-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T2A1GOJYLFkKA9NWvlnhv5XbPnZ1EkzfF7igpvVcPCGNpg3oLoaTdxGYMIKVoLwu IZ+jOf1zn3cSpcU031taTA== 0000891554-01-504216.txt : 20010816 0000891554-01-504216.hdr.sgml : 20010816 ACCESSION NUMBER: 0000891554-01-504216 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WIRE ONE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000746210 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 770312442 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25940 FILM NUMBER: 1714066 BUSINESS ADDRESS: STREET 1: 225 LONG AVENUE CITY: HILLSIDE STATE: NJ ZIP: 07205 BUSINESS PHONE: 8054828277 MAIL ADDRESS: STREET 1: 225 LONG AVENUE CITY: HILLSIDE STATE: NJ ZIP: 07205 FORMER COMPANY: FORMER CONFORMED NAME: VIEW TECH INC DATE OF NAME CHANGE: 19950418 FORMER COMPANY: FORMER CONFORMED NAME: VIEWTECH INC DATE OF NAME CHANGE: 19950418 10-Q 1 d26455_10q.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2001. or /_/ Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number: 0-25940 WIRE ONE TECHNOLOGIES, INC. (Exact Name of registrant as Specified in its Charter) Delaware 77-0312442 (State or other Jurisdiction of (I.R.S. Employer Number) Incorporation or Organization) 225 Long Avenue, Hillside, New Jersey 07205 (Address of Principal Executive Offices) 973-282-2000 (Issuer's Telephone Number, Including Area Code) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] The number of shares outstanding of the registrant's Common Stock as of August 10, 2001 was 21,444,104. WIRE ONE TECHNOLOGIES, INC Index PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements * Consolidated Balance Sheets June 30, 2001 and December 31, 2000 1 Consolidated Statements of Operations For the Six Months and Three Months Ended June 30, 2001 and 2000 2 Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2001 and 2000 3 Notes to Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 3. Quantitative and Qualitative Disclosures About Market Risk 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings 10 Item 2. Changes in Securities and Use of Proceeds 10 Item 3. Defaults Upon Senior Securities 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 5. Other Information 10 Item 6. Exhibits and Reports on Form 8-K 10 Signatures 11 * The Balance Sheet at December 31, 2000 has been taken from the audited financial statements at that date. All other financial statements are unaudited. WIRE ONE TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS
June 30, December 31, 2001 2000 ---------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 983,781 $ 1,870,573 Accounts receivable-net 30,411,374 27,614,169 Inventory 10,613,891 10,751,344 Deferred income taxes 200,000 200,000 Other current assets 1,772,187 1,315,432 ------------ ------------ Total current assets 43,981,233 41,751,518 Furniture, equipment and leasehold improvements-net 9,394,660 6,726,562 Goodwill-net 37,439,341 36,065,945 Other assets 373,826 341,813 ------------ ------------ Total assets $ 91,189,060 $ 84,885,838 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank loan payable $ 6,878,433 $ -- Accounts payable 12,811,257 11,804,298 Accrued expenses 1,761,427 2,568,627 Deferred revenue 7,810,096 7,287,690 Customer deposits 112,958 68,150 Current portion of capital lease obligations 65,063 101,643 ------------ ------------ Total current liabilities 29,439,234 21,830,408 ------------ ------------ Noncurrent liabilities: Bank loan payable -- 3,000,000 Capital lease obligations, less current portion -- 26,067 ------------ ------------ Total noncurrent liabilities -- 3,026,067 ------------ ------------ Total liabilities 29,439,234 24,856,475 Commitments and Contingencies Preferred stock, $.0001 par value; 5,000,000 shares authorized, Series A mandatorily redeemable convertible preferred stock, no shares outstanding -- 10,371,096 Stockholders' Equity: Common stock, $.0001 par value; 100,000,000 authorized; 21,427,604 and 17,299,725 shares outstanding, respectively 2,140 1,730 Additional paid-in capital 86,772,047 66,436,353 Accumulated deficit (25,024,361) (16,779,816) ------------ ------------ Total stockholders' equity 61,749,826 49,658,267 ------------ ------------ ------------ ------------ Total liabilities and stockholders' equity $ 91,189,060 $ 84,885,838 ============ ============ See accompanying notes to consolidated financial statements.
WIRE ONE TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Six Months Ended June 30, Three Months Ended June 30, ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Net revenues $40,707,108 $17,110,133 $21,963,586 $11,126,626 Cost of revenues 27,810,639 11,286,532 14,860,514 7,440,321 ------------ ------------ ------------ ------------ Gross margin 12,896,469 5,823,601 7,103,072 3,686,305 Operating expenses: Selling 11,977,120 4,586,007 6,195,081 3,167,314 General and administrative 3,159,693 1,350,094 1,832,571 766,413 Amortization of goodwill 1,270,722 268,783 642,526 268,783 ------------ ------------ ------------ ------------ Total operating expenses 16,407,535 6,204,884 8,670,178 4,202,510 ------------ ------------ ------------ ------------ Loss from operations (3,511,066) (381,283) (1,567,106) (516,205) ------------ ------------ ------------ ------------ Other (income) expense: Amortization of deferred financing costs 21,761 325,355 12,379 313,113 Interest income (40,052) (144,935) (24,112) (114,987) Interest expense 317,866 53,484 227,359 30,001 ------------ ------------ ------------ ------------ Total other expenses, net 299,575 233,904 215,626 228,127 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Loss before income taxes (3,810,641) (615,187) (1,782,732) (744,332) Income tax benefit -- -- -- (53,400) ------------ ------------ ------------ ------------ Net loss (3,810,641) (615,187) (1,782,732) (690,932) Deemed dividends on series A convertible preferred stock 4,433,904 8,179,555 4,039,940 8,179,555 ------------ ------------ ------------ ------------ Net loss attributable to common stockholders $(8,244,545) $(8,794,742) $(5,822,672) $(8,870,487) ============ ============ ============ ============ Net loss per share: Basic $(0.46) $(1.03) $(0.32) $(0.76) ============ ============ ============ ============ Diluted $(0.46) $(1.03) $(0.32) $(0.76) ============ ============ ============ ============ Weighted average number of diluted common shares: Basic 17,752,240 8,501,608 18,176,663 11,717,591 ============ ============ ============ ============ Diluted 17,752,240 8,501,608 18,176,663 11,717,591 ============ ============ ============ ============
See accompanying notes to consolidated financial statements. 2 WIRE ONE TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, ---------------------------- 2001 2000 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (3,810,641) $ (615,187) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,947,963 939,384 Non cash compensation 217,726 86,668 Increase (decrease) in cash attributable to changes in assets and liabilities net of activity of acquired businesses: Accounts receivable (2,797,205) (1,398,171) Inventory 137,453 (946,558) Other current assets (456,755) 190,962 Other assets (121,821) 7,650 Accounts payable 1,006,959 (2,084,884) Accrued expenses (807,200) (216,377) Income taxes payable -- (124,372) Deferred revenue 522,406 631,515 Customer deposits 44,808 205,367 ------------ ------------ Net cash used in operating activities (3,116,307) (3,324,003) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of furniture, equipment and leasehold improvements (4,255,531) (1,386,685) Costs related to acquisition of businesses including cash acquired (144,118) (2,006,979) ------------ ------------ Net cash used in investing activities (4,399,649) (3,393,664) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from preferred stock offering, net -- 16,279,860 Issuance of common stock for cash assets of GeoVideo 2,500,000 -- Exercise of warrants and options, net 313,378 8,654,238 Payment of subordinated notes -- (1,500,000) Deferred financing costs -- (65,112) Proceeds from bank loans 38,099,731 3,350,000 Payments on bank loans (34,221,298) (6,426,783) Tax benefit of exercise of stock options -- 53,000 Payments on capital lease obligations (62,647) (22,825) ------------ ------------ Net cash provided by financing activities 6,629,164 20,322,378 ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (886,792) 13,604,711 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,870,573 60,019 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 983,781 $ 13,664,730 ============ ============ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 277,814 $ 53,484 ============ ============ Income taxes $ 2,274 $ 147,946 ============ ============
Non cash financing and investing activities: During the six months ended June 30, 2001 and 2000, the Company recorded non-cash deemed dividends on Series A mandatorily redeemable convertible preferred stock of $4,433,904 and $8,179,555, respectively. On June 4, 2001, the Company acquired the non-cash assets of GeoVideo Networks, Inc. for non-cash consideration of $2,500,000. During the six months ended June 30, 2001, the Company issued 3,017,143 shares of $0.0001 par value common stock in exchange for 2,115 shares of Series A mandatorily redeemable convertible preferred stock. Based on the average conversion price of $4.91 per share, the total value attributable to the common stock was $14,805,000. On May 18, 2000, the Company acquired the net assets of View Tech, Inc. in a merger transaction accounted for as a purchase for non-cash consideration of $31,339,258. See accompanying notes to consolidated financial statements. 3 WIRE ONE TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2001 Note 1 - The Business and Merger with View Tech, Inc. Wire One Technologies, Inc. ("Wire One" or the "Company") was formed by the merger of All Communications Corporation ("ACC") and View Tech, Inc. ("VTI") on May 18, 2000, with the former directors and senior management of ACC succeeding to the management of Wire One. In connection with the merger, each former shareholder of ACC received 1.65 shares of Wire One common stock for each share of ACC common stock held by such former shareholder. The transaction has been accounted for as a "reverse acquisition" using the purchase method of accounting. The reverse acquisition method resulted in ACC being recognized as the acquirer of VTI for accounting and financial reporting purposes. As a result, ACC's historical results have been carried forward and VTI's operations have been included in the financial statements commencing on the merger date. Accordingly, the 2000 results through the merger date are those of ACC only. Further, on the date of the merger, the assets and liabilities of VTI were recorded at their fair values, with the excess purchase consideration allocated to goodwill. Wire One is engaged in the business of selling, installing and servicing video and voice communications systems, as well as an Internet-protocol-based network devoted to video communications, to commercial and institutional customers located principally within the United States. The Company is headquartered in Hillside, New Jersey. Note 2 - Basis of Presentation The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report for the fiscal year ended December 31, 2000 as filed with the Securities and Exchange Commission. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, AllComm Products Corporation ("APC"), VTC Resources, Inc. ("VTC") and Wire One Travel Services, Inc. ("WOTS"). All material intercompany balances and transactions have been eliminated in consolidation. The Company does not segregate or manage its operations by business segment. Note 3 - 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 preferred stock using the if converted method.
