SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2000.
or
/_/ Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number: 0-25940
WIRE ONE TECHNOLOGIES, INC.
(Exact Name of registrant as Specified in its Charter)
Delaware 77-0312442
State or other Jurisdiction of I.R.S. Employer Number
Incorporation or Organization)
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225 Long Avenue, Hillside, New Jersey 07205
(Address of Principal Executive Offices)
973-282-2000
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [_]
The number of shares outstanding of the registrant's Common Stock as of October 31, 2000 was 17,210,827.
WIRE ONE TECHNOLOGIES, INC
Index
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements *
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 1
Consolidated Statements of Operations
For the Nine Months and Three Months ended
September 30, 2000 and 1999 2
Consolidated Statements of Cash Flows
For the Nine Months ended September 30, 2000 and 1999 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Legal Proceedings 16
Changes in Securities 16
Defaults Upon Senior Securities 16
Submission of Matters to a Vote of Security Holders 16
Other Information 16
Exhibits and Reports on Form 8-K 16
Signatures 17
* The Balance Sheet at December 31, 1999 has been taken from the audited
financial statements at that date. All other financial statements are
unaudited.
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WIRE ONE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999
------------ ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,576,066 $ 60,019
Accounts receivable-net 23,552,417 6,128,221
Inventory 7,397,585 3,602,238
Deferred income taxes 531,131 230,083
Other current assets 1,836,715 161,947
------------ ------------
Total current assets 35,893,914 10,182,508
Furniture, equipment and leasehold improvements-net 4,641,989 621,443
Goodwill-net 35,072,154 --
Other assets 326,763 63,353
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Total assets $ 75,934,820 $ 10,867,304
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loan payable $ -- $ 2,138,602
Accounts payable 6,140,243 2,022,687
Accrued expenses 2,572,042 891,033
Income taxes payable -- 124,372
Deferred revenue 5,490,390 403,524
Customer deposits 332,487 44,919
Current portion of capital lease obligations 84,952 30,905
------------ ------------
Total current liabilities 14,620,114 5,656,042
Noncurrent liabilities:
Capital lease obligations, less current portion 90,563 17,444
------------ ------------
Total liabilities 14,710,677 5,673,486
Commitments
Series A mandatorily redeemable convertible preferred stock 11,497,377 --
STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value;
5,000,000 shares authorized, 2,450 shares issued and outstanding -- --
Common Stock, $.0001 par value; 100,000,000 authorized;
16,953,052 and 4,910,000 shares outstanding, respectively 1,695 5,229,740
Additional paid-in capital 59,912,886 488,759
Accumulated deficit (10,187,815) (524,681)
------------ ------------
Total stockholders' equity 49,726,766 5,193,818
------------ ------------
Total liabilities, series A preferred stock and stockholders' equity $ 75,934,820 $ 10,867,304
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See Notes to Consolidated Financial Statements
WIRE ONE TECHNOLOGIES, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net revenues $ 18,287,167 $ 6,669,783 $ 35,397,300 $ 15,908,891
Cost of revenues 12,345,638 4,507,656 23,632,170 10,917,374
------------ ------------ ------------ ------------
Gross margin 5,941,529 2,162,127 11,765,130 4,991,517
Operating expenses:
Selling 4,666,054 1,366,972 9,252,061 3,318,047
General and administrative 1,249,381 441,386 2,599,475 1,159,772
Amortization of goodwill 591,048 -- 859,831 --
------------ ------------ ------------ ------------
Total operating expenses 6,506,483 1,808,358 12,711,367 4,477,819
------------ ------------ ------------ ------------
Income (loss) from operations (564,954) 353,769 (946,237) 513,698
------------ ------------ ------------ ------------
Other (income) expenses
Amortization of deferred financing costs 9,055 12,243 334,410 30,894
Interest income (146,573) (3,968) (291,508) (18,135)
Interest expense 13,634 38,650 67,118 134,762
------------ ------------ ------------ ------------
Total other (income) expenses, net (123,884) 46,925 110,020 147,521
------------ ------------ ------------ ------------
Income (loss) before income taxes (441,070) 306,844 (1,056,257) 366,177
Income tax provision (benefit) -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) (441,070) 306,844 (1,056,257) 366,177
Deemed dividends on Series A convertible preferred stock
(427,322) -- (8,606,877) --
------------ ------------ ------------ ------------
Net income (loss) attributable to common stockholders $ (868,392) $ 306,844 $ (9,663,134) $ 366,177
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Net income (loss) per share:
Basic $ (.05) $ .06 $ (.85) $ .07
============ ============ ============ ============
Diluted $ (.05) $ .05 $ (.85) $ .06
============ ============ ============ ============
Weighted average number of common shares and equivalents:
Basic 16,878,118 4,910,000 11,324,374 4,910,000
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Diluted 16,878,118 6,176,834 11,324,374 5,771,478
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See Notes to Consolidated Financial Statements
WIRE ONE TECHNOLOGIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30,
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (1,056,257) $ 366,177
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 2,073,208 241,304
Loss on disposal of equipment 1,832
Non cash compensation 130,002 65,201
Increase (decrease) in cash attributable
to changes in operating assets and liabilities net
of effects from purchase of View Tech, Inc. and 2CONFER, LLC
Accounts receivable (9,645,989) (1,437,924)
Inventory (2,470,525) (1,299,757)
Other current assets (946,366) (263,455)
Other assets 4,180 --
Accounts payable (3,032,963) 2,369,152
Accrued expenses 1,425 100,047
Income taxes payable (132,130) (2,860)
Deferred revenue 1,681,557 143,140
Customer deposits 244,082 264,845
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Net cash (used in) provided by operating activities (13,149,776) 547,702
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, equipment and leasehold improvements (1,886,861) (119,755)
Costs related to acquisition of business including cash acquired (2,029,831) --
------------ ------------
Net cash used in investing activities (3,916,692) (119,755)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from preferred stock offering, net 16,150,000 --
Exercise of warrants and options, net 8,782,287 --
Payment of subordinated notes (1,500,000) --
Financing costs (74,314) (17,500)
Proceeds from bank loans 3,350,000 10,205,000
Payments on bank loans (7,035,185) (10,639,702)
Payments on capital lease obligations (90,273) (20,094)
------------ ------------
Net cash provided by (used in) financing activities 19,582,515 (472,296)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,516,047 (44,349)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 60,019 325,915
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,576,066 $ 281,566
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 67,118 $ 134,762
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Income taxes $ 7,798 $ 3,332
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Non cash financing and investing activities:
During the nine months ended September 30, 2000, the Company recorded non-cash deemed dividends on Series A mandatorily redeemable convertible preferred stock of $8,606,877.
On May 18, 2000, the Company acquired the net assets of View Tech, Inc. in a merger transaction accounted for as a purchase for non-cash consideration of $31,339,258.
See Notes to Consolidated Financial Statements
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September, 30, 2000
Note 1 - The Business and Merger with View Tech, Inc.
Wire One Technologies, Inc. ("Wire One" or the "Company") was formed by the merger of All Communications Corporation ("ACC") and View Tech, Inc. ("VTI") on May 18, 2000, with the former directors and senior management of ACC succeeding to the management of Wire One. In connection with the merger, each former shareholder of ACC received 1.65 shares of Wire One common stock for each share of ACC common stock held by them. The transaction has been accounted for as a "reverse acquisition" using the purchase method of accounting. The reverse acquisition method resulted in ACC being recognized as the acquirer of VTI for accounting and financial reporting purposes. As a result, ACC's historical results have been carried forward and VTI's operations have been included in the financial statements commencing on the merger date. Accordingly, all 1999 results as well as 2000 results through the merger date are those of ACC only. Further, on the date of the merger, the assets and liabilities of VTI were recorded at their estimated fair values, with the excess purchase consideration allocated to goodwill.
Wire One is a single source provider of video products and services that assist customers with the design, installation, maintenance and operation of their videoconferencing systems from its 25 offices throughout the United States. The Company offers customers videoconferencing products from leading manufacturers such as Accord Telecommunications, Inc., PictureTel Corporation, Polycom, Inc., SONY Electronics, Inc. and VCON Telecommunications, Ltd. and provide a comprehensive suite of video and data services including installation, bridging, on-site technical assistance, customized training, engineering and maintenance.
Note 2 - Basis of Presentation
The accompanying unaudited financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the financial statements and footnotes thereto included in VTI's and ACC's Annual Reports for the fiscal year ended December 31, 1999 as filed with the Securities and Exchange Commission.
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, AllComm Products Corporation and VTC Resources, Inc. All intercompany balances and transactions have been eliminated in consolidation. The Company does not segregate or manage its operations by business segment.
Note 3 - Income (loss) per share
Basic net income (loss) per share is calculated by dividing net income
(loss) attributable to common stock by the weighted average number of
common shares outstanding during the
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September, 30, 2000
period. In determining basic loss per share in the 2000 periods, the effects of deemed dividends on Series A mandatorily redeemable convertible preferred stock are added to the net loss. Diluted net income (loss) per share is calculated by dividing net income (loss) attributable to common stock by the weighted average number of common shares outstanding plus the weighted-average number of net shares that would be issued upon exercise of stock options and warrants using the treasury stock method and the deemed conversion of preferred stock using the if converted method.
