U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (NO FEE REQUIRED)
For the year ended December 31, 2003
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
Commission file number: 0-25940
GLOWPOINT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0312442
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
225 LONG AVENUE
HILLSIDE, NJ 07205
(Address of Principal Executive Offices) (Zip Code)
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Registrant's Telephone Number, Including Area Code: (973) 282-2000 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
Common Stock, $.0001 Par Value Nasdaq National Market
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Indicate by check mark whether the Registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicated by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant, based upon the closing sales price of the Common Stock on the Nasdaq National Market of $1.97 on March 25, 2004 was $54,607,409.
The number of shares of the Registrant's Common Stock outstanding as of March 25, 2004 was 37,149,027.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the period ended December 31, 2003 are incorporated by reference into Part III.
TABLE OF CONTENTS
ITEM PAGE
---- ----
PART I
1. Business ..................................................................... 1
2. Properties ................................................................... 7
3. Legal Proceedings............................................................. 7
4. Submission of Matters to a Vote of Security Holders .......................... 7
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters......... 8
6. Selected Financial Data....................................................... 9
7. Management's Discussion and Analysis of Financial Condition and Results of 10
Operations..............................................................
7A. Quantitative and Qualitative Disclosures about Market Risk.................... 22
8. Financial Statements and Supplemental Data ................................... 23
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ............................................................. 24
9A. Controls and Procedures....................................................... 24
PART III
10. Directors and Executive Officers of the Registrant ........................... 25
11. Executive Compensation ....................................................... 25
12. Security Ownership of Certain Beneficial Owners and Management............... 25
13. Certain Relationships and Related Transactions ............................... 25
14. Principal Accountant Fees and Services Disclosure Required ................... 25
PART IV
15. Exhibits, Financial Statement Schedules and Reports
on Form 8-K............................................................. 26
Signatures.............................................................. 29
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PART I
Item 1. Business
OVERVIEW
Glowpoint, Inc. ("Glowpoint", "us", or "we"), a Delaware corporation, provides comprehensive feature-rich video communications services with telephone-like reliability and ease-of-use on the industry's only carrier-grade, IP (Internet Protocol) based subscriber network, the Glowpoint network, that is designed exclusively for video communications. The network spans 14 points of presence, or POPs, across three continents, enabling users to connect across the United States, as well as to virtually any business center around the world. Since launching its subscription service in late 2000, we have carried approximately 13 million minutes of video calls on behalf of over 270 customers. The growth of subscriptions was fairly steady through early 2003, when it was determined that separating the video communications service from the equipment sales side of the business would open up a much larger distribution channel for our video communication service. On September 23, 2003, we, formerly known as Wire One Technologies, Inc., or Wire One, completed the sale of our videoconferencing equipment business which had previously been central to our operations, in order to focus solely on growing our video communications services. Our mission is to significantly improve the ease-of-use, cost-effectiveness, functionalities and quality of existing video communications in order to make it an integral part of business communications. We were formed in May 2000 by the merger of All Communications Corporation and View Tech, Inc. We changed our corporate name from Wire One Technologies, Inc. to Glowpoint, Inc. in connection with the sale of our video solutions business in September 2003.
Industry Overview
Videoconferencing has been a niche technology and application for over a decade. The initial rollout of videoconferencing over IP, which was intended to replace legacy Integrated Services Digital Network (ISDN) technology, was a first step towards improving the quality and reducing the cost of videoconferencing. Since it was first introduced, IP-based videoconferencing has made notable progress in lowering service and hardware costs and increasing ease-of-use functionality. IP-based videoconferencing, according to a 2003 research report issued by Frost & Sullivan, is emerging as a powerful business collaboration tool offering significant opportunities for service providers and cost savings to enterprises. Videoconferencing services with value add-ons, such as web-based portals, centralized management and monitoring, as well as, seamless connectivity between disparate endpoints and networks, will continuously expand the end-user base. While most major service providers have introduced IP-based videoconferencing services, widespread adoption of IP videoconferencing has been hindered by (1) large service providers' reluctance to fully commit to migrating to IP-based service, which would cannibalize their ISDN businesses and (2) corporate information technology managers' fear that running video applications over the same network on which data is transmitted would slow down critical data transfer. To overcome these challenges, many IP-based service providers are continuing to improve and augment their existing services with features superior to ISDN-based solutions, thus promoting the migration from ISDN to IP. In addition, industry participants have designed innovative solutions to resolve Quality of Service, or QoS, issues, including building a network that is exclusively dedicated to video communications.
EVOLUTION OF IP-BASED VIDEOCONFERENCING. Prior to 1996, video transmitted over IP networks was either experimental or proprietary because there were no standards for transmitting video and the networks could not support the real-time characteristics for delay and jitter that audio and video require. Beginning in 2000, a number of network service providers began capitalizing on the improvements in network data management and control by offering IP voice and video services that favorably competed with ISDN-based video offerings. Relying on several complementary technologies built into the latest network routers, switches, and last-mile technologies, several companies began offering IP-based services designed primarily for intra-company video communications. Today, IP videoconferencing is usually marketed as having three major advantages over ISDN videoconferencing services: (1) less expensive, (2) more reliable than ISDN conferencing, and (3) delivery of better audio and video quality. IP videoconferencing also provides significant management benefits. IP based video systems are always connected to the packet-switched network. This constant connectivity allows these systems to be remotely controlled and managed from a central location. Large-scale conferencing environments often use an IP-based product, called a gatekeeper,
to control and track the usage of their videoconferencing systems, enabling improved measurement of return on investment and convenient billing mechanisms.
MARKET MOVEMENT TO IP. Industry statistics indicate the movement to IP is proceeding. In a survey of resellers performed in the third quarter of 2002 by Wainhouse Research, median reseller videoconferencing equipment revenue from sales into IP installations was 20% and the median IP related services revenue percentage was 15%. These same resellers also reported that 38% of the group videoconferencing units they sold went into IP installations. The implication is that a significant number of less expensive group videoconferencing systems are being sold, and they are being installed in IP video deployments. Wainhouse Research found that cost is the primary IP video adoption driver. Companies tend to transition from ISDN to IP due to the lower cast of transmitting video communications over an IP-based network.
NEED FOR DEDICATED NETWORK. Despite the fact that many corporate entities already have private networks theoretically capable of supporting IP video communications, most are reluctant to run a video application over the same network that supports its enterprise data and other applications. Among other concerns, the video communications applications would be required to share bandwidth with data applications (for example, e-mail and file transfers) on a common network. Allocating enough bandwidth in a corporate local area network or Intranet to handle real-time transmission of sounds and images, in addition to data applications, is difficult and can significantly impede overall network performance. In addition, most businesses already find it difficult to effectively maintain and manage existing applications because of the shortage of information technology and network personnel. As a result, businesses increasingly require a solution employing a network dedicated to video, which enables them to manage video communications isolated from their other applications and existing communications infrastructure. An effective video network must also be easily scalable in much the same way that a company can simply add more phone lines as its employee base and operations grow. Moreover, widespread adoption by both enterprise and consumer users requires a video communications solution that provides the same reliability as public telephone service. We believe that there exists a significant opportunity to provide an IP-based video communications solution that is as scalable, dependable and, ultimately, as commonplace as voice telephony.
PRODUCTS AND SERVICES
We offer customers a comprehensive portfolio of video communications services, including video-conferencing, multi-point conferencing services and webcasting:
VIDEOCONFERENCING. Our videoconferencing service allows subscribers to conduct broadcast quality video calls with telephone-like ease-of-use and reliability. Each subscription plan comes with a regular telephone number, which allows users to make and receive calls without special codes or IP addresses. Our customers can also receive audio calls from colleagues through our video communications network. Each subscriber also has a unique, easy-to-use access code that makes video conference calling spontaneous. Like telephone conference calls with a participant dial-in number and security code, our Bridging-on-Demand allows callers to dial in a subscribers' pre-assigned number whether or not the participant is also on our video communications network. We offer four unlimited video calling plans priced at $499 and $799 (for 512 Kbps) and $799 and $1,099 (for 1280 Kbps).
MULTI-POINT CONFERENCING SERVICES. Our multi-point conferencing services provide multi-point video communications among three or more participants. These services include Bridging-on-Demand, Advanced Conferencing Services and Premium Conferencing Event Services.
o Bridging-on-Demand - Allows users to have spontaneous, multi-point videoconferencing meetings regardless of the video hardware that each participant is using. With a Bridging-on-Demand conference passcode, users can participate on a conference call at a moment's notice without reservation.
o Advanced Conferencing - Allows users to run multi-point videoconferencing meetings with up to 20 participating locations.
o Premium Conferencing - Allows users to run multi-point videoconferencing meetings with more than 20 participating locations
WEBCASTING. Our Webcasting Service is a comprehensive, managed service that brings together video-conferencing and streaming media capabilities on a single platform, offering users a simple, cost-effective way to create live and on-demand webcasts through standards-based videoconferencing systems (H.320 and H.323). Our Webcasting Service provides an outsourced solution for small, medium and large organizations that need to reach a global audience with engaging, rich-media messages and presentations in a simple and cost-effective way over the web.
Our video communications network provides customers with a high-quality platform for video communications over IP and related applications. Our video communications service offers subscribers substantially reduced transmission costs and superior video communications quality, remote management of all videoconferencing endpoints utilizing simple network management protocol, or SNMP, gateway services to ISDN-based video communications equipment, video streaming and store-and-forward applications from our network operations center, or NOC.
To provide our video communications service, we have contracted with MCI, Cable & Wireless and Equinix for access to their IP backbone networks and co-location facilities. We have contracted with MCI, Covad Communications, New Edge Networks, Allegiance Telecom and others, and plan to contract with additional broadband access providers, for dedicated broadband access to our network using either digital subscriber lines (DSL), or dedicated 1.5 Mbps (T1) or 45 Mbps (T3) lines. Products manufactured by a number of leading IP video communications and video networking equipment suppliers, including Polycom, Tandberg, RADVision, Cisco Systems and Sony, are compatible with our video communications service.
SALES AND MARKETING
We market and sell our services to all sectors including commercial, government, medical and education sectors through resellers. The divestiture of our equipment sales business has allowed us to contract with an expanded and diversified base of distribution partners. While our divested equipment sales business continues to be one of our resellers, we have recently added new channel partners including Applied Global Technologies, Communication Management Services, SPL Integrated Solutions, and VideoLink. We have begun training these new resellers who are expected to begin marketing our services in the first quarter of 2004. To attract additional resellers, we offer one of the most strategic and comprehensive channel sales and distribution programs in the video communications industry, designed to provide agents with both the tools and training necessary to effectively market the service. Our resellers benefit from dedicated account managers, competitive commissions and exclusive online management tools. Our strategy is to provide resellers with a world-class service offering along with the necessary training and tools to drive its resellers' marketing efforts. A step towards this strategy is evident in our recent launch of PartnerPoint, an online sale management tool available to our resellers. PartnerPoint provides sales agents with product information, news, marketing collateral, account information and sales tools necessary to perform sales and marketing activities as well as manage the sales process. Potential resellers include local network consulting companies, video application resellers, network service providers, endpoint equipment manufacturers and national videoconferencing solution providers.
CUSTOMERS
We have a stable, growing subscriber base of over 270 customers ranging from Fortune 500 companies to federal, state and municipal government entities to business and legal services firms to non-profit organizations. Vertical market segmentation among our current customers is as follows: 33% corporate, 20% technical, 15% finance, 9% education, 9% legal, 8% medical and 6% government/non-profit. No single customer accounts for more than 10% of revenues or accounts receivable.
TECHNOLOGY
We employ a proprietary network architecture consisting of state-of-the-art equipment co-located at MCI, C&W and Equinix data centers across the country, connected by multiple dedicated high-speed DS3 circuits from MCI, C&W and Qwest. The sites, each a Glowpoint POP, are connected in a ring that virtually eliminates the risk of a single point of failure and provides industry-leading throughput, scalability and mission-critical resiliency. All equipment on the network complies with current H.323 (IP) standards.
Our network architecture was specially designed for the efficient and cost-effective delivery of feature-rich video content. The network boasts a fully deployed and sophisticated gatekeeper infrastructure that can support thousands of video endpoints with redundancy. The design enables us to provide a unique set of value-added services including, but not limited to, an exclusive call detail-recording (CDR) feature that allows for billing on a call-by-call basis for point-to-point, gateway and multipoint calls. Network IP providers would have to install video-specific gatekeeper technology throughout their networks to provide the additional functionality necessary to provide a similar service capability. The sheer volume of traffic carried by the major carriers would make such a project enormously expensive, and, most likely, cost prohibitive. We also have developed a specialized configuration of software, hardware and global positioning technology that enables us to accurately monitor jitter, packet loss and latency, and maximize overall network performance.
With our origins in videoconferencing equipment sales and service, we gained an understanding of the unique demands placed on a network by a videoconferencing application. Large-carrier IP networks were simply not designed for videoconferencing. Unlike a standard data application, video applications immediately expose network performance limitations. This need for quality and reliability prompted us to develop a parallel network exclusively dedicated to videoconferencing applications, but designed using standard network concepts and methodologies. We also understood that a network, alone, would not offer a sustainable competitive advantage. For that, we needed to develop proprietary software and a hardware-based service offering that leveraged our dedicated network architecture, and enabled us to offer a superior quality, yet easy to use system. In addition to the billing and reporting capabilities discussed above, other features and services include operator assistance, call forwarding, unassisted incoming and outgoing gateway calling, bridging-on-demand meeting rooms, web-based scheduling, LDAP authentication services, firewall transport, customer information center, data collection and statistical analysis tools. We believe that the Glowpoint service offers a unique set of capabilities that will be very difficult for competitors to match.
Glowpoint Solution
The Glowpoint network allows its customers to connect to virtually everywhere across the country and around the globe and to users whether or not they are on the Glowpoint network. We believe our service is superior to other videoconferencing services because it is the only service provider focused on three key factors that are essential to successful video communications: network architecture, network management applications and hardware interoperability.
NETWORK ARCHITECTURE. The Glowpoint network is a secure, state-of-the-art Multiple Protocol Layer Switching backbone with the critical redundancy and reliability businesses demand for their critical applications. The Glowpoint Network is built as a ring with mesh points to provide full redundancy on the backbone. Each Glowpoint POP is built with redundant equipment and circuits, allowing the network to achieve sub-second fail times and 99.99% availability. We operate 14 POPs, 10 in the U.S. and one each at facilities in Toronto, Canada; London, England; Puerto Rico and Tokyo, Japan. We offer the industry's most aggressive Service Level Agreement (SLA) with a 99.99% QoS commitment. Making a video call to a location not on the Glowpoint network is as simple as dialing the video number, including those video numbers using old ISDN technology. Complicated access codes are not required because the intelligence built into the Glowpoint network makes the complex connections invisible. We are currently the only service provider to offer unassisted incoming and outgoing gateway services. The Glowpoint network supports SDSL, HDSL, Frac T1, DS3, Sonet, ATM and Gigabit Ethernet options. The Glowpoint network also supports H.323, H.320, and SIP. We peer with multiple carriers so users can connect to users on any network, including the public internet.
NETWORK MANAGEMENT APPLICATIONS. We have developed pioneering video network management tools to provide a world-class customer experience. Some of our patent-pending applications include:
o "000" Video Operator Service - Users can simply dial `000' to connect to a live Glowpoint network operator.
o Unassisted Gateway Calling - Allows users to reach Glowpoint network and non-Glowpoint network subscribers without any complicated dialing instructions.
o Least-Cost International Routing - Our intelligent network selects the least expensive option for international calls, resulting in great savings, even on calls to ISDN users.
o Bridging-on-Demand - Allows users to conduct a spontaneous conference call, including both video and audio participants.
HARDWARE INTEROPERABILITY. We continually test H.323 compliant equipment in our network. The Glowpoint Certification Program was designed to provide us with the opportunity to test and assess new equipment, options and configurations for use in our network. The program sets strict standards for equipment performance at several levels. Customers can be assured that Glowpoint Certified products conform to the highest standards of H.323 compliancy as well as interoperability with other leading manufacturers of similar products. Our certification team has created a comprehensive test and evaluation methodology requiring that each manufacturer's class of H.323 video communications equipment meet or exceed performance, reliability and interoperability levels in the areas of video, audio, data, feature and capability set. Leading equipment manufacturers like Polycom, Tandberg, Sony and Radvision look to us as the industry leader to provide technical feedback and certification to their products.
Network Operations Center
We maintain a state-of-the-art network operations center (NOC) at our headquarters from which we monitor the operations of the Glowpoint network on a 24x7 basis. The NOC's primary functions are to monitor the network, manage and support all backbone equipment, provide usage information for billing, provide utilization data for capacity planning and provide value-added customer services. Only usage information and authentication packets, rather than actual video communications traffic, pass through the NOC. Technology in the NOC includes gatekeepers, routers and switches, servers, firewalls and load-balancing devices. The NOC uses redundant circuits to connect directly to our backbone.
Research and Development
As of December 31, 2003, we employed a staff of 11 software and hardware engineers who evaluate, test and develop proprietary applications. The costs of this team of engineers totaled approximately $1.3 million, $1.0 million and $0.6 million for the years ended December 31, 2003, 2002 and 2001, respectively. To augment these resources, we engage independent consultants from time-to-time. We expect that we will continue to commit resources to research and development in the future to further develop our proprietary network solution.
Intellectual Property
During the development of various aspects of the Glowpoint network, we developed applications and services that previously were not available. As a result, we have developed a significant stream of intellectual property, some of which have already been submitted for U.S. patent protection. We anticipate additional submissions in the future. To date, the following intellectual property have been submitted for patent protection:
1. Glowpoint Network Architecture (how we built the network to support video over IP).
2. Dial 000 operator services;
3. Billing/call detail gathering and processing including the creation of a video centric invoice;
4. Automated gateway routing incoming and outgoing;
5. Video specific SLA polling, performance gathering; and
6. Service Provider Firewall Traversal (VTS) process for video over IP.
We do not know whether any patent applications previously submitted will be approved, whether patents will be issued from patent applications which we may pursue or whether the scope of any patents issued will be sufficiently broad to protect our technologies or processes. Competitors may successfully challenge the validity and or scope of any such patents and or our trademarks.
To distinguish our service offerings from our competitors' services, we have obtained certain trademarks and trade names for our services, and we maintain certain advertising programs with industry organizations and standards committees to promote our brands. We also protect certain details about our processes, services and strategies as trade secrets, keeping confidential the information that we believe provides us with a competitive advantage. We have ongoing programs designed to maintain the confidentiality of such information. We expect to protect our services and processes by asserting our intellectual property rights where appropriate and prudent. We also will obtain patents, copyrights and other intellectual property rights used in connection with our business when practicable and appropriate.
EMPLOYEES
As of December 31, 2003, we had 71 full-time employees. Of these employees, 20 are involved in engineering and development, 16 in customer service, 11 in providing network support, 8 in sales and marketing and 16 employees are employed in corporate functions. None of our employees are represented by a labor union. We believe that our employee relations are good.
COMPETITION
We compete primarily with providers of video communications transport services, including AT&T, MCI, Sprint and some of the regional Bell operating companies and carriers. In the future, competition may increase from new and existing telecommunications services providers, which may include certain of our network providers, many of which have greater financial resources than we do.
We compete primarily on the basis of our:
o sole focus on the video communications industry;
o breadth of service offerings;
o nationwide presence;
o technical expertise;
o knowledgeable sales, service and training personnel; and
o commitment to customer service and support.
More than just a provider of bandwidth for video communications, we have developed a comprehensive approach to significantly improve videoconferencing to the point that it has the potential to become an integral tool for business communications. We have not only designed a network specifically for video communications but also have continued to develop proprietary network applications to ensure high quality, complete video communications. In addition, through the Glowpoint Certification Program, we have developed expertise in the area of hardware interoperability on a network. Our value-added services include video operators, bridging/multi-point video, seamless connectivity from IP to ISDN connections, on-line real-time billing, and call management. Our services offer subscribers substantially reduced transmission costs and superior video communications quality, remote monitoring, and management of all videoconferencing subscriber locations utilizing SNMP
for products that support SNMP, gateway services to ISDN-based video communications equipment, video streaming and store-and-forward applications, firewall transport services and encryption.
We believe that our ability to compete successfully will depend on a number of factors both within and outside our control, including the adoption and evolution of technologies relating to our business, the pricing policies of our competitors and suppliers, our ability to hire and retain key technical and management personnel and industry and general economic conditions.
Item 2. Properties
Our headquarters are located at 225 Long Avenue, Hillside, New Jersey 07205. The landlord for this office is Vitamin Realty Associates, L.L.C. of which Eric Friedman, a member of our Board of Directors until June 2001, is a member. These premises consist of approximately 9,000 square feet of leased office space and warehouse facilities. The term of this lease expires on April 30, 2005. The base rental for the premises during the term of the lease is $162,000 per annum. In addition, we are obligated to pay our share of the landlord's operating expenses (that is, those expenses incurred by the landlord in connection with the ownership, operation, management, maintenance and repair of the premises, including, among other things, the cost of common-area electricity, operational services and real estate taxes). The Hillside premises house our corporate functions and our network operations center.
In addition to our headquarters we lease an office in Windham, New Hampshire that houses our finance group and a technical facility in Camarillo, California that houses our Multiview Network Services group, help desk and technical personnel.
Item 3. Legal Proceedings
We are defending one suit in the ordinary course of business which is not material to our business, financial condition or results of operations.
Item 4. Submission Of Matters To A Vote Of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The following table presents historical trading information for our common stock for the two most recent fiscal years:
GLOWPOINT
COMMON STOCK
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HIGH LOW
YEAR ENDED DECEMBER 31, 2002:
First Quarter........................................... $6.89 $4.23
Second Quarter.......................................... 4.75 1.74
Third Quarter........................................... 1.94 0.76
Fourth Quarter.......................................... 3.11 1.36
YEAR ENDED DECEMBER 31, 2003:
First Quarter........................................... 2.74 1.69
Second Quarter.......................................... 2.89 1.99
Third Quarter........................................... 3.65 2.57
Fourth Quarter.......................................... 3.18 1.30
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On March 25, 2004, the last reported sale price of our common stock was $1.97 per share as reported on the Nasdaq National Market, and 37,149,027 shares of our common stock were held by approximately 294 holders of record. American Stock Transfer & Trust Company of Brooklyn, New York is the transfer agent and registrar of our common stock.
Dividends
Our board of directors has never declared or paid any cash dividends on our common stock and does not expect to do so for the foreseeable future.
The holders of record of our Series B preferred stock, which was issued in January 2004, going forward, are entitled to receive, out of any assets at the time legally available therefor and when and as declared by our board of directors, dividends at the rate of eight percent (8%) of the stated value per share of $24,000.00 per share per year from January 21, 2004 through July 21, 2005, increasing to twelve percent (12%) on July 22, 2005, payable annually at our option in cash or, so long as we have available shares reserved for issuance, in shares of common stock. Dividends on the Series B preferred stock shall accrue and be payable annually. Dividends on the Series B preferred stock are prior and in preference to any declaration or payment of any distribution on any outstanding shares of junior stock.
Other than dividends to be paid on our Series B preferred stock, we currently intend to retain any earnings to finance the growth and development of our business. Our board of directors will make any future determination of the payment of dividends based upon conditions then existing, including our earnings, financial condition and capital requirements, as well as such economic and other conditions as our board of directors may deem relevant. In addition, the payment of dividends may be limited by financing arrangements into which we may enter in the future.
Recent Sales of Unregistered Securities
On January 22, 2004, we issued (i) an aggregate of 203.667 of our series B preferred stock and (ii) an aggregate of 250,000 shares of restricted common stock in exchange for the cancellation and termination of all of our outstanding 8% subordinated convertible notes in the aggregate principal amount of $4,888,000. The notes were held by institutional and other accredited investors. We also reduced the exercise price of the warrants to purchase shares of our common stock issued in connection with the notes from $3.25 to $2.75. Each share of Series B preferred stock is convertible into 10,000 shares of common stock. The securities issued in this transaction were exempt from registration under the Securities Act by virtue of Section 3(a)(9) thereof.
On February 17, 2004, we issued 6,100,000 shares of our common stock and warrants to purchase 1,830,000 shares of common stock to institutional and other accredited investors. The warrant exercise price is $2.75 per share of common stock. The gross proceeds from the offering were $13.7 million and are
being used for general corporate purposes. The securities issued in this
transaction were exempt from registration under the Securities Act by virtue of
Section 4(2) thereof.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information regarding the aggregate number of securities to be issued under all of our stock options and equity-based plans upon exercise of outstanding options, warrants and other rights and their weighted-average exercise prices as of December 31, 2003. The securities issued under equity compensation plans not approved by security holders consist entirely of options issued with respect to individual compensation arrangements for officers, directors, consultants and one employee. Specifically, we issued most of these options to Richard Reiss, our chairman, and Leo Flotron, our former president and chief operating officer, in connection with their employment agreements. We issued the remainder of these options to two consultants and two directors as compensation for services.
NUMBER OF SECURITIES
WEIGHTED-AVERAGE REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO EXERCISE PRICE OF FUTURE ISSUANCE UNDER EQUITY
BE ISSUED UPON EXERCISE OUTSTANDING COMPENSATION PLANS
OF OUTSTANDING OPTIONS, OPTIONS, WARRANTS, (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS, AND RIGHTS AND RIGHTS REFLECTING IN COLUMN (a))
--------------------------------------- ------------------------- -------------------- -----------------------------
Equity compensation plans approved
by security holders .................. 3,983,366 $ 3.24 1,024,528
Equity compensation plans not
approved by security holders ......... 1,809,407 $ 2.86 --
--------- ------ ---------
Total ............................... 5,792,773 $ 3.12 1,024,528
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Item 6. Selected Financial Data
The following selected consolidated financial information should be read in conjunction with "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited consolidated financial statements and footnotes included elsewhere in this Form 10-K.
YEAR ENDED DECEMBER 31,
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2003 2002 2001 2000 1999
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STATEMENT OF OPERATIONS INFORMATION: (in thousands, except per share data)
Net revenues $ 10,311 $ 5,599 $ 3,480 $ 1,475 $ --
Cost of revenues 10,062 5,597 2,898 1,105 --
-------- -------- -------- -------- --------
Gross margin 249 2 582 370 --
-------- -------- -------- -------- --------
Operating expenses
Research and development 1,261 1,024 583 -- --
Selling 5,494 3,831 1,233 409 --
General and administrative 6,373 5,103 9,961 3,237 --
Restructuring -- 260 110 -- --
Impairment losses on other long-lived assets 1,379 -- -- -- --
Amortization of goodwill -- -- 102 -- --
-------- -------- -------- -------- --------
Total operating expenses 14,507 10,218 11,989 3,646 --
-------- -------- -------- -------- --------
Loss from continuing operations (14,258) (10,216) (11,407) (3,276) --
-------- -------- -------- -------- --------
Other (income) expense
Amortization of deferred financing costs 377 123 100 344 --
Interest income (7) (72) (77) (315) --
Interest expense 1,026 432 598 78 --
Amortization of discount on subordinated debentures 1,988 39 -- -- --
-------- -------- -------- -------- --------
Total other expenses, net 3,384 522 621 107 --
-------- -------- -------- -------- --------
Loss before income taxes (17,642) (10,738) (12,028) (3,383) --
Income tax provision -- -- 200 511 --
-------- -------- -------- -------- --------
Loss from continuing operations (17,642) (10,738) (12,228) (3,894) --
Loss from discontinued AV operations (1,173) (2,696) (396) -- --
Income (loss) from discontinued VS operations (3,624) (44,844) (1,566) 841 (528)
Income (loss) from discontinued Voice operations -- (287) (617) 521 1,592
Gain on sale of discontinued Voice operation -- -- 277 -- --
-------- -------- -------- -------- --------
Net income (loss) (22,439) (58,565) (14,530) (2,532) 1,064
Deemed dividends on series A convertible preferred stock -- -- (4,434) (13,723) --
-------- -------- -------- -------- --------
Net income (loss) attributable to common stockholders $(22,439) $(58,565) $(18,964) $(16,255) $ 1,064
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YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2003 2002 2001 2000 1999
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STATEMENT OF OPERATIONS INFORMATION: (in thousands, except per share data)
Loss from continuing operations per share
Basic $ (0.60) $ (0.37) $ (0.59) $ (0.30) $ --
========= ========= ========= ========= =========
Diluted $ (0.60) $ (0.37) $ (0.59) $ (0.30) $ --
========= ========= ========= ========= =========
Income (loss) from discontinued operations per share
Basic $ (0.16) $ (1.66) $ (0.11) $ 0.10 $ 0.22
========= ========= ========= ========= =========
Diluted $ (0.16) $ (1.66) $ (0.11) $ 0.10 $ 0.17
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Deemed dividends per share
Basic $ -- $ -- $ (0.21) $ (1.07) $ --
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Diluted $ -- $ -- $ (0.21) $ (1.07) $ --
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Net income (loss) per share:
Basic $ (0.76) $ (2.03) $ (0.91) $ (1.27) $ 0.22
========= ========= ========= ========= =========
Diluted $ (0.76) $ (2.03) $ (0.91) $ (1.27) $ 0.17
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Weighted average number of common shares
and equivalents outstanding:
Basic 29,456 28,792 20,880 12,817 4,910
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Diluted 29,456 28,792 20,880 12,817 6,169
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BALANCE SHEET INFORMATION:
Cash and cash equivalents $ 4,185 $ 2,762 $ 1,689 $ 1,871 $ 60
Working capital 4,865 27,819 15,639 19,921 4,526
Total assets 23,987 61,502 104,499 84,372 10,867
Long-term debt (including current portion) 1,904 5,846 83 3,128 2,186
Series A mandatorily redeemable convertible
preferred stock -- -- -- 10,371 --
Total stockholders' equity 18,814 36,586 68,909 49,658 5,194
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this Annual Report on Form 10-K. All statements contained herein that are not historical facts, including, but not limited to, statements regarding anticipated future capital requirements, our future development plans, our ability to obtain debt, equity or other financing, and our ability to generate cash from operations, are based on current expectations. 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 our actual results in future periods to differ materially from such statements. These factors, risks and uncertainties include market acceptance and availability of new video communication services, the nonexclusive and terminable at will nature of sales agent agreements, rapid technological change affecting demand for our services, competition from other video communication service providers, and the availability of sufficient financial resources to enable us to expand our operations, as well as other risks detailed from time to time in our filings with the Securities and Exchange Commission.
Overview
We provide comprehensive feature-rich video communications services with telephone-like reliability and ease-of-use on the industry's only carrier-grade, IP-based subscriber network, the Glowpoint network, that is designed exclusively for video communications. Our network spans 14 points of presence (POPs) across three continents, enabling users to connect across the United States, as well as to virtually any business center around the world. Since launching our subscription service in late 2000, the Glowpoint network has carried approximately 13 million minutes of video calls on behalf of over 270 customers. The growth of
subscriptions was fairly steady through early 2003, when it was determined that separating the Glowpoint video communications service from the equipment sales side of the business would open up a much larger distribution channel for our video communciations service. At the time of the sale, we changed our name from Wire One Technologies, Inc. to Glowpoint, Inc. In September 2003, we completed the sale of our videoconferencing equipment business which had been central to our operations, in order to focus solely on growing our video communications services. Glowpoint's mission is to significantly improve the ease-of-use, cost-effectiveness, functionalities and quality of existing video communications in order to make it an integral part of business communications.
Wire One was formed on May 18, 2000 by the merger of All Communications Corporation and View Tech, Inc. From July 2000 through November 2001, we made several small acquisitions for a total of approximately $9.3 million in cash and stock. In October 2001, we sold our Voice communications business for approximately $2 million and in March 2003, we sold our audio-visual business for approximately $0.8 million.
On September 23, 2003, we sold substantially all of the assets of our Video Solutions (VS) business to an affiliate of Gores Technology Group (Gores), a privately held international acquisition and management firm, in order to focus solely on growing our Glowpoint network service. The VS segment included our videoconferencing equipment distribution, system design and engineering, installation, operation and maintenance activities and consisted of: a headquarters and warehouse facility in Miamisburg, Ohio; a help desk operation in Camarillo, California; 24 sales offices and demonstration facilities across the United States; and a client list of approximately 3,000 active customers with an installed base of approximately 22,000 video conferencing systems. As a result, this segment is classified as a discontinued operation in the accompanying financial statements with its assets and liabilities summarized in single line items on the consolidated balance sheets and its results from operations summarized in a single line item on the consolidated statement of operations. See Note 3 for further information.
In the fourth quarter of 2003, we named a new Chief Executive Officer and President of the Company, David C. Trachtenberg. Two themes guided our activities in the fourth quarter: (1) back to basics and (2) distribution diversification. Back to basics was designed to ensure focus on our operational efficiencies. Distribution diversification focused on raising the visibility of the Company and creating multi-partner sales momentum.
A key focus is making subscriber locations revenue producing as quickly as possible. We reduced our subscriber location backlog from 246 at the end of the third quarter of 2003 to 91 at the end of the fourth quarter of 2003. The subscriber location backlog, which consists of locations under contract but not yet installed, was reduced as a result of a more efficient provisioning process which enabled us to get customers on our network and billable 20% faster than in the prior quarter. Over half of the new subscriber locations ordered in the fourth quarter were brought onto the Glowpoint network and made billable in the same quarter. In addition, we identified over $300,000 in quarterly network costs for elimination, most of which were gone by the end of the fourth quarter. Finally, we began passing through the mandated federal 9.2% universal service fee in December invoices. We managed a seamless transition to this billing update through clear communication with our customers.
We are aware that we cannot become profitable by only cutting costs and that an integral part of our strategy must be to increase sales. This begins with products that our customers will use and that are profitable for us. We spent the fourth quarter of 2003 creating and implementing a new product strategy to drive profitable growth and to reflect our mission of making video communications an integral business tool by making it easy, spontaneous and affordable. These efforts culminated in the January 6, 2004 launch of our new suite of the U.S.'s first "All You Can See" unlimited video calling plans. The new strategy balances reducing the barriers to video communication's use with a need to ensure that each new billable location on the Glowpoint network drives profitable revenue. We attempted to simplify the decision-making process for our customers by simplifying our plans. We discontinued our pay-as-you-go and hourly plans. For one monthly subscription fee, our users get unlimited or "all you can see" use of the Glowpoint network when they communicate with other Glowpoint locations, regardless of where they are. We also bundled additional value into the plans, like our direct dial video numbers, bridging on demand and dial 000 live video operator technology, so that our customers could use the Glowpoint network in an easier and more spontaneous manner.
We also aligned our costs with our revenue by discontinuing our pay-as-you-go plan, moving to annual contracts and pre-qualifying all locations quickly and efficiently, so that we could match our underlying costs with revenues as quickly as possible. We made it easier for our customers to use, and our certified agents to sell the Glowpoint service by introducing fully automated online tools such as CustomerPoint, a portal on our website for our customers, and PartnerPoint, a portal on our website for our resellers. These tools will ensure our ability to scale effectively with our growth and ensure quality control for our sales partners and subscribers. Our fourth quarter 2003 product realignment was designed to drive higher average variable gross margins for each new billable location on the Glowpoint network. The impact to our results should be evident over the course of 2004 as the new products take hold in our distribution channel to become a larger percentage of our embedded billable subscriber location base.
While our current subscribers are able to upgrade to the new products, we did grandfather their existing billable subscriber locations. However, all new Glowpoint locations ordered must be on the new pricing plans. Second, we honored quotes using the legacy pricing through January 31, 2004. However, this should only impact our orders through the Gores' affiliate, Wire One Technology, Inc., reseller channel, as we trained all new channels from the fourth quarter of 2003 and the first quarter of 2004 on our new plans only. Parallel with our re-training and re-launching of Glowpoint within our important Wire One distribution partnership, we signed Communications Management Services and Applied Global Technologies as two new national partners. We continued to expand our distribution channels in early 2004 with the addition of Videolink, Inc. and Videre Conferencing as new partners.
The changes in the fourth quarter 2003 in operations and product strategy have effectively positioned us for profitable growth. Thus, with a strong foundation, we took the opportunity to reinforce our financial health. In January 2004, we announced the exchange of $4.89 million of our outstanding notes for convertible preferred stock, thus simplifying our capital structure. In February 2004, we announced the closing of a $13.7 million private placement of common stock and warrants.
Results of Operations
The following table sets forth, for the periods indicated, information derived from our consolidated financial statements expressed as a percentage of our revenues:
YEAR ENDED DECEMBER 31,
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2003 2002 2001
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Net revenues 100.0% 100.0% 100.0%
Cost of revenues 97.6 100.0 83.3
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Gross margin 2.4 0.0 16.7
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Operating expenses
Research and development 12.2 18.3 16.8
Selling 53.3 68.4 35.4
General and administrative 61.8 91.1 286.2
Restructuring -- 4.7 3.2
Impairment losses on other long-lived assets 13.4 -- --
Amortization of goodwill -- -- 2.9
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Total operating expenses 140.7 182.5 344.5
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Loss from continuing operations (138.3) (182.5) (327.8)
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Other (income) expense
Amortization of deferred financing costs 3.6 2.2 2.9
Interest income (0.1) (1.3) (2.2)
Interest expense 10.0 7.7 17.2
Amortization of discount on subordinated debentures 19.3 0.7 --
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Total other expenses, net 32.8 9.3 17.9
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Loss before income taxes (171.1) (191.8) (345.7)
Income tax provision -- -- 5.7
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Loss from continuing operations (171.1) (191.8) (351.4)
Loss from discontinued AV operations (11.4) (48.2) (11.4)
Loss from discontinued VS operations (35.1) (800.9) (45.0)
Loss from discontinued Voice operations -- (5.1) (17.8)
Gain on sale of discontinued Voice operation -- -- 8.0
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Net loss (217.6) (1,046.0) (417.6)
Deemed dividends on series A convertible preferred stock -- -- 127.4
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Net loss attributable to common stockholders (217.6)% (1,046.0)% (545.0)%
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YEAR ENDED DECEMBER 31, 2003 (2003 PERIOD) COMPARED TO YEAR ENDED DECEMBER 31,
2002 (2002 PERIOD).
NET REVENUES. Net revenues from continuing operations increased $4.7 million, or 84%, in the 2003 period to $10.3 million from $5.6 million for the 2002 period. Subscription and related revenue increased $4.5 million, or 195%, in the 2003 period to $6.8 million from $2.3 million for the 2002 period. Non-subscription revenue consisting of bridging, events and other one-time fees increased $0.2 million, or 6%, in the 2003 period to $3.5 million from $3.3 million for the 2002 period. The growth in subscription and related revenue was the result of having, on average, 578 more billable subscriber locations in the 2003 period than in the 2002 period and those billable subscriber locations each producing an average of $752 per month in revenue. There were 839 average billable subscriber locations in the 2003 period and 261 in the 2002 period. The average monthly subscription and related revenue per subscriber location fell 9% from $747 in the 2002 period to $680 in the 2003 period. The decline in average monthly subscription and related revenue per subscriber location is the result of the growth in the number of billable subscriber locations using the $199 per month pay as you go plan. The $0.2 million increase in non-subscription revenue resulted from the following: 1) a $0.5 million increase in H.323 bridging revenue from $0.7 million in the 2002 period to $1.2 million in the 2003 period resulting from increased billable subscriber locations; 2) a $0.2 million increase in installation revenue from $0.1 million in the 2002 period to $0.3 million in the 2003 period due to the increase in installations from 397 in the 2002 period to 730 in the 2003 period; and 3) a $0.5 million decline in H.320 bridging revenue from $2.2 million in the 2002 period to $1.7 million in the 2003 period.