Six Months Ended Three Months Ended June 30, June 30, ---------------- ------------------ 2001 2000 2001 2000 ---- ---- ---- ---- Weighted average shares outstanding 17,752,240 8,501,608 18,176,663 11,717,591 Effect of dilutive options and warrants -- -- -- -- ---------- --------- ---------- ---------- Weighted average shares outstanding including dilutive effect of securities 17,752,240 8,501,608 18,176,663 11,717,591 ---------- --------- ---------- ----------
Weighted average options and warrants to purchase 8,790,872 and 8,917,689 shares of common stock were outstanding during the six months and three months ended June 30, 2001. Weighted average options and warrants to purchase 7,808,768 and 6,141,909 shares of common stock were outstanding during the six months and three months ended June 30, 2000. These options and warrants were not included in the computation of diluted EPS because the Company reported a net operating loss for these periods and their effect would have been antidilutive. 4 Note 4 - Bank Loan Payable In June 2000, the Company entered into a $15,000,000 working capital credit facility with its asset-based lender. Under terms of the two-year agreement for this facility, loan availability is based on up to 75% of eligible accounts receivable and 50% of eligible inventory, subject to an inventory cap of $5,000,000. Borrowings bear interest at the lender's base rate plus 1/2% per annum. At June 30, 2001, the interest rate on the facility was 8.25%. The credit facility contains certain financial and operational covenants. For the period from April 1, 2001 through June 30, 2001 ("2001 Second Quarter"), the Company was in violation of the interest coverage ratio covenant. On August 13, 2001, the Company received a waiver from the lender regarding this requirement for the 2001 Second Quarter. At June 30, 2001, the loan has been classified as current in the accompanying balance sheet because this facility matures in less than one year. Estimated Purchase Price Allocation: GeoVideo assets acquired $2,500,000 Goodwill 2,500,000 ---------- $5,000,000 ========== Note 5 - Acquisition of GeoVideo Networks, Inc. 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, Wire One issued 815,661 shares of Wire One common stock, together with warrants to purchase 501,733 additional shares of Wire One common stock at $5.50 per share and 520,123 shares at $7.50 per share. Note 6 - Subsequent Events In July 2001, the Company acquired the assets and certain liabilities of Advanced Acoustical Concepts, Inc. ("AAC"), an Ohio-based designer of audiovisual conferencing systems. The total consideration was $794,000, which was paid in the form of Company common stock valued at the time of acquisition. On the date of acquisition, the assets and certain liabilities were recorded at their fair values, with the excess purchase consideration allocated to goodwill. In August 2001, the Company raised gross proceeds of $11 million in a private placement of 2,200,000 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 Wire One 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 for $5.00 per share. 5 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the Company's consolidated financial statements and the notes thereto. The discussion of results, causes and trends should not be construed to imply any conclusion that such results or trends will necessarily continue in the future. The statements contained herein, other than historical information, are or may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, and involve factors, risks and uncertainties that may cause the Company's actual results in future periods to differ materially from such statements. These factors, risks and uncertainties, include the relatively short operating history of the Company; market acceptance and availability of new products and services; the terminable-at-will and nonexclusive nature of reseller agreements with manufacturers; rapid technological change affecting products and services sold by the Company; the impact of competitive products, services, and pricing, as well as competition from other resellers and service providers; possible delays in the shipment of new products; and the availability of sufficient financial resources to enable the Company to expand its operations. Overview Wire One is a leading single source provider of video communications solutions that encompass the entire video communications value chain. We are a leading integrator for major video communications equipment manufacturers, including the number one and number two market share leaders, Polycom, Inc. ("Polycom") and PictureTel Corporation ("PictureTel"), respectively, which together account for over 50% of the installed videoconferencing endpoints in the United States. We also offer voice communications products manufactured by Lucent Technologies, Inc. ("Lucent") and the Business Telephone Systems Division of Panasonic Communications and Systems Company ("Panasonic"), among others. In December 2000, we introduced our Glowpoint network service, providing our customers with two-way video communications with high quality of service. With the introduction of Glowpoint, we now offer our customers a single point of contact for all their video communications requirements. Furthermore, we believe Glowpoint is the first dedicated network to provide two-way video communications by utilizing a dedicated Internet protocol ("IP") backbone and broadband access. The Company markets and sells its video and data products and services to the commercial, federal and state government, medical and educational markets through a direct sales force of account executives and telemarketers and through resellers. These efforts are supported by sales engineers, a marketing department, a call center and a professional services and engineering group. The Company has sold its products and services to over 2,500 customers who collectively have approximately 13,000 videoconferencing endpoints. The Company was formed on May 18, 2000 by the merger of ACC and VTI. VTI was the surviving legal entity in the merger. However, for financial reporting purposes, the merger has been accounted for as a "reverse acquisition" using the purchase method of accounting. Under the purchase method of accounting, ACC's historical results have been carried forward and VTI's operations have been included in the financial statements commencing on the merger date. Accordingly, all 2000 results through the merger date are those of ACC only. Further, on the date of the merger, the assets and liabilities of VTI were recorded at their fair values, with the excess purchase consideration allocated to goodwill. In July 2000, the Company acquired the net assets of 2CONFER, LLC ("2CONFER"), a Chicago-based provider of videoconferencing, audio and data solutions. The total consideration was $800,000, consisting of $500,000 in cash and the remainder in Company common stock valued at the time of acquisition of $300,000. On the date of the acquisition, the assets and liabilities of 2CONFER were recorded at their fair values, with the excess purchase consideration allocated to goodwill. 6 In October 2000, the Company acquired the assets and certain liabilities of the Johns Brook Company ("JBC") videoconferencing division, a New Jersey-based provider of videoconferencing solutions. The total consideration was $635,000, consisting of $481,000 in cash and the remainder in Company common stock valued at the time of acquisition of $154,000. On the date of the acquisition, the assets and certain liabilities of the JBC videoconferencing division were recorded at their fair values, with the excess purchase consideration allocated to goodwill. In June 2001, the Company acquired the assets of GeoVideo Networks, Inc. ("GeoVideo"), a New York-based developer of video communications software. The total consideration was $5,000,000, which was paid in the form of Company common stock and warrants to purchase Company common stock valued at the time of the acquisition. On the date of the acquisition, the assets of GeoVideo were recorded at their fair values, with the excess purchase consideration allocated to goodwill. In July 2001, the Company acquired the assets and certain liabilities of Advanced Acoustical Concepts, Inc. ("AAC"), an Ohio-based designer of audiovisual conferencing systems. The total consideration was $794,000, which was paid in the form of Company common stock valued at the time of the acquisition. On the date of the acquisition, the assets and certain liabilities of the AAC were recorded at their fair values, with the excess purchase consideration allocated to goodwill. Results of Operations
Six Months Three Months Ended June 30, Ended June 30, -------------- -------------- 2001 2000 2001 2000 ----- ----- ----- ----- Net revenues 100.0% 100.0% 100.0% 100.0% Cost of revenues 68.3% 66.0% 67.7% 66.9% ----- ----- ----- ----- Gross margin 31.7% 34.0% 32.3% 33.1% Operating expenses: Selling 29.4% 26.8% 28.2% 28.4% General and administrative 7.8% 7.9% 8.3% 6.9% Amortization of goodwill 3.1% 1.5% 2.9% 2.4% ----- ----- ----- ----- Total operating expenses 40.3% 36.2% 39.4% 37.7% ----- ----- ----- ----- Loss from operations -8.6% -2.2% -7.1% -4.6% ----- ----- ----- ----- Other (income) expense: Amortization of deferred financing costs 0.1% 1.9% 0.1% 2.8% Interest income -0.1% -0.8% -0.1% -1.0% Interest expense 0.8% 0.3% 1.0% 0.3% ----- ----- ----- ----- Total other expenses, net 0.8% 1.4% 1.0% 2.1% ----- ----- ----- ----- ----- ----- ----- ----- Loss before income taxes -9.4% -3.6% -8.1% -6.7% Income tax benefit 0.0% 0.0% 0.0% -0.5% ----- ----- ----- ----- Net loss -9.4% -3.6% -8.1% -6.2% Deemed dividends on series A convertible preferred stock 10.9% 47.8% 18.4% 73.5% ----- ----- ----- ----- Net loss attributable to common stockholders -20.3% -51.4% -26.5% -79.7% ===== ===== ===== =====
7 Six Months Ended June 30, 2001 ("2001 period") Compared to Six Months Ended June 30, 2000 ("2000 period") and Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000. NET REVENUES. The Company reported net revenues of $40.7 million for the 2001 period, an increase of $23.6 million, or 138%, over the $17.1 million in revenues reported for the 2000 period. Net revenues of $22.0 million for the June 2001 quarter represent an increase of $10.9 million, or 98%, over the $11.1 million reported for the June 2000 quarter. Although the operations of acquired companies have now been fully integrated into the Company, management estimates that revenues for the 2001 period from the core businesses in existence before contributions from VTI, 2CONFER and JBC grew approximately 66%, with revenues from VTI, 2CONFER and JBC accounting for the remainder of the growth. Video communications -- Sales of video communications products and services were $37.6 million in the 2001 period, an increase of $24.3 million, or 182%, over the 2000 period. Net revenues of $20.3 million for the June 2001 quarter represent an increase of $10.7 million, or 111%, over the $9.6 million reported for the June 2000 quarter. Management estimates that revenues for the 2001 period from the core video communications integration business before contributions from its acquired companies grew approximately 105%, with revenues from VTI, 2Confer and JBC accounting for the remainder of the growth experienced. The growth experienced in the 2001 period resulted from sales to both new and existing customers in the commercial, government, medical and educational markets in each of the major geographic regions in the United States in which the Company operates. Voice communications -- Sales of voice communications products and services were $3.1 million in the 2001 period, a $0.7 million decrease from the 2000 period. Net revenues of $1.7 million for the June 2001 quarter represent an increase of $0.2 million, or 13%, over the $1.5 million reported for the June 2001 quarter. This decline in revenues of the voice communications division for the 2001 period was the result of declines in revenue from three significant customers and due to revenues in the 2000 period related to Y2K telephone system upgrades that did not recur in the 2001 period. GROSS MARGINS. Gross margins were $12.9 million in the 2001 period, an increase of $7.1 million over the 2000 period. Gross margins decreased in the 2001 period to 31.7% of net revenues, as compared to 34.0% of net revenues in the 2000 period. Gross margins were $7.1 million in the June 2001 quarter, an increase of $3.4 million over the June 2000 quarter. Gross margins decreased in the June 2001 quarter to 32.3% of net revenues, as compared to 33.1% of net revenues in the June 2000 quarter. The decrease in the 2001 period is attributable to the gross margin in the voice communications decreasing from 42% to 20%, as a result of high margin Y2K upgrade jobs not recurring in the 2001 period and the fixed costs related to the distribution and service components of this business being incurred during the 2001 period against a sharply lower amount of revenue. Gross margin in the video communications business was 32.6% in the 2001 period as compared to the 31.8% gross margin achieved in the 2000 period. The increase is attributable to inventory purchase discounts negotiated with videoconferencing equipment manufacturers and increases in higher margin revenue sources such as consulting and technical services, video maintenance contracts and installation services. SELLING. Selling expenses, which include sales salaries, commissions, overhead, and marketing costs, increased $7.4 million in the 2001 period to $12.0 million from $4.6 million for the 2000 period. Selling expenses increased $3.0 million to $6.2 million in the June 2001 quarter from $3.2 million for the June 2000 quarter. Increases in selling expenses are attributable to increases in the number of sales personnel and their related costs and the costs of additional sales offices brought about by the merger with VTI and the acquisitions of 2CONFER and JBC. The increase in selling expenses as a percentage of net revenues in the 2001 period resulted from the decline in voice communications revenues combined with relatively fixed selling costs in that division, as well as from the continued expansion of the video communications division on a national basis. Prior to the merger, ACC focused its video communications business on customers in the Eastern United States. This national expansion has resulted in increased rent and related office expenses, depreciation, travel and delivery expenses as a percentage of revenue. In addition, the Company has introduced its Glowpoint network and incurred $1.0 million in recurring costs in the 2001 period offset by minimal recognized revenue from this new service offering. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $1.8 million in the 2001 period to $3.2 million as compared to $1.4 million for the 2000 period. General and adminstrative expenses increased $1.0 million in the June 2001 quarter from $0.8 million for the June 2000 quarter. The inclusion of VTI general and administrative expenses from the merger date through the end of the reporting period was the significant factor behind these increases. General and administrative expenses as a percentage of net revenues for 2001 period declined as a percentage of revenues from 7.9% in the 2000 period to 7.8% in the 2001 period. AMORTIZATION OF GOODWILL. Amortization expense attributable to the VTI, 2CONFER, JBC and GeoVideo acquisitions for the 2001 period totaled approximately $1.3 million as compared to $0.3 million in the 2000 period. Goodwill amortization totaled $0.6 million for the June 2001 quarter as compared to $0.3 million in the June 2000 quarter. 8 OTHER (INCOME) EXPENSES. The principal component of this category, interest expense, increased approximately $264,000 to $318,000 in the 2001 period as a result of increased borrowings under the Company's line of credit and interest paid on vendor financed purchases. INCOME TAXES. The Company incurred no income tax expense in the 2001 period. The Company established a valuation allowance in the 2001 period to offset the tax benefits of the current period operating loss because realization is considered uncertain. The Company does, however, currently maintain a $200,000 deferred income tax asset on its balance sheet which it does believe to be realizable within the next twelve months. The Company realized an income tax benefit in the June 2000 quarter. NET LOSS. The Company reported a net loss attributable to common stockholders for the 2001 period of $(8.2) million, or $(.46) per diluted share, as compared to a net loss attributable to common stockholders of $(8.8) million, or $(1.03) per diluted share for the 2000 period. After giving effect to the $4.4 million in deemed dividends on series A preferred stock, the Company reported a net loss of $(3.8) million for the 2001 period. After giving effect to the $8.2 million in deemed dividends on Series A preferred stock, the Company reported a net loss of $(0.6) million for the 2000 period. The $(3.8) million net loss for the 2001 period primarily results from depreciation and amortization charges totaling $2.8 million, net interest expense of $0.3 million and $1.0 million of costs related to the Glowpoint network service offering. EBITDA for the 2001 period was $(0.3) million. Liquidity and Capital Resources At June 30, 2001, the Company had working capital of $14.5 million compared to $19.9 million at December 31, 2000, a decrease of approximately 27%. The Company had $1.0 million in cash and cash equivalents at June 30, 2001 compared to $1.9 million at December 31, 2000. The $5.4 million decline in working capital resulted from reclassifying the Company's bank loan payable from long-term to current liabilities as of June 30, 2001 ($3.0 million impact) and funding its operating activities out of working capital ($2.4 million impact). Net cash used in operating activities for the 2001 period was $(3.1) million as compared to net cash used in operations of $(3.3) million during the 2000 period. Sources of operating cash in 2001 included increases in accounts payable of $1.0 million and in deferred revenue of $0.5 million. An increase in accounts receivable balances of $2.8 million and payments of accrued expenses of $0.8 million were the primary uses of operating cash in the 2001 period. Investing activities for the 2001 period included purchases of $4.3 million of network, bridging and computer equipment, primarily for the Glowpoint division. In addition, cash costs incurred in connection with prior consummated mergers and acquisitions totaled $0.1 million. Financing activities in the 2001 period included net borrowings under the Company's revolving credit line totaling $3.9 million and the issuance of $2.5 million of common stock for the assets of GeoVideo. The Company's credit facility contains certain financial and operational covenants. For the 2001 Second Quarter, the Company was in violation of the interest coverage ratio covenant. On August 13, 2001, the Company received a waiver from the lender regarding this requirement for the 2001 Second Quarter. At June 30, 2001, the loan has been classified as current in the company's balance sheet because this facility matures in less than one year. In August 2001, the Company raised gross proceeds of $11 million in a private placement of 2,200,000 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 Wire One 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 for $5.00 per share. Management believes, based upon current circumstances, that it has adequate capital resources to support expected operating levels for the next twelve months. Inflation Management does not believe inflation had a material adverse effect on the financial statements for the periods presented. 