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Plan of Operations
The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this proxy statement.
Net income for the three months ended September 30, 2008 of $138,626 consisted of interest income of $661,886, offset by $4,275 for trustee fees, $22,500 for a monthly administrative service agreement, $69,146 for professional fees, $83,827 for operating costs, $188,364 for due diligence costs, $26,387 for franchise tax and $128,761 of income taxes.
Net income for the nine months ended September 30, 2008 of $461,266 consisted of interest income of $1,987,041, offset by $12,044 for trustee fees, $67,500 for a monthly administrative service agreement, $120,254 for professional fees, $230,187 for operating costs, $599,564 for due diligence costs, $85,742 for franchise tax and $410,484 of income taxes.
Our net loss for the period from June 18, 2007 (inception) to December 31, 2007 of $673 consisted of interest income of $389 offset by $1,062 of formation costs.
We consummated our initial public offering on January 17, 2008. Gross proceeds from our initial public offering were $150.0 million. After deducting offering expenses of $10.5 million in underwriting discounts and commissions, of which approximately $6.8 million has been accrued and deferred and will not be payable unless and until we complete a business combination, and an additional $616,000 for a total of approximately $11.1 million of costs and expenses related to the offering, net proceeds were approximately $145.6 million. As of September 30, 2008, there was approximately $150.6 million held in trust. Up to an aggregate of $1.8 million of
interest earned on the Trust Account is available to be used to provide for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses.
We have used the net proceeds of our initial public offering not held in trust to identify and evaluate prospective acquisition candidates, select our target business, and structure, negotiate and consummate our business combination. At September 30, 2008, we had cash outside of the trust account of $103,550, prepaid expenses of $76,257, current liabilities of $238,812 and income taxes payable of $253,757, resulting in a working capital deficit, excluding the amounts in the trust account, of $312,762. Marc V. Byron and Lowell D. Kraff agreed, pursuant to agreements with us and Lazard Capital Markets, that, if we liquidate prior to the consummation of
a business combination, they will be personally liable to pay certain debts and obligations to target businesses or vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us in excess of net proceeds of our initial public offering not held in the trust account.
We are obligated to pay to Trivergance, an affiliate of our initial stockholders, a monthly fee of $7,500 for office space, as well as certain office and secretarial services. Through September 30, 2008, an aggregate of $67,500 has been incurred for such services. In addition, on July 12, 2007, we issued an aggregate $100,000 unsecured promissory note to Trivergance. The note was non-interest bearing and was payable on the earlier of the consummation of our initial public offering by us or July 12, 2008. The note was repaid from the net proceeds of our initial public offering. In addition, on July 31, 2007, Trivergance advanced $12,911 to us. No
formal repayment arrangement was in place and no interest was due on the advance. The advance was repaid.
As indicated in our accompanying financial statements, such financial statements have been prepared assuming that we will continue as a going concern. As discussed elsewhere in this proxy statement, we are required to consummate a business combination by January 11, 2010. The possibility that our merger with HUGHES Telematics will not be consummated raises substantial doubt about our ability to continue as a going concern, and the financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Polaris reimburses its officers and directors for any out-of-pocket business expenses incurred by them in connection with certain activities on our behalf, such as identifying and investigating possible business targets and business combinations. From Polaris inception on June 18, 2007 through September 30, 2008, Polaris reimbursed its officers and directors in the aggregate amount of $78,245 for expenses incurred by them on its behalf, including travel, meals and entertainment and telephone.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF POLARIS
Overview
We were formed under the laws of the State of Delaware on June 18, 2007 in order to serve as a vehicle for the acquisition of an operating business. Our efforts to identify a prospective target business are not limited to a particular industry.
On January 17, 2008, we completed our initial public offering of 15,000,000 units at $10.00 per unit. In conjunction with the consummation of the initial public offering we sold an aggregate of 4,500,000 insider warrants to certain existing stockholders on a private placement basis at a price of $1.00 per warrant, for an aggregate price of $4.5 million. Lazard Capital Markets, LLC acted as representative of the underwriters in the offering. The total gross proceeds from the initial public offering, excluding the insider warrants sold on a private placement basis, amounted to $150.0 million. After the payment of offering expenses, the net proceeds to
us amounted to $145.6 million. Each unit consists of one share of our common stock, $.0001 par value, and one redeemable common stock purchase warrant. Each warrant entitles the holder to purchase from us one share of common stock at an exercise price of $7.00 commencing the later of the completion of a business combination with a target business or January 11, 2009, and expiring on January 10, 2012, four years from the effective date of the initial public offering, or earlier upon redemption. The warrants will be redeemable by us in whole and not in part, at a price of $.01 per warrant, upon a minimum of 30 days notice at any time while the warrants are exercisable if, and only if, the last sales price of the common stock is at least $14.25 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption.
Results of Operations and Known Trends or Future Events
For the period from June 18, 2007 (inception) to September 30, 2008, we had net income of $460,593. Our income was all derived from interest on the net proceeds of our initial public offering. We incurred a total of approximately $1.5 million in formation and operating costs during the period from June 18, 2007 (inception) to September 30, 2008, including $12,044 for trustee fees, $1,062 for formation costs, $67,500 for administrative services, $120,254 for professional fees, $230,187 for operating costs, $599,564 for diligence costs, $85,742 for franchise taxes and $410,484 for income taxes.
All activity from June 18, 2007 (inception) through January 17, 2008 relates to our formation and our initial public offering described above. Since January 18, 2008, we have been searching for a target company to acquire. On June 13, 2008 we entered into a definitive agreement to enter into an initial business combination with HUGHES Telematics. We believe that we have sufficient funds available to complete our efforts to affect an initial business combination with an operating business within the required 24 months from the date of our final prospectus.
Merger Agreement with HUGHES Telematics
On November 10, 2008, we entered into a merger agreement with HUGHES Telematics, amending the original merger agreement entered into on June 13, 2008. The transaction provides for a direct merger of HUGHES Telematics and Polaris, with Polaris being the surviving corporation in the merger. At the closing of the merger, all the outstanding shares of HUGHES Telematics common stock will be exchanged for the right to receive, in the aggregate, 14,965,799 shares of Polaris common stock. All options exercisable for HUGHES Telematics common stock issued and outstanding immediately prior to the merger will be exchanged for options exercisable for an aggregate
of 537,801 shares of Polaris common stock. In addition, an aggregate of 56,953,346 earn-out shares will be issued into escrow and released to the HUGHES Telematics stockholders and earn-out options exercisable for an aggregate of 2,046,640 shares of Polaris common stock will be eligible to be exercised, according to their terms, by the HUGHES Telematics optionholders, each in three tranches, upon the trading share price of Polaris common stock reaching at least $20.00, $24.50 and $30.50 within certain measurement periods over the five-year period following the closing of the merger.
The number of shares of Polaris common stock received by HUGHES Telematics stockholders at the closing of the merger will be subject to possible adjustments, including the issuance of up to 7,500,000 additional shares of Polaris common stock for the value of up to $75.0 million of additional equity raised by
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HUGHES Telematics prior to the closing of the merger, if any, and the issuance of additional shares of Polaris common stock for a shortfall in the net working capital of Polaris below $138.0 million.
Polaris and HUGHES Telematics plan to complete the merger as promptly as practicable after the special meeting, provided that:
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Polaris stockholders have approved the merger proposal, the pre-closing certificate amendment proposal and the post-closing certificate amendment proposal;
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holders of less than 30% of the shares of Polaris common stock issued in its initial public offering vote against the merger proposal and properly elect to have Polaris convert their shares for cash; and
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the other conditions specified in the merger agreement described above under the section entitled The Merger Agreement Conditions to the Completion of the Merger have been satisfied or waived.
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If Polaris stockholder approval has not been obtained at that time, or any other conditions have not been satisfied or waived, the merger will be completed promptly after Polaris stockholder approval is obtained or the remaining conditions are satisfied or waived. The merger agreement may be terminated if the closing of the merger has not occurred before the earlier of (1) April 15, 2009 or (2) 70 days after the date this proxy statement was distributed to Polaris stockholders.
A copy of the merger agreement is included as Annex A to this proxy statement. We encourage you to read the merger agreement in its entirety. See the section entitled The Merger Agreement.
Off-Balance Sheet Arrangements
Warrants issued in conjunction with our initial public offering are equity-linked derivatives and accordingly represent off-balance sheet arrangements. The warrants meet the scope exception in paragraph 11(a) of Financial Accounting Standards (FAS) 133 and are accordingly not accounted for as derivatives for purposes of FAS 133, but instead are accounted for as equity.
We have no other obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.
Other than as set forth above, we have not entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations, purchase obligations or other long-term liabilities.
Liquidity and Capital Resources
The net proceeds from our initial public offering and the sale of the insider warrants were placed in trust, except for $130,000 to fund our working capital requirements. As of September 30, 2008, we had cash of $150.7 million, of which $150.6 million was held in a trust account. Until our initial public offering, as described above, our only source of liquidity was the proceeds from the initial private sale of our stock and the subsequent loan made by Trivergance, an affiliate of Marc V. Byron, our chairman of the board and chief executive officer, Lowell D. Kraff, our president, and David Palmer and Jerry Stone, each a vice president of ours. We
repaid this loan with the net proceeds of our initial public offering. Since our initial public offering, our only source of revenue has been from the interest earned on the proceeds held in the trust account. The proceeds from our initial public offering that were placed in a trust account were invested in United States government securities within the meaning of Section 2(a)(16) of the Investment Company Act of 1940 having a maturity of 180 days or less or in money market funds meeting certain conditions under rule 2a-7 promulgated under the Investment Company Act of 1940, as amended. The funds placed in trust have been earning interest at a rate of approximately 1.5%.
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Subject to our stockholders approval of the proposals described in this proxy statement, we will use substantially all of the net proceeds of our initial public offering in connection with acquiring one or more target businesses, including identifying and evaluating prospective target businesses, selecting one or more target businesses, and structuring, negotiating and consummating the initial business combination. To the extent we use our capital stock in whole or in part as consideration for an initial business combination, the proceeds held in the trust account (less amounts paid to any public stockholders who properly exercise their
conversion rights and deferred underwriting discounts and commissions paid to the underwriters) as well as any other net proceeds not expended prior to that time will be used to finance the operations of the target business or businesses. Such working capital funds could be used in a variety of ways including continuing or expanding the target business operations and for strategic acquisitions. Such funds could also be used to repay any operating expenses or finders fees which we had incurred prior to the completion of our initial business combination if the funds available to us outside of the trust account were insufficient to cover such expenses. We expect our primary liquidity requirements to include approximately $22,000 for expenses for the due diligence and investigation of a target business or businesses; an aggregate of $7,500 for office space, administrative services and support payable to Trivergance, representing $7,500 per month until we consummate the
acquisition of a target business; $45,000 for legal and accounting fees relating to our SEC reporting obligations; and approximately $40,000 for general working capital that will be used for miscellaneous expenses. However, if our estimate of the costs of undertaking in-depth due diligence and negotiating an initial business combination is less than the actual amount necessary to do so, or if interest payments are not available to fund the expenses at the time we incur them, we may be required to raise additional capital, the amount, availability and cost of which is currently unascertainable. Moreover, we may need to obtain additional financing either to consummate our initial business combination or because we become obligated to convert into cash a significant number of shares of public stockholders voting against our initial business combination, in which case we may issue additional securities or incur debt in connection with such business combination. Following our initial
business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
As of February 10, 2009, we have made withdrawals of the interest earned on the funds held in our trust account in the amount of $1,859,357. Corporation income tax estimates in the amount of $759,357 were paid from these funds. Pursuant to the terms of our trust agreement governing our trust account, we are entitled to use up to $1.8 million of the earnings (plus additional monies needed to pay income and franchise tax liabilities) for working capital, provided, however, that the aggregate amount of all such distributions for working capital and tax payments shall not exceed the total earnings. Consequently, as of February 10, 2009, there was
$794,560 of interest earned which has not yet been distributed to our operating account, of which $700,000 is available to be used for working capital. Our liabilities are all related to costs associated with operating as a public company and searching for an acquisition target.
We believe our working capital will continue to be sufficient to fund our operations until a target is acquired. We expect to earn approximately $39,000 in interest on the funds held in our trust account between February 10, 2009 and March 5, 2010, when we can expect to close the merger. We expect to expend approximately $444,500 during this period for non-deal-related expenses and approximately $4.9 million for deal-related expenses. Moreover, $6.8 million in deferred underwriting discounts and commissions will be released from the trust account to the underwriters of our initial public offering upon completion of an initial business combination.
Accordingly, assuming no Polaris stockholders properly elect to convert their Polaris common stock, we anticipate having up to approximately $140.0 million in net working capital at the closing of the merger, and we do not expect to issue any additional shares of Polaris common stock to HUGHES Telematics stockholders to meet a net working capital shortfall.
Related Party Transactions
Our initial stockholders committed, pursuant to written subscription agreements with us and Lazard Capital Markets, to purchase the insider warrants (for a total purchase price of $4.5 million) from us. These purchases took place on a private placement basis simultaneously with the consummation of our initial public offering.
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We issued an aggregate $100,000 unsecured promissory note to Trivergance on July 12, 2007. The note was non-interest bearing and was payable on the earlier of the consummation of our initial public offering by us or July 12, 2008. The note was repaid from the net proceeds of our initial public offering.
Trivergance advanced $12,911 to us. No formal repayment arrangement was in place and no interest was due on the advance. The advance was repaid.
We have agreed to pay up to $7,500 a month in total for office space and general and administrative services to Trivergance. Services commenced on the effective date of our initial public offering and will terminate upon the earlier of (i) the completion of a business combination or (ii) our liquidation.
Granite Creek Partners, L.L.C., an entity affiliated with Brian B. Boorstein, one of our directors, purchased from HUGHES Telematics on July 8, 2008, for aggregate consideration of $5.0 million, senior secured term indebtedness issued under HUGHES Telematics credit facility with a principal amount of $5.0 million and a warrant to purchase 6,611 shares of HUGHES Telematics common stock at an exercise price of $0.01 per share. As of July 8, 2008, HUGHES Telematics had outstanding senior secured indebtedness under the credit facility with an aggregate principal balance of $55.0 million.
TBR, an affiliate of our initial stockholders, entered into a Services Agreement & Statement of Work with HUGHES Telematics on September 26, 2008. Pursuant to this agreement, TBR began providing a marketing assessment and other research for HUGHES Telematics to aid in creating a world-class marketing and retention platform. HUGHES Telematics paid TBR a fee of $150,000 and reimbursed TBR for travel and certain other expenses incurred in connection with the engagement. Additionally, TBR entered into a letter agreement with HUGHES Telematics on November 4, 2008 to provide additional marketing services. Under the terms of the letter agreement, TBR
agreed to provide the services in exchange for a $125,000 monthly draw against a per subscriber fee payable on certain subscribers acquired beginning in November 2008 and continuing through December 2010. A portion of the monthly draw will be deferred until a HUGHES Telematics financing event.
In connection with closing of the Merger, both Polaris and HUGHES Telematics may, from time to time, engage in a limited number of private transactions with selected stockholders to repurchase their shares. Polaris and/or HUGHES Telematics may seek to raise funds in order to complete these transactions. To the extent the magnitude or terms of any such transactions are material to your vote on the proposals presented at the special meeting, such transactions will be described in a supplement that will be mailed to our stockholders in advance of the meeting.
Quantitative and Qualitative Disclosures About Market Risk
As of February 10, 2009, our efforts were limited to organizational activities, activities relating to our initial public offering, activities involving searching for, conducting diligence upon, and negotiating with an acquisition target. We had neither engaged in any income-producing operations nor generated any revenues other than the interest earned on the proceeds of our initial public offering.
Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices, and/or equity prices. Approximately $143.3 million of the net offering proceeds (which includes approximately $6.8 million of the proceeds attributable to the underwriters deferred discount from our initial public offering) has been placed in a trust account at Smith Barney, a division of Citigroup Global Markets Inc., and subsequently transferred to JP Morgan with the Continental Stock Transfer &
Trust Company as trustee. As of February 10, 2009, the balance of the trust account was approximately $150.8 million. The proceeds of our initial public offering held in trust have only been invested in U.S. government securities within the meaning of Section 2(a)(16) of the Investment Company Act of 1940 having a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940. Thus, we are currently subject to market risk primarily through the effect of changes in interest rates on short-term government securities and other highly rated money-market instruments. As of February 10, 2009, the effective annualized interest rate payable on our investment was approximately 0.42%. Assuming no other changes to our holdings as of February 10, 2009, a 1% decrease in the underlying interest rate payable on our investment as of December 31, 2008 would
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result in a decrease of approximately $370,000 in the interest earned on our investment for the following 90-day period. Because we are required to invest in government securities or money market funds, as described above, we are unable to manage our exposure to changes in interest rates on short-term government securities and other highly rated money-marked instruments. We do not believe that the effect of other changes, such as foreign exchange rates, commodity prices, and/or equity prices currently pose significant market risk for us.
We have not engaged in any hedging activities since our inception. We do not currently expect to engage in any hedging activities.
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PRICE RANGE OF POLARIS SECURITIES
Our equity securities trade on the NYSE Alternext US. Each of our units consists of one share of common stock and one warrant and trades on the NYSE Alternext US under the symbol TKP.U. On January 28, 2008, the warrants and common stock underlying our units began to trade separately on the NYSE Alternext US under the symbols TKP.WS and TKP, respectively. Each warrant entitles the holder to purchase one share of Polaris common stock at a price of $7.00 commencing on the later of our consummation of a business combination and January 11, 2009, or earlier upon redemption, provided in each case that there is an
effective registration statement covering the shares of Polaris common stock underlying the warrants in effect. The warrants expire on January 10, 2012, unless earlier redeemed.
The following table sets forth the high and low sales price of our units, common stock and warrants as reported on the NYSE Alternext US since Polariss initial public offering on January 14, 2008. Prior to January 14, 2008, there was no established public trading market for our securities.
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Quarter Ended
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Units
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Common Stock
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Warrants
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High
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Low
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High
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Low
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High
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Low
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First Quarter (from January 14, 2008)
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$
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10.05
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$
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9.45
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$
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9.15
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$
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9.02
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$
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0.85
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$
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0.45
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Second Quarter
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$
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10.40
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$
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9.55
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$
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9.62
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$
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9.07
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$
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0.82
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$
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0.40
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Third Quarter
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$
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10.30
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$
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9.41
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$
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9.55
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$
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9.20
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$
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0.75
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$
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0.21
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Fourth Quarter
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$
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9.41
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$
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8.10
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$
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9.15
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$
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8.15
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$
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0.51
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$
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0.01
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Holders of Common Equity
On February 10, 2009, there was one holder of record of our units, approximately ten holders of record of our warrants and approximately 12 holders of record of our common stock. Such numbers do not include beneficial owners holding shares, warrants or units through nominee names.
Dividends
Except for the 0.2-for-1 stock dividend that was effected on November 8, 2007, we have not paid any dividends on our common stock to date and we do not intend to pay cash dividends prior to the consummation of a business combination. After we complete our initial business combination, the payment of dividends will depend on our revenues and earnings, if any, capital requirements and general financial condition. The payment of dividends after a business combination will be within the discretion of our then-board of directors.
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MANAGEMENT FOLLOWING THE MERGER
Following the closing of the merger, the board of directors and executive officers of Polaris will be as follows:
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Name
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Age
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Position
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Jeffrey A. Leddy
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53
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Chief Executive Officer, Director
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Erik J. Goldman
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48
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President
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Craig J. Kaufmann
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33
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Vice President Finance and Treasurer
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Robert C. Lewis
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43
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General Counsel and Secretary
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Keith J. Schneider
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51
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President, Networkcar
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Andrew D. Africk
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42
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Director
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Marc V. Byron
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44
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Director
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Matthew H. Nord
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29
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Director
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Jeffrey A. Leddy.
Mr. Leddy has been the Chief Executive Officer of HUGHES Telematics since December 2006 and has served on its Board of Directors since March 2006. Prior to his employment with HUGHES Telematics, from April 2003 through December 2006, Mr. Leddy served as Chief Executive Officer and President of SkyTerra Communications, Inc. (SkyTerra). Prior to serving as Chief Executive Officer and President, Mr. Leddy served as the President and Chief Operating Officer of SkyTerra since October 2002 and its Senior Vice President of Operations since June 2002. From September 1980 to December 2001, Mr. Leddy
worked for EMS Technologies serving most recently as Vice President. Mr. Leddy currently serves on the board of directors of HUGHES Communications, Inc. and HUGHES Systique Corporation. Mr. Leddy also serves on the board of managers of HUGHES Network Systems, LLC.
Erik J. Goldman.
Mr. Goldman has been the President of HUGHES Telematics since July 2006. Prior to joining HUGHES Telematics, Mr. Goldman served as a Vice President of SkyTerra from March 2003 through June 2006, where his responsibilities included acquisition, development and corporate oversight of the organizations portfolio companies in the wireless and satellite services industries. Prior to joining SkyTerra, Mr. Goldman consulted to a European Satellite Radio venture. From 1995 to December 2001, Mr. Goldman worked for Leo One Worldwide, most recently as Vice President of Technology and Business Development, where he
led an extensive telematics effort. Previously, Mr. Goldman served as Director of Business Development for dbX Corporation, a telecom-focused investment and management group with active interests in cellular, paging and satellite businesses. Prior to joining dbX in 1991, Mr. Goldman served as a Member of Technical Staff of Mitre Corporation and as a Senior Communications Design Engineer of Raytheon Corporation.
Craig J. Kaufmann.
Mr. Kaufmann has been the Vice President Finance and Treasurer of HUGHES Telematics since December 2006. Prior to joining HUGHES Telematics, Mr. Kaufmann served as Controller and Treasurer of SkyTerra from April 2003 and served as its Director of Financial Reporting from November 2000. Prior to joining SkyTerra, Mr. Kaufmann was the Financial Reporting Manager of Kozmo.com from March 2000 to November 2000, and an associate at PricewaterhouseCoopers from August 1998 to March 2000.
Robert C. Lewis.
Mr. Lewis has been the General Counsel and Secretary of HUGHES Telematics since January 2007. From April 1998 to May 2008, Mr. Lewis was employed by SkyTerra serving as its Senior Vice President and General Counsel from July 2000 to April 2008, as its Vice President, General Counsel and Secretary from May 1998 to July 2000. Prior to joining SkyTerra, Mr. Lewis was an associate at the law firm of Fried, Frank, Harris, Shriver & Jacobson from October 1992.
Keith J. Schneider.
Mr. Schneider has been employed as President of HUGHES Telematics Networkcar subsidiary since April 2007. Prior to joining Networkcar, Mr. Schneider served as Vice President of indirect distribution for Sprint Nextel Communications (Nextel), where he was responsible for the strategic direction and implementation of key programs and policies supporting Nextels local and national third party indirect channels. Before assuming that position, he served as the area president of New England operations for Nextel, a $200 million business where he had full profit and loss responsibility and
managed
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sales and distribution, marketing, finance, operations, human resources, service and repair. Mr. Schneider began his Nextel career as a general manager in Southern California, launching and building one of Nextels first and largest markets.
Andrew D. Africk.
Mr. Africk has been a director of HUGHES Telematics since January 2006. Mr. Africk is a senior partner of Apollo Advisors, L.P., which, together with its affiliates, acts as managing general partner of the Apollo Investment Funds, a series of private securities investment funds, where he has worked since 1992. Mr. Africk serves on the boards of directors of HUGHES Communications, Inc. and SOURCECORP, Incorporated. Mr. Africk also serves on the board of managers of HUGHES Network Systems, LLC.
Marc V. Byron.
Mr. Byron has served as chairman of the board and chief executive officer of Polaris since Polaris inception in June 2007. Mr. Byron co-founded Trivergance, a middle market merchant banking and investment firm, in June 2006, and has served as a Managing Member since its formation. Trivergance acted as a strategic and financial advisor in the $750 million transaction in which Sunterra Corporation went private. Since May 2003, Mr. Byron has also served as chairman of MG, LLC, d/b/a Tranzact, a marketing services firm that helps companies acquire customers and manage complex transactions by combining
expertise in developing customer acquisition strategies with experience in applying technology. He has also served as an advisor to Apollo Management, L.P. on large marketing and media related transactions. In 1997, Mr. Byron founded Paradigm Direct and served as its chief executive officer until its sale to Mosaic Group, Inc., a Canadian marketing services firm. After the sale, Paradigm Direct changed its name to Mosaic Performance Solutions North America and Mr. Byron served as its chief executive officer until December 2001.
Matthew H. Nord.
Mr. Nord has been a director of HUGHES Telematics since December 2006 and is a principal of Apollo Advisors, L.P., where he has worked since 2003. Prior to that time, Mr. Nord was a member of the Investment Banking division of Salomon Smith Barney Inc. Mr. Nord serves on the board of directors of Affinion Group, Noranda Aluminum and SOURCECORP, Inc.
Shareholders Agreement
As a condition to the consummation of the merger, Polaris, Apollo and certain HUGHES Telematics stockholders will enter into a shareholders agreement. The parties to the shareholders agreement have agreed to vote for each others designees to Polaris board of directors until (a) with respect to the HUGHES Telematics stockholders, on the date when the HUGHES Telematics stockholders hold less than 10% of the outstanding Polaris common stock, and (b) with respect to all parties, on the date of a change of control of Polaris. These parties have agreed that the board of directors will be composed of Mr. Leddy, five individuals
designated by Apollo (including Mr. Africk and Mr. Nord), one individual designated by Polaris (Mr. Byron) and two other persons designated mutually by the board of directors and Apollo. Accordingly, Apollo will have significant control over the combined company and significant transactions after the merger. The shareholders agreement is generally described in the section entitled Agreements Related to the Merger Shareholders Agreement.
Meetings and Committees of the Board of Directors
During the fiscal year ended December 31, 2007, our board of directors held one meeting. Although we do not have any formal policy regarding director attendance at annual stockholder meetings, we will attempt to schedule our annual meetings so that all our directors can attend. We expect our directors to attend all board and committee meetings and to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities.
Independence of Directors
After the completion of this offering, Apollo will own more than 50% of the total voting power of our common stock and we will be a controlled company under both the NYSE Alternext US and NASDAQ corporate governance standards. As a controlled company, certain exemptions under both the NYSE Alternext US and NASDAQ standards will free us from the obligation to comply with certain NYSE Alternext US and NASDAQ corporate governance requirements, respectively, including the requirement to maintain a majority
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of independent directors on our board of directors and the requirements regarding the determination of compensation of executive officers and the nomination of directors by independent directors.
Committees
Audit Committee
Polaris has established an audit committee of the board of directors, consisting of Messrs. Moore, Boorstein and Oran. Mr. Moore serves as the chairman of our audit committee. Following the consummation of the merger, the audit committee will consist of at least three qualifying directors, pursuant to the NYSE Alternext USs requirements, appointed by the initial post-closing board of directors, with one such director serving as chairman. The independent directors we appointed to our audit committee are independent members of our board of directors, as defined by the rules of the SEC and the listing standards of the NYSE Alternext US. The audit
committees duties, which are specified in our audit committee charter, include, but are not limited to:
|
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reviewing and discussing with management and the independent auditor the annual audited financial statements, and recommending to the board whether the audited financial statements should be included in our Form 10-K;
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discussing with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of our financial statements;
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discussing with management major risk assessment and risk management policies;
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monitoring the independence of the independent auditor;
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verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law;
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inquiring and discussing with management our compliance with applicable laws and regulations;
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pre-approving all audit services and permitted non-audit services to be performed by our independent auditor, including the fees and terms of the services to be performed;
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appointing or replacing the independent auditor;
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determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work; and
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establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies.
|
The audit committee will at all times be composed exclusively of independent directors who, as required by the NYSE Alternext US, are able to read and understand fundamental financial statements, including a companys balance sheet, income statement and cash flow statement.
The board of directors has determined that Mr. Moore satisfies, and upon consummation of the merger, at least one member of the post-closing audit committee will satisfy, the NYSE Alternext USs definition of financial sophistication and also qualifies as an audit committee financial expert, as defined under applicable SEC rules and regulations. Our audit committee did not meet during fiscal 2007.
Nominating Committee
Polaris has established a nominating committee of the board of directors, consisting of Messrs. Boorstein and Moore. Each of Messrs. Boorstein and Moore is an independent director as defined by the listing standards of the NYSE Alternext US. Mr. Boorstein serves as the chairman of our nominating committee. Following the consummation of the merger, the nominating committee will consist of at least two qualifying directors, pursuant to the NYSE Alternext USs requirements, appointed by the initial post-closing board of directors, with one such director serving as chairman. The nominating committee is responsible for overseeing
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the selection of persons to be nominated to serve on our board of directors. The nominating committee considers persons identified by its members, management, stockholders, investment bankers and others. Our nominating committee did not meet in fiscal 2008.
The guidelines for selecting nominees, which are specified in the Nominating Committee Charter, generally provide that persons to be nominated:
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should have demonstrated notable or significant achievements in business, education or public service;
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should possess the requisite intelligence, education and experience to make a significant contribution to the board of directors and bring a range of skills, diverse perspectives and backgrounds to its deliberations; and
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should have the highest ethical standards, a strong sense of professionalism and intense dedication to serving the interests of the stockholders.
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The Nominating Committee will consider a number of qualifications relating to management and leadership experience, background and integrity and professionalism in evaluating a persons candidacy for membership on the board of directors. The nominating committee may require certain skills or attributes, such as financial or accounting experience, to meet specific board needs that arise from time to time. The nominating committee does not distinguish among nominees recommended by stockholders and other persons. We currently do not have a formal means by which stockholders can nominate a director for election. Stockholders may communicate nominee
suggestions directly to any of the board members, accompanied by biographical details and a statement of support for the nominees. The suggested nominees must also provide a statement of consent to being considered for nomination.
Compensation Committee
Polaris does not currently have a compensation committee. The board of directors does not believe that any marked efficiencies or enhancements would presently be achieved by the creation of a separate compensation committee because it does not pay any of its executive officers a regular salary. The duties and responsibilities typically delegated to a compensation committee are included in the responsibilities of the entire board of directors.
Following the consummation of the merger, the compensation committee will consist of at least two qualifying directors, pursuant to the NYSE Alternext USs requirements, appointed by the initial post-closing board of directors, with one such director serving as chairman.
Code of Ethics and Committee Charters
Polaris has approved a code of ethics that applies to our officers and directors. We have filed copies of our code of ethics and our board committee charters as an exhibit to the registration statement in connection with our initial public offering. You may review these documents by accessing Polaris public filings at the SECs web site at
www.sec.gov
. In addition, a copy of the code of ethics will be provided without charge upon request to Polaris in writing at 2200 Fletcher Avenue, 4
th
Floor, Fort Lee, New Jersey 07024 or by telephone at (201) 242-3500.
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POLARIS COMPENSATION DISCUSSION AND ANALYSIS
Polaris board of directors has not formed a compensation committee because it does not pay any of its executive officers a regular salary. The duties and responsibilities typically delegated to a compensation committee are included in the responsibilities of the entire board of directors. The foundation of Polaris compensation policy will be that compensation paid to executive officers should be aligned on a long- and short-term basis. The general compensation policy of the board of directors is that total compensation should be tied to individual performance and supplemented with awards tied Polaris performance in achieving
financial and non-financial objectives. Upon the consummation of the merger with HUGHES Telematics, Polaris will commence paying its officers regular salaries. Polaris board of directors will form a compensation committee after the consummation of the merger.
Summary Compensation Table
Polaris did not pay any of its executive officers salary or compensation during fiscal 2007 or 2008.
Grants of Plan-Based Awards
Polaris does not have an existing incentive plan for the grant of options or other awards.
Outstanding Equity Awards at Fiscal Year-End
Polaris does not have an existing incentive plan for the grant of options or other awards.
Option Exercises and Stock Vested
Polaris does not have an existing incentive plan for the grant of options or other awards.
Directors Compensation
Polaris did not pay any compensation to its directors during fiscal 2007 or 2008.
Equity Compensation Plan
Polaris does not currently have any authorized or outstanding equity compensation plans.
Compensation Committee Interlocks and Insider Participation
Polaris board of directors has not established a compensation committee. In accordance with NYSE Alternext US requirements, a majority of the independent directors of the board of directors will determine the compensation of the executive officers. Brian B. Boorstein, Stuart I. Oran and David L. Moore are the independent directors of the board of directors. Neither of them was, or has been, an officer or employee of Polaris, or has a relationship that would constitute an interlocking relationship with executive officers or directors of Polaris or another entity.
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HUGHES TELEMATICS COMPENSATION DISCUSSION AND ANALYSIS
Historically, the board of directors of HUGHES Telematics has reviewed and approved the annual compensation for its executive officers. Following the consummation of the merger with Polaris, we expect the compensation committee of the combined companys board of directors will be empowered to review and approve, or recommend for the approval of the full board of directors, such compensation.
Objectives of Compensation Program
The primary objective of the HUGHES Telematics compensation program, including the executive compensation program, is to attract and retain qualified management personnel who can work in HUGHES Telematics dynamic business environment. A further objective of the compensation program is to provide incentives and reward each member of management for his or her contribution to HUGHES Telematics. In addition, HUGHES Telematics strives to promote an ownership mentality among key leadership and members of the board of directors. Finally, HUGHES Telematics endeavors to ensure that the compensation program is perceived as fundamentally fair to all
stakeholders. The future compensation program of the combined company will be based upon these objectives.
What the Compensation Program is Designed to Reward
The compensation program is, and will continue to be following consummation of the merger with Polaris, designed to reward each executive officers contribution to the success of HUGHES Telematics. In measuring the executive officers contribution, the compensation committee is expected to consider numerous subjective factors, rather than more traditional metrics, in light of the fluid and growing nature of HUGHES Telematics business.
Management currently provides to the board of HUGHES Telematics recommendations regarding most compensation matters. Following completion of the merger with Polaris, we expect that senior management will provide recommendations to the compensation committee. HUGHES Telematics does not currently engage any consultant related to executive and/or director compensation matters. This practice is expected to continue following the consummation of the merger.