COST OF REVENUE. Cost of revenue increased $4.5 million, or 80%, in the 2003 period to $10.1 million from $5.6 million for the 2002 period. Infrastructure costs (defined as backbone-related costs of network) increased $1.0 million, or 45%, in the 2003 period to $3.2 million from $2.2 million for the 2002 period. This increase resulted from two factors: 1) the build-out of the network to handle the video traffic of approximately 4,000 billable subscriber locations - $0.6 million of the increase; and 2) the evolution of the network to gain long-term cost efficiencies or as a result of backbone provider issues - $0.4 million of the increase. Access costs (defined as costs of connecting subscriber locations to the network) increased $2.5 million, or 147%, in the 2003 period to $4.2 million from $1.7 million for the 2002 period. The growth in access costs was the result of having, on average, 578 more billable subscriber locations in the 2003 period than in the 2002 period and those billable subscriber locations each costing an average of $368 per month for access to the network. There were 839 average billable subscriber locations in the 2003 period and 261 in the 2002 period. The average monthly access costs per subscriber location fell 22% from $539 in the 2002 period to $421 in the 2003 period. The decline in average monthly access costs per subscriber location is the result of the growth in the number of billable subscriber locations using the $199 per month pay as you go plan and by the increasing use of DSL as the means of accessing the network. Other costs of revenue include the personnel costs related to providing the Glowpoint video communications service along with the ISDN network costs of providing H.320 bridging services. These costs increased $0.9 million, or 53%, in the 2003 period to $2.6 million from $1.7 million for the 2002 period. This increase resulted primarily from three factors: 1) increased depreciation related to increased equipment deployed in the network - $0.3 million; 2) credits recorded in the September 2002 quarter of approximately $250,000 related to refunds of previously paid infrastructure and access fees; and 3) a $0.2 million increase in installation costs from $0.1 million in the 2002 period to $0.3 million in the 2003 period due to the increase in installations from 397 in the 2002 period to 730 in the 2003 period. ISDN network costs fell $0.2 million in line with the decline in H.320 bridging revenue.
GROSS MARGINS. Gross margins increased to approximately $0.2 million in the 2003 period from approximately $2,000 in the 2002 period. As a percentage of revenue, gross margins increased in the 2003 period to 2.4%, as compared to 0.0% of net revenues in the 2002 period. The primary cause of the increase in gross margin is the increase in revenue ($1.9 million impact assuming a 40% marginal gross margin on the additional $4.7 million in revenue). Offsetting items included the increased fixed costs incurred to continue the build out of the network ($1.0 million), the costs to re-configure portions of the network that were incurred ($0.4 million) and the impact in the September 2002 quarter of approximately $250,000 in refunds of previously paid infrastructure and access fees. We believe that our gross margins will improve over the coming months and quarters as the impact is felt from our fourth quarter product realignment which was designed to drive average variable gross margins of 60 to 65 percent
for each new billable subscriber location on the Glowpoint network. The impact to our results should be increasingly evident in 2004 as the new products take hold in our distribution channel to become a larger percentage of our embedded billable subscriber location base. We will also be focusing on minimizing our cost per subscriber location in order to deliver the Glowpoint service in the most efficient manner possible.
RESEARCH AND DEVELOPMENT. Research and development costs, which include the costs of the personnel in this group, the equipment they use and their use of the network for development projects, increased $0.3 million in the 2003 period to $1.3 million from $1.0 million in the 2002 period but were down as a percentage of revenue from 18.3% in the 2002 period to 12.2% of revenue in the 2003 period. The increase in expenses was primarily the result of adding two full-time employees in the 2003 period. It is expected that research and development costs will remain flat in coming quarters as we design and develop new service offerings to meet customer demand, test new products and technologies across the network and develop and enhance on-line tools to make the customer/partner experience a satisfying and productive one.
SELLING. Selling expenses, which include sales salaries, commissions, overhead, and marketing costs, increased $1.7 million to $5.5 million in the 2003 period, from $3.8 million in the 2002 period but were down as a percentage of revenue from 68.4% in the 2002 period to 53.3% of revenue in the 2003 period. The primary component of the $1.7 million increase in costs is the $0.9 million of marketing costs incurred in the 2003 period related to the NBA draft ($0.3 million) and customer trials ($0.6 million). The remainder of the variance results from higher commissions and bonuses associated with higher revenue levels ($0.3 million), increased consulting expenses to review and re-launch our operations, product set, on-line tools and marketing, as well as to establish the Webcast service infrastructure and upgrade and automate our customer service systems ($0.2 million) and increased sales overhead (rent, depreciation, telecommunications, insurance, travel and office expenses) ($0.3 million).
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $1.2 million in the 2003 period to $6.3 million from $5.1 million in the 2002 period. General and administrative expenses as a percentage of net revenues for the 2003 period declined from 91.1% in the 2002 period to 61.8% in the 2003 period. The primary components of the $1.2 million increase in costs were $0.6 million in non-cash expense recorded in connection with the issuance of restricted stock and warrants as compensation and for financing and consulting services, $0.2 million of severance, change of management and other payouts and $0.3 million of additional professional fees incurred related to the search for a new CEO, filing the proxy and holding the annual meeting in August, divestitures and other corporate activities.
RESTRUCTURING. A restructuring charge of $260,000 was recorded in the 2002 period. This restructuring charge was related to severance and other personnel-related costs and was taken to position us to realize $2.0 million in annual operating expense savings.
IMPAIRMENT LOSSES ON OTHER LONG-LIVED ASSETS. In the third quarter of 2003, as a result of our periodic evaluation of long-lived assets used in operations, we determined that fixed assets with a net book of $1.4 million were no longer being used in our IP video network and generating cash flows to support their carrying values. In accordance with FASB Statement No. 144, these assets were written down to their fair value.
OTHER (INCOME) EXPENSES. Other expenses increased $2.9 million to $3.4 million in the 2003 period from $0.5 million in the 2002 period. The increase was primarily due to the recognition of $2.0 million in amortization of discount on the subordinated debentures issued in December 2002. The other major component of this category, interest expense, increased $0.6 million to $1.0 million. This increase was primarily due to higher interest expense on our line of credit facility of $0.1 million and interest accrued on the subordinated debentures of $0.6 million. Amortization of deferred financing costs increased $0.3 million to $0.4 million in the 2003 period from $0.1 million in the 2002 period. In addition to normal amortization recorded in the 2003 period, additional accelerated amortization of $0.2 million was recorded to recognize the reduction in the commitment amount of the line of credit that occurred in 2003.
INCOME TAXES. During the 2003 period, as we had done in the 2002 period, we 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.
DISCONTINUED OPERATIONS. In the 2003 period, we treated our AV division and VS segment as discontinued operations because: 1) the operations and cash flows of this division and segment have been eliminated from our ongoing operations as a result of disposal transactions; and 2) we do not have any significant continuing involvement in the operation of the division or the segment. We incurred a loss from discontinued AV operations in the 2003 period of $1.2 million which was $1.5 million less than the $2.7 million loss incurred in the 2002 period. Loss from discontinued VS operations decreased $41.2 million in the 2003 period to $3.6 million from the $44.8 million loss incurred in the 2002 period which included $41.4 million of impairment losses on goodwill and long-lived assets. Loss from discontinued voice operations decreased $0.3 million in the 2003 period to $0 from the $0.3 million loss incurred in the 2002 period.
NET LOSS. Net loss attributable to common stockholders decreased to $22.4 million, or $0.76 per basic and diluted share, from $58.6 million, or $2.03 per basic and diluted share, for the 2002 period. Earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations is a measurement tool management used to understand our results of operations. As EBITDA from continuing operations does not include non-cash charges and the results of discontinued operations, it serves as a more accurate gauge of our current operating results. The following table provides a reconciliation of the net loss attributable to common stockholders to EBITDA from continuing operations.
YEARS ENDED DECEMBER 31,
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2003 2002
------------ ------------
Net loss attributable to common stockholders $(22,438,938) $(58,565,183)
Depreciation and amortization 5,449,595 3,342,493
Amortization of deferred financing costs 376,596 122,680
Amortization of discount on subordinated debentures 1,987,550 --
Non-cash compensation 1,321,649 675,057
Impairment losses on long-lived assets 1,379,415 --
Interest expense, net 374,865 360,148
Loss from discontinued AV operations 1,173,067 2,696,223
Loss from discontinued VS operations 3,623,637 44,844,385
Loss from discontinued Voice operations -- 286,880
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EBITDA from continuing operations $ (6,752,564) $ (6,237,317)
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YEAR ENDED DECEMBER 31, 2002 (2002 PERIOD) COMPARED TO YEAR ENDED DECEMBER 31,
2001 (2001 PERIOD).
NET REVENUES. Net revenues from continuing operations increased $2.1 million, or 61%, in the 2002 period to $5.6 million from $3.5 million for the 2001 period. Subscription and related revenue increased $2.1 million, or 770%, in the 2002 period to $2.3 million from $0.2 million for the 2001 period. Non-subscription revenue consisting of bridging, events and other one-time fees increased $0.1 million, or 1%, in the 2002 period to $3.3 million from $3.2 million for the 2001 period. The growth in subscription and related revenue was the result of having, on average, 234 more billable subscriber locations in the 2002 period than in the 2001 period and those billable subscriber locations each producing an average of $1,059 per month in revenue. There were 261 average billable subscriber locations in the 2002 period and 27 in the 2001 period. The average monthly subscription and related revenue per subscriber location fell 9% from $817 in the 2001 period to $747 in the 2002 period. The decline in average monthly subscription and related revenue per subscriber location is the result of an increased number of DSL-supported locations (lower price point due to the lower cost). The $0.1 million increase in non-subscription revenue resulted from the following: 1) a $0.6 million increase in H.323 bridging revenue from $0.1 million in the 2001 period to $0.7 million in the 2002 period resulting from increased billable subscriber locations; 2) a $0.2 million increase in professional services revenue resulting from the NFL and NBA draft events and a corporate event for a Fortune 500 company; and 3) a $0.8 million decline in H.320 bridging revenue from $3.0 million in the 2001 period to $2.2 million in the 2002 period.
COST OF REVENUE. Cost of revenue increased $2.7 million, or 93%, in the 2002 period to $5.6 million from $2.9 million for the 2001 period. Infrastructure costs increased $1.3 million, or 155%, in the 2002 period to $2.2 million from $0.9 million for the 2001 period. This increase resulted from the build-out of the network to handle the video traffic of approximately 4,000 billable subscriber locations. Access costs increased $1.5 million, or 781%, in the 2002 period to $1.7 million from $0.2 million for the 2001 period. The growth in access costs was the result of having, on average, 234 more billable subscriber locations in the 2002 period than in the 2001 period and those billable subscriber locations each costing an average of $534 per month for access to the network. There were 261 average billable subscriber locations in the 2002 period and 27 in the 2001 period. The average monthly access costs per subscriber location fell 9% from $595 in the 2001 period to $539 in the 2002 period. The decline in average monthly access costs per subscriber location is the result of the growth in the number of billable subscriber locations using the $199 per month pay as you go plan and by the increasing use of DSL as the means of accessing the network. Other costs of revenue include the personnel costs related to providing the Glowpoint service along with the ISDN network costs of providing H.320 bridging services. These costs decreased $0.1 million, or 6%, in the 2002 period to $1.7 million from $1.8 million for the 2001 period. This decrease resulted primarily from three factors: 1) in the September 2002 quarter we recorded credits of approximately $250,000 related to refunds of previously paid infrastructure and access fees; 2) increased depreciation related to increased equipment deployed in the network - $0.2 million; and 3) ISDN network costs fell $0.1 million in line with the decline in H.320 bridging revenue.
GROSS MARGINS. Gross margins decreased approximately $0.6 million in the 2002 period from approximately $0.6 million in the 2001 period to approximately $2,000. As a percentage of revenue, gross margins decreased in the 2002 period to 0%, as compared to 16.7% of net revenues in the 2001 period. The primary causes of the decrease in gross margin were the increased fixed costs incurred to continue the build out of the network ($1.3 million) and increased depreciation related to increased equipment deployed in the network - $0.2 million offset by the increase in gross margin expected from the increase in revenue ($0.8 million, assuming a 40% marginal gross margin on the additional $2.1 million in revenue) and the impact in the September 2002 quarter of approximately $250,000 in refunds of previously paid infrastructure and access fees.
RESEARCH AND DEVELOPMENT. Research and development costs, which include the costs of the personnel in this group, the equipment they use and their use of the network for development projects, increased $0.4 million in the 2002 period to $1.0 million from $0.6 million in the 2001 period and were up as a percentage of revenue from 16.8% in the 2001 period to 18.3% of revenue in the 2002 period. The increase in expenses was the result of adding three full-time employees in the 2002 period and incurring increased telecommunications, depreciation and rent costs.
SELLING. Selling expenses increased $2.6 million in the 2002 period to $3.8 million, from $1.2 million in the 2001 period and were up as a percentage of revenue from 35.4% in the 2001 period to 68.4% of revenue in the 2002 period. The primary cause for the $2.6 million increase in costs for the 2002 period is the $1.7 million increase in salaries and benefits which was the result of adding twenty full-time employees in the 2002 period. The remainder of the variance results from higher commissions and bonuses associated with higher revenue levels ($0.1 million), increased marketing expenses ($0.4 million) and increased sales overhead (rent, depreciation, telecommunications, insurance, travel and office expenses) ($0.4 million).
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased $4.9 million in the 2002 period to $5.1 million from $10.0 million in the 2001 period. General and administrative expenses as a percentage of net revenues for the 2002 period declined from 286.2% in the 2001 period to 91.1% in the 2002 period. This category of expense was significantly impacted by non-recurring charges that were recognized in the fourth quarter of 2001. The most significant of these 2001 charges was the $4.0 million non-cash charge related to a five-year extension of certain stock options granted to our then Chief Executive Officer, the non-cash charge of $630,000 for accelerated amortization of Glowpoint network-related capitalized costs and the $375,000 charge related to the settlement of outstanding litigation. In the 2002 period a $0.2 million non-cash charge related to the one-year extension of certain stock options granted to our then Chief Operating Officer was incurred. The net impact of these items accounts for the majority of the $4.9 million decrease.
RESTRUCTURING. A restructuring charge of $260,000 was recorded in the 2002 period. This restructuring charge was related to severance and other personnel-related costs and was taken to position us to realize $2.0 million in annual operating expense savings. A restructuring charge of $110,000 was recorded in the 2001 period. This restructuring charge was related to severance and other personnel-related costs and was taken to facilitate the relocation of the Company's accounting and finance group from New Jersey to New Hampshire.
OTHER (INCOME) EXPENSES. Other expenses decreased $0.1 million to $0.5 million in the 2002 period from $0.6 million in the 2001 period. One component of this category, amortization of deferred financing costs, increased to $123,000 in the 2002 period as compared to $100,000 in the 2001 period. In addition, interest income decreased in the 2002 period to $72,000 as compared to $77,000 in the 2001 period. Interest expense decreased in the 2002 period to $432,000 as compared to $598,000 in the 2001 period. The decline in interest expense resulted from having lower average outstanding loan balances in the 2002 period versus the 2001 period and from the lower level of interest rates that existed in the 2002 period versus the 2001 period.
INCOME TAXES. During the 2002 period, as we had done in the 2001 period, we 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.
DISCONTINUED OPERATIONS. In the 2002 period, we treated our audio-visual integration division as a discontinued operation because: 1) the operations and cash flows of this component have been eliminated from our ongoing operations as a result of a disposal transaction; and 2) we do not have any significant continuing involvement in the operation of the division after the disposal transaction. We incurred a loss from discontinued operations relating to the audio-visual integration division in the 2002 period of $2.7 million and a $0.4 million loss in the 2001 period. In addition, as a result of several post-closing adjustments related to the sale of its voice communications business, we incurred a $0.3 million loss from this discontinued operation in the 2002 period. We incurred a $0.6 million loss from discontinued operations in the 2001 period which resulted from lower revenues to cover the fixed costs of the voice communications unit and higher costs of revenues as competitive pressures reduced gross margins.
NET LOSS. Net loss attributable to common stockholders increased to $58.6 million, or $2.03 per basic and diluted share in the 2002 period, from $19.0 million, or $0.91 per basic and diluted share, for the 2001 period. EBITDA from continuing operations is a measurement tool management used to understand our results of operations. As EBITDA from continuing operations does not include non-cash charges and the results of discontinued operations, it serves as a more accurate gauge of our current operating results. In addition, our primary covenant with our asset-based lender was based on EBITDA results. The following table provides a reconciliation of the net loss attributable to common stockholders to EBITDA from continuing operations.
YEARS ENDED DECEMBER 31,
----------------------------
2002 2001
------------ ------------
Net loss attributable to common stockholders $(58,565,183) $(18,964,294)
Depreciation and amortization 3,342,493 2,789,274
Amortization of deferred financing costs 122,680 99,912
Amortization of goodwill -- 102,340
Non-cash compensation 675,057 4,442,316
Interest expense, net 360,148 521,219
Income taxes -- 200,000
Deemed dividends on Series A convertible preferred stock -- 4,433,904
Other non-recurring, non-cash items -- 1,165,000
Loss from discontinued VS operations 44,844,385 1,566,208
Loss from discontinued AV operations 2,696,223 395,697
Loss from discontinued Voice operations 286,880 617,389
Gain on sale of discontinued Voice operations -- (277,414)
------------ ------------
EBITDA from continuing operations $ (6,237,317) $ (2,908,449)
============ ============
|
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2003, we had working capital of $4.9 million compared to $27.8 million at December 31, 2002, a decrease of approximately 83%. We had $4.5 million in cash and cash equivalents at December 31, 2003 compared to $2.8 million at December 31, 2002. The $22.9 million decrease in working capital resulted primarily from the net pay down of $5.8 million of bank loans, the funding of the $12.3 million cash loss from operations in the 2003 period, the payment of approximately $1.1 million in legal, accounting and investment banking fees associated with the sale of the VS operation and the purchase of $2.4 million of furniture, equipment and leasehold improvements.
In January 2004, in exchange for the cancellation and termination of notes with an aggregate face value of $4,888,000 and forfeiture of any and all rights of collection, claim or demand under the notes, we issued to the holders of the notes (i) an aggregate of 203.667 shares of Series B convertible preferred stock and (ii) an aggregate of 250,000 shares of restricted common stock; and reduced the exercise price of the warrants to purchase shares of our common stock issued pursuant to the original purchase agreement from $3.25 to $2.75. As a result of this exchange, the $3.1 million of discount on subordinated debentures as of December 31, 2003 will be written off to expense in the first quarter of 2004.
In February 2004, we raised net proceeds of $12.5 million in a private placement of 6,100,000 shares of our common stock at $2.25 per share. We also issued 1,830,000 warrants to purchase shares of our common stock at an exercise price of $2.75 per share. The warrants expire on August 17, 2009. The warrants are subject to certain anti-dilution protection. In addition, we issued to our placement agent five-year warrants to purchase 427,000 shares of common stock at an exercise price of $2.71 per share.
At December 31, 2003, we had a $7.5 million working capital credit facility with JPMorgan Chase Bank. Borrowings under this facility bear interest at the lender's base rate plus 1 1/2% per annum. At December 31, 2003, there were no outstanding borrowings under this facility. Proceeds from the sale of the VS segment were used to pay down the outstanding balance under the facility to zero. The credit facility remained in place subsequent to the closing of the VS sale transaction. In February 2004, this credit facility was terminated at our request. As a result of the termination of this credit facility, the $85,000 of unamortized deferred financing costs as of December 31, 2003 will be written off to expense in the first quarter of 2004. The credit facility contained certain financial and operational covenants. In 2003, we were in compliance with these covenants.
The following summarizes our contractual cash obligations and commercial commitments at December 31, 2003, and the effect such obligations are expected to have on liquidity and cash flow in future periods.
--------- ---------- ---------- -------- ---------
Contractual Obligations Total 2004 2005 2006 2007
--------- ---------- ---------- -------- ---------
Purchase obligations (1) $6,309,880 $4,998,012 $1,139,026 $172,842 $ --
Operating lease obligations 321,055 264,336 56,719 -- --
Capital lease obligations 174,588 138,456 36,132 -- --
---------- ---------- ---------- -------- ---------
Total $6,805,523 $5,400,804 $1,231,877 $172,842 $ --
---------- ---------- ---------- -------- ---------
|
(1) Under agreements with providers of infrastructure and access circuitry for our network, we are obligated to make payments under commitments ranging from 0-3 years.
Future minimum rental commitments under all non-cancelable operating leases are as follows:
Year Ending December 31
2004 .......................................................................... $264,336
2005 .......................................................................... 56,719
--------
$321,055
========
|
Future minimum lease payments under capital lease obligations at December 31, 2003 are as follows:
2004 .......................................................................... $ 138,456
2005 .......................................................................... 36,132
---------
Total minimum payments ........................................................ 174,588
Less amount representing interest ............................................. (8,434)
---------
Total principal ............................................................... 166,154
Less portion due within one year .............................................. (131,182)
---------
Long-term portion ............................................................. $ 34,972
=========
|
Net cash used by operating activities for the 2003 period was $6.5 million as compared to net cash used in operations of $14.1 million during the 2002 period. The primary source of operating cash in 2003 was the decrease in net assets of discontinued operations of $7.6 million. We used this cash to fund the $12.3 million cash loss from operations and the $2.1 million increase in other current assets.
In an effort to further develop our Glowpoint network solution, we employ a staff of 11 software and hardware engineers who evaluate, test and develop proprietary applications. Research and development costs, which include costs of the personnel in this group, the equipment that they use and their use of the network, totaled $1.3 million in the 2003 period. It is expected that research and development costs will remain flat in coming quarters as we design and develop new service offerings to meet customer demand, test new products and technologies across the network and develop and enhance on-line tools to make the customer/partner experience a satisfying and productive one.
Investing activities for the 2003 period included purchases of $2.4 million for network, computer and videoconferencing equipment and leasehold improvements. The Glowpoint network is currently built out to handle the anticipated level of subscriptions for 2004. Although we anticipate current expansion of the network, we have no significant commitments to make capital expenditures in 2004. In addition, the sale of the VS segment yielded net proceeds of $16.2 million.
Financing activities in the 2003 period included net pay-downs under our revolving credit line totaling $5.8 million.
Management believes, based on current circumstances, that we have adequate capital resources to support current operating levels for at least the next twelve months.
CRITICAL ACCOUNTING POLICIES
We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America. Preparing financial statements in accordance with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The following paragraphs include a discussion of some critical areas where estimates are required.
REVENUE RECOGNITION
We recognize service revenue related to the Glowpoint network subscriber service and the multi-point video and audio bridging services as service is provided. As the non-refundable, upfront activation fees charged to the subscribers do not meet the criteria as a separate unit of accounting, they are deferred and recognized over the life of the customer contracts. Revenues derived from other sources are recognized when services are provided or events occur.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
We record an allowance for doubtful accounts based on specifically identified amounts that we believe to be uncollectible. We also record additional allowances based on certain percentages of our aged receivables, which are determined based on historical experience and our assessment of the general financial conditions affecting our customer base. If our actual collections experience changes, revisions to our allowance may be required. After all attempts to collect a receivable have failed, we write off the receivable against the allowance.
PREPAID COMMISSIONS
Prior to the sale of the VS operation, we paid commissions to VS employees for their efforts in obtaining year-long customer subscriptions on the Glowpoint network. These costs have been recorded as prepaid commissions and are amortized to selling expenses over the term of the related customer agreement. Payments made to resellers for their efforts in obtaining customer subscriptions are treated similarly in the accompanying consolidated financial statements. At December 31, 2003 and 2002, the Company had deferred approximately $200,000 and $111,000, respectively, related to prepaid commissions.
LONG-LIVED ASSETS
We evaluate impairment losses on long-lived assets used in operations, primarily fixed assets, when events and circumstances indicate that the carrying value of the assets might not be recoverable in accordance with FASB Statement No. 144 "Accounting for the Impairment or Disposal of Long-lived Assets". For purposes of evaluating the recoverability of long-lived assets, the undiscounted cash flows estimated to be generated by those assets are compared to the carrying amounts of those assets. If and when the carrying values of the assets exceed their fair values, the related assets will be written down to fair value.
In the third quarter of 2003, as a result of our periodic evaluation of long-lived assets used in operations, we determined that fixed assets with a net book of $1.4 million were no longer being used in our IP video network and generating cash flows to support their carrying values. In accordance with FASB Statement No. 144, these assets were written down to their fair value.
GOODWILL AND OTHER INTANGIBLE ASSETS
We follow Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets in accounting for goodwill and other intangible assets. SFAS No. 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that we identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS No. 142 (See Note 6).
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the Securities and Exchange Commission ("SEC") published SAB No. 104, Revenue Recognition. SAB No. 104 was effective upon issuance and supersedes SAB No. 101, Revenue Recognition in Financial Statements, and rescinds the accounting guidance contained in SAB No. 101 related to multiple-element revenue arrangements that was superseded by EITF Issue No. 00-21. Accordingly, SAB No. 104 rescinds portions of the interpretive guidance included in Topic 13 of the codification of staff accounting bulletins. While the wording of SAB No. 104 has changed to reflect the guidance of EITF 00-21, the revenue recognition principles of SAB No. 101 have remained largely unchanged. The adoption of SAB No. 104 did not have a material effect on the Company's financial position, results of operations, or cash flows.
In November 2002, the Emerging Issues Task Force ("EITF") reached consensus on Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. Revenue arrangements with multiple deliverables include arrangements which provide for the delivery or performance of multiple products, services and/or rights to use assets where performance may occur at different points in time or over different periods of time. EITF Issue No. 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of the guidance under this consensus did not have an impact on the Company's financial position, results of operations or cash flows.
INFLATION
Management does not believe inflation had a material adverse effect on the financial statements for the periods presented.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have exposure to interest rate risk related to our cash equivalents portfolio. The primary objective of our investment policy is to preserve principal while maximizing yields. Our cash equivalents portfolio is short-term in nature, therefore changes in interest rates will not materially impact our consolidated financial condition. However, such interest rate changes can cause fluctuations in our results of operations and cash flows.
There are no other material qualitative or quantitative market risks particular to us.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
GLOWPOINT, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants...................... F-1 Consolidated Balance Sheets at December 31, 2003 and 2002............... F-2 Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001..................................... F-3 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2003, 2002 and 2001......................... F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001..................................... F-5 Notes to Consolidated Financial Statements.............................. F-7 |
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and the
Stockholders of Glowpoint, Inc.
We have audited the accompanying consolidated balance sheets of Glowpoint, Inc. and Subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Glowpoint, Inc. and Subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the consolidated financial statements, on January 1, 2002 the Company changed its method of accounting for goodwill and other intangible assets.
BDO Seidman, LLP
Boston, Massachusetts
February 24, 2004
GLOWPOINT, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------------
2003 2002
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,184,897 $ 2,762,215
Escrowed cash 335,188 --
Accounts receivable, net of allowance for doubtful accounts of $71,620
and $25,000 at December 31, 2003 and 2002, respectively 2,305,552 1,277,891
Net assets of discontinued AV operations -- 807,067
Assets of discontinued VS operations -- 41,314,701
Other current assets 1,439,978 727,262
------------- -------------
Total current assets 8,265,615 46,889,136
Furniture, equipment and leasehold improvements 13,024,055 11,512,415
Goodwill-net 2,547,862 2,547,862
Other Assets 149,574 552,251
------------- -------------
Total assets $ 23,987,106 $ 61,501,664
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,368,484 $ 1,055,427
Accrued expenses 900,690 681,369
Liabilities of discontinued VS operations -- 17,333,120
Current portion of capital lease obligations 131,182 --
------------- -------------
Total current liabilities 3,400,356 19,069,916
------------- -------------
Noncurrent liabilities:
Bank loan payable -- 5,845,516
Capital lease obligations, less current portion 34,972 --
------------- -------------
Total noncurrent liabilities 34,972 5,845,516
------------- -------------
Total liabilities 3,435,328 24,915,432
------------- -------------
Commitments and contingencies
Subordinated debentures 4,888,000 4,888,000
Discount on subordinated debentures (3,149,805) (4,888,000)
------------- -------------
Subordinated debentures, net 1,738,195 --
------------- -------------
Stockholders' Equity:
Preferred stock, $.0001 par value;
5,000,000 shares authorized, none issued -- --
Common stock, $.0001 par value; 100,000,000 authorized;
30,543,672 and 28,931,660 shares issued, respectively 3,054 2,893
Treasury Stock, 39,891 shares at cost (239,742) (239,742)
Deferred compensation (1,650,607) (186,994)
Additional paid-in capital 137,449,109 131,319,368
Accumulated deficit (116,748,231) (94,309,293)
------------- -------------
Total stockholders' equity 18,813,583 36,586,232
------------- -------------
Total liabilities and stockholders' equity $ 23,987,106 $ 61,501,664
============= =============
|
See accompanying notes to consolidated financial statements
GLOWPOINT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
--------------------------------------------
2003 2002 2001
------------ ------------ ------------
Net revenues $ 10,310,744 $ 5,599,216 $ 3,479,907
Cost of revenues 10,061,881 5,596,801 2,898,460
------------ ------------ ------------
Gross margin 248,863 2,415 581,447
------------ ------------ ------------
Operating expenses
Research and development 1,261,485 1,024,060 582,930
Selling 5,493,905 3,830,489 1,232,876
General and administrative 6,372,677 5,103,373 9,960,680
Restructuring -- 260,000 110,000
Impairment losses on other long-lived assets 1,379,415 -- --
Amortization of goodwill -- -- 102,340
------------ ------------ ------------
Total operating expenses 14,507,482 10,217,922 11,988,826
------------ ------------ ------------
Loss from continuing operations (14,258,619) (10,215,507) (11,407,379)
------------ ------------ ------------
Other (income) expense
Amortization of deferred financing costs 376,596 122,680 99,912
Interest income (7,000) (71,644) (76,928)
Interest expense 1,026,469 431,792 598,147
Amortization of discount on subordinated debentures 1,987,550 39,360 --
------------ ------------ ------------
Total other expenses, net 3,383,615 522,188 621,131
------------ ------------ ------------
Loss before income taxes (17,642,234) (10,737,695) (12,028,510)
Income tax provision -- -- 200,000
------------ ------------ ------------
Loss from continuing operations (17,642,234) (10,737,695) (12,228,510)
Loss from discontinued AV operations (1,173,067) (2,696,223) (395,697)
Loss from discontinued VS operations (3,623,637) (44,844,385) (1,566,208)
Loss from discontinued Voice operations -- (286,880) (617,389)
Gain on sale of discontinued Voice operation -- -- 277,414
------------ ------------ ------------
Net loss (22,438,938) (58,565,183) (14,530,390)
Deemed dividends on series A convertible preferred stock -- -- (4,433,904)
------------ ------------ ------------
Net loss attributable to common stockholders $(22,438,938) $(58,565,183) $(18,964,294)
============ ============ ============
Loss from continuing operations per share:
Basic and diluted $ (0.60) $ (0.37) $ (0.59)
============ ============ ============
Loss from discontinued operations per share:
Basic and diluted $ (0.16) $ (1.66) $ (0.11)
============ ============ ============
Deemed dividends per share:
Basic and diluted $ -- $ -- $ (0.21)
============ ============ ============
Net loss attributable to common stockholders per share:
Basic and diluted $ (0.76) $ (2.03) $ (0.91)
============ ============ ============
Weighted average number of common shares and equivalents outstanding:
Basic and diluted 29,455,644 28,792,217 20,880,125
============ ============ ============
|
See accompanying notes to consolidated financial statements.
GLOWPOINT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional
Common Stock Treasury Deferred Paid in Accumulated
Shares Amount Stock Compensation Capital Deficit Total
---------- ------- ---------- ----------- ------------- ------------- -------------
Balance at December 31, 2000 17,299,725 $ 1,730 $ -- $(1,197,493) $67,633,846 $(16,779,816) $49,658,267
Amortization of deferred option
compensation -- -- -- 457,566 -- -- 457,566
Extension of expiration date of CEO
stock options -- -- -- -- 3,984,750 -- 3,984,750
Exercise of stock options 1,508,863 150 -- -- 1,589,212 -- 1,589,362
Issuance of common stock in
business acquisitions 1,282,063 128 -- -- 7,844,639 -- 7,844,767
Issuance of common stock 2,220,000 222 -- -- 9,851,039 -- 9,851,261
Common stock received in
satisfaction of debt (39,891) (3) (239,742) -- -- -- (239,745)
Conversion of series A preferred
stock (net of related costs
of $78,269) 3,021,429 302 -- -- 14,726,429 -- 14,726,731
Deemed dividends on series A
preferred stock -- -- -- -- -- (4,433,904) (4,433,904)
Net loss for the year -- -- -- -- -- (14,530,390) (14,530,390)
---------- ------- ---------- ----------- ------------ ------------- -------------
Balance at December 31, 2001 25,292,189 2,529 (239,742) (739,927) 105,629,915 (35,744,110) 68,908,665
Amortization of deferred option
compensation -- -- -- 292,191 -- -- 292,191
Forfeiture of deferred option
compensation -- -- -- 260,742 (260,742) -- --
Issuance of stock options for services -- -- -- -- 135,339 -- 135,339
Extension of expiration date of COO
stock options -- -- -- -- 206,663 -- 206,663
Exercise of stock options 158,482 16 -- -- 371,473 -- 371,489
Exercise of warrants 54,339 5 -- -- -- -- 5
Issuance of warrants for services -- -- -- -- 407,181 -- 407,181
Issuance of warrants in connection
with subordinated debentures -- -- -- -- 4,571,921 (39,360) 4,532,561
Issuance of shares in connection
with Private Placement 3,426,650 343 -- -- 20,257,618 -- 20,257,961
Net loss for the year -- -- -- -- -- (58,525,823) (58,525,823)
---------- ------- ---------- ----------- ------------ ------------- -------------
Balance at December 31, 2002 28,931,660 2,893 (239,742) (186,994) 131,319,368 (94,309,293) 36,586,232
Amortization of deferred option
compensation -- -- -- 161,446 -- -- 161,446
Forfeiture of deferred option
compensation -- -- -- 25,548 (25,548) -- --
Deferred compensation related to
the issuance of restricted stock 670,000 67 -- (1,945,200) 1,945,200 -- 67
Amortization of deferred compensation
from the issuance of restricted
stock -- -- -- 378,766 -- 378,766
Deferred compensation related to
the extension of the post-
termination exercise period of
stock options -- -- -- (2,233,834) 2,233,834 -- --
Amortization of deferred
compensation related to the
extension of the post-termination
exercise period of stock options -- -- -- 2,149,661 -- -- 2,149,661
Exercise of stock options 603,012 60 -- -- 630,875 -- 630,935
Exercise of warrants 96,183 10 -- -- -- -- 10
Issuance of warrants for services -- -- -- -- 775,151 -- 775,151
Issuance of shares in lieu of interest
on subordinated debentures 242,817 24 -- -- 570,229 -- 570,253
Net loss for the year -- -- -- -- -- (22,438,938) (22,438,938)
---------- ------- ---------- ----------- ------------ ------------- -------------
Balance at December 31, 2003 30,543,672 $ 3,054 $ (239,742) $(1,650,607) $137,449,109 $(116,748,231) $ 18,813,583
========== ======= ========== =========== ============ ============= =============
|
See accompanying notes to consolidated financial statements.
GLOWPOINT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
--------------------------------------------
2003 2002 2001
------------ ------------ ------------
Cash flows from Operating Activities:
Net loss $(22,438,938) $(58,565,183) $(14,530,390)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 4,888,970 4,984,475 7,192,029
Amortization of deferred financing costs 376,596 122,680 99,912
Amortization of discount on subordinated debentures 1,987,550 39,360 --
Non cash compensation 4,008,076 675,057 4,442,316
Impairment losses on goodwill -- 40,012,114 --
Impairment losses on long-lived assets 1,379,415 1,357,806 --
Deferred income taxes -- -- 200,000
Loss on disposal of equipment -- 28,305 --
Increase (decrease) in cash attributable to changes
in assets and liabilities, net of effects of
acquisitions
Escrowed cash (335,188) -- --
Accounts receivable (1,027,661) 10,029,925 (10,691,984)
Inventory -- (2,401,306) 548,423
Net assets of discontinued AV operations 807,067 (807,067) --
Net assets of discontinued VS operations 6,761,095 -- --
Other current assets (2,147,440) (3,689,790) (1,637,533)
Other assets 52,151 (90,329) 46,880
Accounts payable (1,360,383) (3,247,953) (2,084,176)
Accrued expenses 219,320 (1,009,341) 182,412
Deferred revenue -- (27,009) 322,409
Other current liabilities -- (1,465,049) 564,293
------------ ------------ ------------
Net cash used by operating activities (6,829,370) (14,053,305) (15,345,409)
------------ ------------ ------------
Cash flows from Investing Activities:
Purchases of furniture, equipment and
leasehold improvements (2,399,297) (4,745,933) (7,981,050)
Proceeds from sale of furniture, equipment and leasehold
improvements -- 15,000 --
Costs related to acquisition of business
including cash acquired -- -- (175,513)
Proceeds from sale of discontinued VS operation 16,233,312 -- --
Proceeds from sale of discontinued Voice operation -- -- 1,008,692
Notes receivable from sale of discontinued Voice operation -- -- 1,008,691
------------ ------------ ------------
Net cash provided (used) by investing activities 13,834,015 (4,730,933) (6,139,180)
------------ ------------ ------------
Cash flows from Financing Activities:
Proceeds from common stock offering -- 20,257,961 9,851,261
Proceeds (costs) from issuance of subordinated debentures (249,355) 4,571,921 --
Issuance of common stock for cash assets
of GeoVideo Networks, Inc. -- -- 2,500,000
Costs of conversion of preferred stock -- -- (78,269)
Exercise of warrants and options, net 630,935 371,494 1,589,362
Proceeds from bank loans 75,545,455 78,894,947 87,748,581
Payments on bank loans (81,390,971) (83,677,513) (80,120,499)
Deferred financing costs (26,070) (505,074) (99,676)
Payments on capital lease obligations (91,957) (56,734) (87,293)
------------ ------------ ------------
Net cash provided (used) by financing activities (5,581,963) 19,857,002 21,303,467
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents 1,422,682 1,072,764 (181,122)
Cash and cash equivalents at beginning of period 2,762,215 1,689,451 1,870,573
------------ ------------ ------------
Cash and cash equivalents at end of period $ 4,184,897 $ 2,762,215 $ 1,689,451
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 227,103 $ 182,176 $ 598,147
============ ============ ============
Taxes $ -- $ -- $ 2,274
============ ============ ============
|
Non-cash financing and investing activities:
During the year ended December 31, 2003 and 2002, the Company recorded non-cash amortization of discount on subordinated debentures of $1,987,550 million and $39,360, respectively.
During the year ended December 31, 2001, the Company recorded non-cash deemed dividends on Series A mandatorily redeemable convertible preferred stock of $4,433,904.
In June 2001, the Company acquired the non-cash assets of GeoVideo Networks, Inc. for non-cash consideration of $2,500,000 in addition to issuing common stock in exchange for $2,500,000 in cash assets.
In July 2001, the Company acquired the assets and certain liabilities of Advanced Acoustical Concepts, Inc. for non-cash consideration of $793,750.
In November 2001, the Company acquired certain assets and liabilities of the Axxis, Inc. videoconferencing division for non-cash consideration of $2,051,017.
During the year ended December 31, 2001, the Company issued 3,021,429 shares of $0.0001 par common stock in exchange for 2,115 shares of Series A mandatorily redeemable convertible preferred stock. Based on the average conversion price of $4.90 per share, the total value attributable to the common stock was $14,805,000.
During the year ended December 31, 2001, the Company received 39,891 shares of treasury stock common stock valued at $239,742 in satisfaction of outstanding debt owed to the Company by former VTI directors and related parties.
Equipment with costs totaling $258,110 was acquired under capital lease arrangements during the year ended December 31, 2003.
See accompanying notes to consolidated financial statements.
GLOWPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
NOTE 1 -- THE BUSINESS
Glowpoint, Inc. ("Glowpoint" or the "Company"), a Delaware corporation, provides comprehensive feature-rich video communications services with telephone-like reliability and ease-of-use on the industry's only carrier-grade, IP-based subscriber network that is designed exclusively for video communications. The network spans across three continents, enabling users to connect across the United States, as well as to virtually any business center around the world. The growth of subscriptions was fairly steady through early 2003, when it was determined that separating the video communications service from the equipment sales side of the business would open up a much larger distribution channel for the Glowpoint network. On September 23, 2003, Glowpoint, formerly known as Wire One Technologies, Inc. ("Wire One") completed the sale of its Video Solutions (VS) business to Gores Technology Group ("Gores") business which had been central to the Company's operations, in order to focus solely on growing its video communications services. Glowpoint's mission is to significantly improve the ease-of-use, cost-effectiveness, functionalities, and quality of existing video communications in order to make it an integral part of business communications.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, AllComm Products Corporation ("APC"), and VTC Resources, Inc. ("VTC"). All material inter-company balances and transactions have been eliminated in consolidation.
Use of estimates
Preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from the estimates made. Management periodically evaluates estimates used in the preparation of the financial statements for continued reasonableness. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation.
Revenue recognition
The Company recognizes service revenue related to the Glowpoint network subscriber service and the multi-point video and audio bridging services as service is provided. Customer activation fees are deferred and recognized over the life of the customer contract. Revenues derived from other sources are recognized when services are provided or events occur.