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company has exposure to interest rate risk related to its cash equivalents portfolio. The primary objective of the Company's investment policy is to preserve principal while maximizing yields. The Company's cash equivalents portfolio is short-term in nature, therefore changes in interest rates will not materially impact the Company's consolidated financial condition. However, such interest rate changes can cause fluctuations in the Company's results of operations and cash flows. The Company maintains borrowings under a $15 million working capital credit facility with Summit Commercial/Gibraltar Corp. that are not subject to material market risk exposure except for such risks relating to fluctuations in market interest rates. The carrying value of these borrowings approximates fair value since they bear interest at a floating rate based on the "prime" rate. There are no other material qualitative or quantitative market risks particular to the Company. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As more fully set forth in Item 3 of the Company's Report on Form 10-K for the year ended December 31, 2001, the Company is the defendant in a lawsuit brought by Maxbase, Inc. ("Maxbase") in New Jersey state court. In June 2001, following a trial on Maxbase's breach of contract claim, the court, which heard the case without a jury, issued an opinion awarding Maxbase damages totaling approximately $650,000. In connection with its application for a judgement based upon that opinion, Maxbase has requested an additional award of approximately $94,000, representing pre-judgement interest. The Company is contesting the plaintiff's application for pre-judgement interest and in any event plans to appeal the court's opinion (including the underlying grant of summary judgement to Maxbase that established the Company's liability). Based upon this opinion, the Company has previously accrued $250,000 related to this matter but has recorded no further accrual as the Company believes that the claims made by MaxBase are without merit. The Company does not anticipate that this proceeding will in any event have a material adverse effect on its business, financial condition or results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On June 4, 2001, the Company issued an aggregate of 815,661 shares of its Common Stock, five-year warrants to purchase an aggregate of 501,733 shares of its Common Stock at a price of $5.50 per share and five-year warrants to purchase an aggregate of 520,123 shares of its common stock at a price of $7.50 per share. The Company issued these securities to the equity owners of GeoVideo Networks, Inc. in exchange for certain assets of GeoVideo Networks, Inc., including substantially all of its intellectual property assets, its fixed information technology assets and $2,500,000 in cash. The offer and sale of these securities were exempt from registration under the Securities Act of 1933 in reliance upon the exemption from registration contained in Section 4(2) of the Securities Act and Rule 506 under the Securities Act as a transaction not involving any public offering. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting ("Annual Meeting") of Stockholders of Wire One Technologies, Inc. was held on May 25, 2001. The 16,067,465 shares of Common Stock ("Common Stock") present at the Annual Meeting out of a then total of 17,317,544 shares outstanding and entitled to vote acted as follows with respect to the following proposals with the following results: 1. (a) The election of Leo Flotron to the Board of Directors was approved: For: 15,989,516 Against: 78,044 Abstain: 0 Broker Non-Votes: 0 (b) The election of Peter Maluso to the Board of Directors was approved: For: 15,989,516 Against: 78,044 Abstain: 0 Broker Non-Votes: 0 2. The issuance by the Company of more than 20% of its common stock upon conversion of shares of series A convertible preferred stock and exercise of the related warrants was approved: For: 9,161,481 Against: 293,246 Abstain: 15,038 Broker Non-Votes: 6,597,795 3. The ratification of the appointment of BDO Seidman as independent auditors was approved. For: 15,960,708 Against: 93,206 Abstain: 13,646 Broker Non-Votes: 0 ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.44 Asset Purchase Agreement, made as of the 30th day of May, 2001, by and among Wire One Technologies, Inc., GeoVideo Networks, Inc., Thomas Weisel Capital Partners LLC, Crest Communications Partners LP, East River Ventures II LP, and Lucent Technologies, Inc. 10.45 Class A Warrant to Purchase Common Stock of Wire One Technologies, Inc. 10.46 Class B Warrant to Purchase Common Stock of Wire One Technologies, Inc. (b) Reports on Form 8-K None. 10 Signatures In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WIRE ONE TECHNOLOGIES, INC. Registrant Date: August 14, 2001 By: /s/ Richard Reiss ------------------------ Richard Reiss, President and Chief Executive Officer Date: August 14, 2001 By: /s/ Christopher Zigmont ------------------------ Christopher Zigmont Chief Financial Officer (principal financial and accounting officer) 11 EX-10.44 3 d26455_ex10-44.txt ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT made as of May 30, 2001 by and among WIRE ONE TECHNOLOGIES, INC., GEOVIDEO NETWORKS, INC., THOMAS WEISEL CAPITAL PARTNERS LLC, CREST COMMUNICATIONS PARTNERS LP, EAST RIVER VENTURES II L.P. and LUCENT TECHNOLOGIES, INC. TABLE OF CONTENTS Page ---- 1. Definitions................................................................1 1.1 "Assets"..............................................................1 1.2 "Business Day"........................................................2 1.3 "Closing".............................................................2 1.4 "Closing Date"........................................................3 1.5 "Closing Shares"......................................................3 1.6 "Shares"..............................................................3 1.7 "Warrant Shares"......................................................3 2. Purchase of Assets and Purchase Price......................................3 2.1 Purchase of Assets....................................................3 2.2 Non-Assumption of Liabilities.........................................3 2.3 Closing Deliveries....................................................4 2.4 Purchase Price........................................................5 2.5 Allocation of Purchase Price..........................................5 3. Representations and Warranties of GEO......................................5 3.1 Organization and Standing.............................................5 3.2 Authorization and Binding Obligations.................................5 3.3 No Contravention......................................................6 3.4 Title to Assets.......................................................6 3.5 Litigation............................................................6 3.6 No Liabilities........................................................6 3.7 No Misleading Statements..............................................6 4. Representations and Warranties of the Sellers..............................7 4.1 Authorization and Binding Obligations.................................7 4.2 No Contravention......................................................7 4.3 No Misleading Statements..............................................7 4.4 Securities Act Matters................................................7 5. Representations and Warranties of Buyer....................................9 5.1 Organization and Standing.............................................9 5.2 Authorization and Binding Obligations.................................9 5.3 No Contravention.....................................................10 5.4 Issuance of the Shares and the Warrants..............................10 5.5 SEC Filings..........................................................10 5.6 No Misleading Statements.............................................11 6. Condition Precedent to the Obligations of GEO and the Sellers. ...........11 i 7. Conditions Precedent to the Obligations of Buyer..........................11 7.1 GEO's Closing Deliveries.............................................11 7.2 License Agreement....................................................11 7.3 Delivery of Ancillary Agreements.....................................11 7.4 Cash.................................................................12 8. Brokers...................................................................12 9. Survival..................................................................12 10. Indemnification by GEO and the Sellers....................................12 10.1 Joint and Several Obligations........................................12 10.2 Several Obligations..................................................13 11. Indemnification by Buyer..................................................13 12. Indemnification Procedure.................................................13 13. Limitations on Indemnification............................................14 13.1 Basket Amount........................................................14 13.2 Liability Cap........................................................15 13.3 Payment of Indemnification Claims....................................15 14. Certain Actions after the Closing.........................................15 14.1 Delivery of Property Received by GEO After the Closing. .............15 14.2 Cooperation After the Closing........................................15 14.3 Issuance of Shares to Other Shareholders.............................16 14.4 Winding Up and Issuance of Additional Shares.........................16 14.5 Board of Directors...................................................17 14.6 Lock-up..............................................................17 14.7 Right of First Offer.................................................17 14.8 Registration of the Shares and the Warrants..........................17 15. Costs, Expenses, etc......................................................22 16. Notice of Proceedings.....................................................22 17. Notices...................................................................22 18. Headings and Entire Agreement.............................................24 ii 19. Public Announcements......................................................24 20. Waiver....................................................................24 21. Binding Effect and Assignment.............................................24 22. Counterparts..............................................................24 23. Governing Law.............................................................24 24. Jurisdiction..............................................................25 iii EXHIBITS Exhibit A Form of Class A Warrant to Purchase Common Stock Exhibit B Form of Class B Warrant to Purchase Common Stock Exhibit C Form of Former Employee Representation Agreement Exhibit D Form of Purchaser Representative Agreement Exhibit E Form of Purchaser Representative Representation Letter Exhibit F Form of Other Shareholder Representation Agreement Exhibit G Black-Scholes Assumptions SCHEDULES Schedule A List of Former Employees Schedule B List of Other Shareholders of GEO Schedule 1.1 Agreements to be Assumed by Buyer Schedule 1.1(a) Intellectual Property Schedule 1.1(b) Fixed Assets Schedule 3.4 Title to Assets--Exceptions Schedule 3.6 Liabilities of GEO iv ASSET PURCHASE AGREEMENT AGREEMENT, made as of this 30th day of May, 2001, by and among Wire One Technologies, Inc., a Delaware corporation ("Buyer"), GeoVideo Networks, Inc., a Delaware corporation ("GEO"), Thomas Weisel Capital Partners LLC, a Delaware limited liability company ("Weisel"), Crest Communications Partners LP, a Delaware limited partnership ("Crest"), East River Ventures II L.P., a Delaware limited partnership ("East River"), and Lucent Technologies, Inc., a Delaware corporation ("Lucent", and collectively with Weisel, Crest and East River, the "Sellers"). W I T N E S S E T H: WHEREAS, GEO desires to sell, and Buyer desires to purchase, certain assets owned by or used in the business and operations conducted by GEO, upon the terms and subject to the conditions set forth in this Agreement; WHEREAS, each of the former employees of GEO identified on Schedule A hereto (the "Former Employees"), and each GEO series C preferred shareholder and affiliate of Weisel that is shareholder of GEO identified on Schedule B (the "Other Shareholders") and not a party to this Agreement, has the right to receive a portion of the consideration for such asset sale; and WHEREAS, as consideration for such asset sale and purchase, Buyer desires to issue, and GEO desires to distribute to the Sellers, the Other Shareholders and the Former Employees, shares of Buyer's common stock, $.0001 par value ("Common Stock"), and warrants to purchase an aggregate of 501,733 shares of Common Stock at an exercise price of $5.50 per share (the "Class A Warrants") and an aggregate of 520,123 shares of Common Stock at an exercise price of $7.50 per share (the "Class B Warrants", and, together with the Class A Warrants, the "Warrants"), upon the terms and subject to the conditions set forth in this Agreement, the form of Class A Warrant to Purchase Common Stock attached hereto as Exhibit A and the form of Class B Warrant to Purchase Common Stock attached hereto as Exhibit B; NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein, the parties hereto agree as follows: 1. Definitions. As used herein, the following terms shall have the following meanings: 1.1 "Assets" means the following tangible and intangible assets owned or held and used by GEO in connection with its business and operations: (a) all technology and intellectual property owned by or licensed to GEO, whether now in existence or in development stage, including, without limitation, all United States, international and foreign: (i) patents, patent applications and statutory invention registrations, including reissuances, divisions, continuations, continuations in part, extensions and reexaminations thereof, all inventions, and rights provided by international treaties or conventions with respect to the foregoing, and all improvements thereto; 1 (ii) trademarks, service marks, trade dress, logos, proprietary icons, trade names, corporate names, internet domain names and other source identifiers (whether or not registered) including all common law rights therein, and registrations and applications for registration therefor, all rights provided by international treaties or conventions with respect to the foregoing, and all reissuances, extensions and renewals and all goodwill associated therewith, other than the trademark GeoVideo; (iii) copyrightable works, copyrights (whether or not registered), and registrations and applications for registration therefor, and all rights provided by international treaties or conventions with respect to the foregoing; (iv) confidential and proprietary information, including trade secrets, technology, know-how, formulae, databases and customer and supplier lists; (v) computer software (including source codes, data and related documentation); and (vi) all other proprietary rights, in each case, whether owned or leased, including, without limitation, the patent, trademark, trade name, service mark, copyright, license and other proprietary rights described on Schedule 1.1(a); (b) the fixed information technology assets owned by or leased to GEO and described on Schedule 1.1(b); and (c) $2,500,000 in cash. Schedule 1.1 identifies each lease, license or other agreement included in the Assets, specifies the extent, if any, to which Buyer is assuming obligations under such lease, license or other agreement, and specifies those leases, licenses and other agreements the assignment of which requires third-party consent. 1.2 "Business Day" means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in the City of New York, New York. 1.3 "Closing" means the consummation of the purchase, assignment, conveyance and sale of the Assets contemplated hereunder, which shall take place on June 1, 2001 at the offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York 10103 or at such other location as the parties may agree. 2 1.4 "Closing Date" means June 1, 2001. 1.5 "Closing Shares" means the 815,661 shares of Common Stock to be issued at the Closing or prior to the Additional Closing Date (such number of shares being equal to the integral number of shares of Common Stock (rounded up to the nearest share) that may be purchased for $2,500,000 at a purchase price of $3.065 per share of Common Stock). 1.6 "Shares" means the Closing Shares and the Additional Shares (as defined in Section 14.4), collectively, or shares of Common Stock issued to any of the Sellers, Other Shareholders or Former Employees, as the context requires. 1.7 "Warrant Shares" shall mean the shares of Common Stock issuable upon exercise of the Warrants. 2. Purchase of Assets and Purchase Price. 2.1 Purchase of Assets. Subject to the terms and upon satisfaction of the conditions contained in this Agreement, at the Closing, GEO shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase from GEO, the Assets for the consideration specified in Section 2.4. 2.2 Non-Assumption of Liabilities. Except as specifically set forth in this Section 2.2, Buyer expressly does not, and shall not, assume or be deemed to have assumed under this Agreement or by reason of any transaction contemplated hereunder or otherwise, any debts, liabilities (contingent or otherwise) or obligations of GEO of any nature whatsoever. Buyer shall assume the obligations of GEO arising subsequent to the Closing Date under the contracts, agreements, and leases of GEO identified on Schedule 1.1, but only to the extent specified in Schedule 1.1 (collectively, the "Assumed Obligations"); provided, however, that, notwithstanding any other provision of this Agreement, the Assumed Obligations shall not include any debts, liabilities (contingent or otherwise) or obligations of GEO with respect to those Assumed Obligations referred to in this section, arising out of any contract, agreement, commitment or lease (a) required to be listed but not listed on Schedule 1.1 hereto regardless of any knowledge thereof on the part of Buyer or (b) the benefits of which are not validly assigned to Buyer. 