Stock price performance is expected to be a factor in determining annual compensation; however, to the extent the price of the combined companys common stock is subject to significant fluctuations due to a variety of factors outside of managements control, the weight placed on stock performance may be lessened. It is not currently expected that there will be an exact formula for allocating between cash and non-cash compensation, though, to date, HUGHES Telematics has provided relatively little non-cash compensation, other than through stock option grants. Cash compensation is generally paid as earned. These practices are expected to
continue following the consummation of the merger.
Elements of the Compensation Plan and How They Relate to the Objectives
Annual executive officer compensation currently consists of a base salary component and a discretionary annual bonus component. In the future, the compensation committee is expected to set total executive cash compensation sufficiently high to attract and retain a strong, motivated leadership team and recognize executive officers roles in accomplishing extraordinary transactions.
As set forth in the table below, with the heading Outstanding Equity Awards at Fiscal Year-End 2008, each of the HUGHES Telematics executive officers set forth below has received stock option grants under the HUGHES Telematics 2006 Stock Incentive Plan. In connection with the closing of the merger with Polaris, we expect to adopt a new Equity Incentive Plan (the Plan). Stock options outstanding under the HUGHES Telematics 2006 Stock Incentive Plan will be exchanged in the merger for options exercisable for shares of Polaris common stock under the Plan. Future stock option grants and other equity awards under the Plan are
expected to be designed to enhance retention by providing for a three-year time-based vesting schedule. In light of the current earn-out component of the merger consideration, as described in the section entitled The Merger Agreement Merger Consideration, the named executive officers interest in stock performance metrics will be aligned with the interests of Polaris common stockholders, as increases in stock price will result in release of earn-out shares, and therefore the associated earn-out options.
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How the Company Expects to Choose Amounts for Each Element of Compensation
Each executives current and prior compensation has been and is expected to be considered in setting future compensation. The elements of our compensation plan (e.g., base salary, bonus and stock options or restricted stock) are expected to be similar to the elements used by some companies. The exact base pay, option or stock grant, and bonus awarded by HUGHES Telematics in the past has been (and in the case of the combined company, in the future is expected to be) chosen in an effort to balance the competing objectives of fairness to all stakeholders and attracting and retaining executives and other senior managers. For additional information
regarding the 2007 and 2008 compensation of HUGHES Telematics executives who will be the named executive officers of the combined company, please see the Summary Compensation Table below.
Equity Incentive Plan Following Merger
The named executive officers will be eligible to participate in the Plan which is expected to be adopted and presented to stockholders for approval following consummation of the merger. The Plan is expected to provide for the grant of equity-based awards, including restricted common stock, restricted stock units, stock options, stock appreciation rights and other equity-based awards to the executive officers and other employees, advisors and consultants who are selected by the compensation committee for participation in the Plan. The Plan, including the number of shares subject to it and the mechanics of its administration, will be determined
following the consummation of the merger.
Grant Policies
We expect that future annual stock option grants to executive officers, including the named executive officers, and other employees will coincide with the meeting of the compensation committee following year-end, at which discretionary bonuses are considered. Except in the case of new hires, we do not expect the compensation committee generally to grant options on other dates. The grant date will be established when the compensation committee approves the grant. The exercise price of an option granted under the Plan will not be less than the fair market value of the common stock on the date of grant, unless otherwise provided by the compensation
committee. If at the time of any planned option grant date any member of the board of directors or executive team is aware of material non-public information, we would not generally make the planned stock option grant. In such event, as soon as practical after material information is made public, the compensation committee will have a specially called meeting and/or otherwise take all necessary steps to authorize a stock option grant. For additional information regarding the grants of stock options to HUGHES Telematics executives who will be our named executive officers, please see below.
Accounting and Tax Considerations
HUGHES Telematics has and we will comply with SFAS No. 123(R),
Share Based Payments.
Under this accounting pronouncement, HUGHES Telematics has and we will be required to value stock options grants periodically under the fair value method and expense those amounts in the income statement over the stock options vesting period.
We expect generally to structure our compensation program to comply with Code Sections 162(m) and 409A. Under Section 162(m) of the Code, a limitation is placed on tax deductions of any publicly held corporation for individual compensation to certain executives of such corporation exceeding $1,000,000 in any taxable year, unless the compensation is performance-based. If an executive is entitled to nonqualified deferred compensation benefits that are subject to Section 409A, and such benefits do not comply with Section 409A, then the benefits are taxable in the first year they are not subject to a substantial risk of forfeiture. In such case, the
executive is subject to regular federal income tax, interest and an additional federal income tax of 20% of the benefit includible in income.
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Summary Compensation Table
The following table sets forth information concerning compensation for HUGHES Telematics principal executive officer, principal financial officer and its three other most highly compensated executive officers who were serving as executive officers as of December 31, 2008.
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Name and Principal Position
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|
Year
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Salary
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Bonus
(1)
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Option
Awards
(2)
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All Other Compensation
(3)
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Total
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Jeffrey A. Leddy
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2008
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$
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351,153
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$
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0
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$
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129,872
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$
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11,196
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$
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492,221
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Chief Executive Officer
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2007
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310,000
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175,000
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11,000
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3,847
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499,847
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Erik J. Goldman
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2008
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306,730
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0
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84,531
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12,068
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|
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403,329
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|
President
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2007
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225,000
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225,000
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7,160
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10,877
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468,037
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Craig J. Kaufmann
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2008
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200,576
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0
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10,736
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7,919
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219,231
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Vice President Finance and Treasurer
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2007
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165,000
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75,000
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16,084
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5,444
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261,528
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Robert C. Lewis
(4)
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2008
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202,307
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0
|
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10,824
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8,755
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221,886
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General Counsel and Secretary
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2007
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89,490
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25,000
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15,739
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8,142
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138,371
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Keith J. Schneider
(5)
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2008
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265,961
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|
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0
|
|
|
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3,392
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|
|
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78,199
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|
|
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347,552
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President, Networkcar
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2007
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173,077
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91,146
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2,307
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|
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135,937
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|
402,467
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|
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(1)
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Bonuses for services provided in the year ended December 31, 2008 have not been determined. Bonuses for services provided in the year ended December 31, 2007 were granted in April 2008 and are reflected in 2007.
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(2)
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The amount shown in this column are the amounts that HUGHES Telematics recognized as compensation expense in the year shown pursuant to SFAS No. 123(R), except that in accordance with the rules of the SEC, these figures do not include estimates of forfeitures related to service-based vesting conditions. For a discussion of the assumptions used in the valuation under SFAS No. 123(R), see Note 10 to HUGHES Telematics consolidated financial statements on page F-
41
of this proxy statement.
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(3)
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Other compensation for Mr. Leddy includes (i) matching contributions to the HUGHES Telematics 401(k) plan of $9,077 for 2008 amd $358 for 2007, (ii) group term life insurance coverage in excess of $50,000 of $717 for 2008 and $690 for 2007 and (iii) reimbursements under a supplemental medical reimbursement insurance plan of $1,402 for 2008 and $2,799 for 2007. Other compensation for Mr. Goldman includes (i) matching contributions to the HUGHES Telematics 401(k) plan of $8,914 for 2008 and $6,490 for 2007, (ii) group term life insurance coverage in excess of $50,000 of $467 for 2008 and $450 for 2007 and (iii) reimbursements under a supplemental medical reimbursement insurance plan of $2,687 for 2008 and $3,937 for 2007. Other compensation for Mr. Kaufmann includes (i) matching contributions to the HUGHES Telematics 401(k) plan of $7,020 for 2008 and $4,760 for 2007, (ii) group term life insurance coverage in excess of $50,000 of $249 for 2008
and $240 for 2007 and (iii) reimbursements under a supplemental medical reimbursement insurance plan of $650 for 2008 and $444 for 2007. Other compensation for Mr. Lewis includes (i) matching contributions to the HUGHES Telematics 401(k) plan of $5,235 for 2008 and $2,481 for 2007, (ii) group term life insurance coverage in excess of $50,000 of $193 for 2008 and $164 for 2007 and (iii) reimbursements under a supplemental medical reimbursement insurance plan of $3,327 for 2008 and $5,497 for 2007. Other compensation for Mr. Schneider includes (i) group term life insurance coverage in excess of $50,000 of $414 for 2008 and $287 for 2007, (ii) reimbursement of certain relocation expenses of $135,650 for 2007 and (iii) reimbursement of taxes paid on amounts reimbursed for relocation expense of $77,785 for 2008.
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(4)
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Mr. Lewis was named Secretary in July 2006 but was not entitled to compensation for his services until he became a part-time employee of HUGHES Telematics in February 2007. Mr. Lewis became a full-time employee in May 2008.
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(5)
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Mr. Schneider was named President of Networkcar on April 9, 2007. His salary in 2007 reflects a partial year.
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2008 Grants of Plan Based Awards
In connection with the merger, each of HUGHES Telematics named executive officers will exchange HUGHES Telematics stock options for options exercisable for shares of Polaris common stock under the Plan. During the year ended December 31, 2008, there were no equity awards granted to HUGHES Telematics named executive officers.
Employment Agreements
Our named executive officers other than Mr. Schneider are at-will employees. We have not entered into agreements with them that provide for any material element of compensation, rather, such agreements provide for participation in our standard employee benefit plans and contain restrictive covenants concerning our confidential information.
Keith J. Schneider.
Effective March 23, 2007, Networkcar entered into a letter agreement with Keith J. Schneider concerning his employment. In addition to providing for a base salary of $250,000 per annum, Mr. Schneiders letter agreement provides that he is eligible to receive a bonus following the end of each full calendar year during his employment, based upon achievement against both objective and subjective goals established by the board of directors of Networkcar in its sole discretion (following consultation with him), in an amount equal to up to 50% of his salary. Mr. Schneiders actual bonus for 2007 was
pro-rated as he commenced employment with Networkcar in April 2007. Mr. Schneiders letter agreement provides that the board of directors of Networkcar may consider granting an additional annual bonus if Mr. Schneider significantly exceeds the goals previously set. Mr. Schneiders letter agreement also provides that Networkcar will reimburse him in an amount up to $140,000 for his reasonable out-of-pocket moving and relocation expenses, and closing costs associated with the sale of his Virginia residence, upon presentation of documentation satisfactory to Networkcar. Information concerning the termination provisions of Mr. Schneiders letter agreement is set forth below, at Potential Payments Upon Termination or Change-in-Control.
Outstanding Equity Awards at Fiscal Year-End 2008
In connection with the merger, each of HUGHES Telematics named executive officers will exchange HUGHES Telematics stock options for options exercisable for shares of Polaris common stock under the Plan. The following table summarizes the outstanding equity award holdings of HUGHES Telematics named executive officers as of December 31, 2008 on an as exchanged basis reflecting the exchange ratio in effect as of February 10, 2009.
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Option Awards
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Name
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Number of
Securities Underlying
Unexercised Options
Unexercisable
(#)
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Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
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Option
Exercise Price
($)
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Option
Expiration Date
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Jeffrey A. Leddy
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85,433
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461,975
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|
|
$
|
2.20
|
|
|
|
11/30/17
|
(1)
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Erik J. Goldman
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64,075
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346,481
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|
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|
2.20
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|
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11/30/17
|
(2)
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Craig J. Kaufmann
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5,695
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42,202
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|
|
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1.47
|
|
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1/8/17
|
(3)
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6,407
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|
|
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34,647
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|
|
|
2.20
|
|
|
|
11/30/17
|
(4)
|
Robert C. Lewis
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5,695
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42,202
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|
|
|
1.47
|
|
|
|
3/9/17
|
(5)
|
|
|
|
6,407
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|
|
|
34,647
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|
|
|
2.20
|
|
|
|
11/30/17
|
(6)
|
Keith J. Schneider
|
|
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8,543
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|
|
|
73,567
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|
|
|
1.47
|
|
|
|
4/11/17
|
(7)
|
|
(1)
|
This option award was granted on November 30, 2007 and vests as follows: (i) 410,556 shares vest in three equal installments on November 30, 2008, November 30, 2009 and November 30, 2010, provided that 325,123 of these shares are earn-out options which are exercisable only upon the achievement of certain share price targets within five years after closing of the merger; and (ii) 136,852 shares vest upon the execution of an additional agreement with an additional automaker, provided that 108,374 of these shares are earn-out options which are exercisable only upon the achievement of certain share price targets
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within five years after closing of the merger. Upon consummation of the merger and the associated exchange of this option award for an option to purchase shares of Polaris common stock, we expect that performance-based vesting criteria will be replaced by time vesting criteria in a manner to be determined by Polaris compensation committee.
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|
(2)
|
This option award was granted on November 30, 2007 and vests as follows: (i) 307,917 shares vest in three equal installments on November 30, 2008, November 30, 2009 and November 30, 2010, provided that 243,842 of these shares are earn-out options which are exercisable only upon the achievement of certain share price targets within five years after closing of the merger; and (ii) 102,639 shares vest upon the execution of an additional agreement with an additional automaker, provided that 81,281 of these shares are earn-out options which are exercisable only upon the achievement of certain share price targets within five years after closing of the merger. Upon consummation of the merger and the associated exchange of this option award for an option to purchase shares of Polaris common stock, we expect that performance-based vesting criteria will be replaced by time vesting criteria in a manner to be determined by Polaris compensation
committee.
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|
(3)
|
This option award was granted on January 8, 2007 and vests as follows: (i) 27,370 shares vest in two equal installments on August 1, 2008 and August 1, 2009, provided that 21,675 of these shares are earn-out options which are exercisable only upon the achievement of certain share price targets within five years after closing of the merger; and (ii) 20,527 shares vest upon the execution of an additional agreement with an additional automaker, provided that 16,255 of these shares are earn-out options which are exercisable only upon the achievement of certain share price targets within five years after closing of the merger. Upon consummation of the merger and the associated exchange of this option award for an option to purchase shares of Polaris common stock, we expect that performance-based vesting criteria will be replaced by time vesting criteria in a manner to be determined by Polaris compensation committee.
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(4)
|
This option award was granted on November 30, 2007 and vests as follows: (i) 30,791 shares vest in three equal installments on November 30, 2008, November 30, 2009 and November 30, 2010, provided that 24,384 of these shares are earn-out options which are exercisable only upon the achievement of certain share price targets within five years after closing of the merger; and (ii) 10,263 shares vest upon the execution of an additional agreement with an additional automaker, provided that 8,127 of these shares are earn-out options which are exercisable only upon the achievement of certain share price targets within five years after closing of the merger. Upon consummation of the merger and the associated exchange of this option award for an option to purchase shares of Polaris common stock, we expect that performance-based vesting criteria will be replaced by time vesting criteria in a manner to be determined by Polaris compensation committee.
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(5)
|
This option award was granted on March 9, 2007 and vests as follows: (i) 27,370 shares vest in two equal installments on August 1, 2008 and August 1, 2009, provided that 21,675 of these shares are earn-out options which are exercisable only upon the achievement of certain share price targets within five years after closing of the merger; and (ii) 20,527 shares vest upon the execution of an additional agreement with an additional automaker, provided that 16,255 of these shares are earn-out options which are exercisable only upon the achievement of certain share price targets within five years after closing of the merger. Upon consummation of the merger and the associated exchange of this option award for an option to purchase shares of Polaris common stock, we expect that performance-based vesting criteria will be replaced by time vesting criteria in a manner to be determined by Polaris compensation committee.
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(6)
|
This option award was granted on November 30, 2007 and vests as follows: (i) 30,791 shares vest in three equal installments on November 30, 2008, November 30, 2009 and November 30, 2010, provided that 24,384 of these shares are earn-out options which are exercisable only upon the achievement of certain share price targets within five years after closing of the merger; and (ii) 10,263 shares vest upon the execution of an additional agreement with an additional automaker, provided that 8,127 of these shares are earn-out options which are exercisable only upon the achievement of certain share price targets within five years after closing of the merger. Upon consummation of the merger and the associated exchange of this option award for an option to purchase shares of Polaris common stock, we expect that performance-based vesting criteria will be replaced by time vesting criteria in a manner to be determined by Polaris compensation committee.
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(7)
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This option award was granted on April 11, 2007 and vests as follows: (i) 41,055 shares vest in three equal installments on April 9, 2008, April 9, 2009 and April 9, 2010, provided that 32,512 of these shares are earn-out options which are exercisable only upon the achievement of certain share price targets within
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five years after closing of the merger; and (ii) 41,055 shares vest on March 31, 2010 to the extent the EBITDA of Networkcar exceeds $18.6 million for the year ended December 31, 2009, provided that 32,512 of these shares are earn-out options which are exercisable only upon the achievement of certain share price targets within five years after closing of the merger. Upon consummation of the merger and the associated exchange of this option award for an option to purchase shares of Polaris common stock, we expect that performance-based vesting criteria will be replaced by time vesting criteria in a manner to be determined by Polaris compensation committee.
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Option Exercises
No stock options were exercised by HUGHES Telematics named executive officers during the year ended December 31, 2008.
Pension Benefits and Non-qualified Deferred Compensation
None of HUGHES Telematics named executive officers participates in or has an account balance in qualified or non-qualified defined benefit pension plans or non-qualified defined contribution plans sponsored by HUGHES Telematics.
Potential Payments Upon Termination or Change-in-Control
HUGHES Telematics has entered into an employment agreement with Keith J. Schneider that provides for severance payments to be made in the event that Mr. Schneiders employment is terminated by us without cause or if Mr. Schneider terminates his employment with us for good reason (both terms as defined in the agreement). In this event, Mr. Schneider would be entitled to severance pay equal to one years base salary and bonus, subject to Mr. Schneiders execution and non-revocation of a release of claims in favor of HUGHES Telematics and its affiliates, and his agreement to make himself available for consultation
and transition services for a 90-day period following such termination of employment. If Mr. Schneiders employment with HUGHES Telematics had been terminated under qualifying circumstances on December 31, 2008, he would have been entitled to severance pay having an aggregate value not exceeding $397,500. Other material terms of Mr. Schneiders employment agreement with us are set forth above in the section entitled HUGHES Telematics Compensation Discussion and Analysis Employment Agreements.
None of HUGHES Telematics named executive officers is entitled to payment upon a change of control.
2008 Director Compensation
Our directors do not currently receive cash compensation. Following the merger with Polaris, we expect the board of directors to adopt a compensation program that is appropriate and competitive with those offered by similarly situated public companies. We would expect any director compensation program to include a cash component. The following table sets forth a summary of the compensation paid to each of HUGHES Telematics non-employee directors for the year ended December 31, 2008.
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Name
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Option Awards
(1)
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Total
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Andrew D. Africk
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$
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16,234
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$
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16,234
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Matthew H. Nord
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12,614
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12,614
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(1)
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The amount shown in this column are the amounts that HUGHES Telematics recognized as compensation pursuant to SFAS No. 123(R), except that in accordance with the rules of the SEC, these figures do not include estimates of forfeitures related to service-based vesting conditions. For a discussion of the assumptions used in the valuation under SFAS No. 123(R), see Note 10 to HUGHES Telematics consolidated financial statements on page F-
41
of this proxy statement.
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POLARIS CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
In June 2007, we issued 4,312,500 shares of our common stock to the individuals set forth below for an aggregate of $25,000 in cash, for a purchase price of approximately $0.006 per share, as follows:
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Name
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Number of Shares
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|
Relationship to Us
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Byron Business Ventures XX, LLC
(1)
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1,488,700
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Stockholder
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Praesumo Partners, LLC
(2)
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1,488,700
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Stockholder
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Moore Holdings, LLC
(3)
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349,916
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Stockholder
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Vinco Vincere Vici Victum LLC
(4)
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257,175
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Stockholder
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David F. Palmer
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257,175
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Vice President
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Meritage Farms LLC
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194,792
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Stockholder
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Cloobeck Companies, LLC
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119,792
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Stockholder
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Granite Creek Partners, L.L.C.
(5)
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92,500
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Stockholder
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Roxbury Capital Group LLC Incentive Savings Plan
(6)
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63,750
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Stockholder
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(1)
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This entity is controlled by Marc V. Byron, our chairman of the board and chief executive officer.
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(2)
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This entity is controlled by Lowell D. Kraff, our president and a director of ours.
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(3)
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This entity is controlled by David L. Moore, a director of ours.
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(4)
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This entity is controlled by Jerry Stone, a vice president of ours.
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(5)
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This entity is controlled by Brian B. Boorstein, a director of ours.
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(6)
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Stuart I. Oran, a director of ours, is sole trustee and beneficiary of this entity.
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On November 8, 2007, our board of directors authorized a stock dividend of 0.2 shares of Polaris common stock for each outstanding share of Polaris common stock, effectively lowering the purchase price to approximately $0.005 per share. Thereafter, our initial stockholders transferred an aggregate of 1,190,540 shares to Hartz Capital Investments, LLC (f/k/a) Alerion Equities, LLC) and 211,617 shares to Odessa, LLC. On January 11, 2008, our initial stockholders contributed back to our capital, at no cost to us, an aggregate of 862,500 shares of common stock.
Our initial stockholders forfeited 562,500 shares of Polaris common stock to us in April 2008 in order to maintain their 20% ownership of outstanding Polaris common stock after our initial public offering because the underwriters did not exercise their overallotment option.
The holders of the majority of these shares will be entitled to make up to two demands that we register these shares pursuant to an agreement signed January 11, 2008. The holders of the majority of these shares may elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of common stock are released from escrow. In addition, these stockholders have certain piggy-back registration rights with respect to registration statements filed subsequent to the date on which these shares of common stock are released from escrow. We will bear the expenses incurred in connection with the
filing of any such registration statements. As described under Agreements Related to the Merger Shareholders Agreement, these registration rights will be replaced with those under the shareholders agreement after the closing.
Our initial stockholders, pursuant to written subscription agreements with us and Lazard Capital Markets, purchased 4.5 million insider warrants (for a total purchase price of $4.5 million) from us. These purchases took place on a private placement basis simultaneously with the consummation of our initial public offering. Graubard Miller, our counsel in connection with the initial public offering, deposited the purchase price into the trust fund simultaneously with the consummation of our initial public offering. The insider warrants are identical to the warrants underlying the units offered by in our initial public offering except that if we call
the warrants for redemption, the insider warrants will be exercisable on a cashless basis so long as such warrants are held by the purchasers or their affiliates. If the holders take advantage of this option, they would pay the exercise price by surrendering their insider warrants for that number of shares of common stock equal to the quotient obtained by dividing (x) the product of the number of shares of common stock underlying the insider warrants, multiplied by the difference between the exercise price of the warrants and the fair market value (defined below) by (y) the fair market value. The fair market value shall mean the average reported last
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sale price of the common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to holders of warrants.
The purchasers have agreed that the insider warrants will not be sold or transferred by them until 45 days after we have completed a business combination. Accordingly, the insider warrants will be placed in escrow and will not be released until 45 days after the completion of a business combination.
The holders of the majority of these insider warrants (or underlying shares) will be entitled to demand that we register these securities pursuant to an agreement to be signed on January 11, 2008. The holders of the majority of these securities may elect to exercise these registration rights at any time after we consummate a business combination. In addition, these holders have certain piggy-back registration rights with respect to registration statements filed subsequent to such date. We will bear the expenses incurred in connection with the filing of any such registration statements. As described under Agreements Related to the
Merger Shareholders Agreement, these registration rights will be replaced with those under the shareholders agreement after the closing of the merger.
Trivergance, an affiliate of Messrs. Byron, Kraff, Palmer and Stone, has agreed that, until the earlier of (i) when we consummate the acquisition of a target business and (ii) our liquidation, it will make available to us a small amount of office space and certain office and secretarial services, as we may require from time to time. We have agreed to pay Trivergance $7,500 per month for these services. Messrs. Byron, Kraff, Palmer and Stone are the partner, partner, managing director and managing director of Trivergance and, as a result, will benefit from the transaction to the extent of their interest in Trivergance. However, this arrangement is
solely for our benefit and is not intended to provide Messrs. Byron, Kraff, Palmer or Stone compensation in lieu of a salary. We believe, based on rents and fees for similar services in the New Jersey metropolitan area, that the fee charged by Trivergance is at least as favorable as we could have obtained from an unaffiliated person.
We issued an aggregate $100,000 unsecured promissory note to Trivergance on July 12, 2007. The note was non-interest bearing and was payable on the earlier of the consummation of our initial public offering us or July 12, 2008. The note was repaid from the net proceeds of our initial public offering.
Trivergance advanced $12,911 to us. No formal repayment arrangement was in place and no interest was due on the advance. The advance was repaid.
Pursuant to letter agreements which the initial stockholders have entered into with us and the underwriters, the initial stockholders have waived their right to receive distributions with respect to their initial shares upon the our liquidation.
We will reimburse our officers and directors for any reasonable out-of-pocket business expenses incurred by them in connection with certain activities on our behalf such as identifying and investigating possible target businesses and business combinations. There is no limit on the amount of out-of-pocket expenses reimbursable by us, which will be reviewed only by our board or a court of competent jurisdiction if such reimbursement is challenged.
Other than the $7,500 per-month administrative fee and any reimbursable out-of-pocket expenses payable to our officers and directors, no compensation or fees of any kind, including finders fees, consulting fees or other similar compensation, will be paid to any of our initial stockholders, officers or directors who owned our common stock prior to our initial public offering, or to any of their respective affiliates, prior to or with respect to the business combination (regardless of the type of transaction that it is).
All ongoing and future transactions between us and any of our officers and directors or their respective affiliates, including loans by our officers and directors, will be on terms believed by us to be no less favorable to us than are available from unaffiliated third parties. Such transactions or loans, including any forgiveness of loans, will require prior approval by a majority of our disinterested independent directors or the members of our board who do not have an interest in the transaction, in either case who had access, at our expense, to our attorneys or independent legal counsel. We will not enter into any such transaction
unless our disinterested independent directors determine that the terms of such transaction are no less favorable to us than those that would be available to us with respect to such a transaction from unaffiliated third parties.
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Granite Creek Partners, L.L.C., an entity affiliated with Brian B. Boorstein, one of our directors, purchased from HUGHES Telematics on July 8, 2008, for aggregate consideration of $5.0 million, senior secured term indebtedness issued under HUGHES Telematics credit facility with a principal amount of $5.0 million and a warrant to purchase 6,611 shares of HUGHES Telematics common stock at an exercise price of $0.01 per share. As of July 8, 2008, HUGHES Telematics had outstanding senior secured term indebtedness under the credit facility with an aggregate principal balance of $55.0 million. The proceeds from the issuance of senior secured term
indebtedness have been used for HUGHES Telematics general corporate purposes and to pay fees and expenses related to the issuance of the term indebtedness. The term indebtedness is guaranteed by all of HUGHES Telematics existing and future domestic subsidiaries and is secured by all of its tangible and intangible assets. While the credit facility bears interest at a variable rate equal to 11% plus the greater of the LIBOR or 3%, as Granite Creek Partners, L.L.C. is a Small Business Investment Company under the U.S. Small Business Administration, the parties agreed to fix the interest rate for the $5.0 million note held by Granite Creek Partners, L.L.C. at 14% for the term of the credit facility in order to comply with U.S. Small Business Administration rules. HUGHES Telematics may elect to pay the interest accrued on the senior secured term indebtedness until March 31, 2010 in kind (i.e., with such accrued interest being added to the outstanding principal balance of the
term indebtedness). After March 31, 2010 and until the March 31, 2013 maturity date of the senior secured term indebtedness, the accrued interest will be paid in cash in arrears. HUGHES Telematics may voluntarily prepay amounts outstanding under the credit facility anytime after March 31, 2010 at a redemption price starting at 103% of the outstanding principal amount of the term indebtedness and declining to par after March 31, 2012.
The warrants issued to Granite Creek Partners, L.L.C. in connection with the purchase of the term indebtedness are exercisable upon the earlier to occur of (i) the repayment of the term indebtedness, (ii) a change of control as defined in the warrant agreement, (iii) a transaction or event causing or allowing the holders to sell the shares of common stock issuable upon exercise of the warrants pursuant to the co-sale agreement, dated March 31, 2008, as amended, by and among HUGHES Telematics, Apollo and the holders of the warrants. If not exercised prior to the earlier of (i) the date on which HUGHES Telematics becomes subject to the requirement to
file reports under Section 13(a) or Section 15(d) of the Exchange Act or (ii) March 31, 2013, the warrants will be automatically exercised on such date with no action required on the part of the holders (except the payment of the aggregate exercise price). In the event that the term indebtedness is prepaid in full prior to March 31, 2010, the number of shares for which the warrant issued to Granite Creek Partners, L.L.C. is exercisable shall be reduced by 1,240 shares.
TBR, an affiliate of our initial stockholders, entered into a Services Agreement & Statement of Work with HUGHES Telematics on September 26, 2008. Pursuant to this agreement, TBR began providing a marketing assessment and other research for HUGHES Telematics to aid in creating a world-class marketing and retention platform. HUGHES Telematics paid TBR a fee of $150,000 and reimbursed TBR for travel and certain other expenses incurred in connection with the engagement. Additionally, TBR entered into a letter agreement with HUGHES Telematics on November 4, 2008 to provide additional marketing services. Under the terms of the letter agreement, TBR
agreed to provide the services in exchange for a $125,000 monthly draw against a per subscriber fee payable on certain subscribers acquired beginning in November 2008 and continuing through December 2010. A portion of the monthly draw will be deferred until a HUGHES Telematics financing event.
The Polaris initial stockholders have agreed to place an aggregate of 1,250,000 shares of their Polaris common stock in escrow, to be released back to them if the price target for the first tranche of earn-out shares is achieved between the first and fifth anniversaries of closing.
In connection with closing of the Merger, both Polaris and HUGHES Telematics may, from time to time, engage in a limited number of private transactions with selected stockholders to repurchase their shares. Polaris and/or HUGHES Telematics may seek to raise funds in order to complete these transactions. To the extent the magnitude or terms of any such transactions are material to your vote on the proposals presented at the special meeting, such transactions will be described in a supplement that will be mailed to our stockholders in advance of the meeting.
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DESCRIPTION OF POLARIS CAPITAL STOCK AND SECURITIES
General
Polaris is currently authorized to issue up to 55,000,000 shares of common stock, par value $0.0001 per share, and 1,000,000 shares of preferred stock, par value $0.0001 per share. As of February 10, 2009, 18,750,000 shares of common stock are outstanding, held by 12 record stockholders. No shares of preferred stock are currently outstanding.
If the merger with HUGHES Telematics is approved by Polaris stockholders, Polaris will be authorized to issue up to 155,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share. There will be 32,462,245 shares of common stock outstanding immediately following completion of the merger, not including the earn-out shares issued into escrow or the sponsor earn-out shares placed into escrow upon consummation of the merger and assuming (1) no issuances of additional shares of Polaris common stock to HUGHES Telematics stockholders to account for the net proceeds received by HUGHES
Telematics for equity issued prior to the mailing of this proxy statement, (2) no issuances of additional shares of Polaris common stock to HUGHES Telematics stockholders to account for a shortfall in the net working capital of Polaris, (3) no election of conversion of shares by Polaris stockholders (as discussed below) and (4) no exercise of warrants by Polaris stockholders.
Units
Each unit consists of one share of common stock and one warrant. Each warrant entitles the holder to purchase one share of common stock. The common stock and warrants started separately trading on January 28, 2008.
Common Stock
Common stockholders of record are entitled to one vote for each share held on all matters to be voted on by stockholders. In connection with the stockholder vote required to approve our initial business combination, each of our initial stockholders has agreed to vote his Polaris common stock obtained prior to our initial public offering in accordance with the majority of the shares of common stock voted by the public stockholders, who vote at the special or annual meeting called for the purpose of approving a business combination. In addition, our initial stockholders have agreed to vote all of their shares of Polaris common stock acquired in the
initial public offering or in the aftermarket in favor of any business combination negotiated by the officers of Polaris.
Polaris certificate of incorporation specifies that we may proceed with an initial business combination only if (i) a majority of the shares of Polaris common stock voted by the public stockholders present and entitled to vote at the special meeting in person or by proxy are voted in favor of the merger with HUGHES Telematics and (ii) public stockholders owning less than 30% of the shares sold in our initial public offering exercise their conversion rights discussed below. Because of the structure of the merger with HUGHES Telematics, the DGCL imposes a further requirement that Polaris obtain the affirmative vote of a majority of the shares of
Polaris common stock outstanding as of the record date in order proceed with the merger.
Polaris board of directors is currently divided into three classes, each of which will generally serve for a term of three years with only one class of directors being elected in each year. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares eligible to vote for the election of directors can elect all of the directors.
If Polaris is forced to liquidate its trust account because it has not consummated a business combination by January 11, 2010, Polaris public stockholders are entitled to share ratably in the trust account, inclusive of any interest not previously released to us to fund working capital requirements and of any income taxes due on such interest, which income taxes, if any, shall be paid from the trust fund and any net assets remaining available for distribution to them after payment of liabilities. Our initial stockholders have waived their respective rights to participate in any liquidation distribution occurring upon our failure to consummate a
business combination but only with respect to the shares of common stock owned by them prior to our initial public offering.
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Polaris stockholders have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the common stock, except that public stockholders have the right to have their shares of common stock converted to cash equal to their pro rata share of the trust account plus any interest earned thereon, net of income taxes payable on such interest, calculated as of two business days prior to the consummation of the initial business combination, and net of interest income of up to $1.8 million on the trust account balance previously released to us to fund our working capital requirements, if they vote
against our initial business combination and properly elect conversion, and if our initial business combination is approved and completed. Public stockholders who convert their stock into their pro rata share of the trust account still have the right to exercise the warrants that they received as part of the units.
The holders of Polaris common stock issued and outstanding prior to our initial public offering, as well as the holders of the insider warrants (and the underlying securities), are entitled to registration rights pursuant to an agreement signed in connection with our initial public offering. Upon the completion of our initial business combination, this agreement shall be replaced by the registration rights provisions of the shareholders agreement, described above under Agreements Related to the Merger Shareholders Agreement.