Cash and cash equivalents
The Company considers all highly liquid debt instruments with an original maturity of three months or less when purchased to be cash equivalents. The Company's cash and cash equivalents consisted of $4.5 million and $2.8 million at December 31, 2003 and 2002.
In September 2003, as a condition to closing the sale of its videoconferencing equipment business, the Company set aside $335,000 in an interest-bearing escrow account. These funds are restricted as to their use until certain calculations required by the asset purchase agreement are performed and agreed between the parties or determined by independent accountants and are included in escrowed cash on the accompanying consolidated balance sheet at December 31, 2003.
Concentration of credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, and uncollateralized trade accounts receivable. The Company places its cash and cash equivalents primarily in commercial checking accounts and money market funds. Commercial bank balances may from time to time exceed federal insurance limits; money market funds are uninsured.
The Company performs ongoing credit evaluations of its customers. No single customer accounts for more than 10% of the Company's revenues or accounts receivable. The Company records an allowance for doubtful accounts based on specifically identified amounts that are believed to be uncollectible. The Company also records additional allowances based on certain percentages of its aged receivables, which are determined based on historical experience and an assessment of the general financial conditions affecting its customer base. If the Company's actual collections experience changes, revisions to its allowance may be required. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.
Prepaid Commissions
Prior to the sale of the VS operation, the Company paid commissions to VS employees for their efforts in obtaining year-long customer subscriptions on the Glowpoint network. These costs have been recorded as prepaid commissions and are amortized to selling expenses over the term of the related customer agreement. Payments made to resellers for their efforts in obtaining customer subscriptions are treated similarly in the accompanying consolidated financial statements. At December 31, 2003 and 2002, the Company had deferred approximately $200,000 and $111,000, respectively, related to prepaid commissions.
Furniture, equipment and leasehold improvements
Furniture, equipment and leasehold improvements are stated at cost. Furniture and equipment are depreciated over the estimated useful lives of the related assets, which range from three to six years. Leasehold improvements are amortized over the shorter of either the asset's useful life or the related lease term. Depreciation is computed on the straight-line method for financial reporting purposes. Furniture, equipment and leasehold improvements include fixed assets subject to capital leases which are depreciated over the life of the respective asset.
Long-lived assets
The Company evaluates impairment losses on long-lived assets used in operations, primarily fixed assets, when events and circumstances indicate that the carrying value of the assets, might not be recoverable in accordance with Financial Accounting Standards Board ("FASB") Statement No. 144 "Accounting for the Impairment or Disposal of Long-lived Assets". For purposes of evaluating the recoverability of long-lived assets, the undiscounted cash flows estimated to be generated by those assets would be compared to the carrying amounts of those assets. If and when the carrying values of the assets exceed their fair values, the related assets will be written down to fair value.
In the third quarter of 2003, as a result of our periodic evaluation of long-lived assets used in operations, we determined that fixed assets with a net book of $1.4 million were no longer being used in our IP video network and generating cash flows to support their carrying values. In accordance with FASB Statement No. 144, these assets were written down to their fair value.
Goodwill and other intangible assets
The Company follows Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets in accounting for goodwill and other intangible assets. SFAS No. 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS No. 142 (See Note 6).
The following tables present a reconciliation of net income and earnings per share for the year ended December 31, 2001, adjusted to exclude goodwill amortization. Goodwill was not amortized in the years ended December 31, 2003 and 2002.
Year Ended
December 31,
2001
------------
Reported net loss attributable to common stockholders $(18,964,294)
Goodwill amortization - continuing operations 102,340
Goodwill amortization - discontinued operations 2,581,307
------------
Adjusted net loss attributable to common stockholders $(16,280,647)
============
Reported net loss per basic and diluted share $ (0.91)
Goodwill amortization - continuing operations 0.01
Goodwill amortization - discontinued operations 0.12
------------
Adjusted net loss per basic and diluted share $ (0.78)
============
|
Income taxes
The Company uses the liability method to determine its income tax expense or benefit. Deferred tax assets and liabilities are computed based on temporary differences between the financial reporting and tax bases of assets and liabilities (principally certain accrued expenses, compensation expenses, depreciation expense and allowance for doubtful accounts), and are measured using the enacted tax rates that are expected to be in effect when the differences are expected to reverse.
Earnings (loss) per share
Basic loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. In determining basic loss per share for the periods presented, the effects of deemed dividends related to the Company's series A mandatorily redeemable convertible preferred stock is added to the net loss.
Diluted loss per share is calculated by dividing net loss attributable to common stockholders 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 subordinated debentures using the if-converted method. Diluted loss per share for 2003, 2002 and 2001 is the same as basic loss per share, since the effects of the calculation for those years were anti-dilutive.
YEARS ENDED DECEMBER 31,
-------------------------------------
2003 2002 2001
---------- ---------- ----------
Weighted average shares outstanding 29,455,644 28,792,217 20,880,125
Effect of dilutive options and warrants -- -- --
---------- ---------- ----------
Weighted average shares outstanding including
dilutive effect of securities 29,455,644 28,792,217 20,880,125
========== ========== ==========
|
Weighted average options and warrants to purchase 11,956,659, 11,143,590 and 9,535,609 shares of common stock during the years ended December 31, 2003, 2002 and 2001, respectively, and subordinated debentures convertible into 2,036,667 common shares in 2003 and 2002, were not included in the computation of diluted earnings per share because the Company reported a net loss attributable to common stockholders for these periods and their effect would have been anti-dilutive.
Stock-Based Compensation
The Company periodically grants stock options to employees in accordance with the provisions of its stock option plans, with the exercise price of the stock options being set at the closing market price of the common stock on the date of grant. The Company accounts for its employee stock-based compensation plans under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and accordingly accounts for employee stock-based compensation utilizing the intrinsic value method. SFAS No. 123, "Accounting for Stock-Based Compensation", establishes a fair value based method of accounting for stock-based compensation plans. The Company has adopted the disclosure only alternative under SFAS No. 123, which requires disclosure of the pro forma effects on earnings and earnings per share as if SFAS No. 123 had been adopted as well as certain other information.
The fair value of stock options or warrants issued in return for services rendered by any non-employees is estimated on the date of grant using the Black-Scholes pricing model and is charged to operations over the vesting period or the terms of the underlying service agreements. The Company adjusts these estimates for any increases in market price for each of its reporting periods.
In 2002, the Company adopted SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure", which (i) amends SFAS No. 123, to provide alterative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation (ii) amends the disclosure provisions of, SFAS No. 123 to require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation and (iii) amends APB opinion No. 28, "Interim Financial Reporting," to require disclosure about those effects in interim financial information. The Company continues to account for employee stock-based compensation utilizing the intrinsic value method. The additional disclosures required by SFAS No. 148 are as follows:
YEARS ENDED DECEMBER 31,
--------------------------------------------
2003 2002 2001
------------ ------------ ------------
Net loss attributable to common stockholders, $(22,438,938) $(58,565,183) $(18,964,294)
as reported
Add: stock based employee compensation
expense included in reported net loss, net of tax 2,311,107 292,191 457,566
Deduct: total stock based employee
compensation expense determined under the fair value
based method for all awards, net of tax (5,486,945) (6,125,125) (6,785,478)
------------ ------------ ------------
Pro forma net loss $(25,614,776) $(64,398,117) $(25,292,206)
============ ============ ============
Net loss per share:
Basic and diluted - as reported $ (0.76) $ (2.03) $ (0.91)
Basic and diluted - pro forma $ (0.87) $ (2.24) $ (1.21)
|
The weighted-average grant date fair value of options granted during 2003, 2002 and 2001 under the Black-Scholes option pricing model was $1.23, $1.90 and $2.70 per option, respectively.
The fair value of each option granted in 2003, 2002 and 2001 is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
2003 2002 2001
---------- ---------- -----------
Risk fees interest rates.................................. 4.00% 3.89% 4.40%
Expected option lives..................................... 7.55 years 5.00 years 3.81 years
Expected volatility....................................... 79.32% 145.41% 115.9%
Expected dividend yields.................................. None None None
|
Fair value of financial instruments
Financial instruments reported in the Company's consolidated balance sheet consist of cash, accounts receivable, accounts payable and bank loan payable, the carrying value of which approximated fair value at December 31, 2003 and 2002. The fair value of the financial instruments disclosed are not necessarily representative of the amount that could be realized or settled nor does the fair value amount consider the tax consequences of realization or settlement.
Recent accounting pronouncements
In December 2003, the Securities and Exchange Commission ("SEC") published SAB No. 104, Revenue Recognition. SAB No. 104 was effective upon issuance and supersedes SAB No. 101, Revenue Recognition in Financial Statements, and rescinds the accounting guidance contained in SAB No. 101 related to multiple-element revenue arrangements that was superseded by EITF Issue No. 00-21. Accordingly, SAB No. 104 rescinds portions of the interpretive guidance included in Topic 13 of the codification of staff accounting bulletins. While the wording of SAB No. 104 has changed to reflect the guidance of EITF 00-21, the revenue recognition principles of SAB
No. 101 have remained largely unchanged. The adoption of SAB No. 104 did not have a material effect on the Company's financial position, results of operations, or cash flows.
In November 2002, the Emerging Issues Task Force ("EITF") reached consensus on Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. Revenue arrangements with multiple deliverables include arrangements which provide for the delivery or performance of multiple products, services and/or rights to use assets where performance may occur at different points in time or over different periods of time. EITF Issue No. 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of the guidance under this consensus did not have an impact on the Company's financial position, results of operations or cash flows.
NOTE 3 -- DISCONTINUED OPERATIONS
In September 2003, the Company completed the sale of all of the properties,
rights, interests and other tangible and intangible assets that relate in any
material respect to its VS segment to Gores pursuant to the terms of the asset
purchase agreement dated as of June 10, 2003. The Company is entitled to receive
total consideration of up to $24 million for the transaction, consisting of $21
million in cash, including $19 million received at closing and a $2 million
holdback, an unsecured $1 million promissory note maturing on December 31, 2004
and bearing an interest rate of 5% per annum and a $2 million earn-out based on
performance of the assets over the two years following the closing. Gores held
back $2 million to cover potential purchase price adjustments payable by
Glowpoint arising under the asset purchase agreement. The $2 million cash
holdback and the $1 million unsecured promissory note were not recorded on the
consolidated balance sheet as of December 31, 2003 as Gores had not yet
completed their evaluation of the acquired assets. A deferred gain on sale of
the VS operation totaling $646,000 was recorded and is a component of accrued
expenses on the accompanying consolidated balance sheet as of December 31, 2003.
Gores will also pay Glowpoint on each of June 30, 2004 and June 30, 2005
additional payments, not to exceed an aggregate of $2 million, equal to five
percent of the sum of (1) the amounts billed by Gores from the operation of the
VS segment by Gores after the closing, plus (2) the annual revenues derived from
the video solutions business of Pierce Technology Services, Inc. (formerly
Forgent Networks, Inc.) for such year in excess of $96 million. If Gores sells
substantially all of the assets of its video solutions business prior to June
30, 2005, whether by merger, sale of stock or sale of assets, for total
consideration greater than $35 million, Gores will pay the Company $2 million
less amounts previously paid. As partial consideration for the purchase of
assets, Gores assumed certain liabilities related to the VS segment, including
(1) all liabilities to be paid or performed after the closing date that arise
from or out of the performance or non-performance by Gores after the closing
date of any contracts included in the assets or entered into after June 10, 2003
and (2) the Company's accounts payable, customer deposits, deferred revenue and
accrued liabilities related to the VS segment.
The sale of the Company's VS segment was approved by stockholders at the Company's 2003 Annual Meeting of Stockholders held Thursday, August 21, 2003.
The closing of the sale took place on September 23, 2003. The VS segment included the Company's videoconferencing equipment distribution, system design and engineering, installation, operation and maintenance activities consisting of: a headquarters and warehouse facility in Miamisburg, Ohio; a help desk operation in Camarillo, California; 24 sales offices and demonstration facilities across the United States; and a client list of approximately 3,000 active customers with an installed base of approximately 22,000 video conferencing systems. As a result, this segment is classified as a discontinued operation in the accompanying financial statements, with its assets and liabilities summarized in single line items on the consolidated balance sheets and its results from operations summarized in a single line item on the consolidated statement of operations.
Assets of discontinued VS operations consist of the following:
DECEMBER 31, 2002
-----------------
Accounts receivable ..................................................... $24,163,666
Inventory ............................................................... 8,122,996
Other current assets .................................................... 6,149,214
Fixed assets ............................................................ 2,684,264
Other assets ............................................................ 194,561
-----------
Total .............................................................. $41,314,701
===========
|
Liabilities of discontinued VS operations consist of the following:
DECEMBER 31, 2002
-----------------
Accounts payable ........................................................ $ 7,994,535
Accrued expenses ........................................................ 1,441,444
Deferred revenue ........................................................ 7,871,267
Other liabilities ....................................................... 25,874
-----------
Total .............................................................. $17,333,120
===========
|
Revenues and pretax loss from discontinued VS operations are as follows:
YEARS ENDED DECEMBER 31,
--------------------------------------------
2003 2002 2001
------------ ------------ ------------
Revenues $ 40,253,589 $ 77,148,861 $ 70,931,571
Pretax loss $ (3,623,637) $(44,844,385) $ (1,566,208)
|
In March 2003, the Company completed the sale of certain assets of its Audio-Visual ("AV") component to Columbia, Maryland-based Signal Perfection Limited ("SPL") for approximately $807,000, $250,000 of which was paid in cash at the close of the transaction and the balance of which was paid in full. The sale of the AV component was aimed at enabling the Company to focus more of its resources to the development and marketing of its Glowpoint network and to its video solutions business. As a consequence, this unit has been classified as a discontinued operation in the accompanying consolidated financial statements, with its net assets summarized in a single line item on the consolidated balance sheets and its results from operations summarized in a single line item on the consolidated statements of operations.
Net assets of discontinued AV operations consist of the following:
DECEMBER 31, 2002
-----------------
Inventory $300,000
Other current assets 507,067
--------
Total $807,067
========
|
Revenues and pretax loss from discontinued AV operations are as follows:
YEARS ENDED DECEMBER 31,
--------------------------------------------
2003 2002 2001
------------ ------------ ------------
Revenues $ 3,876,822 $ 17,260,642 $ 14,504,757
Pretax loss $ (1,173,067) $ (2,696,223) $ (395,697)
|
On October 24, 2001, the Company completed the sale of its voice communications business unit to Fairfield, New Jersey-based Phonextra, Inc. for approximately $2,017,000, half of which was paid in cash at the close of the transaction and the balance of which was paid in the form of a promissory note which was paid in 2002. The Company's sale of its voice communications unit was aimed at enabling it to sharpen its focus on video solutions and on Glowpoint. As a consequence, this unit has been classified as a discontinued operation in the accompanying financial statements, with its results from operations summarized in a single line item on the consolidated statements of operations.
Revenues and pretax loss from discontinued Voice operations are as follows:
YEARS ENDED DECEMBER 31,
--------------------------------------------
2003 2002 2001
------------ ------------ ------------
Revenues $ -- $ -- $ 5,383,145
Pretax loss $ -- $ (286,880) $ (617,389)
|
The pretax loss recorded in 2002 was the result of several post-closing adjustments related to the settlement of liabilities with vendors and customers for amounts in excess of those previously accrued.
NOTE 4 -- OTHER CURRENT ASSETS
Other current assets consist of the following:
DECEMBER 31,
-----------------------
2003 2002
---------- ----------
Prepaid professional fees $ 163,925 $ --
Prepaid insurance 137,819 121,505
Prepaid maintenance contracts 127,640 67,506
Prepaid telecommunications costs 268,465 148,651
Prepaid commissions 199,571 111,375
Receivable from Gores Technology Group, net 209,688 --
Sales tax refunds receivable 138,603 --
Marketable equity securities 74,065 --
Security deposits -- 80,000
Related party loan receivable -- 69,960
Insurance claim receivable -- 49,156
Other current assets 120,202 79,109
---------- ----------
$1,439,978 $ 727,262
========== ==========
|
At December 31, 2003, the Company was owed $1,553,303 by Gores and owed Gores $1,343,615, with this receivable and payable resulting from post-sale transactions.
NOTE 5 -- FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consist of the following:
DECEMBER 31,
----------------------------- ESTIMATED
2003 2002 USEFUL LIFE
------------ ------------ -----------
Leasehold improvements $ 389,080 $ 370,813 5 Years
Office furniture and equipment 406,945 400,304 5 Years
Computer equipment and software 2,322,750 2,007,196 3 Years
Videoconferencing equipment 354,294 235,388 3 Years
Bridging equipment 1,244,063 1,244,063 5 Years
Network equipment 14,815,734 11,677,589 6 Years
Vehicles 220,316 268,736 5 Years
------------ ------------
19,753,182 16,204,089
Less: Accumulated depreciation (6,729,127) (4,691,674)
------------ ------------
$ 13,024,055 $ 11,512,415
============ ============
|
Depreciation expense was $3,115,863, $4,096,596 and $4,073,599 for the years ended December 31, 2003, 2002 and 2001, respectively, which includes depreciation expense of $32,832 for 2003, $57,937 for 2002 and $64,224 for 2001 on fixed assets subject to capital leases. The equipment under capital leases as of December 31, 2003 had a cost of $258,110, accumulated depreciation of $32,832 and a net book value of $225,278.
NOTE 6 -- GOODWILL AND OTHER INTANGIBLE ASSETS
The Company adopted SFAS 142 on January 1, 2002. As of this date, the Company completed its Step 1 analysis and determined there was no impairment of its existing goodwill. Subsequent to the completion of this initial transitional goodwill impairment test, certain events and changes in circumstances caused the Company to reevaluate the goodwill for possible impairment. The Company used a fair value approach as of September 30, 2002 to reevaluate the existing goodwill for impairment. The Company completed this valuation in the fourth quarter of 2002 and it resulted in an impairment of $40,012,114 of goodwill in accordance with SFAS 142, which is included in loss from discontinued VS operations in the accompanying consolidated statement of operations.
The Company's acquisitions to date have all been accounted for using the purchase method. All future business combinations will be accounted for under the purchase method, which may result in the recognition of goodwill and other intangibles assets, some of which may subsequently be charged to operations, either by amortization or impairment charges. For purchase business combinations completed prior to June 30, 2001, the net carrying amount of goodwill was $2,547,862 as of December 31, 2003. The Company completed its annual test of goodwill and other
intangible assets for impairment in the fourth quarter of 2003 in accordance with SFAS 142 and determined that no impairment existed.
NOTE 7 -- ACCRUED EXPENSES
Accrued expenses consist of the following:
DECEMBER 31,
-------------------
2003 2002
-------- --------
Deferred gain on sale of VS operation $645,745 $ --
Accrued compensation 168,109 239,252
Accrued interest 24,791 52,510
Accrued restructuring -- 29,050
Sales tax payable -- 200,171
Customer deposits -- 128,016
Other 62,045 32,370
-------- --------
$900,690 $681,369
======== ========
|
NOTE 8 -- BANK LOAN PAYABLE AND LONG-TERM DEBT
Bank loan payable
In May 2002, the Company entered into a $25 million working capital credit facility with JPMorgan Chase Bank and incurred $505,074 in deferred financing costs. Under terms of the three-year agreement for this facility, loan availability is based on (1) 80% of eligible accounts receivable and (2) the lesser of 50% against eligible finished goods inventory or 80% against the net eligible amount of the net orderly liquidation value by category of finished goods inventory as determined by an outside appraisal firm, subject to an inventory cap of $2 million. Borrowings bear interest at the lender's base rate plus 1 1/2 % per annum. At December 31, 2003, the interest rate on the facility was 5.50%. The credit facility contains certain financial and operational covenants. For the period from July 1, 2002 through September 30, 2002 (the "2002 Third Quarter"), the Company was in violation of the covenant requiring the Company to meet a certain earnings before interest, taxes, depreciation and amortization ("EBITDA") target for the three quarters ended September 30, 2002. In November, 2002, the Company concluded an amendment to the credit facility to cure noncompliance with the EBITDA covenant. As compensation for this amendment, the Company granted 100,000 warrants with an exercise price of $1.99 to JPMorgan Chase. The fair value of these warrants was determined to be $176,203 using the Black-Scholes valuation method and this amount was charged to interest expense in 2002. For the period from October 1, 2002 through December 31, 2002 ("2002 Fourth Quarter"), the Company was in violation of the covenant requiring the Company to meet a certain EBITDA target for the four quarters ended December 31, 2002. In March 2003, the Company concluded an amendment to the credit facility with JPMorgan Chase Bank to cure non-compliance with the EBITDA financial covenant. As compensation for this amendment, the Company granted 100,000 warrants with an exercise price of $2.06 to JPMorgan Chase. The fair value of these warrants was determined to be $187,210 using the Black Scholes valuation method and this amount was charged to interest expense in 2003. Some additional highlights of the amendment include: 1) a reduction in the commitment amount of the line of credit from $25 million to $15 million; 2) revised EBITDA covenant levels for the remainder of the term of the credit agreement; and, 3) maintenance of the interest rate, loan fees and provisions of the borrowing formula at the same levels as previously negotiated. In September 2003, the Company signed a letter agreement with JP Morgan Chase to further reduce the commitment amount of the line of credit from $15 million to $7.5 million. In connection with these amendments, the Company wrote off approximately $188,000 of deferred financing costs in 2003. At December 31, 2003, there were no borrowings outstanding under the facility. At December 31, 2002, the outstanding borrowings were classified as non-current in the accompanying consolidated balance sheet because the facility matures on May 31, 2005. In February 2004, the working capital credit facility with JPMorgan Chase was terminated at the Company's request. As a result of the termination of this credit facility, the $85,000 of unamortized deferred financing costs as of December 31, 2003 will be written off to expense in the first quarter of 2004.
Long-term debt
Long-term debt consists of the following:
DECEMBER 31,
-----------------------
2003 2002
---------- ----------
Bank loan payable $ -- $5,845,516
Capital lease obligations 166,154 --
---------- ----------
166,154 5,845,516
Less: current maturities 131,182 --
---------- ----------
$ 34,972 $5,845,516
========== ==========
|
NOTE 9 -- SUBORDINATED DEBENTURES
In December 2002, the Company raised net proceeds of $4.6 million in a private placement of $4,888,000 principal amount of 8% convertible debentures. The debentures, which are convertible into 2,036,677 shares of common stock at $2.40 per share, are subordinate to the Company's credit facility with JPMorgan Chase Bank. The debentures mature in February 2004, or 90 days following the expiration (in May 2005) or earlier termination of the credit facility, whichever is later. The debentures were settled in January 2004, as discussed in Note 20. The Company has the option of paying interest quarterly on the debentures in the form of either cash or Glowpoint common stock. Investors in the private placement also received five-year warrants to purchase 814,668 shares of common stock at an exercise price of $3.25 per share. The warrants are subject to customary anti-dilution adjustments. The Company also issued to its placement agent warrants to purchase 40,733 shares of common stock at an exercise price of $0.001 per share with an expiration date of January 31, 2003.
Costs of the offering, including the fair value of the warrants, totaled $2,519,000. This amount was recorded as a discount on subordinated debentures and is being amortized over the period from the date of issuance to the August 2005 redemption date. In addition, in accordance with EITF No. 00-27, the Company recorded additional discount on subordinated debentures of $2,369,000 to reflect the beneficial conversion feature of the warrants. Accordingly, all of the proceeds from this financing have been credited to stockholders' equity.
NOTE 10 -- STOCKHOLDERS' EQUITY
Initial Public Offering
In May 1997, the Company completed a public offering of 805,000 Units for $7.00 per Unit. Each Unit consisted of two shares of Common Stock and two Redeemable Class A Warrants. The Warrants were exercisable for four years commencing one year from the effective date of the offering, at a price of $4.25 per share. The Company may redeem the Warrants at a price of $.10 per warrant, commencing eighteen months from the effective date of the offering and continuing for a four-year period, provided the price of the Company's Common Stock is $10.63 for at least 20 consecutive trading days prior to issuing a notice of redemption. The Company received proceeds from the offering of approximately $4,540,000, net of related costs of registration.
In May 1997, the Company also issued to the underwriter of the public offering, for nominal consideration, an option to purchase up to 70,000 Units. This option was exercisable for a four-year period commencing one year from the effective date of the offering, at a per Unit exercise price of $8.40 per Unit. The Units were similar to those offered to the public. In March 2000, the Company received $117,600 from the exercise of 28,000 Units.
On February 10, 2000, the Company announced its intention to redeem all outstanding Class A warrants. From February through April 2000, the Company raised net proceeds of approximately $8,047,000 from the exercise of 1,933,647 Class A warrants. All unexercised Class A warrants were redeemed in April 2000, except for 112,000 Class A warrants underlying the options granted to the underwriters.
Common Stock
In August 2001, the Company raised net proceeds of $9.9 million in a private placement of 2,220,000 shares of its common stock at a price of $5.00 per share. Investors in the private placement also received five-year warrants to purchase 814,000 shares of common stock at an exercise price of $6.25 per share. The warrants are subject to certain anti-dilution protection. The Company also issued to its placement agent five-year warrants to purchase 220,000 shares of common stock at an exercise price of $5.00 per share.
In January 2002, the Company raised net proceeds of $20.3 million in a private placement of 3,426,650 shares of its common stock at $6.25 per share. Investors in the private placement also received five-year warrants to purchase 864,375 shares of common stock at an exercise price of $10.00 per share. The warrants are subject to certain anti-dilution protection.
Preferred Stock
In December 1996, the Company's stockholders approved an amendment to the Company's Certificate of Incorporation to authorize the issuance of up to 1,000,000 shares of Preferred Stock. The authorized number of shares of Preferred Stock to be issued was raised to 5,000,000 shares effective with the merger with VTI. Except for the 2,450 shares of Series A preferred stock issued in June 2000 and the 203.667 shares of Series B preferred stock issued in January 2004 (see Note 20), the rights and privileges of the Preferred Stock have not yet been designated.
In June 2000, the Company raised gross proceeds of $17.15 million in a private placement of 2,450 shares of Series A mandatorily redeemable convertible preferred stock. The preferred shares were 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 were able to choose an alternative conversion price which equaled the higher of (i) 70% of the fixed conversion price then in effect or (ii) the market price on any conversion date, which was equal to the average of the closing sale prices of the Company's common stock during the 20 consecutive trading days immediately preceding any conversion date. Preferred stockholders were able, at their sole option, to have their shares redeemed on the earlier of three years from the issuance date, or the occurrence of a triggering event, as defined.
The redemption price was 110% of the stated value of $7,000 per share. None of the triggering events has occurred to date. 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 privileges. 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. At the issuance date, the Company recorded a deemed dividend and an offsetting increase in additional paid-in capital of approximately $8.1 million to reflect the beneficial conversion feature of the preferred stock. During the fourth quarter of 2000, in accordance with EITF No. 00-27, the Company recorded an additional deemed dividend of $3.9 million to reflect the beneficial conversion feature of the warrants.
Costs of the offering, including the fair value of the warrants, totaled $6,150,000. This amount was recorded as a preferred stock discount and was 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 was being accreted as a deemed dividend into the carrying value of the Series A mandatorily redeemable convertible preferred stock over the same period.
The stockholders of Wire One Technologies, Inc. (now Glowpoint, Inc.) were asked, in accordance with the requirements of Rule 4350(i)(1)(D) of the Nasdaq Stock Market (the "Rule"), and approved, at the 2001 Annual Meeting of Stockholders, the issuance by the Company of more than 20% of its common stock upon the conversion of the Company's series A preferred and exercise of the related warrants. The Rule restricted the Company from issuing more than 20% of its outstanding shares of common stock at less than market value in any transaction unless the Company obtained prior stockholder approval (the "Exchange Cap"). As a consequence of receiving this approval, the Company was able to issue 3,021,429 shares of its common stock upon conversion of the remaining 2,115 shares of Series A preferred stock outstanding when, beginning on June 14, 2001, each remaining holder of Series A preferred substituted an "alternative conversion price" for the $7.00 fixed conversion price. The alternative conversion price was equal to 70% of the fixed conversion price then in effect. Upon conversion of the remaining 2,115 shares of Series A preferred stock outstanding, the remaining $4,039,940 of un-accreted discount was recognized in the Consolidated Statement of Operations as deemed dividends on Series A convertible preferred stock.
NOTE 11 -- STOCK OPTIONS
Glowpoint 2000 Stock Incentive Plan
In September 2000, the Company adopted and approved the Glowpoint 2000 Stock Incentive Plan (the "2000 Plan") and reserved up to 3,000,000 shares of Common Stock for issuance thereunder. In May 2002, the Company's shareholders approved an amendment to the 2000 Plan increasing the amount of shares available under the plan to 4,400,000. The 2000 Plan permits the grant of incentive stock options ("ISOs") to employees or employees of its subsidiaries. Non-qualified stock options ("NQSOs") may be granted to employees, directors and consultants. The Company issued 704,986 options during 2003 with exercise prices ranging from $1.13 to $4.75 and vesting periods ranging from one to four years. The Company had issued options totaling 1,640,505 and 2,227,450 in 2002 and 2001, respectively. As of December 31, 2003, options to purchase a total of 3,079,604 shares were outstanding and 1,024,528 shares remained available for future issuance under the 2000 Plan.
The exercise price of the Awards is established by the administrator of the plan and, in the case of ISO's issued to employees who are less than 10% stockholders the per share 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 or not less than 110% of the fair market value of the shares in the case of an employee who is a 10% stockholder. The administrator of the plan determines the terms and provisions of each award granted under the 2000 Plan, including the vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment, payment contingencies and satisfaction of any performance criteria. Under the 2000 Plan, no individual will be granted ISO's corresponding to shares with an aggregate exercise price in excess of $100,000 in any calendar year less the aggregate exercise price of shares under other Company stock options granted to that individual that vests in such calendar year. The 2000 Plan will terminate in 2010.
Non-Plan Options
The Company issued a total of 167,500 options, outside the context of a stock option plan, during 2001 to various employees, directors, and advisors. At December 31, 2003, the total outstanding non-qualified options of this nature were 1,809,407. The number of options has been adjusted to reflect the 1.65 to 1 conversion rate resulting from the May 18, 2000 merger with VTI.
1996 Stock Option Plan
In December 1996, the Board of Directors adopted the Company's Stock Option Plan (the "1996 Plan") and reserved up to 500,000 shares of Common Stock for issuance thereunder. In June 1998, the Company's shareholders approved an amendment to the 1996 Plan increasing the amount of shares available under the plan to 2,475,000. The 1996 Plan provides for the granting of options to officers, directors, employees and advisors of the Company. The exercise price of incentive stock options ("ISOs") issued to employees who are less than 10% stockholders shall not be less than the fair market value of the underlying shares on the date of grant or not less than 110% of the fair market value of the shares in the case of an employee who is a 10% stockholder. The exercise price of restricted stock options shall not be less than the par value of the shares to which the option relates. Options are not exercisable for a period of one year from the date of grant. Under the 1996 Plan, no individual will be granted ISO's corresponding to shares with an aggregate exercise price in excess of $100,000 in any calendar year less the aggregate exercise price of shares under other Company stock options granted to that individual that vest in such calendar year. The 1996 Plan will terminate in 2006. No options were granted under the 1996 Plan in 2003, 2002 and 2001. As of December 31, 2003, options to purchase a total of 593,308 shares were outstanding and no shares remained available for future issuance under the 1996 Plan. The number of options has been adjusted to reflect the 1.65 to 1 conversion rate resulting from the merger with VTI.
VTI Stock Option Plans
As part of the merger with VTI, the Company assumed the outstanding options of the four stock option plans maintained by VTI. These plans generally require the exercise price of options to be not less than the estimated fair market value of the stock at the date of grant. Options vest over a maximum period of four years and may be exercised in varying amounts over their respective terms. In accordance with the provisions of such plans, all outstanding options become immediately exercisable upon a change of control, as defined, of VTI. VTI had authorized an aggregate of 1,161,000 shares of common stock to be available under all the current option plans. The plans will terminate in 2009. Options assumed as part of the merger with VTI totaled 361,605. No options were granted under these Plans in 2003, 2002 and 2001. As of December 31, 2003, options to purchase a total of 310,453 shares were outstanding and no shares remained available for future issuance. The options have been adjusted to reflect the 2 for 1 reverse stock split approved by the VTI Board of Directors concurrent with the merger with ACC.
A summary of options issued under Company plans and other options outstanding as of December 31, 2003, and changes during fiscal 2001, 2002 and 2003 are presented below:
WEIGHTED
AVERAGE
FIXED RANGE OF EXERCISE
OPTIONS PRICE PRICE
---------- ------------ --------
Options outstanding, December 31, 2000 5,847,974 $ 30 - 15.00 $ 2.50
Granted 2,394,950 $1.94 - 9.85 4.20
Exercised (1,508,863) $ .53 - 6.00 1.07
Forfeited (451,119) $.57 - 15.00 3.90
---------- ------------ --------
Options outstanding, December 31, 2001 6,282,942 $.30 - 12.75 $ 3.44
Granted 1,640,505 $1.00 - 5.48 2.10
Exercised (158,482) $ .76 - 4.40 2.36
Forfeited (755,544) $ .53 - 9.85 4.14
---------- ------------ --------
Options outstanding, December 31, 2002 7,009,421 $.30 - 12.75 $ 3.08
Granted (1) 704,986 $1.13 - 4.75 3.08
Exercised (603,012) $ .30 - 2.75 1.05
Forfeited (1,318,622) $1.00 - 9.85 3.79
---------- ------------ --------
Options outstanding, December 31, 2003 5,792,773 $.53 - 12.75 $ 3.12
========== ============ ========
Shares of common stock available for
future grant under Company plans 1,024,528
==========
|
(1) In January 2003 the Company granted a terminated employee 3,250 stock options at an exercise price of $1.13, which was below the fair market value of the Company's stock on the date of the grant. This was done to correct an oversight in not granting the options while he was an employee. The Company did not record compensation cost related to the grant of these options as the impact was deemed to be immaterial to the consolidated financial statements.
Additional information as of December 31, 2003 with respect to all outstanding options is as follows:
OUTSTANDING EXERCISEABLE
------------------------------------------- ---------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF PRICE OUTSTANDING LIFE (IN YEARS) PRICE EXERCISABLE PRICE
-------------- ----------- --------------- ----- ----------- -----
$ .53 - .57 665,199 .45 $ 0.56 665,199 $ 0.56
.64 - 2.20 786,649 4.72 $ 1.61 783,542 $ 1.61
2.33 - 3.00 343,350 4.16 $ 2.70 338,350 $ 2.70
3.03 - 4.00 2,987,400 4.76 $ 3.44 2,630,900 $ 3.45
4.06 - 5.50 905,375 3.55 $ 5.00 904,875 $ 5.00
5.73 - 12.75 104,800 1.17 $ 6.82 104,800 $ 6.82
--------- ----- ------- --------- -------
$ .53 - 12.75 5,792,773 3.97 $ 3.12 5,427,666 $ 3.11
========= ===== ======= ========= =======
|
The Company has elected to use the intrinsic value-based method of APB Opinion No. 25 to account for all of its employee stock-based compensation plans. Accordingly, at the date of grant no compensation cost was recognized in the accompanying financial statements for stock options issued to employees because the exercise price of each option equals or exceeds the fair value of the underlying common stock as of the grant date for each stock option.
Non-cash compensation expense recognized in the Company's Statement of Operations totaled $4,008,076, $675,057 and $4,442,316 in 2003, 2002 and 2001, respectively. During the year ended December 31, 2003, the Company recorded non-cash charges totaling $2,149,661 related to the extension of the post-termination exercise period of stock options of former employees. The Company recorded a non-cash interest charge of $570,253 related to shares of common stock issued to subordinated debenture holders in lieu of cash interest payments. Non-cash charges totaling $560,740 were recorded related to the issuance of 100,000 warrants to the Company's current investment advisory firm and the re-pricing of 220,000 warrants previously issued to its prior investment advisory firm and its assigns. In addition, a non-cash charge of $378,766 was recorded to recognize the value of restricted stock issued to employees, directors and consultants as compensation and for consulting services that had vested during 2003. In addition to this charge, the Company recorded a $187,210 non-cash charge to interest expense for the Black-Scholes value of 100,000 warrants issued to JP Morgan Chase Bank as compensation for amending its credit agreement. The remaining $161,446 of non-cash compensation related to amortization of deferred employee stock option compensation which originated in the fourth quarter of 2000.
During the year ended December 31, 2002, the Company recorded a non-cash charge of $206,663 related to a one-year extension of certain stock options originally granted to the Company's COO in 1997 and that were scheduled to expire in December 2002. The amount of the charge was calculated in accordance with FASB Interpretation No. 44 "Accounting for Certain Transactions involving Stock Compensation" which specifies that extending the maximum contractual life of an award results in a new measurement of compensation cost at the date of modification and that any intrinsic value at the modification date in excess of the amount measured at the original measurement date must be recognized as compensation cost immediately if the award is vested. The expiration date of the 123,750 fully-vested options with an exercise price of $0.53 per share was extended for one year on December 9, 2002. The market price of the Company's common stock on that day was $2.20 per share. In addition to this charge, the Company recorded a $176,203 non-cash charge to interest expense for the Black-Scholes value of 100,000 warrants issued to JP Morgan Chase Bank as compensation for amending its credit agreement. The remaining $292,191 of non-cash compensation related to amortization of deferred employee stock option compensation which originated in the fourth quarter of 2000.
Also, during 2002, the Company entered into a severance and consulting arrangement with the former president of the Company. Under the terms of the severance arrangement, the Company granted the former president options to purchase 84,000 shares of the Company's common stock at an exercise price of $1.13 per share, which vests 50% upon the date of grant and 50% on July 31, 2003. The Company valued these shares using the Black-Scholes pricing model and recorded an $86,736 non-cash charge to restructuring for the vested portion of these shares. Under the terms of the consulting arrangement, the Company granted an additional 50,000 options to purchase shares of the Company's common stock at an exercise price of $3.00 per share, which vests 5,000 shares per month until July 31, 2003. The Company also valued these shares using the Black-Scholes pricing model and recorded a $48,603 non-cash charge to prepaid professional fees for the vested portion of these shares.
During the year ended December 31, 2001, the Company recorded a non-cash charge of $3,984,750 related to a five-year extension of certain stock options originally granted to the Company's CEO in 1997 and that were scheduled to expire in March 2002. The expiration date of the 1,237,500 fully-vested options with an exercise price of $3.03 per share was extended for five years on December 26, 2001. The market price of the Company's common stock on that day was $6.25 per share. In addition to this charge, the Company recorded a charge of $457,566 of non-cash compensation relating to the amortization of deferred employee stock option compensation which originated in the fourth quarter of 2000.
During the years ended December 31, 2003, 2002 and 2001, the Company received $630,935, $371,489 and $1,589,362 respectively from the exercise of stock options.
At December 31, 2003, the Company had outstanding warrants which can be converted into 5,654,481 shares of common stock, with exercise prices ranging from $1.00 to $12.00 and expiration dates ranging from November 21, 2004 to September 23, 2008. At December 31, 2003 these warrants have a weighted average exercise price of $6.92 and a weighted average remaining contractural life of 2.6 years.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
Employment Agreements
The Company's board of directors has approved employment agreements for a number of its executive officers as follows:
President and Chief Executive Officer -- The Company entered into an agreement with David Trachtenberg to serve as President and Chief Executive Officer having a three-year term commencing October 15, 2003. Under the agreement, Mr. Trachtenberg is entitled, in year 1, 2, and 3, respectively, to annual base compensation of $315,000, $345,000 and $375,000. Mr. Trachtenberg is also entitled to annual incentive compensation in an amount equivalent to fifty percent (50%) of his then annual base salary subject to the achievement of goals and metrics established by Mr. Trachtenberg and the Compensation Committee of the Company's Board of Directors with such goals and metrics being updated on an annual basis. The agreement provides for an award of 360,000 shares of restricted Common Stock ("Restricted Stock") of the Company, the fair value of which was determined to be $1,116,000. Compensation expense, of which $77,500 was recorded during the year ended December 31, 2003, will be recorded evenly over the life of the employment agreement. Such Restricted Stock will be forfeited if Mr. Trachtenberg's employment with the Company is terminated for any reason with risk of forfeiture lapsing with respect to 120,000 shares on each anniversary of the commencement of his employment. In addition, Mr. Trachtenberg is also entitled to reimbursement for the costs of a car to conduct Company business and for parking his car in New York City. Under the agreement, the Company must secure and pay the premium on a $2,000,000 life insurance policy payable to Mr. Trachtenberg's designated beneficiary. Either the Company or Mr. Trachtenberg may terminate his employment with the Company at any time, for any reason or no reason at all; however, if Mr. Trachtenberg is terminated without cause or resigns for good reason or if he dies, he is entitled to one year of his then annual base salary, one year of his then annual incentive compensation, one year of continued reimbursement for his car and parking expenses and one year of accelerated vesting on the Restricted Stock granted under the employment agreement. If Mr. Trachtenberg's employment is terminated with cause or if he voluntarily resigns, he is entitled to his base salary and other benefits through the last day actually worked.