Three Months Ended Nine Months Ended
----------------------- -----------------------
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
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Weighted average shares outstanding 16,878,118 4,910,000 11,324,374 4,910,000
Effect of dilutive options and warrants -- 1,266,834 -- 861,478
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Weighted average shares outstanding
including dilutive effect of securities 16,878,118 6,176,834 11,324,374 5,771,478
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The weighted average options and warrants to purchase 7,237,816 and 6,269,919 shares of common stock were outstanding during the nine months and three months ended September 30, 2000, respectively and preferred stock convertible into 2,450,000 common shares were not included in the computation of diluted EPS because the Company reported a net operating loss for these periods and their effect would have been antidilutive.
Note 4 - Business Combinations
Merger with View Tech, Inc.
On May 18, 2000 the merger of ACC and VTI was consummated in a transaction that has been accounted for as a "reverse acquisition" using the purchase method. The reverse acquisition method resulted in ACC being recognized as the acquirer of VTI for accounting and financial reporting purposes.
The final allocation of the purchase price may differ from that reflected in the unaudited September 30, 2000 financial statements after a more extensive review of the fair market values of the assets and liabilities has been completed as of the acquisition date. When such a review is completed, a portion of the purchase price may be ascribed to intangible assets (other than goodwill) that have shorter amortization lives than the life ascribed to goodwill in preparing the accompanying September 30, 2000 financial statements. Thus, the resulting incremental amortization charges, if any, from that portion of the purchase price ascribed to other intangible assets could be materially different from the amortization expense presented in the pro forma financial statements.
Following is a schedule of the purchase price, estimated purchase price allocation and the annual amount of goodwill amortization to be recognized prospectively:
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September, 30, 2000
Purchase Price:
Value of securities issued $31,339,258
Direct merger costs 1,008,059
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Total purchase price $32,347,317
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The value of securities issued was determined as follows:
Value of VTI shares exchanged (relinquished) $28,466,308
Value of VTI options and warrants 2,872,950
-----------
Total value of securities issued $31,339,258
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The value of VTI shares was computed using a five-day average share price with a midpoint of December 28, 1999, the date of the merger announcement. The number of shares used in the computation is based on the View Tech shares outstanding as of May 18, 2000.
Estimated Purchase Price Allocation:
VTI assets acquired $ 11,583,008
VTI liabilities assumed (13,923,289)
Goodwill 34,687,598
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Total $ 32,347,317
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The VTI assets acquired and liabilities assumed are derived from the historical balance sheet of VTI as of May 18, 2000. The Company estimates at this time that the annual amortization of goodwill (based on an amortization period of 15 years) will approximate $2,312,000. Amortization expense for the nine months and three months ended September 30, 2000 totaled $839,831 and $571,048, respectively.
The following summarized unaudited pro forma information for the nine months ended September 30, 2000 assumes the merger of the ACC and VTI occurred on January 1, 2000.
Nine Months
Ended
September 30,
2000
------------
Net revenues $ 47,637,088
Operating loss (3,213,592)
Net loss (4,814,661)
Basic and diluted loss per share (.40)
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WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September, 30, 2000
The unaudited pro forma operating results reflect estimated pro forma adjustments for the amortization of intangibles of $1,734,000 for the nine months ended September 30, 2000 arising from the merger and other adjustments. These pro forma operating results do not reflect the effects of the series A preferred stock issued in June 2000. Pro forma results of operations are not necessarily indicative of the results of operations that would have occurred had the merger been consummated at the beginning of 2000, or of the future results of the combined entity.
Acquisition of 2CONFER, LLC
In July 2000, the Company acquired the net assets of 2CONFER, LLC ("2CONFER"), a Chicago-based provider of videoconferencing, audio and data solutions. The total consideration was $800,000, consisting of $500,000 in cash and the remainder in Company common stock valued at the time of acquisition. Assets consisted primarily of accounts receivables, fixed assets and goodwill and other intangibles.
Estimated Purchase Price Allocation:
2CONFER assets acquired $ 1,024,730
2CONFER liabilities assumed (1,424,730)
Goodwill 1,200,000
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$ 800,000
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The 2CONFER assets acquired and liabilities assumed are derived from the historical balance sheet of 2CONFER, LLC as of July 1, 2000. The Company estimates at this time that the annual amortization of goodwill (based on an amortization period of 15 years) will approximate $80,000. Amortization expense for the nine months and three months ended September 30, 2000 totaled $20,000.
Note 5 - Bank Loan Payable
In June 2000, the Company renewed its credit facility with Summit Commercial Gibraltar Corp., a division of Summit Bancorp. Under the terms of the two-year agreement, loan availability was increased to $15,000,000, based on up to 75% of eligible accounts receivable and 50% of eligible inventory, subject to an inventory cap of $5,000,000. Borrowings accrue interest at the lender's base rate plus 1/2% per annum. The credit facility contains certain financial and operational covenants. The Company was in compliance with those covenants at September 30, 2000. At September 30, 2000, there were no borrowings outstanding under this credit facility.
Note 6 - Private Placement of Preferred Stock
In June 2000, the Company raised gross proceeds of $17.15 million in a private placement of 2,450 shares of its Series A mandatorily redeemable convertible preferred stock. The preferred shares are convertible into up to 2,450,000 shares of common stock at a price of $7.00 per share, subject to adjustment. Beginning on June 14, 2001, the preferred stockholders may choose an alternative conversion price which equals the higher of (i) 70% of the fixed conversion price then in effect or (ii) the market price on any conversion date, which is equal to the average of the closing prices of Company common stock during the 20 consecutive trading days immediately preceding any conversion date. Preferred stockholders may, at their option, have the Company redeem their shares at the earlier of three years from the issuance date, or the occurrence of a triggering event, as defined. The redemption price is 110% of the stated value of $7,000 per share. None of the triggering events have occurred to date. The preferred shares will convert automatically if the Company's shares trade at $12.50 or above for twenty consecutive trading days and the underlying shares have been registered. The Company registered the shares in September 2000. At the issuance date, the Company recorded a deemed dividend charge and an offsetting increase in additional paid-in capital of approximately $8.1 million to reflect the beneficial conversion price of the preferred stock as compared to the prevailing market price of the common stock.
WIRE ONE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September, 30, 2000
Investors in the private placement also received five-year warrants to purchase a total of 857,500 shares of common stock for $10.50 per share. The warrants are subject to certain anti-dilution protection. The Company has valued the warrants at $3,740,000 using the Black-Scholes pricing model. The Company also issued to its placement agent warrants to purchase 193,748 shares of common stock for $7.00 per share, and warrants to purchase 67,876 shares of common stock for $10.50 per share. The warrants expire on June 14, 2005. The Company has valued the warrants at $1,410,000 using the Black-Scholes pricing model.
Costs of the offering, including the fair value of the warrants, totaled $6,150,000. This amount has been recorded as a preferred stock discount and is being amortized as a deemed dividend over the three-year period from the date of issuance to the June 2003 redemption date. In addition, the 10% redemption premium of $1,715,000 is being accreted as a deemed dividend into the carrying value of the series A mandatorily redeemable convertible preferred stock over the same period. Such combined accretion totaled $497,377 and $427,322 for the nine months and three months ended September 30, 2000, respectively.
Based on the lowest possible conversion price of $4.90, the maximum number of shares issuable upon conversion of the series A preferred would be 3,500,000 shares of common stock. The rules of the Nasdaq National Market only allow the Company to issue up to 20% of its outstanding shares of common stock upon conversion of the series A preferred stock and exercise of the related warrants without prior stockholder approval. Wire One has not sought nor does it intend to seek such stockholder approval for this issuance in the future. Based on the 16,570,641 shares of common stock outstanding on June 14, 2000, the original date of issuance of the series A preferred and related warrants, the Company is only able to issue 3,314,128 shares of its common stock upon conversion of the series A preferred. Accordingly, beginning on June 14, 2001, if all shares of series A preferred stock were converted at the lowest possible conversion price and all of the related warrants were simultaneously exercised, the Company could be required to redeem up to 730 shares of its series A preferred stock at a price of $7,700 per share for an aggregate purchase price of $5,621,000.
Note 7 - Stock Option Plan
In September 2000, the Company adopted and approved the Wire One 2000 Stock Incentive Plan ("the Plan"). The Plan permits the grant of "incentive stock options" ("ISOs") to any employees or employees of its subsidiaries. Non-qualified stock options may be granted to employees, directors and consultants. As of October 27, 2000, options to purchase a total of 485,474 shares were outstanding, and 2,514,526 shares remained available for future grant under the Plan. The Company has issued approximately 1,609,000 options that are not governed by the Plan.
The Plan provides for the grant of options, including incentive stock options and non-qualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, performance units, performance shares or any combination thereof (collectively, the "Awards"). The exercise price of Awards is established by the Compensation Committee and, in the case of incentive stock options the exercise price must be equal to at least 100% of the fair market value of a share of the common stock on the date of grant. The Compensation Committee determines the terms and provisions of each award granted under the Plan, including the vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment, payment contingencies and satisfaction of any performance criteria.
Note 8 - Subsequent Events
In October 2000, the Company acquired the assets and certain liabilities of Johns Brook Co., Inc.'s videoconferencing division, a New Jersey-based provider of videoconferencing solutions. The total consideration was $635,000, consisting of $481,000 in cash and $154,000 in the Company's common stock valued at the time of acquisition. Assets consisted primarily of accounts receivable, fixed assets, and goodwill and other intangibles. The acquisition of the assets and certain liabilities of Johns Brook Co., Inc.'s videoconferencing division is not considered to be a significant acquisition and, accordingly, pro forma results of operations disclosures are not required.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the Company's consolidated financial statements and the notes thereto. The discussion of results, causes and trends should not be construed to imply any conclusion that such results or trends will necessarily continue in the future.