Preferred Stock
Polaris amended and restated certificate of incorporation authorizes the issuance of 1,000,000 shares of blank check preferred stock with such designation, rights and preferences as may be determined from time to time by our board of directors. No shares of preferred stock were issued or registered in our initial public offering. Accordingly, Polaris board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of common stock. However, Polaris underwriting agreement
entered into in connection with its initial public offering prohibits it, prior to a business combination, from issuing preferred stock which participates in any manner in the proceeds of the trust account, or which votes as a class with the common stock on a business combination. We do not intend to issue any preferred stock to effect the merger proposal. If Polaris stockholders do not approve the merger proposal, we may issue some or all of the preferred stock to effect a different business combination. In addition, the preferred stock could be utilized as a method of discouraging, delaying or preventing a change in control of us. Although we do not currently intend to issue any shares of preferred stock, we cannot assure you that we will not do so in the future.
Warrants
Polaris currently has 19,500,000 warrants outstanding. Each warrant entitles the registered holder to purchase one share of our common stock at a price of $7.00 per share, subject to adjustment as discussed below, at any time commencing on the later of:
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the completion of a business combination; and
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The warrants will expire on January 11, 2012 at 5:00 p.m., New York City time. Polaris may call the warrants for redemption (including the insider warrants):
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in whole and not in part;
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at a price of $0.01 per warrant at any time while the warrants are exercisable (which will occur only if a registration statement relating to the common stock issuable upon exercise of the warrants is effective and current);
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upon a minimum of 30 days prior written notice of redemption to each warrant holder; and
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if, and only if, the last reported sale price of the common stock equals or exceeds $14.25 per share, for any 20 trading days within a 30 trading day period ending on the third business day prior to the notice of redemption to warrant holders.
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The right to exercise will be forfeited unless they are exercised prior to the date specified in the notice of redemption. On and after the redemption date, a record holder of a warrant will have no further rights except to receive the redemption price for such holders warrant upon surrender of such warrant.
The redemption criteria for our warrants have been established at a price which is intended to provide warrant holders a reasonable premium to the initial exercise price and provide a sufficient differential between the then prevailing common stock price and the warrant exercise price so that if the stock price declines as a result of our redemption call, the redemption will not cause the stock price to drop below the exercise price of the warrants.
If we call the warrants for redemption as described above, we have agreed to allow our initial stockholders and their affiliates to exercise the insider warrants on a cashless basis. If the holders take advantage of this option, they would pay the exercise price by surrendering their insider warrants for that number of shares of common stock equal to the quotient obtained by dividing (x) the product of the number of shares of common stock underlying the insider warrants, multiplied by the difference between the exercise price of the warrants and the fair market value (defined below) by (y) the fair market value. The fair market
value shall mean the average reported last sale price of the common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to holders of warrants. The reason that we have agreed that the insider warrants will be exercisable on a cashless basis so long as they are held by the purchasers or their affiliates is because it is not known at this time whether they will be affiliated with us following a business combination. If they are, their ability to sell our securities in the open market will be significantly limited. If they remain insiders, we will have policies in place that prohibit insiders from selling our securities except during specific periods of time. Even during such periods of time, an insider cannot trade in our securities if he is in possession of material non-public information. Accordingly, unlike public stockholders who could exercise their warrants and sell the shares of common stock received upon
such exercise freely in the open market in order to recoup the cost of such exercise, the insiders could be significantly restricted from selling such securities. As a result, we believe that allowing the holders to exercise such warrants on a cashless basis is appropriate.
The warrants are issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and Polaris.
The exercise price and number of shares of common stock issuable on exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation. However, the exercise price and number of shares of common stock issuable on exercise of the warrants will not be adjusted for issuances of common stock at a price below their respective exercise price.
The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified check payable to us, for the number of warrants being exercised. Warrant holders do not have the rights or privileges of holders of common stock, including voting rights, until they exercise their warrants and receive shares of common stock. After the issuance of shares of common stock upon exercise of the warrants, each holder will be
entitled to one vote for each share held of record on all matters to be voted on by stockholders.
No warrants will be exercisable and we will not be obligated to issue shares of common stock unless at the time a holder seeks to exercise such warrant, a prospectus relating to the common stock issuable upon exercise of the warrants is current and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. Under the terms of the warrant agreement, we have agreed to use our best efforts to meet these conditions and to maintain a current prospectus relating to the common stock issuable upon exercise of the warrants until the expiration of the warrants.
However, we cannot assure you that we will be able to do so and, if we do not maintain a current prospectus relating to the common stock issuable upon exercise of the warrants, holders will be unable to exercise their warrants and we will not be required to settle any such warrant exercise. If the prospectus relating to the common stock issuable upon the exercise of the warrants is not current or if the common stock is not qualified or exempt from qualification in the jurisdictions in which the holders of the warrants reside,
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we will not be required to net cash settle or cash settle the warrant exercise, the warrants may have no value, the market for the warrants may be limited and the warrants may expire worthless. Notwithstanding the foregoing, the insider warrants may be exercisable for unregistered shares of common stock even if the prospectus relating to the common stock issuable upon exercise of the warrants is not current.
No fractional shares will be issued upon exercise of the warrants. If a holder exercises warrants and would be entitled to receive a fractional interest of a share, we will round up to the nearest whole number the number of shares of common stock to be issued to the warrant holder.
Simultaneously with our initial public offering, our initial stockholders purchased an aggregate of 4,500,000 warrants from us at a price of $1.00 per warrant, which we refer to as the insider warrants. The insider warrants are identical to the warrants included in the units sold in the initial public offering, except that if we call the warrants for redemption, the insider warrants will be exercisable on a cashless basis so long as such warrants are held by the purchasers or their affiliates. The purchasers of the insider warrants have agreed not to sell or otherwise transfer any of the insider warrants until the date that is 45 days after the date
we complete a business combination. Accordingly, the insider warrants will be placed in escrow maintained by Continental Stock Transfer & Trust Company and will not be released until 45 days after the completion of a business combination.
The insider warrants will become worthless if Polaris does not consummate a business combination. The personal and financial interests of Polaris officers, directors and other affiliates may influence their motivation in identifying and selecting a target business and completing a business combination in a timely manner. Consequently, Polaris officers and directors discretion in identifying and selecting a suitable target business may result in a conflict of interest when determining whether the terms, conditions and timing of a particular business combination are appropriate and in our stockholders best interest.
Transfer Agent and Warrant Agent
Polaris transfer agent for its securities and warrant agent for its warrants is Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New York 10004.
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BENEFICIAL OWNERSHIP OF SECURITIES
The table below sets forth the actual beneficial ownership as of February 10, 2009 and the projected beneficial ownership of our common stock immediately after the completion of the merger. The table sets forth the actual and projected beneficial ownership of our common stock by the following individuals or entities:
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each person who will beneficially own more than 5% of the outstanding shares of our capital stock immediately before or after the consummation of the merger;
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the individuals who will be our directors and executive officers following the consummation of the merger;
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our directors and executive officers as a group following the consummation of the merger;
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the individuals who are our current directors and executive officers; and
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our current directors and executive officers as a group.
|
Beneficial ownership is determined in accordance with the rules of the SEC. Except as otherwise indicated, each person or entity named in the table is expected to have sole voting and investment power with respect to all shares of our capital stock shown as beneficially owned, subject to applicable community property laws. The beneficial ownership percentages below assume that none of our stockholders properly elect to convert their shares into cash. To the extent that our stockholders properly elect such conversion, the beneficial ownership percentages of our initial stockholders and HUGHES Telematics stockholders will increase and the beneficial
ownership percentages of our public stockholders will decrease. The beneficial ownership percentages below also assume that we are not required to issue additional shares of our common stock to cover additional equity raised by HUGHES Telematics prior the closing of the proposed merger or to cover a shortfall in our net working capital below $138.0 million at the closing of the merger. To the extent we must make such additional share issuances, the beneficial ownership percentages of HUGHES Telematics stockholders will increase and the beneficial ownership percentages of our initial stockholders and public stockholders will decrease.
As of February 10, 2009, 18,750,000 shares of Polaris common stock were issued and outstanding. The percentage of beneficial ownership after the merger without including earn-out shares or sponsor earn-out shares set forth below gives effect to the issuance of 14,965,799 shares of Polaris common stock in the merger and is based on 32,465,799 shares of our capital stock estimated to be outstanding immediately following completion of the merger assuming no exercise of outstanding Polaris warrants (other than, in the case of each individual listed in the table below, warrants held by that individual that will be exercisable for our common stock upon the
consummation of the merger), and does not include earn-out shares or sponsor earn-out shares issued into escrow and to be released to HUGHES Telematics stockholders or the Polaris initial stockholders contingent upon the common stock meeting specified share price targets over the five-year period following the closing of the merger. Note that these beneficial ownership percentages do not reflect the voting power beneficially owned by these individuals because, after the closing of the merger, HUGHES Telematics and the Polaris initial stockholders may vote their earn-out shares and sponsor earn-out shares held in escrow without restriction, which will have the net effect of increasing the voting power held by HUGHES Telematics stockholders and decreasing the voting power held by our initial stockholders and public stockholders.
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TABLE OF CONTENTS
The percentage of beneficial ownership after the merger including earn-out shares and sponsor earn-out shares set forth below gives effect to the issuance of 14,965,799 shares of Polaris common stock in the merger, 56,953,346 earn-out shares and 1,250,000 sponsor earn-out shares, and is based on 90,669,145 shares of our capital stock expected to be outstanding immediately following completion of the merger assuming no exercise of outstanding Polaris warrants (other than, in the case of each individual listed in the table below, warrants held by that individual that will be exercisable for our common stock upon the consummation of the merger).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership of
Polaris Common Stock on February 10, 2009
|
|
Beneficial Ownership of the Combined Company After the Merger (Without Including Earn-out Shares or Sponsor Earn-out Shares)
|
|
Beneficial Ownership of the Combined Company After the Merger (Including Earn-out Shares and Sponsor Earn-out Shares)
|
Name of Beneficial Owner
(1)
|
|
Amount and
Nature of
Beneficial
Ownership
|
|
Percentage of Outstanding
Common Stock
|
|
Amount and
Nature of
Beneficial
Ownership
|
|
Percentage of Outstanding
Common Stock
|
|
Amount and
Nature of
Beneficial
Ownership
|
|
Percentage of
Outstanding
Common Stock
|
Apollo Management V, L.P.
(2)
|
|
|
0
|
|
|
|
0.0
|
%
|
|
|
12,613,411
|
|
|
|
38.9
|
%
|
|
|
60,614,596
|
|
|
|
66.9
|
%
|
Wellington Management Company, LLP
(3)
|
|
|
2,314,300
|
(4)
|
|
|
12.3
|
%
|
|
|
2,314,300
|
(4)
|
|
|
7.1
|
%
|
|
|
2,314,300
|
(4)
|
|
|
2.6
|
%
|
Israel Englander
(5)
|
|
|
1,813,400
|
(6)
|
|
|
9.7
|
%
|
|
|
5,414,925
|
(7)
|
|
|
15.0
|
%
|
|
|
5,414,925
|
(7)
|
|
|
5.7
|
%
|
HBK Investments L.P.
(8)
|
|
|
1,264,100
|
(9)
|
|
|
6.7
|
%
|
|
|
1,749,600
|
(10)
|
|
|
5.3
|
%
|
|
|
1,749,600
|
(10)
|
|
|
1.9
|
%
|
Marc V. Byron
|
|
|
999,078
|
(11)
|
|
|
5.3
|
%
|
|
|
1,566,052
|
(12)
|
|
|
4.7
|
%
|
|
|
1,899,078
|
(12)
|
|
|
2.1
|
%
|
Lowell D. Kraff
|
|
|
999,078
|
(13)
|
|
|
5.3
|
%
|
|
|
1,566,052
|
(14)
|
|
|
4.7
|
%
|
|
|
1,899,078
|
(14)
|
|
|
2.1
|
%
|
Platinum Partners Value Arbitrage Fund LP
(15)
|
|
|
950,500
|
(16)
|
|
|
5.1
|
%
|
|
|
1,134,300
|
(17)
|
|
|
3.5
|
%
|
|
|
1,134,300
|
(17)
|
|
|
1.2
|
%
|
Loeb Arbitrage Management, LLC
(18)
|
|
|
950,100
|
(19)
|
|
|
5.1
|
%
|
|
|
950,100
|
|
|
|
2.9
|
%
|
|
|
950,100
|
|
|
|
1.0
|
%
|
David L. Moore
|
|
|
238,531
|
(20)
|
|
|
1.3
|
%
|
|
|
519,021
|
(21)
|
|
|
1.6
|
%
|
|
|
598,531
|
(21)
|
|
|
0.7
|
%
|
David F. Palmer
|
|
|
174,758
|
|
|
|
0.9
|
%
|
|
|
116,505
|
|
|
|
0.4
|
%
|
|
|
174,758
|
|
|
|
0.2
|
%
|
Jerry Stone
|
|
|
174,758
|
(22)
|
|
|
0.9
|
%
|
|
|
116,505
|
(22)
|
|
|
0.4
|
%
|
|
|
174,758
|
(22)
|
|
|
0.2
|
%
|
Brian B. Boorstein
|
|
|
61,565
|
(23)
|
|
|
0.3
|
%
|
|
|
243,117
|
(24)
|
|
|
0.7
|
%
|
|
|
621,930
|
(24)
|
|
|
0.7
|
%
|
Stuart I. Oran
|
|
|
43,565
|
(25)
|
|
|
0.2
|
%
|
|
|
83,043
|
(26)
|
|
|
0.3
|
%
|
|
|
97,565
|
(26)
|
|
|
0.1
|
%
|
Jeffrey A. Leddy
|
|
|
0
|
|
|
|
0.0
|
%
|
|
|
113,911
|
(27)
|
|
|
0.4
|
%
|
|
|
547,409
|
(28)
|
|
|
0.6
|
%
|
Erik J. Goldman
|
|
|
0
|
|
|
|
0.0
|
%
|
|
|
106,792
|
(29)
|
|
|
0.3
|
%
|
|
|
513,196
|
(30)
|
|
|
0.6
|
%
|
Craig J. Kaufmann
|
|
|
0
|
|
|
|
0.0
|
%
|
|
|
12,103
|
(31)
|
|
|
0.0
|
%
|
|
|
58,162
|
(32)
|
|
|
0.1
|
%
|
Robert C. Lewis
|
|
|
0
|
|
|
|
0.0
|
%
|
|
|
12,103
|
(33)
|
|
|
0.0
|
%
|
|
|
58,162
|
(34)
|
|
|
0.0
|
%
|
Keith J. Schneider
|
|
|
0
|
|
|
|
0.0
|
%
|
|
|
2,848
|
(35)
|
|
|
0.0
|
%
|
|
|
13,685
|
(36)
|
|
|
0.0
|
%
|
Andrew D. Africk
|
|
|
0
|
|
|
|
0.0
|
%
|
|
|
3,560
|
(37)
|
|
|
0.0
|
%
|
|
|
17,107
|
(38)
|
|
|
0.0
|
%
|
Matthew H. Nord
|
|
|
0
|
|
|
|
0.0
|
%
|
|
|
3,560
|
(39)
|
|
|
0.0
|
%
|
|
|
17,107
|
(40)
|
|
|
0.0
|
%
|
All directors and executive officers after the merger as a group (13 individuals)
|
|
|
999,078
|
(41)
|
|
|
5.3
|
%
|
|
|
1,820,929
|
(42)
|
|
|
4.7
|
%
|
|
|
3,123,906
|
(43)
|
|
|
3.4
|
%
|
All current directors and executive officers as a group (7 individuals)
|
|
|
2,691,333
|
(44)
|
|
|
14.4
|
%
|
|
|
4,210,355
|
(45)
|
|
|
21.1
|
%
|
|
|
5,465,598
|
(46)
|
|
|
5.9
|
%
|
|
(1)
|
Unless otherwise indicated, the business address of the individuals who are our current officers and directors is 2200 Fletcher Avenue, 4
th
Floor, Fort Lee, New Jersey 07024. The business address of the individuals who will be our officers and directors after the merger (other than Marc V. Byron) is 41 Perimeter Center East, Suite 400, Atlanta, Georgia 30346.
|
140
TABLE OF CONTENTS
|
(2)
|
Represents all of the shares of Polaris common stock to be received as merger consideration in exchange for shares of HUGHES Telematics common stock currently held by Communications LLC and AIF V PLASE, or to be received by Communications LLC and AIF V PLASE, or to be received by Communications LLC and AIF V PLASE as earn-out shares in connection with the merger. Apollo Management V, L.P.(Management V) is the manager of Communications LLC and of AIF V PLASE. AIF V Management, LLC (Management V GP) is the general partner of Management V, and Apollo Management L.P. (Management), an SEC registered investment adviser, is the sole member and manager of Management V GP. Apollo Management GP, LLC (Management GP) is the general partner of Management. Apollo Management Holdings, L.P. (Management Holdings) is the sole member and manager of Management GP, and the general partner of Management
Holdings is Apollo Management Holdings GP, LLC (Management Holdings GP). Apollo Advisors V, L.P. (Advisors V) is the general partner of AIF V PLASE and Apollo Capital Management V, Inc. (ACM V Inc.) is the general partner of Advisors V. Apollo Principal Holdings, I GP, LLC (Apollo Principal GP) is the general partner of Apollo Principal Holdings, I, L.P., which is the sole stockholder of ACM V Inc. Leon Black, Joshua Harris and Marc Rowan are the principal executive officers and managers of Management Holdings GP and Apollo Principal GP, and as such may be deemed to exercise the voting and/or dispositive powers with respect to the shares owned by Communications Investors, LLC and Apollo Investment Fund V (PLASE), LP. Each of Messrs. Black, Harris and Rowan disclaims beneficial ownership of any shares of Polaris owned or to be received by Apollo, except to the extent of any pecuniary interest therein. The business address of Management V
is One Manhattanville Road, Suite 201, Purchase, NY 10577.
|
|
(3)
|
According to the Schedule 13G filed with the SEC on July 10, 2008, the business address of Wellington Management Company, LLP is 75 State Street, Boston, MA 02109.
|
|
(4)
|
This information was derived from the Schedule 13G filed with the SEC on July 10, 2008.
|
|
(5)
|
The business address of Israel Englander is c/o Millennium Management LLC, 666 Fifth Avenue, New York, New York 10103.
|
|
(6)
|
Represents 1,813,400 shares of common stock held by Integrated Core Strategies (US) LLC. Millennium Management LLC is the general partner of Integrated Holding Group LP, which is the managing member of Integrated Core Strategies and consequently may be deemed to have shared voting control and investment discretion over securities owned by Integrated Core Strategies. Israel A. Englander is the management member of Millennium Management LLC and may be deemed to have shared voting control and investment discretion over securities deemed to be beneficially owned by Millennium Management LLC. Does not include 3,601,525 shares of common stock issuable upon exercise of warrants held by Integrated Core Strategies that are not currently exercisable and may not become exercisable within 60 days of February 10, 2009. This information was derived from the Schedule 13G/A filed with the SEC on November 3, 2008.
|
|
(7)
|
Includes the shares in footnote (6) as well as 3,601,525 shares of common stock issuable upon the exercise of warrants that will be exercisable upon consummation of the merger.
|
|
(8)
|
According to the Schedule 13G filed with the SEC on November 25, 2008, the business address of HBK Investments L.P. is 2101 Cedar Springs Road, Suite 700, Dallas, TX 75201.
|
|
(9)
|
Based upon information contained in the Schedule 13G filed with the SEC on January 30, 2009, by HBK Investments L.P. (HBK Investments), by HBK Services LLC, a Delaware limited liability company (HBK Services), by HBK Partners II L.P., a Delaware limited partnership (HBK Partners), by HBK Management LLC, a Delaware limited liability company (HBK Management), by HBK New York LLC, a Delaware limited liability company, by HBK Special Opportunity Fund I L.P., a Cayman Islands limited partnership, and by HBK Master Fund L.P., a Cayman Islands limited partnership (HBK Master Fund). HBK Investments has delegated discretion to vote and dispose of the securities to HBK Services. Services may, from time to time, delegate discretion to vote and dispose of certain of the Securities to HBK New York LLC, HBK Virginia LLC, a Delaware limited liability company, HBK Europe Management LLP, a limited
liability partnership organized under the laws of the United Kingdom, and/or HBK Hong Kong Ltd., a corporation organized under the laws of Hong Kong (collectively, the Subadvisors). Each of Services and the Subadvisors is under common control with HBK Investments L.P. The Subadvisors expressly declared in the 13G filed with the SEC on November 25, 2008 that such filing shall not be construed as an admission that they are, for the purpose of Section 13(d) or 13(g) of the Securities Exchange Act of 1934, beneficial owners of the Securities.
|
|
(10)
|
Based upon information contained in the Schedule 13G/A filed with the SEC on January 30, 2009, by HBK Investments L.P. HBK Master Fund L.P. holds an aggregate of 485,500 warrants that will become exercisable on the completion of the Merger.
|
141
TABLE OF CONTENTS
|
(11)
|
Represents shares held by Byron Business Ventures XX, LLC, an entity controlled by Mr. Byron. Does not include 900,000 shares of common stock issuable upon exercise of insider warrants held by Mr. Byron that are not currently exercisable and may not become exercisable within 60 days of February 10, 2009.
|
|
(12)
|
Includes 900,000 shares of common stock issuable upon exercise of insider warrants that will be exercisable upon consummation of the merger.
|
|
(13)
|
Represents shares held by Praesumo Partners, LLC, an entity controlled by Mr. Kraff. Does not include 900,000 shares of common stock issuable upon exercise of insider warrants held by Mr. Kraff that are not currently exercisable and may not become exercisable within 60 days of February 10, 2009.
|
|
(14)
|
Includes 900,000 shares of common stock issuable upon exercise of insider warrants that will be exercisable upon consummation of the merger.
|
|
(15)
|
According to the Schedule 13G filed with the SEC on October 30, 2008, the business address of Platinum Partners Value Arbitrage Fund LP is 152 West 57
th
Street, New York, NY 10019.
|
|
(16)
|
This information was derived from the Schedule 13G filed with the SEC on October 30, 2008. Does not include 183,800 shares of common stock issuable upon exercise of warrants held by Platinum Partners Value Arbitrage Fund LP that are not currently exercisable and may not become exercisable within 60 days of February 10, 2009.
|
|
(17)
|
Includes the 183,800 shares of common stock issuable upon exercise of warrants held by Platinum Partners Value Arbitrage Fund LP that will be exercisable upon consummation of the merger.
|
|
(18)
|
According to the Schedule 13D filed with the SEC on January 14, 2009, the business address of Loeb Arbitrage Management, LLC 61 Broadway, New York, N.Y. 10006.
|
|
(19)
|
Represents shares held by Loeb Partners Corporation, Loeb Arbitrage Fund, Loeb Arbitrage Management, LLC, Loeb Offshore Fund Ltd., Loeb Marathon Fund LP, Loeb Marathon Offshore Fund, Ltd., Loeb Arbitrage B Fund LP and Loeb Offshore Fund Ltd. Share amounts listed are derived from Loeb Partners Corporations Schedule 13D filing with the SEC on January 14, 2009
|
|
(20)
|
Represents shares held by Moore Holdings, LLC, an entity controlled by Mr. Moore. Does not include 360,000 shares of common stock issuable upon exercise of insider warrants held by Mr. Moore that are not currently exercisable and may not become exercisable within 60 days of February 10, 2009.
|
|
(21)
|
Includes 360,000 shares of common stock issuable upon exercise of insider warrants that will be exercisable upon consummation of the merger.
|
|
(22)
|
Represents shares held by Vinco Vincere Vici Victum LLC, an entity controlled by Mr. Stone.
|
|
(23)
|
Represents shares held by Granite Creek Partners, L.L.C., an entity controlled by Mr. Boorstein. Does not include 108,000 shares of common stock issuable upon exercise of insider warrants held by Mr. Boorstein that are not currently exercisable and may not become exercisable within 60 days of February 10, 2009.
|
|
(24)
|
Includes 108,000 shares of common stock issuable upon exercise of insider warrants that will be exercisable upon consummation of the merger and shares of Polaris common stock that may be received by Granite Creek Partners, L.L.C. as a result of the merger due to its ownership of warrants to purchase 6,611 shares of HUGHES Telematics common stock.
|
|
(25)
|
Represents shares held by Roxbury Capital Group LLC Incentive Savings Plan, of which Mr. Oran is sole trustee and beneficiary. Does not include 54,000 shares of common stock issuable upon exercise of insider warrants held by Mr. Oran that are not currently exercisable and may not become exercisable within 60 days of February 10, 2009.
|
|
(26)
|
Includes 54,000 shares of common stock issuable upon exercise of insider warrants that will be exercisable upon consummation of the merger.
|
|
(27)
|
Includes (i) 56,955 shares of Polaris common stock to be received by Mr. Leddy as merger consideration in exchange for shares of HUGHES Telematics common stock currently held, (ii) 28,478 shares of Polaris common stock to be received by the Jeffrey A. Leddy Grantor Retained Annuity Trust as merger consideration in exchange for shares of HUGHES Telematics common stock currently held and (iii) 28,478 shares of Polaris common stock issuable upon exercise of options to be received in exchange for options to purchase shares of HUGHES Telematics common stock currently held by Mr. Leddy that are exercisable within 60 days of February 10, 2009. Does not include shares of Polaris common stock issuable upon exercise of options to be received in exchange for options to purchase shares of HUGHES
|
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TABLE OF CONTENTS
|
|
Telematics common stock currently held by Mr. Leddy that are not currently exercisable and may not become exercisable within 60 days of February 10, 2009.
|
|
(28)
|
Includes (i) the shares of Polaris common stock in footnote (27) above, (ii) 216,750 shares of Polaris common stock to be received by Mr. Leddy as earn-out shares in connection with the merger, (iii) 108,374 shares of Polaris common stock to be received by the Jeffrey A. Leddy Grantor Retained Annuity Trust as earn-out shares in connection with the merger, and (iv) 108,374 shares of Polaris common stock issuable upon exercise of earn-out options to be received by Mr. Leddy in connection with the merger that are exercisable within 60 days of February 10, 2009. Does not include shares of Polaris common stock issuable upon exercise of earn-out options to be received in connection with the merger which may not become exercisable within 60 days of February 10, 2009.
|
|
(29)
|
Includes 85,434 shares of Polaris common stock to be received as merger consideration in exchange for shares of HUGHES Telematics common stock currently held and 21,358 shares of Polaris common stock issuable upon exercise of options to be received in exchange for options to purchase shares of HUGHES Telematics common stock currently held that are exercisable within 60 days of February 10, 2009. Does not include shares of Polaris common stock issuable upon exercise of options to be received in exchange for options to purchase shares of HUGHES Telematics common stock currently held that are not currently exercisable and may not become exercisable within 60 days of February 10, 2009.
|
|
(30)
|
Includes (i) the shares of Polaris common stock in footnote (29) above, (ii) 325,123 shares of Polaris common stock to be received as earn-out shares in connection with the merger and (iii) 81,281 shares of Polaris common stock issuable upon exercise of earn-out options to be received in connection with the merger that are exercisable within 60 days of February 10, 2009. Does not include shares of Polaris common stock issuable upon exercise of earn-out options to be received in connection with the merger.
|
|
(31)
|
Includes 7,120 shares of Polaris common stock to be received as merger consideration in exchange for shares of HUGHES Telematics common stock currently held as a result of an earlier option exercise and 4,983 shares of Polaris common stock issuable upon exercise of options to be received in exchange for options to purchase shares of HUGHES Telematics common stock currently held that are exercisable within 60 days of February 10, 2009. Does not include shares of Polaris common stock issuable upon exercise of options to be received in exchange for options to purchase shares of HUGHES Telematics common stock currently held that are not currently exercisable and may not become exercisable within 60 days of February 10, 2009.
|
|
(32)
|
Includes (i) the shares of Polaris common stock in footnote (31) above, (ii) 27,093 shares of Polaris common stock to be received as earn-out shares in connection with the merger and (iii) 18,966 shares of Polaris common stock issuable upon exercise of earn-out options to be received in connection with the merger that are exercisable within 60 days of February 10, 2009. Does not include shares of Polaris common stock issuable upon exercise of earn-out options to be received in connection with the merger which may not become exercisable within 60 days of February 10, 2009.
|
|
(33)
|
Includes 7,120 shares of Polaris common stock to be received as merger consideration in exchange for shares of HUGHES Telematics common stock currently held as a result of an earlier option exercise and 4,983 shares of Polaris common stock issuable upon exercise of options to be received in exchange for options to purchase shares of HUGHES Telematics common stock currently held that are exercisable within 60 days of February 10, 2009. Does not include shares of Polaris common stock issuable upon exercise of options to be received in exchange for options to purchase shares of HUGHES Telematics common stock currently held that are not currently exercisable and may not become exercisable within 60 days of February 10, 2009.
|
|
(34)
|
Includes (i) the shares of Polaris common stock in footnote (33) above, (ii) 27,093 shares of Polaris common stock to be received as earn-out shares in connection with the merger and (iii) 18,966 shares of Polaris common stock issuable upon exercise of earn-out options to be received in connection with the merger that are exercisable within 60 days of February 10, 2009. Does not include shares of Polaris common stock issuable upon exercise of earn-out options to be received in connection with the merger which may not become exercisable within 60 days of February 10, 2009.
|
|
(35)
|
Includes shares of Polaris common stock issuable upon exercise of options to be received in exchange for options to purchase shares of HUGHES Telematics common stock currently held that are exercisable within 60 days of February 10, 2009. Does not include shares of Polaris common stock issuable upon exercise of options to be received in exchange for options to purchase shares of HUGHES Telematics common stock currently held that are not currently exercisable and may not become exercisable within 60 days of February 10, 2009.
|
143
TABLE OF CONTENTS
|
(36)
|
Includes the shares of Polaris common stock in footnote (35) above and 10,837 shares of Polaris common stock issuable upon exercise of earn-out options to be received in connection with the merger that are exercisable within 60 days of February 10, 2009. Does not include shares of Polaris common stock issuable upon exercise of earn-out options to be received in connection with the merger which may not become exercisable within 60 days of February 10, 2009.
|
|
(37)
|
Includes shares of Polaris common stock issuable upon exercise of options to be received in exchange for options to purchase shares of HUGHES Telematics common stock currently held by Mr. Africk that are exercisable within 60 days of February 10, 2009. Does not include shares of Polaris common stock issuable upon exercise of options to be received by Mr. Africk in exchange for options to purchase shares of HUGHES Telematics common stock currently held that are not currently exercisable and may not become exercisable within 60 days of February 10, 2009. Also does not include any shares of Polaris common stock to be received in connection with the merger by Communications LLC and AIF V PLASE, each of which is an affiliate of Apollo Advisors, L.P., of which Mr. Africk is a senior partner. Mr. Africk disclaims beneficial ownership of any shares of Polaris owned or to be received by Apollo, except to the extent of any pecuniary interest therein.
|
|
(38)
|
Includes the shares of Polaris common stock in footnote (37) above, and 13,547 shares of Polaris common stock issuable upon exercise of earn-out options to be received by Mr. Africk in connection with the merger that are exercisable within 60 days of February 10, 2009. Does not include shares of Polaris common stock issuable upon exercise of earn-out options to be received by Mr. Africk in connection with the merger which may not become exercisable within 60 days of February 10, 2009.
|
|
(39)
|
Includes shares of Polaris common stock issuable upon exercise of options to be received in exchange for options to purchase shares of HUGHES Telematics common stock currently held by Mr. Nord that are exercisable within 60 days of February 10, 2009. Also does not include shares of Polaris common stock issuable upon exercise of options to be received by Mr. Nord in exchange for options to purchase shares of HUGHES Telematics common stock currently held that are not currently exercisable and may not become exercisable within 60 days of February 10, 2009. Also does not include any shares of Polaris common stock to be received in connection with the merger by Communications LLC and AIF V PLASE, each of which is an affiliate of Apollo Advisors, L.P., of which Mr. Nord serves as a principal. Mr. Nord disclaims beneficial ownership of any shares of Polaris owned or to be received by Apollo, except to the extent of any pecuniary interest therein.
|
|
(40)
|
Includes the shares of Polaris common stock in footnote (39) above, and 13,547 shares of Polaris common stock issuable upon exercise of earn-out options to be received by Mr. Nord in connection with the merger that are exercisable within 60 days of February 10, 2009. Does not include shares of Polaris common stock issuable upon exercise of earn-out options to be received by Mr. Nord in connection with the merger which may not become exercisable within 60 days of February 10, 2009.
|
|
(41)
|
Does not include 900,000 shares of common stock issuable upon the exercise of insider warrants that are not currently exercisable and may not become exercisable within 60 days of February 10, 2009.
|
|
(42)
|
Includes (i) the shares of Polaris common stock in footnote (41) minus 333,026 sponsor earn-out shares, plus, (ii) 900,000 shares of common stock issuable upon the exercise of insider warrants that will be exercisable upon consummation of the merger, (iii) 185,107 shares of Polaris common stock to be received as merger consideration in exchange for shares of HUGHES Telematics common stock currently held and (iv) 69,770 shares of Polaris common stock issuable upon exercise of options to be received in exchange for options to purchase shares of HUGHES Telematics common stock currently held that are exercisable within 60 days of February 10, 2009. Does not include shares of Polaris common stock issuable upon exercise of options to be received in exchange for options to purchase shares of HUGHES Telematics common stock currently held that are not currently exercisable and may not become exercisable within 60 days of February 10, 2009.
|
|
(43)
|
Includes (i) the shares of Polaris common stock in footnote (42) plus, (ii) 704,433 shares of Polaris common stock to be received as earn-out shares in connection with the merger, (iii) 333,026 sponsor earn-out shares, and (iv) 265,518 shares of Polaris common stock issuable upon exercise of earn-out options to be received in connection with the merger that are exercisable within 60 days of February 10, 2009. Does not include shares of Polaris common stock issuable upon exercise of options to be received in exchange for options to purchase shares of HUGHES Telematics common stock currently held that are not currently exercisable and may not become exercisable within 60 days of February 10, 2009.
|
|
(44)
|
Does not include 2,322,000 shares of common stock issuable upon the exercise of insider warrants that are not currently exercisable and may not become exercisable within 60 days of February 10, 2009.
|
144
TABLE OF CONTENTS
|
(45)
|
Includes 2,322,000 shares of common stock issuable upon the exercise of insider warrants that will be exercisable upon consummation of the merger and shares of Polaris common stock that may be received by Granite Greek Partners, L.L.C. as a result of the merger due to its ownership of warrants to purchase 6,611 shares of HUGHES Telematics common stock.
|
In connection with the vote required for our initial business combination, each of our initial stockholders has agreed to vote the shares of common stock acquired by it before our initial public offering in accordance with the majority of the shares of common stock voted by the public stockholders. Each of our initial stockholders has also agreed to vote any shares acquired by it in or after our initial public offering in favor of our initial business combination. Therefore, if such entity acquires shares in or after our initial public offering, it must vote such shares in favor of the proposed business combination and has, as a result, waived the
right to exercise conversion rights for those shares in the event that our initial business combination is approved by a majority of our public stockholders.