Executive Vice President and Chief Financial Officer -- The Company entered into an agreement with Christopher Zigmont to serve as Executive Vice President - Finance and Chief Financial Officer having a three-year term commencing January 1, 2001. Under the agreement, Mr. Zigmont is entitled, in years 1, 2, and 3 respectively, to annual base compensation of $175,000, $200,000 and $225,000 and to a discretionary bonus. The agreement provides for a grant of an option to purchase 150,000 shares of Company stock under the 2000 Plan, vesting in three equal annual installments. On July 30, 2002, the agreement was amended to reduce the annual base compensation to $190,000 for the remainder of year 2 and to $213,750 in year 3. Effective January 1, 2003, the agreement was further amended to reduce annual base compensation to $190,000 for the remaining term. Mr. Zigmont continues to serve the Company under the terms and at the annual base compensation of his expired amended employment agreement.
Executive Vice President and Chief Technology Officer -- The Company entered into an agreement with Michael Brandofino to serve as Vice President and Chief Technology Officer having a three-year term commencing January 1, 2001. Under the agreement, Mr. Brandofino is entitled, in years 1, 2, and 3 respectively, to annual base compensation of $165,000, $195,000 and $225,000 and to a discretionary bonus. The agreement provides for a grant of an option to purchase 100,000 shares of Company stock under the 2000 Plan, vesting in three equal annual installments. On April 24, 2002, Mr. Brandofino was named Executive Vice President and Chief Technology Officer and his agreement was amended to extend the term of the agreement by one year with annual base compensation of $235,000 in year 4. In addition, Mr. Brandofino was granted an additional option to purchase 15,000 shares of Company stock under the 2000 Plan, vesting in three equal installments. On July 30, 2002, the agreement was amended to reduce the annual base compensation to $185,250 for the remainder of year 2 and to $213,750 and $223,250 in years 3 and 4, respectively. Effective January 1, 2003, the agreement was further amended to reduce annual base compensation to $185,250 through December 31, 2003. Effective September 23, 2003, the agreement was further amended to reset base compensation for the period October 1, 2003 through
December 31, 2003 at the annual rate of $225,000 and for the period January 1, 2004 through December 31, 2004 at the annual rate of $245,000. The agreement also provided for a one-time guaranteed bonus of $35,000, payable on October 1, 2003 and a grant of an option to purchase 100,000 shares of the Company's common stock under the 2000 Plan, vesting 50% on each of December 31, 2003 and 2004. In addition, Mr. Brandofino's agreement stipulates that if the Company enters into a Sale agreement during the term of the agreement and Mr. Brandofino realizes less than $200,000 from the exercise of all outstanding options, then he is entitled to a bonus in an amount equal to the difference between $200,000 and the amount realized.
Operating Leases
The Company leases several facilities under operating leases expiring through 2005. Certain leases require the Company to pay increases in real estate taxes, operating costs and repairs over certain base year amounts. Lease payments for the years ended December 31, 2003, 2002 and 2001 were approximately $1,030,000, $1,837,000 and $1,853,000, respectively. These amounts are inclusive of rent expense that was related to the Company's discontinued VS and AV operations.
Future minimum rental commitments under all non-cancelable leases are as follows:
Year Ending December 31
2004 ................................................................. $264,336
2005 ................................................................. 56,719
--------
$321,055
========
|
Capital Lease Obligations
The Company leases certain equipment under non-cancelable lease agreements. These leases are accounted for as capital leases. The equipment under the capital leases as of December 31, 2003 had a cost of $258,110, accumulated depreciation of $32,832 and a net book value of $225,278.
Future minimum lease payments under capital lease obligations at December 31, 2003 are as follows:
2004 ................................................................. $ 138,456
2005 ................................................................. 36,132
---------
Total minimum payments ............................................... 174,588
Less amount representing interest .................................... (8,434)
---------
Total principal ...................................................... 166,154
Less portion due within one year ..................................... (131,182)
---------
Long-term portion .................................................... $ 34,972
=========
|
Legal Matters
The Company is defending one suit in the ordinary course of business which is not material to the Company's business, financial condition or results of operations.
NOTE 13 -- RESTRUCTURING CHARGE
During the year ended December 31, 2002, in accordance with Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)," the Company recorded a restructuring charge of $960,000, of which $700,000 related to the discontinued VS operation. The Company recognized this charge in the period in which (a) management having the appropriate level of authority to involuntarily terminate employees approved and committed the Company to a plan of termination and established the benefits that current employees will receive upon termination, (b) the benefit arrangement was communicated to employees and the communication of the benefit arrangement included sufficient detail to enable employees to determine the type and amount of benefits they would receive if they were terminated, (c) the plan of termination specifically identified the number of employees to be terminated, their job classifications or functions, and their locations and (d) the plan of termination indicated that significant changes to the plan of termination are not likely. The significant components of the restructuring charge are as follows:
Employee termination costs $500,000
Facility exit costs 460,000
--------
$960,000
========
|
The employee termination costs relate to 84 employees and officers of the Company terminated following the implementation of a cost savings plan. The facility exit costs relate to the closing or downsizing of 19 sales offices.
During the year ended December 31, 2001, the Company recorded a restructuring charge of $200,000, of which $90,000 related to the discontinued VS operation. The significant components of the restructuring charge are as follows:
The employee termination costs relate to 23 employees of the Company terminated following the implementation of a cost savings plan.
NOTE 14 -- INCOME TAXES
The income tax provision consists of the following:
YEARS ENDED DECEMBER 31,
--------------------------------------------
2003 2002 2001
------------ ------------ ------------
Current:
Federal $ -- $ -- $ --
State -- -- --
------------ ------------ ------------
Total Current $ -- $ -- $ --
------------ ------------ ------------
Deferred:
Federal $ (6,923,914) $ (8,750,051) $ (2,567,680)
State (1,221,867) (1,544,127) (453,120)
Valuation allowance 8,145,781 10,294,178 3,220,800
------------ ------------ ------------
Total Deferred $ -- $ -- $ 200,000
------------ ------------ ------------
Income tax provision $ -- $ -- $ 200,000
============ ============ ============
|
The Company's effective tax rate differs from the statutory federal tax rate as shown in the following table:
YEARS ENDED DECEMBER 31,
---------------------------------------------
2003 2002 2001
------------ ------------ ------------
U.S. federal income taxes at the statutory rate $ (7,629,239) $(19,898,840) $ (4,940,200)
State taxes, net of federal effects (1,346,336) (3,511,560) (871,800)
Goodwill amortization/write-off -- 12,946,542 957,200
Nondeductible financing costs 795,020 -- --
Valuation allowance 8,145,781 10,294,178 3,220,800
Stock-based compensation -- 82,680 1,776,800
Other 34,774 87,000 57,200
------------ ------------ ------------
$ -- $ -- $ 200,000
============ ============ ============
|
The tax effects of the temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2003 and 2002 are presented below:
DECEMBER 31,
----------------------------
2003 2002
------------ ------------
Deferred tax assets:
Tax benefit of operating loss
carryforward $ 28,534,935 $ 18,212,485
Reserves and allowances 28,800 1,092,800
Goodwill -- 2,689,600
Fixed asset impairment charge 551,600 364,800
Stock based compensation 1,662,283 276,552
Other 202,092 117,880
------------ ------------
Total deferred tax assets $ 30,979,710 $ 22,754,117
============ ============
Deferred tax liabilities:
Depreciation 1,254,415 1,316,236
Goodwill 141,633 --
------------ ------------
Total deferred tax liabilities 1,396,048 1,316,236
------------ ------------
Sub-total 29,583,662 21,437,881
Valuation allowance (29,583,662) (21,437,881)
------------ ------------
Net deferred tax assets $ -- $ --
============ ============
|
During the periods presented, management maintained 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. If the tax benefits currently offset by valuation allowances are subsequently realized, approximately $7.2 million will be credited to goodwill because these tax benefits relate to VTI operations prior to the merger. In addition, approximately $3.0 million will be credited to additional paid-in capital because these tax benefits relate to the exercise of non-qualified stock options and disqualifying dispositions of incentive stock options.
The Company and its subsidiaries file federal returns on a consolidated basis and separate state tax returns. At December 31, 2003, the Company has net operating loss (NOL) carry-forwards of approximately $78 million and $70 million for federal and state income tax purposes, respectively. The federal NOL's have a carryover period of 20 years and are available to offset future taxable income, if any, through 2023. The utilization of approximately $18 million in tax loss carryforwards is limited to approximately $2.6 million each year as a result of an "ownership change" (as defined by Section 382 of the Internal Revenue Code of 1986, as amended), which occurred in 2000.
NOTE 15 -- VALUATION ACCOUNTS AND RESERVES
The following table summarizes the activity in the allowance for doubtful accounts:
Years Ended December 31,
-----------------------------------------
2003 2002 2001
----------- ----------- -----------
Allowance for Doubtful Accounts:
Beginning Balance $ 285,000 $ 605,000 $ 470,000
Charged to cost and expenses 794,172 1,502,914 1,171,888
Deductions (1) (753,552) (1,822,914) (1,036,888)
Transferred with sale of VS operation (254,000) (260,000) (590,000)
----------- ----------- -----------
Ending Balance $ 71,620 $ 25,000 $ 15,000
=========== =========== ===========
|
Years Ended December 31,
-----------------------------------------
2003 2002 2001
----------- ----------- -----------
Restructuring Reserves:
Beginning Balance $ 29,050 $ 200,000 $ --
Charged to costs and expenses
Continuing operations -- 260,000 110,000
Discontinued VS operations -- 700,000 90,000
Cash paid (29,050) (755,379) --
Non-cash expenses -- (125,000) --
Transferred to liabilities of
discontinued VS operations -- (250,571) --
----------- ----------- -----------
Ending Balance $ -- $ 29,050 $ 200,000
=========== =========== ===========
|
(1) Represents the amount of accounts written off
NOTE 16 -- PENSiON PlAN
On March 1, 1998 the Company adopted a 401(k) Retirement Plan (the "401(k) Plan") under Section 401(k) of the Internal Revenue Code. The 401(k) Plan covered substantially all employees who met minimum age and service requirements. The 401(k) Plan was non-contributory on the part of the Company. Effective with the merger with VTI, the Company assumed the 401(k) Plan of VTI, combined its assets with those of the existing plan and began making contributions to the plan. Employer contributions to the 401(k) Plan for the years ended December 31, 2003, 2002 and 2001 were approximately $77,000, $115,000 and $83,000, respectively.
NOTE 17 -- BUSINESS COMBINATIONS
Acquisition of GeoVideo
In June 2001, the Company acquired the assets of GeoVideo Networks, Inc. ("GeoVideo"), a New York-based developer of video communications software. Chief among the assets, in addition to GeoVideo's cash on hand of $2,500,000, was GeoVideo's browser, a software tool based upon proprietary Bell Labs technology that allows up to six simultaneous, real-time, bi-directional high-bandwidth IP video sessions to be conducted over a standard desktop PC. In exchange for the acquired assets, the Company issued 815,661 shares of common stock, together with warrants to purchase 501,733 additional shares of common stock at $5.50 per share and 520,123 shares at $7.50 per share.
Purchase Price Allocation:
GeoVideo assets acquired $2,500,000
Goodwill 2,500,000
----------
Total $5,000,000
==========
|
Amortization expense for the years ended December 31, 2003, 2002 and 2001 totaled $0, $0 and $102,340, respectively.
Acquisition of Advance Acoustical Concepts, Inc.
In July 2001, the Company acquired the assets and certain liabilities of Advanced Acoustical Concepts, Inc. ("AAC"), a privately held company founded in 1986 and based in Dayton, Ohio. The Company did not acquire any equity interest in AAC. The acquired assets of AAC consisted of those related to complete solution design and integration of video and audiovisual products into cost-effective, ergonomic conferencing systems. These solutions were marketed by AAC to the commercial, medical, distance learning, legal and financial industries. In exchange for the acquired assets and assumed liabilities, Wire One issued 145,429 shares of its common stock with an assumed value of $5.46 per share based on the then current market price. On the date of the acquisition, the assets and liabilities were recorded at their fair values, with the excess purchase consideration allocated to goodwill. None of this goodwill is expected to be deductible for tax purposes due to the nature of this asset-based acquisition.
The acquisition of assets from AAC was consummated to further expand the Company's expertise in the field of audio-visual integration and to acquire a customer base that had a demonstrated history of producing $10 or more million in annual revenues for AAC. The results of the acquired operations are included in the Consolidated Statements of Operations from July 17, 2001.
Purchase Price Allocation:
Cash $ 364,117
Accounts receivable 466,030
Inventory 654,297
Other assets 248,951
Accounts payable (2,350,395)
Notes and leases payable (253,640)
Accrued liabilities (206,710)
Deferred revenue (1,120,779)
Goodwill 2,991,879
-----------
Total $ 793,750
===========
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Acquisition of Axxis, Inc.
In November 2001, the Company acquired certain assets and liabilities of the video conferencing division of Axxis, Inc., a Kentucky-based designer of audiovisual conferencing systems. In exchange for the acquired assets and assumed liabilities, the Company issued 320,973 shares of common stock with an assumed price per share of $6.39 per share based on the then current market price. On the date of acquisition, the acquired assets and liabilities were recorded at their fair values, with the excess purchase consideration allocated to goodwill. None of this goodwill is expected to be deductible for tax purposes due to the nature of this asset-based acquisition.
The acquisition of Axxis assets was consummated to further expand the Company's expertise in the field of audio-visual integration and to acquire a customer base that had a demonstrated history of producing $10 million or more in annual revenues for Axxis. The results of the acquired operations are included in the Consolidated Statements of Operations from October 1, 2001.
Purchase Price Allocation:
Earnings in excess of billings $ 630,617
Inventory 119,511
Accounts Payable (700,432)
Accrued vacation (49,696)
Accounts payable 2,051,017
-----------
Total $ 2,051,017
===========
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NOTE 18 -- RELATED PARTIES
The landlord for the Company's Hillside, New Jersey office is Vitamin Realty Associates, L.L.C. of which Eric Friedman, a member of the Company's Board of Directors until June 2001, is a member. The lease, which was due to expire in May 2002, was extended by amendment in April 2002. The current term is for three years and expires on April 30, 2005. The current base rental for the premises during the term of the lease is approximately $162,000 per year. In addition, the Company must pay its share of the landlord's operating expenses (i.e., those costs or expenses incurred by the landlord in connection with the ownership, operation, management, maintenance, repair and replacement of the premises, including, among other things, the cost of common area electricity, operational services and real estate taxes). For the years ended December 31, 2003, 2002 and 2001, rent expense associated with this lease was $162,000, $252,000 and $295,000, respectively.
The Company receives financial and tax services from an accounting firm in which one of the Company's directors, Dean Hiltzik, is a partner. For the years ended December 31, 2003, 2002 and 2001, the Company has incurred fees for these services of approximately $24,000, $33,000 and $105,000, respectively. The Company also entered into a Consulting Agreement with Mr. Hiltzik, dated January 2, 2001, for the provision of tax and financial services for one year. Mr. Hiltzik received an immediately vested option to purchase 30,000 shares of common stock at an exercise price of $3.94 per share pursuant to that agreement.
The Company receives management consulting services from Lewis Jaffe, former Vice Chairman and President and current member of the Board of Directors. Under the terms of a consulting agreement commencing July 22, 2002, through July 31, 2003, Mr. Jaffe provided Company management with assistance in the areas of corporate development and investor relations. For his services, Mr. Jaffe was granted an option to purchase 50,000 shares of Wire One common stock at an average exercise price of $3.00 per share vesting in ten installments of 5,000 shares per month commencing September 30, 2002. On September 21, 2001, the Company had entered into a one-year Consulting Agreement with Mr. Jaffe, pursuant to which Mr. Jaffe served as a management consultant to the
Company in the areas of corporate development and investor relations. Mr. Jaffe received an immediately vested option to purchase 30,000 shares of common stock at an exercise price of $5.16 per share pursuant to that agreement.
In August, 2001, the Company made a loan to Christopher Zigmont, Executive Vice President and Chief Financial Officer, in the amount of $210,000 with an 8.25% rate of interest. The loan was extended to Mr. Zigmont, in connection with his relocation to the East Coast at the Company's request, to facilitate the purchase of his East Coast home pending the sale of his West Coast home. Mr. Zigmont was required to repay the loan from proceeds of the sale of his West Coast home or of any sale of shares acquired by him in connection with his exercise of any Company stock option, but in no event later than one year after the loan was made. Mr. Zigmont repaid the loan in full in October 2001.
In March, 2002, the Company made a recourse loan to Leo Flotron, then a member of the Company's Board of Directors and the Company's President and Chief Operating Officer, in the amount of $69,960 with a 5.25% rate of interest. The Company extended the loan to Mr. Flotron to enable him to exercise stock options (scheduled to expire imminently) to purchase 33,000 shares of common stock. Mr. Flotron is required to repay the loan from the proceeds of any sale of shares acquired by him in connection with his exercise of any Company stock option, but in no event later than one year after the loan was made. Mr. Flotron repaid the loan in full in March 2003.
NOTE 19 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for 2003 and 2002.
1st Quarter 2003 2002
Net revenues $ 2,226,858 $ 1,099,421
Gross margin (67,429) 129,880
Loss from continuing operations (2,588,771) (2,048,561)
Net loss (4,649,267) (2,558,508)
Net loss attributable to common stockholders (4,649,267) (2,558,508)
Net loss per share - basic and diluted (0.16) (0.09)
2nd Quarter
Net revenues $ 2,674,630 $ 1,258,556
Gross margin 70,310 52,250
Loss from continuing operations (2,981,822) (2,580,832)
Net loss (4,899,707) (4,317,217)
Net loss attributable to common stockholders (4,899,707) (4,317,217)
Net loss per share - basic and diluted (0.17) (0.15)
3rd Quarter
Net revenues $ 2,581,476 $ 1,525,494
Gross margin 93,185 85,270
Loss from continuing operations (4,400,922) (2,521,732)
Net loss (7,630,319) (4,385,905)
Net loss attributable to common stockholders (7,630,319) (4,385,905)
Net loss per share - basic and diluted (0.26) (0.15)
4th Quarter
Net revenues $ 2,827,781 $ 1,715,745
Gross margin 153,092 (264,985)
Loss from continuing operations (4,286,809) (3,064,381)
Net loss (5,259,350) (47,303,553)
Net loss attributable to common stockholders (5,259,350) (47,303,553)
Net loss per share - basic and diluted (0.18) (1.63)
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In the fourth quarter of 2002, the Company recorded $41.4 million of impairment losses on goodwill and other long-lived assets.
Net loss per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly net loss per share figures in 2003 and 2002 does not equal the total computed for these years.
NOTE 20 -- SUBSEQUENT EVENTS
In January 2004, in exchange for the cancellation and termination of notes with an aggregate face value of $4,888,000 and forfeiture of any and all rights of collection, claim or demand under the notes, the Company agreed to give the holders of the notes: (i) an aggregate of 203.667 shares of series B convertible preferred stock; (ii) an aggregate of 250,000 shares of restricted common stock; and (iii) a reduction of the exercise price of the warrants issued pursuant to the original purchase agreement from $3.25 to $2.75. As a result of this exchange, the $3.1 million of discount on subordinated debentures as of December 31, 2003 will be written off to expense in the first quarter of 2004.
In February 2004, the Company raised net proceeds of $12.5 million in a private placement of 6,100,000 shares of its common stock at $2.25 per share. Investors in the private placement were also issued 1,830,000 common stock purchase warrants at an exercise price of $2.75 per share. The warrants expire five and a half years after the closing date. The warrants are subject to certain anti-dilution protection. The Company also issued to its placement agent five-year warrants to purchase 427,000 shares of common stock at an exercise price of $2.71 per share.
In February 2004, the working capital credit facility with JP Morgan Chase Bank was terminated at the Company's request. As a result of the termination of this credit facility, the $85,000 of unamortized deferred financing costs as of December 31, 2003 will be written off to expense in the first quarter of 2004.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) As of the end of the period covered by this annual report, management concluded its evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. As of the end of the period, our President and Chief Executive Officer and our Chief Financial Officer concluded that we maintain disclosure controls and procedures that are effective in providing reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including our President and Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management's control objectives.
(b) During the evaluation referred to in Item 9A(a) above, we have identified no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item is hereby incorporated by reference from the Registrant's definitive Proxy Statement for the period ended December 31, 2003, which Proxy Statement will be filed with the Securities and Exchange Commission on or before the end of April 2004.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is hereby incorporated by reference from the Registrant's definitive Proxy Statement for the period ended December 31, 2003, which Proxy Statement will be filed with the Securities and Exchange Commission on or before the end of April 2004.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information called for by this item is hereby incorporated by reference from the Registrant's definitive Proxy Statement for the period ended December 31, 2003, which Proxy Statement will be filed with the Securities and Exchange Commission on or before the end of April 2004.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is hereby incorporated by reference from the Registrant's definitive Proxy Statement for the period ended December 31, 2003, which Proxy Statement will be filed with the Securities and Exchange Commission on or before the end of April 2004.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES DISCLOSURE REQUIRED
The information called for by this item is hereby incorporated by reference from the Registrant's definitive Proxy Statement for the period ended December 31, 2003 and 2002, which Proxy Statement will be filed with the Securities and Exchange Commission on or before the end of April 2004.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. List of documents filed as part of this Report:
1. Financial Statements included in Item 8:
a) Report of Independent Certified Public Accountants
b) Consolidated Balance Sheets as of December 31, 2003 and 2002
c) Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001
d) Consolidated Statements of Stockholders' Equity for the years ended December 31, 2003, 2002 and 2001.
e) Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001
f) Notes to Consolidated Financial Statements
No schedules are included because the required information is inapplicable or is presented in the consolidated financial statements or related notes thereto.
2. Exhibits
The exhibits listed on the accompanying Index of Exhibits are filed as part of this Annual Report.
B. Reports on Form 8-K.
1. On November 13, 2003, we furnished a Form 8-K containing a press release announcing our results of operations and financial condition for the three- and nine-month periods ended September 30, 2003.
2. On November 18, 2003, we furnished a Form 8-K containing the text of the November 12, 2003, conference call to review the Company's 2003 third quarter results.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
3.1 Amended and Restated Certificate of Incorporation. (1)
3.2 Certificate of Amendment to the Amended and Restated Certificate of
Incorporation of Wire One Technologies, Inc. changing its name to
Glowpoint, Inc. (20)
3.3 Certificate of Designations, Preferences and Rights of Series B
Preferred Stock. (20)
3.4 Amended and Restated Bylaws. (20)
4.1 Specimen Common Stock Certificate. (20)
10.1 Glowpoint, Inc. 2000 Stock Incentive Plan. (3)
10.2 Placement Agent Agreement, dated January 2, 2002, between Registrant
and H.C. Wainwright & Co., Inc. (4)
10.3 Form of Purchase Agreement for the purchase and sale of Common Stock
and warrants to purchase Common Stock, dated January 10, 2002, between
Registrant and the purchasers party thereto. (4)
10.4 Form of Warrant to purchase Common Stock, dated January 10, 2002. (5)
10.5 Lease Agreement for premises located at 225 Long Avenue, Hillside, New
Jersey, dated March 20, 1997, between Registrant and Vitamin Realty
Associates, L.L.C. (6)
10.6 First Amendment to Lease Agreement, dated as of December 1997, between
Registrant and Vitamin Realty Associates, L.L.C. (1)
10.7 Second Amendment to Lease Agreement, dated as of December 20,1999,
between Registrant and Vitamin RealtyAssociates, L.L.C. (1)
10.8 Third Amendment to Lease Agreement, dated as of June 1, 2000, between
Registrant and Vitamin Realty Associates, L.L.C. (15)
10.9 Fourth Amendment to Lease Agreement, dated as of August 29, 2000,
between Registrant and Vitamin Realty Associates, L.L.C. (3)
10.10 Fifth Amendment to Lease Agreement, dated as of May 1, 2001, between
Registrant and Vitamin Realty Associates, L.L.C. (15)
10.11 Sixth Amendment to Lease Agreement, dated as of May 1, 2002, between
Registrant and Vitamin Realty Associates, L.L.C. (15)
10.12 Employment Agreement with Richard Reiss. (7)
10.13 Employment Agreement with Christopher Zigmont. (7)
10.14 Employment Agreement with Michael Brandofino. (7)
10.15 Amendment to Employment Agreement with Richard Reiss, dated as of
April 24, 2002. (8)
10.16 Amendment to Employment Agreement with Michael Brandofino, dated as of
April 24, 2002. (8)
10.17 Amendment to Employment Agreement with Richard Reiss, dated as of July
30, 2002. (9)
10.18 Amendment to Employment Agreement with Christopher Zigmont, dated as
of July 30, 2002. (9)
10.19 Amendment to Employment Agreement with Michael Brandofino, dated of
July 30, 2002. (9)
10.20 Consulting Agreement, dated July 22, 2002, between Registrant and
Lewis Jaffe. (9)
10.21 Warrant to Purchase Common Stock of Registrant issued to JPMorgan
Chase Bank on November 13, 2002. (16)
10.22 Form of Warrant to Purchase Shares of Common Stock of Registrant. (10)
10.23 Registration Rights Agreement dated as of December 17, 2002, between
Registrant and the Purchasers set forth therein. (10)
10.24 Note and Warrant Purchase Agreement dated as of December 17, 2002,
between Registrant and the Purchasers set forth therein. (10)
10.25 Amendment to Employment Agreement with Richard Reiss, dated as of
January 1, 2003. (11)
10.26 Amendment to Employment Agreement with Christopher Zigmont, dated as
of Januray 1, 2003. (11)
10.27 Amendment to Employment Agreement with Michael Brandofino, dated as of
January 1, 2003. (11)
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10.28 Consulting Agreement with Kelly Harman, dated January 21, 2003. (11)
10.29 Asset Purchase Agreement, dated March 7, 2003, between Registrant and
Signal Perfection Limited. (15)
10.30 Asset Purchase Agreement, dated as of June 10, 2003, between
Registrant and Gores Technology Group. (12)
10.31 Amended and Restated Employment Agreement with Richard Reiss, dated as
of October 14, 2003. (13)
10.32 Amendment to Employment Agreement with Michael Brandofino, dated as of
September 23, 2003. (13)
10.33 Employment Agreement with David C. Trachtenberg, dated as of October
3, 2003. (13)
10.34 Restricted Stock Award to David C. Trachtenberg, dated as of October
4, 2003. (13)
10.35 Restricted Stock Award Agreement with Karen Basian, dated November 4,
2003, and with James Kuster, Michael Sternberg and Michael Toporek,
each dated August 22,, 2003. (13)
10.36 Warrant to Purchase Shares of Common Stock of Glowpoint, Inc. (14)
10.37 Common Stock Purchase Agreement between Registrant and the Purchasers
Listed on Exhibit A. (14)
10.38 Placement Agent Agreement, dated August 4, 2003, between Registrant
and Burham Hill Partners, as amended as of January 29, 2004. (20)
10.39 Restricted Stock Award Agreement with Dean Hiltzik, dated February 27,
2004. (20)
10.40 Amendment to Consulting Agreement with Kelly Harman, dated January 1,
2004. (20)
10.41 Employment Agreement with Joseph Laezza, dated as of March 11, 2004.
(20)
10.42 Employment Agreement with Stuart Gold, dated as of March 11, 2004.
(20)
10.43 Restricted Stock Award Agreement with Joseph Laezza, dated March 29,
2004. (20)
10.44 Restricted Stock Award Agreement with Stuart Gold, dated March 29,
2004. (20)
10.45 Form of Class A Warrant to Purchase Common Stock of Registrant. (17)
10.46 Form of Class B Warrant to Purchase Common Stock of Registrant. (17)
10.47 Form of Warrant to Purchase Common Stock, dated August 8, 2001. (18)
10.48 Form of Warrant to Purchase Common Stock, dated August 8, 2001. (18)
10.49 Form of Warrant to Purchase Common Stock, dated June 14, 2000. (19)
10.50 Warrant to Purchase Common Stock issued to JPMorgan Chase on March 6,
2003. (15)
10.51 Termination Agreement with Leo Flotron dated September 23, 2003. (13)
21.1 Subsidiaries of Glowpoint, Inc. (2)
23.1 Consent of BDO Seidman, LLP. (20)
31.1 Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
(20)
31.2 Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
(20)
32.1 Section 1350 Certification of the Chief Executive Officer. (20)
32.2 Section 1350 Certification of the Chief Financial Officer. (20)
---------------------------
(1) Filed as an appendix to View Tech, Inc.'s Registration Statement on Form
S-4 (File No. 333-95145) and incorporated herein by reference.
(2) Filed as an exhibit to Registrant's Registration Statement on Form S-1
(Registration No. 333-42518), and incorporated herein by reference.
(3) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 2000, and incorporated herein by
reference.
(4) Filed as an exhibit to Registrant's Current Report on Form 8-K filed with
the Securities and Exchange Commission on January 10, 2002, and
incorporated herein by reference.
(5) Filed as an exhibit to Registrant's Current Report on Form 8-K filed with
the Securities and Exchange Commission on January 15, 2002, and
incorporated herein by reference.
(6) Filed as an exhibit to Registrant's Registration Statement on Form SB-2
(Registration No. 333-21069), and incorporated herein by reference.
(7) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000, and incorporated herein by reference.
(8) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
fiscal year quarter ended March 31, 2002, and incorporated herein by
reference.
(9) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
fiscal year quarter ended June 30, 2002, and incorporated herein by
reference.
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(10) Filed as an exhibit to Registrant's Current Report on Form 8-K, dated December 23, 2002, and incorporated herein by reference.
(11) Filed as an exhibit to Registrant's Registration Statement on Form S-3 (Registration No. 333-103227), and incorporated herein by reference.
(12) Filed as an exhibit to Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 11, 2003, and incorporated herein by reference
(13) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the fiscal year quarter ended September 30, 2003, and incorporated herein by reference.
(14) Filed as an exhibit to Registrants's Current Report on Form 8-K filed with the Securities and Exchange Commission on February 26, 2004, and incorporated herein by reference.
(15) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and incorporated herein by reference.
(16) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2002, and incorporated herein by reference.
(17) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2001, and incorporated herein by reference.
(18) Filed as an exhibit to Registrant's Registration Statement on Form S-3 (Registration No. 333-69432) and incorporated herein by reference.
(19) Filed as an exhibit to Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 10, 2000, and incorporated herein by reference.
(20) Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GLOWPOINT, INC..
Date: March 30, 2004 By: /s/David C. Trachtenberg
------------------------------------
David C. Trachtenberg
Chief Executive Officer
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David Trachtenberg and Christopher Zigmont jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Report on Form 10-K, and file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant as of this 31st day of March 2004 in the capacities indicated.
SIGNATURE TITLE /s/ David Trachtenberg Chief Executive Officer -------------------------- (Principal Executive Officer) David Trachtenberg /s/ Christopher Zigmont Chief Financial Officer -------------------------- (Principal Financial and Accounting Officer) Christopher Zigmont /s/ Richard Reiss Chairman -------------------------- Richard Reiss /s/ Karen Basian Director -------------------------- Karen Basian /s/ Dean Hiltzik Director -------------------------- Dean Hiltzik /s/ Lewis Jaffe Director -------------------------- Lewis Jaffe /s/ James Kuster Director -------------------------- James Kuster /s/ Michael Toporek Director -------------------------- Michael Toporek |
Exhibit 3.2
CERTIFICATE OF AMENDMENT
TO
THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
WIRE ONE TECHNOLOGIES, INC.
Wire One Technologies, Inc. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware ("DGCL"), does hereby certify:
FIRST: The name of the Corporation is Wire One Technologies, Inc.
SECOND: The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on November 4, 1996. The original Certificate of Incorporation was amended by the Agreement and Plan of Merger dated as of November 27, 1996. The Certificate of Amendment to the Certificate of Incorporation was filed with the Secretary of State on May 18, 2000. The Amended and Restated Certificate of Incorporation was subsequently filed on May 18, 2000 (such certificate, as amended and restated, the "Certificate of Incorporation"). The Certificate of Designations, Preferences and Rights of Series A Preferred Stock was filed with the Secretary of State on June 14, 2000. The Certificate of Amendment to Certificate of Designations, Preferences and Rights of Series A Preferred Stock was filed with the Secretary of State on June 22, 2001.
THIRD: FIRST ARTICLE of the Certificate of Incorporation is hereby deleted in its entirety and added in its place is the following:
"FIRST: The name of the Corporation is Glowpoint, Inc."
FOURTH: The amendment to the Certificate of Incorporation set forth herein was duly adopted by the Board of Directors and a majority of stockholders of the Corporation entitled to vote thereon in accordance with Section 242 of the DGCL.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by Richard Reiss, its Chairman and Chief Executive Officer, this 24th day of September, 2003.
WIRE ONE TECHNOLOGIES, INC.
/s/ Richard Reiss ----------------------------------------- Name: Richard Reiss Title: Chairman & Chief Executive Officer |
Exhibit 3.3
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES B PREFERRED STOCK
OF
GLOWPOINT, INC.
The undersigned, the Chief Executive Officer and President of Glowpoint, Inc., a Delaware corporation (the "Company"), in accordance with the provisions of the Delaware General Corporation Law, does hereby certify that, pursuant to the authority conferred upon the Board of Directors by the Amended and Restated Certificate of Incorporation of the Company, the following resolution creating a series of Series B Convertible Preferred Stock, was duly adopted on December 30, 2003:
RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Company by provisions of the Amended and Restated Certificate of Incorporation of the Company (the "Certificate of Incorporation"), there hereby is created out of the shares of Preferred Stock, par value $.0001 per share, of the Company authorized in Article IV of the Certificate of Incorporation (the "Preferred Stock"), a series of Preferred Stock of the Company, to be named "Series B Convertible Preferred Stock," consisting of Two Hundred Four (204) shares, which series shall have the following designations, powers, preferences and relative and other special rights and the following qualifications, limitations and restrictions:
1. Designation and Rank. The designation of such series of the Preferred Stock shall be the Series B Convertible Preferred Stock, par value $.0001 per share (the "Series B Preferred Stock"). The maximum number of shares of Series B Preferred Stock shall be Two Hundred Four (204) shares. The Series B Preferred Stock shall rank prior to the common stock, par value $.0001 per share (the "Common Stock"), and to all other classes and series of equity securities of the Company which by their terms rank junior to the Series B Preferred Stock ("Junior Stock"). Subject to Section 3(a), the Series B Preferred Stock shall be subordinate to and rank junior to all indebtedness of the Company now or hereafter outstanding.
2. Dividends.
(a) Payment of Dividends. Subject to Section 5(c)(ii) hereof, the holders of record of shares of Series B Preferred Stock shall be entitled to receive, out of any assets at the time legally available therefor and when and as declared by the Board of Directors, dividends at the rate of eight percent (8%) of the stated value per share of $24,000.00 (the "Stated Value") per share per annum commencing on the date of issuance (the "Issuance Date") of the Series B Preferred Stock, increasing to the rate of twelve percent (12%) of the Stated Value on July 22, 2005 (the "Dividend Payment"), and no more, payable annually at the option of the Company in cash or, so long as the Company has available shares reserved for issuance, in shares of Common Stock valued at the Closing Bid and Ask Price (as defined below). Dividends on the Series B Preferred Stock shall accrue and be payable annually. Dividends on the Series B Preferred Stock are prior and in preference to any declaration or payment of any distribution (as defined below) on any outstanding shares of Junior Stock. Such dividends shall accrue on each share of Series B Preferred Stock from day to day whether or not earned or declared so that if such dividends with respect to any previous dividend period at the rate provided for herein have not been paid on, or
declared and set apart for, all shares of Series B Preferred Stock at the time outstanding, the deficiency shall be fully paid on, or declared and set apart for, such shares on a pro rata basis with all other equity securities of the Company ranking on a parity with the Series B Preferred Stock as to the payment of dividends before any distribution shall be paid on, or declared and set apart for Junior Stock.
(b) So long as any shares of Series B Preferred Stock are outstanding, the Company shall not declare, pay or set apart for payment any dividend or make any distribution on any Junior Stock (other than dividends or distributions payable in additional shares of Junior Stock), unless at the time of such dividend or distribution the Company shall have paid all accrued and unpaid dividends on the outstanding shares of Series B Preferred Stock.
(c) In the event of a dissolution, liquidation or winding up of the
Company pursuant to Section 4, all accrued and unpaid dividends on the Series B
Preferred Stock shall be payable on the day immediately preceding the date of
payment of the preferential amount to the holders of Series B Preferred Stock.
In the event of (i) a mandatory redemption pursuant to Section 9 or (ii) a
redemption upon the occurrence of a Change of Control (as defined in Section
8(b)), all accrued and unpaid dividends on the Series B Preferred Stock shall be
payable on the day immediately preceding the date of such redemption. In the
event of a Voluntary Conversion pursuant to Section 5(a), all accrued and unpaid
dividends on the Series B Preferred Stock being converted shall be payable on
the day immediately preceding the Voluntary Conversion Date (as defined in
Section 5(b)(i)). In the event of a mandatory conversion pursuant to Section
5(c), all accrued and unpaid dividends on the Series B Preferred Stock being
converted shall be payable on the day immediately preceding the Mandatory
Conversion Date (as defined in Section 5(c)(ii)).
(d) For purposes hereof, unless the context otherwise requires, "distribution" shall mean the transfer of cash or property without consideration, whether by way of dividend or otherwise, payable other than in shares of Common Stock or other equity securities of the Company, or the purchase or redemption of shares of the Company (other than redemptions set forth in Section 8 below or repurchases of Common Stock held by employees or consultants of the Company upon termination of their employment or services pursuant to agreements providing for such repurchase or upon the cashless exercise of options held by employees or consultants) for cash or property.
3. Voting Rights.
(a) Class Voting Rights. So long as shares of the Series B Preferred Stock with a value of at least $2 million remain outstanding, the Company shall not, without the affirmative vote or consent of the holders of at least 75% of the shares of the Series B Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting, in which the holders of the Series B Preferred Stock vote separately as a class, issue any securities senior to or on parity with the Series B Preferred Stock; provided, however, that the Company may utilize its credit facility with JPMorgan Chase Bank or other banking institution on terms that are no less favorable to the Company than the terms of the credit facility with JPMorgan Chase Bank.
(b) General Voting Rights. Except with respect to transactions upon which the Series B Preferred Stock shall be entitled to vote separately as a class pursuant to Section 3(a) above and Section 10 below, and except as otherwise required by Delaware law, the Series B Preferred Stock shall have no voting rights. The Common Stock into which the Series B Preferred Stock is convertible shall, upon issuance, have all of the same voting rights as other issued and outstanding Common Stock of the Company.
4. Liquidation, Dissolution; Winding-Up.
(a) In the event of the liquidation, dissolution or winding up of the
affairs of the Company, whether voluntary or involuntary, the holders of shares
of the Series B Preferred Stock then outstanding shall be entitled to receive,
out of the assets of the Company available for distribution to its stockholders,
an amount equal to the Stated Value per share (the "Liquidation Preference
Amount") of the Series B Preferred Stock plus any accrued and unpaid dividends
before any payment shall be made or any assets distributed to the holders of the
Common Stock or any other Junior Stock. If the assets of the Company are not
sufficient to pay in full the Liquidation Preference Amount plus any accrued and
unpaid dividends payable to the holders of outstanding shares of the Series B
Preferred Stock and any series of preferred stock or any other class of stock on
a parity, as to rights on liquidation, dissolution or winding up, with the
Series B Preferred Stock, then all of said assets will be distributed among the
holders of the Series B Preferred Stock and the other classes of stock on a
parity with the Series B Preferred Stock, if any, ratably in accordance with the
respective amounts that would be payable on such shares if all amounts payable
thereon were paid in full. The liquidation payment with respect to each
outstanding fractional share of Series B Preferred Stock shall be equal to a
ratably proportionate amount of the liquidation payment with respect to each
outstanding share of Series B Preferred Stock. All payments for which this
Section 4(a) provides shall be in cash, property (valued at its fair market
value as determined reasonably and in good faith by the Board of Directors of
the Company) or a combination thereof; provided, however, that no cash shall be
paid to holders of Junior Stock unless each holder of the outstanding shares of
Series B Preferred Stock has been paid in cash the full Liquidation Preference
Amount plus any accrued and unpaid dividends to which such holder is entitled as
provided herein. After payment of the full Liquidation Preference Amount plus
any accrued and unpaid dividends to which each holder is entitled, such holders
of shares of Series B Preferred Stock will not be entitled to any further
participation as such in any distribution of the assets of the Company.
