Information reporting requirements will apply in connection with the Offer and the proceeds from a sale or other disposition of the Common Stock. Eligible participants who are employees will be subject to withholding on tendering into the Offer and will be required to satisfy any withholding tax liability upon the issuance of the Common Stock. Unless otherwise permitted by the
compensation committee of our Board of Directors, you must satisfy such obligation by paying us funds in satisfaction of the withholding obligation. As part of the Letter of Transmittal, if you elect to exchange eligible options for shares you will be agreeing that we will withhold 1/12 of the withholding tax on such shares for the twelve pay periods following the closing of the Offer and if your employment terminates for any reason before all twelve withholding payments have been made the remaining withholding amount shall be deducted from your final paycheck. A U.S. taxpayer may be subject to U.S. backup withholding tax at the rates specified in the Code if it fails to provide its taxpayer identification number to the paying agent and comply with certain certification procedures or otherwise establish an exemption from backup withholding. The amount of any backup withholding from a payment will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. taxpayer to a refund, provided that the required information is furnished to the Internal Revenue Service.
Stock Options Generally. If you tender eligible options in the Offer, your tendered eligible options will be exchanged for shares of Common Stock. So that you are able to compare the tax consequences of restricted Common Stock to those of your eligible options, we have included the following summary as a reminder of the tax consequences generally applicable to options under U.S. federal income tax law. These tax consequences apply to your eligible options.
Nonqualified Stock Options. An individual does not recognize taxable income upon the grant of a nonqualified stock option. Upon exercise of nonqualified stock options, the option holder recognizes ordinary income in an amount equal to the spread (the difference between fair market value of the underlying shares and the exercise price) on the date of exercise. In the case of eligible employees, we must withhold on the ordinary income the option holder recognizes, similar to if the option holder were paid an additional cash bonus. When an option holder exercises a nonqualified stock option, we are generally entitled to a deduction in an amount equal to the ordinary income the option holder recognizes.
An option holder’s tax basis in the shares acquired from exercising a nonqualified stock option is the exercise price plus the amount of ordinary income recognized upon exercise. Upon subsequent sale or other disposition, the option holder will recognize capital gain or loss depending on whether the sale proceeds are greater than or less than his or her tax basis in the shares sold. The capital gain or loss will be long-term if the option shares have been held for more than one year following the exercise of the nonqualified stock options.
Incentive Stock Options. An individual does not recognize taxable income upon the grant of an incentive stock option. In addition, an option holder generally will not recognize taxable income upon the exercise of an incentive stock option. However, the spread (the difference between fair market value of the underlying shares and the exercise price) on the date of exercise is a preference item for alternative minimum tax purposes. Additionally, there is no withholding requirement for incentive stock options. Except in the case of an option holder’s death or disability, if an option is exercised more than 90 days after the option holder’s termination of employment, the option ceases to be treated as an incentive stock option and is subject to taxation under the rules that apply to nonqualified stock options.
If an option holder sells the option shares acquired upon exercise of an incentive stock option, the tax consequences of the disposition depend upon whether the disposition is qualifying or disqualifying. The disposition of the option shares is qualifying if it is made:
| • | more than two years after the date the incentive stock option was granted; and |
| • | more than one year after the date the incentive stock option was exercised. |
If the disposition of the option shares is qualifying, any excess of the sale price of the option shares over the exercise price of the option will be treated as long-term capital gain taxable to the option holder at the time of the sale. Any such capital gain will be taxed at the long-term capital gain rate in effect at the time of sale. If the disposition is not qualifying (a “disqualifying disposition”), the excess of the fair market value of the option shares on the date the option was exercised (or, if less, the amount realized on the disposition of the shares) over the exercise price generally will be recognized as ordinary income by the option holder at the time of disposition, and
any additional gain will be long-term or short-term capital gain, depending upon whether or not the shares were sold more than one year after the option was exercised.
Unless an option holder engages in a disqualifying disposition, we will not be entitled to a deduction with respect to an incentive stock option. If an option holder engages in a disqualifying disposition, we will be entitled to a deduction equal to the amount of ordinary income recognized by the option holder.
14. | Extension of Offer; Termination; Amendment |
At any time and from time to time, we may extend the period of time during which the Offer is open and delay accepting any eligible options properly tendered for exchange by publicly announcing the extension and giving notice of the extension to eligible participants. If we extend the Offer beyond July 31, 2009, we will publicly announce the extension no later than 9:00 A.M., Atlanta time, on the next business day after the last previously scheduled or announced expiration of the Offer.
We expressly reserve the right, in our sole discretion, to terminate or amend the Offer upon the occurrence of any of the conditions specified in Section 6 of this Offer to Exchange, by giving notice thereof to eligible participants, including by means of a public announcement thereof. Our right to delay accepting and canceling eligible options is limited by applicable securities laws, which require that we must pay the consideration offered or return any eligible options properly tendered promptly after we terminate or withdraw the Offer.
In addition, as long as we comply with applicable law, we may amend the Offer in any way, including by amending the consideration you will receive in exchange for the eligible options you properly tender.
If we materially change the terms of the Offer or the information about the Offer, or if we waive a material condition of the Offer, we will extend the Offer to the extent required by Rule 13e-4 under the Securities Exchange Act of 1934, as amended, and will notify eligible participants (such notice will be by public announcement). Under these rules, the minimum period the Offer must remain open, following material changes in the terms of the Offer or in the information about the Offer, will depend on the facts and circumstances.
15. | Fees and Expenses |
We will not pay any fees or commissions to any broker, dealer or other person to solicit tenders of options pursuant to the Offer.
16. | Additional Information |
We have filed with the SEC a tender offer statement on Schedule TO, of which this Offer to Exchange is a part, with respect to the Offer. This Offer to Exchange does not contain all of the information contained in the Schedule TO and the exhibits to the Schedule TO. We recommend that you review the Schedule TO, including its exhibits, and the following materials, which we have filed with the SEC, before making a decision on whether to tender your eligible options:
(a) |
| our Annual Report on Form 10-K for the fiscal year ended December 31, 2008; |
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|
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(b) |
| our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2009; |
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(c) |
| our Current Reports on Form 8-K filed with the SEC on March 10, 2009, April 24, 2009, April 30, 2009, May 4, 2009, May 8, 2009, May 28, 2009, June 10, 2009, June 17, 2009 , June 29, 2009 and July 1, 2009 |
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(d) |
| our Definitive Proxy Statement for our fiscal 2009 Annual Meeting of Shareholders, filed with the SEC on May 21, 2009; and |
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(e) |
| the description of our Common Stock contained in our Registration Statement on Form SB-2 filed with the SEC on June 28, 2007 including any amendments or reports filed for the purpose of updating such description. |
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We incorporate by reference the foregoing documents and any additional documents that we may file with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act between the date of this Offer to Exchange and the expiration of the Offer.
Our filings are also available to the public through the SEC’s internet site at http://www.sec.gov. In addition, you may read and copy these filings, and our other annual, quarterly and current reports, our proxy statements and our other SEC filings, at the SEC’s public reference room:
Public Reference Room
100 F Street, N.E.
Washington, D.C. 20549
Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. Our SEC filings are also available to the public on the SEC’s Internet site at http://www.sec.gov.
We will also provide without charge to each person to whom this Offer to Exchange is delivered, upon his or her written or oral request, a copy of the Offer to Exchange or any or all of the documents to which we have referred you, other than exhibits to those documents (unless the exhibits are specifically incorporated by reference into the documents). Requests should be directed to:
i2 Telecom International, Inc. |
5070 Old Ellis Pointe, Suite 110 |
Roswell, GA 30076 |
Attn: Chief Financial Officer |
or by telephoning us at (404) 567-4750 between the hours of 9:00 a.m. and 5:00 p.m., Atlanta Time.