3 2.3 Closing Deliveries. (a) At the Closing, GEO shall deliver to Buyer: (i) such deeds, bills of sale, endorsements, assignments and other instruments of sale, conveyance, transfer and assignment, reasonably satisfactory in form and substance to Buyer and its counsel, as may be requested by Buyer, in order to convey to Buyer good and marketable title to the Assets, free and clear of all claims, charges, equities, liens, security interests and encumbrances; (ii) all written consents which are required under any contract or agreement being assigned to Buyer hereunder; provided, however, that as to any such contract or agreement the assignment of which by its terms requires prior consent of any of the parties thereto, if such consent is not obtained prior to or on the Closing Date, GEO shall deliver to Buyer written documentation setting forth arrangements for the transfer of the economic benefit of such contracts or agreements to Buyer as of the Closing Date under terms and conditions acceptable to Buyer; (iii) a written notice (the "Distribution Notice") setting forth the apportionment of the Closing Shares and the Warrants to be distributed to the Sellers, the Former Employees and the Other Shareholders (including those Other Shareholders who have not delivered Other Shareholder Representation Agreements (as defined below) to Buyer at or prior to the Closing); (iv) $2,500,000 in cash, by wire transfer of immediately available funds to the bank account designated by Buyer; (v) duly executed representation agreements (the "Former Employee Representation Agreements") in the form attached hereto as Exhibit C, between each of the Former Employees to Buyer; (vi) purchaser representative agreements (the "Purchaser Representative Agreements") in the form attached hereto as Exhibit D, between Matthew M. O'Connell (the "Purchaser Representative") and each of the Former Employees and each of the Other Shareholders that wishes to receive Closing Shares and Warrants at the Closing who is not an "accredited investor" as such term is defined under the Securities Act of 1933, as amended (the "Securities Act"), each duly executed by the Purchaser Representative and the Former Employee or Other Shareholder party thereto; (vii) a duly executed representation letter from the Purchaser Representative to Buyer (the "Purchaser Representative Representation Letter") in the form attached hereto as Exhibit E; and (viii) duly executed representation agreements (the "Other Shareholder Representation Agreements"), in the form attached hereto as Exhibit F, between Buyer and each Other Shareholder, if any, that wishes to receive Closing Shares and Warrants at Closing. 4 (b) At the Closing, Buyer shall deliver: (i) to GEO such instruments and documents, satisfactory in form and substance to the Sellers and their counsel, as may be requested by the Sellers in order to effect the assumption of the Assumed Obligations by Buyer; and (ii) to the Sellers, the Former Employees and any Other Shareholder that has delivered a duly executed Other Shareholder Representation Agreement to Buyer, one or more certificates representing the Closing Shares and the Warrants, registered in the names of the Sellers, the Former Employees and such Other Shareholders, as distributees by way of bonus, dividend or other distribution by GEO, in accordance with the Distribution Notice. 2.4 Purchase Price. The consideration to be paid by Buyer for the Assets (the "Consideration") shall consist of (a) the Closing Shares, (b) the Warrants, and (c) Buyer's assumption of the Assumed Obligations. 2.5 Allocation of Purchase Price. The Consideration shall be allocated among the Assets in a manner to be determined by the parties prior to the time of any required tax fillings with respect thereto and the parties agree to report this transaction for Federal tax purposes in accordance with such allocation. 3. Representations and Warranties of GEO. GEO represents, warrants and covenants to Buyer that: 3.1 Organization and Standing. GEO (a) is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, (b) has full right, power and authority to enter into and perform and do all things contemplated under this Agreement and all documents and agreements necessary to give effect to the provisions of this Agreement, to own and lease the Assets and to carry on and operate its business and operations as now being conducted and proposed to be conducted by it under existing agreements, (c) is duly qualified or licensed to do business and is in good standing as a foreign corporation in every jurisdiction in which the character of the Assets or nature of the business conducted by it requires such qualification, and (d) does not own any of the Assets, and does not conduct any of its business or operations, through any other corporation, limited liability company, partnership or other entity. 3.2 Authorization and Binding Obligations. The execution, delivery and performance of this Agreement by GEO has been duly and validly authorized by all necessary corporate action, including approval of the entire transaction by the requisite vote of GEO's shareholders. This Agreement has been duly executed and delivered by GEO and constitutes a valid and binding agreement of GEO, enforceable in accordance with its terms, except as its enforceability may be limited by bankruptcy, insolvency, moratorium or other laws relating to or affecting creditors' rights generally and the exercise of judicial discretion in accordance with general equitable principles. Schedule B sets forth the names of the owners of all of the issued and outstanding capital stock of GEO. 5 3.3 No Contravention. The execution, delivery and performance of this Agreement, the consummation of the transactions contemplated hereby and the compliance with the provisions hereof by GEO do not (a) violate any provision of the certificate of incorporation, bylaws or any certificate of designations with respect to preferred stock of GEO, (b) conflict with, result in the breach of, or constitute a default under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the Assets, or require any authorization, consent, approval, exemption or other action by or notice to any third party, court or other governmental or administrative body, under the provisions of any agreement or other instrument to which GEO is a party or by which any of the Assets are bound or affected or (c) violate any laws, regulations, orders or judgments applicable to GEO. 3.4 Title to Assets. Except as set forth in Schedule 3.4, GEO has good and marketable title to the Assets, free and clear of all mortgages, pledges, claims, liens, charges, preemptive purchase rights or any other encumbrances. Except as set forth in Schedule 3.4, the bill of sale and assignment, assumption agreement, power of attorney and other instruments delivered to Buyer by GEO at the Closing will vest in Buyer, and the transfer to Buyer by GEO of the Assets on the Closing Date will convey to Buyer, good and marketable title to the Assets, free and clear of all mortgages, pledges, claims, liens, charges, preemptive purchase rights or any other encumbrances whatsoever. GEO has taken all necessary action to protect the patent, trademark, trade name, service mark, copyright, license and other proprietary rights included in the Assets. The operations and business conducted by GEO do not infringe upon or conflict with any patent, trademark, trade name, service mark, copyright, license or other proprietary right of any third party, and GEO has not received any notice of infringement upon or conflict with the asserted rights of others. 3.5 Litigation. There are no actions, suits, proceedings or investigations of any nature at law or in equity, pending or, to the best of the GEO's knowledge, threatened against or relating to any of the Assets, and no judgment, award, order or decree has been rendered against GEO, and the Assets are not subject to any judgment, award, order or decree. 3.6 No Liabilities. Except as set forth in Schedule 3.6, there are no liabilities or obligations of GEO existing on the date hereof. 3.7 No Misleading Statements. No information furnished by or on behalf of GEO to Buyer contains any untrue statement of a material fact or omits to state a material fact necessary to make such statement, in the light of the circumstances under which it was made, not misleading. All written information, in whatever form, furnished by GEO to Buyer was true and correct as of the date so furnished and, except as the accuracy thereof is affected by the passage of time, remains true and correct in all material respects as of the date hereof. 6 4. Representations and Warranties of the Sellers. Each of the Sellers, severally and not jointly, represents, warrants and covenants to Buyer that: 4.1 Authorization and Binding Obligations. The execution, delivery and performance of this Agreement by such Seller has been duly and validly authorized by all necessary corporate, company, partnership or other action. This Agreement has been duly executed and delivered by such Seller and constitutes a valid and binding agreement of such Seller, enforceable in accordance with its terms, except as its enforceability may be limited by bankruptcy, insolvency, moratorium or other laws relating to or affecting creditors' rights generally and the exercise of judicial discretion in accordance with general equitable principles. Such Seller is a shareholder of GEO. 4.2 No Contravention. The execution, delivery and performance of this Agreement, the consummation of the transactions contemplated hereby and the compliance with the provisions hereof by such Seller do not (a) violate any provision of the organizational documents of such Seller, (b) conflict with, result in the breach of, or constitute a default under, or require any authorization, consent, approval, exemption or other action by or notice to any third party, court or other governmental or administrative body, under the provisions of any agreement or other instrument to which such Seller is a party or by which the property of such Seller is bound or affected or (c) violate any laws, regulations, orders or judgments applicable to such Seller. 4.3 No Misleading Statements. No information furnished by or on behalf of such Seller to Buyer contains any untrue statement of a material fact or omits to state a material fact necessary to make such statement, in the light of the circumstances under which it was made, not misleading. All written information, in whatever form, furnished by such Seller to Buyer was true and correct as of the date so furnished and, except as the accuracy thereof is affected by the passage of time, remains true and correct in all material respects as of the date hereof. 4.4 Securities Act Matters. (a) it acknowledges that its representations and warranties contained herein are being relied upon by Buyer as a basis for the exemption of the issuance of the Shares and the Warrants hereunder from the registration requirements of the Securities Act and any applicable state securities laws; (b) it understands that (i) as of the Closing Date, neither the Shares, the Warrants nor the Warrant Shares will be registered under the Securities Act or any state securities laws by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act and applicable state securities laws and (ii) the Shares, the Warrants and the Warrant Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act and applicable state securities laws or is exempt from such registration; 7 (c) it is acquiring the Shares and the Warrants for its own account and not with a view to, or for sale in connection with, directly or indirectly, any distribution thereof that would require registration under the Securities Act or applicable state securities laws or would otherwise violate the Securities Act or such state securities laws; (d) it has relied upon independent investigations made by it or its representatives and is fully familiar with the business, results of operations, financial condition, prospects and other affairs of Buyer and realizes that the Shares and the Warrants are a speculative investment involving a high degree of risk for which there is no assurance of any return; (e) it has such knowledge and experience in financial and business affairs, including investing in companies similar to Buyer, and is capable of determining the information necessary to make an informed investment decision, of requesting such information from Buyer, and of utilizing the information that it has received from Buyer to evaluate the merits and risks of its investment in the Shares and the Warrants, and is able to bear the economic risk of its investment in the Shares and the Warrants and understands that it must do so for an indefinite period of time; (f) it and its attorneys, accountants, investment and financial advisors, if any, have been provided access to such information about Buyer as it or its advisors, if any, have requested; (g) it is an "accredited investor" as defined in Regulation D under the Securities Act; and (h) it understands that the Shares will bear the following legend (or a substantially similar legend): "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT SUCH REGISTRATION OR THE DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH DISPOSITION WILL NOT REQUIRE REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE HOLDER OF THESE SECURITIES MAY NOT SELL, OFFER, CONTRACT TO SELL, PLEDGE, GRANT ANY OPTION TO PURCHASE OR OTHERWISE DISPOSE OF THESE SECURITIES PRIOR TO THE 90TH DAY AFTER THE DATE OF ISSUANCE OF THESE SECURITIES.", 8 and the Warrants will bear the following legend (or a substantially similar legend): "NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT SUCH REGISTRATION OR THE DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH DISPOSITION WILL NOT REQUIRE REGISTRATION OF SUCH WARRANT OR SECURITIES ISSUABLE UPON EXERCISE THEREOF UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE HOLDER OF THIS WARRANT MAY NOT SELL, OFFER, CONTRACT TO SELL, PLEDGE, GRANT ANY OPTION TO PURCHASE OR OTHERWISE DISPOSE OF THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF PRIOR TO THE 90TH DAY AFTER THE DATE OF ISSUANCE OF THIS WARRANT." 5. Representations and Warranties of Buyer. Buyer represents, warrants and covenants to GEO and the Sellers that: 5.1 Organization and Standing. Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, with full corporate right, power and authority to enter into and perform and do all things contemplated under this Agreement and all documents and agreements necessary to give effect to the provisions of this Agreement. 5.2 Authorization and Binding Obligations. The execution, delivery and performance of this Agreement has been duly and validly authorized by all necessary corporate action, including approval of the entire transaction by the requisite vote of the board of directors of Buyer. This Agreement has been duly executed and delivered by Buyer and constitutes a valid and binding agreement of Buyer, enforceable in accordance with its terms, except as its enforceability may be limited by bankruptcy, insolvency, moratorium or other laws relating to or affecting creditors' rights generally and the exercise of judicial discretion in accordance with general equitable principles. 9 5.3 No Contravention. The execution, delivery and performance of this Agreement, the consummation of the transactions contemplated hereby and the compliance with the provisions hereof by Buyer do not (a) violate any provision of the certificate of incorporation or bylaws of Buyer, (b) conflict with, result in the breach of, or constitute a default under, or require any authorization, consent, approval, exemption or other action by or notice to any third party, court or other governmental or administrative body, under the provisions of any agreement or other instrument to which Buyer is a party or by which the property of Buyer is bound or affected, or (c) violate any laws, regulations, orders or judgments applicable to Buyer. 5.4 Issuance of the Shares and the Warrants. Upon issuance to the Sellers hereunder, the Shares shall be validly issued, fully paid and non-assessable, the Warrants shall be validly issued, and the Shares and the Warrants shall be free and clear of any liens, claims and encumbrances. Upon issuance in accordance with the terms of the Warrants, the Warrant Shares shall be validly issued, fully paid and non-assessable and free and clear of any liens, claims and encumbrances. 5.5 SEC Filings. The Common Stock is registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Buyer has filed all reports, schedules, forms, statements and other documents required to be filed by it with the Securities and Exchange Commission (the "SEC") pursuant to the reporting requirements of the Exchange Act, including material filed pursuant to Section 13(a) or 15(d) thereof. Buyer has delivered or made available to the Sellers true and complete copies of the following documents (the "SEC Documents") filed with the SEC: (a) Buyer's Annual Report on Form 10-K for the year ended December 31, 2000; (b) Buyer's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001; and (c) Buyer's proxy statement in connection with its Annual Meeting of Stockholders on May 25, 2001. Buyer has not provided the Sellers any material non-public information or any information which, according to applicable law, rule or regulation, should have been disclosed publicly by Buyer but which has not been so disclosed. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder and other federal, state and local laws, rules and regulations applicable to such SEC Documents, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The SEC Documents contain all material information concerning Buyer, and no event or circumstance has occurred which would require Buyer to disclose such event or circumstance in order to make the statements in the SEC Documents not misleading on the date hereof but which has not been so disclosed. 10 5.6 No Misleading Statements. No information furnished by or on behalf of Buyer to Sellers contains any untrue statement of a material fact or omits to state a material fact necessary to make such statement, in the light of the circumstances under which it was made, not misleading. All written information, in whatever form, furnished by Buyer to Sellers was true and correct as of the date so furnished and, except as the accuracy thereof is affected by the passage of time, remains true and correct in all material respects as of the date hereof. 6. Condition Precedent to the Obligations of GEO and the Sellers. The obligations of GEO and the Sellers under this Agreement are subject to the receipt by GEO, the Sellers, the Former Employees and the Other Shareholders that have delivered duly executed Other Shareholder Representation Agreements to Buyer, on or prior to the Closing Date, of the instruments and other documents required to be delivered to such parties by Buyer pursuant to Section 2.3(b). 7. Conditions Precedent to the Obligations of Buyer. The obligations of Buyer under this Agreement are subject to the satisfaction on or prior to the Closing Date of each of the following express conditions precedent, except such conditions as may be waived by Buyer: 7.1 GEO's Closing Deliveries. Buyer shall have received the instruments and other documents required to be delivered to it by GEO pursuant to Section 2.3(a). 7.2 License Agreement. GEO and the other parties to the Joint Development Agreement, effective as of January 7, 2000, between Lucent Technologies, Inc. and VideoNet Solutions, Inc. (predecessor to GEO), as amended and supplemented from time to time, shall have executed and delivered an amendment to such agreement, on terms and conditions satisfactory to Buyer. 7.3 Delivery of Ancillary Agreements. Each of the Former Employees shall have delivered to Buyer a duly executed Former Employee Representation Agreement, each of the Former Employees who is not an "accredited investor" as such term is defined in Regulation D under the Securities Act and the Purchaser Representative shall have entered into a Purchaser Representative Agreement and each such duly executed Purchaser Representative Agreement shall have been delivered to Buyer, the Purchaser Representative shall have delivered to Buyer a duly executed Purchaser Representative Representation Letter and each Other Shareholder that wishes to receive Closing Shares and Warrants at Closing shall have delivered to Buyer a duly executed Other Shareholder Representation Agreement. 11 7.4 Cash. GEO shall have delivered evidence reasonably satisfactory to Buyer that the cash and cash equivalents of GEO total at least $2,500,000 as of the date hereof. 