The statements contained herein, other than historical information, are or may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, and involve factors, risks and uncertainties that may cause the Company's actual results in future periods to differ materially from such statements. These factors, risks and uncertainties, include the relatively short operating history of the Company; market acceptance and availability of new products; the non-binding and nonexclusive nature of reseller agreements with manufacturers; rapid technological change affecting products sold by the Company; the impact of competitive products and pricing, as well as competition from other resellers; possible delays in the shipment of new products; and the availability of sufficient financial resources to enable the Company to expand its operations.
Overview
Wire One is a leading single source provider of video communications solutions that encompass the entire video communications value chain. The Company offers its customers videoconferencing products from leading manufacturers such as Accord Telecommunications, Inc. ("Accord"), PictureTel Corporation ("PictureTel"), Polycom, Inc. ("Polycom"), SONY Electronics, Inc. ("SONY") and VCON Telecommunications, Ltd. ("VCON") and provide a comprehensive suite of video and data services including installation, bridging, on-site technical assistance, customized training, engineering and maintenance. Wire One is the number one channel partner for Polycom, a leading video equipment manufacturer, and a leading channel partner for the other major manufacturers.
The Company markets and sells its video and data products and services to the commercial, federal and state government, medical and educational markets through a direct sales force of account executives, and telemarketers and through resellers. These efforts are supported by sales engineers, a marketing department, a call center and a professional services and engineering group. The Company has sold its products and services to over 2,500 customers who collectively have approximately 12,000 videoconferencing endpoints.
The Company was formed on May 18, 2000 by the merger of ACC and VTI. VTI was the surviving legal entity in the merger. However, for financial reporting purposes, the merger has been accounted for as a "reverse acquisition" using the purchase method of accounting. Under the purchase method of accounting, ACC's historical results have been carried forward and VTI's operations have been included in the financial statements commencing on the merger date. Accordingly, all 1999 quarterly and year-to-date results as well as 2000 results through the merger date are those of ACC only. Further, on the date of the merger, the assets and liabilities of VTI were recorded at their estimated fair values, with the excess purchase consideration allocated to goodwill.
In July 2000, the Company acquired the net assets of 2CONFER, a Chicago-based provider of videoconferencing, audio and data solutions. The total consideration was $800,000, consisting of $500,000 in cash and the remainder in Company common stock of $300,000 valued at the time of acquisition. On the date of the acquisition, the assets and liabilities of 2CONFER were recorded at their estimated fair values, with the excess purchase consideration allocated to goodwill.
By the end of this year, Wire One expects to introduce its Glowpoint network service ("Glowpoint"). The Company believes Glowpoint will be the first dedicated network to provide video communications by utilizing a dedicated Internet Protocol ("IP") backbone and broadband access and, ultimately, will offer the same reliability as a telephone call. Glowpoint subscribers can utilize the Glowpoint network to make videoconference calls on demand for a fixed monthly fee.
Over 90% of the applications utilizing video technology are Integrated Services Digital Network ("ISDN") standards-based. ISDN technology has several shortcomings, including poor quality of service ("QoS") and high transmission costs. In recent years, providers of video services have sought to replace older ISDN systems with newer IP-based technologies. By introducing Glowpoint, the Company is providing the first end-to-end IP-based video network that it believes will make video communications as reliable and commonplace as voice telephony.
To provide its Glowpoint service, the Company has strategic relationships with Exodus Communications ("Exodus") for its IP backbone network and with Covad Communications ("Covad") and other broadband access providers for dedicated broadband access to the Glowpoint network. The Company will also use dedicated IP circuits ("T1"). Leading IP videoconferencing and video networking equipment suppliers, including Cisco Systems, Polycom, RADVision and VCON, have already announced that their products will be compatible with Glowpoint.
Glowpoint employs a proprietary network architecture over dedicated capacity on a high performance redundant backbone. This backbone network connects all of Glowpoint's points of presence ("POPs"), using multiple high-speed OC-3 and OC-12 lines which virtually eliminate the risk of a single point of failure. Glowpoint's POPs consist of the best available equipment from multiple vendors combined in a unique proprietary architecture. This configuration of equipment at its POPs is expected to provide industry-leading throughput, scalability and mission-critical resiliency. Wire One also maintains a state-of-the-art network operations center ("NOC") from which it monitors the operations of the network on a 24x7 basis.
Results of Operations
The following table sets forth, for the periods indicated, information derived from the Company's consolidated financial statements expressed as a percentage of the Company's revenues:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
2000 1999 2000 1999
----- ----- ----- -----
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 67.5 67.6 66.8 68.6
----- ----- ----- -----
Gross margin 32.5 32.4 33.2 31.4
Operating expenses:
Selling 25.6 20.5 26.1 20.9
General and administrative 6.8 6.6 7.3 7.3
Amortization of goodwill 3.2 0.0 2.4 0.0
----- ----- ----- -----
Total operating expenses 35.6 27.1 35.8 28.2
----- ----- ----- -----
Income (loss) from operations (3.1) 5.3 (2.7) 3.2
----- ----- ----- -----
Other (income) expenses
Amortization of deferred
financing costs 0.0 0.2 0.9 0.2
Interest income (0.8) (0.1) (0.8) (0.1)
Interest expense 0.1 0.6 0.2 0.9
----- ----- ----- -----
Total other expenses, net (0.7) 0.7 0.3 1.0
----- ----- ----- -----
Income (loss) before income taxes (2.4) 4.6 (3.0) 2.3
Income tax provision (benefit) 0.0 0.0 0.0 0.0
----- ----- ----- -----
Net income (loss) (2.4) 4.6 (3.0) 2.3
Deemed dividends on Series A
convertible preferred stock (2.3) 0.0 (24.3) 0.0
----- ----- ----- -----
Net income (loss) attributable to
common stockholders (4.7)% 4.6% (27.3)% 2.3%
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Nine Months Ended September 30, 2000 ("2000 period") Compared to Nine Months Ended September 30, 1999 ("1999 period") and Three Months Ended September 30, 2000 Compared to Three Months Ended September 30, 1999.
NET REVENUES. The Company reported net revenues of $35.4 million for the 2000 period, an increase of $19.5 million over revenues reported for the 1999 period. Net revenues of $18.3 million for the September 2000 quarter represent an increase of $11.6 million over revenues reported for the September 1999 quarter. Although VTI operations have now been fully integrated into the Company, management estimates that revenues from the core businesses in existence before contributions from VTI and 2CONFER have grown approximately 25 to 30%, with revenues from VTI and 2CONFER accounting for the remainder of the growth experienced in the quarter and nine months ended September 30, 2000.
Videoconferencing - Sales of videoconferencing equipment were $29.5 million in the 2000 period, an increase of $21.5 million over the 1999 period. Sales for the quarter ended September 30, 2000 were $16.2 million, an increase of $12.9 million over the comparable 1999 quarter. Management estimates that revenues from the core videoconferencing business before contributions from VTI and 2Confer have grown approximately 80 to 90%, with revenues from VTI and 2Confer accounting for the remainder of the growth experienced in the quarter and nine months ended September 30, 2000. Particular strength was noted in sales to federal and state government agencies under government contracts such as the State of California contract.
Voice communications - Sales of voice communications products and services were $5.9 million in the 2000 period, a $2.0 million decrease from the 1999 period. Sales for the quarter ended September 30, 2000 were $2.1 million, a $1.3 million decrease from the comparable 1999 quarter. These period-to-period declines in the voice communications division were the result of declines in revenue from three significant customers. Business with these three customers fluctuates from quarter to quarter depending upon their respective capital expenditure budgets, acquisition strategy, and other factors. These declines should not be considered permanent in nature.
GROSS MARGINS. Gross profits were $11.8 million in the 2000 period, an increase of $6.8 million over the 1999 period. Gross profits for the quarter ended September 30, 2000 were $5.9 million, an increase of $3.7 million over the comparable 1999 quarter. Gross margins increased in the 2000 period to 33% of net revenues, as compared to 31% of net revenues in the 1999 period. The increase is attributable to inventory purchase discounts negotiated with videoconferencing equipment manufacturers and increases in higher margin revenue sources such as video maintenance contracts and installation services.
SELLING. Selling expenses, which include sales salaries, commissions, overhead, and marketing costs, increased $6.0 million in the 2000 period to $9.3 million from $3.3 million for the 1999 period. Selling expenses for the quarter ended September 30, 2000 increased $3.3 million to $4.7 million as compared to $1.4 million for the comparable 1999 quarter. Increases in selling expenses are attributable to increases in the number of sales personnel and their related costs and the costs of additional sales offices brought about by the merger with VTI and the acquisition of 2CONFER. The increase in selling expenses as a percentage of net revenues in the 2000 period and the quarter ended September 30, 2000 resulted from the decline in voice communications revenues combined with relatively fixed selling costs in that division, as well as, from the expansion of the videoconferencing division on a national basis. Prior to the merger, ACC focused its videoconferencing business on customers in the Eastern United States. This national expansion resulted in increased rent and related office expenses, depreciation, travel and delivery expenses as a percentage of revenue.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $1.4 million in the 2000 period to $2.6 million as compared to $1.2 million for the 1999 period. General and administrative expenses for the quarter ended September 30, 2000 increased $0.8 million to $1.2 million as compared to $0.4 million for the comparable 1999 quarter. The inclusion of VTI general and administrative expenses from the merger date through the end of the reporting period was the significant factor behind these increases. General and administrative expenses as a percentage of net revenues for 2000 period and the quarter ended September 30, 2000 remained relatively constant though, as this cost category grew in proportion to the growth in revenues.