As you read the documents listed in this Section 16 you may find some inconsistencies in information from one document to another. Should you find inconsistencies between the documents, or between a document and the Offer, you should rely on the statements made in the most recent document.
The information about us contained in the Offer should be read together with the information contained in the documents to which we have referred you.
17. | Forward-Looking Statements |
Your decision whether or not to participate in the Offer should take into account the factors described in this Offer to Exchange as well as the various risks inherent in our business. We have described risks, including risks concerning us, in the information we have incorporated by reference into this Offer to Exchange.
This Offer to Exchange and the documents incorporated by reference into this Offer to Exchange contain both historical and forward-looking statements. These forward-looking statements generally can be identified by the use of statements that include words such as “believe”, “expect”, “anticipate”, “intend,” “plan,” “foresee,” “likely,” “will” or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals are or may be forward-looking statements. These forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that are difficult to predict and which may cause our actual results, performance or achievements to be different from any future results, performance and achievements expressed or implied by these statements. More information about risks, uncertainties and factors is included in our filings with the SEC including, but not limited, to the Annual Report. There may be additional risks, uncertainties and factors that we do not currently view as material or that are not necessarily known. We cannot make any assurance that projected results or events will be achieved. The forward-looking statements included in
this Offer to Exchange or in any of the documents that are incorporated by reference in this Offer to Exchange are only made as of the date of this Offer to Exchange or the respective incorporated document. We expressly disclaim any intent or obligation to update any forward-looking statement to reflect subsequent events or circumstances.
18. | Miscellaneous. |
We are not aware of any jurisdiction where the making of the Offer is not in compliance with applicable law. If we become aware of any jurisdiction where the making of the Offer is not in compliance with any valid applicable law, we will make a good faith effort to comply with such law. If, after such good faith effort, we cannot comply with such law, the Offer will not be made to, nor will tenders be accepted from or on behalf of, eligible participants residing in such jurisdiction.
We have not authorized any person to make any recommendation on our behalf as to whether you should tender or refrain from tendering your eligible options pursuant to the Offer. You should rely only on the information contained in this Offer to Exchange or in documents to which we have referred you.
i2 TELECOM INTERNATIONAL, INC.
July 1, 2009
SCHEDULE A
TRANSACTIONS AND ARRANGEMENTS CONCERNING OUR SECURITIES
This Schedule A, which is incorporated by reference into the Offer to Exchange, provides descriptions of the following transactions:
| I. | Transactions in the eligible options during the 60 days prior to the Offer; and |
| II. | Agreements, arrangements or understandings, whether or not legally enforceable, between the Company, our executive officers or directors and any other person with respect to our securities, which includes the following transactions: |
| A. | Options |
| B. | Warrants |
| C. | Notes |
| D. | Series F Convertible Preferred Stock |
| E. | Other |
| I. | Securities Transactions During the Past 60 Days. |
During the 60 days prior to the commencement of the Offer, the Board of Directors granted options to purchase shares of the Company’s Common Stock, pursuant to the Company’s 2004 Stock Incentive Plan, to each of Michael Reardon, Frederick Mapp and Bruce Friedman. Please see the table below under “Options” for a description of these transactions. Please see Exhibits (d)(20) and (d)(7) to the Schedule TO for a copy of the i2 Telecom International, Inc. 2004 Incentive Stock Option Plan and the form of Stock Option Agreement.
| II. | Agreements, Arrangements and Understandings between the Company or any of our Officers or Directors and any Other Person with Respect to our Securities. |
| A. | Options. |
The Company grants options to purchase shares of the Company’s Common Stock to its directors pursuant to the Company’s 2004 Plan. During fiscal year 2008, each director serving in his first year as a director received options to purchase 200,000 shares of Common Stock, exercisable at $0.10 per share and vesting at 50% over a two year period. The options expire after three years from the grant date. All other directors received options to purchase 50,000 shares of Common Stock, exercisable at $0.10 per share and vesting at 50% over a two year period. These options also expire after three years from the grant date.