8. Brokers. Each of Buyer, on the one hand, and GEO and the Sellers, on the other, represents and warrants to the other that, except for the engagement of H.C. Wainwright & Co., Inc. by Buyer, the fees for which shall be paid by Buyer, such party has not engaged a broker or finder in connection with this Agreement and the transactions contemplated herein or any aspect thereof. Each party agrees to indemnify and hold the other harmless from any and all loss, cost, liability, damage and expense (including reasonable legal and other expenses incident thereto) in respect of any claim for a broker's or finder's fee or commission or similar payment by virtue of any alleged agreements, arrangements or understandings with the indemnifying party. Notwithstanding any other provision of this Agreement, the representations, warranties and covenants contained in this Section 8 shall survive the Closing Date without limitation. 9. Survival. Except as otherwise expressly provided herein, the several representations, warranties, covenants, and agreements of the parties contained in this Agreement (or in any document delivered in connection herewith) shall be deemed to be material and to have been relied upon by Buyer, GEO and the Sellers notwithstanding any investigation made by Buyer, GEO or the Sellers, shall survive the Closing Date and shall remain operative and in full force and effect for a period of one year following the Closing Date, except insofar as an indemnification claim has been asserted by any party and has not been resolved prior to the end of such one-year period; provided, however, that the respective representations, warranties, covenants and agreements of Buyer, GEO and the Sellers contained in Sections 3.4, 3.6, 5.4, 10.1(a), 11(a), 13, 14.1, 14.2 and 15 shall continue without any time limitation. 10. Indemnification by GEO and the Sellers. 10.1 Joint and Several Obligations. GEO and each of the Sellers, jointly and severally, shall indemnify and hold harmless Buyer, its successors and assigns, at all times after the Closing Date, against and in respect of: (a) Liabilities of GEO. Other than liabilities expressly assumed by Buyer as provided in Section 2.2 of this Agreement, all liabilities and obligations of GEO of any kind or nature whatsoever relating to GEO, whether accrued, absolute, fixed, contingent or otherwise, known or unknown; (b) Misrepresentations. Any damage, loss, cost, expense or liability (including reasonable attorneys' fees) resulting to Buyer from any false, misleading or inaccurate representation, breach of warranty or non-fulfillment of any agreement or condition on the part of GEO under this Agreement or from any misrepresentation in or any omission from any certificate, schedule or other instrument furnished or to be furnished to Buyer hereunder; and (c) Actions and Suits. All claims, actions, suits, proceedings, demands, assessments, judgments, costs and expenses, including, without limitation, legal fees and expenses, incident to any of the foregoing. 12 10.2 Several Obligations. Each of Sellers, severally and not jointly, shall indemnify and hold harmless Buyer, its successors and assigns, at all times after the Closing Date, against and in respect of: (a) Misrepresentations. Any damage, loss, cost, expense or liability (including reasonable attorneys' fees) resulting to Buyer from any false, misleading or inaccurate representation, breach of warranty or non-fulfillment of any agreement or condition on the part of such Seller under this Agreement or from any misrepresentation in or any omission from any certificate, schedule or other instrument furnished or to be furnished by such Seller to Buyer hereunder; and (b) Actions and Suits. All claims, actions, suits, proceedings, demands, assessments, judgments, costs and expenses, including, without limitation, legal fees and expenses, incident to any of the foregoing. 11. Indemnification by Buyer. Buyer shall indemnify and hold harmless GEO and the Sellers, their successors and assigns, at all times after the Closing Date, against and in respect of: (a) Assumed Obligations. All Assumed Obligations; (b) Misrepresentations. Any damage, loss, cost, expense or liability (including reasonable attorneys' fees) resulting to the Sellers from any false, misleading or inaccurate representation, breach of warranty or non-fulfillment of any agreement or condition on the part of Buyer under this Agreement or from any misrepresentation in or any omission from any certificate or other instrument furnished or to be furnished to the Sellers hereunder; and (c) Actions and Suits. All claims, actions, suits, proceedings, demands, assessments, judgments, costs and expenses, including, without limitation, legal fees and expenses, incident to any of the foregoing. 12. Indemnification Procedure. 12.1 A party that may be entitled to indemnification pursuant to Section 10 or 11 (the "Indemnitee") shall promptly give written notice (a "Notice of Claim") to the party liable for such indemnification (the "Indemnitor"). A Notice of Claim shall set forth (a) a description, in reasonable detail, of the facts and circumstances with respect to the subject matter of such claim or potential claim for indemnification, and (b) the anticipated total amount of the indemnification claim (including any costs or expenses which have been or may be reasonably incurred in connection therewith). Upon receipt of a Notice of Claim, the Indemnitor may elect to cure the circumstances giving rise to the indemnification claim (the "Event of Loss") within thirty (30) days after the date of receipt of the Notice of Claim. If such cure cannot be effected within such 30-day period, payment of the amount of actual damage, loss, cost, expense or liability (including reasonable attorneys' fees) (collectively, "Damages") due to the Indemnitee as set forth in the Notice of Claim shall be made by Indemnitor no later than the thirtieth (30th) day after the date of the Notice of Claim (or such later date as the Indemnitor receives written notice that the Indemnitee has suffered Damages). The Indemnitee's failure to give prompt notice or to provide copies of documents or to furnish relevant data shall not constitute a defense (in whole or in part) to any claim by the Indemnitee against the Indemnitor for indemnification, except and only to the extent that such failure shall have caused or increased such liability or adversely affected the ability of the Indemnitor to defend against or reduce its liability. 13 12.2 If the Indemnitor shall reject any Damages as to which a Notice of Claim is sent by the Indemnitee, the Indemnitor shall give written notice of such rejection to the Indemnitee within thirty (30) days after the date of receipt of the Notice of Claim. 12.3 If any Notice of Claim relates to any claim made against an Indemnitee by a third person, the Notice of Claim shall state the nature, basis and amount of such claim. The Indemnitor shall have the right, at its election, by written notice to the Indemnitee, to assume the defense of the claim as to which such notice has been given. Except as provided in the next sentence, if the Indemnitor so elects to assume such defense, it shall diligently and in good faith defend such claim and shall keep the Indemnitee reasonably informed of the status of such defense, and the Indemnitee shall cooperate fully with the Indemnitor in the defense of such claim, provided that in the case of any settlement providing for remedies other than monetary damages for which indemnification is provided, the Indemnitee shall have the right to approve the settlement, which approval shall not be unreasonably withheld or delayed. If the Indemnitor does not so elect to defend any claim as aforesaid or shall fail to defend any claim diligently and in good faith (after having so elected), the Indemnitee may assume the defense of such claim and take such other action as it may elect to defend or settle such claim as it may determine in its reasonable discretion, provided that the Indemnitor shall have the right to approve any settlement, which approval will not be unreasonably withheld or delayed. 13. Limitations on Indemnification. 13.1 Basket Amount. (a) The indemnification provided for in Section 10 shall not apply until Buyer's claims for Damages exceed $100,000 in the aggregate, whereupon claim may be made for all amounts in excess of $100,000, subject to Section 13.2; provided, however, that indemnification for Damages relating to any claim against Buyer by a Former Employee or Other Shareholder with respect to the transactions contemplated under this Agreement shall apply from the first dollar and shall not be subject to the basket amount set forth in this Section 13.1(a). (b) The indemnification provided for in Section 11 shall not apply until the Sellers' collective claims for indemnification exceed $100,000 in the aggregate, whereupon claim may be made for all amounts in excess of $100,000, subject to Section 13.2. 14 13.2 Liability Cap. Notwithstanding anything to the contrary in this Agreement, in no event shall the aggregate amount of collective liability of the Sellers and GEO under Section 10 or the liability of Buyer under Section 11 (including all costs, expenses and attorneys' fees paid or incurred by the Sellers or Buyer in connection therewith) exceed $1,250,000. 13.3 Payment of Indemnification Claims. In the event that the Sellers or GEO are entitled to indemnification pursuant to Section 11, Buyer shall make payment of such indemnification claim in cash. In the event that Buyer is entitled to indemnification pursuant to Section 10, the payment of such indemnification by the Sellers and GEO shall be effected by the reduction of the number of shares of Common Stock issuable under the Class B Warrants held by the Sellers required to furnish such indemnification to the extent of such indemnification obligation, and such reduction shall constitute the sole source of indemnification of Buyer under this Agreement. For purposes of satisfying such indemnification obligation, the number of shares of Common Stock issuable under the Class B Warrants held by a Seller shall be reduced based upon the value of the Class B Warrants held by such Seller on the date on which such indemnification payment shall be made. Such valuation shall be calculated in accordance with the Black-Scholes model using the assumptions attached hereto as Exhibit G. For purposes of such calculation, the share price of the Common Stock shall be equal to the average closing price of the Common Stock on the Nasdaq National Market for the twenty consecutive trading days ending on the trading day immediately prior to the date upon which the indemnification payment shall be made. In the event that Buyer asserts an indemnification claim under this Agreement at any time after the Class B Warrants, by their terms, have become exercisable, Buyer shall be entitled to effect payment of any indemnification to which it is otherwise entitled by reducing the number of shares of Common Stock issuable under the Class B Warrants held by the Sellers required to furnish such indemnification, to the extent such Class B Warrants have not been exercised. 14. Certain Actions after the Closing. 14.1 Delivery of Property Received by GEO After the Closing. GEO agrees that it will transfer or make available to Buyer, promptly after the receipt thereof, any property which GEO receives after the Closing Date in respect of the Assets transferred or intended to be transferred to Buyer under this Agreement. Buyer agrees that GEO may sell any assets not included in the Assets and make available to Buyer the cash proceeds in exchange for Additional Shares pursuant to Section 14.4. 14.2 Cooperation After the Closing. The parties shall, at any time, and from time to time, after the Closing Date, execute and deliver such further instruments of conveyance and transfer and take such additional action or may be reasonably necessary to effect, consummate, confirm or evidence the transactions contemplated by this Agreement, including using their best efforts to obtain any third party consents not obtained as of the Closing Date. 15 14.3 Issuance of Shares to Other Shareholders. After the Closing and prior to the Additional Closing Date (as defined in Section 14.4), Buyer shall, upon receipt of a duly executed Other Shareholder Representation Agreement from any Other Shareholder who did not execute and deliver such Other Shareholder Representation Agreement to Buyer at or prior to the Closing, issue to such Other Shareholder its share of the Closing Shares and the Warrants as set forth in the Distribution Notice. At the Additional Closing, Buyer shall issue to GEO the Closing Shares and Warrants in respect of any Other Shareholder that has not executed and delivered to Buyer an Other Shareholder Representation Agreement. Upon receipt of any Closing Shares or Warrants, GEO agrees that its shall be deemed to have made to Buyer the representations, warranties and covenants contained in Section 4.4. 14.4 Winding Up and Issuance of Additional Shares. After the Closing Date, GEO shall (a) use any cash or cash equivalents in excess of $2,500,000 to satisfy its liabilities, including, without limitation, all liabilities relating to the termination of all of its employees, (b) sell its remaining non-cash assets not transferred to Buyer hereunder in one or more cash transactions on an arms'-length basis on commercially reasonable terms and (c) otherwise wind up its business and operations. Upon the substantial completion of such activities, GEO shall notify Buyer in writing of a date (the "Additional Closing Date") upon which an additional closing (the "Additional Closing") shall occur. GEO shall furnish such written notice to Buyer at least seven days prior to such Additional Closing Date, and such Additional Closing Date shall be no less than 30 days and no more than 60 days subsequent to the Closing Date. After furnishing such written notice to Buyer, GEO shall furnish Buyer reasonable access to its books and records with respect to its activities between the Closing Date and the Additional Closing Date. At the Additional Closing, GEO, by wire transfer of immediately available funds to the bank account designated by Buyer, shall pay to Buyer the amount of cash and cash equivalents held by GEO on the Additional Closing Date (less an allowance of up to $25,000 in the event that GEO has not completed the activities set forth in the first sentence of this Section 14.4) (such amount, the "Additional Closing Consideration"), in exchange for which Buyer shall issue and deliver to GEO one or more certificates representing an integral number of additional shares (rounded up to the nearest share) of Common Stock (the "Additional Shares") equal to (x) the Additional Closing Consideration divided by (y) a purchase price of $3.065 per share of Common Stock. Buyer shall issue the Additional Shares in the names of the Sellers, the Former Employees and the Other Shareholders, as distributees by way of bonus, dividend or other distribution by GEO (or, with respect to any Other Shareholder that has not delivered an Other Shareholder Representation Agreement to GEO prior to the Additional Closing Date, to GEO), in accordance with a written notice delivered to Buyer by GEO at the Additional Closing, which written notice shall set forth the number of Additional Shares that shall be distributed to each Seller, Former Employee and Other Shareholder. On the date of the issuance of the Additional Shares, each Seller that receives Additional Shares, and GEO, if it is issued any Additional Shares, shall be deemed to have made the representations, warranties and covenants set forth in Section 4 as of such issuance date. 16 14.5 Board of Directors. Buyer shall, as soon as practicable after the Closing Date, use its best efforts to cause (a) the number of directors constituting the Board of Directors of Buyer to be increased from seven to eight, and (b) a representative of the Sellers reasonably acceptable to Buyer to be nominated to serve on the Board of Directors of Buyer; provided, however, that Buyer shall have no further obligation under this Section 14.5 from and after the date that Sellers hold fewer that 50% of the Shares. 14.6 Lock-up. Each Seller hereby agrees that it shall not sell, offer, contract to sell, pledge, grant any option to purchase or otherwise dispose of any of the Shares or the Warrants prior to the 90th day after the date hereof. 14.7 Right of First Offer. If at any time or times during the twelve month period following the Closing Date Buyer issues or agrees to issue for cash in an equity financing any Common Stock or other equity securities of Buyer, or any rights, options, warrants or other securities which are directly or indirectly convertible into Common Stock or other equity securities of Buyer, the Sellers collectively shall have the right of first offer to purchase, on terms no less favorable to the Sellers than the terms under which Buyer proposes to issue such securities, up to 30% of the securities proposed to be issued by Buyer. The foregoing provision shall not apply to (a) issuances of shares of Common Stock pursuant to the exercise or conversion of options, warrants or shares of convertible securities that are outstanding as of the date hereof in accordance with such securities' current exercise or conversion terms, (b) issuances of shares of Common Stock pursuant to the exercise of employee stock options, (c) issuances of shares of Common Stock or other equity securities of Buyer, or any rights, options, warrants or other securities which are directly or indirectly convertible into Common Stock or other equity securities of Buyer, in connection with the acquisition of any business or assets by Buyer or (d) issuances of shares of Common Stock or other equity securities pursuant to an underwritten public offering by Buyer. 14.8 Registration of the Shares and the Warrants. (a) Buyer shall: (i) as soon as practicable after the issuance of the Additional Shares, prepare and file with the SEC a registration statement on Form S-3 (the "Registration Statement") relating to the resale of the Shares and the Warrant Shares by the Sellers; (ii) use its reasonable efforts, subject to receipt of necessary information from the Sellers, to cause the SEC to declare the Registration Statement effective as promptly as practicable after the Registration Statement is filed by Buyer; (iii) promptly prepare and file with the SEC (and provide notice to the Sellers of any such filing) such amendments and supplements to the Registration Statement and the prospectus used in connection therewith as may be necessary to keep the Registration Statement effective until the earlier of (A) the date all of the Shares and Warrant Shares covered by the Registration Statement have been sold by the Sellers, or (B) the date that is the third anniversary of the effective date of the Registration Statement; 17 (iv) furnish to each Seller with respect to the Shares and the Warrant Shares registered under the Registration Statement such number of copies of prospectuses as such Seller may reasonably request in order to facilitate the public sale or other disposition by such Seller of all or any of the Shares and the Warrant Shares registered under the Registration Statement; (v) notify each holder of Shares and Warrant Shares covered by such Registration Statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. Buyer will use reasonable best efforts to amend or supplement such prospectus in order to cause such prospectus not to include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; provided, however, that Buyer, in good faith, may delay the filing of any such amendment or supplement for a reasonable period of time in order to permit Buyer (A) to effect disclosure or disposition or consummation of any transaction requiring confidential treatment which is being actively pursued at such time and which would require disclosure in the Registration Statement or (B) to negotiate, effect or complete any transaction which Buyer reasonably believes might be jeopardized, delayed or made more costly to Buyer by disclosure in the Registration Statement; and (vi) bear all expenses in connection with the procedures in paragraphs (i) through (v) of this Section 14.8(a) and the registration of the Shares and the Warrant Shares covered by the Registration Statement pursuant to the Registration Statement, other than fees and expenses, if any, of counsel and other advisers to the Sellers or underwriting discounts, brokerage fees and commissions incurred by the Sellers, if any. (b) (i) Notwithstanding the generality of the foregoing clauses, each Seller agrees that upon notice from Buyer at any time or from time to time during the time the prospectus relating to the Shares and the Warrant Shares covered by the Registration Statement and proposed to be sold by such Seller is required to be delivered under the Securities Act of the happening of any event as a result of which, in Buyer's opinion, the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, such Seller will forthwith discontinue such Seller's disposition of such securities pursuant to the Registration Statement until the time of such Seller's receipt of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to Buyer of such securities, such prospectus shall not include, in Buyer's opinion, an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. 