AMORTIZATION OF GOODWILL. The Company has allocated approximately $34.7 million of the VTI merger purchase consideration to goodwill. Amortization expense for the 2000 period totaled $0.8 million. The Company estimates at this time that the annual amortization expense (based on an amortization period of 15 years) will approximate $2.3 million. In addition, as a result of the acquisition of the net assets of 2CONFER, LLC on July 1, 2000, $1.2 million of goodwill and $20,000 of amortization was recorded in the quarter ended September 30, 2000. The Company estimates at this time that the annual amortization expense (based on an amortization period of 15 years) will approximate $80,000.
OTHER (INCOME) EXPENSES. The principal component of this category, amortization of deferred financing costs, increased to $334,000 in the 2000 period as compared to $31,000 in the 1999 period. The increase reflects the amortization of $305,000 related to the issuance of warrants to former VTI subordinated debt holders. These costs were fully amortized as of September 30, 2000. In addition, interest income increased in the 2000 period to $292,000 as compared to $18,000 in the 1999 period. The increase reflects interest earned on the proceeds received from the Company's private placement of 2,450 shares of its series A convertible preferred stock and related warrants (the "Private Placement") in the second quarter of 2000 and the proceeds received from the Company's warrant call in the first quarter of 2000.
INCOME TAXES. During the 2000 period, the Company has established a valuation allowance to offset the benefits of significant temporary tax differences due to the uncertainty of their realization. These deferred tax assets consist primarily of net operating losses carried forward in the VTI merger, reserves and allowances, and stock-based compensation. Due to the nature of the deferred tax assets, the related tax benefits, upon realization, will be credited substantially to the goodwill asset or additional paid-in capital, rather than to income tax expense.
During the 1999 period, the Company reversed the valuation allowance established in 1998 in an amount sufficient to offset tax expense provided on pre-tax income.
NET INCOME (LOSS). The Company reported a net loss attributable to common stockholders for the 2000 period of $(9.7) million, or $(.85) per diluted share, as compared to net income attributable to common stockholders of $0.4 million, or $.06 per diluted share for the 1999 period. The net loss attributable to common stockholders for the quarter ended September 30, 2000 was $(0.9) million, or $(.05) per diluted share, as compared to net income attributable to common stockholders of $0.3 million, or $.05 per diluted share for the comparable 1999 quarter. The 2000 period contained a non-recurring deemed dividend and offsetting increase in additional paid-in capital of $8.1 million to reflect the beneficial conversion price of preferred stock issued in the Private Placement in the second quarter of 2000 as compared to the prevailing market value of the common stock. In addition, a $0.5 million deemed dividend was recorded in the period to amortize the costs of the Private Placement. Costs of $6.15 million incurred in connection with the private placement, including the fair value of warrants, have been recorded as a preferred stock discount and will be amortized as a deemed dividend over the three-year period from the date of issuance to the current redemption date. The Company reported a net loss of $(1.1) million for the 2000 period as compared to net income of $0.4 million for the 1999 period and for the quarter ended September 30, 2000 it reported a net loss of $(0.4) million as compared to net income of $0.3 million for the comparable 1999 quarter.
Liquidity and Capital Resources
At September 30, 2000, the Company had working capital of $21.3 million compared to $4.5 million at December 31, 1999, an increase of approximately 370%. In addition, the Company had $2.6 million in cash and cash equivalents compared to $60,000 at December 31, 1999. This improved working capital position resulted primarily from the Private Placement that raised $16.15 million in net cash proceeds.
The Company currently has a $15.0 million credit facility with New York-based Summit Commercial Gibraltar Corp., a division of Summit Bancorp. Borrowings under this facility will bear interest at the lender's base rate plus 1/2% per annum. The Company has not borrowed funds under this line of credit to date.
On June 14, 2000 the Company completed the Private Placement with a select group of institutional and strategic investors led by Peconic Fund, Ltd., an affiliate of Ramius Capital Group, and Polycom, Inc. The Company raised gross proceeds of $17.15 million in the Private Placement. A one-time, non-cash deemed dividend of approximately $8.1 million was recognized in the second quarter of 2000. Other offering costs are being amortized over a three-year period as a deemed dividend and will reduce net income attributable to common stockholders. The amortization of these costs totaled $0.4 million in the quarter ended September 30, 2000. The proceeds of the private placement are being used to fund internal growth, acquisitions and expansions into emerging video applications technologies, including further development and installation of its Glowpoint network.
Net cash used in operating activities for the 2000 period was $(13.1) million as compared to net cash provided by operations of $0.5 million during the 1999 period. Sources of operating cash in 2000 included deferred revenue and customer deposits. Increases in accounts receivable of $9.6 million resulting from sales growth, purchase of inventory totaling $2.5 million and payments on accounts payable balances with vendors of $3.0 million were the primary uses of operating cash in the 2000 period.
Investing activities for the 2000 period included purchases of $1.0 million for bridging, computer and demonstration equipment for the core business and $0.9 million for network equipment related to the Glowpoint network that the Company is developing. In addition, cash costs incurred in connection with mergers and acquisitions totaled $2.0 million.
Financing activities in the 2000 period included the Private Placement totaling $16.15 million in net proceeds, proceeds from the exercise of warrants and options totaling $8.8 million, the net repayment of the outstanding balance of the Company's revolving credit line totaling $3.1 million, and the $1.5 million of VTI subordinated notes that were outstanding.
Management believes that it has adequate capital resources to support current operating levels for the next twelve months. The Company is considering raising up to $50 million in a private placement of its common stock in the fourth quarter of 2000, if market conditions are acceptable to the Company. In the event that the Company completes a financing transaction, the proceeds will be used for capital expenditures, acquisitions, and the continued development and expansion of the Glowpoint network. There can be no assurance that additional financing will be available on terms acceptable to the Company, if at all.
Inflation
Management does not believe inflation had a material adverse effect on the financial statements for the periods presented.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has exposure to interest rate risk related to its cash equivalents portfolio. The primary objective of the Company's investment policy is to preserve principal while maximizing yields. The Company's cash equivalents portfolio is short-term in nature, therefore changes in interest rates will not materially impact the Company's consolidated financial condition. However, such interest rate changes can cause fluctuations in the Company's results of operations and cash flows.
The Company's $15 million secured credit facility has an interest rate based on the lender's prime rate. The Company currently has no borrowings outstanding under the facility. If the Company should draw on the facility, interest rate fluctuations could have an impact on the Company's results of operations and cash flows.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting ("Annual Meeting") of Stockholders of the Wire One Technologies, Inc. was held on September 15, 2000.
The 12,016,573 shares of Common Stock ("Common Stock") present at the Annual Meeting out of a then total of 16,879,716 shares outstanding and entitled to vote acted as follows with respect to the following proposals with the following results:
1. (a) The election of Eric Friedman to the Board of Directors was approved:
For: 11,865,308 Against: 0 Abstain: 151,265 Broker Non-Votes: 0
(b) The election of Andrea Grasso to the Board of Directors was approved:
For: 11,865,308 Against: 0 Abstain: 151,265 Broker Non-Votes: 0
2. The adoption of the Wire One Technologies, Inc. 2000 Stock Incentive Plan was approved,
For: 8,202,665 Against: 518,701 Abstain: 59,995 Broker Non-Votes: 0
3. The ratification of the appointment of BDO Seidman as independent auditors was approved.
For: 11,981,334 Against: 22,884 Abstain: 11,855 Broker Non-Votes: 0
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.9 Wire One Technologies, Inc. 2000 Stock Incentive Plan
10.37 Fourth Amendment to Lease
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WIRE ONE TECHNOLOGIES, INC.
Registrant
Date: October 31, 2000 By: /s/ Richard Reiss
-----------------------------------
Richard Reiss,
President and Chief Executive
Officer
Date: October 31, 2000 By: /s/ Christopher Zigmont
-----------------------------------
Christopher Zigmont
Chief Financial Officer
(principal financial and accounting officer)
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Exhibit Index
Exhibit No. Description
----------- -----------
4.9 Wire One Technologies, Inc. 2000
Stock Incentive Plan
10.37 Fourth Amendment to Lease
27 Financial Data Schedule
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Exhibit 10.37
FOURTH AMENDMENT OF LEASE
THIS FOURTH AMENDMENT OF LEASE (this "Amendment") is made as of the 29th day of August, 2000, between VITAMIN REALTY ASSOCIATES, L.L.C. (the "LESSOR"), a New Jersey limited liability company, having an address at 225 Long Avenue, Hillside, New Jersey 07205, and WIRE ONE TECHNOLOGIES, INC. (the "LESSEE"), a Delaware corporation, having an address at 225 Long Avenue, Hillside, New Jersey 07205.