On March 19, 2009, the Company granted to each of the following incumbent directors options to purchase 50,000 shares of Common Stock, exercisable at $0.80 per share and vesting at 1/36th per month over a three year period: Andrew Berman, Timothy McGeehan, David Reese, D. Christer Bylander, Audrey Braswell and Montgomery Bannerman. The options expire after three years from the grant date. Subsequently, on May 6, 2009, the Board granted to Bruce C. Friedman options to purchase 300,000 shares of Common Stock, exercisable at $0.70 per share, vesting at 1/36th each month over a three year period and expiring three years from the grant date. The Board also granted to each of Frederick D. Mapp and Michael D. Reardon on June 8, 2009 and June 17, 2009 respectively, options to purchase 200,000 shares of Common Stock, exercisable at $0.70 per share, vesting at 1/36th each month over a three year period and expiring three years from the grant date. Please see Exhibits (d)(20) and (d)(7) to the Schedule TO for a copy of the i2 Telecom International, Inc. 2004 Incentive Stock Option Plan and the form of Stock Option Agreement.
The following table provides details for the outstanding options to purchase shares of our Common Stock that the Board has granted:
Name (*) | Grant Date | Term(Months) | Price | Number of Shares of Common Stock Underlying Options |
Aghapekian, Raffi | 03/19/09 | 36 | $0.80 | 40,000 |
Arena, Paul | 06/01/02 | 96 | $1.50 | 121,803 |
Arena, Paul | 03/21/07 | 36 | $1.50 | 30,000 |
Arena, Paul | 01/07/08 | 36 | $1.00 | 250,000 |
Arena, Paul | 03/19/09 | 36 | $0.80 | 250,000 |
Arena, Paul | 04/20/09 | 36 | $0.70 | 400,000 |
Bannerman, Monty | 09/05/07 | 36 | $0.70 | 200,000 |
Bannerman, Monty | 01/07/08 | 36 | $1.00 | 25,000 |
Bannerman, Monty | 03/19/09 | 96 | $0.80 | 2,777 |
Bender, Douglas | 11/01/02 | 36 | $1.50 | 66,438 |
Bender, Douglas | 03/21/07 | 36 | $1.50 | 10,000 |
Bender, Douglas | 01/07/08 | 36 | $1.00 | 100,000 |
Bender, Douglas | 03/19/09 | 48 | $0.80 | 100,000 |
Bender, Douglas | 04/20/09 | 36 | $0.70 | 200,000 |
Berman, Andrew | 04/14/08 | 36 | $1.00 | 200,000 |
Berman, Andrew | 09/15/08 | 36 | $1.00 | 100,000 |
Berman, Andrew | 03/19/09 | 96 | $0.80 | 50,000 |
Berman, Andrew | 04/20/09 | 36 | $0.70 | 400,000 |
Biegel, Sara | 03/19/09 | 36 | $0.80 | 20,000 |
Braswell, Audrey | 06/01/02 | 36 | $1.50 | 33,219 |
Braswell, Audrey | 03/21/07 | 36 | $1.50 | 10,000 |
Braswell, Audrey | 01/07/08 | 36 | $1.00 | 50,000 |
Braswell, Audrey | 03/19/09 | 36 | $0.80 | 50,000 |
Bylander, Chris | 03/21/07 | 36 | $1.50 | 10,000 |
Bylander, Chris | 01/07/08 | 36 | $1.00 | 25,000 |
Bylander, Chris | 03/19/09 | 36 | $0.80 | 1,389 |
Cochran, Del | 05/14/09 | 36 | $0.80 | 50,000 |
Cooper, Andrew | 12/12/07 | 36 | $1.00 | 50,000 |
Cooper, Andrew | 01/27/09 | 36 | $0.80 | 100,000 |
Crockatt, Clifton | 03/21/07 | 36 | $1.50 | 10,000 |
Evans, Ken | 01/07/08 | 36 | $1.00 | 25,000 |
Evans, Ken | 03/19/09 | 36 | $0.80 | 50,000 |
Fazel, Ali | 03/19/09 | 36 | $0.80 | 20,000 |
Friedman, Bruce | 05/06/09 | 48 | $0.70 | 300,000 |
Gilormo, Doug | 03/19/09 | 36 | $0.80 | 20,000 |
Hefner, Kenny | 05/07/08 | 48 | $1.00 | 10,000 |
Hefner, Kenny | 03/19/09 | 36 | $0.80 | 25,000 |
Hester, Cynthia | 04/30/08 | 36 | $1.00 | 50,000 |
Hester, Cynthia | 03/19/09 | 36 | $0.80 | 30,000 |
Jones, Jeffery | 11/07/06 | 36 | $1.20 | 5,000 |
Jones, Jeffrey | 01/07/08 | 36 | $1.00 | 20,000 |
Mapp, Fred | 06/04/09 | 36 | $0.70 | 200,000 |
McGeehan, Timothy | 09/24/08 | 36 | $1.00 | 200,000 |
McGeehan, Timothy | 03/19/09 | 36 | $0.80 | 50,000 |
Miltenberger, Chris | 08/05/08 | 36 | $1.20 | 200,000 |
Name (*) | Grant Date | Term(Months) | Price | Number of Shares of Common Stock Underlying Options |
Miltenberger, Chris | 03/19/09 | 36 | $0.80 | 100,000 |
Miltenberger, Chris | 04/20/09 | 36 | $0.70 | 200,000 |
Morse, Susan | 03/19/09 | 36 | $0.80 | 20,000 |
Murphy, Tom | 09/24/08 | 36 | $1.00 | 50,000 |
Reardon, Mike | 06/17/09 | 36 | $0.70 | 200,000 |
Reese, David | 05/01/07 | 36 | $1.20 | 160,000 |
Reese, David | 09/12/07 | 36 | $1.20 | 80,000 |
Reese, David | 09/23/08 | 36 | $1.00 | 150,000 |
Reese, David | 03/19/09 | 36 | $0.80 | 1,389 |
Stessel, Larry | 01/07/08 | 36 | $1.00 | 30,000 |
Stessel, Larry | 03/19/09 | 36 | $0.80 | 40,000 |
Stevans, Travis | 01/07/08 | 36 | $1.00 | 20,000 |
Stevans, Travis | 03/19/09 | 36 | $0.80 | 30,000 |
Steven Short | 03/19/09 | 36 | $0.80 | 30,000 |
_______________________
*Please see Exhibit (d)(7) to the Schedule TO for the Form of Stock Option Agreement.
| B. | Warrants. |
In addition to the Offer, we are also offering to our warrant holders the option to exchange existing warrants for shares of our Common Stock in the same ratio as in this Offer, which is one share of Common Stock for each five shares convertible under the warrants and an alternative option to reprice those warrants at an exercise price of $0.50 per share. The number of shares into which all warrants taken together could currently convert is approximately 22,230,491. If all warrants are exchanged for shares, we will issue an additional 4,446,099 shares of our Common Stock to the warrant holders. Our current and former employees, executive officers and directors holding outstanding warrants will be eligible to participate in the warrant offer. The warrant offer will reduce the overhang and decrease the potential dilution that could result from conversion.
The following table provides details for outstanding warrants to purchase shares of our Common Stock (with cashless exercise provisions) that the Board has issued:
Name (**) | Issue Date | Term (Months) | Price | Number of Shares of Common Stock Underlying Warrants |
21st Century Strategic | 01/30/09 | 60 | $ 0.10 | 112,500 |
21st Century Strategic | 02/28/09 | 60 | $ 0.10 | 112,500 |
21st Century Strategic | 03/30/09 | 60 | $ 0.10 | 112,500 |
21st Century Strategic | 04/30/09 | 60 | $ 0.10 | 112,500 |
3CD Consulting | 06/16/08 | 36 | $ 1.00 | 200,000 |
Arena, Paul | 10/25/08 | 60 | $ 0.80 | 250,000 |
Arena, Paul | 06/22/09 | 60 | $ 0.80 | 300,000 |
Barnes, Amy | 12/20/06 | 36 | $ 0.70 | 71,429 |
Barr | 04/16/09 | 36 | $ 0.80 | 100,000 |
Barton, Chad | 02/28/07 | 36 | $ 1.20 | 104,167 |
Barton, Chad | 10/30/07 | 36 | $ 1.20 | 37,500 |