(b) A consolidation or merger of the Company with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Company, or the effectuation by the Company of a transaction or series of related transactions in which more than 50% of the voting shares of the Company is disposed of or conveyed, shall not be deemed to be a liquidation, dissolution, or winding up within the meaning of this Section 4. In the event of the merger or consolidation of the Company with or into another corporation, subject to Section 5(e)(v), the Series B Preferred Stock shall maintain its relative powers, designations and preferences provided for herein and no merger shall result inconsistent therewith.
(c) Written notice of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, stating a payment date and the place where the distributable amounts shall be payable, shall, to the extent possible, be given by mail, postage
prepaid, no less than twenty (20) days prior to the payment date stated therein, to the holders of record of the Series B Preferred Stock at their respective addresses as the same shall appear on the books of the Company.
5. Conversion. The holder of Series B Preferred Stock shall have the following conversion rights (the "Conversion Rights"):
(a) Right to Convert. At any time on or after the Issuance Date, the holder of any shares of Series B Preferred Stock may, at such holder's option, subject to the limitations set forth in Section 7 herein, elect to convert (a "Voluntary Conversion") all or any portion of the shares of Series B Preferred Stock held by such person into a number of fully paid and nonassessable shares of Common Stock equal to the quotient of (i) the Stated Value of the shares of Series B Preferred Stock being converted divided by (ii) the Conversion Price (as defined in Section 5(d) below) then in effect as of the date of the delivery by such holder of its notice of election to convert. In the event of a notice of redemption of any shares of Series B Preferred Stock pursuant to Section 8 hereof, the Conversion Rights of the shares designated for redemption shall terminate at the close of business on the last full day preceding the date fixed for redemption, unless the redemption price is not paid on such redemption date, in which case the Conversion Rights for such shares shall continue until such price is paid in full. In the event of a liquidation, dissolution or winding up of the Company, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Series B Preferred Stock. In the event of such a redemption or liquidation, dissolution or winding up, the Company shall provide to each holder of shares of Series B Preferred Stock notice of such redemption or liquidation, dissolution or winding up, which notice shall (i) be sent at least fifteen (15) days prior to the termination of the Conversion Rights and (ii) state the amount per share of Series B Preferred Stock that will be paid or distributed on such redemption or liquidation, dissolution or winding up, as the case may be.
(b) Mechanics of Voluntary Conversion. The Voluntary Conversion of Series B Preferred Stock shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert Series B Preferred Stock into full shares of Common Stock on any date (the "Voluntary Conversion Date"), the holder thereof shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 5:00 p.m., New York time on such date, a copy of a fully executed notice of conversion in the form attached hereto as Exhibit I (the "Conversion Notice"), to the Company, and (B) surrender to a common carrier for delivery to the Company as soon as practicable following such Voluntary Conversion Date but in no event later than three (3) business days after such date the original certificates representing the shares of Series B Preferred Stock being converted (or an indemnification undertaking with respect to such shares in the case of their loss, theft or destruction) (the "Preferred Stock Certificates") and the originally executed Conversion Notice.
(ii) Company's Response. Upon receipt by the Company of a copy of the fully executed Conversion Notice, the Company or its designated transfer agent (the "Transfer Agent"), as applicable, shall within three (3) business days following the date of receipt by the Company of the fully executed Conversion Notice (so long as the applicable
Preferred Stock Certificates and original Conversion Notice are received by the Company on or before such third business day), issue and deliver to the Depository Trust Company ("DTC") account on the holder's behalf via the Deposit Withdrawal Agent Commission System ("DWAC") as specified in the Conversion Notice, registered in the name of the holder or its designee, for the number of shares of Common Stock to which the holder shall be entitled. Notwithstanding the foregoing to the contrary, the Company or its Transfer Agent shall only be required to issue and deliver the shares to the DTC on a holder's behalf via DWAC if such conversion is in connection with a sale and all requirements to effect such sale have been met, including, but not limited to, the prospectus delivery requirements. If the Company or its designated transfer agent cannot issue the shares to a holder via DWAC because the aforementioned conditions are not satisfied, the Company shall deliver physical certificates to the holder or its designee. If the number of shares of Preferred Stock represented by the Preferred Stock Certificate(s) submitted for conversion is greater than the number of shares of Series B Preferred Stock being converted, then the Company shall, as soon as practicable and at the Company's expense, issue and deliver to the holder a new Preferred Stock Certificate representing the number of shares of Series B Preferred Stock not converted.
(iii) Dispute Resolution. In the case of a dispute as to the arithmetic calculation of the number of shares of Common Stock to be issued upon conversion, the Company shall cause its Transfer Agent to promptly issue to the holder the number of shares of Common Stock that is not disputed and shall submit the arithmetic calculations to the holder via facsimile as soon as possible, but in no event later than two (2) business days after receipt of such holder's Conversion Notice. If such holder and the Company are unable to agree upon the arithmetic calculation of the number of shares of Common Stock to be issued upon such conversion within two (2) business days of such disputed arithmetic calculation being submitted to the holder, then the Company shall within two (2) business days submit via facsimile the disputed arithmetic calculation of the number of shares of Common Stock to be issued upon such conversion to the Company's independent, outside accountant (the "Accountant"). The Company shall cause the Accountant to perform the calculations and notify the Company and the holder of the results no later than five (5) business days from the time it receives the disputed calculations. The Accountant's calculation shall be binding upon all parties absent manifest error. The reasonable expenses of such Accountant in making such determination shall be paid by the Company, in the event the holder's calculation was correct, or by the holder, in the event the Company's calculation was correct, or equally by the Company and the holder in the event that neither the Company's or the holder's calculation was correct. The period of time in which the Company is required to effect conversions or redemptions under this Certificate of Designations shall be tolled with respect to the subject conversion or redemption pending resolution of any dispute by the Company made in good faith and in accordance with this Section 5(b)(iii).
(iv) Record Holder. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of the Series B Preferred Stock shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.
(c) Mandatory Conversion.
(i) Each share of Series B Preferred Stock outstanding on the Mandatory Conversion Date shall, automatically and without any action on the part of the holder thereof, convert into a number of fully paid and nonassessable shares of Common Stock equal to the quotient of (i) the Stated Value of the shares of Series B Preferred Stock outstanding on the Mandatory Conversion Date divided by (ii) the Conversion Price in effect on the Mandatory Conversion Date.
(ii) As used herein, "Mandatory Conversion Date" shall be the
first date that the Closing Bid and Ask Price (as defined below) of the Common
Stock exceeds $4.80 (as adjusted for stock splits, stock dividends, combinations
and similar transactions) for a period of ten (10) consecutive trading days;
provided that a registration statement covering the resale of the shares of
Common Stock issuable upon conversion of the Series B Preferred Stock is
effective on the Mandatory Conversion Date and on each trading day of such ten
(10) trading day period or the shares of Common Stock into which the Series B
Preferred Stock can be converted may be offered for sale to the public pursuant
to Rule 144(k) under the Securities Act of 1933, as amended.. If on the
Mandatory Conversion Date, a holder is prohibited from converting all of its
shares of Series B Preferred Stock as a result of the restrictions contained in
Section 7 of this Certificate of Designations, such shares of Series B Preferred
Stock shall be exchanged for shares of a new series of preferred stock with
preferences, rights and limitations substantially similar to those of the Series
B Preferred Stock, except that such new series of preferred stock shall not
accrue any dividends thereon from and after the Mandatory Conversion Date. The
Mandatory Conversion Date and the Voluntary Conversion Date collectively are
referred to in this Certificate of Designations as the "Conversion Date."
(iii) The term "Closing Bid and Ask Price" shall mean, for any security as of any date, the last average of the closing bid and ask price of such security on The Nasdaq National Market for such security as reported by Bloomberg, or, if no closing bid or ask price is reported for such security by Bloomberg, the last closing trade price of such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the average of the bid and ask prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid and Ask Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid and Ask Price of such security on such date shall be the fair market value as determined in good faith by the Board of Directors of the Company.
(iv) On the Mandatory Conversion Date, the outstanding shares of Series B Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its Transfer Agent; provided, however, that the Company shall not be obligated to issue the shares of Common Stock issuable upon conversion of any shares of Series B Preferred Stock unless certificates evidencing such shares of Series B Preferred Stock are either delivered to the Company or the holder notifies the Company that such certificates have been lost, stolen, or destroyed, and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection therewith. Upon the occurrence of the automatic conversion of the Series B Preferred Stock pursuant to this Section 5, the holders of the Series B Preferred Stock shall surrender the certificates representing the Series B Preferred Stock for which the Mandatory Conversion Date has occurred to the
Company and the Company shall cause its Transfer Agent to deliver the shares of
Common Stock issuable upon such conversion (in the same manner set forth in
Section 5(b)(ii)) to the holder promptly following the holder's delivery of the
applicable Preferred Stock Certificates.
(d) Conversion Price.
(i) The term "Conversion Price" shall mean $2.40 per share, subject to adjustment under Section 5(e) hereof.
(ii) Notwithstanding the foregoing to the contrary, if during any period (a "Black-out Period"), a holder of Series B Preferred Stock is unable to trade any Common Stock issued or issuable upon conversion of the Series B Preferred Stock immediately due to the postponement of filing or delay or suspension of effectiveness of a registration statement or because the Company has otherwise informed such holder of Series B Preferred Stock that an existing prospectus cannot be used at that time in the sale or transfer of such Common Stock (provided that such postponement, delay, suspension or fact that the prospectus cannot be used is not due to factors solely within the control of the holder of Series B Preferred Stock or due to the Company exercising its rights under Section 3(n) of the Registration Rights Agreement, dated as of December 17, 2002, between the Company and the purchasers set forth therein (the "Registration Rights Agreement")), such holder of Series B Preferred Stock shall have the option but not the obligation on any Conversion Date within ten (10) trading days following the expiration of the Black-out Period of using the Conversion Price applicable on such Conversion Date or any Conversion Price selected by such holder of Series B Preferred Stock that would have been applicable had such Conversion Date been at any earlier time during the Black-out Period.
(e) Adjustments of Conversion Price.
(i) Adjustments for Stock Splits and Combinations. If the Company
shall at any time or from time to time after the Issuance Date, effect a stock
split of the outstanding Common Stock, the Conversion Price shall be
proportionately decreased. If the Company shall at any time or from time to time
after the Issuance Date, combine the outstanding shares of Common Stock, the
Conversion Price shall be proportionately increased. Any adjustments under this
Section 5(e)(i) shall be effective at the close of business on the date the
stock split or combination becomes effective.
(ii) Adjustments for Certain Dividends and Distributions. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in shares of Common Stock, then, and in each event, the Conversion Price shall be decreased as of the time of such issuance or, in the event such record date shall have been fixed, as of the close of business on such record date, by multiplying the Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; and
(2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.
(iii) Adjustment for Other Dividends and Distributions. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in securities of the Company other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holders of Series B Preferred Stock shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Company which they would have received had their Series B Preferred Stock been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period), giving application to all adjustments called for during such period under this Section 5(e)(iii) with respect to the rights of the holders of the Series B Preferred Stock; provided, however, that if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions; and provided further, however, that no such adjustment shall be made if the holders of Series B Preferred Stock simultaneously receive (i) a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of Series B Preferred Stock had been converted into Common Stock on the date of such event or (ii) a dividend or other distribution of shares of Series B Preferred Stock which are convertible, as of the date of such event, into such number of shares of Common Stock as is equal to the number of additional shares of Common Stock being issued with respect to each share of Common Stock in such dividend or distribution.
(iv) Adjustments for Reclassification, Exchange or Substitution.
If the Common Stock issuable upon conversion of the Series B Preferred Stock at
any time or from time to time after the Issuance Date shall be changed to the
same or different number of shares of any class or classes of stock, whether by
reclassification, exchange, substitution or otherwise (other than by way of a
stock split or combination of shares or stock dividends provided for in Sections
5(e)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale of
assets provided for in Section 5(e)(v)), then, and in each event, an appropriate
revision to the Conversion Price shall be made and provisions shall be made (by
adjustments of the Conversion Price or otherwise) so that the holder of each
share of Series B Preferred Stock shall have the right thereafter to convert
such share of Series B Preferred Stock into the kind and amount of shares of
stock and other securities receivable upon reclassification, exchange,
substitution or other change, by holders of the number of shares of Common Stock
into which such share of Series B Preferred Stock might have been converted
immediately prior to such reclassification, exchange, substitution or other
change, all subject to further adjustment as provided herein.
(v) Adjustments for Reorganization, Merger, Consolidation or Sales of Assets. If at any time or from time to time after the Issuance Date there shall be a capital
reorganization of the Company (other than by way of a stock split or combination
of shares or stock dividends or distributions provided for in Section 5(e)(i),
(ii) and (iii), or a reclassification, exchange or substitution of shares
provided for in Section 5(e)(iv)), or a merger or consolidation of the Company
with or into another corporation where the holders of outstanding voting
securities prior to such merger or consolidation do not own over 50% of the
outstanding voting securities of the merged or consolidated entity, immediately
after such merger or consolidation, or the sale of all or substantially all of
the Company's properties or assets to any other person (an "Organic Change"),
then as a part of such Organic Change an appropriate revision to the Conversion
Price shall be made if necessary and provision shall be made if necessary (by
adjustments of the Conversion Price or otherwise) so that the holder of each
share of Series B Preferred Stock shall have the right thereafter to convert
such share of Series B Preferred Stock into the kind and amount of shares of
stock and other securities or property which such holder would have had the
right to receive had such holder converted its shares of Series B Preferred
Stock immediately prior to the consummation of such Organic Change. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this Section 5(e)(v) with respect to the rights of the holders of the Series
B Preferred Stock after the Organic Change to the end that the provisions of
this Section 5(e)(v) (including any adjustment in the Conversion Price then in
effect and the number of shares of stock or other securities deliverable upon
conversion of the Series B Preferred Stock) shall be applied after that event in
as nearly an equivalent manner as may be practicable.
(vi) Adjustments for Issuance of Additional Shares of Common Stock.
(A) In the event the Company, shall, at any time or from time to time, issue or sell any additional shares of Common Stock (otherwise than as provided in the foregoing subsections (i) through (v) of this Section 5(e) or pursuant to Common Stock Equivalents (hereafter defined) granted or issued prior to the Issuance Date) (the "Additional Shares of Common Stock"), at a price per share less than the Conversion Price, or without consideration, the Conversion Price then in effect upon each such issuance shall be adjusted to that price (rounded to the nearest cent) determined by multiplying the Conversion Price by a fraction:
(1) the numerator of which shall be equal to the sum of (A) the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus (B) the number of shares of Common Stock (rounded to the nearest whole share) which the aggregate consideration for the total number of such Additional Shares of Common Stock so issued would purchase at a price per share equal to the then Conversion Price, and
(2) the denominator of which shall be equal to the number of shares of Common Stock outstanding immediately after the issuance of such Additional Shares of Common Stock.
No adjustment of the number of shares of Common Stock shall be made under paragraph (A) of this Section 5(e)(vi) upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Common Stock Equivalents
(as defined below), if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Common Stock Equivalents (or upon the issuance of any warrant or other rights therefore) pursuant to Section 5(e)(vii).
(vii) Issuance of Common Stock Equivalents. If the Company, at any
time after the Issuance Date, shall issue any securities convertible into or
exchangeable for, directly or indirectly, Common Stock ("Convertible
Securities"), other than the Series B Preferred Stock, or any rights or warrants
or options to purchase any such Common Stock or Convertible Securities, shall be
issued or sold (collectively, the "Common Stock Equivalents") and the aggregate
of the price per share for which Additional Shares of Common Stock may be
issuable thereafter pursuant to such Common Stock Equivalent, plus the
consideration received by the Company for issuance of such Common Stock
Equivalent divided by the number of shares of Common Stock issuable pursuant to
such Common Stock Equivalent (the "Aggregate Per Common Share Price") shall be
less than the Conversion Price, or if, after any such issuance of Common Stock
Equivalents, the price per share for which Additional Shares of Common Stock may
be issuable thereafter is amended or adjusted, and such price as so amended or
adjusted shall make the Aggregate Per Common Share Price be less than Conversion
Price in effect at the time of such amendment or adjustment, then the Conversion
Price then in effect shall be adjusted pursuant to Section 5(e)(vi) above
assuming that all Additional Shares of Common Stock have been issued pursuant to
the Convertible Securities or Common Stock Equivalents for a purchase price
equal to the Aggregate Per Common Share Price. No adjustment of the Conversion
Price shall be made under this subsection (vii) upon the issuance of any
Convertible Security which is issued pursuant to the exercise of any warrants or
other subscription or purchase rights therefore, if any adjustment shall
previously have been made to the exercise price of such warrants then in effect
upon the issuance of such warrants or other rights pursuant to this subsection
(vii). No adjustment shall be made to the Conversion Price upon the issuance of
Common Stock pursuant to the exercise, conversion or exchange of any Convertible
Security or Common Stock Equivalent where an adjustment to the Conversion Price
was made as a result of the issuance or purchase of any Convertible Security or
Common Stock Equivalent.
(viii) Consideration for Stock. In case any shares of Common Stock or Convertible Securities other than the Series B Preferred Stock, or any rights or warrants or options to purchase any such Common Stock or Convertible Securities, shall be issued or sold:
(1) in connection with any merger or consolidation in which the Company is the surviving corporation (other than any consolidation or merger in which the previously outstanding shares of Common Stock of the Company shall be changed to or exchanged for the stock or other securities of another corporation), the amount of consideration therefore shall be deemed to be the fair value, as determined reasonably and in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board may determine to be attributable to such shares of Common Stock, Convertible Securities, rights or warrants or options, as the case may be; or
(2) in the event of any consolidation or merger of the Company in which the Company is not the surviving corporation or in which the previously outstanding shares of Common Stock of the Company shall be changed into or exchanged for the stock or
other securities of another corporation, or in the event of any sale of all or substantially all of the assets of the Company for stock or other securities of any corporation, the Company shall be deemed to have issued a number of shares of its Common Stock for stock or securities or other property of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated, and for a consideration equal to the fair market value on the date of such transaction of all such stock or securities or other property of the other corporation. If any such calculation results in adjustment of the applicable Conversion Price, or the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock, the determination of the applicable Conversion Price or the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock immediately prior to such merger, consolidation or sale, shall be made after giving effect to such adjustment of the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock. In the event any consideration received by the Company for any securities consists of property other than cash, the fair market value thereof at the time of issuance or as otherwise applicable shall be as determined in good faith by the Board of Directors of the Company. In the event Common Stock is issued with other shares or securities or other assets of the Company for consideration which covers both, the consideration computed as provided in this Section 5(e)(viii) shall be allocated among such securities and assets as determined in good faith by the Board of Directors of the Company.
(ix) Record Date. In case the Company shall take record of the holders of its Common Stock or any other Preferred Stock for the purpose of entitling them to subscribe for or purchase Common Stock or Convertible Securities, then the date of the issue or sale of the shares of Common Stock shall be deemed to be such record date.
(x) Certain Issues Excepted. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment to the
Conversion Price upon (i) the Company's issuance of any Additional Shares of
Common Stock and warrants therefore in connection with a merger and/or
acquisition, consolidation, sale or disposition of all or substantially all of
the Company's assets; provided that the Conversion Price shall be adjusted in
accordance with Section 5(e)(v), (ii) the Company's issuance of Additional
Shares of Common Stock or warrants therefore in connection with strategic
agreements so long as such issuances are not for the purpose of raising capital,
(iii) the Company's issuance of Common Stock or the issuance or grants of
options to purchase Common Stock pursuant to the Company's stock option plans
and employee stock purchase plans as they now exist, (iv) the Company's issuance
of Common Stock or the issuance or grants of options to purchase Common Stock
pursuant to any future stock option plan or employee stock purchase plan which
is approved by the Board of Directors or any amendment to the Company's existing
stock option plans and employee stock purchase plans which is approved by the
Board of Directors so long as such issuances in the aggregate do not exceed
6,500,000 shares of Common Stock, (v) any issuances of securities of Common
Stock pursuant to Company 401(k) matches, (vi) any issuances of securities to
consultants, financial advisers, public relations consultants or secured lenders
to the Company so long as such issuances to such secured lenders do not in the
aggregate exceed ten percent (10%) of the Company's issued and outstanding
shares of Common Stock as of the date hereof, (vii) the payment of any dividends
on the Series B Preferred Stock, and (viii) the issuance of common stock upon
the exercise or conversion of any securities described in clauses (i) through
(viii) above.
(f) No Impairment. The Company shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series B Preferred Stock against impairment.
(g) Certificates as to Adjustments. Upon occurrence of each adjustment
or readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of the Series B Preferred Stock pursuant to this
Section 5, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
such Series B Preferred Stock a certificate setting forth such adjustment and
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon written request of the holder of
such affected Series B Preferred Stock, at any time, furnish or cause to be
furnished to such holder a like certificate setting forth such adjustments and
readjustments, the Conversion Price in effect at the time, and the number of
shares of Common Stock and the amount, if any, of other securities or property
which at the time would be received upon the conversion of a share of such
Series B Preferred Stock. Notwithstanding the foregoing, the Company shall not
be obligated to deliver a certificate unless such certificate would reflect an
increase or decrease of at least one percent of such adjusted amount.
(h) Issue Taxes. The Company shall pay any and all issue and other taxes, excluding federal, state or local income taxes, that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Series B Preferred Stock pursuant thereto; provided, however, that the Company shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.
(i) Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile or three (3) business days following being mailed by certified or registered mail, postage prepaid, return-receipt requested, addressed to the holder of record at its address appearing on the books of the Company. The Company will give written notice to each holder of Series B Preferred Stock at least twenty (20) days prior to the date on which the Company closes its books or takes a record (I) with respect to any dividend or distribution upon the Common Stock, (II) with respect to any pro rata subscription offer to holders of Common Stock or (III) for determining rights to vote with respect to any Organic Change, dissolution, liquidation or winding-up and in no event shall such notice be provided to such holder prior to such information being made known to the public. The Company will also give written notice to each holder of Series B Preferred Stock at least twenty (20) days prior to the date on which any Organic Change, dissolution, liquidation or winding-up will take place and in no event shall such notice be provided to such holder prior to such information being made known to the public.
(j) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series B Preferred Stock. In lieu of any fractional shares to which the
holder would otherwise be entitled, the Company shall pay cash equal to the product of such fraction multiplied by the average of the Closing Bid and Ask Prices of the Common Stock for the five (5) consecutive trading immediately preceding the Voluntary Conversion Date or Mandatory Conversion Date, as applicable.
(k) Reservation of Common Stock. The Company shall, so long as any shares of Series B Preferred Stock are outstanding, reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Series B Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series B Preferred Stock then outstanding; provided that the number of shares of Common Stock so reserved shall at no time be less than 110% of the number of shares of Common Stock for which the shares of Series B Preferred Stock are at any time convertible. The initial number of shares of Common Stock reserved for conversions of the Series B Preferred Stock and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Series B Preferred Stock based on the number of shares of Series B Preferred Stock held by each holder of record at the time of issuance of the Series B Preferred Stock or increase in the number of reserved shares, as the case may be. In the event a holder shall sell or otherwise transfer any of such holder's shares of Series B Preferred Stock, each transferee shall be allocated a pro rata portion of the number of reserved shares of Common Stock reserved for such transferor. Any shares of Common Stock reserved and which remain allocated to any person or entity which does not hold any shares of Series B Preferred Stock shall be allocated to the remaining holders of Series B Preferred Stock, pro rata based on the number of shares of Series B Preferred Stock then held by such holder.
(l) Retirement of Series B Preferred Stock. Conversion of Series B Preferred Stock shall be deemed to have been effected on the applicable Conversion Date. Upon conversion of only a portion of the number of shares of Series B Preferred Stock represented by a certificate surrendered for conversion, the Company shall issue and deliver to such holder at the expense of the Company, a new certificate covering the number of shares of Series B Preferred Stock representing the unconverted portion of the certificate so surrendered as required by Section 5(b)(ii).
(m) Regulatory Compliance. If any shares of Common Stock to be reserved for the purpose of conversion of Series B Preferred Stock require registration or listing with or approval of any governmental authority, stock exchange or other regulatory body under any federal or state law or regulation or otherwise before such shares may be validly issued or delivered upon conversion, the Company shall, at its sole cost and expense, in good faith and as expeditiously as possible, endeavor to secure such registration, listing or approval, as the case may be.
6. No Preemptive Rights. Except as provided in Section 5 hereof and in the Exchange Agreement between the Company and the initial holders of the Series B Preferred Stock, no holder of the Series B Preferred Stock shall be entitled to rights to subscribe for, purchase or receive any part of any new or additional shares of any class, whether now or hereinafter authorized, or of bonds or debentures, or other evidences of indebtedness convertible into or exchangeable for shares of any class, but all such new or additional shares of any class, or any bond, debentures or other evidences of indebtedness convertible into or exchangeable for
shares, may be issued and disposed of by the Board of Directors on such terms and for such consideration (to the extent permitted by law), and to such person or persons as the Board of Directors in their absolute discretion may deem advisable.
7. Conversion Restrictions.
(a) Notwithstanding anything to the contrary set forth in Section 5 of this Certificate of Designations, at no time, other than in a bona fide Change of Control transaction, may a holder of shares of Series B Preferred Stock convert shares of the Series B Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, the number of shares of Common Stock which would result in such holder owning more than 4.99% of all of the Common Stock outstanding at such time; provided, however, that upon a holder of Series B Preferred Stock providing the Company with sixty-one (61) days notice (pursuant to Section 5(i) hereof) (the "Waiver Notice") that such holder would like to waive Section 7(a) of this Certificate of Designations with regard to any or all shares of Common Stock issuable upon conversion of Series B Preferred Stock, this Section 7(a) shall be of no force or effect with regard to those shares of Series B Preferred Stock referenced in the Waiver Notice.
(b) Notwithstanding anything to the contrary set forth in Section 5 of this Certificate of Designations, at no time may a holder of shares of Series B Preferred Stock convert shares of the Series B Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, would result in such holder beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) in excess of 9.999% of the then issued and outstanding shares of Common Stock outstanding at such time; provided, however, that upon a holder of Series B Preferred Stock providing the Company with a Waiver Notice that such holder would like to waive Section 7(b) of this Certificate of Designations with regard to any or all shares of Common Stock issuable upon conversion of Series B Preferred Stock, this Section 7(b) shall be of no force or effect with regard to those shares of Series B Preferred Stock referenced in the Waiver Notice.
(c) Notwithstanding anything to the contrary set forth in Section 5 of
this Certificate of Designations, the Company shall not be obligated to issue in
excess of an aggregate of 5,976,699 shares of Common Stock upon conversion of
the Series B Preferred Stock, as dividends pursuant to Section 2(a) and upon
exercise of warrants issued to the placement agent for the convertible notes,
and shares of common stock issued as payment of interest on the convertible
notes, which number of shares shall be subject to adjustment pursuant to Section
5(e) (the "Issuable Maximum"). The Issuable Maximum equals 19.999% of the number
of shares of Common Stock outstanding immediately prior to the Issuance Date. If
on any Conversion Date (A) the Conversion Price then in effect is such that the
aggregate number of shares of Common Stock previously issued upon conversion of
the Series B Preferred Stock, as dividends pursuant to Section 2(a) or upon
exercise of warrants issued to the placement agent for the convertible notes,
and shares of common stock issued as payment of interest on the convertible
notes, would equal or exceed the Issuable Maximum, and (B) the Company shall not
have previously obtained the vote of stockholders (the "Stockholder Approval")
to approve the
issuance of shares of Common Stock in excess of the Issuable Maximum pursuant to the terms hereof, then the Company shall issue to the holder so requesting such number of shares of Common Stock equal to such holder's pro rata portion of the Issuable Maximum as of the initial purchase date and, with respect to the remainder of shares of Common Stock which would result in an issuance of shares of Common Stock in excess of the Issuable Maximum (the "Excess Shares"), the Company shall use its reasonable efforts to obtain the Stockholder Approval applicable to such issuance as soon as is possible. The Company and the holder understand and agree that shares of Common Stock issued to and then held by the holder as a result of conversion of the Series B Preferred Stock shall not be entitled to cast votes on any resolution to obtain Stockholder Approval.
8. Redemption.
(a) Redemption Option Upon Change of Control. In addition to the other rights of the holders of Series B Preferred Stock contained herein, simultaneous with the occurrence of a Change of Control (as defined below), each holder of Series B Preferred Stock shall have the right, at such holder's option, to require the Company to redeem all or a portion of such holder's shares of Series B Preferred Stock at a price per share of Series B Preferred Stock equal to 100% of the Stated Value, plus any accrued but unpaid dividends (the "Change of Control Redemption Price"); provided that the Company shall have the sole option to pay the Change of Control Redemption Price in cash or shares of Common Stock. The number of shares of Common Stock to be issued as the Change of Control Redemption Price shall be determined by dividing (i) the total amount of the Change of Control Redemption Price by (ii) the average Closing Bid and Ask Price of the Common Stock for the five (5) trading days immediately preceding the date such Change of Control Redemption Price is due.
(b) "Change of Control". A "Change of Control" shall be deemed to have occurred at such time as a third party not affiliated with the Company or any holders of the Series B Preferred Stock shall have acquired, in one or a series of related transactions, equity securities of the Company representing more than 50% of the outstanding voting securities of the Company.
(c) Mechanics of Redemption at Option of Buyer Upon Change of Control. No sooner than fifteen (15) days nor later than ten (10) days prior to the consummation of a Change of Control, but not prior to the public announcement of such Change of Control, the Company shall deliver written notice thereof via facsimile and overnight courier ("Notice of Change of Control") to each holder of Series B Preferred Stock. At any time after receipt of a Notice of Change of Control (or, in the event a Notice of Change of Control is not delivered at least ten (10) days prior to a Change of Control, at any time within ten (10) days prior to a Change of Control), any holder of Series B Preferred Stock then outstanding may require the Company to redeem, effective immediately prior to the consummation of such Change of Control, all of the holder's Series B Preferred Stock then outstanding by delivering written notice thereof via facsimile and overnight courier ("Notice of Redemption at Option of Buyer Upon Change of Control") to the Company, which Notice of Redemption at Option of Buyer Upon Change of Control shall indicate (i) the number of shares of Series B Preferred Stock that such holder is electing to redeem and (ii) the applicable Change of Control Redemption Price, as calculated pursuant to Section 8(a) above.
(d) Payment of Redemption Price. Upon the Company's receipt of a
Notice(s) of Redemption at Option of Buyer Upon Change of Control from any
holder of Series B Preferred Stock, the Company shall promptly notify each
holder of Series B Preferred Stock by facsimile of the Company's receipt of such
Notice(s) of Redemption at Option of Buyer Upon Change of Control and each
holder which has sent such a notice shall promptly submit to the Company such
holder's Preferred Stock Certificates which such holder has elected to have
redeemed. The Company shall have the sole option to pay the Redemption Price in
cash or shares of Common Stock in accordance with Sections 8(a) and (b) and
Section 9 of this Certificate of Designations. The Company shall deliver the
applicable Change of Control Redemption Price immediately prior to or
simultaneously with the consummation of the Change of Control; provided that a
holder's Preferred Stock Certificates shall have been so delivered to the
Company; provided further that if the Company is unable to redeem all of the
Series B Preferred Stock to be redeemed, the Company shall redeem an amount from
each holder of Series B Preferred Stock being redeemed equal to such holder's
pro-rata amount (based on the number of shares of Series B Preferred Stock held
by such holder relative to the number of shares of Series B Preferred Stock
outstanding) of all Series B Preferred Stock being redeemed. If the Company
shall fail to redeem all of the Series B Preferred Stock submitted for
redemption (other than pursuant to a dispute as to the arithmetic calculation of
the Redemption Price), in addition to any remedy such holder of Series B
Preferred Stock may have under this Certificate of Designations, the applicable
Redemption Price payable in respect of such unredeemed Series B Preferred Stock
shall bear interest at the rate of 1.0% per month (prorated for partial months)
until paid in full. Until the Company pays such unpaid applicable Redemption
Price in full to a holder of shares of Series B Preferred Stock submitted for
redemption, such holder shall have the option (the "Void Optional Redemption
Option") to, in lieu of redemption, require the Company to promptly return to
such holder(s) all of the shares of Series B Preferred Stock that were submitted
for redemption by such holder(s) under this Section 8 and for which the
applicable Redemption Price has not been paid, by sending written notice thereof
to the Company via facsimile (the "Void Optional Redemption Notice"). Upon the
Company's receipt of such Void Optional Redemption Notice(s) and prior to
payment of the full applicable Redemption Price to such holder, (i) the
Notice(s) of Redemption at Option of Buyer Upon Change of Control shall be null
and void with respect to those shares of Series B Preferred Stock submitted for
redemption and for which the applicable Redemption Price has not been paid, (ii)
the Company shall immediately return any Series B Preferred Stock submitted to
the Company by each holder for redemption under this Section 8(d) and for which
the applicable Redemption Price has not been paid, and (iii) the Conversion
Price of such returned shares of Series B Preferred Stock shall be adjusted to
the lesser of (A) the Conversion Price and (B) the lowest Closing Bid and Ask
Price during the period beginning on the date on which the Notice(s) of
Redemption at Option of Buyer Upon Change of Control is delivered to the Company
and ending on the date on which the Void Optional Redemption Notice(s) is
delivered to the Company; provided that no adjustment shall be made if such
adjustment would result in an increase of the Conversion Price then in effect. A
holder's delivery of a Void Optional Redemption Notice and exercise of its
rights following such notice shall not effect the Company's obligations to make
any payments which have accrued prior to the date of such notice other than
interest payments.
(e) Company's Redemption Option. The Company may redeem all or a portion of the Series B Preferred Stock outstanding upon five (5) business days prior written notice (the "Company's Redemption Notice") at a price per share of Series B Preferred Stock
equal to (i) 110% of the Stated Value plus (ii) any accrued but unpaid dividends; provided, that if a holder has delivered a Conversion Notice to the Company for all or a portion of the shares of Series B Preferred Stock, such shares of Series B Preferred Stock designated to be redeemed may be converted by such holder; provided further that if during the period between delivery of the Company's Redemption Notice and the Redemption Date a holder shall become entitled to deliver a Notice of Redemption at Option of Buyer Upon Change of Control, then the right of such holder shall take precedence over the previously delivered Company Redemption Notice. If a holder delivers a Conversion Notice but is prohibited from converting all of its shares of Series B Preferred Stock as a result of the restrictions contained in Section 7 of this Certificate of Designations, such shares of Series B Preferred Stock shall be exchanged for shares of a new series of preferred stock with preferences, rights and limitations substantially similar to those of the Series B Preferred Stock, except that such new series of preferred stock shall not accrue any dividends thereon. The Company's Redemption Notice shall state the date of redemption which date shall be five (5) business days after the Company has delivered the Company's Redemption Notice (the "Company's Redemption Date"), the Company's Redemption Price and the number of shares to be redeemed by the Company. The Company shall deliver the Company's Redemption Price to the holder(s) within five (5) business days after the Company has delivered the Company's Redemption Notice, provided, that if the holder(s) delivers a Conversion Notice before the Company's Redemption Date, then the portion of the Company's Redemption Price which would be paid to redeem the shares of Series B Preferred Stock covered by such Conversion Notice shall be returned to the Company upon delivery of the Common Stock issuable in connection with such Conversion Notice to the holder(s). On the Redemption Date, the Company shall pay the Company's Redemption Price, subject to any adjustment pursuant to the immediately preceding sentence, to the holder(s) on a pro rata basis, provided, however, that upon receipt by the Company of the Preferred Stock Certificates to be redeemed pursuant to this Section 8(e), the Company shall, on the next business day following the date of receipt by the Company of such Preferred Stock Certificates, pay the Company's Redemption Price, subject to any adjustment pursuant to the immediately preceding sentence, to the holder(s) on a pro rata basis.
9. Inability to Fully Convert.
(a) Holder's Option if Company Cannot Fully Convert. If, upon the Company's receipt of a Conversion Notice or on the Mandatory Conversion Date, the Company cannot issue shares of Common Stock registered for resale under a registration statement for any reason (unless such registration statement is no longer required to be effective pursuant to the Registration Rights Agreement), including, without limitation, because the Company (w) does not have a sufficient number of shares of Common Stock authorized and available, (x) is otherwise prohibited by applicable law or by the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Company or its securities from issuing all of the Common Stock which is to be issued to a holder of Series B Preferred Stock pursuant to a Conversion Notice or (y) fails to have a sufficient number of shares of Common Stock registered for resale under the registration statement (unless such registration statement is no longer required to be effective pursuant to the Registration Rights Agreement), then the Company shall issue as many shares of Common Stock as it is able to issue in accordance with such holder's Conversion Notice and pursuant to Section 5(b)(ii) above and, with respect to the unconverted Series B Preferred Stock (other than unconverted
Series B Preferred Stock resulting from the inability of the Company to obtain Stockholder Approval in accordance with Section 7(c) hereof or as a result of the restrictions contained in Sections 7(a) or 7(b) hereof), the holder, solely at such holder's option, can elect, within five (5) business days after receipt of notice from the Company thereof to:
(i) require the Company to redeem from such holder those shares of Series B Preferred Stock for which the Company is unable to issue Common Stock in accordance with such holder's Conversion Notice ("Mandatory Redemption") at a price per share equal to the Change of Control Redemption Price as of such Conversion Date (the "Mandatory Redemption Price"); provided that the Company shall have the sole option to pay the Mandatory Redemption Price in cash or shares of Common Stock. The number of shares of Common Stock to be issued as the Mandatory Redemption Price shall be determined by dividing (i) the total amount of the Mandatory Redemption Price by (ii) the average Closing Bid and Ask Price of the Common Stock for the five (5) trading days immediately preceding the date such Mandatory Redemption Price is due;
(ii) if the Company's inability to fully convert Series B Preferred Stock is pursuant to Section 9(a)(y) above, require the Company to issue restricted shares of Common Stock in accordance with such holder's Conversion Notice and pursuant to Section 5(b)(ii) above; or
(iii) void its Conversion Notice and retain or have returned, as the case may be, the shares of Series B Preferred Stock that were to be converted pursuant to such holder's Conversion Notice (provided that a holder's voiding its Conversion Notice shall not effect the Company's obligations to make any payments which have accrued prior to the date of such notice).
(b) Mechanics of Fulfilling Holder's Election. The Company shall
promptly send via facsimile to a holder of Series B Preferred Stock, upon
receipt of a facsimile copy of a Conversion Notice from such holder which cannot
be fully satisfied as described in Section 9(a) above, a notice of the Company's
inability to fully satisfy such holder's Conversion Notice (the "Inability to
Fully Convert Notice"). Such Inability to Fully Convert Notice shall indicate
(i) the reason why the Company is unable to fully satisfy such holder's
Conversion Notice, (ii) the number of Series B Preferred Stock which cannot be
converted and (iii) the applicable Mandatory Redemption Price. Such holder shall
notify the Company of its election pursuant to Section 9(a) above by delivering
written notice via facsimile to the Company ("Notice in Response to Inability to
Convert").
(c) Pro-rata Conversion and Redemption. In the event the Company receives a Conversion Notice from more than one holder of Series B Preferred Stock on the same day and the Company can convert and redeem some, but not all, of the Series B Preferred Stock pursuant to this Section 9, the Company shall convert and redeem from each holder of Series B Preferred Stock electing to have Series B Preferred Stock converted and redeemed at such time an amount equal to such holder's pro-rata amount (based on the number shares of Series B Preferred Stock held by such holder relative to the number shares of Series B Preferred Stock outstanding) of all shares of Series B Preferred Stock being converted and redeemed at such time.
(d) Payment of Redemption Price. If such holder shall elect to have its shares redeemed pursuant to Section 9(a)(i) above, the Company shall pay the Mandatory Redemption Price to such holder within thirty (30) days of the Company's receipt of the holder's Notice in Response to Inability to Convert, provided that prior to the Company's receipt of the holder's Notice in Response to Inability to Convert the Company has not delivered a notice to such holder stating, to the satisfaction of the holder, that the event or condition resulting in the Mandatory Redemption has been cured and all Common Stock issuable to such holder in accordance with such holder's Conversion Notice can and will be delivered to the holder.