W I T N E S S E T H
WHEREAS, pursuant to that certain Lease Agreement dated March 20, 1997 by and between LESSOR and All Communications Corporation, the predecessor of LESSEE, LESSOR leased to All Communications Corporation certain premises consisting of approximately 1,560 rentable square feet of warehouse space on the first floor of the building known as 225 Long Avenue, Hillside, New Jersey (the "Building"), and approximately 7,180 rentable square feet of office space on the second floor of the Building (collectively the "Demised Premises"); and
WHEREAS, pursuant to that certain First Amendment of Lease dated as of December, 1997, LESSOR and All Communications Corporation amended the Lease to add to the Demised Premises an additional 5,840 rentable square feet of warehouse space on the first floor of the Building; and
WHEREAS, pursuant to that certain Second Amendment of Lease dated as of December, 1999, LESSOR and All Communications Corporation amended the Lease to provide that the Demised Premises consisted of a total of 13,730 rentable square feet of warehouse space on the first floor of the Building, and a total of 8,491 rentable square feet of office space on the second floor of the Building; and
WHEREAS, pursuant to that certain Third Amendment of Lease dated as of June 1, 2000 (which, together with the Lease Agreement, First Amendment and Second Amendment referred to above, shall be referred to herein as the "Lease"), LESSOR and LESSEE amended the Lease to provide that the Demised Premises consists of a total of 18,000 rentable square feet of warehouse space on the first floor of the Building, and a total of 15,215 rentable square feet of office and warehouse space on the second floor of the Building; and
WHEREAS, LESSOR and LESSEE have agreed to further amend the Lease, on the terms and conditions hereinafter set forth; and
WHEREAS, all capitalized terms defined in the Lease and not otherwise defined herein shall have their respective meanings set forth in the Lease.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree that the Lease is hereby amended as follows:
1. (a) Commencing as of September 1, 2000 or occupancy, whichever is later (the "Expansion Space Commencement Date"), LESSOR shall demise to LESSEE, and LESSEE shall lease from LESSOR, an additional 5,739 rentable square feet of space located on the second floor of the Building, which is more particularly depicted in Schedule A attached hereto (the "Expansion Space"). For all purposes of the Lease, and this Amendment, the term "Demised Premises" shall, as of the Expansion Space Commencement Date, include the current Demised Premises plus the Expansion Space.
(b) LESSOR and LESSEE each hereby agrees that the Demised Premises shall, as of the Expansion Space Commencement Date, consist of a total of 18,000 rentable square feet of warehouse space on the first floor of the Building, and a total of 20,954 rentable square feet of office and warehouse space on the second floor of the Building.
2. Section 1.1(ar) of the Lease is hereby amended to provide that the Termination Date shall be August 31, 2005.
3. (a) Schedule C of the Second Amendment is hereby superseded and replaced with Schedule B annexed hereto.
(b) LESSEE's Proportionate Share with respect to the Demised Premises shall be 24.35% as of the Expansion Space Commencement Date.
4. (a) LESSOR has engaged Costa Construction Co. to perform the fit up work
within the Expansion Space ("LESSOR'S Work") outlined on the construction
contract attached hereto as Schedule C (the Contract"). Provided that LESSEE
does not default under the terms and provisions of this Lease, LESSOR shall pay
for the cost of performing LESSOR'S Work up to the amount of $50,000.00. LESSEE
shall pay the excess cost of completing LESSOR'S Work over $50,000.00 within ten
(20) days after receipt of an invoice therefor from LESSOR, together with
evidence that such costs were actually incurred by LESSOR. LESSEE'S
reimbursement
obligation shall not be limited by the fixed price set forth in the Contract if the actual cost of LESSOR'S Work exceeds the Contract amount. If LESSEE requests any changes in LESSOR'S Work described in the Contract, LESSEE shall be responsible for all costs including but not limited to design expenses resulting from such changes. No such changes shall be made without prior written approval of LESSOR. LESSOR shall not be responsible for delay in occupancy by LESSEE because of such changes, and any such delay in completing the Expansion Space shall not in any manner affect the Expansion Space Commencement Date.
(b) Except as set forth in subsection (a) above, LESSEE agrees that it has inspected the Expansion Space, and agrees to occupy same in its "AS IS" condition.
5. Provided that LESSEE is not in default under the Lease beyond any applicable notice or cure period, then LESSEE shall have the right to assign the portion of the Demised Premises depicted on Schedule A annexed hereto as Tenant Spaces N, O and P, which consists of approximately 7,113 rentable square feet, in connection with the sale of a division of LESSEE. LESSEE shall deliver to LESSOR prior written notice of such sublease. LESSOR further waives the recapture right specified in Section 15.5 of the Lease with respect to any such sublease. Except as set forth above, such subleasing shall be subject to the provisions of Article 15 of the Lease.
6. LESSOR and LESSEE each represents to the other that it has not dealt with any broker or agent with respect to the Demised Premises or this Lease and each shall indemnify and hold harmless the other from and against any and all liabilities, claims, suits, demands, judgments, costs, interests and expenses to which it nay be subject or suffer by reason of any claim made by any person, firm or corporation for any commission, expense or other compensation as a result of the execution and delivery of this Lease and based on alleged conversations or negotiations by said person, firm or corporation with either LESSOR or LESSEE, as the case may be.
7. As hereby modified and amended, the Lease shall remain in full force and effect.
8. This Amendment and the Lease embody and constitute the entire understanding between the parties with respect to the subject matter hereof, and all prior agreements, representations and statements, oral or written, relating to the subject matter hereof are merged into this Amendment.
9. Neither this Amendment nor any provision contained herein may be amended, modified or extended except by an instrument signed by the party against whom enforcement of such amendment, modification or extension is sought.
10. This Amendment may be executed in counterparts, each of which shall be deemed a duplicate original hereof.
IN WITNESS WHEREOF, this Amendment has been executed by LESSOR and LESSEE as of the day and year first above written.
VITAMIN REALTY ASSOCIATES, L.L.C.
By: /s/ Eric Friedman
------------------------------
Name: Eric Friedman
Title: Member
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WIRE ONE TECHNOLOGIES, INC.
By: /s/ Richard Reiss
------------------------------
Name: Richard Reiss
Title: President and Chief
Executive Officer
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SCHEDULE A
EXPANSION SPACE
SCHEDULE B
BASIC RENT
The Basic Rent shall be payable in equal monthly installments, in advance, on the Basic Rent Payment Dates. The Basic Rent for the Term shall be as follows:
(a) for the period from the Commencement Date to, but not including, the Inclusion Date (defined in the First Amendment), the Basic Rent shall be $62,680.00 per annum, payable in equal monthly installments of $5,306.67;
(b) for the period from the Inclusion Date to, but not including, the Amendment Commencement Date (defined in the Second Amendment), the Basic Rent shall be $87,040.00 per annum, payable in equal monthly installments of $7,253.33;
(c) for the period from the Amendment Commencement Date to, but not including, the First Additional Space Commencement Dare (defined in the Third Amendment), the Basic Rent shall be $122,846.00 per annum, payable in equal monthly installments of $10,237.17;
(d) for the period from the First Additional Space Commencement Date to, but not including, the Second Additional Space Commencement Date (defined in the Third Amendment), the Basic Rent shall be $139,928.00 per annum, payable in equal monthly installments of $11,660.67;
(e) for the period from the Second Additional Space Commencement Date to, but not including, the Expansion Space Commencement Date, the Basic Rent shall be $193,720.00 per annum, payable in equal monthly installments of $16,143.33; and
(f) for the period from the Expansion Space Commencement Date to, but not including, the Termination Date, the Basic Rent shall be $259,100.00 per annum, payable in equal monthly installments of $21,591.67.
SCHEDULE C
CONSTRUCTION CONTRACT
August 21, 2000
Mr. Eric Friedman
Vitamin Realty Associates
225 Long Avenue
Hillside, NJ 07205
Contract
Re: Renovation to rental space
Existing Accounting Room & Two Previous Offices Renovated on Exterior Wall Previously Rented by N.W. International.
Cover exterior wall with 5/8" sheetrock above and below windows and finish
completely as needed.
Remove existing steel doorframe and enlarge existing rough opening to receive
new 6'0" x 7'0" steel jamb with two new wood store-front doors in oak.
Install all matching hardware on door located in main office.
Install new key locks to above-mentioned door.
Build new 16" wide Formica counter top with supports. 1 - 20'9", 1 - 11' 5".
Build new tops and support to match existing. Colors to be selected by owner.
Install approximately 440 yd. of vinyl wall covering in existing finished office
space.
Room Next to previously renovated room, as noted above.
Install new suspended ceiling to match existing ceiling work in previously
renovated room and hallway.
Build approximately 50 linear feet of partitions along exterior wall to create
three independent offices.
All walls to be 3 5/8" 25 gauge metal studs with 5/8" sheetrock and spackle as
needed.
Install three new steel doorframes and birch veneer doors to match existing
previous work.
Second Floor Tenant Space Plan Appears here.
Vitamin Realty Associates
Contract
On exterior wall in three offices, install 5/8" sheetrock above and below
windows as needed.
Install three steel doorjambs with solid core birch doors. Size 3/0x7/0.
Build 10' of additional metal stud partition.
Install one 3/0x7/0 solid core wood door at coffee room with matching hardware.
Install two solid core birch doors on entranceway from hallway. Install matching
hardware. Both doors to be 1 1/2-hour fire rated.
New Office Space with Hallway
Construct new 30' long wall to create approximately a 4' hallway and cover with
sheetrock and finish as needed.
In remaining office space of large room, construct four new offices on exterior
wall as previously discussed.
All walls to be build of 25 gauge studs and 5/8" sheetrock and spackle.
Install four new steel doorjambs and birch veneer doors as noted above.
All doors to receive mill finish, lever design passage knob.
On exterior wall, install 5/8" sheetrock above and below windows and finish as
needed.
Coffee Room Off of Main Room, Approx. 13' x lO',
Cover existing metal - partition wall with 5/8" sheetrock and finish as needed.
Install new suspended ceiling as noted above.
Install new suspended ceiling in hallway and new office space.
Install new 6' wood sink base cabinet in new kitchen area.
Install new Formica counter top with stainless steel sink and faucet & all drain
and water lines as needed.
Vitamin Realty Associates
Contract
Electrical Work
Install fifty-two (52) 2x4 drop-in suspended ceiling lights to match existing.
Install seven (7) 2x2 drop-in suspended ceiling lights to match existing.