Beckmann DE Tr | 10/30/07 | 36 | $ 0.70 | 25,000 |
Beckoff, Robert | 12/28/06 | 36 | $ 0.70 | 17,857 |
Beckoff, Robert | 10/30/07 | 36 | $ 0.70 | 3,125 |
Blumenstein | 02/27/09 | 36 | $ 0.80 | 30,000 |
Blumenstein | 06/22/09 | 60 | $ 0.80 | 30,000 |
Bradley | 03/02/09 | 36 | $ 0.80 | 50,000 |
Bradley | 06/22/09 | 60 | $ 0.80 | 50,000 |
Braswell Enterprises | 10/25/08 | 60 | $ 0.80 | 250,000 |
Braswell Enterprises | 02/25/09 | 60 | $ 0.80 | 100,000 |
Braswell Enterprises | 06/22/09 | 60 | $ 0.80 | 420,000 |
Bromberg, David | 02/28/07 | 36 | $ 1.20 | 25,000 |
Bromberg, David | 10/30/07 | 36 | $ 1.20 | 2,400 |
Bromberg, David - IRA | 10/30/07 | 36 | $ 1.20 | 6,600 |
Bryde, Bruce | 12/20/06 | 36 | $ 0.70 | 28,571 |
Camera, David | 12/20/06 | 36 | $ 0.70 | 5,000 |
Case | 04/27/09 | 36 | $ 0.80 | 8,000 |
Castlemark | 06/16/08 | 36 | $ 1.00 | 100,000 |
CEJ | 02/05/09 | 36 | $ 0.80 | 100,000 |
CEJ | 06/22/09 | 60 | $ 0.80 | 100,000 |
Chadwick, Michael | 02/28/07 | 36 | $ 1.20 | 10,417 |
Chadwick, Michael | 10/30/07 | 36 | $ 1.20 | 3,750 |
Church, Larry | 02/28/07 | 36 | $ 1.20 | 10,417 |
Church, Larry | 10/30/07 | 36 | $ 1.20 | 3,750 |
Clarke | 03/13/09 | 36 | $ 0.80 | 25,000 |
Clarke | 06/22/09 | 60 | $ 0.80 | 25,000 |
Cooper McKhann Trust | 06/22/09 | 60 | $ 0.80 | 75,000 |
Cooper Trust | 12/30/08 | 60 | $ 0.80 | 100,000 |
Cooper Trust | 01/27/09 | 60 | $ 0.80 | 100,000 |
Cooper Trust | 03/15/09 | 60 | $ 0.80 | 100,000 |
Name (**) | Issue Date | Term (Months) | Price | Number of Shares of Common Stock |
Cooper, Andrew | 02/29/08 | 60 | $ 1.00 | 100,000 |
Cooper, Andrew | 05/15/08 | 60 | $ 1.00 | 150,000 |
Cooper, Andrew | 08/15/08 | 60 | $ 1.00 | 50,000 |
Cooper, Andrew | 09/15/08 | 60 | $ 0.80 | 100,000 |
Cornell Capital Partners | 01/04/07 | 36 | $ 1.10 | 132,500 |
Crews, Jerry | 12/28/06 | 36 | $ 0.70 | 71,429 |
Crews, Jerry | 02/28/07 | 36 | $ 1.20 | 20,833 |
Crews, Jerry | 10/30/07 | 36 | $ 1.20 | 7,500 |
Crews, Jerry | 10/30/07 | 36 | $ 0.70 | 12,500 |
Crews, Jerry | 12/31/07 | 60 | $ 1.00 | 50,000 |
Crews, Jerry | 03/25/08 | 60 | $ 1.00 | 50,000 |
Crews, Jerry | 04/08/08 | 60 | $ 1.00 | 50,000 |
Crews, Jerry | 04/15/08 | 60 | $ 1.00 | 50,000 |
Crews, Jerry | 05/02/08 | 60 | $ 1.00 | 25,000 |
Crews, Jerry | 10/14/08 | 60 | $ 0.80 | 50,000 |
Crews, Jerry | 12/15/08 | 60 | $ 0.80 | 50,000 |
Crews, Jerry | 02/15/09 | 60 | $ 0.80 | 75,000 |
Crews, Jerry | 06/22/09 | 60 | $ 0.80 | 37,500 |
Delaware Charter Guarantee & Trust Co. TTEE F/B/O William Beckman,Acct #RHL 019712 | 12/28/06 | 36 | $ 0.70 | 142,871 |
Dunbar | 04/24/09 | 36 | $ 0.80 | 100,000 |
Dutton, Kevin | 02/28/07 | 36 | $ 1.20 | 4,167 |
Dutton, Kevin | 10/30/07 | 36 | $ 1.20 | 750 |
Edwards, Jerry | 05/07/09 | 36 | $ 0.80 | 20,000 |
Ehrlich, James | 09/01/08 | 60 | $ 0.80 | 100,000 |
Ehrlich, James | 06/22/09 | 60 | $ 0.80 | 25,000 |
Falkner, Jerry | 02/28/08 | 60 | $ 1.00 | 50,000 |
Fantino, Mark | 06/22/09 | 60 | $ 0.80 | 25,000 |
Flanagan, Jim | 02/28/07 | 36 | $ 1.20 | 10,417 |
Flanagan, Jim | 10/30/07 | 36 | $ 1.20 | 3,750 |
Flynn | 04/03/09 | 36 | $ 0.80 | 30,000 |
Flynn | 06/22/09 | 60 | $ 0.80 | 30,000 |
Fox | 04/27/09 | 36 | $ 0.80 | 10,000 |
Franke, Joe | 02/28/07 | 36 | $ 1.20 | 10,417 |
Frankie, John | 12/28/06 | 36 | $ 0.70 | 71,429 |
Frankie, John | 10/30/07 | 36 | $ 0.70 | 12,500 |
Friedman, Bruce | 10/30/07 | 36 | $ 1.20 | 3,750 |
Friedman, Bruce | 08/15/08 | 60 | $ 1.00 | 75,000 |
Friedman, Bruce | 08/20/08 | 60 | $ 1.00 | 25,000 |
Friedman, Bruce | 08/25/08 | 60 | $ 1.00 | 25,000 |
Friedman, Bruce | 09/01/08 | 60 | $ 1.00 | 25,000 |
Friedman, Bruce | 09/02/08 | 60 | $ 1.00 | 50,000 |
Friedman, Bruce | 09/02/08 | 60 | $ 1.00 | 50,000 |
Name (**) | Issue Date | Term (Months) | Price | Number of Shares of Common Stock Underlying Warrants |
Friedman, Bruce | 09/26/08 | 60 | $ 1.00 | 50,000 |
Friedman, Bruce | 01/20/09 | 60 | $ 0.80 | 50,000 |
Friedman, Bruce | 01/25/09 | 60 | $ 0.80 | 50,000 |
Friedman, Bruce | 01/25/09 | 60 | $ 0.80 | 100,000 |
Friedman, Bruce | 02/01/09 | 60 | $ 0.80 | 37,500 |
Friedman, Bruce | 02/01/09 | 60 | $ 0.80 | 75,000 |
Friedman, Bruce | 02/01/09 | 60 | $ 0.80 | 75,000 |
Friedman, Bruce | 02/15/09 | 60 | $ 0.80 | 75,000 |
Friedman, Bruce | 05/01/09 | 60 | $ 0.80 | 12,500 |
Friedman, Bruce | 05/01/09 | 60 | $ 0.80 | 25,000 |
Friedman, Bruce | 05/01/09 | 60 | $ 0.80 | 25,000 |
Friedman, Bruce | 06/22/09 | 60 | $ 0.80 | 169,167 |
Gibson | 02/23/09 | 36 | $ 0.80 | 110,000 |
Gibson | 06/22/09 | 60 | $ 0.80 | 110,000 |
Grace, Don | 02/28/07 | 36 | $ 1.20 | 10,417 |
Grace, Don | 10/30/07 | 36 | $ 1.20 | 3,750 |
Hachem, Stacia | 10/30/07 | 36 | $ 1.20 | 15,000 |
Hardin, Lee | 02/28/07 | 36 | $ 1.20 | 6,250 |
Hardin, Lee | 10/30/07 | 36 | $ 1.20 | 2,250 |
Hayes Family Tr, UA dtd 1/20/92 | 12/20/06 | 36 | $ 0.70 | 35,714 |
Hayes, Alan G. | 12/20/06 | 36 | $ 0.70 | 35,714 |
Heiken, Russ | 02/28/07 | 36 | $ 1.20 | 10,417 |
Heiken, Russ | 10/30/07 | 36 | $ 1.20 | 3,750 |
Hoffman, Richard | 05/11/09 | 36 | $ 0.80 | 10,000 |
Hollander, Jeff | 03/06/08 | 60 | $ 1.00 | 100,000 |
Hollander, Jeff | 05/08/08 | 60 | $ 1.00 | 50,000 |
Hollander, Jeff | 06/07/08 | 60 | $ 1.00 | 100,000 |
Hollander, Jeff | 08/07/08 | 60 | $ 1.00 | 150,000 |
Hollander, Jeff | 11/07/08 | 60 | $ 0.80 | 300,000 |
Hollander, Jeff | 06/22/09 | 60 | $ 0.80 | 83,333 |
Hooker, Ron | 06/22/09 | 60 | $ 0.80 | 25,000 |
Hooker, Ron & Mary | 06/22/09 | 60 | $ 0.80 | 25,000 |
Hornsby, Jared | 10/30/07 | 36 | $ 1.20 | 750 |
Huynh, Daniel | 12/20/06 | 36 | $ 0.70 | 142,857 |
IA Madison | 01/16/09 | 36 | $ 0.80 | 50,000 |
IA Madison Assoc. | 06/22/09 | 60 | $ 0.80 | 50,000 |
Jackson, Peyton | 02/27/09 | 36 | $ 0.80 | 25,000 |
Johnson, Terry | 02/28/07 | 36 | $ 1.20 | 10,417 |