STOCKHOLDER PROPOSALS
We are not anticipating holding any meeting of stockholders during 2008 other than the special meeting. Stockholders may present proposals for action at an annual meeting of stockholders only if they comply with the proxy rules under the Exchange Act, applicable Delaware law and our bylaws. We have not yet established a date for our next annual meeting of stockholders.
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
Representatives of Polaris independent registered public accounting firm, McGladrey & Pullen, LLP, will be present at the special meeting of the stockholders. The representatives will have the opportunity to make a statement if they so desire and are expected to be available to respond to appropriate questions. Polaris former independent registered public accounting firm, Goldstein Golub Kessler LLP (GGK) resigned as our independent registered public accounting firm on January 31, 2008 after certain of the partners of GGK became partners of McGladrey & Pullen, LLP in a limited asset purchase agreement. McGladrey &
Pullen, LLP was subsequently engaged as Polaris new independent registered public accounting firm.
The consolidated financial statements of HUGHES Telematics at September 30, 2008 and December 31, 2007 and 2006, and for the nine months ended September 30, 2008, the year ended December 31, 2007 and the period from January 9, 2006 (inception) to December 31, 2006 included in this proxy statement have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm given on the authority of said firm as experts in auditing and accounting.
DELIVERY OF DOCUMENTS TO STOCKHOLDERS
Pursuant to the rules of the SEC, Polaris and the services that it employs to deliver communications to its stockholders are permitted to deliver to two or more stockholders sharing the same address a single copy of each of Polaris annual report to stockholders and proxy statement unless Polaris has received contrary instructions from one or more of the stockholders. Upon written or oral request, Polaris will deliver a separate copy of the annual report to stockholders and/or proxy statement to any stockholder at a shared address who wishes to receive separate copies of such documents in the future. Stockholders receiving multiple copies of
such documents may likewise request that Polaris deliver single copies of such documents in the future. Stockholders may notify Polaris of their requests by calling or writing Innisfree M&A Incorporated, Polaris proxy solicitor, at 501 Madison Avenue, 20th Floor, New York, New York 10022, telephone number (888) 750-5834.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC as required by the Exchange Act.
You may read and copy reports, proxy and information statements and other information filed by us with the SEC at the SECs public reference room located at 100 F Street, N.E., Washington, D.C. 20549.
You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also obtain copies of the materials described above at prescribed rates by writing to the SEC, Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549.
145
TABLE OF CONTENTS
We file our reports, proxy and information statements and other information electronically with the SEC. You may access information on Polaris at the SEC web site containing reports, proxy and information statements and other information at
http://www.sec.gov
.
Information and statements contained in this proxy statement, or any annex to this proxy statement, are qualified in all respects by reference to the copy of the relevant contract or other annex filed with this proxy statement.
All information contained in this proxy statement relating to Polaris has been supplied by Polaris, and all information relating to HUGHES Telematics, HUGHES Telematics stockholders, Apollo and their affiliates has been supplied by HUGHES Telematics. Information supply by either of Polaris or HUGHES Telematics does not constitute any representation, estimate or projection of the other.
If you would like additional copies of this proxy statement, or if you have questions about the merger, you should contact Polaris at (201) 242-3500. You may access our web site at
http://www.polarisacq.com/.
146
TABLE OF CONTENTS
FINANCIAL STATEMENTS
|
|
|
|
|
Page
|
Polaris Acquisition Corp. Interim Financial Statements
|
|
|
|
|
Condensed Balance Sheets as of September 30, 2008 (Unaudited) and December 31, 2007
|
|
|
F-2
|
|
Condensed Statements of Operations (Unaudited) for the Three Months and Nine Months Ended September 30, 2008, the Three Months Ended September 30, 2007 and the Periods from June 18, 2007 (Inception) to September 30, 2007 and June 18, 2007 (Inception) to September 30, 2008
|
|
|
F-3
|
|
Condensed Statement of Stockholders Equity (Unaudited) for the Period from June 18, 2007 (Inception) to September 30, 2008
|
|
|
F-4
|
|
Condensed Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2008, and the Periods from June 18, 2007 (Inception) to September 30, 2007 and June 18, 2007 (Inception) to September 30, 2008
|
|
|
F-5
|
|
Notes to Unaudited Financial Statements
|
|
|
F-6
|
|
Polaris Acquisition Corp. Financial Statements
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-12
|
|
Balance Sheet as of December 31, 2007
|
|
|
F-13
|
|
Statement of Operations for the Period from June 18, 2007 (Inception) to December 31, 2007
|
|
|
F-14
|
|
Statement of Stockholders Equity for the Period from June 18, 2007 (Inception) to December 31, 2007
|
|
|
F-15
|
|
Statement of Cash Flows for the Period from June 18, 2007 (Inception) to December 31, 2007
|
|
|
F-16
|
|
Notes to Financial Statements
|
|
|
F-17
|
|
HUGHES Telematics, Inc. Financial Statements
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-21
|
|
Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007 and 2006
|
|
|
F-22
|
|
Consolidated Statements of Operations for the Nine Months Ended September 30, 2008 and 2007 (Unaudited), the Year Ended December 31, 2007 and the Period from January 9, 2006 (Inception) to December 31, 2006
|
|
|
F-23
|
|
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007 (Unaudited), the Year Ended December 31, 2007 and the Period from January 9, 2006 (Inception) to December 31, 2006
|
|
|
F-24
|
|
Consolidated Statements of Changes In Stockholders (Deficit) Equity for the Nine Months Ended September 30, 2008, the Year Ended December 31, 2007 and the Period from January 9, 2006 (Inception) to December 31, 2006
|
|
|
F-25
|
|
Notes to Consolidated Financial Statements
|
|
|
F-26
|
|
F-1
TABLE OF CONTENTS
POLARIS ACQUISITION CORP.
(A Corporation in the Development Stage)
CONDENSED BALANCE SHEET
|
|
|
|
|
|
|
September 30,
2008
|
|
December 31,
2007
|
|
|
(unaudited)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
103,550
|
|
|
$
|
12,801
|
|
Investments Held in Trust
|
|
|
150,579,302
|
|
|
|
|
|
Prepaid Expenses
|
|
|
76,257
|
|
|
|
|
|
Total Current Assets
|
|
|
150,759,109
|
|
|
|
12,801
|
|
Deferred Tax Asset
|
|
|
349,744
|
|
|
|
|
|
Deferred Offering Costs
|
|
|
|
|
|
|
175,802
|
|
Total Assets
|
|
|
$151,108,853
|
|
|
|
$188,603
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accrued Operating Expenses
|
|
$
|
238,812
|
|
|
$
|
|
|
Income Taxes Payable
|
|
|
253,757
|
|
|
|
|
|
Accrued Offering Costs
|
|
|
|
|
|
|
51,365
|
|
Due to Affiliate
|
|
|
|
|
|
|
12,911
|
|
Note Payable to Affiliate
|
|
|
|
|
|
|
100,000
|
|
Deferred Underwriting Fee
|
|
|
6,750,000
|
|
|
|
|
|
Total Liabilities
|
|
|
7,242,569
|
|
|
|
164,276
|
|
Common Stock, subject to possible conversion of 4,499,999 shares
at conversion value
|
|
|
44,999,990
|
|
|
|
|
|
Commitments (Note 5)
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
|
|
Preferred stock, $.0001 par value Authorized 1,000,000 shares; none issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $.0001 par value Authorized 55,000,000 shares issued and outstanding 18,750,000 shares (which includes 4,499,999 shares subject to possible conversion) and 5,175,000 shares
|
|
|
1,875
|
|
|
|
518
|
|
Additional Paid-in Capital
|
|
|
98,403,826
|
|
|
|
24,482
|
|
Income/(Deficit) Accumulated during the Development Stage
|
|
|
460,593
|
|
|
|
(673
|
)
|
Total Stockholders' Equity
|
|
|
98,866,294
|
|
|
|
24,327
|
|
Total Liabilities and Stockholders' Equity
|
|
|
$151,108,853
|
|
|
|
$188,603
|
|
See Notes to Unaudited Financial Statements.
F-2
TABLE OF CONTENTS
POLARIS ACQUISITION CORP.
(A Corporation in the Development Stage)
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2008
|
|
For the Nine Months Ended September 30, 2008
|
|
For the Three Months Ended September 30, 2007
|
|
Period from June 18, 2007 (Inception) to September 30, 2007
|
|
Period from
June 18, 2007 (Inception) to
September 30, 2008
|
Formation Costs
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,062
|
|
|
$
|
1,062
|
|
Trustee Fees
|
|
|
4,275
|
|
|
|
12,044
|
|
|
|
|
|
|
|
|
|
|
|
12,044
|
|
Administrative Fees
|
|
|
22,500
|
|
|
|
67,500
|
|
|
|
|
|
|
|
|
|
|
|
67,500
|
|
Professional Fees
|
|
|
69,146
|
|
|
|
120,254
|
|
|
|
|
|
|
|
|
|
|
|
120,254
|
|
Operating Costs
|
|
|
83,827
|
|
|
|
230,187
|
|
|
|
|
|
|
|
|
|
|
|
230,187
|
|
Due Diligence Costs
|
|
|
188,364
|
|
|
|
599,564
|
|
|
|
|
|
|
|
|
|
|
|
599,564
|
|
Delaware Franchise Taxes
|
|
|
26,387
|
|
|
|
85,742
|
|
|
|
|
|
|
|
|
|
|
|
85,742
|
|
Operating Expenses
|
|
|
(394,499
|
)
|
|
|
(1,115,291
|
)
|
|
|
|
|
|
|
(1,062
|
)
|
|
|
(1,116,353
|
)
|
Interest Income
|
|
|
661,886
|
|
|
|
1,987,041
|
|
|
|
320
|
|
|
|
320
|
|
|
|
1,987,430
|
|
Income (Loss) Before Provision for Income Taxes
|
|
|
267,387
|
|
|
|
871,750
|
|
|
|
320
|
|
|
|
(742
|
)
|
|
|
871,077
|
|
Provision for Income Taxes
|
|
|
128,761
|
|
|
|
410,484
|
|
|
|
|
|
|
|
|
|
|
|
410,484
|
|
Net Income (Loss)
|
|
$
|
138,626
|
|
|
$
|
461,266
|
|
|
$
|
320
|
|
|
$
|
(742
|
)
|
|
$
|
460,593
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
18,750,000
|
|
|
|
18,092,381
|
|
|
|
5,175,000
|
|
|
|
5,175,000
|
|
|
|
12,689,570
|
|
Basic and diluted net income per share
|
|
$
|
0.01
|
|
|
$
|
0.03
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.04
|
|
See Notes to Unaudited Financial Statements.
F-3
TABLE OF CONTENTS
POLARIS ACQUISITION CORP.
(A Corporation in the Development Stage)
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
For the Period from June 18, 2007 (Inception) to September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Income/(Deficit) Accumulated During the Development Stage
|
|
Total
Stockholders' Equity
|
|
|
Shares
|
|
Amount
|
Issuance of Units to Founders on June 18, 2007 at approximately $0.005 per share
|
|
|
5,175,000
|
|
|
$
|
518
|
|
|
$
|
24,482
|
|
|
$
|
|
|
|
$
|
25,000
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(673
|
)
|
|
|
(673
|
)
|
Balance at December 31, 2007
|
|
|
5,175,000
|
|
|
|
518
|
|
|
|
24,482
|
|
|
|
(673
|
)
|
|
|
24,327
|
|
Contribution of shares to capital on
January 11, 2008
|
|
|
(862,500
|
)
|
|
|
(87
|
)
|
|
|
87
|
|
|
|
|
|
|
|
|
|
Sale of 4,500,000 Private Placement Warrants at $1 per warrant
|
|
|
|
|
|
|
|
|
|
|
4,500,000
|
|
|
|
|
|
|
|
4,500,000
|
|
Sale of 15,000,000 units on January 17, 2008 at $10 per unit through public offering (net of underwriter's discount and offering expenses) including 4,499,999 shares subject to possible conversion
|
|
|
15,000,000
|
|
|
|
1,500
|
|
|
|
138,879,191
|
|
|
|
|
|
|
|
138,880,691
|
|
Proceeds subject to possible conversion
|
|
|
|
|
|
|
|
|
|
|
(44,999,990
|
)
|
|
|
|
|
|
|
(44,999,990
|
)
|
Unaudited:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited Founders shares on April 23, 2008
|
|
|
(562,500
|
)
|
|
|
(56
|
)
|
|
|
56
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
461,266
|
|
|
|
461,266
|
|
Balance at September 30, 2008
|
|
|
18,750,000
|
|
|
$
|
1,875
|
|
|
$
|
98,403,826
|
|
|
$
|
460,593
|
|
|
$
|
98,866,294
|
|
See Notes to Unaudited Financial Statements.
F-4
TABLE OF CONTENTS
POLARIS ACQUISITION CORP.
(A Corporation in the Development Stage)
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2008
|
|
Period from June 18, 2007 (Inception) to September 30, 2007
|
|
Period from June 18, 2007
(Inception) to September 30, 2008
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
461,266
|
|
|
$
|
(742
|
)
|
|
$
|
460,593
|
|
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in accrued operating expenses
|
|
|
238,812
|
|
|
|
1,000
|
|
|
|
238,812
|
|
Increase in income taxes payables
|
|
|
253,757
|
|
|
|
|
|
|
|
253,757
|
|
Increase in prepaid expenses
|
|
|
(76,257
|
)
|
|
|
|
|
|
|
(76,257
|
)
|
Interest earned on trust
|
|
|
(1,984,902
|
)
|
|
|
|
|
|
|
(1,984,902
|
)
|
Increase in deferred tax asset
|
|
|
(349,744
|
)
|
|
|
|
|
|
|
(349,744
|
)
|
Net Cash (Used in) provided by Operating Activities
|
|
|
(1,457,068
|
)
|
|
|
258
|
|
|
|
(1,457,741
|
)
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments placed in trust
|
|
|
(150,000,000
|
)
|
|
|
|
|
|
|
(150,000,000
|
)
|
Disbursements from trust
|
|
|
1,405,600
|
|
|
|
|
|
|
|
1,405,600
|
|
Net Cash Used in Investing Activities
|
|
|
(148,594,400
|
)
|
|
|
|
|
|
|
(148,594,400
|
)
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of units to public
|
|
|
150,000,000
|
|
|
|
|
|
|
|
150,000,000
|
|
Proceeds from private placement of warrants
|
|
|
4,500,000
|
|
|
|
|
|
|
|
4,500,000
|
|
Proceeds from sale of units to Founders
|
|
|
|
|
|
|
25,000
|
|
|
|
25,000
|
|
Proceeds from notes payable to affiliates of Founders
|
|
|
|
|
|
|
100,000
|
|
|
|
100,000
|
|
Payment of notes payable Founders
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
(100,000
|
)
|
Proceeds from due to affiliates
|
|
|
|
|
|
|
12,911
|
|
|
|
12,911
|
|
Payment of due to affiliates
|
|
|
(12,911
|
)
|
|
|
|
|
|
|
(12,911
|
)
|
Payment of offering costs
|
|
|
(4,244,872
|
)
|
|
|
(107,455
|
)
|
|
|
(4,369,309
|
)
|
Net Cash Provided by Financing Activities
|
|
|
150,142,217
|
|
|
|
30,456
|
|
|
|
150,155,691
|
|
Net Increase in Cash
|
|
|
90,749
|
|
|
|
30,714
|
|
|
|
103,550
|
|
Cash at Beginning of Period
|
|
|
12,801
|
|
|
|
|
|
|
|
|
|
Cash at End of Period
|
|
$
|
103,550
|
|
|
$
|
30,714
|
|
|
$
|
103,550
|
|
Supplemental Disclosure of Noncash Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual of deferred offering costs
|
|
$
|
|
|
|
$
|
9,479
|
|
|
$
|
|
|
Accrual of deferred underwriting fee
|
|
$
|
6,750,000
|
|
|
$
|
|
|
|
$
|
6,750,000
|
|
See Notes to Unaudited Financial Statements.
F-5
TABLE OF CONTENTS
POLARIS ACQUISITION CORP.
(A Corporation in the Development Stage)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The financial statements of Polaris Acquisition Corp. (the Company) at September 30, 2008, for the three and nine months ended September 30, 2008, for the three months ended September 30, 2007, for the period June 18, 2007 (inception) to September 30, 2007 and for the period from June 18, 2007 (inception) to September 30, 2008 (cumulative), are unaudited. In the opinion of management, all adjustments (consisting of normal accruals) have been made that are necessary to present fairly the financial position of the Company as of September 30, 2008 and the results of its operations and its cash flows for the
period ended September 30, 2008, for the period June 18, 2007 (inception) to September 30, 2007 and for the period from June 18, 2007 (inception) to September 30, 2008. Operating results for the interim periods are not necessarily indicative of the results to be expected for a full fiscal year. The December 31, 2007 balance sheet has been derived from the audited financial statements.
The statements and related notes have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles may be omitted pursuant to such rules and regulations.
Note 2. Organization and Significant Accounting Policies
Polaris Acquisition Corp. was incorporated in Delaware on June 18, 2007 for the purpose of effecting a merger, stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with an operating business.
The registration statement for the Company's Offering (as described in Note 3) was declared effective on January 14, 2008. The Company consummated the Offering on January 17, 2008, and received gross proceeds of approximately $154,500,000, including $4,500,000 of proceeds from the private placement (the Private Placement) sale of 4,500,000 sponsors warrants to certain affiliates of the Company. The net proceeds were approximately $143,381,000.
The Company's management has broad discretion with respect to the specific application of the net proceeds of this Offering, although substantially all of the net proceeds of this Offering are intended to be generally applied toward consummating a business combination with an operating business (Business Combination). There is no assurance that the Company will be able to successfully effect a Business Combination. Upon the closing of the Offering and Private Placement, $150,000,000, including $6,750,000 of the underwriters' discounts and commissions (as described in Note 3), is being held in a trust account (Trust Account)
and invested in United States government securities within the meaning of Section 2(a)(16) of the Investment Company Act of 1940 having a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940 until the earlier of (i) the consummation of its first Business Combination and (ii) liquidation of the Company.
The Placing of funds in the Trust Account may not protect those funds from third party claims against the Company. Although the Company will seek to have all vendors, providers of financing, prospect target businesses or other entities it engages, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account, there is no guarantee that they will execute such agreements or that such agreements, if executed, will insure that no claims are filed against the Trust. Two of the Company's affiliates have agreed that they will be liable under certain circumstances to ensure that the
proceeds in the Trust Account are not reduced by the claims of target businesses or vendors, providers of financing, service providers or other entities that are owed money by the Company for services rendered to or contracted for or products sold to the Company. There can be no assurance that they will be able to satisfy those obligations. The net proceeds not held in the Trust Account may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses.
F-6
TABLE OF CONTENTS
POLARIS ACQUISITION CORP.
(A Corporation in the Development Stage)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 2. Organization and Significant Accounting Policies (continued)
Additionally, up to an aggregate of $1,800,000 of interest earned on the Trust Account balance may be released to the Company to fund working capital requirements and additional funds may be released to fund tax obligations.
The Company, after signing a definitive agreement for the acquisition of a target business, is required to submit such transaction for stockholder approval. In the event that stockholders owning 30% or more of the shares sold in the Offering vote against the Business Combination and exercise their conversion rights described below, the Business Combination will not be consummated. All of the Company's stockholders prior to the Offering (Founders), have agreed to vote their founding shares of common stock in accordance with the vote of the majority of the shares voted by all other stockholders of the Company (Public
Stockholders) with respect to any Business Combination. After consummation of a Business Combination, these voting safeguards will no longer be applicable.
With respect to a Business Combination which is approved and consummated, any Public Stockholder who voted against the Business Combination may demand that the Company convert his or her shares. The per share conversion price will equal the amount in the Trust Account, calculated as of two business days prior to the consummation of the proposed Business Combination, divided by the number of shares of common stock held by Public Stockholders at the consummation of the Offering. Accordingly, Public Stockholders holding 4,499,999 shares sold in the Offering may seek conversion of their shares in the event of a Business Combination. Such Public
Stockholders are entitled to receive their per share interest in the Trust Account computed without regard to the shares of common stock held by the Founders prior to the consummation of the Offering. Accordingly, a portion of the net proceeds from the Offering (29.99% of the amount held in Trust Fund, including the deferred portion of the underwriters' discount and commission) has been classified as common stock subject to possible conversion on the accompanying September 30, 2008 balance sheet.
The Company's Certificate of Incorporation provides that the Company will continue in existence only until 24 months from the Effective Date of the Offering. If the Company has not completed a Business Combination by such date, its corporate existence will cease and it will dissolve and liquidate for the purposes of winding up its affairs. In the event of liquidation, it is likely that the per share value of the residual assets remaining available for distribution (including Trust Fund assets) will be less than the initial public offering price per share in the Offering (assuming no value is attributed to the Warrants contained in the Units to be
offered in the Offering discussed in Note 3).
Concentration of Credit Risk
The Company maintains cash in a bank deposit account which, at times, exceeds federally insured (FDIC) limits. The Company has not experienced any losses on this account.
Deferred Income Taxes
Deferred income taxes are provided for the differences between bases of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.
Income Per Common Share
Income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. The effect of the 15,000,000 outstanding warrants issued in connection with the Offering, the 4,500,000 outstanding warrants issued in connection with the Founders' initial unit purchase and the 4,500,000 outstanding warrants issued in connection with the Private Placement has not been considered in diluted income per share calculations since the warrants cannot be exercised until the later of the Companys initial business combination or January 11, 2009.
F-7
TABLE OF CONTENTS
POLARIS ACQUISITION CORP.
(A Corporation in the Development Stage)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 2. Organization and Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The fair values of the Company's assets and liabilities that qualify as financial instruments under SFAS No. 107 Disclosures about Fair Value of Financial Instrument, approximate their carrying amounts presented in the balance sheet at September 30, 2008.
The Company accounts for derivative instruments, if any, in accordance with SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities as amended (SFAS 133), which establishes accounting and reporting standards of derivative instruments.
New Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48), which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax position. A tax benefit from an uncertain position may be recognized only if it is more likely than not that the position is sustainable based on its technical merits. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 did not have a material effect
on the Company's financial condition or results of operations.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (FAS 141(R)). This Statement provides greater consistency in the accounting and financial reporting of business combinations. It requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed, and requires the acquirer to disclose the nature and financial effect of the business combination. FAS 141(R) is effective for fiscal years beginning after December 15, 2008. We will adopt FAS 141(R)
no later than the first quarter of fiscal 2009 and are currently assessing the impact the adoption will have on our financial position and results of operations.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (FAS 160). This Statement amends Accounting Research Bulletin No. 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. FAS 160 is effective for fiscal years beginning after December 15, 2008. We will adopt FAS 160 no later than the first quarter of fiscal 2009 and are currently assessing the impact the adoption will have on our financial position and results of operations.
The Company does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
Note 3. Initial Public Offering
On January 17, 2008 the Company sold 15,000,000 units (Units) in the Offering at a price of $10 per Unit. Each Unit consists of one share of the Company's common stock and one Redeemable Common Stock Purchase Warrant (Warrants). Each Warrant will entitle the holder to purchase from the Company one share of common stock at an exercise price of $7.00 commencing at the later of the completion of a Business Combination and January 11, 2009, and expiring on January 10, 2012, four years from the effective date of the Offering. The Company may redeem all of the Warrants, at a price of $.01 per Warrant upon 30 days'
F-8
TABLE OF CONTENTS
POLARIS ACQUISITION CORP.
(A Corporation in the Development Stage)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 3. Initial Public Offering (continued)
notice while the Warrants are exercisable, only in the event that the last sale price of the Companys common stock is equals or exceeds $14.25 per share for any 20 trading days within a 30 trading day period ending three business days prior to the date on which notice of redemption is given. In accordance with the warrant agreement relating to the Warrants to be sold and issued in the Offering, the Company is required to use its best efforts to maintain the effectiveness of the registration statement covering the Warrants.
The Company will not be obligated to deliver securities, and there are no contractual penalties for failure to deliver securities, if a registration statement is not effective. Additionally, in the event that a registration statement is not effective, the Warrant holders shall not be entitled to exercise their Warrants and in no event (whether in the case of a registration statement not being effective or otherwise) will the Company be required to net cash settle the warrant exercise. Consequently, the Warrants may expire unexercised and unredeemed.
The Company entered into an agreement with the underwriters of the Offering (the Underwriting Agreement). The Underwriting Agreement requires the Company to pay 2.5% of the gross proceeds of the Offering as an underwriting discount plus an additional 4.5% of the gross proceeds of the Offering only upon consummation of a Business Combination. The Company paid an underwriting discount of 2.5% of the gross proceeds of the Offering ($3,750,000) in connection with the consummation of the Offering and has placed 4.5% of the gross proceeds of the Offering ($6,750,000) in the Trust Account. The Company did not have to pay any discount related to
the Sponsors' Warrants sold on a private basis. The underwriters have waived their right to receive payment of the 4.5% of the gross proceeds for the Offering upon the Company's liquidation if the Company is unable to complete a Business Combination.
Pursuant to purchase agreements, certain of the Initial Stockholders have purchased from the Company, in the aggregate, 4,500,000 warrants for $4,500,000 (the Sponsors' Warrants). The purchase and issuance of the Sponsors' Warrants occurred simultaneously with the consummation of the Offering on a private placement basis. All of the proceeds the Company received from these purchases were placed in the Trust Account. The Sponsors' Warrants are identical to the Warrants included in the Units being offered in the Offering except that if the Company calls the warrants for redemption, the Sponsors' Warrants will be exercisable on a cashless basis so long
as such warrants are held by the initial purchasers or their affiliates. The Sponsors' Warrants may not be sold or transferred until 45 days after the consummation of a Business Combination. The purchase price of the Sponsors' Warrants has been determined to be the fair value of such warrants as of the purchase date.
Note 4. Note Payable to Affiliate and Related Party Transactions
The Company issued an aggregate $100,000 unsecured promissory note to an affiliated company on July 12, 2007. The note was non-interest bearing and was payable on the earlier of the consummation of the Offering by the Company on July 12, 2008. The note was repaid from the net proceeds of the Offering.
An affiliated company advanced $12,911. No formal repayment arrangement was in place and no interest was due on the advance. The advance was repaid.
The Company has entered into an administrative service agreement with an affiliated company as more fully described in Note 5 below.
TBR, an affiliate of our initial stockholders, entered into a Services Agreement & Statement of Work with HUGHES Telematics on September 26, 2008. Pursuant to this agreement, TBR began providing a marketing assessment and other research for HUGHES Telematics to aid in creating a world-class marketing and retention platform. HUGHES Telematics paid TBR a fee of $150,000 and reimbursed TBR for travel and certain other expenses incurred in connection with the engagement. Additionally, TBR entered into a letter agreement with HUGHES Telematics on November 4, 2008 to provide additional marketing services. Under the terms of the letter agreement, TBR
agreed to provide the services in exchange for a $125,000 monthly
F-9
TABLE OF CONTENTS
POLARIS ACQUISITION CORP.
(A Corporation in the Development Stage)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 4. Note Payable to Affiliate and Related Party Transactions (continued)
draw against a per subscriber fee payable on certain subscribers acquired beginning in November 2008 and continuing through December 2010. A portion of the monthly draw will be deferred until a HUGHES Telematics financing event.
Note 5. Commitments
Plan of Merger
On June 13, 2008, the Company entered into an Agreement and Plan of Merger pursuant to which it has agreed to merge (the Merger) with Hughes Telematics, Inc. HUGHES Telematics. The Company and HUGHES Telematics amended and restated that agreement on November 10, 2008 (such agreement, as amended and restated, the Merger Agreement). In conjunction with this agreement, the Company will increase the number of authorized shares of common stock to 155,000,000 and the number of authorized shares of preferred stock to 10,000,000.
The Merger Agreement specifies that, at the closing of the Merger, all the outstanding shares of HUGHES Telematics common stock shall be converted into the right to receive, in the aggregate, approximately 15 million shares of Polaris common stock. In addition, holders of Polaris common stock shall be entitled to receive an aggregate of approximately 59 million earn-out shares of Polaris common stock, in three tranches, which will be issued into escrow at the closing of the Merger and released to HUGHES Telematics shareholders upon the achievement of certain share price targets over the five-year period following closing. Outstanding
options exercisable for shares of HUGHES Telematics common stock will roll over in the Merger to become options exercisable for shares of Polaris common stock. In connection with the Merger Agreement the company will amend and restate its certificate of incorporation to increase the number of shares of both common and preferred stock.
The Merger Agreement also requires that the Founders deposit 1.25 million shares of their Polaris common stock into an escrow, to be released upon the achievement of the first stock price target between the first and fifth anniversaries of closing.
The number of shares of Polaris common stock received by HUGHES Telematics shareholders at the closing will be subject to possible adjustments, including the issuance of additional shares of Polaris common stock for the value of equity raised by HUGHES Telematics prior to closing, if any, and for a cash shortfall in the trust account of Polaris below an agreed upon amount.
The obligations of HUGHES Telematics and Polaris to complete the Merger are subject to the satisfaction or waiver by the other party at or prior to the closing date of various customary conditions, including (i) the receipt of all required regulatory approvals and consents, (ii) the approval of the Merger by Polaris stockholders, (iii) subject to certain exceptions and materiality thresholds, the accuracy of the representations and warranties of the other party and (iv) compliance of the other party with its covenants, subject to specified materiality thresholds.
Other Commitments
The Company has agreed to pay up to $7,500 a month in total for office space and general and administrative services to an affiliated company. Services will commence on the effective date of the offering and will terminate upon the earlier of (i) the completion of the Business Combination, or (ii) the Company's liquidation. The Company has incurred $67,500 related to this agreement which is included in Administrative and General Expenses.
Pursuant to letter agreements which the Founders have entered into with the Company and the underwriters, the Founders have waived their right to receive distributions with respect to their founding shares upon the Company's liquidation.
The Company currently expects to pay legal fees in the range of $1,250,000 upon the successful completion of the Merger. In the event the Merger is not consummated, the Company expects to pay a substantially lower amount.
F-10
TABLE OF CONTENTS
POLARIS ACQUISITION CORP.
(A Corporation in the Development Stage)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 6. Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors.
The agreement with the underwriters prohibits the Company, prior to a Business Combination, from issuing preferred stock which participates in the proceeds of the Trust Account or which votes as a class with the Common Stock on a Business Combination.
Note 7. Common Stock
On June 18, 2007, 4,312,500 shares of common stock were issued to nine (9) stockholders (initial stockholders). Such shares were purchased at an average purchase price of approximately $0.006 per share. Effective November 8, 2007, the Company's Board of Directors authorized a stock dividend of 0.2 share of common stock for each outstanding share of common stock. All references in the accompanying financial statements to the number of shares of stock have been retroactively restated to reflect this transaction. In January, 2008, the initial stockholders contributed an aggregate of 862,500 shares back to capital. The over-allotment option was not
exercised and the initial stockholders forfeited 562,500 shares on April 23, 2008 to maintain a 20% ownership of the common shares after the offering.
Note 8. Income Taxes
The provision for income taxes for the nine months ended September 30, 2008 consists of the following:
|
|
|
Current:
|
|
|
|
|
Federal
|
|
$
|
589,111
|
|
State
|
|
|
171,117
|
|
Total Current
|
|
|
760,228
|
|
Deferred:
|
|
|
|
|
Federal
|
|
|
(349,744
|
)
|
State
|
|
|
|
|
Total Deferred
|
|
|
(349,744
|
)
|
|
|
$
|
410,484
|
|
As of September 30, 2008, the tax effect of temporary differences that give rise to the net deferred tax asset is as follows:
|
|
|
Expense deferred for income tax purposes
|
|
$
|
411,028
|
|
Valuation allowance
|
|
|
(61,284
|
)
|
|
|
$
|
349,744
|
|
The Company has recorded a valuation allowance against the state deferred tax asset since it cannot determine realizability for tax purposes and therefore cannot conclude that the deferred tax asset is more likely than not recoverable at this time.
A reconciliation of income taxes at the statutory federal income tax rate to net income taxes included in the accompanying statements of operations for the nine months ended September 30, 2008 is as follows:
|
|
|
Statutory U.S. federal rate
|
|
|
34.00
|
%
|
State income taxes, net of federal effect
|
|
|
5.96
|
%
|
Non-deductible expenses
|
|
|
0.00
|
%
|
Valuation allowance
|
|
|
7.13
|
%
|
Effective Tax Rate
|
|
|
47.09
|
%
|
F-11
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Polaris Acquisition Corp.
We have audited the accompanying balance sheet of Polaris Acquisition Corp. (a corporation in the development stage) as of December 31, 2007, and the related statements of operations, stockholders equity and cash flows for the period from June 18, 2007 (inception) to December 31, 2007. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Polaris Acquisition Corp. as of December 31, 2007, and the results of its operations and its cash flows for the period from June 18, 2007 (inception) to December 31, 2007 in conformity with United States generally accepted accounting principles.
The accompanying financial statements have been prepared assuming Polaris Acquisition Corp. will continue as a going concern. The Company has a net loss, working capital deficiency, and has no operations. This raises substantial doubt about the Companys ability to continue as a going concern. As discussed in Note 1, the Company is in the process of raising capital through a Proposed Offering. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Goldstein Golub Kessler LLP
Goldstein Golub Kessler LLP
New York, New York
January 7, 2008, except for the third and fourth paragraphs of Note 1, the first and third paragraphs of Note 3, the second paragraph of Note 5, and Note 6, as to which the date is January 11, 2008.