Install five (5) switches to control lighting fixtures.
Install thirty (30) outlets.
Install all rough wiring for feeds and homeruns to supply the power to lights
and outlets.
Painting and Finishing
Paint all new sheet rock with primer and one coat. (One color throughout)
Paint all new and existing steel doorjambs.
Finish all new and existing birch doors. (Natural finish.)
Total for all work listed above................ $ 60,450.00
Note:
Remove all garbage to owner's container.
Permits to be paid by owner.
All demolition by owner.
Continued on page 4
Exhibit 4.9
WIRE ONE TECHNOLOGIES, INC.
2000 STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are to attract and retain the best available personnel, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of the Committees appointed to administer the Plan.
(b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
(c) "Applicable Laws" means the legal requirements relating to the administration of stock incentive plans, if any, under applicable provisions of federal securities laws, state corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any foreign jurisdiction applicable to Awards granted to residents therein.
(d) "Award" means the grant of an Option, SAR, Dividend Equivalent Right, Restricted Stock, Performance Unit, Performance Share, or other right or benefit under the Plan.
(e) "Award Agreement" means the written agreement evidencing the grant of an Award executed by the Company and the Grantee, including any amendments thereto.
(f) "Board" means the Board of Directors of the Company.
(g) "Cause" means, with respect to the termination by the Company or a Related Entity of the Grantee's Continuous Service, that such termination is for "Cause" as such term is expressly defined in a then-effective written agreement between the Grantee and the Company or such Related Entity, or in the absence of such then-effective written agreement and definition, is based on, in the determination of the Administrator, the Grantee's: (i) refusal or failure to act in accordance with any specific, lawful direction or order of the Company or a Related Entity; (ii) unfitness or unavailability for service or unsatisfactory performance (other than as a result of Disability); (iii) performance of any act or failure to perform any act in bad faith and to the detriment of the Company or a Related Entity; (iv) dishonesty, intentional misconduct or material breach of any agreement with the Company or a Related Entity; or (v) commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person. At least 30 days prior to the termination of the Grantee's Continuous Service pursuant to (i) or (ii) above, the Administrator shall provide the Grantee with notice of the Company's or such Related Entity's intent to terminate, the reason therefor, and an opportunity
for the Grantee to cure such defects in his or her service to the Company's or such Related Entity's satisfaction. During this 30 day (or longer) period, no Award issued to the Grantee under the Plan may be exercised or purchased.
(h) "Change in Control" means a change in ownership or control of the Company effected through either of the following transactions:
(i) the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities pursuant to a tender or exchange offer made directly to the Company's stockholders which a majority of the Continuing Directors who are not Affiliates or Associates of the offeror do not recommend such stockholders accept, or
(ii) a change in the composition of the Board over a period of thirty-six (36) months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who are Continuing Directors.
(i) "Code" means the Internal Revenue Code of 1986, as amended.
(j) "Committee" means any committee appointed by the Board to administer the Plan.
(k) "Common Stock" means the common stock of the Company.
(l) "Company" means Wire One Technologies, Inc., a Delaware corporation.
(m) "Consultant" means any person (other than an Employee or a Director, solely with respect to rendering services in such person's capacity as a Director) who is engaged by the Company or any Related Entity to render consulting or advisory services to the Company or such Related Entity.
(n) "Continuing Directors" means members of the Board who either (i) have been Board members continuously for a period of at least thirty-six (36) months or (ii) have been Board members for less than thirty-six (36) months and were elected or nominated for election as Board members by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board.
(o) "Continuous Service" means that the provision of services to the Company or a Related Entity in any capacity of Employee, Director or Consultant, is not interrupted or terminated. Continuous Service shall not be considered interrupted in the case of (i) any approved leave of absence, (ii) transfers among the Company, any Related Entity, or any
successor, in any capacity of Employee, Director or Consultant, or (iii) any change in status as long as the individual remains in the service of the Company or a Related Entity in any capacity of Employee, Director or Consultant (except as otherwise provided in the Award Agreement). An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave. For purposes of each Incentive Stock Option granted under the Plan, if such leave exceeds ninety (90) days, and reemployment upon expiration of such leave is not guaranteed by statute or contract, then the Incentive Stock Option shall be treated as a Non-Qualified Stock Option on the day three (3) months and one (1) day following the expiration of such ninety (90) day period.
(p) "Corporate Transaction" means any of the following transactions:
(i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company (including the capital stock of the Company's subsidiary corporations);
(iii) approval by the Company's shareholders of any plan or proposal for the complete liquidation or dissolution of the Company;
(iv) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger; or
(v) acquisition by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities (whether or not in a transaction also constituting a Change in Control), but excluding any such transaction that the Administrator determines shall not be a Corporate Transaction.
(q) "Director" means a member of the Board or the board of directors of any Related Entity.
(r) "Disability" means a Grantee would qualify for benefit payments under the long-term disability policy of the Company or the Related Entity to which the Grantee provides services regardless of whether the Grantee is covered by such policy. If the Company or the Related Entity to which the Grantee provides service does not have a long-term disability plan in place, "Disability" means that a Grantee is permanently unable to carry out the responsibilities and functions of the position held by the Grantee by reason of any medically determinable physical or mental impairment. A Grantee will not be considered to have incurred
a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the Administrator in its discretion.
(s) "Dividend Equivalent Right" means a right entitling the Grantee to compensation measured by dividends paid with respect to Common Stock.
(t) "Employee" means any person, including an Officer or Director, who is an employee of the Company or any Related Entity. The payment of a director's fee by the Company or a Related Entity shall not be sufficient to constitute "employment" by the Company.
(u) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(v) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows:
(i) Where there exists a public market for the Common Stock, the Fair Market Value shall be (A) the closing price for a Share for the last market trading day prior to the time of the determination (or, if no closing price was reported on that date, on the last trading date on which a closing price was reported) on the stock exchange determined by the Administrator to be the primary market for the Common Stock or the Nasdaq National Market, whichever is applicable or (B) if the Common Stock is not traded on any such exchange or national market system, the average of the closing bid and asked prices of a Share on the Nasdaq Small Cap Market for the day prior to the time of the determination (or, if no such prices were reported on that date, on the last date on which such prices were reported), in each case, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or
(ii) In the absence of an established market for the Common Stock of the type described in (i), above, the Fair Market Value thereof shall be determined by the Administrator in good faith.
(w) "Good Reason" means the occurrence after a Corporate Transaction, Change in Control or a Related Entity Disposition of any of the following events or conditions unless consented to by the Grantee:
(i) (A) a change in the Grantee's status, title, position or responsibilities which represents an adverse change from the Grantee's status, title, position or responsibilities as in effect at any time within six (6) months preceding the date of a Corporate Transaction, Change in Control or Related Entity Disposition or at any time thereafter or (B) the assignment to the Grantee of any duties or responsibilities which are inconsistent with the Optionee's status, title, position or responsibilities as in effect at any time within six (6) months preceding the date of a Corporate Transaction, Change in Control or Related Entity Disposition or at any time thereafter; or
(ii) reduction in the Grantee's base salary to a level below that in effect at any time within six (6) months preceding the date of a Corporate Transaction, Change in Control or Related Entity Disposition or at any time thereafter.
(x) "Grantee" means an Employee, Director or Consultant who receives an Award pursuant to an Award Agreement under the Plan.
(y) "Immediate Family" means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Grantee's household (other than a tenant or employee), a trust in which these persons have more than fifty percent (50%) of the beneficial interest, a foundation in which these persons (or the Grantee) control the management of assets, and any other entity in which these persons (or the Grantee) own more than fifty percent (50%) of the voting interests.
(z) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.
(aa) "Non-Qualified Stock Option" means an Option not intended to qualify as an Incentive Stock Option.
(bb) "Officer" means a person who is an officer of the Company or a Related Entity within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(cc) "Option" means an option to purchase Shares pursuant to an Award Agreement granted under the Plan.
(dd) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code.
(ee) "Performance Shares" means Shares or an Award denominated in Shares which may be earned in whole or in part upon attainment of performance criteria established by the Administrator.
(ff) "Performance Units" means an Award which may be earned in whole or in part upon attainment of performance criteria established by the Administrator and which may be settled for cash, Shares or other securities or a combination of cash, Shares or other securities as established by the Administrator.
(gg) "Plan" means this 2000 Stock Incentive Plan.
(hh) "Related Entity" means any Parent, Subsidiary and any business, corporation, partnership, limited liability company or other entity in which the Company, a Parent or a Subsidiary holds a substantial ownership interest, directly or indirectly.
(ii) "Related Entity Disposition" means the sale, distribution or other disposition by the Company, a Parent or a Subsidiary of all or substantially all of the interests of the Company, a Parent or a Subsidiary in any Related Entity effected by a sale, merger or
consolidation or other transaction involving that Related Entity or the sale of all or substantially all of the assets of that Related Entity, other than any Related Entity Disposition to the Company, a Parent or a Subsidiary.
(jj) "Restricted Stock" means Shares issued under the Plan to the Grantee for such consideration, if any, and subject to such restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture provisions, and other terms and conditions as established by the Administrator.
(kk) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any successor thereto.
(ll) "SAR" means a stock appreciation right entitling the Grantee to Shares or cash compensation, as established by the Administrator, measured by appreciation in the value of Common Stock.
(mm) "Share" means a share of the Common Stock.
(nn) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.
(a) Subject to the provisions of Section 10, below, the maximum aggregate number of Shares which may be issued pursuant to all Awards (including Incentive Stock Options) is 3,000,000 Shares. The Shares to be issued pursuant to Awards may be authorized, but unissued, or reacquired Common Stock.