18 (ii) Each Seller shall furnish Buyer such information regarding such Seller and the distribution of the Shares and the Warrant Shares covered by the Registration Statement as Buyer may from time to time reasonably request in writing. (iii) Each Seller agrees to give at least two (2) Business Days' prior written notice to Buyer of any proposed sale of the Shares and the Warrant Shares covered by the Registration Statement pursuant to the Registration Statement and not to make such sale (A) unless such two (2) Business Days elapse without response from Buyer, or (B) in the event Buyer responds by stating that an amendment to the Registration Statement or supplement to the prospectus must be filed in accordance with the second sentence of Section 14.8(a)(v), until Buyer notifies the Sellers that the Registration Statement has been amended or the prospectus supplemented as required; provided, however, that Buyer agrees to file such amendment or supplement promptly upon the resolution of the disclosure issue necessitating such delay, or, in any event, not more than 30 days after receipt of Buyer's written notice. (c) Buyer will use its commercially reasonable efforts to cause the Shares and the Warrant Shares covered by and to be sold pursuant to the Registration Statement to be listed on any securities exchanges or markets on which shares of Common Stock are then listed. (d) (i) In the event of a registration of any of the Shares and the Warrant Shares under the Securities Act pursuant to this Section 14.8, Buyer will, to the extent permitted by applicable law, indemnify and hold harmless each Seller against all losses, claims, damages or liabilities, joint or several, to which such Seller may become subject under the Securities Act, the Exchange Act or any other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of Buyer), insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, including the prospectus, financial statements and schedules, and all other documents filed as a part thereof, as amended at the time of effectiveness of the Registration Statement, including any information deemed to be a part thereof as of the time of effectiveness pursuant to paragraph (b) of SEC Rule 430A, or pursuant to SEC Rule 434, or the prospectus, in the form first filed with the SEC pursuant to SEC Rule 424(b), or filed as part of the Registration Statement at the time of effectiveness if no Rule 424(b) filing is required, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such Seller for any legal or other expenses reasonably incurred by such Seller in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability or action; provided, however, that Buyer will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished in writing by such Seller specifically for use in such Registration Statement. For purposes of this Section 14.8(d), the term "Registration Statement" shall include any final prospectus, exhibit, supplement or amendment included in or relating to, and any document incorporated by reference in, the Registration Statement referred to in Section 14.8(a). 19 (ii) Each Seller, severally and not jointly, will, to the extent permitted by applicable law, indemnify and hold harmless Buyer, each person, if any, who controls Buyer within the meaning of the Securities Act, each officer of Buyer who signs the Registration Statement and each director of Buyer, against all losses, claims, damages or liabilities, joint or several, to which Buyer or such officer or director may become subject under the Securities Act, the Exchange Act or any other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Sellers), insofar as such loses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse Buyer and each such officer, director, underwriter and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that such Seller will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement of a material fact or omission or alleged omission of a material fact made in reliance upon and in conformity with information pertaining to such Seller furnished in writing to Buyer by such Seller specifically for use in the Registration Statement; and provided further, however, that the liability of each Seller hereunder shall not in any event exceed the proceeds received from the sale of its Shares and Warrant Shares covered by such Registration Statement. (iii) Promptly after receipt by an indemnified party under this Section 14.8(d) of notice of the threat or commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 14.8(d), promptly notify the indemnifying party in writing thereof; but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party for contribution or otherwise than under the indemnity agreement contained in this Section 14.8(d) to the extent it is not prejudiced as a result of such failure. In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with all other indemnifying parties similarly notified, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be a conflict between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its 20 election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 14.8(d) for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (1) the indemnified party shall have employed such counsel in connection with the assumption of legal defenses in accordance with the proviso to the preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel, approved by such indemnifying party in the case of paragraph (i), representing all of the indemnified parties who are parties to such action) or (2) the indemnified party shall not have employed counsel reasonably satisfactory to the indemnifying party to represent the indemnified party within a reasonable time after notice of commencement of action, in each of which cases the reasonable fees and expenses of counsel shall be at the expense of the indemnifying party. (iv) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (1) any indemnified party exercising rights under this Agreement makes a claim for indemnification pursuant to this Section 14.8(d) but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 14.8 provides for indemnification in such case, (2) contribution under the Securities Act may be required on the part of any such indemnified party in circumstances for which indemnification is provided under this Section 14.8, or (3) the indemnification provided for by this Section 14.8 is insufficient to hold harmless an indemnified party, other than by reason of the exceptions provided therein, then, and in each such case, Buyer and the Sellers will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) (x) in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other or (y) if the allocation provided by clause (x) above is not permitted by applicable law, or provides a lesser sum to the indemnified party than the amount hereinafter calculated, in such proportion as is appropriate to reflect not only the relative fault referred to in clause (x) above but also the relative benefits received by the indemnifying party and the indemnified party from the registration of the securities as well as the statements or omissions which resulted in such losses, claims, damages or liabilities and any other relevant equitable considerations. No Seller will be required to contribute any amount in excess of the proceeds received from the sale of its Shares and Warrant Shares covered by such Registration Statement and no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. 21 The obligations of the Buyer and the Sellers under this Section 14.8(d) shall survive completion of any offering of Shares or Warrant Shares pursuant to a Registration Statement and the termination of Buyer's obligations under Section 14.8(a). No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. 15. Costs, Expenses, etc. Each of the parties hereto shall bear all costs and expenses incurred by it in connection with this Agreement and in the preparation for and consummation of the transactions provided for herein, and shall not be entitled to any reimbursement therefor from the other party. 16. Notice of Proceedings. Buyer or the Sellers, as the case may be, will promptly notify the other in writing upon becoming aware of any order or decree or any complaint praying for an order or decree restraining or enjoining the consummation of this Agreement or the transactions contemplated hereunder, or upon receiving any notice from any governmental department, court, agency or commission of its intention to institute an investigation into, or institute a suit or proceeding to restrain or enjoin the consummation of this Agreement or such transactions, or to nullify or render ineffective this Agreement or such transactions if consummated. 17. Notices. Any notice, request, demand or consent required or permitted to be given under this Agreement shall be in writing and shall be effective when (i) delivered personally, (ii) when mailed, first class, postage prepaid, registered mail, return receipt requested, (iii) delivered by courier, or (iv) sent by facsimile or e-mail (but only with respect to any party has specified an e-mail address below) as follows: (a) If to Buyer to: Wire One Technologies, Inc. 225 Long Avenue Hillside, New Jersey 07205 Facsimile: (973) 391-9776 E-mail: jbirkhahn@wireone.com Attention: Jonathan Birkhahn, Esq. with a copy to: Fulbright & Jaworski L.L.P. 666 Fifth Avenue New York, New York 10103 Facsimile: (212) 318-3400 E-mail: ngold@fulbright.com Attention: Neil Gold, Esq. 22 (b) If to GEO, the Sellers, or any Seller, to: GeoVideo Networks, Inc. 114 West 47th Street 22nd Floor New York, New York 10036 Facsimile: (212) 282-0998 Attention: Peter Lee Thomas Weisel Partners LLC One Montgomery Street San Francisco, California 94104 Facsimile: (415) 364-2697 E-mail: ddross@tweisel.com Attention: Dan Dross Crest Communications Holdings LLC 320 Park Avenue, 17th Floor New York, New York 10022 Facsimile: (212) 317-2710 E-mail: jkuster@crestholdings.com; matt@crestholdings.com Attention: James Kuster and Matthew O'Connell East River Ventures L.P. 645 Madison Avenue, 22nd Floor New York, New York 10022 Facsimile: (212) 644-5498 E-mail: arussell@eastriverventures.com Attention: Andy Russell Lucent Technologies, Inc. New Ventures Group 600 Mountain Avenue Murray Hill, New Jersey 07974 Facsimile: (908) 582-7480 E-mail: tuhlman@lucent.com Attention: Thomas Uhlman with a copy to: Sills, Cummis, Radin, Tischman, Epstein & Gross One Riverfront Plaza Newark, New Jersey 07102 Facsimile: (973) 643-6091 E-mail: vboyajian@sillscummis.com Attention: Victor Boyajian or at such other address as a party shall specify by notice to the other parties. Any written notice to any Former Employee shall be sent to such Former Employee at the address set forth in such Former Employee's Former Employee Representation Agreement or at such other address as such Former Employee shall specify by notice to the parties hereto. Any written notice to any Other Shareholder shall be sent to such Other Shareholder at the address set forth in such Other Shareholder's Other Shareholder Representation Agreement or at such other address as such Other Shareholder shall specify by notice to the parties hereto. 23 18. Headings and Entire Agreement. The section and subsection headings do not constitute any part of this Agreement and are inserted herein for convenience of reference only. This Agreement (including the Schedules and Exhibits hereto), the Class A Warrants, the Class B Warrants, the Former Employee Representation Agreements, the Purchaser Representative Agreements, the Purchaser Representative Representation Letter and the Other Shareholder Representation Agreements embody the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede and preempt all prior oral and written understandings and agreements with respect to the subject matter hereof and thereof, and may not be amended, modified or changed orally, but only in writing signed by the party against whom enforcement of any amendment, modification, change, waiver, extension or discharge is sought. 19. Public Announcements. Neither Buyer on the one hand nor GEO or any Seller on the other shall make any press release or other public statement concerning the matters covered by this Agreement without the approval of the other party, except as in the opinion of counsel for the party making the release or statement is required by law or applicable regulation, and shall, in any event, to the extent practicable, permit the other party an opportunity to review any such release or statement prior to dissemination. 20. Waiver. No waiver of a breach of, or default under, any provision of this Agreement shall be deemed a waiver of such provision or of any subsequent breach or default of the same or similar nature or of any other provision or condition of this Agreement. 21. Binding Effect and Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties and their successors and assigns. Neither GEO nor the Sellers, on the one hand, nor Buyer, on the other, may assign any obligation under this Agreement except with the prior written consent of the other party hereto. 22. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one agreement. 23. Governing Law. This Agreement is to be governed by and interpreted under the laws of the State of New York, without giving effect to the principles of conflicts of laws thereof. 24 24. Jurisdiction. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought exclusively in a New York State or United States Federal court sitting in New York County, and each of the parties hereby expressly submits to such jurisdiction and venue of such court (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 25 IN WITNESS WHEREOF, each party has caused this Agreement to be duly executed, sealed and delivered in its name and on its behalf, all as of the date and year first above written. WIRE ONE TECHNOLOGIES, INC. By: ______________________________________ Name: Title: GEOVIDEO NETWORKS, INC. By: ______________________________________ Name: Title: THOMAS WEISEL CAPITAL PARTNERS LLC By: ______________________________________ Name: Title: CREST COMMUNICATIONS PARTNERS LP By: ______________________________________ Name: Title: EAST RIVER VENTURES II L.P. By: ______________________________________ Name: Title: LUCENT TECHNOLOGIES, INC. By: ______________________________________ Name: Title: 26 EX-10.45 4 d26455_ex10-45.txt CLASS A WARRANT TO PURCHASE COMMON STOCK Exhibit A NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT SUCH REGISTRATION OR THE DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH DISPOSITION WILL NOT REQUIRE REGISTRATION OF SUCH WARRANT OR SECURITIES ISSUABLE UPON EXERCISE THEREOF UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE HOLDER OF THIS WARRANT MAY NOT SELL, OFFER, CONTRACT TO SELL, PLEDGE, GRANT ANY OPTION TO PURCHASE OR OTHERWISE DISPOSE OF THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF PRIOR TO THE 90TH DAY AFTER THE DATE OF ISSUANCE OF THIS WARRANT. No. W - __ Warrant to Purchase ______ Shares of Common Stock (subject to adjustment) CLASS A WARRANT TO PURCHASE COMMON STOCK of WIRE ONE TECHNOLOGIES, INC. THIS CERTIFIES that, for value received, _____________________________, and its successors and assigns (the "Holder"), is entitled to subscribe for and purchase from Wire One Technologies, Inc., a Delaware corporation (the "Company"), upon the terms and conditions set forth herein, ______ shares of the Company's common stock, $.0001 par value per share ("Common Stock"), at a purchase price of $5.50 per share (the "Exercise Price") as adjusted from time to time pursuant to Section 7 hereof. The Holder shall be entitled to exercise this Warrant at any time or from time to time until 5:00 P.M., New York time, on June 1, 2006. If this Warrant is not exercised by the Holder by that time, then this Warrant shall expire. As used herein, the term "this Warrant" shall mean and include this Warrant and any Warrant or Warrants hereafter issued as a consequence of the partial exercise of this Warrant. 1. Exercise of Warrant. (a) The purchase rights represented by this Warrant are exercisable by the Holder, in whole or in part, at any time, or from time to time, during the term hereof, by the surrender of this Warrant at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder) along with either: (i) a Notice of Exercise annexed hereto duly completed and executed on behalf of the Holder (checking the first box under paragraph (1) of such Notice of Exercise), and payment in cash, by wire transfer or by check in an amount equal to the Exercise Price multiplied by the number of shares of Common Stock being purchased; or (ii) a Notice of Exercise annexed hereto duly completed and executed on behalf of the Holder (checking the second box under paragraph (1) of such Notice of Exercise), in the event that the Holder wishes to exercise ("Cashless Exercise") this Warrant without payment of the Exercise Price; provided, however, that the Holder may elect Cashless Exercise only after one year from the date of original issuance of this Warrant and only if a registration statement with respect to the shares of Common Stock issuable upon the exercise of this Warrant is not then in effect. The presentation and surrender of this Warrant and a Notice of Exercise so completed shall be deemed a waiver of the Holder's obligation to pay all or any portion of the Exercise Price in respect of the number of shares of Common Stock indicated in such Notice of Exercise. In the event of a Cashless Exercise, the Holder shall exchange its Warrant for that number of shares of Common Stock determined by multiplying the number of shares of Common Stock being exercised by a fraction, the numerator of which shall be the excess, if any, of the then current market price per share of Common Stock over the Exercise Price, and the denominator of which shall be the then current market price per share of Common Stock. For purposes of any computation under this Section 1(a)(ii), the then current market price per share of Common Stock at any date shall be deemed to be the average for the five consecutive trading days immediately prior to the Cashless Exercise of the daily closing prices of Common Stock as reported by the Nasdaq National Market, or if not then listed on the Nasdaq National Market, the average of the highest reported bid and lowest reported asked prices as reported by the National Association of Securities Dealers, Inc. Automated Quotations System or if not then publicly traded, the fair market price per share of Common Stock as determined by the Board of Directors of the Company. (b) This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Common Stock issuable upon such exercise shall be treated for all purposes as the holder of record of such shares as of the close of business on such date. As promptly as practicable on or after such date and in any event within ten (10) days thereafter, the Company, at its expense, shall issue and deliver to the person or persons entitled to receive the same, a certificate or certificates for the number of full shares issuable upon such exercise. (c) In the event that this Warrant is exercised in part, the Company, at its expense, will execute and deliver a new Warrant of like tenor exercisable for the number of shares for which this Warrant may then be exercised. 2. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction. 2 3. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company, at its expense, shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor and amount. 4. Rights of Stockholders. Subject to Section 7 this Warrant, the Holder shall not have, solely on account of its status as a holder of this Warrant, any rights of a stockholder of the Company, either in law or in equity, or to any notice of meetings of stockholders or of any other proceeding of the Company, except as provided in this Warrant. 5. Compliance with Securities Laws. (a) The Holder, by acceptance hereof, acknowledges that this Warrant is being acquired solely for the Holder's own account, and not as a nominee for any other party, and for investment purposes only, and that the Holder will not offer, sell or otherwise dispose of this Warrant or any shares of Common Stock to be issued upon exercise hereof except under circumstances that will not result in a violation of the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws. Upon exercise of this Warrant, the Holder shall, if requested by the Company and if the shares of Common Stock to be issued upon exercise hereof are not registered, confirm in writing, in a form reasonably satisfactory to the Company, that the shares of Common Stock so purchased are being acquired solely for the Holder's own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale. (b) The Holder represents and warrants to the Company that it is an "accredited investor" as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act, or has entered into a purchaser representative agreement with a "purchaser representative" as such term is defined in Rule 501(h) of Regulation D promulgated under the Securities Act. (c) This Warrant, and any Warrant issued pursuant to Section 1(c) or Section 3 of this Warrant, shall be stamped or imprinted with a legend in substantially the following form (in addition to any legend required by state securities laws); provided, however, that in any Warrant issued pursuant to Section 1(c) or Section 3, the third sentence shall be modified to refer to the original date of issuance of this Warrant: "NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT SUCH REGISTRATION OR THE DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH DISPOSITION WILL NOT REQUIRE REGISTRATION OF SUCH WARRANT OR SECURITIES ISSUABLE UPON EXERCISE THEREOF UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE HOLDER OF THIS WARRANT MAY NOT SELL, OFFER, CONTRACT TO SELL, PLEDGE, GRANT ANY OPTION TO PURCHASE OR OTHERWISE DISPOSE OF THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF PRIOR TO THE 90TH DAY AFTER THE DATE OF ISSUANCE OF THIS WARRANT." 3 (d) All shares of Common Stock issued upon exercise hereof shall be stamped or imprinted with a legend, if appropriate, in substantially the following form (in addition to any legend required by state securities laws): "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT SUCH REGISTRATION OR THE DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH DISPOSITION WILL NOT REQUIRE REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED." 6. Reservation of Stock. The Company covenants that during the term this Warrant is exercisable, the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the exercise of this Warrant and, from time to time, will take all steps necessary to amend its Certificate of Incorporation to provide sufficient reserves of shares of Common Stock issuable upon exercise of the Warrant. The Company further covenants that all shares of Common Stock that may be issued upon the exercise of this Warrant will be free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer by the Holder occurring contemporaneously). The Company agrees that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the exercise of this Warrant. 7. Adjustments. The Exercise Price and the number of shares of Common Stock purchasable hereunder are subject to adjustment from time to time as follows: 7.1 Merger, Sale of Assets, Etc. If at any time while this Warrant, or any portion hereof, is outstanding and unexpired, there shall be: (i) a reclassification, reorganization (other than a combination, exchange or subdivision of shares otherwise provided for herein); (ii) a merger or consolidation of the Company with or into another entity in which the Company is not the surviving entity, or a reverse triangular merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash, or otherwise; (iii) a sale or transfer of the Company's properties and assets as, or substantially as, an entirety to any other person; or (iv) sale by the Company's shareholders of 50% or more of the Company's outstanding securities in one or more related transactions then, as a part of such reclassification, reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Exercise Price then in effect, the number of shares of stock or other securities or property resulting from such reclassification, reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon exercise of this Warrant would have been entitled to receive in such reclassification, reorganization, consolidation, merger, sale or transfer if this Warrant had been exercised immediately before such reclassification, reorganization, merger, 4 consolidation, sale or transfer, all subject to further adjustment as provided in this Section 7. The foregoing provisions of this Section 7.1 shall similarly apply to successive reclassifications, reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the exercise of this Warrant. If the per-share consideration payable to the Holder for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after the transaction, to the end that the provisions of this Warrant shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Warrant. 7.2 Dilutive Issuances. (a) Except as provided in Section 7.2(c), if the Company at any time while this Warrant, or any portion thereof, remains outstanding and unexpired shall issue or sell any shares of Common Stock for a consideration per share less than the Exercise Price on the date of such issuance or sale, the Exercise Price shall be adjusted as of the date of such issuance or sale so that the same shall equal the price determined by dividing (i) the sum of (A) the number of shares of Common Stock outstanding immediately prior to such issuance or sale multiplied by the Exercise Price plus (B) the consideration received by the Company upon such issuance and sale by (ii) the total number of shares of Common Stock outstanding after such issuance or sale. (b) Except as provided in Section 7.2(c), if the Company at any time while this Warrant, or any portion thereof, remains outstanding and unexpired shall issue or sell any rights, options, warrants or securities convertible into Common Stock entitling the holders thereof to purchase Common Stock or to convert such securities into Common Stock at a price per share (determined by dividing (i) the total amount, if any, received or receivable by the Company in consideration of the issuance or sale of such rights, options, warrants or convertible securities plus the total consideration, if any, payable to the Company upon exercise or conversion thereof (the "Total Consideration") by (ii) the number of additional shares of Common Stock issuable upon exercise or conversion of such securities) less than the then current Exercise Price in effect on the date of such issuance or sale, the Exercise Price shall be adjusted as of the date of such issuance or sale so that the same shall equal the price determined by dividing (i) the sum of (A) the number of shares of Common Stock outstanding on the date of such issuance or sale multiplied by the Exercise Price plus (B) the Total Consideration by (ii) the number of shares of Common Stock outstanding on the date of such issuance or sale plus the maximum number of additional shares of Common Stock issuable upon exercise or conversion of such securities. 5 (c) No adjustment in the Exercise Price shall be required in the case of (i) issuances of shares of Common Stock pursuant to the exercise or conversion of options, warrants or shares of convertible securities that are outstanding as of the date of this Warrant in accordance with such securities' current exercise or conversion terms, (ii) the issuance of employee stock options after the date hereof and the issuance of any shares of Common Stock upon the exercise thereof, (iii) the issuance of shares of Common Stock or options, warrants or other convertible securities in connection with an underwritten public offering or (iv) the issuance of shares of Common Stock or options, warrants or other convertible securities in connection with the acquisition of a business or assets by the Company. The number of shares of Common Stock set forth in this Section 7.2(c) are subject to adjustment in accordance with any anti-dilution provisions existing on the date hereof under the terms of the instruments governing their issuance. 7.3 Split, Subdivision or Combination of Shares. If the Company at any time while this Warrant, or any portion hereof, remains outstanding and unexpired shall split, subdivide or combine the securities as to which purchase rights under this Warrant exist, into a different number of securities of the same class, the Exercise Price for such securities shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination and the number of shares issuable upon exercise of this Warrant shall be proportionately increased in the case of a split or subdivision or proportionately decreased in the case of a combination. 7.4 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 7, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each Holder of this Warrant a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request, at any time, of any such Holder, furnish or cause to be furnished to such Holder a like certificate setting forth: (i) such adjustments and readjustments; (ii) the Exercise Price at the time in effect; and (iii) the number of shares and the amount, if any, of other property that at the time would be received upon the exercise of the Warrant. 7.5 Notice of Record Dates. The Company shall provide the Holder with at least 20 calendar days prior written notice of the date on which any of the events described in Sections 7.1 through 7.3, inclusive, shall take place, or of the record date if one will be set for any such event or for any proposed dividend or distribution by the Company. Such notice shall describe the material terms and conditions of the impending event. The Company shall provide the Holder with such other information about the event as the Holder shall reasonably request. 7.6 No Impairment. The Company will not, by any 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 7 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against impairment. 6 7.7 Share Adjustment. (a) Upon each adjustment of the Exercise Price under this Section 7, the Holder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Exercise Price resulting from such adjustment. (b) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least $0.05 per share of Common Stock; provided, however, that any adjustments which by reason of this Section 7.7(b) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 7 shall be made to the nearest cent or to the nearest 1/l00th of a share, as the case may be. 8. Registration Rights; Lock-Up. The Holder shall have and be entitled to the registration rights, and be subject to the obligations, as set forth in Section 14.8 of the Asset Purchase Agreement, made as of May 30, 2001, by and among the Company, GeoVideo Networks, Inc., a Delaware corporation, Thomas Weisel Capital Partners LLC, a Delaware limited liability company, Crest Communications Partners LP, a Delaware limited partnership, East River Ventures II L.P., a Delaware limited partnership, and Lucent Technologies, Inc., a Delaware corporation (the "Asset Purchase Agreement"). By its receipt of this Warrant, Holder acknowledges that it has received a copy of the Asset Purchase Agreement and Holder and each of its assignees agrees to be bound by the provisions of the Asset Purchase Agreement applicable to it, including, without limitation, the lock-up provision set forth in Section 14.6 of such Asset Purchase Agreement. Copies of the Asset Purchase Agreement may be obtained at no cost by written request made by the Holder of record hereof to the Company at the address set forth in Section 9. 9. Notice. Any notice, request or demand required or permitted to be given under this Warrant shall be in writing and shall be effective when (i) delivered personally, (ii) when mailed, first class, postage prepaid, registered mail, return receipt requested, or (iii) delivered by courier as follows: (a) If to the Company to: Wire One Technologies, Inc. 225 Long Avenue Hillside, New Jersey 07205 Facsimile: (973) 282-2033 Attention: Jonathan Birkhahn, Esq. with a copy to: Fulbright & Jaworski L.L.P. 666 Fifth Avenue New York, New York 10103 Facsimile: (212) 318-3400 Attention: Neil Gold, Esq. (b) If to the Holder to: with a copy to: or at such other address as the Company or the Holder shall specify by notice to the other party hereto. 7 10. Amendments. This Warrant and any term hereof may not be amended, modified, supplemented or terminated, and waivers or consents to departures from the provisions hereof may not be given, except by written instrument duly executed by any and all effected parties. 11. Headings and Entire Agreement. The section and subsection headings do not constitute any part of this Warrant and are inserted herein for convenience of reference only. This Warrant and the Asset Purchase Agreement embody the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede and preempt all prior oral and written understandings and agreements with respect to the subject matter hereof and thereof, and may not be amended, modified or changed orally, but only in writing signed by the party against whom enforcement of any amendment, modification, change, waiver, extension or discharge is sought. 12. Governing Law. This Warrant is to be governed by and interpreted under the laws of the State of New York, without giving effect to the principles of conflicts of laws thereof. 13. Jurisdiction. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Warrant shall be brought exclusively in a New York State or United States Federal court sitting in New York County, and each of the parties hereby expressly submits to such jurisdiction and venue of such court (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 8 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officers thereunto duly authorized. Dated: ____________, 2001 WIRE ONE TECHNOLOGIES, INC. By: ---------------------------------- Name: Title: 9 NOTICE OF EXERCISE To: Wire One Technologies, Inc. (1) (Check one box below) [_] The undersigned hereby elects to purchase ____ shares of Common Stock of Wire One Technologies, Inc., pursuant to the provisions of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full; or [_] The undersigned hereby elects to surrender _____ shares purchasable under this Warrant for such shares of Common Stock issuable in exchange therefor pursuant to the Cashless Exercise provisions of the within Warrant, as provided for in Section 1(a)(ii) of such Warrant. (2) In exercising this Warrant, the undersigned hereby confirms and acknowledges that, unless registered, the shares of Common Stock to be issued upon exercise thereof are being acquired solely for the account of the undersigned and not as a nominee for any other party, and for investment purposes only, and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the Securities Act of 1933, as amended (the "Securities Act"), or any applicable state securities laws. The undersigned further confirms and acknowledges that (check one box below): [_] it is an "accredited investor" as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act; or [_] it has entered into a purchaser representative agreement with a "purchaser representative" as such term is defined in Rule 501(h) of Regulation D promulgated under the Securities Act. (3) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: --------------------------------- (Name) (4) Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below: --------------------------------- (Name) - ------------------------------ Name: Date: EX-10.46 5 d26455_ex10-46.txt CLASS B WARRANT TO PURCHASE COMMON STOCK Exhibit B NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT SUCH REGISTRATION OR THE DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH DISPOSITION WILL NOT REQUIRE REGISTRATION OF SUCH WARRANT OR SECURITIES ISSUABLE UPON EXERCISE THEREOF UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE HOLDER OF THIS WARRANT MAY NOT SELL, OFFER, CONTRACT TO SELL, PLEDGE, GRANT ANY OPTION TO PURCHASE OR OTHERWISE DISPOSE OF THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF PRIOR TO THE 90TH DAY AFTER THE DATE OF ISSUANCE OF THIS WARRANT. No. W - __ Warrant to Purchase ______ Shares of Common Stock (subject to adjustment) CLASS B WARRANT TO PURCHASE COMMON STOCK of WIRE ONE TECHNOLOGIES, INC. THIS CERTIFIES that, for value received, _____________________________, and its successors and assigns (the "Holder"), is entitled to subscribe for and purchase from Wire One Technologies, Inc., a Delaware corporation (the "Company"), upon the terms and conditions set forth herein, ______ shares of the Company's common stock, $.0001 par value per share ("Common Stock"), at a purchase price of $7.50 per share (the "Exercise Price") as adjusted from time to time pursuant to Section 7 hereof. The Holder shall be entitled to exercise this Warrant at any time or from time to time after June 1, 2002 (or such later date that the Holder hereof is subject to the indemnification obligations described in Section 9) until 5:00 P.M., New York time, on June 1, 2006. If this Warrant is not exercised by the Holder by that time, then this Warrant shall expire. As used herein, the term "this Warrant" shall mean and include this Warrant and any Warrant or Warrants hereafter issued as a consequence of the partial exercise of this Warrant. 