10. Vote to Change the Terms of or Issue Preferred Stock. The affirmative vote at a meeting duly called for such purpose or the written consent without a meeting, of the holders of not less than 75% of the then outstanding shares of Series B Preferred Stock, shall be required (a) for any change to this Certificate of Designations or the Company's Certificate of Incorporation which would amend, alter, change or repeal any of the powers, designations, preferences and rights of the Series B Preferred Stock or (b) for the issuance of additional shares of Series B Preferred Stock.
11. Lost or Stolen Certificates. Upon receipt by the Company of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Preferred Stock Certificates representing the shares of Series B Preferred Stock, and, in the case of loss, theft or destruction, of an indemnification undertaking by the holder to the Company (in form and substance satisfactory to the Company) and, in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date; provided, however, the Company shall not be obligated to re-issue Preferred Stock Certificates if the holder contemporaneously requests the Company to convert such shares of Series B Preferred Stock into Common Stock.
12. Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Certificate of Designations shall be cumulative and in addition to all other remedies available under this Certificate of Designations, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a holder's right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designations. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of the Series B Preferred Stock and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach, the holders of the Series B Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach or the Series B Preferred Stockholders' reasonable perception of a threatened breach by the Company of the provisions of this Certificate of Designations, without the necessity of showing economic loss and without any bond or other security being required.
13. Specific Shall Not Limit General; Construction. No specific provision contained in this Certificate of Designations shall limit or modify any more general provision contained herein.
14. Failure or Indulgence Not Waiver. No failure or delay on the part of a holder of Series B Preferred Stock in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.
IN WITNESS WHEREOF, the undersigned has executed and subscribed this Certificate and does affirm the foregoing as true this 22nd day of January, 2004.
GLOWPOINT, INC.
By: /s/ David Trachtenberg
-----------------------------------
Name: David C. Trachtenberg
Title: Chief Executive Officer and
President
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EXHIBIT I
GLOWPOINT, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of the Series B Preferred Stock of Glowpoint, Inc. (the "Certificate of Designations"). In accordance with and pursuant to the Certificate of Designations, the undersigned hereby elects to convert the number of shares of Series B Preferred Stock, par value $.0001 per share (the "Preferred Shares"), of Glowpoint, Inc., a Delaware corporation (the "Company"), indicated below into shares of Common Stock, par value $.0001 per share (the "Common Stock"), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below.
Date of Conversion:_________________________________________________________
Number of Preferred Shares to be converted:_________________________________
Stock certificate no(s). of Preferred Shares to be converted:_______________
The Common Stock have been sold pursuant to the Registration Statement (as defined in the Registration Rights Agreement): YES ____ NO____
Please confirm the following information:
Conversion Price: __________________________________________________
Number of shares of Common Stock
to be issued: __________________________________________________
Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the Date of Conversion:
Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address:
Issue to: __________________________________________________
__________________________________________________
__________________________________________________
Facsimile Number: __________________________________________________
Authorization: __________________________________________________
By:_______________________________________________
Title:____________________________________________
Dated:
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Exhibit 3.4
AMENDED AND RESTATED
BY-LAWS
OF
GLOWPOINT, INC.
(HEREINAFTER CALLED THE "CORPORATION")
ARTICLE I.
OFFICES
Section 1.1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 1.2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 2.1. Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware as shall be designated from time to time by the Board of Directors.
Section 2.2. Annual Meetings. The Annual Meetings of Stockholders for the election of directors shall be held on such date and at such time as shall be designated from time to time by the Board of Directors. Any other proper business may be transacted at the Annual Meeting of Stockholders.
Section 2.3. Special Meetings. Unless otherwise required by law or by the certificate of incorporation of the Corporation, as amended and restated from time to time (the "Certificate of Incorporation"), Special Meetings of Stockholders, for any purpose or purposes, may be called by either (i) the Chairman of the Board or (ii) a majority of the Board of Directors.
Section 2.4. Nature of Business at Meetings of Stockholders. No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Company (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 5 and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 2.4.
In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Company.
To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Company not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.
No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 2.4; provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 2.4 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.
Section 2.5. Nomination of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Company, except as may be otherwise provided in the Certificate of Incorporation with respect to the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Company (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.5 and
on the record date for the determination of stockholders entitled to vote at
such meeting and (ii) who complies with the notice procedures set forth in this
Section 2.5.
In addition to any other requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Company.
To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Company (a) in the case of an annual meeting, not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Company
unless nominated in accordance with the procedures set forth in this Section
2.5. If the Chairman of the meeting determines that a nomination was not made in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall be
disregarded.
Section 2.6. Adjournments. Any meeting of the stockholders may be adjourned from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
Section 2.7. Quorum. Unless otherwise required by law or the Certificate of Incorporation, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, in the manner provided in Section 2.5, until a quorum shall be present or represented.
Section 2.8. Voting. Unless otherwise required by law, the Certificate of Incorporation or these Bylaws, any question brought before any meeting of stockholders, other than the election of directors, shall be decided by the vote of the holders of a majority of the total number of votes of the capital stock represented and entitled to vote thereat, voting as a single class. Unless otherwise provided in the Certificate of Incorporation, each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy but no proxy shall be voted on or after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in such officer's discretion, may require that any votes cast at such meeting shall be cast by written ballot.
Section 2.9. List of Stockholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present.
Section 2.10. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 2.9 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 2.11. Conduct of Meetings. The Board of Directors of the Corporation may adopt by resolution such rules and regulations for the conduct of the meeting of the stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of the stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) the determination of when the polls shall open and close for any given matter to be voted on at the meeting; (iii) rules and procedures for maintaining order at the meeting and the safety of those present; (iv) limitations on attendance at or participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (v) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (vi) limitations on the time allotted to questions or comments by participants.
ARTICLE III.
DIRECTORS
Section 3.1. Number and Election of Directors. The Board of Directors shall consist of not less than one nor more than fifteen members, the exact number of which shall be fixed from time to time by the Board of Directors. Except as provided in Section 3.2 of this Article III, directors shall be elected by a plurality of the votes cast at the Annual Meetings of Stockholders and each director so elected shall hold office until the next Annual Meeting of Stockholders and until such director's successor is duly elected and qualified, or until such director's earlier death, resignation or removal. Any director or the entire Board of Directors may be removed from office at any time, and only by the affirmative vote of the holders of majority of the voting power of the issued and outstanding capital stock of the Corporation entitled to vote in the election of directors. Any director may resign at any time upon written notice to the Corporation. Directors need not be stockholders.
Section 3.2. Vacancies. Unless otherwise required by law or the Certificate of Incorporation, vacancies arising through death, resignation, removal, an increase in the number of directors or otherwise may be filled only by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified, or until their earlier death, resignation or removal.
Section 3.3. Duties and Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws required to be exercised or done by the stockholders.
Section 3.4. Meetings. The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman, if there be one, the President. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or telegram on twenty-four (24) hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances.
Section 3.5. Quorum. Except as otherwise required by law or the Certificate of Incorporation, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present.
Section 3.6. Actions by Written Consent. Unless otherwise provided in the Certificate of Incorporation, or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.
Section 3.7. Meetings by Means of Conference Telephone. Unless otherwise provided in the Certificate of Incorporation, members of the Board of Directors of the Corporation, or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 3.7 shall constitute presence in person at such meeting.
Section 3.8. Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent permitted by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Each committee shall keep regular minutes and report to the Board of Directors when required.
Section 3.9. Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director, payable in cash or securities. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.
ARTICLE IV.
OFFICERS
Section 4.1. General. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer. The Board of Directors, in its discretion, also may choose a Chairman of the Board of Directors (who must be a director) and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law or the Certificate of Incorporation. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation.
Section 4.2. Election. The Board of Directors, at its first meeting held after each Annual Meeting of Stockholders (or action by written consent of stockholders in lieu of the Annual Meeting of Stockholders), shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier death, resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors.
Section 4.3. Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice President or any other officer authorized to do so by the Board of Directors and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons.
Section 4.4. Chairman of the Board of Directors. The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board of Directors shall be the Chief Executive Officer of the Corporation, unless the Board of Directors designates the President as the Chief Executive
Officer, and, except where by law the signature of the President is required, the Chairman of the Board of Directors shall possess the same power as the President to sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. During the absence or disability of the President, the Chairman of the Board of Directors shall exercise all the powers and discharge all the duties of the President. The Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers as may from time to time be assigned by these By-Laws or by the Board of Directors.
Section 4.5. President. The President shall, subject to the control of the Board of Directors and, if there be one, the Chairman of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these By-Laws, the Board of Directors or the President. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the President shall preside at all meetings of the stockholders and the Board of Directors. If there be no Chairman of the Board of Directors, or if the Board of Directors shall otherwise designate, the President shall be the Chief Executive Officer of the Corporation. The President shall also perform such other duties and may exercise such other powers as may from time to time be assigned to such officer by these By-Laws or by the Board of Directors.
Section 4.6. Vice Presidents. At the request of the President or in the President's absence or in the event of the President's inability or refusal to act (and if there be no Chairman of the Board of Directors), the Vice President, or the Vice Presidents if there is more than one (in the order designated by the Board of Directors), shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Chairman of the Board of Directors and no Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President.
Section 4.7. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for committees of the Board of Directors when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board of Directors or the President, under whose supervision the Secretary shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest to the affixing by such officer's signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be.
Section 4.8. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of the Treasurer and for the restoration to the Corporation, in case of the Treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Treasurer's possession or under the Treasurer's control belonging to the Corporation.
Section 4.9. Assistant Secretaries. Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of the Secretary's disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary.
Section 4.10. Assistant Treasurers. Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of the Treasurer's disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of Assistant Treasurer and for the restoration to the Corporation, in case of the Assistant Treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Assistant Treasurer's possession or under the Assistant Treasurer's control belonging to the Corporation.
Section 4.11. Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers.
ARTICLE V.
STOCK
Section 5.1. Form of Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chairman of the Board of Directors, the President or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such stockholder in the Corporation.
Section 5.2. Signatures. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.
Section 5.3. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or the owner's legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate.
Section 5.4. Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law and in these By-Laws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by such person's attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred.
Section 5.5. Record Date.
(a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting;
providing, however, that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in this State, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolutions taking such prior action.
(c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section 5.6. Record Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by law.
ARTICLE VI.
NOTICES
Section 6.1. Notices. Whenever written notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at such person's address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, telex or cable.
Section 6.2. Waivers of Notice. Whenever any notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed, by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting, present in person or represented by proxy, shall constitute a waiver of notice of such meeting, except where the person attends the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.
ARTICLE VII.
GENERAL PROVISIONS
Section 7.1. Dividends. Dividends upon the capital stock of the Corporation, subject to the requirements of the DGCL and the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting of the Board of Directors (or any action by written consent in lieu thereof in accordance with Section 3.6 of Article III hereof), and may be paid in cash, in property, or in shares of the Corporation's capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve.
Section 7.2. Disbursements. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
Section 7.3. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.
Section 7.4. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII.
INDEMNIFICATION
Section 8.1. Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation. Subject to Section 8.3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person's conduct was unlawful.
Section 8.2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Section 8.3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
Section 8.3. Authorization of Indemnification. Any indemnification
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 8.1 or Section 8.2 of this Article VIII, as the case may be. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (i) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (ii) by a committee of such directors designated by a
majority vote of such directors, even though less than a quorum, or (iii) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion or (iv) by the stockholders. Such
determination shall be made, with respect to former directors and officers, by
any person or persons having the authority to act on the matter on behalf of the
Corporation. To the extent, however, that a present or former director or
officer of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.
Section 8.4. Good Faith Defined. For purposes of any determination under Section 8.3 of this Article VIII, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person's conduct was unlawful, if such person's action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 8.4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 8.4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 8.1 or 8.2 of this Article VIII, as the case may be.
Section 8.5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 8.3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director or officer may apply to the Court of Chancery in the State of Delaware for indemnification to the extent otherwise permissible under Sections 8.1 and 8.2 of this Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standards of conduct set forth in Section 8.1 or 8.2 of this Article VIII, as the case may be. Neither a contrary determination in the specific case under Section 8.3 of this Article VIII nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 8.5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.
Section 8.6. Expenses Payable in Advance. Expenses incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article VIII.
Section 8.7. Nonexclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by or granted pursuant to this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Certificate of Incorporation, any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 8.1 and 8.2 of this Article VIII shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Sections 8.1 or 8.2 of this Article VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise.
Section 8.8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article VIII.
Section 8.9. Certain Definitions. For purposes of this Article VIII, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VIII, references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VIII.
Section 8.10. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.
Section 8.11. Limitation on Indemnification. Notwithstanding anything contained in this Article VIII to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 8.5 hereof), the Corporation shall not be obligated to
indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation.
Section 8.12. Indemnification of Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VIII to directors and officers of the Corporation.
ARTICLE IX.
AMENDMENTS
Section 9.1. Amendments. In furtherance and not in limitation of the powers conferred upon it by the laws of the State of Delaware, the Board of Directors shall have the power to adopt, amend, alter or repeal the Corporation's By-Laws. The affirmative vote of at least a majority of the entire Board of Directors shall be required to adopt, amend, alter or repeal the Corporation's By-Laws. The Corporation's By-Laws also may be adopted, amended, altered or repealed by the affirmative vote of the holders of at least a majority of the voting power of the shares entitled to vote at an election of directors.
Section 9.2. Entire Board of Directors. As used in this Article IX and in these By-Laws generally, the term "entire Board of Directors" means the total number of directors which the Corporation would have if there were no vacancies.
Exhibit 4.1
NUMBER SHARES
GP
COMMON STOCK COMMON STOCK
GLOWPOINT, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 379887 10 2
THIS CERTIFIES THAT
[SPECIMEN]
is the Owner of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.0001 PAR VALUE, OF
GLOWPOINT, INC.
transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized Officers.
Dated:
[GLOWPOINT, INC. CORPORATE SEAL]
/s/ Christopher A. Zigmont /s/ David C. Trachtenberg
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
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COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NY)
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT -- _______________________ Custodian _______________________
(Cust) (Minor)
under Uniform Gifts to Minors Act _______________________
(State)
|
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ___________________ HEREBY SELLS, ASSIGNS AND TRANSFERS UNTO
PLEASE PRINT OR TYPEWRITE IDENTIFYING
NUMBER AND NAME OF ASSIGNMENT AS IT SHOULD
APPEAR ON CERTIFICATE AND SHOW ADDRESS
___________________________________________________________ Shares of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
______________________________________________________________________ Attorney, to transfer the said shares on the books of the within-named Corporation, with full power of substitution in the premises.
Dated: _________________________
Signature(s) Guaranteed
Exhibit 10.38
August 4, 2003
Mr. Richard Reiss
Chairman and Chief Executive Officer
Wire One Technologies, Inc.
225 Long Avenue
Hillside, NJ 07205
Dear Mr. Reiss:
This letter Agreement (the "Agreement") confirms the engagement of Burnham Hill Partners, LLC ("BHP") by Wire One Technologies, Inc. (the "Company") to act 1) on an exclusive basis as its financial advisor in connection with a potential strategic transaction for the Company's Glowpoint operations which may include an acquisition, partnership, strategic alliance, merger, or sale (each a "Strategic Transaction") and 2) as its placement agent in connection with a potential private placement of equity or debt securities (a "Financing") which may occur in combination with or in lieu of a Strategic Transaction.
As part of our engagement, we will:
(a) assist you in analyzing and evaluating the business, operations and financial position of each suitable prospect for a Strategic Transaction;
(b) assist the Company with its due diligence efforts related to each potential Strategic Transaction;
(c) assist the Company in structuring and negotiating each Strategic Transaction; and,
(d) be available at your request to meet with your Board of Directors to discuss any proposed Strategic Transaction and its financial implications.
Upon execution of this Agreement, the Company shall issue to BHP and/or its assigns a warrant or warrants to purchase an aggregate of 100,000 shares of the Company's common stock and shall pay BHP a cash retainer fee of $50,000 (which amount shall be due upon the closing of the sale of the Company's equipment business to Gores Technology. The warrants issued upon execution of this Agreement shall have an exercise price of $2.50 per share, shall have a cashless exercise provision, shall have standard piggyback registration rights with respect to the underlying shares and shall expire five (5) years from the issuance date.
As compensation for a completed transaction under this Agreement, 1) in connection with a Strategic Transaction, the Company agrees to pay BHP a cash fee equal to 1.25% of the aggregate consideration and 2) in connection with a Financing, the Company agrees to a) pay BHP a cash fee equal to 6% of the gross proceeds received by the Company from the sale of its securities (WHICH AMOUNT SHALL BE INCREASED TO 10% WHERE BHP IS REQUIRED TO COMPENSATE SUB-PLACEMENT AGENTS, BUT IN NO EVENT MAY THE AGGREGATE CASH FEE EXCEED 8%)) and 4% of the gross proceeds received by the Company from the exercise of previously outstanding warrants and b) issue warrants to BHP and/or its assigns ("the Placement Agent Warrants") to purchase an amount representing 2% of the number of shares of common stock (or underlying shares of common stock in connection with convertible securities, excluding any warrants issued to investors) sold in the Financing. The Placement Agent Warrants shall be exercisable at $.001 per share and shall expire twelve months from the issuance date. The shares underlying the Placement Agent Warrants shall have standard piggyback registration rights. In connection with any Financing in excess of $25 million, the Company reserves the right to designate BHP and another entity chosen by the Company, in consultation with BHP, as co-lead placement agents and, in such event, the compensation payable in connection with such Financing pursuant to this paragraph shall be allocated based on good faith negotiations between BHP and such other co-lead placement agent.
The Company shall provide to BHP periodic reimbursement of all reasonable out-of-pocket expenses upon the submission of
invoices therefor, which amount shall not exceed $10,000 without the prior written approval of the Company.
Notice given pursuant to any of the provisions of this Agreement shall be given in writing and shall be sent by recognized overnight courier or personally delivered (a) if to the Company, to WONE's office at 225 Long Avenue, Hillside, NJ 07205. Attention: Richard Reiss, Chief Executive Officer; and (b) if to BHP, to its office at 570 Lexington Avenue, New York, NY 10022. Attention: Jason Adelman, Managing Director.
No advice or opinion rendered by BHP, whether formal or informal, may be disclosed, in whole or in part, or summarized, excerpted from or otherwise referred to without our prior written consent. In addition, BHP may not be otherwise referred to without its prior written consent, which will not be unreasonably withheld. Since BHP will be acting on behalf of the Company in connection with its engagement hereunder, the Company has entered into a separate letter Agreement, dated the date hereof, providing for the indemnification by the Company of BHP and certain related persons and entities.
BHP's engagement hereunder shall be for a term (the "Term") of six months from the date hereof; provided, however, that BHP will continue to be entitled to its full fees provided for herein in the event that at any time prior to the expiration of six (6) months after the expiration of the Term, a Strategic Transaction or Financing involving the Company occurs which involves a party contacted by BHP on behalf of the Company.
BHP is a division of Pali Capital Inc., a European American Investment Group Company. In connection with this engagement, BHP is acting as an independent contractor with duties owing solely to the Company. Our engagement by the Company is for the limited purposes set forth in this letter, and the rights and obligations of each of BHP and the Company are defined by this Agreement. Each of BHP and the Company agrees that the other party has no fiduciary duty to it or its stockholders, officers and directors as a result of the engagement described in this Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of law principles thereof. This Agreement may not be amended or modified except in writing signed by each of the parties hereto.
This letter and the indemnification Agreement contain the entire Agreement of the parties with respect to the subject matter hereof and supersede and take precedence over all prior Agreements or understandings, whether oral or written, between BHP and the Company. The invalidity or unenforceability of any provision of this letter Agreement shall not affect the validity or enforceability of any other provisions of this Agreement or the indemnification Agreement, which shall remain in full force and effect.
We are delighted to accept this engagement and look forward to working with you on this assignment. Please confirm that the foregoing is in accordance with your understanding by signing and returning to us the enclosed duplicate of this Agreement.
Very truly yours, Burnham Hill Partners, LLC
By: /s/ Jason Adelman -------------------------------------- Name: |
Accepted and Agreed to as of the date first written above:
WIRE ONE TECHNOLOGIES
By: /s/ Richard Reiss ----------------------------------- Name: Mr. Richard Reiss Title: Chairman and CEO |
TO: Burnham Hill Partners, LLC
570 Lexington Avenue
New York, NY 10022
In connection with your engagement pursuant to our letter Agreement of even date herewith (the "Engagement"), we agree to indemnify and hold harmless Burnham Hill Partners, LLC ("BHP" ) and its affiliates, the respective directors, officers, partners, agents and employees of BHP and its affiliates, and each other person, if any, controlling BHP or any of its affiliates (collectively, "Indemnified Persons"), from and against, and we agree that no Indemnified Person shall have any liability to us or our owners, parents, affiliates, security holders or creditors for, any losses, claims, damages or liabilities (including actions or proceedings in respect thereof) (collectively "Losses") (A) related to or arising out of (i) our actions or failures to act (including statements or omissions made, or information provided, by us or our agents) or (ii) actions or failures to act by an Indemnified Person with our consent or in reliance on our actions or failures to act, or (B) otherwise related to or arising out of the Engagement or your performance thereof, except that this clause (B) shall not apply to any Losses that are finally judicially determined to have resulted primarily from your bad faith or gross negligence or breach of the letter Agreement (it being understood, however, that we retain our right to assert, as a defense to any claim by BHP for compensation under this letter agreement, any violation by BHP of its contractual obligations under the Engagement). If such indemnification is for any reason not available or insufficient to hold you harmless, we agree to contribute to the Losses involved in such proportion as is appropriate to reflect the relative benefits received (or anticipated to be received) by us and by you with respect to the Engagement or, if such allocation is judicially determined unavailable, in such proportion as is appropriate to reflect other equitable considerations such as the relative fault of us on the one hand and of you on the other hand; provided, however, that, to the extent permitted by applicable law, the Indemnified Persons shall not be responsible for amounts which in the aggregate are in excess of the amount of all fees actually received by you from us in connection with the Engagement. Relative benefits to us, on the one hand, and you, on the other hand, with respect to the Engagement shall be deemed to be in the same proportion as (i) the total value paid or proposed to be paid or received or proposed to be received by us or our security holders, as the case may be, pursuant to the transaction(s), whether or not consummated, contemplated by the Engagement bears to (ii) all fees paid or proposed to be paid to you by us in connection with the Engagement.
We will reimburse each Indemnified Person for all expenses (including reasonable fees and disbursements of counsel) as they are incurred by such Indemnified Person in connection with investigating, preparing for or defending any action, claim, investigation, inquiry, arbitration or other proceeding ("Action") referred to above (or enforcing this Agreement or any related engagement Agreement), whether or not in connection with pending or threatened litigation in which any Indemnified Person is a party, and whether or not such Action is initiated or brought by you . We further agree that we will not settle or compromise or consent to the entry of any judgment in any pending or threatened Action in respect of which indemnification may be sought hereunder (whether or not an Indemnified Person is a party therein) unless we have given you reasonable prior written notice thereof and used all reasonable efforts, after consultation with you, to obtain an unconditional release of each Indemnified Person from all liability arising therefrom. In the event we are considering entering into one or a series of transactions involving a merger or other business combination or a dissolution or liquidation of all or a significant portion of our assets, we shall promptly notify you in writing. If requested by BHP, we shall then establish alternative means of providing for our obligations set forth herein on terms and conditions reasonably satisfactory to BHP.
In the event that we are called or subpoenaed to give testimony in a court of law, you agree to pay our expenses related thereto and $5,000 per person per day for every day or part thereof that we are required to be there or in preparation thereof. Our obligations hereunder shall be in addition to any rights that any Indemnified Person may have at common law or otherwise. Solely for the purpose of enforcing this Agreement, we hereby consent to personal jurisdiction and to service and venue in any court in which any claim which is subject to this Agreement is brought by or against any Indemnified Person. We acknowledge that in connection with the Engagement you are acting as an independent contractor with duties owing solely to us.
The provisions of this Agreement shall apply to the Engagement (including related activities prior to the date hereof) and any modification thereof and shall remain in full force and effect regardless of the completion or termination of the Engagement. This Agreement and any other Agreements relating to the Engagement shall be governed by and construed in accordance with the laws of the state of New York, without regard to conflicts of law principles thereof.
Very truly yours,
Accepted and Agreed:
Burnham Hill Partners, LLC Client: WIRE ONE TECHNOLOGIES
By: /s/ Jason Adelman By: /s/ Richard Reiss
------------------------------------ ------------------------------------
Name: Name: Richard Reiss
Title: Title: Chairman and CEO
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AMENDMENT
Amendment dated as of January 29, 2004 to the Engagement Letter between Burnham Hill Partners ("BHP") and Glowpoint, Inc. (formerly known as Wire One Technologies, Inc.) (the "Company").
WHEREAS, BHP and the Company entered into the Engagement Letter on August 4, 2003; and
WHEREAS, the parties have agreed to the changes to the terms of the Engagement Letter as are contained in this Amendment.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
All capitalized terms not otherwise defined herein shall have the meanings set forth in the Engagement Letter.
1. The first two sentences of the last paragraph on the first page of the Engagement Letter are hereby amended and restated in their entirety to read as follows:
"As compensation for a completed transaction under this Agreement, 1) in connection with a Strategic Transaction, the Company agrees to pay BHP a cash fee equal to 1.25% of the aggregate consideration and 2) in connection with a Financing, the Company agrees to a) pay BHP a cash fee equal to 7% of the gross proceeds received by the Company from the sale of its securities (which amount shall be increased to 10% where BHP is required to compensate sub-placement agents, but in no event may the aggregate cash fee exceed 8%) and 4% of the gross proceeds received by the Company from the exercise of previously outstanding warrants and warrants issued in the Financing and b) issue warrants to BHP and/or its assigns (the "Placement Agent Warrants") to purchase an amount representing seven (7%) percent of the number of shares of common stock (or underlying shares of common stock in connection with convertible securities, excluding any warrants issued to investors) sold in the Financing. The Placement Agent Warrants shall have an exercise price equal to $.01 above the average closing price of the Company's common stock for the five trading days prior to the closing of the Financing, shall have a term of five years, shall have a cashless exercise provision, shall be non-redeemable and shall become exercisable six months and one day after the closing of the Financing."
2. The fourth paragraph on page 2 of the Engagement Letter is hereby modified to change the Term from six months to nine months. In addition, the following sentence is hereby added to the end of such paragraph: "The Term will automatically be extended for 30 day periods until the Company shall have given BHP 30 days' written notice that the Company elects to terminate the Agreement."
3. Except as herein expressly amended, all terms, covenants and provisions of the Engagement Letter are and shall remain in full force and effect and all references therein to the Engagement Letter shall hereafter refer to the Engagement Letter as amended by this Amendment.
IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date first above written.
Glowpoint, Inc. Burnham Hill Partners
a division of Pali Capital Inc.
By: /s/ David C. Trachtenberg By: /s/ Jason Adelman
----------------------------------- --------------------------------------
Name: David C. Trachtenberg Name: Jason Adelman
Title: President and CEO Title: Managing Director
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EXHIBIT 10.39
GLOWPOINT, INC.
NOTICE OF RESTRICTED STOCK AWARD
Grantee's Name and Address: Dean Hiltzik Schneider Ehrlich & Associates LLP 100 Jericho Quadrangle Jericho, NY 11753
You have been granted shares of Common Stock of the Company for your service as an Independent Director on the Board, subject to the terms and conditions of this Notice of Restricted Stock Award (the "Notice") and the Restricted Stock Award Agreement (the "Agreement") attached hereto, as follows (the "Award"). Defined terms used in this Notice but not defined herein shall have the same meanings given in the Agreement.
Award Number RS-6 Date of Award February 27, 2004 Vesting Commencement Date February 27, 2004 Total Number of Shares f Common Stock Awarded 80,000 Aggregate Current Fair Market Value of Shares $169,600 |
Vesting Schedule:
Subject to the Grantee's maintenance of his status as an Independent Director and other limitations set forth in this Notice and the Agreement, the Shares will "vest" in accordance with the following schedule:
20,000 of the Total Number of Shares of Common Stock Awarded shall vest on the Vesting Commencement Date, and 20,000 of the Total Number of Shares of Common Stock Awarded shall vest on each of the first, second and third anniversaries of the Vesting Commencement Date thereafter.
Vesting shall cease upon the date of termination of the Grantee's status as an Independent Director for any reason, including death or disability. For purposes of this Notice and the Agreement, the term "vest" shall mean, with respect to any Shares, that such Shares shall remain subject to other restrictions on transfer set forth in the Agreement. Shares that have not vested are deemed "Restricted Shares." If the Grantee would become vested in a fraction of a Restricted Share, such Restricted Share shall not vest until the Grantee becomes vested in the entire Share. Notwithstanding the foregoing, the Shares subject to this Notice will be subject to the provisions of the Agreement relating to the release of forfeiture provisions in the event of a Corporate Transaction or Change of Control.
IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice and agree that the Award is to be governed by the terms and conditions of this Notice and the Agreement.
GLOWPOINT, INC.
By: /s/ David C. Trachtenberg
-----------------------------------------
Title: Chief Executive Officer and President
--------------------------------------
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THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SHALL VEST, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE'S STATUS AS AN INDEPENDENT DIRECTOR (NOT THROUGH THE ACT OF BEING ELECTED TO THE COMPANY'S BOARD OF DIRECTORS, BEING
GRANTED THIS AWARD OR ACQUIRING SHARES HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS NOTICE OR THE AGREEMENT SHALL CONFER UPON THE GRANTEE ANY RIGHT WITH RESPECT TO CONTINUATION OF THE GRANTEE'S STATUS AS AN INDEPENDENT DIRECTOR, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE THE GRANTEE AT ANY TIME, WITH OR WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE.
The Grantee acknowledges receipt of a copy of the Agreement and represents that he is familiar with the terms and provisions thereof, and hereby accepts the Award subject to all of the terms and provisions hereof and thereof. The Grantee has reviewed this Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Notice and fully understands all provisions of this Notice and the Agreement. The Grantee hereby agrees that all disputes arising out of or relating to this Notice and the Agreement shall be resolved in accordance with Section 15 of the Agreement. The Grantee further agrees to notify the Company upon any change in the residence address indicated in this Notice.
GLOWPOINT, INC.
RESTRICTED STOCK AWARD AGREEMENT
Issuance of Shares. Glowpoint, Inc., a Delaware corporation (the "Company"), hereby issues to the Grantee (the "Grantee") named in the Notice of Restricted Stock Award (the "Notice"), the Total Number of Shares of Common Stock Awarded set forth in the Notice (the "Shares"), subject to the Notice and this Restricted Stock Award Agreement (this "Agreement"). All Shares issued hereunder will be deemed issued to the Grantee as fully paid and nonassessable shares, and the Grantee will have the right to vote the Shares at meetings of the Company's stockholders. The Company shall pay any applicable stock transfer taxes imposed upon the issuance of the Shares to the Grantee hereunder. Defined terms used in this Agreement but not defined herein shall have the same meanings given in the Notice.
Consideration. The Shares have been issued to the Grantee in consideration for his service to the Company as an Independent Director on the Board, which consideration has a value of $2.12 per share, the closing price of the Company's Common Stock on the Nasdaq National Market on the Date of Award. The Grantee agrees to pay upon receipt of the Notice the par value of $.0001 for each Share issued in the total amount of $8.00.
Transfer Restrictions. The Shares issued to the Grantee hereunder may not be sold, transferred by gift, pledged, hypothecated, or otherwise transferred or disposed of by the Grantee prior to the date when the Shares become vested pursuant to the Vesting Schedule set forth in the Notice. Any attempt to transfer Restricted Shares in violation of this Section 3 will be null and void and will be disregarded.
Escrow of Stock. For purposes of facilitating the enforcement of the provisions of this Agreement, the Grantee agrees, immediately upon receipt of the certificate(s) for the Restricted Shares, to deliver such certificate(s), together with an Assignment Separate from Certificate in the form attached hereto as Exhibit A, executed in blank by the Grantee and the Grantee's spouse (if required for transfer) with respect to each such stock certificate, to the Secretary or Assistant Secretary of the Company, or their designee, to hold in escrow for so long as such Restricted Shares have not vested pursuant to the Vesting Schedule set forth in the Notice, with the authority to take all such actions and to effectuate all such transfers and/or releases as may be necessary or appropriate to accomplish the objectives of this Agreement in accordance with the terms hereof. The Grantee hereby acknowledges that the appointment of the Secretary or Assistant Secretary of the Company (or their designee) as the escrow holder hereunder with the stated authorities is a material inducement to the Company to make this Agreement and that such appointment is coupled with an interest and is accordingly irrevocable. The Grantee agrees that such escrow holder shall not be liable to any party hereto (or to any other party) for any actions or omissions unless such escrow holder is grossly negligent or engages in willful misconduct relative thereto. The escrow holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may resign at any time.
Distributions. The Company shall disburse to the Grantee all regular cash dividends with respect to the Shares and Additional Securities (whether vested or not).
Additional Securities. Any securities or cash received (other than a regular cash dividend) as the result of ownership of the Restricted Shares (the "Additional Securities"), including, but not by way of limitation, warrants, options and securities received as a stock dividend or stock split, or as a result of a recapitalization or reorganization or other similar change in the Company's capital structure, shall be retained in escrow in the same manner and subject to the same conditions and restrictions as the Restricted Shares with respect to which they were issued, including, without limitation, the Vesting Schedule set forth in the Notice. The Grantee shall be entitled to direct the Company to exercise any warrant or option received as Additional Securities upon supplying the funds necessary to do so, in which event the securities so purchased shall constitute Additional Securities, but the Grantee may not direct the Company to sell any such warrant or option. If Additional Securities consist of a convertible security, the Grantee may exercise any conversion right, and any securities so acquired shall constitute Additional Securities. In the event of any change in certificates evidencing the Shares or the Additional Securities by reason of any recapitalization, reorganization or other transaction that results in the creation of Additional Securities, the escrow holder is authorized to deliver to the issuer the certificates evidencing the Shares or the Additional Securities in exchange for the certificates of the replacement securities.
Stop-Transfer Notices. In order to ensure compliance with the restrictions on transfer set forth in this Agreement or the Notice, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
Refusal to Transfer. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.
Restrictive Legends. The Grantee understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR GLOWPOINT, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
Lock-Up Agreement.
Agreement. The Grantee, if requested by the Company and the lead underwriter of
any public offering of the Common Stock or other securities of the Company (the
"Lead Underwriter"), hereby irrevocably agrees not to sell, contract to sell,
grant any option to purchase, transfer the economic risk of ownership in, make
any short sale of, pledge or otherwise transfer or dispose of any interest in
any Common Stock or any securities convertible into or exchangeable or
exercisable for or any other rights to purchase or acquire Common Stock (except
Common Stock included in such public offering or acquired on the public market
after such offering) during the 180-day period following the effective date of a
registration statement of the Company filed under the Securities Act of 1933, as
amended, or such shorter period of time as the Lead Underwriter shall specify.
The Grantee further agrees to sign such documents as may be requested by the
Lead Underwriter to effect the foregoing and agrees that the Company may impose
stop-transfer instructions with respect to such Common Stock subject until the
end of such period. The Company and the Grantee acknowledge that each Lead
Underwriter of a public offering of the Company's stock, during the period of
such offering and for the 180-day period thereafter, is an intended beneficiary
of this Section 10.
No Amendment Without Consent of Underwriter. During the period from
identification as a Lead Underwriter in connection with any public offering of
the Company's Common Stock until the earlier of (i) the expiration of the
lock-up period specified in Section 10(a) in connection with such offering or
(ii) the abandonment of such offering by the Company and the Lead Underwriter,
the provisions of this Section 10 may not be amended or waived except with the
consent of the Lead Underwriter.
Registration of the Shares. If at any time the Company proposes to file a registration statement under the Securities Act with respect to an underwritten offering of Common Stock (except on Form S-4 or Form S-8 or any successor forms thereto), for its own account, then the Company shall give written notice of such proposed filing to the Grantee at least 15 days in advance of the anticipated filing date (the "Piggyback Notice"). The Piggyback Notice shall offer the Grantee the opportunity to register such amount of Shares as each such holder may request (a "Piggyback Registration"), subject in all events to the agreement of the underwriter or underwriters of the offering contemplated by such registration statement that such Shares can be included in such registration statement without adversely affecting such offering. Any reduction in the number of securities to be so offered shall be (i) first, pro-rata among all security holders who are exercising "piggyback" registration rights, based on the number of registrable securities originally proposed to be sold by each of them, and (ii) second, pro-rata among all security holders who are exercising "demand" registration rights pursuant to a registration rights agreement with the Company, based on the number of registrable securities originally proposed to be sold by each of them.
Grantee's Representations. In the event the Shares issuable pursuant to this Agreement have not been registered under the Securities Act of 1933, as amended, at the time of initial issuance to the Grantee, the Grantee shall, if required by the Company, concurrently with the receipt of the Shares, deliver to the Company his Investment Representation Statement in the form attached hereto as Exhibit B.
Entire Agreement: Governing Law. The Notice and this Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Grantee with respect to the subject matter hereof, and may not be modified adversely to the Grantee's interest except by means of a writing signed by the Company and the Grantee. These agreements are to be construed in accordance with and governed by the internal laws of the State of New York without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of New York to the rights and duties of the parties. Should any provision of the Notice or this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.
Headings. The captions used in this Agreement are inserted for convenience and shall not be deemed a part of this Agreement for construction or interpretation.
Dispute Resolution. The provisions of this Section 15 shall be the exclusive means of resolving disputes arising out of or relating to the Notice and this Agreement. The Company, the Grantee, and the Grantee's assignees (the "parties") shall attempt in good faith to resolve any disputes arising out of or relating to the Notice and this Agreement by negotiation between individuals who have authority to settle the controversy. Negotiations shall be commenced by either party by notice of a written statement of the party's position and the name and title of the individual who will represent the party. Within thirty (30) days of the written notification, the parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to resolve the dispute. If the dispute has not been resolved by negotiation, the parties agree that any suit, action, or proceeding arising out of or relating to the Notice or this Agreement shall be brought in the United States District Court for the Southern District of New York (or should such court lack jurisdiction to hear such action, suit or proceeding, in a New York state court in the County of New York) and that the parties shall submit to the jurisdiction of such court. The parties irrevocably waive, to the fullest extent permitted by law, any objection the party may have to the laying of venue for any such suit, action or proceeding brought in such court. THE PARTIES ALSO EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING. If any one or more provisions of this Section 15 shall for any reason be held invalid or unenforceable, it is the specific intent of the parties that such provisions shall be modified to the minimum extent necessary to make it or its application valid and enforceable.
Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail (if the parties are within the United States) or upon deposit for delivery by an internationally recognized express mail courier service (for international delivery of notice), with postage and fees prepaid, addressed to the other party at its address as shown beneath its signature in the Notice, or to such other address as such party may designate in writing from time to time to the other party.
Corporate Transactions/Changes in Control Acceleration of Award Upon Corporate Transaction. In the event of any Corporate Transaction, the Award shall automatically become fully vested and exercisable and be released from any restrictions on transfer and forfeiture rights, immediately prior to the specified effective date of such Corporate Transaction, for all of the Shares at the time represented by the Award.
Acceleration of Award Upon Change in Control. Following a Change in Control, the Award shall automatically become fully vested and exercisable and be released from any restrictions on transfer and repurchase or forfeiture rights, immediately upon the consummation of such Change in Control.
Definitions. As used herein, the following definitions shall apply:
"Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
"Board" means the Board of Directors of the Company.
"Change in Control" means a change in ownership or control of the Company effected through either of the following transactions: 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 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.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock of the Company.
"Company" means Glowpoint, Inc., a Delaware corporation.
"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.
"Corporate Transaction" means any of the following transactions: 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; 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); approval by the Company's shareholders of any plan or proposal for the complete liquidation or dissolution of the Company; 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 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).
"Director" means a member of the Board.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Independent Director" means , with respect to each such scheduled vesting date, the Grantee (i) attended at least 75% of the meetings of the Board held in the twelve months prior to such date and (ii) remains "independent" under the Nasdaq rules prevailing on such scheduled vesting date.
"Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code.
"Share" means a share of the Common Stock.
"Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code.
EXHIBIT A
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
[PLEASE SIGN THIS DOCUMENT BUT DO NOT DATE IT. THE DATE AND INFORMATION OF THE TRANSFEREE WILL BE COMPLETED IF AND WHEN THE SHARES ARE ASSIGNED.]