(b) Any Shares covered by an Award (or portion of an Award) which is forfeited or canceled, expires or is settled in cash, shall be deemed not to have been issued for purposes of determining the maximum aggregate number of Shares which may be issued under the Plan. Shares that actually have been issued under the Plan pursuant to an Award shall not be returned to the Plan and shall not become available for future issuance under the Plan, except that if unvested Shares are forfeited, or repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
(a) Plan Administrator.
(i) Administration with Respect to Directors and Officers. With respect to grants of Awards to Directors or Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws and to permit such grants and related transactions under the Plan to be exempt from Section
16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board.
(ii) Administration With Respect to Consultants and Other Employees. With respect to grants of Awards to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. The Board may authorize one or more Officers to grant such Awards and may limit such authority as the Board determines from time to time.
(iii) Administration Errors. In the event an Award is granted in a manner inconsistent with the provisions of this subsection (a), such Award shall be presumptively valid as of its grant date to the extent permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to Applicable Laws and the provisions of the Plan (including any other powers given to the Administrator hereunder), and except as otherwise provided by the Board, the Administrator shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to whom Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are granted hereunder;
(iii) to determine the number of Shares or the amount of other consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreements for use under the Plan;
(v) to determine the terms and conditions of any Award granted hereunder;
(vi) to amend the terms of any outstanding Award granted under the Plan, provided that any amendment that would adversely affect the Grantee's rights under an outstanding Award shall not be made without the Grantee's written consent;
(vii) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan, including without limitation, any notice of Award or Award Agreement, granted pursuant to the Plan;
(viii) to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions and to afford Grantees favorable treatment under such laws; provided, however, that no Award shall be granted under
any such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the Plan; and
(ix) to take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate.
5. Eligibility. Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants. Incentive Stock Options may be granted only to Employees of the Company, a Parent or a Subsidiary. An Employee, Director or Consultant who has been granted an Award may, if otherwise eligible, be granted additional Awards. Awards may be granted to such Employees, Directors or Consultants who are residing in foreign jurisdictions as the Administrator may determine from time to time.
6. Terms and Conditions of Awards.
(a) Type of Awards. The Administrator is authorized under the Plan to award any type of arrangement to an Employee, Director or Consultant that is not inconsistent with the provisions of the Plan and that by its terms involves or might involve the issuance of (i) Shares, (ii) an Option, a SAR or similar right with a fixed or variable price related to the Fair Market Value of the Shares and with an exercise or conversion privilege related to the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or (iii) any other security with the value derived from the value of the Shares. Such awards include, without limitation, Options, SARs, sales or bonuses of Restricted Stock, Dividend Equivalent Rights, Performance Units or Performance Shares, and an Award may consist of one such security or benefit, or two (2) or more of them in any combination or alternative.
(b) Designation of Award. Each Award shall be designated in the Award Agreement. In the case of an Option, the Option shall be designated as either an Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of Shares subject to Options designated as Incentive Stock Options which become exercisable for the first time by a Grantee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options, to the extent of the Shares covered thereby in excess of the foregoing limitation, shall be treated as Non-Qualified Stock Options. For this purpose, Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the date the Option with respect to such Shares is granted.
(c) Conditions of Award. Subject to the terms of the Plan, the Administrator shall determine the provisions, terms, and conditions of each Award including, but not limited to, the Award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, Shares, or other consideration) upon settlement of the Award, payment contingencies, and satisfaction of any performance criteria. The performance criteria established by the Administrator may be based on any one of, or combination of, increase in share price, earnings per share, total stockholder return, return on equity, return on assets, return on investment, net operating income, cash flow, revenue, economic value added, personal
management objectives, or other measure of performance selected by the Administrator. Partial achievement of the specified criteria may result in a payment or vesting corresponding to the degree of achievement as specified in the Award Agreement.
(d) Acquisitions and Other Transactions. The Administrator may issue Awards under the Plan in settlement, assumption or substitution for, outstanding awards or obligations to grant future awards in connection with the Company or a Related Entity acquiring another entity, an interest in another entity or an additional interest in a Related Entity whether by merger, stock purchase, asset purchase or other form of transaction.
(e) Deferral of Award Payment. The Administrator may establish one or more programs under the Plan to permit selected Grantees the opportunity to elect to defer receipt of consideration upon exercise of an Award, satisfaction of performance criteria, or other event that absent the election would entitle the Grantee to payment or receipt of Shares or other consideration under an Award. The Administrator may establish the election procedures, the timing of such elections, the mechanisms for payments of, and accrual of interest or other earnings, if any, on amounts, Shares or other consideration so deferred, and such other terms, conditions, rules and procedures that the Administrator deems advisable for the administration of any such deferral program.
(f) Award Exchange Programs. The Administrator may establish one or more programs under the Plan to permit selected Grantees to exchange an Award under the Plan for one or more other types of Awards under the Plan on such terms and conditions as determined by the Administrator from time to time.
(g) Separate Programs. The Administrator may establish one or more separate programs under the Plan for the purpose of issuing particular forms of Awards to one or more classes of Grantees on such terms and conditions as determined by the Administrator from time to time.
(h) Early Exercise. The Award Agreement may, but need not, include a provision whereby the Grantee may elect at any time while an Employee, Director or Consultant to exercise any part or all of the Award prior to full vesting of the Award. Any unvested Shares received pursuant to such exercise may be subject to a repurchase right in favor of the Company or a Related Entity or to any other restriction the Administrator determines to be appropriate.
(i) Term of Award. The term of each Award shall be the term stated in the Award Agreement, provided, however, that the term of an Incentive Stock Option shall be no more than ten (10) years from the date of grant thereof. However, in the case of an Incentive Stock Option granted to a Grantee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Award Agreement.
(j) Transferability of Awards. Incentive Stock Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Grantee, only by the Grantee; provided, however, that the Grantee may designate a beneficiary of the Grantee's Incentive Stock Option in the event of the Grantee's death on a beneficiary designation form provided by the Administrator. Other Awards may be transferred by gift or through a domestic relations order to members of the Grantee's Immediate Family to the extent provided in the Award Agreement or in the manner and to the extent determined by the Administrator.
(k) Time of Granting Awards. The date of grant of an Award shall for all purposes be the date on which the Administrator makes the determination to grant such Award, or such other date as is determined by the Administrator. Notice of the grant determination shall be given to each Employee, Director or Consultant to whom an Award is so granted within a reasonable time after the date of such grant.
7. Award Exercise or Purchase Price, Consideration and Taxes.
(a) Exercise or Purchase Price. The exercise or purchase price, if any, for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant of such Incentive Stock Option owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be not less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant; or
(B) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Non-Qualified Stock Option, the per Share exercise price shall be not less than eighty-five percent (85%) of the Fair Market Value per Share on the date of grant unless otherwise determined by the Administrator.
(iii) In the case of other Awards, such price as is determined by the Administrator.
(iv) Notwithstanding the foregoing provisions of this Section 7(a), in the case of an Award issued pursuant to Section 6(d), above, the exercise or purchase price for the Award shall be determined in accordance with the principles of Section 424(a) of the Code.
(b) Consideration. Subject to Applicable Laws, the consideration to be paid for the Shares to be issued upon exercise or purchase of an Award including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant). In addition to any other types of consideration the Administrator may determine, the Administrator is authorized to accept as consideration for Shares issued under the Plan the following, provided that the portion of the consideration equal to the par value of the Shares must be paid in cash or other legal consideration permitted by the Delaware General Corporation Law:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such recourse, interest, security, and redemption provisions as the Administrator determines as appropriate;
(iv) surrender of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Administrator may require (including withholding of Shares otherwise deliverable upon exercise of the Award) which have a Fair Market Value on the date of surrender or attestation equal to the aggregate exercise price of the Shares as to which said Award shall be exercised (but only to the extent that such exercise of the Award would not result in an accounting compensation charge with respect to the Shares used to pay the exercise price unless otherwise determined by the Administrator);
(v) with respect to Options, payment through a broker-dealer sale and remittance procedure pursuant to which the Grantee (A) shall provide written instructions to a Company designated brokerage firm to effect the immediate sale of some or all of the purchased Shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased Shares and (B) shall provide written directives to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale transaction; or
(vi) any combination of the foregoing methods of payment.
(c) Taxes. No Shares shall be delivered under the Plan to any Grantee or other person until such Grantee or other person has made arrangements acceptable to the Administrator for the satisfaction of any foreign, federal, state, or local income and employment tax withholding obligations, including, without limitation, obligations incident to the receipt of Shares or the disqualifying disposition of Shares received on exercise of an Incentive Stock Option. Upon exercise of an Award, the Company shall withhold or collect from Grantee an amount sufficient to satisfy such tax obligations.
8. Exercise of Award.
(a) Procedure for Exercise; Rights as a Stockholder.
(i) Any Award granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator under the terms of the Plan and specified in the Award Agreement.
(ii) An Award shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Award by the person entitled to exercise the Award and full payment for the Shares with respect to which the Award is exercised, including, to the extent selected, use of the broker-dealer sale and remittance procedure to pay the purchase price as provided in Section 7(b)(v). Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to Shares subject to an Award, notwithstanding the exercise of an Option or other Award. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Award. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in the Award Agreement or Section 10, below.
(b) Exercise of Award Following Termination of Continuous Service.
(i) An Award may not be exercised after the termination date of such Award set forth in the Award Agreement and may be exercised following the termination of a Grantee's Continuous Service only to the extent provided in the Award Agreement.