Johnson, Terry & Mar | 10/30/07 | 36 | $ 1.20 | 3,750 |
Jones, David | 02/28/07 | 36 | $ 1.20 | 16,667 |
Jones, David | 02/28/07 | 36 | $ 1.20 | 27,083 |
Jones, David & Connie | 10/30/07 | 36 | $ 1.20 | 15,750 |
KBK Ventures | 06/16/08 | 36 | $ 1.00 | 200,000 |
Kern | 02/18/09 | 36 | $ 0.80 | 40,000 |
Name (**) | Issue Date | Term (Months) | Price | Number of Shares of Common Stock Underlying Warrants |
Kern | 04/24/09 | 36 | $ 0.80 | 100,000 |
Kern | 06/22/09 | 60 | $ 0.80 | 40,000 |
Kirchofer, Bill | 02/28/07 | 36 | $ 1.20 | 12,500 |
Kirchoffer, Bill | 10/30/07 | 36 | $ 1.20 | 4,500 |
Kissner, Gerry - IRA | 10/30/07 | 36 | $ 1.20 | 3,750 |
Kistner, Jerry | 02/28/07 | 36 | $ 1.20 | 10,417 |
Klefos, Erik | 02/28/07 | 36 | $ 1.20 | 10,417 |
Klefos, Erik - IRA | 10/30/07 | 36 | $ 1.20 | 3,750 |
Knapp, Eric "Rick" | 10/30/07 | 36 | $ 1.20 | 3,750 |
Knott, Wilson | 12/28/06 | 36 | $ 0.70 | 71,429 |
Knott, Wilson | 12/28/06 | 36 | $ 0.70 | 71,429 |
Knott, Wilson | 02/28/07 | 36 | $ 1.20 | 10,417 |
Knott, Wilson | 10/30/07 | 36 | $ 1.20 | 3,750 |
Knott, Wilson | 10/30/07 | 36 | $ 0.70 | 25,000 |
Knotts, Greg | 02/28/07 | 36 | $ 1.20 | 10,417 |
Knotts, Greg | 10/30/07 | 36 | $ 1.20 | 3,750 |
Koffman, Bud | 12/15/08 | 60 | $ 0.80 | 150,000 |
Koffman, Bud | 02/19/09 | 60 | $ 0.80 | 150,000 |
Koffman, Burton | 09/19/08 | 60 | $ 0.80 | 100,000 |
Koffman, Burton | 06/22/09 | 60 | $ 0.80 | 70,000 |
Kossar, Bernard | 12/31/07 | 60 | $ 1.00 | 50,000 |
Kossar, Bernard | 03/01/08 | 60 | $ 1.00 | 50,000 |
Kossar, Bernard | 05/02/08 | 60 | $ 1.00 | 25,000 |
Loulakis, Michael | 05/11/09 | 36 | $ 0.80 | 67,000 |
Mack, Jim & Bonnie | 02/28/07 | 36 | $ 1.20 | 20,833 |
Mack, Jim & Bonnie | 10/30/07 | 36 | $ 1.20 | 7,500 |
Mark Fantino | 02/03/09 | 36 | $ 0.80 | 25,000 |
Marshall Folkes | 03/12/09 | 36 | $ 0.80 | 50,000 |
Marshall Folkes | 06/22/09 | 60 | $ 0.80 | 50,000 |
Mena Investment | 06/22/09 | 60 | $ 0.80 | 12,500 |
MidSouth Investors | 06/22/09 | 60 | $ 0.80 | 10,000 |
Monaco, Susan | 05/11/09 | 36 | $ 0.80 | 20,000 |
Montgomery, Mitchell | 05/14/08 | 60 | $ 1.00 | 50,000 |
Montgomery, Mitchell | 12/19/08 | 60 | $ 0.80 | 100,000 |
Montgomery, Mitchell | 01/19/09 | 60 | $ 0.80 | 100,000 |
Montgomery, Mitchell | 06/22/09 | 60 | $ 0.80 | 98,332 |
Munoz, George | 12/28/06 | 36 | $ 0.70 | 71,429 |
Munoz, George | 02/28/07 | 36 | $ 1.20 | 20,833 |
Munoz, George | 10/30/07 | 36 | $ 1.20 | 7,500 |
Munoz, George | 10/30/07 | 36 | $ 0.70 | 12,500 |
Napp, Rick | 02/28/07 | 36 | $ 1.20 | 10,417 |
Pamplona Capital, Inc. | 12/20/06 | 36 | $ 0.70 | 35,714 |
Peyton Jackson | 02/27/09 | 36 | $ 0.80 | 25,000 |
Phipps, Hubert | 02/29/08 | 60 | $ 1.00 | 25,000 |
Phipps, Hubert | 01/27/09 | 60 | $ 0.80 | 100,000 |
Name (**) | Issue Date | Term (Months) | Price | Number of Shares of Common Stock Underlying Warrants |
Pignatello, Elizabeth | 05/07/09 | 36 | $ 0.80 | 5,000 |
Pitelli, Mary | 02/28/07 | 36 | $ 1.20 | 10,417 |
Pitelli, Mary | 10/30/07 | 36 | $ 1.20 | 3,750 |
Pitkin, Barry & Smith, Teal | 12/20/06 | 36 | $ 0.70 | 11,429 |
Purcell, Ernest | 09/01/08 | 60 | $ 0.80 | 175,000 |
Purcell, Ernest | 09/01/08 | 60 | $ 0.80 | 175,000 |
Purcell, Ernest | 06/22/09 | 60 | $ 0.80 | 95,833 |
Purcell, Ernest | 06/22/09 | 60 | $ 0.80 | 50,000 |
Ranzini, Angela | 06/22/09 | 60 | $ 0.80 | 12,500 |
Rapp, Phillip | 10/30/07 | 36 | $ 0.70 | 25,000 |
Rapp, Phillip | 12/18/08 | 60 | $ 0.80 | 100,000 |
Rapp, Phillip | 03/12/09 | 60 | $ 0.80 | 100,000 |
Rapp, Phillip | 06/22/09 | 60 | $ 0.80 | 80,000 |
Reynolds | 04/30/09 | 36 | $ 0.80 | 10,000 |
Reynolds | 06/22/09 | 60 | $ 0.80 | 10,000 |
Ricci | 02/05/09 | 36 | $ 0.80 | 25,000 |
Ricci | 06/22/09 | 60 | $ 0.80 | 25,000 |
Ritter, Robert | 02/28/07 | 36 | $ 1.20 | 10,417 |
Ritter, Robert | 10/30/07 | 36 | $ 1.20 | 3,750 |
Ritter, Robert | 10/30/08 | 60 | $ 0.80 | 25,000 |
Ritter, Robert | 12/19/08 | 60 | $ 0.80 | 50,000 |
Ritter, Robert | 06/22/09 | 60 | $ 0.80 | 31,667 |
Robinson, Collin | 05/07/09 | 36 | $ 0.80 | 10,000 |
Robinson, Enid | 05/07/09 | 36 | $ 0.80 | 20,000 |
Ron & Mary Hooker | 02/06/09 | 36 | $ 0.80 | 25,000 |
Ron Hooker | 02/05/09 | 36 | $ 0.80 | 25,000 |
Salerno, Russ | 02/28/07 | 36 | $ 1.20 | 10,417 |
Salerno, Russ | 10/30/07 | 36 | $ 1.20 | 3,750 |
Sanders 1998 Children's Trust | 10/30/07 | 36 | $ 0.70 | 9,375 |
Sanders 1998 Children's Trust DTD 12/01/97 | 12/28/06 | 36 | $ 0.70 | 53,571 |
Sanders, Don | 12/28/06 | 36 | $ 0.70 | 53,571 |
Sanders, Don | 10/30/07 | 36 | $ 0.70 | 9,375 |
Sanders, Katherine | 12/28/06 | 36 | $ 0.70 | 53,571 |
Sanders, Katherine | 10/30/07 | 36 | $ 0.70 | 9,375 |
Schwartz, Jay | 02/28/07 | 36 | $ 1.20 | 62,500 |
Slack, Robert | 05/07/09 | 36 | $ 0.80 | 20,000 |
Snyder, Ward | 12/20/06 | 36 | $ 0.70 | 28,571 |
Staudinger, David | 10/30/07 | 36 | $ 1.20 | 3,750 |
Steel, Kenneth | 09/19/08 | 60 | $ 0.80 | 100,000 |
Steel, Kenneth | 09/29/08 | 60 | $ 0.80 | 100,000 |
Steel, Kenneth | 10/22/08 | 60 | $ 0.80 | 150,000 |
Steel, Kenneth | 10/27/08 | 60 | $ 0.80 | 150,000 |
Steel, Kenneth | 11/20/08 | 60 | $ 0.80 | 150,000 |
Name (**) | Issue Date | Term (Months) | Price | Number of Shares of Common Stock Underlying Warrants |
Steel, Kenneth | 11/30/08 | 60 | $ 0.80 | 300,000 |
Steel, Kenneth | 02/20/09 | 60 | $ 0.80 | 150,000 |
Steel, Kenneth | 03/01/09 | 60 | $ 0.80 | 300,000 |
Steel, Kenneth | 06/22/09 | 60 | $ 0.80 | 251,667 |
Steel, Kenneth | 06/22/09 | 60 | $ 0.80 | 321,667 |
Stephen Butterfield Trust | 04/27/09 | 36 | $ 0.63 | 500,000 |
Stephen Butterfield Trust | 06/05/09 | 36 | $ 0.63 | 3,000,000 |
Stern, Richard | 12/20/06 | 36 | $ 0.70 | 7,143 |
Stilwell | 03/13/09 | 36 | $ 0.80 | 5,000 |
Stilwell | 06/22/09 | 60 | $ 0.80 | 5,000 |