FOR VALUE RECEIVED, ____________________________ hereby sells, assigns and transfers unto _______________________, __________________ (____) shares of the Common Stock of Glowpoint, Inc., a Delaware corporation (the "Company"), standing in his or his name on the books of, the Company represented by Certificate No. __ herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company attorney to transfer the said stock in the books of the Company with full power of substitution.
EXHIBIT B
GLOWPOINT, INC.
INVESTMENT REPRESENTATION STATEMENT
GRANTEE : DEAN HILTZIK
COMPANY : GLOWPOINT, INC.
SECURITY : COMMON STOCK
AMOUNT :
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DATE :
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In connection with the receipt of the above-listed Securities, the undersigned the Grantee represents to the Company the following:
The Grantee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. The Grantee is acquiring these Securities for investment for the Grantee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act").
The Grantee is an "accredited investor" within the meaning of Rule 501 of Regulation D of the Securities and Exchange Commission, as presently in effect.
The Grantee acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon among other things, the bona fide nature of the Grantee's investment intent as expressed herein. In this connection, the Grantee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if the Grantee's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. The Grantee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. The Grantee further acknowledges and understands that the Company is under no obligation to register the Securities. Grantee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company.
The Grantee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the sale of the Shares to the Grantee, the sale will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time of sale of the Securities, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above. The Grantee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. The Grantee understands that no assurances can be given that any such other registration exemption will be available in such event.
The Grantee represents that he is a resident of the state of New York.
EXHIBIT 10.40
AMENDMENT
This Amendment (the "Amendment"), dated as of January 1, 2004, hereby amends the Consulting Agreement (the "Consulting Agreement") between Glowpoint, Inc. (f/k/a Wire One Technologies, Inc.) ("Glowpoint") and Kelly Harman ("Consultant").
WHEREAS, Glowpoint and Consultant are parties to the Consulting Agreement which, by its terms, expires on December 31, 2003; and
WHEREAS, Glowpoint and Consultant deem it in their mutual best interests to amend the Consulting Agreement as set forth in this Amendment.
NOW, THEREFORE, in consideration of the mutual promises made herein, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereby amend the Consulting Agreement as follows:
Term of Consulting Agreement. The Consultant Agreement is terminable at the will of either party at any time, with or without cause, upon two weeks' prior written notice to the other party.
Extension of Options. Subject to approval by Glowpoint's Compensation Committee, the exercise period for Consultant's options to purchase 49,500 shares of Glowpoint common stock, currently scheduled to expire in January 2004, is hereby extended to January 1 2005.
Compensation. During the Initial Period (as defined below), Glowpoint agrees to pay Consultant at the hourly rate of $62.50 or the daily rate of $500, as applicable. Following completion of the Initial Period, Glowpoint agrees to pay Consultant at the hourly rate of $75 or the daily rate of $600, as applicable. For purposes of this Amendment, the "Initial Period" shall mean the period beginning on January 1, 2004 and ending when the Consultant shall have completed 320 hours (or 40 days) of work.
Glowpoint Circuit. Glowpoint agrees to continue to keep the Glowpoint circuit located at Consultant's premises operable at Glowpoint's expense through the end of the Initial Period. Thereafter, Glowpoint shall re-evaluate the need to continue to keep such circuit operable at Glowpoint's expense.
Consultant Services. In addition to the services set forth in the Consulting Agreement, Consultant shall also participate in lead generation for Glowpoint.
No Other Amendments. Except as modified by this Amendment, the Consulting Agreement remains in full force and effect.
IN WITNESS WHEREOF, the parties have signed this Amendment as of the day and year first written above.
GLOWPOINT, INC.
By: /s/ David C. Trachtenberg
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David Trachtenberg
President and CEO
/s/ Kelly Harman
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Kelly Harman
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EXHIBIT 10.41
EMPLOYMENT AGREEMENT
This Employment Agreement, dated March 11, 2004 is between Glowpoint, Inc., a Delaware corporation (the "Company"), and Joseph Laezza ("Employee").
WHEREAS, the Company wishes to employ Employee and Employee wishes to work for Company.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. POSITION AND RESPONSIBILITIES.
1.1 POSITION. Employee is employed by the Company to render services to the Company in the position of Vice President, Operations. Employee shall perform such duties and responsibilities as are normally related to such position in accordance with the standards of the industry and any additional duties consistent with his position now or hereafter assigned to Employee by the President and CEO of GlowPoint, Inc. Employee shall abide by the rules, regulations and practices of the Company as adopted or modified from time to time in the Company's reasonable discretion.
1.2 OTHER ACTIVITIES. Employee shall devote his full business time, attention and skill to perform any assigned duties, services and responsibilities, consistent with the position of Vice President, Operations, while employed by the Company, for the furtherance of the Company's business, in a diligent, loyal and conscientious manner. Except upon the prior written consent of the Board of Directors, Employee will not, during the term of this Agreement: (i) accept any other employment; or (ii) engage, directly or indirectly, in any other business activity (whether or not pursued for pecuniary advantage) that interferes with Employee's duties and responsibilities hereunder or create a conflict of interest with the Company.
1.3 NO CONFLICT. Employee represents and warrants that Employee's execution of this Agreement, Employee's employment with the Company, and the performance of Employee's proposed duties under this Agreement will not violate any obligations Employee may have to any other employer, person or entity, including any obligations with respect to proprietary or confidential information of any other person or entity.
1.4 COMMENCEMENT OF WORK. Employee will commence employment with the Company on Monday, March 29, 2004.
2. COMPENSATION AND BENEFITS.
2.1 BASE SALARY. In consideration of the services to be rendered under this Agreement and so long as Employee remains employed by the Company, the Company shall pay Employee a salary of at least $200,000.00 per year (the "Base Salary"). The Base Salary shall be paid in accordance with the Company's regularly established payroll practice. Employee's Base Salary shall be reduced by withholdings required by law. Employee's Base Salary will be reviewed from time to time in accordance with the established procedures of the Company.
2.2 RESTRICTED STOCK. The Company shall recommend to the Compensation Committee ("Compensation Committee") and to the Board of Directors (the "Board") that Employee be granted restricted stock ("Restricted Stock ") in the amount of 55,000 shares of Common Stock of the Company.
(a) Other than as expressly provided herein, the Restricted Stock shall be forfeited if the Employee's employment with the Company is terminated for any reason. Notwithstanding the foregoing, as long as the Employee remains employed by the Company, the risk of forfeiture of the Restricted Stock will irrevocably lapse with respect to 18,333 shares on each of the first and second anniversaries of the commencement of the Employee's employment, and 18,334 upon the third anniversary of the Employee's employment. The employee may, in his discretion and subject to the satisfaction of applicable income and employment tax withholding obligations, make an election under Section 83(b) of the Internal Revenue Code with respect to the Restricted Stock. Employee's entitlement to any Restricted Stock that may be approved by the Board and/or Compensation Committee is conditioned upon Employee's signing of a separate Restricted Stock Agreement and payment of the par value of the Restricted Stock if required.
(b) The risk of forfeiture of the Restricted Stock shall lapse upon a Change in Control or Corporate Transaction (as each is defined in the Restricted Stock Agreement) as long as Employee remains employed by the Company on the date of the Change of Control or Corporate Transaction; provided, however, if the surviving company of such Change of Control or Corporate Transaction offers Employee continued employment at an equivalent level in terms of position, compensation and benefits to that existing immediately prior to the Change in Control or Corporate Transaction and the successor entity or its parent assumes the contractual obligations with respect to the Restricted Stock, such risk of forfeiture shall not automatically lapse, but will lapse in accordance to the schedule set forth in paragraph 2.2(a).
2.3 INCENTIVE COMPENSATION. No later than sixty days after Employee commences his employment, Employee and the President and CEO will establish mutually agreed upon, appropriate goals and metrics by which Employee will be evaluated for 2004. Such goals and metrics will be updated by the Employee and the President and CEO on an annual basis thereafter. If in the opinion of the President and CEO, the Employee meets the mutually agreed upon goals and metrics, Employee will receive incentive compensation in an amount equivalent to forty percent (40%) of his base salary annually. Upon commencement of employment on March 29, 2004,
Employee will be paid 25% of his first year's incentive compensation, or twenty thousand dollars ($20,000.00). An additional 37.5% or thirty thousand dollars ($30,000.00) of the first year's incentive compensation will be guaranteed and payable upon completion of six (6) months continued employment by Employee. The pro-rated balance of the first year's incentive compensation, or ten thousand dollars ($10,000.00), remains at risk against Employee meeting mutually agreed upon goals and metrics by the end of the first year's employment. If Employee is terminated for Cause (as defined below) or if Employee voluntarily resigns, prior to completing the initial six (6) months of employment, the first 25% of guaranteed incentive compensation or twenty-thousand dollars ($20,000.00) must be repaid to the Company.
2.4 BENEFITS. Employee shall be eligible to participate in all benefits made generally available by the Company to similarly-situated employees, in accordance with the benefit plans established by the Company, and as may be amended from time to time in the Company's sole discretion.
2.5 EXPENSES. The Company shall reimburse Employee for reasonable travel and other business expenses incurred by Employee in the performance of Employee's duties hereunder in accordance with the Company's expense reimbursement guidelines, as they may be amended in the Company's sole discretion. These benefits include COBRA expenses for Employee and eligible dependents until Employee becomes eligible to participate under the GlowPoint health and welfare plan.
2.6 CAR ALLOWANCE. The Company will reimburse Employee up to $400 per month for the lease of a car to conduct Company business. Reimbursement will be made upon presentation of receipts according to the Company's reimbursement guidelines.
2.7 VACATION. Employee will be entitled to accrue 3 weeks of paid vacation per year. Such vacation must be used in the year in which it is accrued and may not be carried over from year to year.
3. EMPLOYMENT AND SEVERANCE.
3.1 EMPLOYMENT. Either the Company or Employee may terminate Employee's employment with the Company at any time, for any reason or no reason at all so long as they comply with the terms in this section 3.
3.2 TERMINATION FOR CAUSE OR VOLUNTARY RESIGNATION. If Employee is terminated for Cause (as defined below) or if Employee voluntarily resigns, Employee will be entitled to his Base Salary and other benefits through the last day actually worked. Thereafter, all benefits, compensation and perquisites of employment will cease.
3.3 TERMINATION WITHOUT CAUSE, RESIGNATION FOR GOOD REASON OR DEATH. If Employee is terminated without Cause, or Resigns for Good Reason (as defined below), or dies, Employee shall be entitled to severance equal to 12 months salary, at his then current rate of compensation. Such severance shall be paid either as a lump sum or as salary continuation, at the Company's discretion. In the event that the Employee is terminated without Cause, or Resigns for Good Reason, or dies, Employee will also be entitled to one year of accelerated vesting on the Restricted Stock to be granted pursuant to this
Agreement and the forfeiture provisions as to the Restricted Stock which is subject to accelerated vesting will lift. In addition, in the event that the Employee is terminated without Cause, or Resigns for Good Reason, and if Employee timely elects COBRA coverage, the Company will pay the employer contribution portion of the COBRA coverage on Employee's behalf for a period of up to one year.
3.4 DEFINITION OF CAUSE. For purposes of this Agreement, Cause shall mean, in the judgment of the Company: (i) Employee willfully engages in any act or omission which is in bad faith and to the detriment of the Company; (ii) Employee exhibits unfitness for service, dishonesty, habitual neglect, persistent and serious deficiencies in performance, or gross incompetence, which conduct is not cured within fifteen (15) days after receipt by Employee of written notice of the conduct; (iii) Employee is convicted of a crime; or (iv) Employee refuses or fails to act on any reasonable and lawful directive or order from the President and CEO, which refusal is not cured within fifteen (15) days after receipt by the Employee of written notice thereof. Notice of any termination for Cause shall be given in writing to the Employee, which notice shall set forth in reasonable detail all acts or omission upon which the Company is relying for such termination prior to the effective date of the termination.
3.5 DEFINITION OF RESIGNATION FOR GOOD REASON. For purposes of this
Agreement, Resignation for Good Reason shall mean if Employee resigns because:
(i) there has been a diminution in his Base Salary; (ii) he is required to be
based in an office that is more than 75 miles from the current location of the
office; (iii) he is assigned duties that are materially inconsistent with his
position as Vice President, Operations; or (iv) there is a material diminution
of his status, office, title or reporting requirements.
4. TERMINATION OBLIGATIONS.
4.1 RETURN OF PROPERTY. Employee agrees that all property (including without limitation all equipment, tangible proprietary information, documents, records, notes, contracts and computer-generated materials) furnished to or created or prepared by Employee incident to Employee's employment belongs to the Company and shall be promptly returned to the Company upon termination of Employee's employment.
4.2 COOPERATION. Following any termination of employment, Employee shall cooperate with the Company in the winding up of pending work on behalf of the Company and the orderly transfer of work to other employees. Employee shall also cooperate with the Company in the defense of any action brought by any third party against the Company that relates to Employee's employment by the Company.
5. INVENTIONS AND PROPRIETARY INFORMATION; PROHIBITION ON THIRD PARTY INFORMATION.
5.1 PROPRIETARY INFORMATION. Employee hereby covenants, agrees and acknowledges as follows:
(a) The Company is engaged in a continuous program of research, design, development, production, marketing and servicing with respect to its business.
(b) Employee's employment hereunder creates a relationship of confidence and trust between Employee and the Company with respect to certain information pertaining to the business of the Company or pertaining to the business of any customer of the Company which may be made known to the Employee by the Company or by any customer of the Company or learned by the Employee during the period of Employee's employment by the Company.
(c) The Company possesses and will continue to possess information that has been created, discovered or developed by, or otherwise becomes known to it (including, without limitation, information created, discovered or developed by, or made known to, Employee during the period of Employee's employment or arising out of Employee's employment and which pertains to the Company's actual or contemplated business, products, intellectual property or processes) or in which property rights have been or may be assigned or otherwise conveyed to the Company, which information has commercial value in the business in which the Company is engaged and is treated by the Company as confidential.
(d) Any and all inventions, products, discoveries,
improvements, processes, manufacturing, marketing and services methods
or techniques, formulae, designs, styles, specifications, data bases,
computer programs (whether in source code or object code), know-how,
strategies and data, whether or not patentable or registrable under
copyright or similar statutes, made, developed or created by Employee
(whether at the request or suggestion of the Company or otherwise,
whether alone or in conjunction with others, and whether during regular
hours of work or otherwise) during the period of Employee's employment
by the Company which pertains to the Company's actual or contemplated
business, products, intellectual property or processes (collectively
hereinafter referred to as "Developments"), shall be the sole property
of the Company and will be promptly and fully disclosed by Employee to
the Board without any additional compensation therefor, including,
without limitation, all papers, drawings, models, data, documents and
other material pertaining to or in any way relating to any Developments
made, developed or created by Employee as aforesaid. The Company shall
own all right, title and interest in and to the Developments and such
Developments shall be considered "works made for hire" for the Company
under US Copyright Law. If any of the Developments are held for any
reason not to be "works made for hire" for the Company or if ownership
of all right, title and interest in and to the Developments has not
vested exclusively and immediately in the Company upon creation,
Employee irrevocably assigns, without further consideration, any and
all right, title and interest in and to the Developments to the
Company, including any and all moral rights, and "shop rights" in the
Developments recognized by applicable law. Employee irrevocably agrees
to execute any document requested by the Company to give effect to this
Section 5.1 such as an assignment of invention or other general
assignments of intellectual property rights, without additional
compensation therefor.
(e) Employee will keep confidential and will hold for the Company's sole benefit any Development which is to be the exclusive property of the Company under this Section 5.1 irrespective of whether any patent, copyright, trademark or other right or protection is issued in connection therewith.
(f) Employee also agrees that Employee will not, without the prior approval of the President and CEO, use for Employee's benefit or disclose at any time during Employee's employment by the Company, or thereafter, except to the extent required by the performance by Employee of Employee's duties, any information obtained or developed by Employee while in the employ of the Company with respect to any Developments or with respect to any customers, clients, suppliers, products, services, prices, employees, financial affairs, or methods of design, distribution, marketing, service, procurement or manufacture of the Company or any confidential matter, except information which at the time is generally known to the public other than as a result of disclosure by Employee not permitted hereunder. Notwithstanding the foregoing, the following will not constitute confidential information for purposes of this Agreement: (i) information which is or becomes publicly available other than as a result of disclosure by the Employee; (ii) information designated in writing by the Company as no longer confidential; or (iii) information known by Employee as of the date of this Agreement and identified as such in writing to the Board. Employee will comply with all intellectual property disclosure policies established by the Company from time to time with respect to the Company's confidential information, including with respect to Developments.
5.2 NON-DISCLOSURE OF THIRD PARTY INFORMATION. Employee represents, warrants and covenants that Employee shall not disclose to the Company, or use, or induce the Company to use, any proprietary information or trade secrets of others at any time, including but not limited to any proprietary information or trade secrets of any former employer, if any; and Employee acknowledges and agrees that any violation of this provision shall be grounds for Employee's immediate termination and could subject Employee to substantial civil liabilities and criminal penalties. Employee further specifically and expressly acknowledges that no officer or other employee or representative of the Company has requested or instructed Employee to disclose or use any such third party proprietary information or trade secrets.
5.3 INJUNCTIVE RELIEF. Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 5 would be inadequate and, therefore, agrees that the Company shall be entitled to injunctive relief in addition to any other available rights and remedies in case of any such breach or threatened breach.
6. LIMITED AGREEMENT NOT TO COMPETE OR SOLICIT.
6.1 NON-COMPETITION. During the term of this Agreement, and for 12 months after the termination of Employee's employment with the Company for any reason, unless mutually agreed otherwise by the Employee and the Company, Employee shall not, directly or indirectly, work as an employee, consultant, agent, principal, partner, manager,
officer, or director for any person or entity who or which engages in a substantially similar business as the Company. For purposes of this Agreement, the Company is currently engaged in the business of designing, developing, providing and selling video communication services.
6.2 NON-SOLICITATION. Employee shall not, during his employment and for a period of 12 months immediately after termination of his employment, for any reason, either directly or indirectly: (a) call on or solicit for similar services, or, encourage or take away any of the Company's customers or potential customers about whom Employee became aware or with whom Employee had contact as a result of Employee's employment with the Company, either for benefit of Employee or for any other person or entity; or (b) solicit, induce, recruit, or encourage any of the Company's employees or contractors to leave the employ of the Company or cease providing services to the Company on behalf of the Employee or on behalf of any other person or entity; or (c) hire for himself or any other person or entity any employee who was employed or engaged by the Company within six months prior to the termination of Employee's employment.
6.3 LIMITATIONS; REMEDIES. The Employee further agrees that the limitations set forth in this Section 6 (including, without limitation, any time or territorial limitations) are reasonable and properly required for the adequate protection of the businesses of the Company. The Employee agrees that the lack of territorial limit is reasonable given the global reach of the Company. If any of the restrictions contained in Sections 6.1 and 6.2 are deemed by a court or arbitrator to be unenforceable by reason of the extent, duration or geographic scope thereof, or otherwise, then the parties agree that such court or arbitrator may modify such restriction to the extent necessary to render it enforceable and enforce such restriction in its modified form. The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 6 would be inadequate and, therefore, agrees that the Company shall be entitled to injunctive relief in addition to any other available rights and remedies in cases of any such breach or threatened breach.
7. ALTERNATIVE DISPUTE RESOLUTION.
The Company and Employee mutually agree that any controversy or claim arising out of or relating to this Agreement or the breach thereof, or any other dispute between the parties arising from or related to Employee's employment with the Company, shall be submitted to mediation before a mutually agreeable mediator. In the event mediation is unsuccessful in resolving the claim or controversy, such claim or controversy shall be resolved by arbitration
Company and Employee agree that arbitration shall be held in New Jersey, before a mutually agreed upon single arbitrator licensed to practice law, in accordance with the rules of the American Arbitration Association. The arbitrator shall have authority to award or grant legal, equitable, and declaratory relief. Such arbitration shall be final and binding on the parties. If the parties are unable to agree on an arbitrator, the matter shall be submitted to the American Arbitration Association solely for appointment of an arbitrator.
The claims covered by this Agreement ("Arbitrable Claims") include, but are not limited to, claims for wages or other compensation due; claims for breach of any contract (including this Agreement) or covenant (express or implied); tort claims; claims for discrimination (including, but not limited to, race, sex, religion, national origin, age, marital status, medical condition, or disability); claims for benefits (except where an employee benefit or pension plan specifies that its claims procedure shall culminate in an arbitration procedure different from this one); and claims for violation of any federal, state, or other law, statute, regulation, or ordinance, except claims excluded in the following paragraph. The parties hereby waive any rights they may have to trial by jury in regard to Arbitrable Claims.
Claims Employee may have for Workers' Compensation State disability or unemployment compensation benefits are not covered by this Agreement. Also not covered is either party's right to obtain provisional remedies, or interim relief from a court of competent jurisdiction.
Arbitration under this Agreement shall be the exclusive remedy for all Arbitrable Claims. This agreement to mediate and arbitrate survives termination of Employee's employment.
8. AMENDMENTS; WAIVERS; REMEDIES.
This Agreement may not be amended or waived except by a writing signed by Employee and by a duly authorized representative of the Company. Failure to exercise any right under this Agreement shall not constitute a waiver of such right. Any waiver of any breach of this Agreement shall not operate as a waiver of any subsequent breaches. All rights or remedies specified for a party herein shall be cumulative and in addition to all other rights and remedies of the party hereunder or under applicable law.
9. ASSIGNMENT; BINDING EFFECT.
9.1 ASSIGNMENT. The performance of Employee is personal hereunder, and Employee agrees that Employee shall have no right to assign and shall not assign or purport to assign any rights or obligations under this Agreement. This Agreement may be assigned or transferred by the Company; and nothing in this Agreement shall prevent the consolidation, merger or sale of the Company or a sale of any or all or substantially all of its assets.
9.2 BINDING EFFECT. Subject to the foregoing restriction on assignment by Employee, this Agreement shall inure to the benefit of and be binding upon each of the parties; the affiliates, officers, directors, agents, successors and assigns of the Company; and the heirs, devisees, spouses, legal representatives and successors of Employee.
10. SEVERABILITY.
If any provision of this Agreement shall be held by a court or arbitrator to be invalid, unenforceable, or void, such provision shall be enforced to the fullest extent permitted by law, and the remainder of this Agreement shall remain in full force and
effect. In the event that the time period or scope of any provision is declared by a court or arbitrator of competent jurisdiction to exceed the maximum time period or scope that such court or arbitrator deems enforceable, then such court or arbitrator shall reduce the time period or scope to the maximum time period or scope permitted by law.
11. TAXES.
All amounts paid under this Agreement (including without limitation Base Salary) shall be reduced by all applicable state and federal tax withholdings and any other withholdings required by any applicable jurisdiction.
12. GOVERNING LAW.
The validity, interpretation, enforceability, and performance of this Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, without regard to New Jersey conflict of laws principles.
13. INTERPRETATION.
This Agreement shall be construed as a whole, according to its fair meaning, and not in favor of or against any party. Sections and section headings contained in this Agreement are for reference purposes only, and shall not affect in any manner the meaning or interpretation of this Agreement. Whenever the context requires, references to the singular shall include the plural and the plural the singular.
14. OBLIGATIONS SURVIVE TERMINATION OF EMPLOYMENT.
The parties agree that any and all of the Employee's and the Company's obligations under this agreement, shall survive the termination of employment and the termination of this Agreement.
15. AUTHORITY.
Each party represents and warrants that such party has the right, power and authority to enter into and execute this Agreement and to perform and discharge all of the obligations hereunder; and that this Agreement constitutes the valid and legally binding agreement and obligation of such party and is enforceable in accordance with its terms.
16. ENTIRE AGREEMENT.
This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior or contemporaneous representations, discussions, proposals, negotiations, conditions, communications and agreements, whether written or oral, between the parties relating to the subject matter hereof and all past courses of dealing or industry custom. Employee acknowledges Employee has had the opportunity to consult legal counsel concerning this Agreement, that Employee has read and understands the Agreement, that Employee is fully aware of its legal effect, and that Employee has entered into it freely based on
Employee's own judgment and not on any representations or promises other than those contained in this Agreement.
In Witness Whereof, the parties have duly executed this Agreement as of the date first written above.
GLOWPOINT, INC.
/s/ David C. Trachtenberg /s/ Joseph Laezza ------------------------- ----------------- David C. Trachtenberg Joseph Laezza President and CEO |
Exhibit 10.42
EMPLOYMENT AGREEMENT
This Employment Agreement, dated March 11, 2004 is between Glowpoint, Inc., a Delaware corporation (the "Company"), and Stuart Gold ("Employee").
WHEREAS, the Company wishes to employ Employee and Employee wishes to work for Company.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. POSITION AND RESPONSIBILITIES.
1.1 POSITION. Employee is employed by the Company to render services to the Company in the position of Vice President, Marketing. Employee shall perform such duties and responsibilities as are normally related to such position in accordance with the standards of the industry and any additional duties consistent with his position now or hereafter assigned to Employee by the President and CEO of the Company Employee shall abide by the rules, regulations and practices of the Company as adopted or modified from time to time in the Company's reasonable discretion.
1.2 OTHER ACTIVITIES. Employee shall devote his full business time, attention and skill to perform any assigned duties, services and responsibilities, consistent with the position of Vice President, Marketing, while employed by the Company, for the furtherance of the Company's business, in a diligent, loyal and conscientious manner. Except upon the prior written consent of the Board of Directors, Employee will not, during the term of this Agreement: (i) accept any other employment; or (ii) engage, directly or indirectly, in any other business activity (whether or not pursued for pecuniary advantage) that interferes with Employee's duties and responsibilities hereunder or create a conflict of interest with the Company.
1.3 NO CONFLICT. Employee represents and warrants that Employee's execution of this Agreement, Employee's employment with the Company, and the performance of Employee's proposed duties under this Agreement will not violate any obligations Employee may have to any other employer, person or entity, including any obligations with respect to proprietary or confidential information of any other person or entity.
1.4 COMMENCEMENT OF WORK. Employee will commence employment with the Company on Monday, March 29, 2004.
2. COMPENSATION AND BENEFITS.
2.1 BASE SALARY. In consideration of the services to be rendered under this Agreement and so long as Employee remains employed by the Company, the Company shall pay Employee a salary of at least $185,000.00 per year (the "Base Salary"). The Base Salary shall be paid in accordance with the Company's regularly established payroll practice. Employee's Base Salary shall be reduced by withholdings required by law. Employee's Base Salary will be reviewed from time to time in accordance with the established procedures of the Company.
2.2 RESTRICTED STOCK. The Company shall recommend to the Compensation Committee ("Compensation Committee") and to the Board of Directors (the "Board") that Employee be granted (i) restricted stock ("Restricted Stock ") in the amount of 55,000 shares of Common Stock of the Company and (ii) up to 20,000 additional shares of restricted stock (the "Additional Restricted Stock") to be awarded to Employee concurrently with and in the same percentage as determined in calculating Employee's 2004 incentive compensation pursuant to Section 2.3 below (e.g., if Employee receives 75% of the total possible incentive compensation pursuant to Section 2.3, Employee shall concurrently be granted 15,000 shares of Additional Restricted Stock).
(a) Other than as expressly provided herein, the Restricted Stock shall be forfeited if the Employee's employment with the Company is terminated for any reason. Notwithstanding the foregoing, as long as the Employee remains employed by the Company, the risk of forfeiture of the Restricted Stock will irrevocably lapse with respect to 18,333 shares on each of the first and second anniversaries of the commencement of the Employee's employment, and 18,334 upon the third anniversary of the Employee's employment. The employee may, in his discretion and subject to the satisfaction of applicable income and employment tax withholding obligations, make an election under Section 83(b) of the Internal Revenue Code with respect to the Restricted Stock. Employee's entitlement to any Restricted Stock that may be approved by the Board and/or Compensation Committee is conditioned upon Employee's signing of a separate Restricted Stock Agreement and payment of the par value of the Restricted Stock if required.
(b) The risk of forfeiture of the Restricted Stock shall lapse upon a Change in Control or Corporate Transaction (as each is defined in the Restricted Stock Agreement) as long as Employee remains employed by the Company on the date of the Change of Control or Corporate Transaction; provided, however, if the surviving company of such Change of Control or Corporate Transaction offers Employee continued employment at an equivalent level in terms of position, compensation and benefits to that existing immediately prior to the Change in Control or Corporate Transaction and the successor entity or its parent assumes the contractual obligations with respect to the Restricted Stock, such risk of forfeiture shall not automatically lapse, but will lapse in accordance to the schedule set forth in paragraph 2.2(a).
2.3 INCENTIVE COMPENSATION. No later than sixty days after Employee commences his employment, Employee and the President and CEO will establish mutually agreed upon, appropriate goals and metrics by which Employee will be evaluated for 2004.
Such goals and metrics will be updated by the Employee and the President and CEO on an annual basis thereafter. If in the opinion of the President and CEO, the Employee meets the mutually agreed upon goals and metrics, Employee will receive incentive compensation in an amount equivalent to forty percent (40%) of his base salary annually. Upon commencement of employment on March 29, 2004, Employee will be eligible to earn the full 40% of his first year's incentive compensation, or seventy-four thousand dollars ($74,000.00) through December 31, 2004.
2.4 BENEFITS. Employee shall be eligible to participate in all benefits made generally available by the Company to similarly-situated employees, in accordance with the benefit plans established by the Company, and as may be amended from time to time in the Company's sole discretion. Employee may submit reimbursable COBRA expenses until becoming eligible to participate in GlowPoint's health and welfare benefits plan. Employee may also submit reimbursable expenses for eligible dependents electing to remain on COBRA. Such expenses will not exceed the Company's total cost to provide coverage for the Employee and eligible dependents.
2.5 EXPENSES. The Company shall reimburse Employee for reasonable travel and other business expenses incurred by Employee in the performance of Employee's duties hereunder in accordance with the Company's expense reimbursement guidelines, as they may be amended in the Company's sole discretion. These benefits include COBRA expenses for Employee and eligible dependents until Employee becomes eligible to participate under the GlowPoint health and welfare plan.
2.6 CAR ALLOWANCE. The Company will reimburse Employee up to $400 per month for the lease or use of a car to conduct Company business. Reimbursement will be made upon presentation of receipts according to the Company's reimbursement guidelines.
2.7 VACATION. Employee will be entitled to accrue 3 weeks of paid vacation per year. Such vacation must be used in the year in which it is accrued and may not be carried over from year to year.
3. EMPLOYMENT AND SEVERANCE.
3.1 EMPLOYMENT. Either the Company or Employee may terminate Employee's employment with the Company at any time, for any reason or no reason at all so long as they comply with the terms in this section 3.
3.2 TERMINATION FOR CAUSE OR VOLUNTARY RESIGNATION. If Employee is terminated for Cause (as defined below) or if Employee voluntarily resigns, Employee will be entitled to his Base Salary and other benefits through the last day actually worked. Thereafter, all benefits, compensation and perquisites of employment will cease.
3.3 TERMINATION WITHOUT CAUSE. If Employee is terminated without Cause, Employee shall be entitled to severance equal to 12 months salary, at his then current rate of compensation. Such severance shall be paid either as a lump sum or as salary continuation, at the Company's discretion, as well as the pro-rated amount of incentive compensation due as of the effective date of termination. Such severance shall be paid either as a lump sum or as salary continuation, at the Company's discretion. In the event that the Employee is terminated without Cause, Employee will also be entitled to one year of accelerated vesting on the Restricted Stock granted under this Agreement, and the
forfeiture provisions as to the Restricted Stock which is subject to accelerated vesting will lift. Accelerated vesting provisions do not apply to Additional Restricted Stock. In addition, in the event that the Employee is terminated without Cause, and if Employee timely elects COBRA coverage, the Company will pay 100% of the premium costs of COBRA coverage on Employee's behalf for a period of up to one year.
3.4 DEFINITION OF CAUSE. For purposes of this Agreement, Cause shall mean, in the judgment of the Company: (i) Employee willfully engages in any act or omission which is in bad faith and to the detriment of the Company; (ii) Employee exhibits unfitness for service, dishonesty, habitual neglect, persistent and serious deficiencies in performance, or gross incompetence, which conduct is not cured within fifteen (15) days after receipt by Employee of written notice of the conduct; (iii) Employee is convicted of a crime; or (iv) Employee refuses or fails to act on any reasonable and lawful directive or order from the President and CEO.
4. TERMINATION OBLIGATIONS.
4.1 RETURN OF PROPERTY. Employee agrees that all property (including without limitation all equipment, tangible proprietary information, documents, records, notes, contracts and computer-generated materials) furnished to or created or prepared by Employee incident to Employee's employment belongs to the Company and shall be promptly returned to the Company upon termination of Employee's employment.
4.2 COOPERATION. Following any termination of employment, Employee shall cooperate with the Company in the winding up of pending work on behalf of the Company and the orderly transfer of work to other employees. Employee shall also cooperate with the Company in the defense of any action brought by any third party against the Company that relates to Employee's employment by the Company.
5. INVENTIONS AND PROPRIETARY INFORMATION; PROHIBITION ON THIRD PARTY INFORMATION.
5.1 PROPRIETARY INFORMATION. Employee hereby covenants, agrees and acknowledges as follows:
(a) The Company is engaged in a continuous program of research, design, development, production, marketing and servicing with respect to its business.
(b) Employee's employment hereunder creates a relationship of confidence and trust between Employee and the Company with respect to certain information pertaining to the business of the Company or pertaining to the business of any customer of the Company which may be made known to the Employee by the Company or by any customer of the Company or learned by the Employee during the period of Employee's employment by the Company.
(c) The Company possesses and will continue to possess information that has been created, discovered or
developed by, or otherwise becomes known to it (including, without limitation, information created, discovered or developed by, or made known to, Employee during the period of Employee's employment or arising out of Employee's employment and which pertains to the Company's actual or contemplated business, products, intellectual property or processes) or in which property rights have been or may be assigned or otherwise conveyed to the Company, which information has commercial value in the business in which the Company is engaged and is treated by the Company as confidential.
(d) Any and all inventions, products, discoveries,
improvements, processes, manufacturing, marketing and services methods
or techniques, formulae, designs, styles, specifications, data bases,
computer programs (whether in source code or object code), know-how,
strategies and data, whether or not patentable or registrable under
copyright or similar statutes, made, developed or created by Employee
(whether at the request or suggestion of the Company or otherwise,
whether alone or in conjunction with others, and whether during regular
hours of work or otherwise) during the period of Employee's employment
by the Company which pertains to the Company's actual or contemplated
business, products, intellectual property or processes (collectively
hereinafter referred to as "Developments"), shall be the sole property
of the Company and will be promptly and fully disclosed by Employee to
the Board without any additional compensation therefor, including,
without limitation, all papers, drawings, models, data, documents and
other material pertaining to or in any way relating to any Developments
made, developed or created by Employee as aforesaid. The Company shall
own all right, title and interest in and to the Developments and such
Developments shall be considered "works made for hire" for the Company
under US Copyright Law. If any of the Developments are held for any
reason not to be "works made for hire" for the Company or if ownership
of all right, title and interest in and to the Developments has not
vested exclusively and immediately in the Company upon creation,
Employee irrevocably assigns, without further consideration, any and
all right, title and interest in and to the Developments to the
Company, including any and all moral rights, and "shop rights" in the
Developments recognized by applicable law. Employee irrevocably agrees
to execute any document requested by the Company to give effect to this
Section 5.1 such as an assignment of invention or other general
assignments of intellectual property rights, without additional
compensation therefor.
(e) Employee will keep confidential and will hold for the Company's sole benefit any Development which is to be the exclusive property of the Company under this Section 5.1 irrespective of whether any patent, copyright, trademark or other right or protection is issued in connection therewith.
(f) Employee also agrees that Employee will not, without the prior approval of the President and CEO, use for Employee's benefit or disclose at any time during Employee's employment by the Company, or thereafter, except to the extent required by the performance by Employee of Employee's duties, any information obtained or developed by Employee while in the employ of the Company with respect to any Developments or with respect to any customers, clients, suppliers, products, services, prices, employees, financial affairs, or methods of design, distribution, marketing, service, procurement or manufacture of the Company or any confidential matter, except information which at the time is generally known to the public other
than as a result of disclosure by Employee not permitted hereunder. Notwithstanding the foregoing, the following will not constitute confidential information for purposes of this Agreement: (i) information which is or becomes publicly available other than as a result of disclosure by the Employee; (ii) information designated in writing by the Company as no longer confidential; or (iii) information known by Employee as of the date of this Agreement and identified as such in writing to the Board. Employee will comply with all intellectual property disclosure policies established by the Company from time to time with respect to the Company's confidential information, including with respect to Developments.
5.2 NON-DISCLOSURE OF THIRD PARTY INFORMATION. Employee represents, warrants and covenants that Employee shall not disclose to the Company, or use, or induce the Company to use, any proprietary information or trade secrets of others at any time, including but not limited to any proprietary information or trade secrets of any former employer, if any; and Employee acknowledges and agrees that any violation of this provision shall be grounds for Employee's immediate termination and could subject Employee to substantial civil liabilities and criminal penalties. Employee further specifically and expressly acknowledges that no officer or other employee or representative of the Company has requested or instructed Employee to disclose or use any such third party proprietary information or trade secrets.
5.3 INJUNCTIVE RELIEF. Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 5 would be inadequate and, therefore, agrees that the Company shall be entitled to injunctive relief in addition to any other available rights and remedies in case of any such breach or threatened breach.
6. LIMITED AGREEMENT NOT TO COMPETE OR SOLICIT.
6.1 NON-COMPETITION. During the term of this Agreement, and for 12 months after the termination of Employee's employment with the Company for any reason, unless mutually agreed otherwise by the Employee and the Company, Employee shall not, directly or indirectly, work as an employee, consultant, agent, principal, partner, manager, officer, or director for any person or entity who or which engages in a substantially similar business as the Company. For purposes of this Agreement, the Company is currently engaged in the business of designing, developing, providing and selling video communication services.
6.2 NON-SOLICITATION. Employee shall not, during his employment and for a period of 12 months immediately after termination of his employment, for any reason, either directly or indirectly: (a) call on or solicit for similar services, or, encourage or take away any of the Company's customers or potential customers about whom Employee became aware or with whom Employee had contact as a result of Employee's employment with the Company, either for benefit of Employee or for any other person or entity; or (b) solicit, induce, recruit, or encourage any of the Company's employees or contractors to leave the employ of the Company or cease providing services to the Company on behalf of the Employee or on behalf of any other person or entity; or (c) hire for himself or any other
person or entity any employee who was employed or engaged by the Company within six months prior to the termination of Employee's employment.
6.3 LIMITATIONS; REMEDIES. The Employee further agrees that the limitations set forth in this Section 6 (including, without limitation, any time or territorial limitations) are reasonable and properly required for the adequate protection of the businesses of the Company. The Employee agrees that the lack of territorial limit is reasonable given the global reach of the Company. If any of the restrictions contained in Sections 6.1 and 6.2 are deemed by a court or arbitrator to be unenforceable by reason of the extent, duration or geographic scope thereof, or otherwise, then the parties agree that such court or arbitrator may modify such restriction to the extent necessary to render it enforceable and enforce such restriction in its modified form. The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 6 would be inadequate and, therefore, agrees that the Company shall be entitled to injunctive relief in addition to any other available rights and remedies in cases of any such breach or threatened breach.
7. ALTERNATIVE DISPUTE RESOLUTION.
The Company and Employee mutually agree that any controversy or claim arising out of or relating to this Agreement or the breach thereof, or any other dispute between the parties arising from or related to Employee's employment with the Company, shall be submitted to mediation before a mutually agreeable mediator. In the event mediation is unsuccessful in resolving the claim or controversy, such claim or controversy shall be resolved by arbitration
Company and Employee agree that arbitration shall be held in New Jersey, before a mutually agreed upon single arbitrator licensed to practice law, in accordance with the rules of the American Arbitration Association. The arbitrator shall have authority to award or grant legal, equitable, and declaratory relief. Such arbitration shall be final and binding on the parties. If the parties are unable to agree on an arbitrator, the matter shall be submitted to the American Arbitration Association solely for appointment of an arbitrator.
The claims covered by this Agreement ("Arbitrable Claims") include, but are not limited to, claims for wages or other compensation due; claims for breach of any contract (including this Agreement) or covenant (express or implied); tort claims; claims for discrimination (including, but not limited to, race, sex, religion, national origin, age, marital status, medical condition, or disability); claims for benefits (except where an employee benefit or pension plan specifies that its claims procedure shall culminate in an arbitration procedure different from this one); and claims for violation of any federal, state, or other law, statute, regulation, or ordinance, except claims excluded in the following paragraph. The parties hereby waive any rights they may have to trial by jury in regard to Arbitrable Claims.