(ii) Where the Award Agreement permits a Grantee to exercise an Award following the termination of the Grantee's Continuous Service for a specified period, the Award shall terminate to the extent not exercised on the last day of the specified period or the last day of the original term of the Award, whichever occurs first.
(iii) Any Award designated as an Incentive Stock Option to the extent not exercised within the time permitted by law for the exercise of Incentive Stock Options following the termination of a Grantee's Continuous Service shall convert automatically to a Non-Qualified Stock Option and thereafter shall be exercisable as such to the extent exercisable by its terms for the period specified in the Award Agreement.
9. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares pursuant thereto shall comply with all Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to such compliance.
(b) As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws.
10. Adjustments Upon Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of Shares covered by each outstanding Award, and the number of Shares which have been authorized for issuance under the Plan but as to which no
Awards have yet been granted or which have been returned to the Plan, the exercise or purchase price of each such outstanding Award, as well as any other terms that the Administrator determines require adjustment shall be proportionately adjusted for (i) any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Shares, or similar event affecting the Shares, (ii) any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company, or (iii) as the Administrator may determine in its discretion, any other transaction with respect to Common Stock to which Section 424(a) of the Code applies or any similar transaction; provided, however that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator and its determination shall be final, binding and conclusive. Except as the Administrator determines, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Award.
11. Corporate Transactions/Changes in Control/Related Entity Dispositions. Except as may be provided in an Award Agreement:
(a) In the event of any Corporate Transaction, each Award which is at the
time outstanding under the Plan automatically shall become fully vested and
exercisable and be released from any restrictions on transfer (other than
transfer restrictions applicable to Options) and repurchase or forfeiture
rights, immediately prior to the specified effective date of such Corporate
Transaction, for all of the Shares at the time represented by such Award.
Effective upon the consummation of the Corporate Transaction, all outstanding
Awards under the Plan shall terminate. However, all such Awards shall not
terminate if the Awards are, in connection with the Corporate Transaction,
assumed by the successor corporation or Parent thereof. In addition, an
outstanding Award under the Plan shall not so fully vest and be exercisable and
released from such limitations if and to the extent: (i) such Award is, in
connection with the Corporate Transaction, either assumed by the successor
corporation or Parent thereof or replaced with a comparable Award with respect
to shares of the capital stock of the successor corporation or Parent thereof or
(ii) such Award is to be replaced with a cash incentive program of the successor
corporation which preserves the compensation element of such Award existing at
the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to such Award; provided,
however, that such Award (if assumed), the replacement Award (if replaced), or
the cash incentive program automatically shall become fully vested, exercisable
and payable and be released from any restrictions on transfer (other than
transfer restrictions applicable to Options) and repurchase or forfeiture rights
immediately upon termination of the Grantee's Continuous Service (substituting
the successor employer corporation for "Company or Related Entity" for the
definition of "Continuous Service") if such Continuous Service is terminated by
the successor company without Cause or voluntarily by the Grantee with Good
Reason within twelve (12) months of the Corporate Transaction. The determination
of Award comparability above shall be made by the Administrator.
(b) Following a Change in Control (other than a Change in Control which also is a Corporate Transaction) and upon the termination of the Continuous Service of a Grantee if such Continuous Service is terminated by the Company or Related Entity without Cause or voluntarily by the Grantee with Good Reason within twelve (12) months of a Change in Control, each Award of such Grantee which is at the time outstanding under the Plan automatically shall become fully vested and exercisable and be released from any restrictions on transfer (other than transfer restrictions applicable to Options) and repurchase or forfeiture rights, immediately upon the termination of such Continuous Service.
(c) Effective upon the consummation of a Related Entity Disposition, for purposes of the Plan and all Awards, the Continuous Service of each Grantee who is at the time engaged primarily in service to the Related Entity involved in such Related Entity Disposition shall be deemed to terminate and each Award of such Grantee which is at the time outstanding under the Plan automatically shall become fully vested and exercisable and be released from any restrictions on transfer (other than transfer restrictions applicable to Options) and repurchase or forfeiture rights for all of the Shares at the time represented by such Award and be exercisable in accordance with the terms of the Award Agreement evidencing such Award. However, such Continuous Service shall be not be deemed to terminate if such Award is, in connection with the Related Entity Disposition, assumed by the successor entity or its Parent. In addition, such Continuous Service shall not be deemed to terminate and an outstanding Award under the Plan shall not so fully vest and be exercisable and released from such limitations if and to the extent: (i) such Award is, in connection with the Related Entity Disposition, either to be assumed by the successor entity or its parent or to be replaced with a comparable Award with respect to interests in the successor entity or its parent or (ii) such Award is to be replaced with a cash incentive program of the successor entity which preserves the compensation element of such Award existing at the time of the Related Entity Disposition and provides for subsequent payout in accordance with the same vesting schedule applicable to such Award; provided, however, that such Award (if assumed), the replacement Award (if replaced), or the cash incentive program automatically shall become fully vested, exercisable and payable and be released from any restrictions on transfer (other than transfer restrictions applicable to Options) and repurchase or forfeiture rights immediately upon termination of the Grantee's Continuous Service (substituting the successor employer entity for "Company or Related Entity" for the definition of "Continuous Service") if such Continuous Service is terminated by the successor entity without Cause or voluntarily by the Grantee with Good Reason within twelve (12) months of the Related Entity Disposition. The determination of Award comparability above shall be made by the Administrator.
12. Effective Date and Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the stockholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated. Subject to Section 17, below, and Applicable Laws, Awards may be granted under the Plan upon its becoming effective.
13. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate the Plan. To the extent necessary to comply with Applicable Laws, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required.
(b) No Award may be granted during any suspension of the Plan or after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan (including termination of the Plan under Section 12, above) shall not affect Awards already granted, and such Awards shall remain in full force and effect as if the Plan had not been amended, suspended or terminated, unless mutually agreed otherwise between the Grantee and the Administrator, which agreement must be in writing and signed by the Grantee and the Company.
14. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
15. No Effect on Terms of Employment/Consulting Relationship. The Plan shall not confer upon any Grantee any right with respect to the Grantee's Continuous Service, nor shall it interfere in any way with his or her right or the Company's right to terminate the Grantee's Continuous Service at any time, with or without cause.
16. No Effect on Retirement and Other Benefit Plans. Except as specifically provided in a retirement or other benefit plan of the Company or a Related Entity, Awards shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or a Related Entity, and shall not affect any benefits under any other benefit plan of any kind or any benefit plan subsequently instituted under which the availability or amount of benefits is related to level of compensation. The Plan is not a "Retirement Plan" or "Welfare Plan" under the Employee Retirement Income Security Act of 1974, as amended.
17. Stockholder Approval. The grant of Incentive Stock Options under the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted excluding Incentive Stock Options issued in substitution for outstanding Incentive Stock Options pursuant to Section 424(a) of the Code. Such stockholder approval shall be obtained in the degree and manner required under Applicable Laws. The Administrator may grant Incentive Stock Options under the Plan prior to approval by the stockholders, but until such approval is obtained, no such Incentive Stock Option shall be exercisable. In the event that stockholder approval is not obtained within the twelve (12) month
period provided above, all Incentive Stock Options previously granted under the Plan shall be exercisable as Non-Qualified Stock Options.
| ARTICLE 5 |
| This schedule contains summary financial information extracted from the financial statements accompanying the filings of Form 10-Q and is qualified in its entirety by reference to such financial statements. |
| PERIOD TYPE | 3 MOS | 9 MOS |
| PERIOD START | Jul 01 2000 | Jan 01 2000 |
| FISCAL YEAR END | Dec 31 2000 | Dec 31 2000 |
| PERIOD END | Sep 30 2000 | Sep 30 2000 |
| CASH | 2,576,066 | 2,576,066 |
| SECURITIES | 0 | 0 |
| RECEIVABLES | 24,124,243 | 24,124,243 |
| ALLOWANCES | 571,826 | 571,826 |
| INVENTORY | 7,397,585 | 7,397,585 |
| CURRENT ASSETS | 35,893,914 | 35,893,914 |
| PP&E | 9,903,083 | 9,903,083 |
| DEPRECIATION | 5,261,094 | 5,261,094 |
| TOTAL ASSETS | 75,934,820 | 75,934,820 |
| CURRENT LIABILITIES | 14,620,114 | 14,620,114 |
| BONDS | 0 | 0 |
| PREFERRED MANDATORY | 11,497,377 | 11,467,377 |
| PREFERRED | 0 | 0 |
| COMMON | 1,695 | 1,695 |
| OTHER SE | 49,726,766 | 49,726,766 |
| TOTAL LIABILITY AND EQUITY | 75,934,820 | 75,934,820 |
| SALES | 18,287,167 | 35,397,300 |
| TOTAL REVENUES | 18,287,167 | 35,397,300 |
| CGS | 12,345,638 | 23,632,170 |
| TOTAL COSTS | 18,852,121 | 36,343,537 |
| OTHER EXPENSES | (137,518) | 42,902 |
| LOSS PROVISION | 0 | 0 |
| INTEREST EXPENSE | 13,634 | 67,118 |
| INCOME PRETAX | (441,070) | (1,056,257) |
| INCOME TAX | 0 | 0 |
| INCOME CONTINUING | (441,070) | (1,056,257) |
| DISCONTINUED | 0 | 0 |
| EXTRAORDINARY | 0 | 0 |
| CHANGES | 0 | 0 |
| NET INCOME | (441,070) | (1,056,257) |
| EPS BASIC | (.05) | (.85) |
| EPS DILUTED | (.05) | (.85) |