Stoddinger, David | 02/28/07 | 36 | $ 1.20 | 10,417 |
Tanner, Jeff | 02/28/07 | 36 | $ 1.20 | 10,417 |
Tanner, Jeff | 10/30/07 | 36 | $ 1.20 | 3,750 |
Thurston, Ron | 02/28/07 | 36 | $ 1.20 | 12,500 |
Thurston, Ron | 10/30/07 | 36 | $ 1.20 | 4,500 |
TriEquity | 06/16/08 | 36 | $ 1.00 | 100,000 |
Verdi Trading | 10/30/07 | 36 | $ 1.20 | 22,500 |
Vestal Venture Capital | 08/24/08 | 60 | $ 0.80 | 62,500 |
Vestal Venture Capital | 08/24/08 | 60 | $ 0.80 | 150,000 |
Vestal Venture Capital | 10/22/08 | 60 | $ 0.80 | 150,000 |
Vestal Venture Capital | 10/23/08 | 60 | $ 0.80 | 135,000 |
Vestal Venture Capital | 10/24/08 | 60 | $ 0.80 | 150,000 |
Vestal Venture Capital | 10/24/08 | 60 | $ 0.80 | 150,000 |
Vestal Venture Capital | 11/07/08 | 60 | $ 0.80 | 135,000 |
Vestal Venture Capital | 11/07/08 | 60 | $ 0.80 | 150,000 |
Vestal Venture Capital | 06/22/09 | 60 | $ 0.80 | 443,042 |
Virenta | 10/08/08 | 36 | $ 1.00 | 625,000 |
Weir, Don & Julie | 12/28/06 | 36 | $ 0.70 | 53,571 |
Weir, Don & Julie | 10/30/07 | 36 | $ 0.70 | 9,375 |
Winslow, Grover | 12/28/06 | 36 | $ 0.70 | 35,714 |
Winslow, Grover | 10/30/07 | 36 | $ 0.70 | 6,250 |
Yeh's Mechanical Services | 12/20/06 | 36 | $ 0.70 | 71,429 |
Zyngier, Alex | 02/28/07 | 36 | $ 1.20 | 41,667 |
______________________
** Please see Exhibit (d)(6) to the Schedule TO for the Form of Warrant with cashless exercise provisions. These warrants are also subject to registration rights. Please see Exhibit (d)(15) to the Schedule TO for the Form of Registration Rights Agreement.
The following table provides details for outstanding warrants to purchase shares of our Common Stock (without cashless exercise provisions) that the Board has issued:
Name(***) | Issue Date | Term (Months) | Price | Number of Shares of Common Stock Underlying Warrants |
3CD Consulting | 06/12/07 | 36 | $1.00 | 200,000 |
3CD Consulting | 03/11/09 | 36 | $0.80 | 200,000 |
Armstrong, Pat | 02/20/07 | 36 | $1.20 | 25,250 |
Armstrong, Pat | 06/02/08 | 36 | $0.70 | 87,500 |
Bromberg, David | 12/10/06 | 36 | $1.00 | 5,000 |
Bromberg, David | 02/20/07 | 36 | $1.20 | 6,750 |
Bromberg, David | 03/15/07 | 36 | $1.20 | 11,750 |
Burns, Clark | 09/12/08 | 36 | $1.00 | 100,000 |
C&H Capital | 08/16/06 | 36 | $0.70 | 100,000 |
C&H Capital | 06/12/07 | 36 | $1.00 | 100,000 |
Camera, David | 11/20/07 | 36 | $0.70 | 30,000 |
Couples, Fred | 01/30/09 | 12 | $0.50 | 135,638 |
Edwards, Andru | 12/12/08 | 36 | $0.80 | 10,000 |
Falkner, Jerry | 10/30/06 | 36 | $0.70 | 5,000 |
Falkner, Jerry | 02/20/07 | 36 | $1.00 | 25,000 |
Freeman, Samuel | 09/29/08 | 36 | $1.00 | 10,000 |
GKF Consulting | 08/22/08 | 36 | $1.20 | 80,000 |
KBK Ventures | 06/12/07 | 36 | $1.00 | 200,000 |
KBK Ventures | 03/11/09 | 36 | $0.80 | 200,000 |
Knott, Wilson | 12/10/06 | 36 | $1.00 | 5,000 |
Knott, Wilson | 02/20/07 | 36 | $1.20 | 25,250 |
Kossar, Bernard | 09/14/07 | 36 | $1.00 | 25,000 |
Lastra, Roberto | 08/28/08 | 36 | $1.20 | 100,000 |
Mena Investments | 10/30/06 | 36 | $0.70 | 5,000 |
Name (**) | Issue Date | Term (Months) | Price | Number of Shares of Common Stock Underlying Warrants |
Mena Investments | 01/01/07 | 36 | $1.00 | 12,500 |
Mena Investments | 01/01/08 | 36 | $1.00 | 12,500 |
MidSouth Investors | 01/01/07 | 36 | $1.00 | 10,000 |
MidSouth Investors | 01/01/08 | 36 | $1.00 | 10,000 |
Montgomery, Mitchell | 07/14/08 | 60 | $1.00 | 50,000 |
Munoz, George | 03/31/08 | 60 | $1.00 | 10,000 |
Munoz, George | 03/31/08 | 60 | $1.00 | 10,000 |
Pernice, Tom | 01/22/09 | 12 | $0.50 | 42,553 |
Phipps, Hubert | 08/31/06 | 36 | $1.00 | 25,000 |
Phipps, Hubert | 08/31/07 | 36 | $1.00 | 25,000 |
Puri, Deepak | 10/14/08 | 36 | $0.80 | 50,000 |
Ranzini, Angela | 10/30/06 | 36 | $0.70 | 5,000 |
Ranzini, Angela | 01/01/07 | 36 | $1.00 | 12,500 |
Roach, O. Lynn | 01/30/09 | 12 | $0.50 | 23,936 |
Snowden, Phil | 03/10/09 | 12 | $1.00 | 20,000 |
Steel, Kenneth | 07/27/08 | 60 | $1.00 | 75,000 |
Stern, Mike | 12/10/06 | 36 | $0.70 | 4,500 |
Stern, Mike | 12/15/06 | 36 | $0.70 | 4,500 |
Stessel, Larry | 11/01/06 | 36 | $0.70 | 87,500 |
Stessel, Larry | 02/20/07 | 36 | $1.20 | 25,250 |
Stessel, Larry | 06/02/08 | 36 | $0.70 | 87,500 |
University Bank | 08/05/05 | 48 | $1.50 | 10,000 |
Vestal Venture Capital | 07/22/08 | 60 | $1.00 | 37,500 |
Vestal Venture Capital | 08/07/08 | 60 | $0.80 | 93,750 |
Virenta | 10/08/08 | 36 | $1.00 | 625,000 |
_______________________
*** | Please see Exhibit (d)(5) to the Schedule TO for the Form of Warrant without cashless exercise provisions. |
Effective June 5, 2009, the Company and the Butterfield Trust entered into an Exchange Agreement (the “Exchange Agreement”) whereby the Company issued to the Butterfield Trust an Amended and Restated Warrant (the “Amended and Restated Warrant”) which amended certain terms of a warrant that the Company issued to the Butterfield Trust on April 27, 2009 (the “Original Warrant.”) The Original Warrant entitled the Butterfield Trust to purchase up to 2,857,143 shares of Common Stock of the Company and provided for a five-year exercise term and a purchase price of $0.0875 per each share of Common Stock of the Company. The Amended and Restated Warrant amended the terms of the Original Warrant to reflect the Company’s Reverse Split and to (i) reduce the exercise period from five years to three years, (ii) change the number of shares that can be purchased under the Warrant from 2,857,143 to 500,000, and (iii) change the purchase price from $0.0875 to $0.625 per each share of Common Stock. Pursuant to the Exchange Agreement, the Original Warrant was cancelled. Please see Exhibits (d)(17) and (d)(19) to the Schedule TO for copies of the Amended and Restated Warrant and the Exchange Agreement.