F-12
TABLE OF CONTENTS
POLARIS ACQUISITIONS CORP
(A Corporation in the Development Stage)
BALANCE SHEET
December 31, 2007
|
|
|
ASSETS
|
|
|
|
|
Current Asset - Cash
|
|
$
|
12,801
|
|
Deferred Offering Costs
|
|
|
175,802
|
|
Total Assets
|
|
$
|
188,603
|
|
LIABILITIES AND STOCKHOLDER'S EQUITY
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
Accrued Offering Costs
|
|
$
|
51,365
|
|
Due to Affiliate
|
|
|
12,911
|
|
Note Payable to Affiliate
|
|
|
100,000
|
|
Total Current Liabilities
|
|
|
164,276
|
|
Commitments
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
Preferred Stock, $0.0001 par value, 1,000,000 shares authorized; none issued
and outstanding
|
|
|
|
|
Common Stock, $0.0001 par value, 55,000,000 shares authorized; 5,175,000 shares issued and outstanding
|
|
|
518
|
|
Additional Paid-in Capital
|
|
|
24,482
|
|
Deficit Accumulated during the Development Stage
|
|
|
(673
|
)
|
Total Stockholders Equity
|
|
|
24,327
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
188,603
|
|
See Notes To Financial Statements.
F-13
TABLE OF CONTENTS
POLARIS ACQUISITIONS CORP
(A Corporation in the Development Stage)
STATEMENT OF OPERATIONS
For the Period from June 18, 2007 (Inception) to December 31, 2007
|
|
|
Formation Costs
|
|
$
|
1,062
|
|
Interest Income
|
|
|
389
|
|
Net Loss
|
|
$
|
(673
|
)
|
Basic and Diluted Net Loss Per Share
|
|
$
|
|
|
Weighted Average Shares Outstanding - Basic and Diluted
|
|
|
5,175,000
|
|
See Notes To Financial Statements.
F-14
TABLE OF CONTENTS
POLARIS ACQUISITIONS CORP.
(A Corporation in the Development Stage)
STATEMENT OF STOCKHOLDERS EQUITY
For the Period from June 18, 2007 (Inception) to December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock (Par Value)
|
|
Additional Paid-in
Capital
|
|
Deficit
Accumulated during the Development Stage
|
|
Stockholders Equity
|
|
|
Shares
|
|
Amount
|
Issuance of Common Stock on June 18, 2007 at $0.005 per share
|
|
|
5,175,000
|
|
|
$
|
518
|
|
|
$
|
24,482
|
|
|
$
|
|
|
|
$
|
25,000
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(673
|
)
|
|
|
(673
|
)
|
Balances at December 31, 2007
|
|
|
5,175,000
|
|
|
$
|
518
|
|
|
$
|
24,482
|
|
|
$
|
(673
|
)
|
|
$
|
24,327
|
|
See Notes To Financial Statements.
F-15
TABLE OF CONTENTS
POLARIS ACQUISITIONS CORP
(A Corporation in the Development Stage)
STATEMENT OF CASH FLOWS
For the Period from June 18, 2007 (Inception) to December 31, 2007
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
Net Loss
|
|
$
|
(673
|
)
|
Net Cash Used by Operating Activities
|
|
|
(673
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
Proceeds from Note Payable to Affiliate
|
|
|
100,000
|
|
Proceeds from Due to Affiliate
|
|
|
12,911
|
|
Proceeds from Sale of Stock
|
|
|
25,000
|
|
Deferred Offering Costs Paid
|
|
|
(124,437
|
)
|
Net Cash Provided by Financing Activities
|
|
|
13,474
|
|
Net Increase in Cash
|
|
|
12,801
|
|
Cash at Beginning of Period
|
|
|
|
|
Cash at End of Period
|
|
$
|
12,801
|
|
Supplemental Schedule of Non-Cash Financing Activities:
|
|
|
|
|
Accrual of Deferred Offering Costs
|
|
$
|
51,365
|
|
See Notes To Financial Statements.
F-16
TABLE OF CONTENTS
POLARIS ACQUISITION CORP.
(A Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
Note 1 Organization and Nature of Business Operations
Polaris Acquisition Corp. (the Company) is a blank check company incorporated on June 18, 2007 for the purpose of effecting a merger, capital stock exchange, stock purchase, asset acquisition or other similar business combination with one or more existing operating businesses.
At December 31, 2007, the Company had not commenced any operations. All activity through December 31, 2007 relates to the Companys formation and the proposed public offering described below. The Company has been in the development stage since its inception as it has not yet commenced operations and has a net loss and working capital deficiency. These factors raise substantial doubt about the Companys ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company has selected December 31 as its fiscal year end.
The Companys ability to commence operations is contingent upon obtaining adequate financial resources through a proposed public offering (Proposed Offering) which is discussed in Note 3. The Companys management has broad discretion with respect to the specific application of the net proceeds of this Proposed Offering, although substantially all of the net proceeds of the Proposed Offering are intended to be applied toward effecting a merger, capital stock exchange, stock purchase, asset acquisitions or other similar business combination. As used herein, a Business Combination shall mean the acquisition of one or
more businesses that at the time of the Companys initial business combination has a fair market value of at least 80.0% of the Companys assets held in the trust account excluding the deferred underwriting discounts and commissions from the proposed offering of $6.8 million (approximately $7.8 million if the over-allotment option is exercised in full) and taxes payable.
Upon closing of the Proposed Offering, 100% of the proceeds ($150 million, or approximately $171.9 million if the over-allotment option is exercised in full) of this offering will be placed in a trust account invested until the earlier of (i) the consummation of the Companys first Business Combination or (ii) the liquidation of the Company. The proceeds in the trust account include the deferred underwriting discount of $6.8 million (approximately $7.8 million if the over-allotment option is exercised in full) that will be released to the underwriters on completion of a Business Combination Interest (net of taxes) earned on assets held in the
trust account will remain in the trust account. However, up to $1.8 million of the interest earned on the trust account may be released to the Company to cover a portion of the Companys operating expenses, as well as any amounts necessary to pay for the Companys tax obligations.
The Company will seek stockholder approval before it will effect any Business Combination. Public Stockholders is defined as the holders of common stock sold as part of the units in the Proposed Offering or in the aftermarket. The Company will proceed with a Business Combination only if a majority of the shares of the Stockholders owning less than 30% of the shares sold in the Public Offering vote against the Business Combination and exercise their right to convert their shares into a pro rata share of the aggregate amount then on deposit in the trust account and a majority of the outstanding shares of the Companys common stock vote
in favor of an amendment to the Companys amended and restated certificate of incorporation to provide for its perpetual existence.
Public Stockholders voting against a Business Combination will be entitled to convert their stock into a pro rata share of the total amount on deposit in the trust account including the deferred underwriters discount, and including any interest earned on their portion of the trust account, net of up to $1.8 million of the interest earned on the trust account which may be released to the Company to cover a portion of the Companys operating expenses and income taxes payable thereon if a Business Combination is approved and completed. Public Stockholders who convert their stock into their share of the trust account will continue to have the
right to exercise any warrants they may hold.
F-17
TABLE OF CONTENTS
POLARIS ACQUISITION CORP.
(A Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
Note 2 Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash includes currency on hand and demand deposits with banks or other financial institutions, as well as deposits in transit. Cash equivalents represent short-term, highly liquid investments that are (a) readily convertible to known amounts of cash and (b) so near their maturity that they present insignificant risk of changes in value because of changes in interest rates.
Loss Per Common Share
Loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding for the period.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which at times exceeds the Federal depository insurance coverage of $100,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Income Taxes
Deferred income taxes are provided for the differences between the bases of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has recorded a deferred tax asset for the tax effect of temporary differences of $229. In recognition of the uncertainty regarding the ultimate amount of income tax benefits to be derived, the Company has recorded a full valuation allowance at December 31, 2007. The effective tax rate differs from the statutory rate of 34% due to the increase in the valuation allowance.
Deferred Offering Costs
Deferred offering costs consist of costs incurred through the balance sheet date that are related to the Proposed Offering that will be charged to capital upon completion of the Proposed Offering or charged to expense if the Proposed Offering is not completed as follows; legal and professional fees of $67,253, underwriting fees of $37,500, filing and registration fees of $52,937 and other costs of $18,112.
Recently Issued Accounting Pronouncements
The Company does not believe that any recently issued, but not yet effective, accounting pronouncements if currently adopted would have a material effect on the accompanying financial statements.
Note 3 Proposed Public Offering
The Proposed Offering calls for the Company to offer for public sale 15,000,000 units (Units) at a price of $10.00 per unit. Each Unit consists of one share of the Companys common stock, $0.0001 par value, and one warrant. Each warrant will entitle the holder to purchase from the Company one share of common stock at an exercise price of $7.00, commencing the later of the completion of a Business Combination or one
F-18
TABLE OF CONTENTS
POLARIS ACQUISITION CORP.
(A Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
Note 3 Proposed Public Offering (continued)
year from the date of this prospectus and expiring four years from the date of this prospectus, unless earlier redeemed. The warrants will be redeemable at the Companys option, at a price of $0.01 per warrant upon 30 days written notice after the warrants become exercisable, only in the event that the last sale price of the common stock is at least $14.25 per share for any 20 trading days within a 30 trading day period ending on the third business day prior to the date on which notice of redemption is given. In accordance with the warrant agreement relating to the warrants to be sold and issued in the Proposed Offering, the Company is only
required to use its best efforts to maintain the effectiveness of the registration statement covering the warrants. The Company will not be obligated to deliver securities, and there are no contractual penalties for failure to deliver securities, if a registration statement is not effective at the time of exercise. Additionally, in the event that a registration is not effective at the time of exercise, the holder of such warrant shall not be entitled to exercise such warrant and in no event (whether in the case of a registration statement not being effective or otherwise) will the Company be required to net cash settle the warrant exercise. Consequently, the warrants may expire unexercised and unredeemed.
The Company will pay the underwriters in the Proposed Offering an underwriting discount of 7% of the gross proceeds of the Proposed Offering. However, the underwriters have agreed that 4.5% of the underwriting discounts will not be payable unless and until the Company completes a Business Combination and have waived their right to receive such payment upon the Companys liquidation if it is unable to complete a Business Combination.
In January 2008, the Company and the underwriters amended certain terms of the offering. All disclosures herein reflect the amended terms.
Note 4 Note Payable to Affiliate and Related Party Transactions
The Company issued an aggregate $100,000 unsecured promissory note to an affiliated company on July 12, 2007. The note is non-interest bearing and is payable on the earlier of the consummation of the offering by the Company or July 12, 2008.
An affiliated company advanced $12,911. No formal repayment arrangement is in place and no interest is due on the advance.
The Company has entered into an administrative service agreement with an affiliated company as more fully described in Note 5 below.
Note 5 Commitments
The Company has agreed to pay up to $7,500 a month in total for office space and general and administrative services to an affiliated company. Services will commence on the effective date of the offering and will terminate upon the earlier of (i) the completion of the Business Combination, or (ii) the Companys liquidation.
Certain initial stockholders have agreed to acquire warrants to purchase 4,500,000 shares of common stock from the Company at a price of $1.00 per warrant for a total of $4,500,000 in a private placement prior to the completion of this offering. We believe that the purchase price of the private placement warrants approximates the fair value of such warrants. The initial stockholders have further agreed that they will not sell or transfer these warrants until after the Company consummates a Business Combination.
The Company has agreed to pay legal fees for the Proposed Offering (IPO) of $300,000. The fees are due upon the consummation of the IPO. As of December 31, 2007, $25,000 has been paid against this liability.
F-19
TABLE OF CONTENTS
POLARIS ACQUISITION CORP.
(A Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
Note 6 Common Stock
On June 18, 2007, 4,312,500 shares of common stock were issued to nine (9) stockholders (initial stockholders). Such shares were purchased at an average purchase price of approximately $0.006 per share. Effective November 8, 2007, the Companys Board of Directors authorized a stock dividend of 0.2 share of common stock for each outstanding share of common stock. All references in the accompanying financial statements to the number of shares of stock have been retroactively restated to reflect this transaction. In January 2008, the initial stockholders contributed an aggregate of 862,500 shares back to capital. If the over-allotment option is not
exercised in full, the initial stockholders will forfeit the number of shares necessary to cause the initial stockholders to maintain a 20% ownership of the common shares after the Proposed Offering. The initial stockholders will forfeit 562,500 shares to the extent that the underwriters over-allotment is not exercised.
Note 7 Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors.
Until February 5, 2008, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
No dealer, salesperson or any other person is authorized to give any information or make any representations in connection with this offering other than those contained in this prospectus and, if given or made, the information or representations must not be relied upon as having been authorized by us. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any security other than the securities offered by this prospectus, or an offer to sell or a solicitation of an offer to buy any securities by anyone in any jurisdiction in which the offer or solicitation is not authorized or is unlawful.
F-20
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
HUGHES Telematics, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' (deficit) equity and cash flows present fairly, in all material respects, the financial position of HUGHES Telematics, Inc. and its subsidiaries at September 30, 2008, and December 31, 2007 and 2006, and the results of their operations and their cash flows for the nine months ended September 30, 2008, the year ended December 31, 2007 and for the period from January 9, 2006 (Inception) to December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements
are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 3 to the consolidated financial statements, in 2007 the Company adopted a new accounting standard that required it to change the manner in which it accounts for uncertain tax positions.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
Atlanta, GA
November 18, 2008
F-21
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
2008
|
|
2007
|
|
2006
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
25,654
|
|
|
$
|
22,017
|
|
|
$
|
15,588
|
|
Restricted cash
|
|
|
6,620
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
1,800
|
|
Accounts receivable, net of allowance of $659, $696 and $532, respectively
|
|
|
4,773
|
|
|
|
3,911
|
|
|
|
3,758
|
|
Inventories
|
|
|
2,609
|
|
|
|
2,758
|
|
|
|
777
|
|
Prepaid expenses
|
|
|
1,312
|
|
|
|
387
|
|
|
|
225
|
|
Deferred income taxes
|
|
|
125
|
|
|
|
412
|
|
|
|
1,281
|
|
Other current assets
|
|
|
749
|
|
|
|
45
|
|
|
|
272
|
|
Total current assets
|
|
|
41,842
|
|
|
|
29,530
|
|
|
|
23,701
|
|
Restricted cash
|
|
|
4,700
|
|
|
|
997
|
|
|
|
997
|
|
Property and equipment, net
|
|
|
16,946
|
|
|
|
3,884
|
|
|
|
1,427
|
|
Capitalized software
|
|
|
11,763
|
|
|
|
3,412
|
|
|
|
|
|
Intangible assets, net
|
|
|
17,273
|
|
|
|
19,833
|
|
|
|
23,247
|
|
Goodwill
|
|
|
5,169
|
|
|
|
5,169
|
|
|
|
5,169
|
|
Debt issuance costs
|
|
|
5,866
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
6,268
|
|
|
|
107
|
|
|
|
107
|
|
Total assets
|
|
$
|
109,827
|
|
|
$
|
62,932
|
|
|
$
|
54,648
|
|
Liabilities and Stockholders (Deficit) Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
11,675
|
|
|
$
|
7,959
|
|
|
$
|
2,827
|
|
Accrued liabilities
|
|
|
6,655
|
|
|
|
4,191
|
|
|
|
3,303
|
|
Deferred revenue
|
|
|
251
|
|
|
|
449
|
|
|
|
512
|
|
Current portion of capital lease obligations
|
|
|
1,720
|
|
|
|
|
|
|
|
|
|
Series B Redeemable Preferred Stock (Note 10)
|
|
|
|
|
|
|
5,000
|
|
|
|
5,000
|
|
Other current liabilities
|
|
|
289
|
|
|
|
767
|
|
|
|
|
|
Total current liabilities
|
|
|
20,590
|
|
|
|
18,366
|
|
|
|
11,642
|
|
Series A Redeemable Preferred Stock (Note 10)
|
|
|
61,479
|
|
|
|
57,017
|
|
|
|
35,273
|
|
Long-term debt
|
|
|
59,298
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
|
5,985
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
125
|
|
|
|
412
|
|
|
|
3,483
|
|
Other liabilities
|
|
|
57
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
147,534
|
|
|
|
75,795
|
|
|
|
50,398
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value. Authorized 100,000 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value. Authorized 1,500,000 shares; issued and outstanding 373,680 shares at September 30, 2008 and December 31, 2007 and 372,680 shares at December 31, 2006
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
Additional paid-in capital
|
|
|
38,103
|
|
|
|
23,302
|
|
|
|
8,082
|
|
Accumulated deficit
|
|
|
(75,814
|
)
|
|
|
(36,169
|
)
|
|
|
(3,836
|
)
|
Total stockholders (deficit) equity
|
|
|
(37,707
|
)
|
|
|
(12,863
|
)
|
|
|
4,250
|
|
Total liabilities and stockholders (deficit) equity
|
|
$
|
109,827
|
|
|
$
|
62,932
|
|
|
$
|
54,648
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-22
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Year Ended
December 31,
2007
|
|
January 9,
2006
(Inception) to
December 31, 2006
|
|
|
2008
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware
|
|
$
|
9,576
|
|
|
$
|
8,496
|
|
|
$
|
11,009
|
|
|
$
|
5,050
|
|
Services
|
|
|
11,389
|
|
|
|
6,400
|
|
|
|
9,343
|
|
|
|
1,863
|
|
Total revenues
|
|
|
20,965
|
|
|
|
14,896
|
|
|
|
20,352
|
|
|
|
6,913
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of hardware sold
|
|
|
6,803
|
|
|
|
5,910
|
|
|
|
7,767
|
|
|
|
3,275
|
|
Cost of services
|
|
|
4,315
|
|
|
|
3,227
|
|
|
|
4,102
|
|
|
|
1,251
|
|
Research and development
|
|
|
23,678
|
|
|
|
16,060
|
|
|
|
23,540
|
|
|
|
3,129
|
|
Sales and marketing
|
|
|
5,356
|
|
|
|
3,806
|
|
|
|
5,712
|
|
|
|
1,257
|
|
General and administrative
|
|
|
14,050
|
|
|
|
8,232
|
|
|
|
12,808
|
|
|
|
4,137
|
|
Total costs and expenses
|
|
|
54,202
|
|
|
|
37,235
|
|
|
|
53,929
|
|
|
|
13,049
|
|
Loss from operations
|
|
|
(33,237
|
)
|
|
|
(22,339
|
)
|
|
|
(33,577
|
)
|
|
|
(6,136
|
)
|
Interest income
|
|
|
777
|
|
|
|
660
|
|
|
|
853
|
|
|
|
441
|
|
Interest expense
|
|
|
(7,328
|
)
|
|
|
(1,079
|
)
|
|
|
(1,811
|
)
|
|
|
(409
|
)
|
Other income
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(39,645
|
)
|
|
|
(22,758
|
)
|
|
|
(34,535
|
)
|
|
|
(6,104
|
)
|
Income tax benefit
|
|
|
|
|
|
|
1,451
|
|
|
|
2,202
|
|
|
|
2,268
|
|
Net loss
|
|
$
|
(39,645
|
)
|
|
$
|
(21,307
|
)
|
|
$
|
(32,333
|
)
|
|
$
|
(3,836
|
)
|
Basic and diluted loss per share
|
|
$
|
(106.09
|
)
|
|
$
|
(57.17
|
)
|
|
$
|
(86.74
|
)
|
|
$
|
(11.57
|
)
|
Basic and diluted weighted average common shares outstanding
|
|
|
373,680
|
|
|
|
372,680
|
|
|
|
372,768
|
|
|
|
331,688
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-23
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Year Ended
December 31,
2007
|
|
January 9,
2006
(Inception) to
December 31, 2006
|
|
|
2008
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(39,645
|
)
|
|
$
|
(21,307
|
)
|
|
$
|
(32,333
|
)
|
|
$
|
(3,836
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,209
|
|
|
|
3,182
|
|
|
|
4,454
|
|
|
|
1,525
|
|
Interest expense on Series A Redeemable Preferred Stock
|
|
|
2,056
|
|
|
|
1,079
|
|
|
|
1,811
|
|
|
|
409
|
|
Accrued interest on long-term debt and capital leases
|
|
|
3,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs and discounts on long-term debt
|
|
|
1,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
337
|
|
|
|
28
|
|
|
|
53
|
|
|
|
1
|
|
Deferred income taxes
|
|
|
|
|
|
|
(1,451
|
)
|
|
|
(2,202
|
)
|
|
|
(2,268
|
)
|
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(862
|
)
|
|
|
51
|
|
|
|
(153
|
)
|
|
|
(1,876
|
)
|
Inventories
|
|
|
149
|
|
|
|
(2,225
|
)
|
|
|
(1,981
|
)
|
|
|
190
|
|
Prepaid expenses and other assets
|
|
|
(6,563
|
)
|
|
|
(43
|
)
|
|
|
65
|
|
|
|
(246
|
)
|
Accounts payable and accrued and other liabilities
|
|
|
4,532
|
|
|
|
4,150
|
|
|
|
6,787
|
|
|
|
2,801
|
|
Deferred revenue
|
|
|
(198
|
)
|
|
|
(227
|
)
|
|
|
(63
|
)
|
|
|
512
|
|
Net cash used in operating activities
|
|
|
(30,713
|
)
|
|
|
(16,763
|
)
|
|
|
(23,562
|
)
|
|
|
(2,788
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,094
|
)
|
Purchases of short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,800
|
)
|
Maturities of short-term investments
|
|
|
|
|
|
|
|
|
|
|
1,800
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(6,470
|
)
|
|
|
(3,046
|
)
|
|
|
(3,497
|
)
|
|
|
(1,083
|
)
|
Increase in capitalized software
|
|
|
(7,788
|
)
|
|
|
(2,093
|
)
|
|
|
(3,412
|
)
|
|
|
|
|
Increase in restricted cash
|
|
|
(10,323
|
)
|
|
|
|
|
|
|
|
|
|
|
(997
|
)
|
Net cash used in investing activities
|
|
|
(24,581
|
)
|
|
|
(5,139
|
)
|
|
|
(5,109
|
)
|
|
|
(26,974
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
67,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of capital lease obligations
|
|
|
(523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of debt issuance costs
|
|
|
(3,046
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Series A Redeemable Preferred Stock and warrants
|
|
|
|
|
|
|
15,000
|
|
|
|
35,000
|
|
|
|
40,000
|
|
Proceeds from issuance of Series B Redeemable Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
Redemption of Series B Redeemable Preferred Stock
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350
|
|
Net cash provided by financing activities
|
|
|
58,931
|
|
|
|
15,000
|
|
|
|
35,100
|
|
|
|
45,350
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
3,637
|
|
|
|
(6,902
|
)
|
|
|
6,429
|
|
|
|
15,588
|
|
Cash and cash equivalents, beginning of period
|
|
|
22,017
|
|
|
|
15,588
|
|
|
|
15,588
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
25,654
|
|
|
$
|
8,686
|
|
|
$
|
22,017
|
|
|
$
|
15,588
|
|
Supplemental noncash disclosure: Property and equipment acquired by capital lease obligations
|
|
$
|
8,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-24
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS (DEFICIT) EQUITY
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Total
Stockholders
(Deficit)
Equity
|
|
|
Shares
|
|
Amount
|
Balance, January 9, 2006 (inception)
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Initial capitalization
|
|
|
300,000
|
|
|
|
3
|
|
|
|
347
|
|
|
|
|
|
|
|
350
|
|
Issuance of common stock to executive officers
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock to acquire assets of SecureTnet International, LLC
|
|
|
60,680
|
|
|
|
1
|
|
|
|
2,597
|
|
|
|
|
|
|
|
2,598
|
|
Issuance of Series A Redeemable Preferred Stock and warrant
|
|
|
|
|
|
|
|
|
|
|
5,137
|
|
|
|
|
|
|
|
5,137
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,836
|
)
|
|
|
(3,836
|
)
|
Balance, December 31, 2006
|
|
|
372,680
|
|
|
|
4
|
|
|
|
8,082
|
|
|
|
(3,836
|
)
|
|
|
4,250
|
|
Issuance of common in connection with the exercise of stock options
|
|
|
1,000
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
100
|
|
Issuance of Series A Redeemable Preferred Stock and warrants
|
|
|
|
|
|
|
|
|
|
|
15,067
|
|
|
|
|
|
|
|
15,067
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
53
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,333
|
)
|
|
|
(32,333
|
)
|
Balance, December 31, 2007
|
|
|
373,680
|
|
|
|
4
|
|
|
|
23,302
|
|
|
|
(36,169
|
)
|
|
|
(12,863
|
)
|
Issuance of warrants in connection with senior secured term indebtedness
|
|
|
|
|
|
|
|
|
|
|
10,994
|
|
|
|
|
|
|
|
10,994
|
|
Issuance of warrants as debt issuance cost
|
|
|
|
|
|
|
|
|
|
|
3,338
|
|
|
|
|
|
|
|
3,338
|
|
Deemed capital contribution from a related party (Note 11)
|
|
|
|
|
|
|
|
|
|
|
2,381
|
|
|
|
|
|
|
|
2,381
|
|
Extension of mandatory redemption date of Series A Redeemable Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
(2,249
|
)
|
|
|
|
|
|
|
(2,249
|
)
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
337
|
|
|
|
|
|
|
|
337
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,645
|
)
|
|
|
(39,645
|
)
|
Balance, September 30, 2008
|
|
|
373,680
|
|
|
$
|
4
|
|
|
$
|
38,103
|
|
|
$
|
(75,814
|
)
|
|
$
|
(37,707
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
F-25
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization, Basis of Presentation and Business
HUGHES Telematics, Inc. (the Company) is developing an embedded, end-to-end telematics solution which is being marketed to automakers. The Companys technology allows for two-way communications with a vehicle which supports numerous applications including safety and security services, remote vehicle diagnostics, remote emissions monitoring and other location-based services. Following the acquisition of Networkcar, Inc., now known as Networkfleet, Inc. (Networkcar) on August 1, 2006, the Company also provides an aftermarket wireless fleet management solution targeted to the local fleet market.
The Company was incorporated under the General Corporation Law of the State of Delaware on January 9, 2006. On July 21, 2006, the Company filed an Amended and Restated Certificate of Incorporation that increased its authorized shares to 1,100,000 shares, consisting of 1,000,000 shares of common stock, par value $0.01 per share, and 100,000 shares preferred stock, par value $0.01 per share. On July 28, 2006, the Company filed an Amendment to the Amended and Restated Certificate of Incorporation that effected a 3,000 for one stock split of its common stock. All common stock share amounts in these consolidated financial statements reflect such stock
split. On July 19, 2007, the Company filed an Amendment to the Amended and Restated Certificate of Incorporation that increased its authorized shares to 1,600,000 shares, consisting of 1,500,000 shares of common stock, par value $0.01 per share, and 100,000 shares preferred stock, par value $0.01 per share.
The Companys consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and include the accounts of the Company and its wholly-owned subsidiary Networkcar following the acquisition of Networkcar. In the opinion of management, the accompanying consolidated unaudited financial statements for the nine months ended September 30, 2007 contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair presentation of the Companys results of operations for such period. The results of the nine months ended September 30, 2008 are not necessarily indicative
of the results to be expected for the full year. All intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to current presentation.
During the nine months ended September 30, 2008, the year ended December 31, 2007 and for the period from January 9, 2006 to December 31, 2006, the Company incurred a net loss of approximately $39.6 million, $32.3 million and $3.8 million, respectively, and used cash in operations of approximately $30.7 million, $23.6 million and $2.8 million, respectively. As of September 30, 2008, the Company had cash and cash equivalents of approximately $25.6 million and an accumulated deficit of approximately $75.8 million. Management believes that the cash on hand and a combination of any of the cash to be received in connection with the merger with Polaris
Acquisition Corp. (Polaris) (see Note 2); future potential financing from Communications Investors, LLC, an affiliate of Apollo Advisors V, L.P. (Apollo); and other financing transactions being pursued will allow the Company to continue operations beyond September 30, 2009. There is no assurance that the Company will be successful in obtaining additional financing to fund its operations. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
(2) Merger Agreement with Polaris Acquisition Corp.
On June 13, 2008, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) pursuant to which it agreed to merge (the Merger) with Polaris. The Merger Agreement was amended and restated on November 10, 2008 (the Amended Merger Agreement). At the closing of the Merger, all the outstanding shares of the Companys common stock shall be exchanged for the right to receive, in the aggregate, approximately 15,000,000 shares of Polaris common stock. In addition, holders of the Companys common stock shall be entitled to receive an aggregate of approximately 59,000,000 additional shares of
the Polaris common stock, in three tranches, which will be issued into escrow at the closing of the Merger and released to the Companys shareholders upon the achievement of certain share price targets over the five-year period following closing. Outstanding options exercisable for shares of the Companys common
F-26
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Merger Agreement with Polaris Acquisition Corp. (continued)
stock will be exchanged in the Merger for options to purchase shares of Polaris common stock. Pursuant to the Amended Merger Agreement, the Polaris founders agreed to deposit an aggregate of 1,250,000 shares of their Polaris common stock into escrow at closing. Such shares of Polaris common stock will be released upon the achievement of the first share price target between the first and fifth anniversary of closing.
Upon consummation of the Merger and assuming no Polaris stockholders exercise their right to convert their common stock into a pro rata share of the Polaris trust account, then the Company will have access to approximately $140.0 million of the cash and cash equivalents currently held in the Polaris trust account. The number of shares of Polaris common stock received by the Companys stockholders at the closing of the Merger will be subject to possible adjustments, including the issuance of additional shares of Polaris common stock for the value of equity raised by the Company prior to the closing of the Merger, if any, and for a shortfall in
the net working capital of Polaris below $138.0 million at the closing of the Merger.
Pursuant to the Amended Merger Agreement, the Company and its stockholders, including Apollo, agreed to reorganize the capital structure of the Company so that, immediately prior to the consummation of the Merger, the only outstanding equity securities of the Company, other than the warrants issued in connection with the Companys Credit Agreement (which will be exercised in connection with the Merger) and stock options, would be common stock.
The obligations of the Company and Polaris to complete the Merger are subject to the satisfaction or waiver by the other party, at or prior to the closing date, of various customary conditions, including (i) the receipt of all required regulatory approvals and consents, (ii) the approval of the Merger by Polaris stockholders, (ii) subject to certain exceptions and materiality thresholds, the accuracy of the representations and warranties of the other party and (iv) compliance of the other party with its covenants, subject to specified materiality thresholds.
(3) Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. The Company considers all debt securities with maturities of more than three months but less than one year as short-term investments and classifies investments in such short-term debt securities as held to maturity. The cost of these securities is adjusted for amortization of premiums and accretion of discounts to maturity over the contractual life of the security. As of December 31, 2006, all short-term investments consisted of government agency securities, and the amortized cost of such securities approximated
fair value. The Company held no short-term investments as of September 30, 2008 and December 31, 2007.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable consists primarily of trade receivables from customers and are generally due within 30 days of the invoice date. The Company estimates uncollectible accounts receivable based on specific troubled accounts or other currently available evidence. The specific allowances are re-evaluated and adjusted as additional information regarding collectability is received. After all reasonable attempts to collect the receivable have been exhausted, the account is written off against the allowance.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or market. The Company periodically assesses the market value of its inventory, based on sales trends and forecasts and technological changes, and records a charge to current-period income when such factors indicate that a reduction in net realizable value has occurred.
F-27
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Summary of Significant Accounting Policies (continued)
Restricted Cash
To secure certain lease obligations, the Company must maintain letters of credit in an aggregate amount of approximately $4.7 million. The agreements governing the letters of credit require the Company to maintain restricted cash accounts which hold collateral equal to no less than the aggregate face amount of the outstanding letters of credit. As of September 30, 2008 and December 31, 2007 and 2006, the Company had approximately $4.7 million, $1.0 million and $1.0 million, respectively, in the restricted cash accounts.
Pursuant to a Credit Agreement (see Note 8), the Company is required to maintain an escrow account for the benefit of the lenders of the senior secured term indebtedness. Following the first issuance of senior secured term indebtedness in March 2008, the Company was required to maintain a balance in the escrow account of no less than 25% of the outstanding principal balance of the senior secured term indebtedness. The 25% coverage is reduced on a pro rata basis over the next $67.5 million of debt or equity capital raised by the Company after March 2008. If a balance remains in the escrow account on March 31, 2009, the Company will be required to make
an offer to prepay outstanding term indebtedness with an aggregate principal amount equal to such remaining balance. As of September 30, 2008, the amount held in the escrow account was approximately $6.6 million. As the Company raises an additional $32.5 million of debt or equity financing, the remaining amount held in the escrow account will be released on a pro rata basis.
Restricted cash balances which are expected to be restricted for more than one year have been classified as non-current assets on the accompanying consolidated balance sheets.
Property and Equipment
Property and equipment are recorded at original acquisition cost and depreciated over their estimated useful lives using the straight-line method. Leasehold improvements are amortized on a straight-line basis over the term of the lease or the estimated useful life of the improvement, whichever is shorter. Repair and maintenance costs are expensed as incurred.
Capitalized Software
Software development costs are capitalized in accordance with the AICPAs Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal Use
(SOP 98-1). SOP 98-1 requires companies to capitalize qualifying computer software costs that are incurred during the application development stage and amortize them over the softwares estimated useful life. Costs capitalized include direct labor, outside services, materials, software licenses and capitalized interest. For the nine months ended September 30, 2008 and 2007 and for the year ended December 31, 2007, the Company capitalized
$8.4 million, $2.1 million and $3.4 million, respectively, of software development costs. Amortization will begin when the software is ready for its intended use and will be recognized over the expected useful life of the software, but not to exceed five years.
Goodwill and Intangibles
The Company records goodwill when consideration paid in a purchase acquisition exceeds the fair value of the net tangible assets and identifiable intangible assets acquired. In accordance with Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets
, goodwill and identified intangible assets with an indefinite life are not amortized but are tested for impairment at least annually or whenever changes in circumstances indicate that the carrying value may not be recoverable. The Company performs its annual goodwill impairment analysis as of December 31 of each year. The annual impairment
analysis as of December 31, 2007 indicated that there was no goodwill impairment for the year ended December 31, 2007. As there were no changes in circumstances during the nine months ended September 30, 2008 that indicated the Companys goodwill may be impaired, the Company did not perform an impairment
F-28
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Summary of Significant Accounting Policies (continued)
analysis during such period. The Company amortizes the identified intangible assets with a finite life over their respective useful lives on a straight-line basis, which approximates the projected utility of such assets based on the available information.