Claims Employee may have for Workers' Compensation State disability or unemployment compensation benefits are not covered by this Agreement. Also not covered is either party's right to obtain provisional remedies, or interim relief from a court of competent jurisdiction.
Arbitration under this Agreement shall be the exclusive remedy for all Arbitrable Claims. This agreement to mediate and arbitrate survives termination of Employee's employment.
8. AMENDMENTS; WAIVERS; REMEDIES.
This Agreement may not be amended or waived except by a writing signed by Employee and by a duly authorized representative of the Company. Failure to exercise any right under this Agreement shall not constitute a waiver of such right. Any waiver of any breach of this Agreement shall not operate as a waiver of any subsequent breaches. All rights or remedies specified for a party herein shall be cumulative and in addition to all other rights and remedies of the party hereunder or under applicable law.
9. ASSIGNMENT; BINDING EFFECT.
9.1 ASSIGNMENT. The performance of Employee is personal hereunder, and Employee agrees that Employee shall have no right to assign and shall not assign or purport to assign any rights or obligations under this Agreement. This Agreement may be assigned or transferred by the Company; and nothing in this Agreement shall prevent the consolidation, merger or sale of the Company or a sale of any or all or substantially all of its assets.
9.2 BINDING EFFECT. Subject to the foregoing restriction on assignment by Employee, this Agreement shall inure to the benefit of and be binding upon each of the parties; the affiliates, officers, directors, agents, successors and assigns of the Company; and the heirs, devisees, spouses, legal representatives and successors of Employee.
10. SEVERABILITY.
If any provision of this Agreement shall be held by a court or arbitrator to be invalid, unenforceable, or void, such provision shall be enforced to the fullest extent permitted by law, and the remainder of this Agreement shall remain in full force and effect. In the event that the time period or scope of any provision is declared by a court or arbitrator of competent jurisdiction to exceed the maximum time period or scope that such court or arbitrator deems enforceable, then such court or arbitrator shall reduce the time period or scope to the maximum time period or scope permitted by law.
11. TAXES.
All amounts paid under this Agreement (including without limitation Base Salary) shall be reduced by all applicable state and federal tax withholdings and any other withholdings required by any applicable jurisdiction.
12. GOVERNING LAW.
The validity, interpretation, enforceability, and performance of this Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, without regard to New Jersey conflict of laws principles.
13. INTERPRETATION.
This Agreement shall be construed as a whole, according to its fair meaning, and not in favor of or against any party. Sections and section headings contained in this Agreement are for reference purposes only, and shall not affect in any manner the meaning or interpretation of this Agreement. Whenever the context requires, references to the singular shall include the plural and the plural the singular.
14. OBLIGATIONS SURVIVE TERMINATION OF EMPLOYMENT.
The parties agree that any and all of the Employee's and the Company's obligations under this agreement, shall survive the termination of employment and the termination of this Agreement.
15. AUTHORITY.
Each party represents and warrants that such party has the right, power and authority to enter into and execute this Agreement and to perform and discharge all of the obligations hereunder; and that this Agreement constitutes the valid and legally binding agreement and obligation of such party and is enforceable in accordance with its terms.
16. ENTIRE AGREEMENT.
This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior or contemporaneous representations, discussions, proposals, negotiations, conditions, communications and agreements, whether written or oral, between the parties relating to the subject matter hereof and all past courses of dealing or industry custom. Employee acknowledges Employee has had the opportunity to consult legal counsel concerning this Agreement, that Employee has read and understands the Agreement, that Employee is fully aware of its legal effect, and that Employee has entered into it freely based on Employee's own judgment and not on any representations or promises other than those contained in this Agreement.
In Witness Whereof, the parties have duly executed this Agreement as of the date first written above.
GLOWPOINT, INC.
/s/ David C. Trachtenberg /s/ Stuart Gold ------------------------- --------------- David C. Trachtenberg Stuart Gold President and CEO |
EXHIBIT 10.43
GLOWPOINT, INC.
Grantee's Name and Address: Joseph Laezza
Glowpoint, Inc.
225 Long Avenue
Hillside, NJ 07205
|
You have been granted shares of Common Stock of the Company for your service as Vice President, Operations of the Company, subject to the terms and conditions of this Notice of Restricted Stock Award (the "Notice") and the Restricted Stock Award Agreement (the "Agreement") attached hereto, as follows (the "Award"). Defined terms used in this Notice but not defined herein shall have the same meanings given in the Agreement.
Award Number RS-7 Date of Award March 29, 2004 Vesting Commencement Date March 29, 2004 Total Number of Shares of Common Stock Awarded 55,000 shares Aggregate Current Fair Market Value of Shares $106,150 |
Subject to Grantee's maintenance of his status as Vice President, Operations and other limitations set forth in this Notice and the Agreement, the Shares will "vest" in accordance with the following schedule:
One-Third of the Total Number of Shares of Common Stock Awarded shall vest on each of the three anniversaries of the Vesting Commencement Date thereafter.
Except as set forth in Sections 2.2(b) and 3.3 of the Employment Agreement dated as of the date hereof between the Company and the Grantee (the "Employment Agreement"), vesting shall cease upon the date of termination of the Grantee's status as Vice President, Operations for any reason, including death or disability. For purposes of this Notice and the Agreement, the term "vest" shall mean, with respect to any Shares, that such Shares shall remain subject to other restrictions on transfer set forth in the Agreement. Shares that have not vested are deemed "Restricted Shares." If the Grantee would become vested in a fraction of a Restricted Share,
such Restricted Share shall not vest until the Grantee becomes vested in the entire Share. Notwithstanding the foregoing, the Shares subject to this Notice will be subject to the provisions of the Agreement relating to the release of forfeiture provisions in the event of a Corporate Transaction or Change of Control.
IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice and agree that the Award is to be governed by the terms and conditions of this Notice and the Agreement.
GLOWPOINT, INC.
By: /s/ David C. Trachtenberg
--------------------------
Title: Chief Executive Officer and President
--------------------------------------
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THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SHALL VEST, IF AT ALL, ONLY DURING THE PERIOD OF GRANTEE'S STATUS AS VICE PRESIDENT, OPERATIONS (NOT THROUGH THE ACT OF BEING GRANTED THIS AWARD OR ACQUIRING SHARES HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS NOTICE OR THE AGREEMENT SHALL CONFER UPON THE GRANTEE ANY RIGHT WITH RESPECT TO CONTINUATION OF GRANTEE'S STATUS AS VICE PRESIDENT, OPERATIONS NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE GRANTEE'S EMPLOYMENT PURSUANT TO THE TERMS OF THE EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND THE GRANTEE, DATED THE DATE HEREOF.
The Grantee acknowledges receipt of a copy of the Agreement and represents that he is familiar with the terms and provisions thereof, and hereby accepts the Award subject to all of the terms and provisions hereof and thereof. The Grantee has reviewed this Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Notice and fully understands all provisions of this Notice and the Agreement. The Grantee hereby agrees that all disputes arising out of or relating to this Notice and the Agreement shall be resolved in accordance with Section 16 of the Agreement. The Grantee further agrees to notify the Company upon any change in the residence address indicated in this Notice.
GLOWPOINT, INC.
1. Issuance of Shares. Glowpoint, Inc., a Delaware corporation (the "Company"), hereby issues to the Grantee (the "Grantee") named in the Notice of Restricted Stock Award (the "Notice"), the Total Number of Shares of Common Stock Awarded set forth in the Notice (the "Shares"), subject to the Notice and this Restricted Stock Award Agreement (this "Agreement"). All Shares issued hereunder will be deemed issued to the Grantee as fully paid and nonassessable shares, and the Grantee will have the right to vote the Shares at meetings of the Company's stockholders. The Company shall pay any applicable stock transfer taxes imposed upon the issuance of the Shares to the Grantee hereunder. Defined terms used in this Agreement but not defined herein shall have the same meanings given in the Notice.
2. Consideration. The Shares have been issued to the Grantee in consideration for his service to the Company as Vice President, Operations, which consideration has a value of $____ per share, the closing price of the Company's Common Stock on the Nasdaq National Market on the Date of Award. The Grantee agrees to pay upon receipt of the Notice the par value of $.0001 for each Share issued in the total amount of $5.50.
3. Transfer Restrictions. The Shares issued to the Grantee hereunder may not be sold, transferred by gift, pledged, hypothecated, or otherwise transferred or disposed of by the Grantee prior to the date when the Shares become vested pursuant to the Vesting Schedule set forth in the Notice. Any attempt to transfer Restricted Shares in violation of this Section 3 will be null and void and will be disregarded.
4. Escrow of Stock. For purposes of facilitating the enforcement of the provisions of this Agreement, the Grantee agrees, immediately upon receipt of the certificate(s) for the Restricted Shares, to deliver such certificate(s), together with an Assignment Separate from Certificate in the form attached hereto as Exhibit A, executed in blank by the Grantee and the Grantee's spouse (if required for transfer) with respect to each such stock certificate, to the Secretary or Assistant Secretary of the Company, or their designee, to hold in escrow for so long as such Restricted Shares have not vested pursuant to the Vesting Schedule set forth in the Notice, with the authority to take all such actions and to effectuate all such transfers and/or releases as may be necessary or appropriate to accomplish the objectives of this Agreement in accordance with the terms hereof. The Grantee hereby acknowledges that the appointment of the Secretary or Assistant Secretary of the Company (or their designee) as the escrow holder hereunder with the stated authorities is a material inducement to the Company to make this Agreement and that such appointment is coupled with an interest and is accordingly irrevocable. The Grantee agrees that such escrow holder shall not be liable to any party hereto (or to any other party) for any actions or omissions unless such escrow holder is grossly negligent or engages in willful misconduct relative thereto. The escrow holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may resign at any time. Upon the vesting of Restricted Shares, the escrow holder will, without further order or instruction, transmit to the
Grantee the certificate evidencing such Shares, subject, however, to satisfaction of any withholding obligations provided in Section 6 below.
5. Distributions. The Company shall disburse to the Grantee all regular cash dividends with respect to the Shares and Additional Securities (whether vested or not), less any applicable withholding obligations.
6. Section 83(b) Election and Withholding of Taxes. The Grantee shall provide
the Administrator with a copy of any timely election made pursuant to Section
83(b) of the Internal Revenue Code or similar provision of state law
(collectively, an "83(b) Election"), a form of which is attached hereto as
Exhibit B. If the Grantee makes a timely 83(b) Election, the Grantee shall
immediately pay the Company the amount necessary to satisfy any applicable
foreign, federal, state, and local income and employment tax withholding
obligations. If the Grantee does not make a timely 83(b) Election, the Grantee
shall, as Restricted Shares shall vest or at the time withholding is otherwise
required by any applicable law, pay the Company the amount necessary to satisfy
any applicable foreign, federal, state, and local income and employment tax
withholding obligations. The Grantee hereby represents that he understands (a)
the contents and requirements of the 83(b) Election, (b) the application of
Section 83(b) to the receipt of the Shares by the Grantee pursuant to this
Agreement, (c) the nature of the election to be made by the Grantee under
Section 83(b), and (d) the effect and requirements of the 83(b) Election under
relevant state and local tax laws. The Grantee further represents that if he
intends to file an election pursuant to Section 83(b) with the Internal Revenue
Service within thirty (30) days following the date of this Agreement, he will
submit a copy of such election to the Company and with his federal tax return
for the calendar year in which the date of this Agreement falls.
7. Additional Securities. Any securities or cash received (other than a regular cash dividend) as the result of ownership of the Restricted Shares (the "Additional Securities"), including, but not by way of limitation, warrants, options and securities received as a stock dividend or stock split, or as a result of a recapitalization or reorganization or other similar change in the Company's capital structure, shall be retained in escrow in the same manner and subject to the same conditions and restrictions as the Restricted Shares with respect to which they were issued, including, without limitation, the Vesting Schedule set forth in the Notice. The Grantee shall be entitled to direct the Company to exercise any warrant or option received as Additional Securities upon supplying the funds necessary to do so, in which event the securities so purchased shall constitute Additional Securities, but the Grantee may not direct the Company to sell any such warrant or option. If Additional Securities consist of a convertible security, the Grantee may exercise any conversion right, and any securities so acquired shall constitute Additional Securities. In the event of any change in certificates evidencing the Shares or the Additional Securities by reason of any recapitalization, reorganization or other transaction that results in the creation of Additional Securities, the escrow holder is authorized to deliver to the issuer the certificates evidencing the Shares or the Additional Securities in exchange for the certificates of the replacement securities.
8. Stop-Transfer Notices. In order to ensure compliance with the restrictions on transfer set forth in this Agreement or the Notice, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
9. Refusal to Transfer. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.
10. Restrictive Legends. Grantee understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR GLOWPOINT, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
11. Lock-Up Agreement.
(a) Agreement. Grantee, if requested by the Company and the lead underwriter of any public offering of the Common Stock or other securities of the Company (the "Lead Underwriter"), hereby irrevocably agrees not to sell, contract to sell, grant any option to purchase, transfer the economic risk of ownership in, make any short sale of, pledge or otherwise transfer or dispose of any interest in any Common Stock or any securities convertible into or exchangeable or exercisable for or any other rights to purchase or acquire Common Stock (except Common Stock included in such public offering or acquired on the public market after such offering) during the 180-day period following the effective date of a registration statement of the Company filed under the Securities Act of 1933, as amended, or such shorter period of time as the Lead Underwriter shall specify. Grantee further agrees to sign such documents as may be requested by the Lead Underwriter to effect the foregoing and agrees that the Company may impose stop-transfer instructions with respect to such Common Stock subject until the end of such period. The Company and Grantee acknowledge that each Lead Underwriter of a public offering of the Company's stock, during the period of such offering and for the 180-day period thereafter, is an intended beneficiary of this Section 11.
(b) No Amendment Without Consent of Underwriter. During the period from
identification as a Lead Underwriter in connection with any public offering of
the Company's Common Stock until the earlier of (i) the expiration of the
lock-up period specified in Section 11(a) in connection with such offering or
(ii) the abandonment of such offering by the
Company and the Lead Underwriter, the provisions of this Section 11 may not be amended or waived except with the consent of the Lead Underwriter.
12. Registration of the Shares. If at any time the Company proposes to file a registration statement under the Securities Act with respect to an underwritten offering of Common Stock (except on Form S-4 or Form S-8 or any successor forms thereto), for its own account, then the Company shall give written notice of such proposed filing to the Grantee at least 15 days in advance of the anticipated filing date (the "Piggyback Notice"). The Piggyback Notice shall offer the Grantee the opportunity to register such amount of Shares as each such holder may request (a "Piggyback Registration"), subject in all events to the agreement of the underwriter or underwriters of the offering contemplated by such registration statement that such Shares can be included in such registration statement without adversely affecting such offering. Any reduction in the number of securities to be so offered shall be (i) first, pro-rata among all security holders who are exercising "piggyback" registration rights, based on the number of registrable securities originally proposed to be sold by each of them, and (ii) second, pro-rata among all security holders who are exercising "demand" registration rights pursuant to a registration rights agreement with the Company, based on the number of registrable securities originally proposed to be sold by each of them.
13. Grantee's Representations. In the event the Shares issuable pursuant to this Agreement have not been registered under the Securities Act of 1933, as amended, at the time of initial issuance to the Grantee, the Grantee shall, if required by the Company, concurrently with the receipt of the Shares, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit C.
14. Entire Agreement: Governing Law. The Notice and this Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Grantee with respect to the subject matter hereof, and may not be modified adversely to the Grantee's interest except by means of a writing signed by the Company and the Grantee. These agreements are to be construed in accordance with and governed by the internal laws of the State of New York without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of New York to the rights and duties of the parties. Should any provision of the Notice or this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.
15. Headings. The captions used in this Agreement are inserted for convenience and shall not be deemed a part of this Agreement for construction or interpretation.
16. Dispute Resolution. The provisions of this Section 16 shall be the exclusive means of resolving disputes arising out of or relating to the Notice and this Agreement. The Company, the Grantee, and the Grantee's assignees (the "parties") shall attempt in good faith to resolve any disputes arising out of or relating to the Notice and this Agreement by negotiation between individuals who have authority to settle the controversy. Negotiations shall be commenced by either party by notice of a written statement of the party's position and the name and title of the individual who will represent the party. Within thirty (30) days of the written notification, the
parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to resolve the dispute. If the dispute has not been resolved by negotiation, the parties agree that any suit, action, or proceeding arising out of or relating to the Notice or this Agreement shall be brought in the United States District Court for the Southern District of New York (or should such court lack jurisdiction to hear such action, suit or proceeding, in a New York state court in the County of New York) and that the parties shall submit to the jurisdiction of such court. The parties irrevocably waive, to the fullest extent permitted by law, any objection the party may have to the laying of venue for any such suit, action or proceeding brought in such court. THE PARTIES ALSO EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING. If any one or more provisions of this Section 16 shall for any reason be held invalid or unenforceable, it is the specific intent of the parties that such provisions shall be modified to the minimum extent necessary to make it or its application valid and enforceable.
17. Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail (if the parties are within the United States) or upon deposit for delivery by an internationally recognized express mail courier service (for international delivery of notice), with postage and fees prepaid, addressed to the other party at its address as shown beneath its signature in the Notice, or to such other address as such party may designate in writing from time to time to the other party.
18. Corporate Transactions/Changes in Control
(a) Acceleration of Award Upon Corporate Transaction. Subject to Section 2.2(b) of the Employment Agreement, in the event of any Corporate Transaction, the Award shall automatically become fully vested and exercisable and be released from any restrictions on transfer and forfeiture rights, immediately prior to the specified effective date of such Corporate Transaction, for all of the Shares at the time represented by the Award.
(b) Acceleration of Award Upon Change in Control. Subject to Section 2.2(b) of the Employment Agreement, following a Change in Control, the Award shall automatically become fully vested and exercisable and be released from any restrictions on transfer and repurchase or forfeiture rights, immediately upon the consummation of such Change in Control.
19. Definitions. As used herein, the following definitions shall apply:
(a) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
(b) "Board" means the Board of Directors of the Company.
(c) "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.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Common Stock" means the common stock of the Company.
(f) "Company" means Glowpoint, Inc., a Delaware corporation.
(g) "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.
(h) "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).
(i) "Director" means a member of the Board.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(k) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code.
(l) "Share" means a share of the Common Stock.
(m) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code.
EXHIBIT A
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
[PLEASE SIGN THIS DOCUMENT BUT DO NOT DATE IT. THE DATE AND INFORMATION OF THE TRANSFEREE WILL BE COMPLETED IF AND WHEN THE SHARES ARE ASSIGNED.]
FOR VALUE RECEIVED, ____________________________ hereby sells, assigns and transfers unto _______________________, __________________ (____) shares of the Common Stock of Glowpoint, Inc., a Delaware corporation (the "Company"), standing in his name on the books of, the Company represented by Certificate No. __ herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company attorney to transfer the said stock in the books of the Company with full power of substitution.
DATED: ________________
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to the Internal Revenue Code, to include in gross income for 20__ the amount of any compensation taxable in connection with the taxpayer's receipt of the property described below:
The name, address, taxpayer identification number and taxable year of the undersigned are:
TAXPAYER'S NAME:
SPOUSE'S NAME:
TAXPAYER'S SOCIAL SECURITY NO.:
SPOUSE'S SOCIAL SECURITY NO.:
TAXABLE YEAR: Calendar Year 20__
ADDRESS:
The property which is the subject of this election is __________ shares of common stock of __________________________, Inc.
The property was transferred to the undersigned on ____________, 20__.
The fair market value of the property at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) is: $_______ per share x ________ shares = $___________.
The undersigned paid $______ per share x _________ shares for the property transferred or a total of $______________.
The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The undersigned taxpayer is the person performing the services in connection with the transfer of said property.
The undersigned will file this election with the Internal Revenue Service office to which he files his annual income tax return not later than 30 days after the date of transfer of the property. A copy of the election also will be furnished to the person for whom the services were performed. Additionally, the undersigned will include a copy of the election with his income tax return for the taxable year in which the property is transferred. The undersigned understands that this election will also be effective as an election under applicable state law.
Dated: _________________________ __________________________________ Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: _________________________ __________________________________ Spouse of Taxpayer
GLOWPOINT, INC.
GRANTEE : JOSEPH LAEZZA COMPANY : GLOWPOINT, INC. SECURITY : COMMON STOCK AMOUNT : |
DATE :
In connection with the receipt of the above-listed Securities, the undersigned Grantee represents to the Company the following:
Grantee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Grantee is acquiring these Securities for investment for Grantee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act").
The Grantee is an "accredited investor" within the meaning of Rule 501 of Regulation D of the Securities and Exchange Commission, as presently in effect.
Grantee acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon among other things, the bona fide nature of Grantee's investment intent as expressed herein. In this connection, Grantee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Grantee's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. Grantee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Grantee further acknowledges and understands that the Company is under no obligation to register the Securities. Grantee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company.
Grantee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the sale of the Shares to the Grantee, the sale will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time of sale of the Securities, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above.
Grantee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Grantee understands that no assurances can be given that any such other registration exemption will be available in such event.
Grantee represents that he is a resident of the state of _________________.
Signature of Grantee:
Date: ____________, _____
EXHIBIT 10.44
GLOWPOINT, INC.
Grantee's Name and Address: Stuart Gold
Glowpoint, Inc.
225 Long Avenue
Hillside, NJ 07205
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You have been granted shares of Common Stock of the Company for your service as Vice President, Marketing of the Company, subject to the terms and conditions of this Notice of Restricted Stock Award (the "Notice") and the Restricted Stock Award Agreement (the "Agreement") attached hereto, as follows (the "Award"). Defined terms used in this Notice but not defined herein shall have the same meanings given in the Agreement.
Award Number RS-8 Date of Award March 29, 2004 Vesting Commencement Date March 29, 2004 Total Number of Shares of Common Stock Awarded 55,000 shares Aggregate Current Fair Market Value of Shares $106,150 |
Vesting Schedule:
Subject to Grantee's maintenance of his status as Vice President, Marketing and other limitations set forth in this Notice and the Agreement, the Shares will "vest" in accordance with the following schedule:
One-Third of the Total Number of Shares of Common Stock Awarded shall vest on each of the three anniversaries of the Vesting Commencement Date thereafter.
Except as set forth in Sections 2.2(b) and 3.3 of the Employment Agreement dated as of the date hereof between the Company and the Grantee (the "Employment Agreement"), vesting shall cease upon the date of termination of the Grantee's status as Vice President, Marketing for any reason, including death or disability. For purposes of this Notice and the Agreement, the
term "vest" shall mean, with respect to any Shares, that such Shares shall remain subject to other restrictions on transfer set forth in the Agreement. Shares that have not vested are deemed "Restricted Shares." If the Grantee would become vested in a fraction of a Restricted Share, such Restricted Share shall not vest until the Grantee becomes vested in the entire Share. Notwithstanding the foregoing, the Shares subject to this Notice will be subject to the provisions of the Agreement relating to the release of forfeiture provisions in the event of a Corporate Transaction or Change of Control.
IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice and agree that the Award is to be governed by the terms and conditions of this Notice and the Agreement.
GLOWPOINT, INC.
By: /s/ David C. Trachtenberg
-------------------------
Title: Chief Executive Officer and President
-------------------------------------
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THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SHALL VEST, IF AT ALL, ONLY DURING THE PERIOD OF GRANTEE'S STATUS AS VICE PRESIDENT, MARKETING (NOT THROUGH THE ACT OF BEING GRANTED THIS AWARD OR ACQUIRING SHARES HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS NOTICE OR THE AGREEMENT SHALL CONFER UPON THE GRANTEE ANY RIGHT WITH RESPECT TO CONTINUATION OF GRANTEE'S STATUS AS VICE PRESIDENT, MARKETING NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE GRANTEE'S EMPLOYMENT PURSUANT TO THE TERMS OF THE EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND THE GRANTEE, DATED THE DATE HEREOF.
The Grantee acknowledges receipt of a copy of the Agreement and represents that he is familiar with the terms and provisions thereof, and hereby accepts the Award subject to all of the terms and provisions hereof and thereof. The Grantee has reviewed this Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Notice and fully understands all provisions of this Notice and the Agreement. The Grantee hereby agrees that all disputes arising out of or relating to this Notice and the Agreement shall be resolved in accordance with Section 16 of the Agreement. The Grantee further agrees to notify the Company upon any change in the residence address indicated in this Notice.
GLOWPOINT, INC.
1. Issuance of Shares. Glowpoint, Inc., a Delaware corporation (the "Company"), hereby issues to the Grantee (the "Grantee") named in the Notice of Restricted Stock Award (the "Notice"), the Total Number of Shares of Common Stock Awarded set forth in the Notice (the "Shares"), subject to the Notice and this Restricted Stock Award Agreement (this "Agreement"). All Shares issued hereunder will be deemed issued to the Grantee as fully paid and nonassessable shares, and the Grantee will have the right to vote the Shares at meetings of the Company's stockholders. The Company shall pay any applicable stock transfer taxes imposed upon the issuance of the Shares to the Grantee hereunder. Defined terms used in this Agreement but not defined herein shall have the same meanings given in the Notice.
2. Consideration. The Shares have been issued to the Grantee in consideration for his service to the Company as Vice President, Marketing, which consideration has a value of $____ per share, the closing price of the Company's Common Stock on the Nasdaq National Market on the Date of Award. The Grantee agrees to pay upon receipt of the Notice the par value of $.0001 for each Share issued in the total amount of $5.50.
3. Transfer Restrictions. The Shares issued to the Grantee hereunder may not be sold, transferred by gift, pledged, hypothecated, or otherwise transferred or disposed of by the Grantee prior to the date when the Shares become vested pursuant to the Vesting Schedule set forth in the Notice. Any attempt to transfer Restricted Shares in violation of this Section 3 will be null and void and will be disregarded.
4. Escrow of Stock. For purposes of facilitating the enforcement of the provisions of this Agreement, the Grantee agrees, immediately upon receipt of the certificate(s) for the Restricted Shares, to deliver such certificate(s), together with an Assignment Separate from Certificate in the form attached hereto as Exhibit A, executed in blank by the Grantee and the Grantee's spouse (if required for transfer) with respect to each such stock certificate, to the Secretary or Assistant Secretary of the Company, or their designee, to hold in escrow for so long as such Restricted Shares have not vested pursuant to the Vesting Schedule set forth in the Notice, with the authority to take all such actions and to effectuate all such transfers and/or releases as may be necessary or appropriate to accomplish the objectives of this Agreement in accordance with the terms hereof. The Grantee hereby acknowledges that the appointment of the Secretary or Assistant Secretary of the Company (or their designee) as the escrow holder hereunder with the stated authorities is a material inducement to the Company to make this Agreement and that such appointment is coupled with an interest and is accordingly irrevocable. The Grantee agrees that such escrow holder shall not be liable to any party hereto (or to any other party) for any actions or omissions unless such escrow holder is grossly negligent or engages in willful misconduct relative thereto. The escrow holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may resign at any time. Upon the vesting of Restricted Shares, the escrow holder will, without further order or instruction, transmit to the
Grantee the certificate evidencing such Shares, subject, however, to satisfaction of any withholding obligations provided in Section 6 below.
5. Distributions. The Company shall disburse to the Grantee all regular cash dividends with respect to the Shares and Additional Securities (whether vested or not), less any applicable withholding obligations.
6. Section 83(b) Election and Withholding of Taxes. The Grantee shall provide
the Administrator with a copy of any timely election made pursuant to Section
83(b) of the Internal Revenue Code or similar provision of state law
(collectively, an "83(b) Election"), a form of which is attached hereto as
Exhibit B. If the Grantee makes a timely 83(b) Election, the Grantee shall
immediately pay the Company the amount necessary to satisfy any applicable
foreign, federal, state, and local income and employment tax withholding
obligations. If the Grantee does not make a timely 83(b) Election, the Grantee
shall, as Restricted Shares shall vest or at the time withholding is otherwise
required by any applicable law, pay the Company the amount necessary to satisfy
any applicable foreign, federal, state, and local income and employment tax
withholding obligations. The Grantee hereby represents that he understands (a)
the contents and requirements of the 83(b) Election, (b) the application of
Section 83(b) to the receipt of the Shares by the Grantee pursuant to this
Agreement, (c) the nature of the election to be made by the Grantee under
Section 83(b), and (d) the effect and requirements of the 83(b) Election under
relevant state and local tax laws. The Grantee further represents that if he
intends to file an election pursuant to Section 83(b) with the Internal Revenue
Service within thirty (30) days following the date of this Agreement, he will
submit a copy of such election to the Company and with his federal tax return
for the calendar year in which the date of this Agreement falls.
7. Additional Securities. Any securities or cash received (other than a regular cash dividend) as the result of ownership of the Restricted Shares (the "Additional Securities"), including, but not by way of limitation, warrants, options and securities received as a stock dividend or stock split, or as a result of a recapitalization or reorganization or other similar change in the Company's capital structure, shall be retained in escrow in the same manner and subject to the same conditions and restrictions as the Restricted Shares with respect to which they were issued, including, without limitation, the Vesting Schedule set forth in the Notice. The Grantee shall be entitled to direct the Company to exercise any warrant or option received as Additional Securities upon supplying the funds necessary to do so, in which event the securities so purchased shall constitute Additional Securities, but the Grantee may not direct the Company to sell any such warrant or option. If Additional Securities consist of a convertible security, the Grantee may exercise any conversion right, and any securities so acquired shall constitute Additional Securities. In the event of any change in certificates evidencing the Shares or the Additional Securities by reason of any recapitalization, reorganization or other transaction that results in the creation of Additional Securities, the escrow holder is authorized to deliver to the issuer the certificates evidencing the Shares or the Additional Securities in exchange for the certificates of the replacement securities.
8. Stop-Transfer Notices. In order to ensure compliance with the restrictions on transfer set forth in this Agreement or the Notice, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
9. Refusal to Transfer. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.
10. Restrictive Legends. Grantee understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR GLOWPOINT, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
11. Lock-Up Agreement.
(a) Agreement. Grantee, if requested by the Company and the lead underwriter of any public offering of the Common Stock or other securities of the Company (the "Lead Underwriter"), hereby irrevocably agrees not to sell, contract to sell, grant any option to purchase, transfer the economic risk of ownership in, make any short sale of, pledge or otherwise transfer or dispose of any interest in any Common Stock or any securities convertible into or exchangeable or exercisable for or any other rights to purchase or acquire Common Stock (except Common Stock included in such public offering or acquired on the public market after such offering) during the 180-day period following the effective date of a registration statement of the Company filed under the Securities Act of 1933, as amended, or such shorter period of time as the Lead Underwriter shall specify. Grantee further agrees to sign such documents as may be requested by the Lead Underwriter to effect the foregoing and agrees that the Company may impose stop-transfer instructions with respect to such Common Stock subject until the end of such period. The Company and Grantee acknowledge that each Lead Underwriter of a public offering of the Company's stock, during the period of such offering and for the 180-day period thereafter, is an intended beneficiary of this Section 11.
(b) No Amendment Without Consent of Underwriter. During the period from
identification as a Lead Underwriter in connection with any public offering of
the Company's Common Stock until the earlier of (i) the expiration of the
lock-up period specified in Section 11(a) in connection with such offering or
(ii) the abandonment of such offering by the
Company and the Lead Underwriter, the provisions of this Section 11 may not be amended or waived except with the consent of the Lead Underwriter.
12. Registration of the Shares. If at any time the Company proposes to file a registration statement under the Securities Act with respect to an underwritten offering of Common Stock (except on Form S-4 or Form S-8 or any successor forms thereto), for its own account, then the Company shall give written notice of such proposed filing to the Grantee at least 15 days in advance of the anticipated filing date (the "Piggyback Notice"). The Piggyback Notice shall offer the Grantee the opportunity to register such amount of Shares as each such holder may request (a "Piggyback Registration"), subject in all events to the agreement of the underwriter or underwriters of the offering contemplated by such registration statement that such Shares can be included in such registration statement without adversely affecting such offering. Any reduction in the number of securities to be so offered shall be (i) first, pro-rata among all security holders who are exercising "piggyback" registration rights, based on the number of registrable securities originally proposed to be sold by each of them, and (ii) second, pro-rata among all security holders who are exercising "demand" registration rights pursuant to a registration rights agreement with the Company, based on the number of registrable securities originally proposed to be sold by each of them.
13. Grantee's Representations. In the event the Shares issuable pursuant to this Agreement have not been registered under the Securities Act of 1933, as amended, at the time of initial issuance to the Grantee, the Grantee shall, if required by the Company, concurrently with the receipt of the Shares, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit C.
14. Entire Agreement: Governing Law. The Notice and this Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Grantee with respect to the subject matter hereof, and may not be modified adversely to the Grantee's interest except by means of a writing signed by the Company and the Grantee. These agreements are to be construed in accordance with and governed by the internal laws of the State of New York without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of New York to the rights and duties of the parties. Should any provision of the Notice or this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.
15. Headings. The captions used in this Agreement are inserted for convenience and shall not be deemed a part of this Agreement for construction or interpretation.
16. Dispute Resolution. The provisions of this Section 16 shall be the exclusive means of resolving disputes arising out of or relating to the Notice and this Agreement. The Company, the Grantee, and the Grantee's assignees (the "parties") shall attempt in good faith to resolve any disputes arising out of or relating to the Notice and this Agreement by negotiation between individuals who have authority to settle the controversy. Negotiations shall be commenced by either party by notice of a written statement of the party's position and the name and title of the individual who will represent the party. Within thirty (30) days of the written notification, the
parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to resolve the dispute. If the dispute has not been resolved by negotiation, the parties agree that any suit, action, or proceeding arising out of or relating to the Notice or this Agreement shall be brought in the United States District Court for the Southern District of New York (or should such court lack jurisdiction to hear such action, suit or proceeding, in a New York state court in the County of New York) and that the parties shall submit to the jurisdiction of such court. The parties irrevocably waive, to the fullest extent permitted by law, any objection the party may have to the laying of venue for any such suit, action or proceeding brought in such court. THE PARTIES ALSO EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING. If any one or more provisions of this Section 16 shall for any reason be held invalid or unenforceable, it is the specific intent of the parties that such provisions shall be modified to the minimum extent necessary to make it or its application valid and enforceable.
17. Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail (if the parties are within the United States) or upon deposit for delivery by an internationally recognized express mail courier service (for international delivery of notice), with postage and fees prepaid, addressed to the other party at its address as shown beneath its signature in the Notice, or to such other address as such party may designate in writing from time to time to the other party.
18. Corporate Transactions/Changes in Control
(a) Acceleration of Award Upon Corporate Transaction. Subject to Section 2.2(b) of the Employment Agreement, in the event of any Corporate Transaction, the Award shall automatically become fully vested and exercisable and be released from any restrictions on transfer and forfeiture rights, immediately prior to the specified effective date of such Corporate Transaction, for all of the Shares at the time represented by the Award.
(b) Acceleration of Award Upon Change in Control. Subject to Section 2.2(b) of the Employment Agreement, following a Change in Control, the Award shall automatically become fully vested and exercisable and be released from any restrictions on transfer and repurchase or forfeiture rights, immediately upon the consummation of such Change in Control.
19. Definitions. As used herein, the following definitions shall apply:
(a) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
(b) "Board" means the Board of Directors of the Company.
(c) "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.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Common Stock" means the common stock of the Company.
(f) "Company" means Glowpoint, Inc., a Delaware corporation.
(g) "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.
(h) "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).
(i) "Director" means a member of the Board.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(k) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code.
(l) "Share" means a share of the Common Stock.
(m) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code.
EXHIBIT A
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
[PLEASE SIGN THIS DOCUMENT BUT DO NOT DATE IT. THE DATE AND INFORMATION OF THE TRANSFEREE WILL BE COMPLETED IF AND WHEN THE SHARES ARE ASSIGNED.]
FOR VALUE RECEIVED, ____________________________ hereby sells, assigns and transfers unto _______________________, __________________ (____) shares of the Common Stock of Glowpoint, Inc., a Delaware corporation (the "Company"), standing in his name on the books of, the Company represented by Certificate No. __ herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company attorney to transfer the said stock in the books of the Company with full power of substitution.
DATED: ________________
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to the Internal Revenue Code, to include in gross income for 20__ the amount of any compensation taxable in connection with the taxpayer's receipt of the property described below:
The name, address, taxpayer identification number and taxable year of the undersigned are:
TAXPAYER'S NAME:
SPOUSE'S NAME:
TAXPAYER'S SOCIAL SECURITY NO.:
SPOUSE'S SOCIAL SECURITY NO.:
TAXABLE YEAR: Calendar Year 20__
ADDRESS:
The property which is the subject of this election is __________ shares of common stock of __________________________, Inc.
The property was transferred to the undersigned on ____________, 20__.
The fair market value of the property at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) is: $_______ per share x ________ shares = $___________.
The undersigned paid $______ per share x _________ shares for the property transferred or a total of $______________.
The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The undersigned taxpayer is the person performing the services in connection with the transfer of said property.
The undersigned will file this election with the Internal Revenue Service office to which he files his annual income tax return not later than 30 days after the date of transfer of the property. A copy of the election also will be furnished to the person for whom the services were performed. Additionally, the undersigned will include a copy of the election with his income tax return for the taxable year in which the property is transferred. The undersigned understands that this election will also be effective as an election under applicable state law.
Dated: _________________________ __________________________________ Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: _________________________ __________________________________ Spouse of Taxpayer
GLOWPOINT, INC.
GRANTEE : STUART GOLD COMPANY : GLOWPOINT, INC. SECURITY : COMMON STOCK AMOUNT : _________________ DATE : _________________ |
In connection with the receipt of the above-listed Securities, the undersigned Grantee represents to the Company the following:
Grantee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Grantee is acquiring these Securities for investment for Grantee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act").
The Grantee is an "accredited investor" within the meaning of Rule 501 of Regulation D of the Securities and Exchange Commission, as presently in effect.
Grantee acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon among other things, the bona fide nature of Grantee's investment intent as expressed herein. In this connection, Grantee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Grantee's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. Grantee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Grantee further acknowledges and understands that the Company is under no obligation to register the Securities. Grantee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company.
Grantee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the sale of the Shares to the Grantee, the sale will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time of sale of the Securities, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above.
Grantee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Grantee understands that no assurances can be given that any such other registration exemption will be available in such event.
Grantee represents that he is a resident of the state of _________________.
Signature of Grantee:
Date: _____________, _____
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Glowpoint, Inc.
We hereby consent to the incorporation by reference in the Registration Statements of Glowpoint, Inc. on Form S-3 (Nos. 333-103227, 333-74484, 333-69430, 333-69432, 333-66310, 333-63068) and Form S-8 (Nos. 333-90920, 333-66948, 333-96321, 333-62135, 333-39501, 333-30389, 333-20617) of our report dated February 24, 2004, relating to the consolidated financial statements, which appear in this Annual Report on Form 10-K.
BDO Seidman, LLP
Boston, Massachusetts
March 30, 2004
Exhibit 31.1
CERTIFICATION
I, David C. Trachtenberg, Chief Executive Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Glowpoint, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
o designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
o evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
o disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 30, 2004
By: /s/ DAVID C. TRACHTENBERG
-------------------------
David C. Trachtenberg
Chief Executive Officer and President
|
Exhibit 31.2
CERTIFICATION
I, Christopher A. Zigmont, Chief Financial Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Glowpoint, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
o designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
o evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
o disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 30, 2004
By: /s/ CHRISTOPHER A. ZIGMONT
---------------------------
Christopher A. Zigmont
Chief Financial Officer and Executive
Vice President of Finance
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Exhibit 32.1
CERTIFICATION
In connection with the periodic report of Glowpoint, Inc. (the "Company") on Form 10-K for the period ended December 31, 2003 as filed with the Securities and Exchange Commission (the "Report"), I, David C. Trachtenberg, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
This Certification has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission.
Date: March 30, 2004.
/s/ DAVID C. TRACHTENBERG
-----------------------------------------
David C. Trachtenberg
Chief Executive Officer and President
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Exhibit 32.2
CERTIFICATION
In connection with the periodic report of Glowpoint, Inc. (the "Company") on Form 10-K for the period ended December 31, 2003 as filed with the Securities and Exchange Commission (the "Report"), I, Christopher A. Zigmont, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
This Certification has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission.
Date: March 30, 2004.
/s/ CHRISTOPHER A. ZIGMONT
-----------------------------------------
Christopher A. Zigmont
Chief Financial Officer and Executive
Vice President of Finance
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