| C. | Notes |
As mentioned in the Offer to Exchange, simultaneously with this Offer and the warrant offer, we are offering to certain of our existing noteholders the opportunity to exchange some or all of the principal, interest and loan fees under the notes for different series of preferred stock of IP Holdings. In some instances the noteholders will also receive cash in the exchange. The issuance price of the preferred stock of IP Holdings is $1.00 for every $1.00 of each note being exchanged. Dividends accrue on the issuance price at a rate of 12% per annum. The preferred stock has other terms as set forth in the Certificate of Designations, including terms related to redemption, which was filed on Form 8-K on July 1, 2009.
The following table provides details for notes issued by the Company, including the notes being offered for exchange in a separate offer to the noteholder:
Creditor | Date per Agreement | Maturity Date | Interest Rate | Original Amount ($) | Balance 6/30/2009 ($) |
|
|
|
|
|
|
Phipps, Hubert(1) | 08/31/06 | 12/31/09 | 10.00% | 250,000 | 56,839 |
|
|
|
|
|
|
Midsouth Investor Fund(1) | 04/19/05 | 06/30/09 | 12.00% | 100,000 | 100,000 |
Mena Investment (Mirza) (1) | 11/18/05 | 06/30/09 | 8.00% | 25,000 | 25,000 |
Ranzini, Angela(1) | 11/18/05 | 06/30/09 | 8.00% | 25,000 | 25,000 |
Rapp, Phillip, Jr. (2) | 12/12/08 | 06/12/09 | 12.00% | 100,000 | 100,000 |
Rapp, Phillip, Jr. (2) | 05/27/09 | 07/26/09 | 12.00% | 77,089 | 77,089 |
|
|
|
|
| - |
Munoz, George (3) | 12/20/06 | 03/31/08 | 6.00% | 50,000 | 50,000 |
Munoz, George (3) | 01/29/07 | 03/31/08 | 6.00% | 50,000 | 50,000 |
|
|
|
|
|
|
Steel, Kenneth(4) | 12/21/07 | 05/20/09 | 12.00% | 200,000 | 50,000 |
Steel, Kenneth(4) | 02/22/08 | 04/22/09 | 12.00% | 200,000 | 50,000 |
Steel, Kenneth(2) | 09/19/08 | 05/20/09 | 12.00% | 100,000 | 100,000 |
Steel, Kenneth(2) | 09/29/08 | 06/01/09 | 12.00% | 200,000 | 200,000 |
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|
|
|
|
|
Vestal Venture Capital (4) | 07/09/07 | 04/24/09 | 12.00% | 650,000 | 162,500 |
Vestal Venture Capital (4) | 05/04/07 | 04/24/09 | 12.00% | 600,000 | 150,000 |
Vestal Venture Capital (4) | 09/28/07 | 05/07/09 | 12.00% | 250,000 | 62,500 |
Vestal Venture Capital (4) | 05/20/08 | 04/22/09 | 12.00% | 100,000 | 25,000 |
Vestal Venture Capital (2) | 12/31/08 | 06/23/09 | 12.00% | 135,000 | 135,000 |
Vestal Venture Capital (2) | 01/31/09 | 06/23/09 | 12.00% | 225,000 | 225,000 |
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|
|
|
|
|
Braswell Enterprises, LP(4) | 03/25/08 | 05/25/09 | 12.00% | 1,000,000 | 1,000,000 |
Braswell Enterprises, LP(2) | 11/25/08 | 05/25/09 | 12.00% | 100,000 | 100,000 |
Braswell Enterprises, LP(2) | 12/05/08 | 05/25/09 | 12.00% | 100,000 | 100,000 |
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|
|
|
|
|
Ehrlich, James(4) | 11/07/07 | 05/01/09 | 12.00% | 50,000 | 25,000 |
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|
|
|
|
|
Friedman, Bruce(4) | 10/31/07 | 06/01/09 | 12.00% | 100,000 | 50,000 |
Friedman, Bruce(4) | 12/06/07 | 05/01/09 | 12.00% | 100,000 | 50,000 |
Friedman, Bruce(4) | 12/21/07 | 05/20/09 | 12.00% | 50,000 | 25,000 |
Friedman, Bruce(4) | 02/08/08 | 05/25/09 | 12.00% | 100,000 | 50,000 |
Friedman, Bruce(4) | 04/25/08 | 05/25/09 | 12.00% | 50,000 | 25,000 |
Friedman, Bruce(4) | 05/01/08 | 06/01/09 | 12.00% | 50,000 | 25,000 |
Friedman, Bruce(4) | 09/26/08 | 05/25/09 | 12.00% | 50,000 | 50,000 |
Friedman, Bruce(2) | 04/09/09 | 04/27/09 | 12.00% | 25,000 | - |
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|
|
|
|
|
Purcell, Ernest(4) | 12/21/07 | 04/28/09 | 12.00% | 50,000 | 50,000 |
Purcell, Ernest(4) | 05/07/08 | 05/07/09 | 12.00% | 50,000 | 50,000 |
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|
|
|
|
|
Hollander, Jeff(4) | 03/06/08 | 05/07/09 | 12.00% | 100,000 | 100,000 |
|
|
|
|
|
|
Crews, Jerry(2) | 10/29/08 | 06/28/09 | 12.00% | 50,000 | 50,000 |
Date per Agreement | Maturity Date | Interest Rate | Original Amount ($) | Balance 6/30/2009 ($) |
|
|
|
|
|
|
Cooper McKhann Trust(4) | 03/14/08 | 05/15/09 | 12.00% | 100,000 | 100,000 |
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|
|
|
|
|
Montgomery, Mitchell(4) | 05/14/08 | 05/14/09 | 12.00% | 50,000 | 50,000 |
Montgomery, Mitchell & Elaine(2) | 02/09/09 | 08/10/09 | 12.00% | 50,000 | 50,000 |
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|
|
|
|
|
Ritter, Robert(2) | 10/29/08 | 04/14/09 | 12.00% | 25,000 | 25,000 |
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|
|
|
|
Hooker, Ronald(2) | 02/05/09 | 08/06/09 | 12.00% | 25,000 | 25,000 |
Hooker, Ronald & Mary(2) | 02/06/09 | 08/07/09 | 12.00% | 25,000 | 25,000 |
Fantino, Mark(2) | 02/03/09 | 08/04/09 | 12.00% | 25,000 | 25,000 |
Ricci, Ferdinand & Kimberley(2) | 02/05/09 | 08/06/09 | 12.00% | 25,000 | 25,000 |
CEJ Enterprises(2) | 02/05/09 | 08/06/09 | 12.00% | 100,000 | 100,000 |
Donald F. Kern SEP IRA(2) | 02/18/09 | 08/19/09 | 12.00% | 40,000 | 40,000 |
Blumenstein, David(2) | 02/27/09 | 08/28/09 | 12.00% | 30,000 | 30,000 |
Gibson, Steven(2) | 02/23/09 | 08/24/09 | 12.00% | 110,000 | 110,000 |
Bradley, Larry & Celia(2) | 03/02/09 | 09/31/09 | 12.00% | 50,000 | 50,000 |
Reynolds, Dr. K. Bradley(2) | 04/30/09 | 10/29/09 | 12.00% | 10,000 | 10,000 |
Folkes, III, Marshall G. (2) | 03/12/09 | 09/10/09 | 12.00% | 50,000 | 50,000 |