Impairment of Long-Lived Assets
Long-lived assets and identifiable intangibles with finite useful lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets
. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds the fair value of the assets.
Debt Issuance Costs
Costs associated with the issuance of debt are deferred and amortized to interest expense, using the effective interest method, over the term of the respective debt.
Revenue Recognition
The Company earns revenue through the sale of Networkcars products and services. Hardware sales consist principally of revenues from the sale of Networkcars telematics device, primarily to resellers. Shipping and handling costs for hardware shipped to resellers are classified as cost of hardware sold. Networkcars customers enter into a service contract which generally has a 12-month initial term which automatically renews for successive one-month periods thereafter. The Company has determined that the sale of Networkcars hardware and its services constitutes a revenue arrangement with multiple deliverables in accordance with
Emerging Issues Task Force (EITF) Issue No. 00-21,
Accounting for Revenue Arrangements with Multiple Element Deliverables.
The Company accounts for the sale of hardware and the accompanying service as separate units of accounting. Revenue is recognized on sales of hardware when shipped to resellers or other customers and collection is considered probable. Consideration received for the monitoring and tracking services are recognized as service revenue when earned. Prepaid service fees are recorded as deferred revenue and are recognized as revenue when earned.
The Company has a long-term contract with each of two automakers pursuant to which the automakers have agreed to install telematics devices in their vehicles and permit the Company to exclusively provide telematics services to their new customers. Those contracts also require the Company to pay each automaker for certain non-recurring costs associated with the initiation of telematics services (see Note 12). In accordance with EITF Issue No. 01-9,
Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors Products)
, amounts paid under these agreements will be capitalized and recognized as a
reduction of revenue over the term of the respective agreement.
Research and Development
The Company incurs research and development costs in the course of developing its products and services. Such costs are expensed as incurred.
Share-Based Compensation
The Company records expense for share-based compensation awards based on the fair value recognition provisions contained in SFAS No. 123(R),
Share-Based Payment
(SFAS 123(R)). The fair value of stock option awards is determined using an option pricing model that is based on established principles of financial economic theory. Assumptions regarding volatility, expected term, dividend yield and risk-free rate are required for valuation of stock option awards (see Note 10).
F-29
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Summary of Significant Accounting Policies (continued)
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
In assessing the need to record a valuation allowance against the Companys deferred tax assets, management considers, based upon all available evidence, whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Due to the Companys early stage and its operating losses, there is uncertainty with respect to whether the Company will ultimately realize its deferred tax assets. Accordingly, as of September 30, 2008 and December 31, 2007, the Company recorded a full valuation allowance against its net deferred tax asset. As of December 31, 2006, the Companys deferred tax liabilities
exceeded the sum of deferred tax assets and available net operating loss and tax credit carryforwards, and accordingly, the Company did not record a valuation allowance against its deferred tax assets.
Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions (tax contingencies) accounted for in accordance with SFAS No. 109. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount
which is more than 50% likely of being realized upon ultimate settlement. Management considers many factors when evaluating and estimating the Companys tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes. The adoption of FIN 48 did not result in an increase or decrease to the Companys accrual for uncertain tax positions and no adjustment was recorded to 2007 beginning retained earnings. In addition, the adoption of FIN 48 did not result in an accrual for the year ended December 31, 2007 or in the nine months ended September 30, 2008 for uncertain tax positions taken in current or prior years, settlements with the taxing authorities or a lapse of the applicable statute of limitations. There are no uncertain tax positions as of September 30, 2008 or December 31, 2007 that, if recognized, would significantly affect the effective tax rate, and there are no uncertain tax positions for which it is reasonably
possible that the total amounts of the unrecognized tax benefits will significantly change in the next twelve months. The Company may be subject to examination by the U.S. federal and various state tax jurisdictions for the 2005, 2006 and 2007 tax years. Under the terms of the purchase agreement between the Company and the former parent company of Networkcar, the former parent company agreed to indemnify the Company for any taxes imposed on Networkcar for periods prior to August 1, 2006. The Company will include interest and penalties related to its tax contingencies in income tax expense. No interest or penalties have been recognized during either of the nine month periods ended September 30, 2008 or 2007 or the year ended December 31, 2007.
Comprehensive Loss
Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from nonowner sources. The Companys comprehensive loss for the nine months ended September 30, 2008 and 2007, for the year ended December 31, 2007 and for the period from January 9, 2006 to December 31, 2006 equaled the Companys net loss.
F-30
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Summary of Significant Accounting Policies (continued)
Loss Per Share
Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution from the exercise or conversion of securities into common stock. The potential dilutive effect of outstanding stock options and warrants is calculated using the treasury stock method.
During all periods presented, the Company had potential common shares, including shares issuable upon the exercise of outstanding stock options and warrants, which could potentially dilute basic loss per share in the future, but were excluded in the computation of diluted loss per share in such periods, as their effect would have been antidilutive. Potential common shares issuable upon the exercise of outstanding stock options and warrants but excluded from the calculation of diluted loss per share were 678,087 shares, 360,680 shares, 582,570 shares and 206,900 shares for the nine months ended September 30, 2008 and 2007, the year ended December 31,
2007 and for the period from January 9, 2006 to December 31, 2006, respectively.
Use of Estimates
The preparation of these consolidated financial statements in conformity with U.S. generally accepted accounting principles requires the use of management estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Companys financial instruments include cash, cash equivalents, accounts receivable, accounts payable, letters of credit, the Series A Redeemable Preferred Stock (the Series A Preferred Stock), the Series B Redeemable Preferred Stock (the Series B Preferred Stock) and long-term debt. The Company discloses the estimated fair values for all financial instruments for which it is practicable to estimate fair value. As of September 30, 2008 and December 31, 2007 and 2006, the fair value of these instruments, other than the Series A Preferred Stock and long-term debt, approximates book value due to their short-term
duration.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, short-term investments and accounts receivable. Although the Company maintains cash balances at financial institutions that exceed federally insured limits, these balances are placed with various high credit quality financial institutions.
The Company generates revenues principally from customers located in the United States. For the nine months ended September 30, 2008 and 2007, the year ended December 31, 2007 and for the period from January 9, 2006 to December 31, 2006, one, one, one and two customers, respectively, individually accounted for more than 10% of the Companys revenues. Combined, these customers accounted for approximately $2.7 million and $1.6 million of total revenues for the nine months ended September 30, 2008 and 2007, respectively, $2.1 million of total revenues for the year ended December 31, 2007 and $1.7 million of total revenues for the period from
January 9, 2006 to December 31, 2006.
F-31
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Summary of Significant Accounting Policies (continued)
The Companys significant customers, as measured by percentage of total revenues, were as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
Year Ended
December 31,
2007
|
|
January 9
2006
(Inception) to
December 31,
2006
|
|
|
2008
|
|
2007
|
|
|
|
|
(Unaudited)
|
Customer A
|
|
|
12.7
|
%
|
|
|
11.0
|
%
|
|
|
10.3
|
%
|
|
|
|
|
Customer B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.4
|
%
|
Customer C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.7
|
%
|
As of September 30, 2008 and December 31, 2007 and 2006, one, two and one customers, respectively, individually accounted for over 10% of the Companys total accounts receivable balance. Combined, these customers accounted for $1.2 million of the Companys total accounts receivable balance as of September 30, 2008, $1.2 million of the Companys total accounts receivable balance as of December 31, 2007 and $0.9 million of the Companys total accounts receivable balance as of December 31, 2006.
The Companys significant customers, as measured by percentage of total accounts receivable, were as follows:
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
December 31,
|
|
|
2007
|
|
2006
|
Customer A
|
|
|
22.9
|
%
|
|
|
13.9
|
%
|
|
|
|
|
Customer C
|
|
|
|
|
|
|
|
|
|
|
20.7
|
%
|
Customer D
|
|
|
|
|
|
|
12.0
|
%
|
|
|
|
|
Recently Issued Accounting Standards
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 157,
Fair Value Measurements
(SFAS 157). This standard defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued Staff Position No. 157-2 (FSP 157-2) which delays the effective date of SFAS 157
by one year for all nonfinancial assets and nonfinancial liabilities, except those recognized or disclosed at fair value in the financial statements on a recurring basis. Those assets and liabilities measured at fair value under SFAS 157 in the nine months ended September 30, 2008 did not have a material impact on the Companys consolidated financial statements. In accordance with FSP 157-2, the Company will measure the remaining assets and liabilities no later than the three months ended March 31, 2009. The Company is evaluating the impact the adoption of FSP 157-2 may have on its financial position and results of operations.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Liabilities Including an Amendment of FASB Statement
No
. 115
(SFAS 159)
.
Under this standard, entities will be permitted to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis. SFAS 159 was effective for the Company on January 1, 2008. The Company determined that the utilization of fair value reporting is not appropriate for the Companys financial instruments for which fair value measurement is not required. Consequently, the adoption of SFAS
159 did not have a material impact on the Companys financial position and results of operations.
In November 2007, the EITF issued Issue No. 07-1,
Accounting for Collaborative Arrangements
(EITF 07-1). EITF 07-1 states that income statement classification of payments between parties in an arrangement should be based on a consideration of (a) the nature and terms of the arrangement, (b) the nature of the entities operations and (c) whether the parties payments are within the scope of other existing
F-32
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Summary of Significant Accounting Policies (continued)
generally accepted accounting principles. EITF 07-1 was effective for the Company on January 1, 2008. The adoption of EITF 07-1 did not have a material impact on the Companys financial position and results of operations.
In June 2008, the EITF issued Issue No. 07-5,
Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entitys Own Stock
(EITF 07-5)
,
which provides guidance on determining what types of instruments or embedded features in an instrument held by a reporting entity can be considered indexed to its own stock. Under EITF 07-5, the Company first evaluates any contingent exercise provisions based on the guidance that was originally issued in EITF Issue No. 01-6, and second, evaluates the instruments settlement provisions. EITF 07-5 is effective for fiscal periods beginning after December 15, 2008. Based
on a preliminary evaluation of the impact of the adoption of EITF 07-5, the Company has determined that the warrants issued in connection with the issuance of the Series A Preferred Stock and the warrants issued in connection with the issuance of the senior secured term indebtedness may contain provisions which, in accordance with EITF 07-5, would indicate that the warrants are not indexed to the Companys stock. If the warrants are deemed not to be indexed to the Companys stock, then upon the adoption of EITF 07-5, the Company will reclassify the warrants from equity to a liability and will record a gain or loss each period, beginning in the first quarter of 2009 and continuing through the date the warrants are exercised, to recognize the change in fair market value of these instruments. In connection with the closing of the merger with Polaris, these warrants will be exercised. The Company continues to evaluate the impact the adoption of EITF 07-5 may have on its financial
position and results of operations.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS 141(R)), which revised the guidance contained in SFAS No. 141,
Business Combinations.
Significant revisions include: (i) all transactions costs related to a business combination are to be expensed when incurred; (ii) certain contingent assets and liabilities purchased in a business combination are to be measured at fair value; (iii) contingent consideration (earn-out arrangements) paid in connection with a business combination are to be measured at fair value depending on the structure of the arrangements; and (iv) subsequent material adjustments
made to the purchase price allocation will be recorded back to the acquisition date, which will cause revision of previously issued financial statements when reporting comparative period financial information in subsequent financial statements. SFAS 141(R) will be prospectively applied for business combinations that have an acquisition date on or after January 1, 2009. As of September 30, 2008, the Company has incurred approximately $0.7 million in transaction costs related to the Merger with Polaris. Such costs are included in other current assets in the accompanying consolidated balance sheets. The Company is evaluating the treatment for these costs in the event the Merger does not close prior to January 1, 2009.
(4) Acquisition of Networkcar
On August 1, 2006, the Company purchased all of the outstanding common stock of Networkcar, a provider of hardware and services for remotely monitoring the performance and location of fleet vehicles, and certain intellectual property related to the provision of telematics services for approximately $24.7 million of cash, including approximately $0.3 million of legal and advisory fees incurred in connection with the transaction. The Company will pay up to an additional $4.3 million of cash if certain sales targets are achieved from 2008 to 2010. The acquisition of Networkcar gave the Company immediate access to the growing fleet telematics market and
provided the Company an intellectual property portfolio which consists of patents covering certain of the Companys planned service offerings. The results of Networkcars operations are included in the Companys results of operations for the period beginning August 1, 2006.
F-33
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Acquisition of Networkcar (continued)
The acquisition of Networkcar has been accounted for in accordance with SFAS No. 141,
Business Combinations
. The $24.7 million purchase price has been allocated to the acquired assets and liabilities based on their fair value. If the certain sales targets are achieved from 2008 to 2010 and the Company pays additional consideration, such amount will be recorded as an increase in goodwill. The following table presents the initial purchase price allocation:
|
|
|
|
|
August 1, 2006
|
|
|
(In Thousands)
|
Cash
|
|
$
|
1,699
|
|
Accounts receivable
|
|
|
1,882
|
|
Inventories
|
|
|
967
|
|
Other current assets
|
|
|
358
|
|
Property and equipment
|
|
|
447
|
|
Intangible assets:
|
|
|
|
|
Intellectual property
|
|
|
11,400
|
|
Existing technology
|
|
|
6,700
|
|
Trade name
|
|
|
1,100
|
|
Distributor relationships
|
|
|
1,000
|
|
Goodwill
|
|
|
5,169
|
|
Total assets acquired
|
|
|
30,722
|
|
Accounts payable and accrued liabilities
|
|
|
671
|
|
Technology upgrade program
|
|
|
2,658
|
|
Deferred income taxes
|
|
|
2,682
|
|
Total liabilities acquired
|
|
|
6,011
|
|
Net assets acquired
|
|
$
|
24,711
|
|
The following unaudited pro forma information is presented as if the Company had completed the acquisition of Networkcar as of January 9, 2006. The pro forma information is not necessarily indicative of what the results of operations would have been had the acquisitions taken place at those dates or of the future results of operations.
|
|
|
|
|
January 9, 2006
(Inception) to
December 31,
2006
|
|
|
(In Thousands, Except per Share Data)
|
Revenues
|
|
$
|
12,774
|
|
Net loss
|
|
$
|
(7,470
|
)
|
Loss per share basic and diluted
|
|
$
|
(22.52
|
)
|
F-34
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Supplemental Balance Sheet Information
Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
December 31,
|
|
|
2007
|
|
2006
|
|
|
(In Thousands)
|
Raw material components
|
|
$
|
1,582
|
|
|
$
|
1,357
|
|
|
|
486
|
|
Finished goods
|
|
|
1,027
|
|
|
|
1,401
|
|
|
|
291
|
|
Total
|
|
$
|
2,609
|
|
|
$
|
2,758
|
|
|
$
|
777
|
|
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Estimated
Useful
Lives
(Years)
|
|
September 30,
2008
|
|
December 31,
|
|
|
2007
|
|
2006
|
|
|
|
|
(In Thousands)
|
Computer equipment and software
|
|
|
3 to 5
|
|
|
$
|
5,122
|
|
|
$
|
3,705
|
|
|
$
|
910
|
|
Machinery and equipment
|
|
|
2 to 5
|
|
|
|
4,581
|
|
|
|
1,268
|
|
|
|
28
|
|
Furniture and fixtures
|
|
|
5 to 7
|
|
|
|
115
|
|
|
|
50
|
|
|
|
50
|
|
Leasehold improvements
|
|
|
1 to 2
|
|
|
|
75
|
|
|
|
4
|
|
|
|
|
|
Construction in process
|
|
|
|
|
|
|
9,845
|
|
|
|
|
|
|
|
542
|
|
|
|
|
|
|
|
|
19,738
|
|
|
|
5,027
|
|
|
|
1,530
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(2,792
|
)
|
|
|
(1,143
|
)
|
|
|
(103
|
)
|
Property and equipment, net
|
|
|
|
|
|
$
|
16,946
|
|
|
$
|
3,884
|
|
|
$
|
1,427
|
|
Construction in process consists primarily of software and systems infrastructure that is being developed to support the Companys business and operations, but which is not yet in service.
Depreciation expense was approximately $1.6 million, $0.6 million, $1.0 million and $0.1 million for the nine months ended September 30, 2008 and 2007, the year ended December 31, 2007 and the period from January 9, 2006 to December 31, 2006, respectively.
Accrued Liabilities
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
December 31,
|
|
|
2007
|
|
2006
|
|
|
(In Thousands)
|
Accrued non-inventory purchases
|
|
$
|
2,948
|
|
|
$
|
|
|
|
$
|
|
|
Accrued compensation and benefits
|
|
|
1,501
|
|
|
|
1,903
|
|
|
|
438
|
|
Technology upgrade program (see Note 9)
|
|
|
459
|
|
|
|
816
|
|
|
|
2,178
|
|
Accrued cost of service
|
|
|
347
|
|
|
|
|
|
|
|
|
|
Accrued inventory purchases
|
|
|
298
|
|
|
|
713
|
|
|
|
159
|
|
Accrued professional and consulting fees
|
|
|
213
|
|
|
|
150
|
|
|
|
|
|
Other accrued expenses
|
|
|
889
|
|
|
|
609
|
|
|
|
528
|
|
|
|
$
|
6,655
|
|
|
$
|
4,191
|
|
|
$
|
3,303
|
|
F-35
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Goodwill and Acquired Intangible Assets
On August 1, 2006, the Company acquired Networkcar and recorded goodwill of approximately $5.2 million resulting from the allocation of the purchase price.
Intangible assets and the related accumulated amortization were as follows:
|
|
|
|
|
|
|
|
|
|
|
Estimated
Useful
Lives
(Years)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
|
|
|
(In Thousands)
|
As of September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intellectual property
|
|
|
5 to 15
|
|
|
$
|
15,869
|
|
|
$
|
(3,583
|
)
|
|
$
|
12,286
|
|
Existing technology
|
|
|
5
|
|
|
|
6,700
|
|
|
|
(2,903
|
)
|
|
|
3,797
|
|
Trade name
|
|
|
5
|
|
|
|
1,100
|
|
|
|
(477
|
)
|
|
|
623
|
|
Distributor relationships
|
|
|
5
|
|
|
|
1,000
|
|
|
|
(433
|
)
|
|
|
567
|
|
Total
|
|
|
|
|
|
$
|
24,669
|
|
|
$
|
(7,396
|
)
|
|
$
|
17,273
|
|
As of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intellectual property
|
|
|
5 to 15
|
|
|
$
|
15,869
|
|
|
$
|
(2,343
|
)
|
|
$
|
13,526
|
|
Existing technology
|
|
|
5
|
|
|
|
6,700
|
|
|
|
(1,898
|
)
|
|
|
4,802
|
|
Trade name
|
|
|
5
|
|
|
|
1,100
|
|
|
|
(312
|
)
|
|
|
788
|
|
Distributor relationships
|
|
|
5
|
|
|
|
1,000
|
|
|
|
(283
|
)
|
|
|
717
|
|
Total
|
|
|
|
|
|
$
|
24,669
|
|
|
$
|
(4,836
|
)
|
|
$
|
19,833
|
|
As of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intellectual property
|
|
|
5 to 15
|
|
|
$
|
15,869
|
|
|
$
|
(689
|
)
|
|
$
|
15,180
|
|
Existing technology
|
|
|
5
|
|
|
|
6,700
|
|
|
|
(558
|
)
|
|
|
6,142
|
|
Trade name
|
|
|
5
|
|
|
|
1,100
|
|
|
|
(92
|
)
|
|
|
1,008
|
|
Distributor relationships
|
|
|
5
|
|
|
|
1,000
|
|
|
|
(83
|
)
|
|
|
917
|
|
Total
|
|
|
|
|
|
$
|
24,669
|
|
|
$
|
(1,422
|
)
|
|
$
|
23,247
|
|
Intellectual property consists of the patent portfolio acquired in connection with the purchase of Networkcar (see Note 4) and know-how acquired in connection with the issuance of common stock to the shareholders of SecureTnet International, LLC (see Note 10). The existing technology, trade name and distributor relationships intangible assets were acquired in connection with the purchase of Networkcar. Amortization of existing technology is included in the cost of hardware sold in the accompanying consolidated statements of operations. Amortization expense was approximately $2.6 million, $2.6 million, $3.4 million and $1.4 million for the
nine months ended September 30, 2008 and 2007, the year ended December 31, 2007 and the period from January 9, 2006 to December 31, 2006, respectively.
The estimated future amortization of intangible assets as of September 30, 2008 is as follows (in thousands):
|
|
|
Year Ending December 31:
|
2008
|
|
$
|
854
|
|
2009
|
|
|
3,414
|
|
2010
|
|
|
3,414
|
|
2011
|
|
|
2,308
|
|
2012
|
|
|
760
|
|
Thereafter
|
|
|
6,523
|
|
Total
|
|
$
|
17,273
|
|
F-36
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Income Taxes
The Company and its eligible subsidiaries file a consolidated Federal income tax return. For Federal income tax purposes, the Company has unused net operating loss (NOL) carryforwards of approximately $41.8 million expiring in 2021 through 2028 and unused tax credits of approximately $1.2 million expiring in 2021 through 2027. Due to the Companys acquisition of Networkcar, approximately $2.0 million of the NOL carryforwards and approximately $0.3 million of unused tax credits are subject to an annual limitation in accordance with Internal Revenue Code Sections 382 and 383, respectively. After 2010, all of Networkcars NOL
carryforwards and unused tax credits will be available to offset future taxable income of the Company and its subsidiaries unless subject to other limitation. The Company and Networkcar also have NOL carryforwards available to offset future taxable income in certain states where income tax returns are filed. The amounts available vary by state due to apportionment of losses to each state, and the expiration of the state NOL carryforwards vary in accordance with applicable state laws.
For the nine months ended September 30, 2008 and 2007, the year ended December 31, 2007 and for the period from January 9, 2006 to December 31, 2006, the Companys loss before income taxes was approximately $39.6 million, $22.8 million, $34.5 million and $6.1 million, respectively. The income tax benefit consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
Year Ended
December 31,
2007
|
|
January 9,
2006
(Inception) to
December 31,
2006
|
|
|
2008
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
(In Thousands)
|
Current benefit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred benefit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
1,137
|
|
|
|
1,726
|
|
|
|
1,832
|
|
State
|
|
|
|
|
|
|
314
|
|
|
|
476
|
|
|
|
436
|
|
Total deferred benefit
|
|
|
|
|
|
|
1,451
|
|
|
|
2,202
|
|
|
|
2,268
|
|
Total income tax benefit
|
|
$
|
|
|
|
$
|
1,451
|
|
|
$
|
2,202
|
|
|
$
|
2,268
|
|
The income tax benefit differs from the amount computed by applying the Federal statutory rate of 35% to the Companys loss before income taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
Year Ended
December 31,
2007
|
|
January 9,
2006
(Inception) to
December 31,
2006
|
|
|
2008
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
(In Thousands)
|
Income tax benefit at Federal statutory rate
|
|
$
|
13,876
|
|
|
$
|
7,965
|
|
|
$
|
12,087
|
|
|
$
|
2,136
|
|
State taxes, net of Federal benefit
|
|
|
1,867
|
|
|
|
1,074
|
|
|
|
1,630
|
|
|
|
284
|
|
Change in valuation allowance
|
|
|
(14,935
|
)
|
|
|
(7,765
|
)
|
|
|
(11,784
|
)
|
|
|
|
|
Research tax credits
|
|
|
|
|
|
|
621
|
|
|
|
944
|
|
|
|
|
|
Interest on Series A Preferred Stock
|
|
|
(774
|
)
|
|
|
(417
|
)
|
|
|
(634
|
)
|
|
|
(143
|
)
|
Permanent differences and other
|
|
|
(34
|
)
|
|
|
(27
|
)
|
|
|
(41
|
)
|
|
|
(9
|
)
|
Total income tax benefit
|
|
$
|
|
|
|
$
|
1,451
|
|
|
$
|
2,202
|
|
|
$
|
2,268
|
|
F-37
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Income Taxes (continued)
The tax effect of temporary differences that give rise to significant portions of the net deferred tax liability are as follows:
|
|
|
|
|
|
|
|
|
September 30
2008
|
|
December 31,
|
|
|
2007
|
|
2006
|
|
|
(In Thousands)
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss and credit carryforwards
|
|
$
|
17,949
|
|
|
$
|
9,243
|
|
|
$
|
3,018
|
|
Capitalized software
|
|
|
11,808
|
|
|
|
6,294
|
|
|
|
|
|
Accrued expenses
|
|
|
386
|
|
|
|
818
|
|
|
|
879
|
|
Allowance for bad debt
|
|
|
264
|
|
|
|
279
|
|
|
|
213
|
|
Inventory reserves and capitalization
|
|
|
227
|
|
|
|
227
|
|
|
|
188
|
|
Fixed assets
|
|
|
265
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
261
|
|
|
|
244
|
|
|
|
1
|
|
Total gross deferred tax assets
|
|
|
31,160
|
|
|
|
17,105
|
|
|
|
4,299
|
|
Less: valuation allowance
|
|
|
(26,719
|
)
|
|
|
(11,784
|
)
|
|
|
|
|
Total deferred tax assets
|
|
|
4,441
|
|
|
|
5,321
|
|
|
|
4,299
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired intangible assets
|
|
|
4,441
|
|
|
|
5,321
|
|
|
|
6,494
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Total deferred tax liabilities
|
|
|
4,441
|
|
|
|
5,321
|
|
|
|
6,501
|
|
Net deferred tax asset (liability)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2,202
|
)
|
The $2.2 million net deferred tax liability as of December 31, 2006 consists of $1.3 million of net current deferred tax assets and $3.5 million of net non-current deferred tax liabilities and is presented accordingly on the accompanying consolidated balance sheets.
In assessing the need to record a valuation allowance against the Companys deferred tax assets, management considers, based upon all available evidence, whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Due to the Companys early stage and its operating losses, there is uncertainty with respect to whether the Company will ultimately realize its deferred tax assets. Accordingly, as of September 30, 2008 and December 31, 2007, the Company recorded a full valuation allowance against its net deferred tax asset. As of December 31, 2006, the Companys deferred tax liabilities
exceeded the sum of deferred tax assets and available net operating loss and tax credit carryforwards, and accordingly, the Company did not record a valuation allowance against its deferred tax assets.
(8) Long-Term Debt
The components of long-term debt were as follows:
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
December 31,
|
|
|
2007
|
|
2006
|
|
|
(In Thousands)
|
Senior secured term indebtedness
|
|
$
|
48,037
|
|
|
$
|
|
|
|
$
|
|
|
Senior subordinated unsecured promissory note
|
|
|
11,261
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
59,298
|
|
|
$
|
|
|
|
$
|
|
|
Senior Secured Term Indebtedness
On March 31, 2008, the Company entered into a Credit Agreement pursuant to which it issued, for aggregate consideration of $20.0 million, senior secured term indebtedness with a principal amount of
F-38
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) Long-Term Debt (continued)
$20.0 million and warrants to purchase 25,870 shares of common stock at an exercise price of $0.01 per share. The Company deposited $5.0 million of the proceeds into an escrow account which will be released to the Company on a pro rata basis over the next $67.5 million of debt or equity capital raised by the Company. If a balance remains in the escrow account on March 31, 2009, the Company will be required to make an offer to prepay outstanding term indebtedness with an aggregate principal amount equal to such remaining balance.
As additional consideration for services provided by Morgan Stanley Senior Funding, Inc. (the Lead Arranger) in connection with the issuance and syndication of the term indebtedness, the Company (i) issued a warrant to an affiliate of the Lead Arranger to purchase 9,689 shares of common stock at an exercise price of $0.01 per share and (ii) agreed to issue the Lead Arranger or its designated affiliate additional warrants to purchase up to 9,689 shares of common stock at an exercise price of $0.01 per share on a pro rata basis in connection with the issuance of up to $40.0 million of incremental senior, secured term indebtedness under the
Credit Agreement.
On April 9, 2008, the Company entered into an Amended and Restated Credit Agreement pursuant to which it issued, for an aggregate consideration of $20.0 million, additional senior secured term indebtedness with a principal amount of $20.0 million and warrants to purchase 26,447 shares of common stock at an exercise price of $0.01 per share. The Company deposited approximately $2.0 million of the proceeds into the escrow account, bringing the total amount held in the escrow account for the benefit of all senior secured note holders to approximately $7.0 million. Pursuant to the agreement with the Lead Arranger, the Company issued an additional warrant
to purchase 4,845 shares of common stock at an exercise price of $0.01 per share.
On July 8, 2008, the Company entered into an Incremental Loan Commitment Agreement pursuant to which it issued, for an aggregate consideration of $15.0 million, additional senior secured term indebtedness with a principal amount of $15.0 million and warrants to purchase 19,833 shares of common stock at an exercise price of $0.01 per share. As a result of this transaction, approximately $0.4 million was released from the escrow account, reducing the total amount held in the escrow account for the benefit of all senior secured note holders to approximately $6.6 million. Pursuant to the agreement with the Lead Arranger, the Company issued an additional
warrant to purchase 3,633 shares of common stock at an exercise price of $0.01 per share.
The term indebtedness is guaranteed by all of the Companys existing and future domestic subsidiaries and is secured by all of its tangible and intangible assets. At the election of the Company, the term indebtedness bears interest at (i) the Prime Lending Rate plus 10.00% or (ii) for Eurocurrency borrowings, 11.00% plus the greater of the London Interbank Offered Rate (LIBOR) or 3.00%. In accordance with an agreement between the Company and one of the senior secured note holders, the interest rate on term indebtedness with a principal amount of $5.0 million will have a fixed interest rate of 14.00% for the term of the debt. With
respect to Eurocurrency borrowings, the Company may elect interest periods of one, two, three, or six months (or nine or twelve months if approved by each senior secured note holder), and interest is payable in arrears at the end of each interest period but, in any event, at least every three months. With respect to any interest period ending on or prior to March 31, 2010 and unless the Company elects at least three days prior to the beginning of any such interest period, the interest accrued on the term indebtedness will be paid in kind in arrears with such accrued interest being added to the outstanding principal balance of the term indebtedness. With respect to all interest periods ending after March 31, 2010, the accrued interest will be paid in cash in arrears. As of September 30, 2008, the Company had elected to convert all outstanding amounts of the term indebtedness to Eurocurrency borrowings which resulted in the term indebtedness bearing an interest rate of 14.00%.
The Amended and Restated Credit Agreement governing the term indebtedness requires the Company to comply with certain negative covenants which include limitations on the Companys ability to incur additional debt; create liens; pay dividends or make other distributions; make loans and investments; sell assets; redeem
F-39
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) Long-Term Debt (continued)
or repurchase capital stock or subordinated debt; engage in specified transactions with affiliates; consolidate or merge with or into, or sell substantially all of its assets to, another person; and enter into new lines of business. The Company may incur indebtedness beyond the specific limits allowed under the Amended and Restated Credit Agreement, provided it maintains a leverage ratio of no greater than 5.0 to 1.0. Noncompliance with any of the covenants without cure or waiver would constitute an event of default. An event of default resulting from a breach of a covenant may result, at the option of the note holders, in an acceleration of the
principal and interest outstanding. The Amended and Restated Credit Agreement also contains other events of default (subject to specified grace periods), including defaults based on the termination of the Companys contract with an automaker, events of bankruptcy and insolvency, and nonpayment of principal, interest or fees when due.
The warrants issued in connection with the issuance of the term indebtedness are exercisable upon the earlier to occur of (i) the repayment of the term indebtedness, (ii) a change of control as defined in the warrant agreement, (iii) a transaction or event causing or allowing the holders to sell the shares of common stock issuable upon exercise of the warrants pursuant to the Co-Sale Agreement, dated March 31, 2008, as amended, by and among the Company, Apollo and the holders of the warrants. If not exercised prior to the earlier of (i) the date on which the Company becomes subject to the requirement to file reports under Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended, or (ii) March 31, 2013, the warrants will be automatically exercised on such date with no action required on the part of the holders (except the payment of the aggregate exercise price). In the event that the term indebtedness is prepaid in full prior to March 31, 2010, the number of shares for which each warrant is exercisable shall be reduced by 18.75%. As additional consideration for services provided by the Lead Arranger in connection with the issuance and syndication of the term indebtedness, the Company agreed to issue the Lead Arranger or its designated affiliate additional warrants to purchase a number of shares of common stock equal to the reduction in the number of shares of common stock issuable under the warrants held by Morgan Stanley Senior Funding, Inc. or its affiliates in the event the term indebtedness is prepaid in full by March 31, 2010. The number of shares for which each warrant is exercisable is subject to
additional adjustment under certain anti-dilution and other provisions as set forth in the warrant agreement.
In accordance with Accounting Principles Board Opinion No. 14,
Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants,
as of each issuance date, the Company ascribed value to the senior secured term indebtedness and the related warrants based on their relative fair values. As such, $16.7 million, $16.7 million and $10.5 million was allocated to the senior secured term indebtedness and $3.3 million, $3.3 million and $4.5 million was allocated to the warrants on the March 31, 2008, April 9, 2008 and July 8, 2008 issuance dates, respectively. The resulting discount from the face value of the senior secured term indebtedness
will be amortized as additional interest expense over the term of the senior secured term indebtedness using the effective interest rate method.
Senior Subordinated Unsecured Promissory Note
On March 31, 2008, the Company issued to Apollo a senior subordinated unsecured promissory note with a principal amount of $12.5 million and a maturity date of October 1, 2013. The note bears interest at a rate of 15.00% per annum which is compounded and added to the principal amount annually and is payable at maturity. In connection with the issuance of the note, the Company recorded a deemed capital contribution from Apollo of approximately $2.4 million related to the difference between the fair value of the note using an estimated interest rate the Company would have paid an unrelated third party on a similar note and the value of the note using
the 15.00% stated interest rate. The Company determined the estimated fair value amount by using available market information and commonly accepted valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the fair value estimates presented herein is not necessarily indicative of the amount that the Company or holders of the instruments could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair value.