1. Exercise of Warrant. (a) The purchase rights represented by this Warrant are exercisable by the Holder, in whole or in part, at any time, or from time to time, during the term hereof, by the surrender of this Warrant at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder) along with either: (i) a Notice of Exercise annexed hereto duly completed and executed on behalf of the Holder (checking the first box under paragraph (1) of such Notice of Exercise), and payment in cash, by wire transfer or by check in an amount equal to the Exercise Price multiplied by the number of shares of Common Stock being purchased; or (ii) a Notice of Exercise annexed hereto duly completed and executed on behalf of the Holder (checking the second box under paragraph (1) of such Notice of Exercise), in the event that the Holder wishes to exercise ("Cashless Exercise") this Warrant without payment of the Exercise Price; provided, however, that the Holder may elect Cashless Exercise only after one year from the date of original issuance of this Warrant and only if a registration statement with respect to the shares of Common Stock issuable upon the exercise of this Warrant is not then in effect. The presentation and surrender of this Warrant and a Notice of Exercise so completed shall be deemed a waiver of the Holder's obligation to pay all or any portion of the Exercise Price in respect of the number of shares of Common Stock indicated in such Notice of Exercise. In the event of a Cashless Exercise, the Holder shall exchange its Warrant for that number of shares of Common Stock determined by multiplying the number of shares of Common Stock being exercised by a fraction, the numerator of which shall be the excess, if any, of the then current market price per share of Common Stock over the Exercise Price, and the denominator of which shall be the then current market price per share of Common Stock. For purposes of any computation under this Section 1(a)(ii), the then current market price per share of Common Stock at any date shall be deemed to be the average for the five consecutive trading days immediately prior to the Cashless Exercise of the daily closing prices of Common Stock as reported by the Nasdaq National Market, or if not then listed on the Nasdaq National Market, the average of the highest reported bid and lowest reported asked prices as reported by the National Association of Securities Dealers, Inc. Automated Quotations System or if not then publicly traded, the fair market price per share of Common Stock as determined by the Board of Directors of the Company. (b) This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Common Stock issuable upon such exercise shall be treated for all purposes as the holder of record of such shares as of the close of business on such date. As promptly as practicable on or after such date and in any event within ten (10) days thereafter, the Company, at its expense, shall issue and deliver to the person or persons entitled to receive the same, a certificate or certificates for the number of full shares issuable upon such exercise. (c) In the event that this Warrant is exercised in part, the Company, at its expense, will execute and deliver a new Warrant of like tenor exercisable for the number of shares for which this Warrant may then be exercised. 2. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction. 2 3. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company, at its expense, shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor and amount. 4. Rights of Stockholders. Subject to Section 7 this Warrant, the Holder shall not have, solely on account of its status as a holder of this Warrant, any rights of a stockholder of the Company, either in law or in equity, or to any notice of meetings of stockholders or of any other proceeding of the Company, except as provided in this Warrant. 5. Compliance with Securities Laws. (a) The Holder, by acceptance hereof, acknowledges that this Warrant is being acquired solely for the Holder's own account, and not as a nominee for any other party, and for investment purposes only, and that the Holder will not offer, sell or otherwise dispose of this Warrant or any shares of Common Stock to be issued upon exercise hereof except under circumstances that will not result in a violation of the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws. Upon exercise of this Warrant, the Holder shall, if requested by the Company and if the shares of Common Stock to be issued upon exercise hereof are not registered, confirm in writing, in a form reasonably satisfactory to the Company, that the shares of Common Stock so purchased are being acquired solely for the Holder's own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale. (b) The Holder represents and warrants to the Company that it is an "accredited investor" as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act, or has entered into a purchaser representative agreement with a "purchaser representative" as such term is defined in Rule 501(h) of Regulation D promulgated under the Securities Act. (c) This Warrant, and any Warrant issued pursuant to Section 1(c) or Section 3 of this Warrant, shall be stamped or imprinted with a legend in substantially the following form (in addition to any legend required by state securities laws); provided, however, that in any Warrant issued pursuant to Section 1(c) or Section 3, the third sentence shall be modified to refer to the original date of issuance of this Warrant: "NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT SUCH REGISTRATION OR THE DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH DISPOSITION WILL NOT REQUIRE REGISTRATION OF SUCH WARRANT OR SECURITIES ISSUABLE UPON EXERCISE THEREOF UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE HOLDER OF THIS WARRANT MAY NOT SELL, OFFER, CONTRACT TO SELL, PLEDGE, GRANT ANY OPTION TO PURCHASE OR OTHERWISE DISPOSE OF THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF PRIOR TO THE 90TH DAY AFTER THE DATE OF ISSUANCE OF THIS WARRANT." 3 (d) All shares of Common Stock issued upon exercise hereof shall be stamped or imprinted with a legend, if appropriate, in substantially the following form (in addition to any legend required by state securities laws): "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT SUCH REGISTRATION OR THE DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH DISPOSITION WILL NOT REQUIRE REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED." 6. Reservation of Stock. The Company covenants that during the term this Warrant is exercisable, the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the exercise of this Warrant and, from time to time, will take all steps necessary to amend its Certificate of Incorporation to provide sufficient reserves of shares of Common Stock issuable upon exercise of the Warrant. The Company further covenants that all shares of Common Stock that may be issued upon the exercise of this Warrant will be free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer by the Holder occurring contemporaneously). The Company agrees that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the exercise of this Warrant. 7. Adjustments. The Exercise Price and the number of shares of Common Stock purchasable hereunder are subject to adjustment from time to time as follows: 7.1 Merger, Sale of Assets, Etc. If at any time while this Warrant, or any portion hereof, is outstanding and unexpired, there shall be: (i) a reclassification, reorganization (other than a combination, exchange or subdivision of shares otherwise provided for herein); (ii) a merger or consolidation of the Company with or into another entity in which the Company is not the surviving entity, or a reverse triangular merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash, or otherwise; (iii) a sale or transfer of the Company's properties and assets as, or substantially as, an entirety to any other person; or (iv) sale by the Company's shareholders of 50% or more of the Company's outstanding securities in one or more related transactions then, as a part of such reclassification, reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Exercise Price then in effect, the number of shares of stock or other securities or property resulting from such reclassification, reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon exercise of this Warrant would have been entitled to receive in such reclassification, reorganization, consolidation, merger, sale or transfer if this Warrant had been exercised immediately before such reclassification, reorganization, merger, consolidation, sale or transfer, all subject to further adjustment as provided in this Section 7. The foregoing provisions of this Section 7.1 shall similarly 4 apply to successive reclassifications, reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the exercise of this Warrant. If the per-share consideration payable to the Holder for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after the transaction, to the end that the provisions of this Warrant shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Warrant. 7.2 Dilutive Issuances. (a) Except as provided in Section 7.2(c), if the Company at any time while this Warrant, or any portion thereof, remains outstanding and unexpired shall issue or sell any shares of Common Stock for a consideration per share less than the Exercise Price on the date of such issuance or sale, the Exercise Price shall be adjusted as of the date of such issuance or sale so that the same shall equal the price determined by dividing (i) the sum of (A) the number of shares of Common Stock outstanding immediately prior to such issuance or sale multiplied by the Exercise Price plus (B) the consideration received by the Company upon such issuance and sale by (ii) the total number of shares of Common Stock outstanding after such issuance or sale. (b) Except as provided in Section 7.2(c), if the Company at any time while this Warrant, or any portion thereof, remains outstanding and unexpired shall issue or sell any rights, options, warrants or securities convertible into Common Stock entitling the holders thereof to purchase Common Stock or to convert such securities into Common Stock at a price per share (determined by dividing (i) the total amount, if any, received or receivable by the Company in consideration of the issuance or sale of such rights, options, warrants or convertible securities plus the total consideration, if any, payable to the Company upon exercise or conversion thereof (the "Total Consideration") by (ii) the number of additional shares of Common Stock issuable upon exercise or conversion of such securities) less than the then current Exercise Price in effect on the date of such issuance or sale, the Exercise Price shall be adjusted as of the date of such issuance or sale so that the same shall equal the price determined by dividing (i) the sum of (A) the number of shares of Common Stock outstanding on the date of such issuance or sale multiplied by the Exercise Price plus (B) the Total Consideration by (ii) the number of shares of Common Stock outstanding on the date of such issuance or sale plus the maximum number of additional shares of Common Stock issuable upon exercise or conversion of such securities. (c) No adjustment in the Exercise Price shall be required in the case of (i) issuances of shares of Common Stock pursuant to the exercise or conversion of options, warrants or shares of convertible securities that are outstanding as of the date of this Warrant in accordance with such securities' current exercise or conversion terms, (ii) the issuance of employee stock options after the date hereof and the issuance of any shares of Common Stock upon the exercise thereof, (iii) the issuance of shares of Common Stock or options, warrants or other convertible securities in connection with an underwritten public offering or (iv) the issuance of shares of Common Stock or options, warrants or other convertible securities in connection with the acquisition of a business or assets by the Company. The number of shares of Common Stock set forth in this Section 7.2(c) are subject to adjustment in accordance with any anti-dilution provisions existing on the date hereof under the terms of the instruments governing their issuance. 5 7.3 Split, Subdivision or Combination of Shares. If the Company at any time while this Warrant, or any portion hereof, remains outstanding and unexpired shall split, subdivide or combine the securities as to which purchase rights under this Warrant exist, into a different number of securities of the same class, the Exercise Price for such securities shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination and the number of shares issuable upon exercise of this Warrant shall be proportionately increased in the case of a split or subdivision or proportionately decreased in the case of a combination. 7.4 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 7, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each Holder of this Warrant a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request, at any time, of any such Holder, furnish or cause to be furnished to such Holder a like certificate setting forth: (i) such adjustments and readjustments; (ii) the Exercise Price at the time in effect; and (iii) the number of shares and the amount, if any, of other property that at the time would be received upon the exercise of the Warrant. 7.5 Notice of Record Dates. The Company shall provide the Holder with at least 20 calendar days prior written notice of the date on which any of the events described in Sections 7.1 through 7.3, inclusive, shall take place, or of the record date if one will be set for any such event or for any proposed dividend or distribution by the Company. Such notice shall describe the material terms and conditions of the impending event. The Company shall provide the Holder with such other information about the event as the Holder shall reasonably request. 7.6 No Impairment. The Company will not, by any 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 7 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against impairment. 7.7 Share Adjustment. (a) Upon each adjustment of the Exercise Price under this Section 7, the Holder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Exercise Price resulting from such adjustment. (b) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least $0.05 per share of Common Stock; provided, however, that any adjustments which by reason of this Section 7.7(b) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 7 shall be made to the nearest cent or to the nearest 1/l00th of a share, as the case may be. 6 8. Registration Rights; Lock-Up. The Holder shall have and be entitled to the registration rights, and be subject to the obligations, as set forth in Section 14.8 of the Asset Purchase Agreement, made as of May 30, 2001, by and among the Company, GeoVideo Networks, Inc., a Delaware corporation, Thomas Weisel Capital Partners LLC, a Delaware limited liability company, Crest Communications Partners LP, a Delaware limited partnership, East River Ventures II L.P., a Delaware limited partnership, and Lucent Technologies, Inc., a Delaware corporation (the "Asset Purchase Agreement"). By its receipt of this Warrant, Holder acknowledges that it has received a copy of the Asset Purchase Agreement and Holder and each of its assignees agrees to be bound by the provisions of the Asset Purchase Agreement applicable to it, including, without limitation, the lock-up provision set forth in Section 14.6 of such Asset Purchase Agreement. Copies of the Asset Purchase Agreement may be obtained at no cost by written request made by the Holder of record hereof to the Company at the address set forth in Section 10. 9. Indemnification. The Holder acknowledges and agrees that the number of Shares of Common Stock issuable under this Warrant may be reduced to the extent of any indemnification obligation owed to the Company by the Holder pursuant to the indemnification provisions set forth in Sections 10, 12 and 13 of the Asset Purchase Agreement. If an indemnification claim has been asserted by the Company under the Asset Purchase Agreement and has not yet been resolved prior to June 1, 2002, this Warrant shall not be exercisable until such claim has been resolved. 10. Notice. Any notice, request or demand required or permitted to be given under this Warrant shall be in writing and shall be effective when (i) delivered personally, (ii) when mailed, first class, postage prepaid, registered mail, return receipt requested, or (iii) delivered by courier as follows: (a) If to the Company to: Wire One Technologies, Inc. 225 Long Avenue Hillside, New Jersey 07205 Facsimile: (973) 282-2033 Attention: Jonathan Birkhahn, Esq. with a copy to: Fulbright & Jaworski L.L.P. 666 Fifth Avenue New York, New York 10103 Facsimile: (212) 318-3400 Attention: Neil Gold, Esq. (b) If to the Holder to: with a copy to: or at such other address as the Company or the Holder shall specify by notice to the other party hereto. 7 11. Amendments. This Warrant and any term hereof may not be amended, modified, supplemented or terminated, and waivers or consents to departures from the provisions hereof may not be given, except by written instrument duly executed by any and all effected parties. 12. Headings and Entire Agreement. The section and subsection headings do not constitute any part of this Warrant and are inserted herein for convenience of reference only. This Warrant and the Asset Purchase Agreement embody the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede and preempt all prior oral and written understandings and agreements with respect to the subject matter hereof and thereof, and may not be amended, modified or changed orally, but only in writing signed by the party against whom enforcement of any amendment, modification, change, waiver, extension or discharge is sought. 13. Governing Law. This Warrant is to be governed by and interpreted under the laws of the State of New York, without giving effect to the principles of conflicts of laws thereof. 14. Jurisdiction. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Warrant shall be brought exclusively in a New York State or United States Federal court sitting in New York County, and each of the parties hereby expressly submits to such jurisdiction and venue of such court (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 8 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officers thereunto duly authorized. Dated: ____________, 2001 WIRE ONE TECHNOLOGIES, INC. By: ---------------------------------- Name: Title: 9 NOTICE OF EXERCISE To: Wire One Technologies, Inc. (1) (Check one box below) [_] The undersigned hereby elects to purchase ____ shares of Common Stock of Wire One Technologies, Inc., pursuant to the provisions of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full; or [_] The undersigned hereby elects to surrender _____ shares purchasable under this Warrant for such shares of Common Stock issuable in exchange therefor pursuant to the Cashless Exercise provisions of the within Warrant, as provided for in Section 1(a)(ii) of such Warrant. (2) In exercising this Warrant, the undersigned hereby confirms and acknowledges that, unless registered, the shares of Common Stock to be issued upon exercise thereof are being acquired solely for the account of the undersigned and not as a nominee for any other party, and for investment purposes only, and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the Securities Act of 1933, as amended (the "Securities Act"), or any applicable state securities laws. The undersigned further confirms and acknowledges that (check one box below): [_] it is an "accredited investor" as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act; or [_] it has entered into a purchaser representative agreement with a "purchaser representative" as such term is defined in Rule 501(h) of Regulation D promulgated under the Securities Act. (3) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: --------------------------------- (Name) (4) Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below: --------------------------------- (Name) - ------------------------------ Name: Date: -----END PRIVACY-ENHANCED MESSAGE-----