Clarke, Kelvin(2) | 03/13/09 | 09/11/09 | 12.00% | 25,000 | 25,000 |
Stilwell, Ann(2) | 03/13/09 | 09/11/09 | 12.00% | 5,000 | 5,000 |
Flynn, Robert(2) | 04/03/09 | 10/02/09 | 12.00% | 30,000 | 30,000 |
Barr, David(2) | 04/16/09 | 10/15/09 | 12.00% | 100,000 | 100,000 |
Daryl Dunbar Rev Trust DTD 9/8/2000(2) | 04/24/09 | 10/23/09 | 12.00% | 100,000 | 100,000 |
Donald F. Kern Intervivos Trust, DTD 8-7-07(2) | 04/24/09 | 10/23/09 | 12.00% | 100,000 | 100,000 |
George Case SEP - IRA(2) | 04/27/09 | 10/26/09 | 12.00% | 8,000 | 8,000 |
Fox, Jay(2) | 04/27/09 | 10/26/09 | 12.00% | 10,000 | 10,000 |
Pignatello, Elizabeth(2) | 05/07/09 | 11/05/09 | 12.00% | 5,000 | 5,000 |
Robinson, Enid(2) | 05/07/09 | 11/05/09 | 12.00% | 20,000 | 20,000 |
Robinson, Collin(2) | 05/07/09 | 11/05/09 | 12.00% | 10,000 | 10,000 |
Slack, Robert(2) | 05/07/09 | 1105/09 | 12.00% | 20,000 | 20,000 |
Edwards, Jerry(2) | 05/07/09 | 11/05/09 | 12.00% | 20,000 | 20,000 |
Hoffman, Richard(2) | 05/11/09 | 11/09/09 | 12.00% | 10,000 | 10,000 |
Monaco, Susan(2) | 05/11/09 | 11/09/09 | 12.00% | 20,000 | 20,000 |
Loulakis, Michael(2) | 05/11/09 | 11/09/09 | 12.00% | 67,000 | 67,000 |
IA545 Madison Associates (2) | 01/16/09 | 07/17/09 | 12.00% | 50,000 | 50,000 |
Koffman, Burton (2) | 09/19/08 | 05/19/09 | 12.00% | 100,000 | 100,000 |
Jackson, Peyton (2) | 02/27/09 | 8/27/09 | 12.00% | 25,000 | 25,000 |
________________
(1) | Please see Exhibit (d)(1) to the Schedule TO for the form of Non-Negotiable Secured Promissory Note. |
(2) | Please see Exhibit (d)(2) to the Schedule TO for the form of Promissory Note. |
(3) | Please see Exhibit (d)(3) to the Schedule TO for the form of Note Purchase Agreement and 6% Senior Secured Subordinated Convertible Senior Note. Such notes are convertible into shares of Common Stock and are not part of the offer to exchange notes. |
(4) | Please see Exhibit (d)(4) to the Schedule TO for the form of Non-Negotiable Secured Promissory Note. |
| D. | Series F Convertible Preferred Stock. |
On April 27, 2009, pursuant to the terms of a subscription agreement dated April 27, 2009 and for a total purchase price of $500,000, the Company issued to Steven F. Butterfield, Living Trust U/A/D 01/12/1999 (the “Butterfield Trust”) (i) 500 shares of Series F Convertible Preferred Stock, no par value per share (the “Series F Preferred Shares”) and (ii) a warrant which was subsequently amended on June 5, 2009, as described above under “Warrants.” Per the terms set forth in the Certificate of Designations of Rights and Preferences of Series F Convertible Preferred Stock, as amended, the 500 Series F Preferred Shares are convertible, at the option of the holder, into a total of 1,000 shares of Common Stock. Please see Exhibits (d)(13) and (d)(14) to the Schedule TO for copies of the Warrant and Subscription Agreement.
On June 8, 2009, pursuant to the terms of a subscription agreement dated June 5, 2009 and for a total purchase price of $3,000,000, the Company issued to the Butterfield Trust (i) 3,000 shares of Series F Preferred Shares, and (ii) a three-year warrant to purchase 3,000,000 shares of the Company’s Common Stock, at a price of $0.625 per share, which price reflects a one-for-ten (1:10) reverse stock split effected by the Company with the Secretary of State of Washington on May 14, 2009. The subscription agreement further provides that if, on or prior to July 30, 2009, the holders of at least eighty-five percent (85%) of the debt of the Company that is evidenced by promissory notes have not converted such debt into shares of preferred stock of a newly-formed subsidiary of the Company which will own the intellectual property of the Company, then the Company will convert the Series F Preferred Shares into a promissory note of the Company upon the written request of the Butterfield Trust. Per the terms set forth in Articles of Amendment that we filed with the Secretary of State of Washington on June 8, 2009, which amended our Certificate of Designations of Rights and Preferences of Series F Convertible Preferred Stock, the 3,000 Series F Preferred Shares are convertible, at the option of the holder, into a total of 6,000,000 shares of Common Stock (taking into account the reverse split). The Series F Preferred Shares are also subject to certain other rights and restrictions, as are set forth in the Amended Certificate of Designations. The warrant is exercisable until June 5, 2012, at an exercise price of $0.625 per share, subject to adjustment as provided therein. The Warrant is subject to a repurchase right under which the Company may repurchase any shares of Common Stock issued upon exercise of the Warrant, at a price of $0.10 per share, at any time at which the weighted average price (as defined in the warrant) of the Common Stock is at or above 200% of the exercise price for twenty consecutive trading days. Please see Exhibits (d)(16) and (d)(18) to the Schedule TO for copies of the Warrant and the Subscription Agreement.
| E. | Other. |
On May 9, 2008, Mr. Friedman entered into a Purchase Agreement with the Company whereby he sold to the Company the rights to a toll-free telephone number in exchange for 10,000 shares of the Company’s Common Stock, valued at $10,000. Please see Exhibit (d)(7) to the Schedule TO for a copy of the form of Purchase Agreement.