F-40
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) Capital Lease Obligations
The Company leases certain equipment under capital lease arrangements expiring at various times through 2011. The assets and liabilities under capital leases are recorded at the lower of the present values of the minimum lease payments or the fair values of the assets. The interest rates pertaining to these capital leases range from 7.25% to 11.00% (average interest rate is 8.18%). One of the lease arrangements is between the Company and Hughes Network Systems, LLC (HNS), a related party (see Note 11).
Minimum future lease payments under these capital leases are:
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
December 31,
|
|
|
2007
|
|
2006
|
|
|
(In Thousands)
|
Total future minimum lease payments
|
|
$
|
8,287
|
|
|
$
|
|
|
|
$
|
|
|
Less: amounts representing interest
|
|
|
(582
|
)
|
|
|
|
|
|
|
|
|
Net minimum lease payments
|
|
|
7,705
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
(1,720
|
)
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
5,985
|
|
|
$
|
|
|
|
$
|
|
|
(10) Stockholders Equity
Common Stock
On July 21, 2006, the Company sold an aggregate of 12,000 shares of its common stock for nominal consideration to two individuals who later became the Chief Executive Officer of the Company and the President of the Company to whom it had previously agreed to sell such equity.
On July 31, 2006, the Company issued 60,680 shares of its common stock to the shareholders of SecureTnet International, LLC as consideration for the contribution of intellectual property, including technical know-how related to the development of an end-to-end telematics solution.
As of September 30, 2008, Apollo owned approximately 83% of Companys outstanding common stock on a fully diluted basis.
Series A Redeemable Preferred Stock
On July 28, 2006, the Company issued and sold to Apollo, for an aggregate purchase price of $40.0 million, 4,000 shares of the Companys Series A Preferred Stock and a warrant to purchase 200,000 shares of common stock at an exercise price of $50.00 per share. On June 19, 2007, the Company issued and sold to Apollo, for an aggregate purchase price of $15.0 million, an additional 1,500 shares of Series A Preferred Stock and a warrant to purchase 150,000 shares of common stock at an exercise price of $100.00 per share. On November 29, 2007, the Company issued and sold to Apollo, for an aggregate purchase price of $20.0 million, an additional 2,000
shares of Series A Preferred Stock and a warrant to purchase 200,000 shares of common stock at an exercise price of $150.00 per share. The Series A Preferred Stock is non-voting, has a liquidation preference of $10,000 per share and is senior in priority to the Companys common stock. As of September 30, 2008 and December 31, 2007 and 2006, there were 7,500 shares, 7,500 shares and 4,000 shares, respectively, of Series A Preferred Stock outstanding, and the aggregate liquidation preference of the Series A Preferred Stock was $75.0 million. On October 1, 2013, the Company will be required to redeem the Series A Preferred Stock at a redemption price equal to $10,000 per share. In the event of a change of control, as defined, at the option of the holders of the majority of the then outstanding shares of the Series A Preferred Stock, the Company is required to redeem all or any number of such holders shares of Series A Preferred Stock. The holders of at least a majority of the
Series A Preferred Stock, generally voting together as a single class, must consent in order for the Company to take certain defined actions. Significant actions subject to protective provisions include the payment of dividends on capital stock of the Company and the redemption, repurchase or retirement of any capital stock of the Company.
F-41
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Stockholders Equity (continued)
The warrants are currently exercisable and expire ten years after the date of issuance. The holder of each warrant has the option to pay the exercise price of the warrant in cash, surrendering Company common stock or Series A Preferred Stock previously acquired, or instructing the Company to withhold a number of Company shares with an aggregate fair value equal to the aggregate exercise price. The exercise price and the number of shares for which each warrant is exercisable for is subject to adjustment under certain anti-dilution and other provisions as set forth in the warrant agreement.
As of each sale date, the Company ascribed value to the Series A Preferred Stock and the warrant based on their relative fair values. As such, $34.9 million, $8.2 million and $11.7 million was allocated to Series A Preferred Stock and $5.1 million, $6.8 million and $8.3 million was allocated to the warrants on the July 28, 2006, June 19, 2007 and November 29, 2007 sale dates, respectively. The Series A Preferred Stock is accounted for in accordance with SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity
(SFAS 150), with the accretion of the book value of the Series A
Preferred Stock up to the $75.0 million redemption amount being recorded as interest expense on the accompanying consolidated statements of operations.
In connection with the issuance of the term indebtedness, on March 31, 2008, Apollo agreed to extend the mandatory redemption date of the Series A Preferred Stock to October 1, 2013. In accordance with EITF Issue No. 96-19,
Debtors Accounting for a Modification or Exchange of Debt Instruments
, this extension was deemed to be an extinguishment and reissuance of the Series A Preferred Stock, and accordingly, the Company recorded approximately $2.2 million as a decrease to additional paid in capital for the difference between the fair value of the Series A Preferred Stock following the extension and the book value prior to the extension.
Series B Redeemable Preferred Stock
On September 29, 2006, the Company issued and sold to a strategic partner 1,000 shares of the Companys Series B Preferred Stock for a purchase price of $5.0 million. The Series B Preferred Stock was non-voting, had a liquidation preference of $5,000 per share and was senior in priority to each of the Companys Series A Preferred Stock and the Companys common stock. There were no shares of Series B Preferred Stock outstanding as of September 30, 2008. As of December 31, 2007 and 2006, there were 1,000 shares of Series B Preferred Stock, outstanding, and the liquidation preference of the Series B Preferred Stock was $5.0 million. The
sale of the Series B Preferred Stock was in connection with a strategic relationship entered into by and between the Company and the strategic partner in September 2006 that the parties agreed to further document in a detailed commercial agreement. Since the commercial agreement was not executed by March 31, 2007, the Series B Preferred Stock became redeemable by its terms at the option of either party for $5.0 million. Accordingly, the Series B Preferred Stock has been reflected on the accompanying consolidated balance sheets as a liability in accordance with SFAS 150. The Company redeemed the outstanding shares of Series B Preferred Stock on March 26, 2008 for $5.0 million.
Share-Based Compensation
The Companys 2006 Stock Incentive Plan (Plan) provides for share-based compensation awards, including incentive stock options, non-qualified stock options and share awards, to the Companys officers, employees, non-employee directors and non-employee consultants. There are 50,000 shares of common stock authorized for issuance under the Plan. The Plan is administered by the Companys Board of Directors which determines eligibility, amount, and other terms and conditions of awards. Options awarded under the Plan generally have a term of ten years and an exercise price equal to or greater than the fair value of the underlying
shares of common stock on the date of grant. Generally, half of each award vests in equal parts over a period of three years of continued employment or service to the Company. The remaining half of each award vests upon the achievement of certain pre-established performance goals set by the Companys Board of Directors. In the event an option holders service to the Company is terminated for either (i) other than good reason, as defined in the Plan, before the fifth anniversary of the holders service to the Company or
F-42
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Stockholders Equity (continued)
(ii) cause, the Company may repurchase any stock obtained through the exercise of a stock option within 180 days of such holders termination date at a price equal to the lesser of the fair market value of the stock on the date of termination or the exercise price of the stock option. In the event an option holders service to the Company is terminated for any of (i) good reason, as defined in the Plan, (ii) other than cause or (iii) following the fifth anniversary of such holders service to the Company, the Company may repurchase any stock obtained through the exercise of a stock option within 180 days of such holders
termination date at a price equal to the fair market value of the stock on the date of termination.
Since January 1, 2007, the Company granted stock options with exercise prices as follows:
|
|
|
|
|
|
|
|
|
Month
|
|
Number
of Shares
|
|
Exercise
Price
|
|
Fair
Value
per Share
|
|
Intrinsi
Value
per Share
|
January 2007
|
|
|
3,360
|
|
|
$
|
100.00
|
|
|
$
|
42.44
|
|
|
$
|
|
|
March 2007
|
|
|
1,200
|
|
|
$
|
100.00
|
|
|
$
|
42.44
|
|
|
$
|
|
|
April 2007
|
|
|
1,200
|
|
|
$
|
100.00
|
|
|
$
|
42.44
|
|
|
$
|
|
|
October 2007
|
|
|
6,270
|
|
|
$
|
100.00
|
|
|
$
|
94.12
|
|
|
$
|
|
|
November 2007
|
|
|
17,700
|
|
|
$
|
150.00
|
|
|
$
|
99.83
|
|
|
$
|
|
|
January 2008
|
|
|
4,770
|
|
|
$
|
150.00
|
|
|
$
|
99.83
|
|
|
$
|
|
|
May 2008
|
|
|
2,710
|
|
|
$
|
150.00
|
|
|
$
|
146.29
|
|
|
$
|
|
|
The fair value of the common stock was determined contemporaneously with the grants.
In accordance with SFAS 123(R), the Company records compensation expense for all share-based awards issued. For the nine months ended September 30, 2008 and 2007, the year ended December 31, 2007 and for the period from January 9, 2006 to December 31, 2006, the Company recorded approximately $0.3 million, $28,000, $0.1 million and $1,000 of compensation expense, respectively, related to stock option grants. Such compensation expense is included in research and development, sales and marketing and general and administrative expense in the accompanying consolidated statements of operations. For awards outstanding as of September 30, 2008, the Company
expects to recognize approximately $1.3 million of additional expense related to stock option awards on a straight-line basis over the remaining average service period of approximately 3.1 years.
The fair value of each award is estimated on the grant date using the Black-Scholes option pricing model. For the nine months ended September 30, 2008 and 2007, and for the years ended December 31, 2007 and 2006, the weighted average grant-date fair value of options awarded was $80.68, $26.52, $59.68 and $27.60 per share, respectively, and was based on the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
Year Ended
December 31,
2007
|
|
January 9, 2006
(Inception) to
December 31,
2006
|
|
|
2008
|
|
2007
|
|
|
|
|
(Unaudited)
|
Risk free rate
|
|
|
3.8 3.9%
|
|
|
|
4.6 4.7%
|
|
|
|
4.0 4.7%
|
|
|
|
4.4%
|
|
Expected term (years)
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
Expected volatility
|
|
|
62.2 63.7%
|
|
|
|
64.0%
|
|
|
|
62.2 64.0%
|
|
|
|
66.5%
|
|
Dividend yield
|
|
|
0.0%
|
|
|
|
0.0%
|
|
|
|
0.0%
|
|
|
|
0.0%
|
|
The risk-free interest rate assumption is based upon the grant date closing rate for United States treasury notes that have a life which approximates the expected term of the option. The expected term is based upon the contractual term of each employee stock option grant as the repurchase feature of the Plan encourages a longer holding period and the Company does not have sufficient operating history to estimate a term shorter than the contractual term. The expected volatility is based on the average historical volatility of comparable
F-43
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Stockholders Equity (continued)
guideline companies. The dividend yield assumption is based on the Companys expectation that it will not pay dividends for the forseeable future. Due to the Companys limited operating history, forfeitures are estimated based on actual terminations.
The following table reflects stock option activity:
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
|
Outstanding at December 31, 2007
|
|
|
32,570
|
|
|
$
|
127.17
|
|
|
|
|
|
Granted
|
|
|
8,180
|
|
|
$
|
150.00
|
|
|
|
|
|
Forfeited
|
|
|
(2,980
|
)
|
|
$
|
111.74
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Outstanding at September 30, 2008
|
|
|
37,770
|
|
|
$
|
133.64
|
|
|
$
|
7,194
|
|
Exercisable at September 30, 2008
|
|
|
3,856
|
|
|
|
|
|
|
$
|
861
|
|
The following table provides information about stock options that are outstanding and exercisable as of September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Outstanding
|
|
Stock Options Exercisable
|
Exercise Price
|
|
Number of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Life (Yrs)
|
|
Number of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Life (Yrs)
|
$100.00
|
|
|
12,590
|
|
|
$
|
100.00
|
|
|
|
8.6
|
|
|
|
3,818
|
|
|
$
|
100.00
|
|
|
|
8.4
|
|
$150.00
|
|
|
25,180
|
|
|
$
|
150.00
|
|
|
|
9.2
|
|
|
|
38
|
|
|
$
|
150.00
|
|
|
|
9.3
|
|
(11) Related Party Transactions
Hughes Network System
In July 2006, HNS, a wholly-owned subsidiary of Hughes Communications, Inc. (HCI) and an affiliate of Apollo, granted a limited license to the Company allowing the Company to use the HUGHES trademark. The license is limited in that the Company may use the HUGHES trademark only in connection with its business of automotive telematics and only in combination with the Telematics name. As partial consideration for the license, the agreement provides that HNS will be the Companys preferred engineering services provider. The license is royalty-free, except that the Company has agreed to commence paying a royalty to HNS in the event the
Company no longer has a commercial or affiliated relationship with HNS. As contemplated by the license terms and while the definitive agreement governing the relationship was being negotiated, HNS provided engineering development services to the Company pursuant to an Authorization to Proceed. In January 2008, the Company and HNS executed a definitive agreement pursuant to which HNS is continuing to provide the Company with engineering development and manufacturing services. For the nine months ended September 30, 2008 and 2007, the year ended December 31, 2007 and for the period from January 9, 2006 through December 31, 2006, HNS provided approximately $22.0 million, $14.7 million, $21.6 million and $1.6 million of services, respectively, to the Company. As of September 30, 2008 and December 31, 2007 and 2006, the Company had an outstanding balance, not including the equipment financing discussed below, of approximately $6.6 million, $4.9 million and $0.4 million, respectively,
payable to HNS.
In June 2008, the Company and HNS entered into an arrangement pursuant to which HNS purchased, on behalf of the Company, certain production equipment for an aggregate amount of approximately $2.0 million. Starting in June 2009, the Company will pay HNS at a rate of $4.94 per telematics hardware device manufactured using the equipment; provided that (i) the Company will pay HNS a minimum of $0.2 million
F-44
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Related Party Transactions (continued)
under this arrangement by December 31, 2009 and (ii) the Company shall have paid HNS the balance of the amount owed under this arrangement plus all accrued interest by December 31, 2010. Interest will accrue on the outstanding balance at a rate of 11.00% per annum. The Company may pay the balance of the amount owed plus accrued interest in full at any time, and at the time the balance is paid in full, the Company will have the option to purchase the production test equipment from HNS for $1.00. As of September 30, 2008, the Company had an outstanding balance related to the equipment financing of approximately $2.1 million which is reflected in capital
lease obligations on the accompanying consolidated balance sheets.
Two members of the Companys board of directors, the Chief Executive Officer and another board member who is affiliated with Apollo, are both members of the Board of Managers of HNS and the Board of Directors of HCI.
Apollo
On March 31, 2008, the Company issued to Apollo, the Companys controlling shareholder (see Note 10), a senior subordinated unsecured promissory note with a principal amount of $12.5 million and a maturity date of October 1, 2013 (see Note 8). The note bears interest at a rate of 15% per annum which is compounded and added to the principal amount annually and is payable at maturity. In connection with the issuance of the note, the Company recorded a deemed capital contribution from Apollo of approximately $2.4 million related to the difference between the fair value of the note using an estimated interest rate the Company would have paid an
unrelated third party on a similar note and the value of the note using the 15.00% stated interest rate. The Company determined the estimated fair value amount by using available market information and commonly accepted valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the fair value estimates presented herein is not necessarily indicative of the amount that the Company or holders of the instruments could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair value.
Polaris Acquisition Corp.
In September 2008, the Company entered into a services agreement with Trivergance Business Resources (TBR), an affiliate of certain officers and directors of Polaris, pursuant to which TBR provided a marketing assessment and other research for the Company to aid in creating a marketing and retention platform. The Company agreed to pay TBR a fee of approximately $0.2 million, reasonable and customary travel expenses and certain other expenses incurred in connection with the engagement.
SkyTerra Communications
On August 1, 2006, the Company entered into an agreement with SkyTerra Communications, Inc. (SkyTerra), an affiliate of Apollo, pursuant to which the Company received consulting services from three personnel of SkyTerra. The agreement allowed for such personnel to provide the Company up to an aggregate of 200 hours of service per month for a monthly fee of $25,000. The agreement was amended effective December 18, 2006 when the Companys Chief Executive Officer and Vice President Finance, two of the SkyTerra personnel providing services to the Company, became employees of the Company. The amended agreement provided that the Company
would by $8,000 per month to SkyTerra for the services of the remaining employee of SkyTerra who had been providing services to the Company. This amended agreement was terminated effective February 1, 2007 when that remaining SkyTerra employee, SkyTerras General Counsel and Secretary, became a part-time employee and General Counsel of the Company, while continuing to serve part-time with SkyTerra. Also effective December 18, 2006, the Company and SkyTerra executed a second agreement pursuant to which the Companys Vice President Finance was to provide services to SkyTerra in exchange for SkyTerra paying the Company $5,000 per month. This agreement terminated on March 31, 2007. During the nine months ended September 30, 2008 and 2007, the year ended December 31, 2007 and for the period from January 9, 2006 through December 31, 2006, the Company incurred
F-45
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Related Party Transactions (continued)
approximately $0, $0.2 million, $0 and $0.2 million of net expense, respectively, under these consulting agreements. As of September 30, 2008, December 31, 2007 and 2006, the Company had an outstanding balance of $0, $0 and approximately $0.1 million, respectively, payable to SkyTerra.
The Companys Chief Executive Officer of the Company is the former Chief Executive Officer and President of SkyTerra and a former member of SkyTerras board of directors. Another member of the Companys board of directors who is affiliated with Apollo is also a former member of SkyTerras board of directors.
(12) Contingencies and Commitments
Leases
The Company has non-cancelable operating leases. Future minimum payments, by year and in the aggregate, under operating leases with initial or remaining terms of one year or more consisted of the following at September 30, 2008 (in thousands):
|
|
|
Year Ending December 31:
|
2008
|
|
$
|
91
|
|
2009
|
|
|
764
|
|
2010
|
|
|
609
|
|
2011
|
|
|
630
|
|
2012
|
|
|
652
|
|
Thereafter
|
|
|
1,553
|
|
Total minimum lease payments
|
|
$
|
4,299
|
|
For the nine months ended September 30, 2008 and 2007, the year ended December 31, 2007 and for the period from January 9, 2006 to December 31, 2006, total expense under operating leases was approximately $0.5 million, $0.4 million, $0.6 million and $0.2 million, respectively.
Technology Upgrade Program
Prior to its acquisition by the Company, Networkcar sold products which utilized a wireless network which the network operator informed the Company of its intent to decommission the network and use for other purposes. Consequently, Networkcar initiated an upgrade program through which customers may exchange certain of these products which were purchased between April 2002 and July 2006 for the current version of Networkcars hardware which operates on a different wireless network. During 2007, the network operator informed the Company that they had decided not to decommission the network. However, due to inconsistent coverage within the network
coverage area, the Company continued with the upgrade program. Networkcar expects to complete the program by the end of 2008. The estimated cost of the upgrade program was approximately $2.7 million and was recorded as a liability in the Companys purchase price allocation for the Networkcar acquisition. The remaining liability as of September 30, 2008 and December 31, 2007 and 2006 was approximately $0.5 million, $0.8 million and $2.2 million, respectively, and is included in accrued expenses in the accompanying consolidated balance sheets. During the year ended December 31, 2007, the Company reassessed the estimated remaining cost of the upgrade program and, as a result, reduced the liability by approximately $0.4 million. This reduction was recorded as a decrease in cost of hardware sold.
F-46
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) Contingencies and Commitments (continued)
Changes in the remaining liability related to the technology upgrade program were as follows:
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
December 31,
|
|
|
2007
|
|
2008
|
|
|
(In Thousands)
|
Balance at beginning of period
|
|
$
|
816
|
|
|
$
|
2,178
|
|
|
$
|
|
|
Cost recorded in the Networkcar purchase price allocation
|
|
|
|
|
|
|
|
|
|
|
2,658
|
|
Costs incurred
|
|
|
(357
|
)
|
|
|
(922
|
)
|
|
|
(480
|
)
|
Reduction in the estimated cost to complete the program
|
|
|
|
|
|
|
(440
|
)
|
|
|
|
|
Balance at end of period
|
|
$
|
459
|
|
|
$
|
816
|
|
|
$
|
2,178
|
|
Warranty Liability
The Company warrants its hardware to be free of defects in materials and workmanship and to substantially conform to the specifications for such hardware. The Company estimates its future warranty obligations by considering historical product return experience and related costs. As of September 30, 2008 and December 31, 2007 and 2006, the Companys estimated warranty liability was approximately $0.1 million, $0.2 million and less than $0.1 million, respectively.
Changes in accrued warranty liability costs were as follows:
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
December 31,
|
|
|
2007
|
|
2008
|
|
|
(In Thousands)
|
Balance at beginning of period
|
|
$
|
156
|
|
|
$
|
21
|
|
|
$
|
|
|
Warranty cost accrual
|
|
|
473
|
|
|
|
733
|
|
|
|
61
|
|
Warranty costs incurred
|
|
|
(510
|
)
|
|
|
(598
|
)
|
|
|
(40
|
)
|
Balance at end of period
|
|
$
|
119
|
|
|
$
|
156
|
|
|
$
|
21
|
|
Contractual Payment Obligations
The Company has a long-term contract with each of two automakers pursuant to which the automakers have agreed to install telematics devices in their vehicles and permit the Company to exclusively provide telematics services to their new customers. Those contracts also require the Company to pay each automaker for certain non-recurring costs associated with the initiation of telematics services, up to an aggregate of $29.0 million between the two companies. The Company committed to pay $4.0 million of this amount on the first business day following each of January 1, 2008, January 1, 2009 and January 1, 2010. The remaining balance will be paid as the
automaker incurs certain actual costs and are expected to be paid in full by December 31, 2011. In accordance with EITF Issue No. 01-9,
Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors Products),
amounts paid under these agreements will be capitalized and recognized as a reduction of revenue over the term of the respective agreement. During the year ended December 31, 2007, no payments were made under these agreements. On January 3, 2008, the Company paid $4.0 million under one of the agreements which is included in other assets on the accompanying consolidated balance sheets.
In April 2008, the Company entered into a software license agreement pursuant to which it agreed to pay the software provider, in installments and upon certain conditions set forth below, an aggregate of $5.5 million in exchange for licenses to use its software in the Companys service offerings enabled by the factory-installed hardware. Upon execution of the agreement, the Company paid the software provider $1.0 million for an initial amount of licenses. In addition, within three business days of the date on which the Company
F-47
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) Contingencies and Commitments (continued)
completes a financing resulting in net proceeds in excess of $15.0 million, the Company is required to pay the software supplier an additional $2.5 million as prepaid royalties for additional licenses. Finally, within three business days of the date on which the Company completes an additional financing resulting in net proceeds in excess of an additional $15.0 million, the Company is required to pay the software provider an additional $2.0 million as prepaid royalties for additional licenses. In addition, the Company has the option to acquire additional licenses on terms and conditions set forth in the agreement. Pursuant to the license agreement,
the software supplier also agreed not to license its software to certain automotive manufacturers, other than through the Company. During the nine months ended September 30, 2008, the Company paid the software provider an aggregate of $2.1 million for prepaid loyalties for licenses. Such amount has been reflected in other noncurrent assets on the accompanying sheets.
In April 2008, the Company entered into an amended agreement with a supplier pursuant to which the Company committed to purchase services in an aggregate amount of no less than $3.0 million in the year ended December 31, 2008, $6.0 million in the years ended December 31, 2009, and $9.0 million in the years ended December 31, 2010, 2011 and 2012. If it becomes probable that the anticipated services to be purchased under this agreement will be below the contractual minimums, the Company will record a liability for such anticipated shortfall. As of September 30, 2008, the Company expects to meet the contractual minimums and, accordingly, has not
recorded a liability for an anticipated shortfall under this agreement.
Litigation and Claims
From time to time, the Company is subject to litigation in the normal course of business. The Company is of the opinion that, based on information presently available, the resolution of any such legal matters will not have a material adverse effect on the Companys financial position, results of operations or its cash flows.
(13) Segment Information
The Company presents its segment information along the same lines that its chief executive officer reviews its operating results in assessing performance and allocating resources. Accordingly, the Companys operations have been classified into two business segments: (i) HUGHES Telematics and (ii) Networkcar. The HUGHES Telematics segment is developing the factory-installed, end-to-end telematics solution which is being marketed to automakers and includes our corporate expenses. The Networkcar segment provides an aftermarket wireless fleet management solution targeted to the local fleet market. For each period presented, all reported revenues
were attributable to Networkcar.
F-48
TABLE OF CONTENTS
HUGHES TELEMATICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) Segment Information (continued)
The following table presents certain financial information on the Companys reportable segments:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
Year Ended
December 31,
2007
|
|
January 9,
2006
(Inception) to
December 31,
2006
|
|
|
2008
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
(In Thousands)
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HUGHES Telematics
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Networkcar
|
|
|
20,965
|
|
|
|
14,896
|
|
|
|
20,352
|
|
|
|
6,913
|
|
Total
|
|
$
|
20,965
|
|
|
$
|
14,896
|
|
|
$
|
20,352
|
|
|
$
|
6,913
|
|
Loss from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HUGHES Telematics
|
|
$
|
(32,517
|
)
|
|
$
|
(19,378
|
)
|
|
$
|
(29,431
|
)
|
|
$
|
(4,487
|
)
|
Networkcar
|
|
|
(720
|
)
|
|
|
(2,961
|
)
|
|
|
(4,146
|
)
|
|
|
(1,649
|
)
|
Total
|
|
$
|
(33,237
|
)
|
|
$
|
(22,339
|
)
|
|
$
|
(33,577
|
)
|
|
$
|
(6,136
|
)
|
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
December 31,
|
|
|
2007
|
|
2006
|
|
|
(In Thousands)
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
HUGHES Telematics
|
|
$
|
89,713
|
|
|
$
|
42,580
|
|
|
$
|
33,563
|
|
Networkcar
|
|
|
20,114
|
|
|
|
20,352
|
|
|
|
21,085
|
|
Total
|
|
$
|
109,827
|
|
|
$
|
62,932
|
|
|
$
|
54,648
|
|
All of the Companys assets are located within the United States. As of each of September 30, 2008 and December 31, 2007 and 2006, the Company included the $5.2 million of goodwill in the total assets of the Networkcar segment.
(14) Subsequent Event (unaudited)
On December 12, 2008, the Company entered into an incremental loan commitment agreement with an affiliate of Apollo pursuant to which it issued, for an aggregate consideration of $5.0 million, additional senior secured term indebtedness with a principal amount of $5.0 million and warrants to purchase 6,611 shares of common stock at an exercise price of $0.01 per share. Pursuant to the agreement with the lead arranger, HUGHES Telematics issued an additional warrant to purchase 1,211 shares of common stock at an exercise price of $0.01 per share. On December 12, 2008, the Company also issued to the affiliate of Apollo a senior subordinated unsecured
promissory note with a principal amount of $3.5 million and a maturity date of October 1, 2013. The note bears interest at a rate of 15% per annum which is compounded and added to the principal amount annually and is payable at maturity. As a result of these transactions, approximately $1.3 million was released from the escrow account held for the benefit of the senior secured note holders, reducing the total amount held in the escrow account to approximately $5.3 million.
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TABLE OF CONTENTS
Annex A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
by and between
POLARIS ACQUISITION CORP. (Parent)
and
HUGHES TELEMATICS, INC. (Company)
Dated November 10, 2008
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TABLE OF CONTENTS
|
|
|
|
|
EXHIBITS
|
|
|
|
|
Exhibit A
|
|
|
Definitions
|
|
|
|
|
|
Exhibit B
|
|
|
Form of Amended and Restated Certificate of Incorporation of Parent
|
|
|
|
|
|
Exhibit C
|
|
|
Form of Amended and Restated Bylaws of Parent
|
|
|
|
|
|
Exhibit D
|
|
|
Post-Closing Directors and Officers
|
|
|
|
|
|
Exhibit E
|
|
|
[Reserved]
|
|
|
|
|
|
Exhibit F
|
|
|
Term Sheet for Parent Shareholders Agreement
|
|
|
|
|
|
Exhibit G
|
|
|
Reorganization Actions
|
|
|
|
|
|
Exhibit H
|
|
|
Form of Working Capital Certificate
|
|
|
|
|
|
Exhibit I
|
|
|
Form of Proceeds Shares Certificate
|
|
|
|
|
|
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TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of November 10, 2008 (this
Agreement
) by and between Polaris Acquisition Corp., a Delaware corporation (
Parent
), and Hughes Telematics, Inc., a Delaware corporation (the
Company
).
This Agreement amends and restates the Agreement and Plan of Merger, dated as of June 13, 2008 (the
Original Agreement
), by and between Parent and the Company.
WITNESSETH:
WHEREAS, the Parent Board of Directors and the Company Board of Directors have determined that it is in the best interest of their respective companies and their shareholders to consummate the business combination transaction provided for in this Agreement and approved the transactions set forth herein pursuant to which the Company will, on the terms and subject to the conditions set forth in this Agreement, merge with and into Parent (the
Merger
), with Parent continuing as the surviving corporation in the Merger (sometimes referred to in this capacity as the
Surviving Corporation
); and
WHEREAS, concurrently with the execution of this Agreement and as an inducement to Parents willingness to enter into this Agreement, the Company, Parent and certain of the holders of Company Common Stock (as defined below) and other equity securities of the Company (the
Company Equityholders
) are entering into an Amended and Restated Support and Reorganization Agreement, executed by the Permitted Holders and certain other Company Equityholders as of the date of this Agreement, in respect of the equity securities held by such Company Equityholders (the
Amended and Restated Company Support Agreement
); and
WHEREAS, for federal income Tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
Code
), and this Agreement is intended to be and is adopted as a plan of reorganization for purposes of Sections 354 and 361 of the Code; and
WHEREAS the parties desire to amend and restate the Original Agreement in its entirety pursuant to Section 9.3 of the Original Agreement; and
WHEREAS, the parties desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe certain conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1
Defined Terms.
Capitalized terms used in this Agreement, the Exhibits and Schedules to this Agreement, the Parent Disclosure Statement and the Company Disclosure Statement shall have the meanings specified in
Exhibit A
.
Section 1.2
Rules of Construction.
The rules of construction specified in Section 9.14 hereof shall apply to this Agreement, the Exhibits and Schedules to this Agreement, the Parent Disclosure Statement and the Company Disclosure Statement.
ARTICLE II
THE MERGER
Section 2.1
The Merger.
At the Effective Time (as defined in Section 2.2) and subject to and upon the terms and conditions of this Agreement and the applicable provisions of the DGCL, the Company shall be merged with and into Parent, the separate corporate existence of the Company shall cease and Parent shall
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continue as the surviving corporation and shall succeed to assume all the property, rights, privileges, powers and franchises of the Company in accordance with the DGCL; provided, however, Parent and the Company may mutually agree that, immediately prior to the merger described above, a newly formed wholly-owned corporate subsidiary of Parent shall be merged with and into the Company, and the Company shall be the surviving corporation of such reverse subsidiary merger.
Section 2.2
Effective Time.
Subject to the terms and conditions of this Agreement, as soon as practicable on the Closing Date (as defined below), each of Parent and the Company shall cause the Merger to be consummated by filing a certificate of merger in such form as required by, and executed in accordance with, the relevant provisions of the DGCL (the
Certificate of Merger
), with the Secretary of State of the State of Delaware and shall make all other filings or recordings required under the DGCL. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the
Secretary of State of the State of Delaware, or at such subsequent date or time as shall be agreed upon by the Company and Parent and specified in the Certificate of Merger, which date shall be not more than five (5) days after the date the Certificate of Merger is received for filing. The time at which the Merger becomes effective is referred to herein as the
Effective Time.
Section 2.3
Closing.
The closing of the Merger (the
Closing
) shall take place at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52
nd
Street, New York, New York at 10:00 a.m., local time, on a date to be specified by the Company and Parent (the
Closing Date
) which shall be no later than the third Business Day after the satisfaction or waiver (to the extent permitted by applicable Law) of the conditions set forth in Article III (other than those conditions that by their nature are to be satisfied by actions to be taken at the Closing, but subject to the
satisfaction or waiver of such conditions), or at such other place, date or time as the Company and Parent hereto agree in writing.
Section 2.4
Effects of the Merger.
At and after the Effective Time, the Merger shall have the effects set forth in Section 251 of the DGCL.
Section 2.5
Organizational Documents; Governance.
(a)
Certificate of Incorporation; Bylaws.
The Certificate of Incorporation of Parent (as amended prior to the Effective Time as contemplated by this Agreement in the form as set forth on
Exhibit B
hereto), as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation from and after the Effective Time until thereafter amended. The Bylaws of Parent (as amended prior to the Effective Time as contemplated by this Agreement in the form as set forth on
Exhibit C
hereto), as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation from and after the Effective Time until thereafter amended.
(b)
Board of Directors; Officers.
At or prior to the Effective Time, the Parent Board of Directors shall cause the number of directors that will comprise the full Parent Board of Directors at or immediately prior to the Effective Time (and the Surviving Corporation, at and after the Effective Time) to be nine. Parent and the Company shall use their respective reasonable best efforts to cause (i) the members of the board of directors of the Surviving Corporation at the Effective Time to consist of the persons listed as directors on
Exhibit D
hereto and (ii) the officers of the Surviving Corporation at the Effective Time to
consist of the persons listed as officers on
Exhibit D
hereto.
Section 2.6
Effect on Capital Stock and Additional Share Consideration.
At the Effective Time, by virtue of the Merger and without any action on the part of Parent, the Company or the holder of any of the following securities:
(a) Each share of common stock, $0.0001 par value, of Parent (the
Parent Common Stock
) issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding and shall not be affected by the Merger.
(b) All shares of common stock, par value $0.01 per share, of the Company (the
Company Common Stock
) issued and outstanding immediately prior to the Effective Time that are owned directly by the Company shall be cancelled and shall cease to exist and no stock of Parent or other consideration shall be delivered in exchange therefor.
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(c) Other than the shares cancelled pursuant to Section 2.6(b), any shares owned by Company Stockholders properly exercising appraisal rights pursuant to Section 262 of the DGCL (
Section 262
) (which shares shall have the rights as provided in Section 2.6(h)), and subject to Section 2.6(e), each share of Company Common Stock issued and outstanding immediately prior to the Effective Time shall be converted into and represent the right to receive a number of fully paid and non-assessable shares of Parent Common Stock equal to the Exchange Ratio (the aggregate of such shares referred to as the
Transaction Shares
);
provided
that 7.5% of the Transaction Shares shall be deposited into escrow to satisfy the indemnity set forth in Article VII hereof in accordance with Section 2.10 hereof;
provided, further
, the Applicable Percentage of the Transaction Shares shall be designated as the
Escrowed Earnout Shares
and the right to receive the Escrowed Earnout Shares shall be contingent upon the satisfaction of the Targets set forth in Section 2.8 hereof in accordance with Section 2.8 hereof. The
Applicable Percentage
shall be a fraction equal to (1) 59,000,000, divided by (2) the sum of (A) the aggregate number of Transaction Shares, plus (B) the aggregate number of Converted Option Shares. Parent shall deposit the Escrowed Earnout Shares with the Escrow Agent, which shares shall consist of three tranches, the first of which shall consist of 40% of the total Escrowed Earnout Shares (the
First Tranche
), the second of which shall consist
of 30% of the total Escrowed Earnout Shares (the
Second Tranche
) and the third of which shall consist of 30% of the total Escrowed Earnout Shares (the
Third Tranche
and each of the First Tranche, Second Tranche and Third Tranche are referred to as a
Tranche
), which may be released to the Company Stockholders or cancelled in accordance with Section 2.8. Section 2.6(c) of the Company Disclosure Statement sets forth, as of the date hereof, the allocation of Transaction Shares (including the Escrowed Earnout Shares) among all of the holders of the Company Common Stock (the
Company Stockholders
) immediately prior to the Effective Time, after giving effect to the Reorganization Actions (and shall also set forth the allocation of Transaction Shares assuming the outstanding Credit Facility Warrants are not exercised prior to the Effective Time). Section 2.6(c) of the Company Disclosure Statement may be revised, if
necessary, at least 48 hours prior to the Proxy Statement Date and, again, at least 48 hours prior to the Effective Time, in each case pursuant to Section 6.17 hereof. No Transaction Shares shall be issued, released or delivered to any Company Stockholder unless such Person shall have made to Parent in writing reasonable and customary investor representations.
(d) Each share of Company Common Stock converted pursuant to this Article II shall no longer be outstanding and shall automatically be cancelled and shall cease to exist as of the Effective Time, and the certificates previously representing such shares of Company Common Stock (the
Company Certificates
) shall thereafter represent solely the right to receive the Transaction Shares, subject to the conditions set forth in this Article II and the Escrow Agreement.
(e) No fraction of a share of Parent Common Stock will be issued by virtue of the Merger, and each holder of shares of Company Common Stock who would otherwise be entitled to a fraction of a share of Parent Common Stock (after aggregating all fractional shares of Parent Common Stock which such holder would otherwise receive) shall, upon compliance with Section 2.9 hereof, receive from Parent, in lieu of such fractional share, an amount in cash without interest thereon equal to the product of (i) such fraction multiplied by (ii) the volume-weighted average price of one share of Parent Common Stock, as reported by Bloomberg, L.P., on the last trading
day prior to the Effective Time.
(f) Upon and subject to the conditions set forth in this Agreement, at the Effective Time, each Company Option granted under the Company Stock Plan and outstanding immediately prior to the Effective Time shall be converted into an option (each, a
Converted Option
) to acquire a number of shares of Parent Common Stock (
Converted Option Shares
) equal to the product obtained by multiplying (x) the aggregate number of shares of Company Common Stock that would have been issuable upon the exercise of such Company Option for cash immediately prior to the Effective Time by (y) the Exchange Ratio, rounded down to the
nearest whole share. Converted Options representing the Applicable Percentage of Converted Option Shares (rounded down to the nearest whole share) shall be designated as
Earnout Options
and all remaining Converted Options shall be designated as
Transaction Options.
The Earnout Options shall be further divided into three separate sub-categories, the first of which shall consist of Earnout Options in respect of 40% of the total number of Converted
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Option Shares applicable to Earnout Options (the
First Tranche Earnout Options
), the second of which shall consist of Earnout Options in respect of 30% of the total number of Converted Option Shares applicable to Earnout Options (the
Second Tranche Earnout Options
) and the third of which shall consist of Earnout Options in respect of 30% of the total number of Converted Option Shares applicable to Earnout Options (the
Third Tranche Earnout Options
), as follows (it being understood that each category of Earnout Options shall consist of whole shares so that the three categories may not pertain
exactly to the percentages set forth above but shall be as close to such percentages as possible;
provided
that the total number of shares of First Tranche Earnout Options, Second Tranche Earnout Options and Third Tranche Earnout Options shall equal 100% of the Earnout Options as calculated in accordance with this Section 2.6(f)): (A) the First Tranche Earnout Options shall be exercisable only if (i) they are otherwise exercisable pursuant to the vesting and other terms and conditions of the Company Option (except as set forth in Section 2.6(f) of the Company Disclosure Statement) and (ii) the First Target Shares are released to Company Stockholders pursuant to Section 2.8, (B) the Second Tranche Earnout Options shall be exercisable only if (i) they are otherwise exercisable pursuant to the vesting and other terms and conditions of the Company Option (except as set forth in Section 2.6(f) of the Company Disclosure Statement) and (ii) the Second Target Shares are released to
Company Stockholders pursuant to Section 2.8 and (C) the Third Tranche Earnout Options shall be exercisable only if (i) they are otherwise exercisable pursuant to the vesting and other terms and conditions of the Company Option (except as set forth in Section 2.6(f) of the Company Disclosure Statement) and (ii) the Third Target Shares are released to Company Stockholders pursuant to Section 2.8. If any Tranche of Escrowed Earnout Shares is cancelled, the category of Earnout Options that would otherwise become exercisable upon the release of such Escrowed Earnout Shares shall also be cancelled at such time. The per share exercise price of each Converted Option rounded up to the nearest whole cent shall be the same as the per share exercise price of the related Company Option divided by the Exchange Ratio. Section 2.6(f) of the Company Disclosure Statement sets forth the allocation of the Converted Options, by category, among all holders of Company Options as of the date of this
Agreement. Section 2.6(f) of the Company Disclosure Statement may be revised, if necessary, at least 48 hours prior to the Proxy Statement Date and, again, at least 48 hours prior to the Effective Time. Except as set forth above, each Converted Option shall be on the same terms and conditions (including vesting conditions) as the applicable Company Option it replaces. Prior to the Effective Time, Parent, the Company, the Company Board of Directors and the compensation committee of the Company Board of Directors, as applicable, shall take all actions necessary to effectuate the provisions of this Section 2.6(f).
(g) As soon as practicable following the Closing Date, Parent shall file a registration statement on Form S-3 or Form S-8, as the case may be (or any successor or other appropriate forms), with respect to all of the Converted Option Shares and shall use its commercially reasonable best efforts to maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as any such Converted Options remain outstanding.
(h) Notwithstanding anything in this Agreement to the contrary, the shares of Company Common Stock issued and outstanding immediately prior to the Effective Time that are held by any Company Stockholder that is entitled to demand and properly demands appraisal of shares of Company Common Stock pursuant to, and complies in all respects with, the provisions of Section 262 (the
Appraisal Shares
) shall not be converted into the right to receive the Transaction Shares as provided in (but subject to) this Article II, but, instead, such Company Stockholder shall be entitled to such rights (but only such rights) as are granted by Section
262. At the Effective Time, all Appraisal Shares shall no longer be outstanding and automatically shall be cancelled and shall cease to exist, and, except as otherwise provided by Laws, each holder of Appraisal Shares shall cease to have any rights with respect to the Appraisal Shares, other than such rights as are granted by Section 262. Notwithstanding the foregoing, if any such Company Stockholder shall fail to validly perfect or shall otherwise waive, withdraw or lose the right to appraisal under Section 262 or if a court of competent jurisdiction shall determine that such Company Stockholder is not entitled to the relief provided by Section 262, then the rights of such Company Stockholder under Section 262 shall cease, and such Appraisal Shares shall be deemed to have been converted at the Effective Time into, and shall have become, the right to receive the
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Transaction Shares as provided in (but subject to) this Article II. The Company shall give prompt notice to Parent of any demands for appraisal of any shares of Company Common Stock, and Parent shall have the opportunity to reasonably participate in all negotiations and proceedings with respect to such demands. The Company shall not, without the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands, or agree to do any of the foregoing.
Section 2.7
Reorganization Actions.
(a) Prior to the Closing (and no later than immediately prior to the Effective Time), the Company shall cause (and the Company Equityholders shall cause, pursuant to the Amended and Restated Company Support Agreement) the actions set forth on
Exhibit G
(the
Reorganization Actions
) to take effect.
(b) Notwithstanding anything in this Agreement to the contrary, in the event any Credit Facility Warrants are not exercised prior to the Effective Time, the Company shall effect the automatic exercise of such Credit Facility Warrants immediately following the Effective Time pursuant to the terms thereof, and the Company and Parent shall cooperate in good faith to amend the terms and provisions of this Agreement as reasonably necessary to ensure that such timing difference in the exercise of the Credit Facility Warrants has no economic effect on the Transaction or the relative rights of the parties hereunder (including, without limitation, providing
for the escrow of the applicable portion of the issuable Parent Common Stock as Escrowed Earnout Shares and Escrowed Indemnity Shares).
Section 2.8
Earnout.
(a) On the Closing Date, Parent shall deposit all of the Escrowed Earnout Shares with the Escrow Agent, to be held in an escrow account for the purpose of distributing such shares to the Company Stockholders upon the achievement of certain targets, as described in this Section 2.8,
provided
that 7.5% of such Escrowed Earnout Shares shall be part of the Escrowed Indemnity Shares and placed in a separate escrow account in satisfaction of the indemnity set forth in Article VII hereof in accordance with Section 2.10 hereof. The Escrowed Earnout Shares shall be allocated to the Company Stockholders in accordance with Section 2.6(c) of the Company
Disclosure Statement and in accordance with the terms and conditions of this Section 2.8 and an agreement to be entered into at the Closing between Parent, the Escrow Representative, and Continental Stock Transfer & Trust Company (the
Escrow Agent
) (or another escrow agent mutually agreed to by Parent and the Company), in customary form and substance as reasonably agreed to by Parent and the Company (the
Escrow Agreement
).
(b) On the Closing Date, the Sponsors shall deposit 1.25 million shares of Parent Common Stock (the
Escrowed Sponsor Earnout Shares
) as set forth in Section 2.8(b) of the Parent Disclosure Statement with the Escrow Agent, to be held in an escrow account for the purpose of distributing such shares to the Sponsors upon the achievement of the First Target (as defined in Section 2.8(c)). The Escrowed Sponsor Earnout Shares shall be allocated to the Sponsors in accordance with Section 2.8(b) of the Parent Disclosure Statement and in accordance with the terms and conditions of this Section 2.8.
(c) Subject to Section 2.8(f) hereof, if between the first and the fifth anniversaries of the Closing Date, the Share Price of Parent Common Stock equals or exceeds $20.00 per share (the
First Target
) for 20 trading days within any 30 trading day period, then within ten Business Days after the achievement of such target, Parent and the Escrow Representative shall instruct the Escrow Agent to release (i) the First Tranche of Escrowed Earnout Shares (which amount may be reduced by up to 7.5% of such shares (the
First Target Indemnity Shares
) pursuant to Article VII hereof and the Escrow Agreement), which shares
shall be allocated to the Company Stockholders in accordance with Section 2.6(c) hereof and Section 2.6(c) of the Company Disclosure Statement (the
First Target Shares
) and (ii) the Escrowed Sponsor Earnout Shares, which shares shall be allocated to the Sponsors in accordance with Section 2.8(b) of the Parent Disclosure Statement. If the First Target has not been achieved for such 20 trading days during the four-year period referenced in this Section 2.8(c), the First Target Shares and the Escrowed Sponsor Earnout Shares shall no longer be outstanding and shall be cancelled.
(d) Subject to Section 2.8(f) hereof, if between the second and the fifth anniversaries of the Closing Date, the Share Price of Parent Common Stock equals or exceeds $24.50 per share (the
Second Target
)
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for 20 trading days within any 30 trading day period, then within ten Business Days after the achievement of such target, Parent and the Escrow Representative shall instruct the Escrow Agent to release the Second Tranche of Escrowed Earnout Shares (which amount may be reduced by up to 7.5% of such shares (the
Second Target Indemnity Shares
) pursuant to Article VII hereof and the Escrow Agreement), which shares shall be allocated to the Company Stockholders in accordance with Section 2.6(c) hereof and Section 2.6(c) of the Company Disclosure Statement (the
Second Target Shares
). If the Second Target has not been
achieved for such 20 trading days during the three-year period referenced in this Section 2.8(d), the Second Target Shares shall no longer be outstanding and shall be cancelled.
(e) Subject to Section 2.8(f) hereof, if between the third and the fifth anniversaries of the Closing Date, the Share Price of Parent Common Stock equals or exceeds $30.50 per share (the
Third Target
) for 20 trading days within any 30 trading day period, then within ten Business Days after the achievement of such target, Parent and the Escrow Representative shall instruct the Escrow Agent to release the Third Tranche of Escrowed Earnout Shares (which amount may be reduced by up to 7.5% of such shares (the
Third Target Indemnity Shares
) pursuant to Article VII hereof and the Escrow Agreement), which shares shall
be allocated to the Company Stockholders in accordance with Section 2.6(c) hereof and Section 2.6(c) of the Company Disclosure Statement (the
Third Target Shares
). If the Third Target has not been achieved for such 20 trading days during the two-year period referenced in this Section 2.8(e), the Third Target Shares shall no longer be outstanding and shall be cancelled.
(f) In the event of a Change of Control or Reorganization Event, any Escrowed Earnout Shares and Escrowed Sponsor Earnout Shares remaining in the escrow account and not theretofore cancelled shall be released or cancelled as follows: (i) to the extent that the Change of Control or Reorganization Event Consideration exceeds the First Target, any First Target Shares and Escrowed Sponsor Earnout Shares shall be released, (ii) to the extent that the Change of Control or Reorganization Event Consideration exceeds the Second Target, any Second Target Shares shall be released, and (iii) to the extent that the Change of Control or Reorganization Event
Consideration exceeds the Third Target, any Third Target Shares shall be released. To the extent that the Change of Control or Reorganization Event Consideration does not exceed any given Target, the Target Shares with respect to such Tranche and the Escrowed Sponsor Earnout Shares, if applicable, shall no longer be outstanding and shall be cancelled, effective upon completion of such Change of Control or Reorganization Event.
(g) The target share price triggers listed in Sections 2.8(c), (d) and (e) hereof (such dollar amounts, the
Share Price Triggers
) and the Escrowed Earnout Shares and Escrowed Sponsor Earnout Shares to be distributed upon achievement of said targets shall be adjusted from time to time as follows:
(i) In the event the outstanding shares of Parent Common Stock shall be subdivided or reclassified into a greater number of shares of Parent Common Stock, the Share Price Triggers in effect at the close of business on the day upon which such subdivision or reclassification becomes effective shall be equitably and proportionately reduced, and conversely, in case outstanding shares of Parent Common Stock shall each be combined or reclassified into a smaller number of shares of Parent Common Stock, the Share Price Triggers in effect at the close of business on the day upon which such combination or reclassification becomes effective shall be equitably
and proportionately increased, such reduction or increase, as the case may be, to become effective immediately prior to the opening of business on the day following the day upon which such subdivision or combination becomes effective.
(ii) Pursuant to the Escrow Agreement, in connection with any such subdivision or reclassification into a greater number of shares of Parent Common Stock, the Escrowed Earnout Shares and Escrowed Sponsor Earnout Shares distributable upon the achievement of the applicable milestones shall be equitably and proportionately increased and, conversely, in connection with any such combination or reclassification into a smaller number of shares of Parent Common Stock, the Escrowed Earnout Shares and Escrowed Sponsor Earnout Shares distributable upon the achievement of the applicable milestones shall be equitably and proportionately reduced. For example, for
purposes of clarity, (x) in the case of a 2-for-1 stock split of Parent Common Stock, the Escrowed Earnout Shares distributable upon the achievement of the first milestone shall be increased from
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23,600,000 to 47,200,000 and (y) in the case of a 1-for-2 reverse stock split of Parent Common Stock, the Escrowed Earnout Shares distributable upon the achievement of the first milestone shall be reduced from 23,600,000 to 11,800,000 (assuming for the purposes of this example that there are no adjustments to the number of shares of Parent Common Stock in the First Tranche).
(h) Without limiting the specificity of any of the foregoing, it is the intent of the parties to provide for fair and equitable adjustments to the Share Price Triggers, the Escrowed Earnout Shares and the Escrowed Sponsor Earnout Shares to preserve the economic benefits intended to be provided to the Company Stockholders and the Sponsors, respectively, under the terms of this Agreement in the event there is any change in or conversion of the Parent Common Stock and, accordingly, the Parent Board of Directors shall make appropriate equitable adjustments in connection therewith, as determined in the good faith judgment of the Parent Board of
Directors.
(i) Neither Parent, the Sponsors, the Company Stockholders nor any Affiliate thereof shall take any action, directly or indirectly, with the intent or effect of influencing or manipulating the market prices of Parent Common Stock during any measurement period described in Sections 2.8(c), (d) and (e) hereof. Furthermore, for the purposes of determining whether a Share Price Trigger has been achieved for 20 trading days within any 30 trading day period pursuant to Sections 2.8(c), (d) and (e) hereof, any days during which any such persons (A) have outstanding a public announcement or statement relating to the purchase or sale of equity securities of
Parent (other than ordinary-course, generic statements as to the possibility of such purchases from time to time and which do not specify either the amount of any such potential purchases nor the price or prices at which such purchases may be made), whether in the public market or otherwise, or (B) have made, in the aggregate, to the best knowledge of Parent, purchases of Parent Common Stock exceeding 1% of the average daily trading volume reported for the security during the four calendar weeks preceding the week in which such purchases were made, shall not be counted as days on which such Share Price Trigger has been achieved. Such excluded days shall extend the 30 trading day measurement period by an equal number of days.
Section 2.9
Surrender of Certificates.
(a) Upon surrender of their Company Certificates at the Closing with a properly completed letter of transmittal (the form of such letter of transmittal to be provided by Parent to the Company for delivery to the Company Stockholders no later than five Business Days prior to Closing (it being understood that such letter of transmittal shall provide that such holders shall acknowledge that they are receiving restricted securities under the federal securities laws and will contain other customary investment representations)), the holders of the Company Common Stock shall receive in exchange therefor certificates representing the Transaction Shares into
which their shares of Company Common Stock shall be converted or exchanged at the Effective Time, less the Escrowed Indemnity Shares and Escrowed Earnout Shares, and the Company Certificates so surrendered shall forthwith be cancelled. Until so surrendered, outstanding Company Certificates will be deemed, from and after the Effective Time, to evidence only the right to receive the applicable number of shares of Parent Common Stock issuable pursuant to Section 2.6(c) or, in the case of holders of Appraisal Shares, the right to receive the applicable payments set forth in Section 2.6(h).
(b) No dividends or other distributions declared or made after the date of this Agreement with respect to Parent Common Stock with a record date after the Effective Time will be paid to the holders of any unsurrendered Company Certificates with respect to the shares of Parent Common Stock to be issued upon surrender thereof until the holders of record of such Company Certificates shall surrender such Company Certificates. Subject to applicable law, following surrender of any such Company Certificates with a properly completed letter of transmittal, Parent shall promptly deliver to the record holders thereof, without interest, the certificates
representing shares of Parent Common Stock issued in exchange therefor (not including the Escrowed Indemnity Shares or the shares issuable pursuant to Section 2.8) and the amount of any such dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such shares of Parent Common Stock.
Section 2.10
Indemnity Escrow.
As a remedy for the indemnity set forth in Article VII, at the Closing, Parent shall deposit with the Escrow Agent 7.5% of the Transaction Shares (the
Escrowed Indemnity
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Shares
), comprised of Escrowed Earnout Shares (including First Target Shares, Second Target Shares and Third Target Shares) and Transaction Shares that are not Escrowed Earnout Shares to be held in a separate escrow account and released therefrom (if applicable) from time to time to Parent in satisfaction of such indemnity, all in accordance with Article VII hereof and the terms and conditions of the Escrow Agreement. On the fifth Business Day following the date (the
Indemnity Escrow Termination Date
) that is fifteen (15) months from the Closing Date, the Escrow Agent shall release the Escrowed Indemnity Shares, less
any of such shares applied in satisfaction of a claim for indemnification and any of such shares related to a claim for indemnification that is then unresolved. Upon such release, Escrowed Indemnity Shares that constitute Transaction Shares shall be delivered to the Company Stockholders in accordance with Section 2.6(c) of the Company Disclosure Statement and the Escrow Agreement; and the Escrowed Indemnity Shares that constitute Escrowed Earnout Shares shall be retained in escrow in accordance with Section 2.8 hereof and the Escrow Agreement. Any Escrowed Indemnity Shares held with respect to any unresolved claim for indemnification and not applied as indemnification with respect to such claim upon its resolution shall be delivered in accordance with the preceding sentence.
ARTICLE III
CONDITIONS TO CLOSING
Section 3.1
Conditions to Each Partys Obligation to Effect the Merger.
The obligations of Company and Parent to effect the Merger are subject to the satisfaction or waiver at or prior to the Closing of each of the following conditions:
(a)
No Injunctions or Illegality.
No statute, rule, regulation, executive order, decree or ruling shall have been adopted or promulgated, and no temporary restraining order, preliminary or permanent injunction or other order issued by a court or other U.S. governmental authority of competent jurisdiction shall be in effect, having the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger.
(b)
Regulatory Approvals.
(i) All waiting periods (and all extensions thereof), if any, applicable to the consummation of the Merger under the HSR Act shall have terminated or expired, and (ii) all approvals or consents of a Governmental Entity which are required to be obtained in connection with the Merger shall have been obtained, except where the failure to obtain such approval or consent would not, individually or in the aggregate, have or reasonably be expected to have a Parent Material Adverse Effect, Company Material Adverse Effect or material adverse effect on the operation of the business of the Surviving Corporation and
its Subsidiaries from and after the Effective Time.
(c)
Parent Stockholder Approval.
The Parent Stockholder Approval shall have been obtained.
Section 3.2
Conditions to Obligations of Parent.
The obligations of Parent to effect the Merger are subject to the satisfaction or waiver by Parent at or prior to the Closing of each of the following conditions:
(a)
Representations and Warranties.
(i) The representations and warranties set forth in Sections 4.2, 4.4, 4.6, 4.8(d), 4.19 and 4.22 shall be true and correct in all respects, in each case as of the date of the Original Agreement (except in the case of Section 4.6), as of the date hereof and as of the Closing Date as if made on the Closing Date (except to the extent expressly made solely as of the date of the Original Agreement or solely as of an earlier date, in which case as of such date), and (ii) all other representations and warranties set forth in Article IV shall be true and correct (disregarding all qualifications or
limitations as to materiality or Company Material Adverse Effect) at and as of the Closing Date as if made on the Closing Date (except to the extent expressly made solely as of the date of the Original Agreement or solely as of an earlier date, in which case as of such date), except where the failure of such representations and warranties, to be so true and correct would not have a Company Material Adverse Effect, and the Company shall have delivered to Parent a certificate confirming the foregoing (i) and (ii) as of the Closing Date.
(b)
Performance of Obligations of Company.
Each and all of the covenants and agreements of the Company to be performed or complied with pursuant to this Agreement shall have been performed and
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complied with in all material respects, and the Company shall have delivered to Parent a certificate confirming the foregoing as of the Closing Date.
(c)
Material Adverse Effect.
No Company Material Adverse Effect shall have occurred from and after the date of the Original Agreement.
(d)
Additional Agreements.
Each of the Additional Agreements shall have been delivered (and executed, if applicable) by each of the parties to such Additional Agreements other than Parent or the Parent Stockholders.
(e)
Opinion of Counsel.
Parent shall have received from Wachtell, Lipton, Rosen & Katz, tax counsel to Parent, a written opinion, dated the Closing Date, in form and substance reasonably satisfactory to Parent, on the basis of certain facts, representations and assumptions set forth in such opinion, to the effect that the Merger will be treated for federal income Tax purposes as a reorganization within the meaning of Section 368(a) of the Code. In rendering such opinion, such counsel shall be entitled to require and rely upon customary representation letters executed by officers of Parent and the Company.
(f)
Appraisal Rights.
Company Stockholders that beneficially own not more than 1,000 shares of Company Common Stock (as adjusted for stock dividends, stock splits and similar events) shall have demanded and validly perfected appraisal of shares in accordance with the DGCL.
(g)
Delivery of Amended and Restated Company Support Agreement.
The Company shall have delivered to Parent the Amended and Restated Company Support Agreement executed by those Company Equityholders who have not executed such agreement as of the date hereof.
Section 3.3
Conditions to Obligations of the Company.
The obligations of the Company to effect the Merger are subject to the satisfaction or waiver by the Company at or prior to the Closing Date of each of the following conditions:
(a)
Representations and Warranties.
(i) The representations and warranties set forth in Sections 5.1, 5.2 and 5.9(c) hereof shall be true and correct at and as of the Closing Date as if made on the Closing Date (except to the extent expressly made solely as of the date of the Original Agreement or solely as of an earlier date, in which case as of such date), and (ii) all other representations and warranties of Parent in Article V shall be true and correct (disregarding all qualifications or limitations as to materiality or Parent Material Adverse Effect) at and as of the Closing Date as if made on the
Closing Date (except to the extent expressly made solely as of the date of the Original Agreement or solely as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be so true and correct would not have a Parent Material Adverse Effect, and Parent shall have delivered to the Company a certificate signed by an executive officer of Parent confirming the foregoing (i) and (ii) as of the Closing Date.
(b)
Performance of Obligations of Parent.
Each and all of the covenants and agreements of Parent to be performed or complied with pursuant to this Agreement on or prior to the Closing Date shall have been performed and complied with in all material respects, and Parent shall have delivered to the Company a certificate signed by an executive officer of Parent confirming the foregoing as of the Closing Date.
(c)
Material Adverse Effect.
No Parent Material Adverse Effect shall have occurred from and after the date of the Original Agreement.
(d)
Additional Agreements.
Each of the Additional Agreements shall have been delivered (and executed, if applicable) by each of the parties to such Additional Agreement other than the Company, the Company Equityholders or any officers or employees of the Company.
(e)
Opinion of Counsel.
The Company shall have received from Skadden, Arps, Slate, Meagher & Flom LLP, tax counsel to the Company, a written opinion, dated the Closing Date, in form and substance reasonably satisfactory to the Company, on the basis of certain facts, representations and assumptions set forth in such opinion, to the effect that the Merger will be treated for federal income Tax purposes as a
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reorganization within the meaning of Section 368(a) of the Code. In rendering such opinion, such counsel shall be entitled to require and rely upon customary representation letters executed by officers of Parent and the Company.
(f)
Reservation of Parent Shares and Converted Option Shares.
At least 48 hours prior to the Closing, Parent shall have duly reserved a sufficient number of shares of Parent Common Stock, based on a good faith estimate of the Parent Board of Directors after a review of Sections 2.6(c) and (f) of the Company Disclosure Statement, to be available for issuance upon exercise of all of the Converted Options.
(g)
Listing of Parent Common Stock.
Parent shall use reasonable best efforts to ensure that the shares of Parent Common Stock issuable to the stockholders of the Company as provided for in Article II shall have been authorized for listing on any national securities exchange or national quotation system on which the Parent Common Stock is then listed or quoted, upon official notice of issuance.
(h)
Deposit of Escrowed Sponsor Earnout Shares into Escrow.
Parent shall have caused the Sponsors to deposit the Escrowed Sponsor Earnout Shares with the Escrow Agent pursuant to Section 2.8(b) hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Notwithstanding anything to the contrary, all representations and warranties contained in this Article IV and in all schedules and exhibits referenced herein and made a part hereto shall be deemed to be made as of the date of the Original Agreement as well as of the date hereof; provided that Section 4.6 hereof and the amended Section 2.6(c) of the Company Disclosure Statement (attached hereto) shall be deemed to be made as of the date hereof only. Except as set forth in the Company Disclosure Statement (subject to Section 9.10), the Company hereby represents and warrants to Parent as follows:
Section 4.1
Qualification; Organization; Subsidiaries.
(a) The Company is duly organized, validly existing and in good standing under the Laws of the State of Delaware, and has all requisite corporate or other power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted and is currently planned by the Company to be conducted. The Company is duly qualified to transact business in each jurisdiction in which the ownership, leasing or holding of its properties or the conduct or nature of its business makes such qualification necessary.
(b) The minute books of the Company contain true, complete and accurate records of all meetings and consents in lieu of meetings of the Company Board of Directors (and any committees thereof), similar governing bodies and stockholders (
Corporate Records
) since January 9, 2006. Copies of such Corporate Records have been made available to Parent.
(c) Section 4.1(c) of the Company Disclosure Statement sets forth a complete and correct list of each Subsidiary of the Company, along with the jurisdiction of organization and percentage of outstanding equity interests owned by the Company of each such Subsidiary. All equity interests of such Subsidiaries held by the Company have been duly and validly authorized and are validly issued, fully paid and non-assessable and were not issued in violation of any preemptive or similar rights, purchase option, call or right of first refusal or similar rights. The Company owns all of the outstanding equity securities of such Subsidiaries, free and clear of
all Liens. Except for its Subsidiaries, the Company does not own, directly or indirectly, any ownership, equity, profits or voting interest in any Person or have any agreement or commitment to purchase any such interest, and has not agreed and is not obligated to make nor is bound by any written, oral or other agreement, commitment or undertaking of any nature, as of the date of the Original Agreement or as may thereafter be in effect, except to the extent as may be expressly permitted under Section 6.1(b)(viii) hereof, under which it may become obligated to make, any future investment in or capital contribution to any other entity.
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(d) The Company has delivered to Parent a copy of each of the Organizational Documents of the Company and each of its Subsidiaries, and each such copy is true, correct and complete, and each such instrument is in full force and effect. None of the Company or its Subsidiaries is in violation of any of the provisions of its Organizational Documents.
Section 4.2
Authority.
(a) The Company has all requisite corporate power and authority to execute and deliver the Original Agreement and each Transaction Document delivered or to be delivered by it and to perform all of its obligations under the Original Agreement and the Transaction Documents. The execution, delivery and performance by the Company of the Original Agreement and each Transaction Document to which it is a party and the consummation of the transactions contemplated to be performed by it under the Original Agreement and the Transaction Documents to which it is a party have been duly authorized by all necessary and proper corporate action on the part of the
Company, and no other corporate proceedings on the part of the Company is necessary to authorize this Agreement or to consummate the transactions contemplated hereby.
(b) Each Transaction Document to be delivered by the Company will be duly executed and delivered by the Company and, when so executed and delivered and assuming the valid execution and delivery by the other parties thereto, will constitute the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar Laws relating to or affecting the enforcement of creditors rights in general and by general principles of equity (regardless of whether enforcement is sought in equity or at law).
(c) The Company Board of Directors, by unanimous action by written consent (i) determined that this Agreement and the transactions contemplated hereby, including the Merger, are advisable and fair to, and in the best interests of, the Company and its stockholders, (ii) approved this Agreement and the transactions contemplated hereby, including the Merger, and (iii) recommended that the holders of the shares of Company Common Stock and Company Preferred Stock approve and adopt this Agreement and the transactions contemplated hereby, including the Merger.
Section 4.3
No Breach.
None of the execution, delivery or performance by the Company of the Original Agreement or any Transaction Document or the consummation by the Company of the Transaction does or will, with or without the giving of notice or the lapse of time or both, (a) except as would not have a Company Material Adverse Effect, result in the creation of any Lien upon any of the properties or assets of any of the Company or its Subsidiaries (except for Permitted Liens) or (b) conflict with, or result in a breach or violation of or a default under, require a consent under, or give rise to a right of
amendment, termination, cancellation or acceleration of, any obligation (except the Credit Facility) or to a loss of a benefit under (i) the Organizational Documents of the Company or its Subsidiaries, (ii) any Company Material Contract, or (iii) any Law, license or Permit to which the Company, its Subsidiaries, or any of its properties or assets are subject, except, in the case of clauses (ii) and (iii), for any conflicts, breaches, violations or defaults as would not have a Company Material Adverse Effect.
Section 4.4
No Brokers.
There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of the Company who is or will be entitled to any fee, commission or payment from the Company or its Subsidiaries in connection with the negotiation, preparation, execution or delivery of the Original Agreement or any Transaction Document or the consummation of the Transaction.
Section 4.5
Governmental Approvals.
Other than any approval required pursuant to the HSR Act, no Consent or Order of, with or to any Governmental Entity is required to be obtained or made by the Company or its Subsidiaries in connection with the execution, delivery and performance by the Company or its Subsidiaries of the Original Agreement or any Transaction Document or the consummation of the Transaction except for those Consents or Orders the failure of which to make or obtain would not have a Company Material Adverse Effect.
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Section 4.6
Capitalization.
(a) As of the date hereof, the authorized capital stock of the Company consists of 1,500,000 shares of Company Common Stock and 100,000 shares of Company Preferred Stock. As of the date hereof:
(i) 373,680 shares of Company Common Stock are issued and outstanding and 7,500 shares of Company Series A Preferred Stock are issued and outstanding;
(ii) 49,000 shares of Company Common Stock are reserved for issuance (of which options to purchase 37,770 shares are outstanding and unexercised) under the Company Stock Plan in connection with the exercise of outstanding options to purchase Company Common Stock (the
Company Options
). Section 4.6(a)(ii) of the Company Disclosure Statement sets forth with respect to each Company Option, the number of shares of Company Common Stock covered by the Company Option, and the vesting schedule and the exercise price therefor; and
(iii) 640,317 shares of Company Common Stock are reserved for issuance and issuable upon exercise of the Company Warrants. Section 4.6(a)(iii) of the Company Disclosure Statement sets forth the names of all holders of Company Warrants, the number of shares of Company Common Stock issuable thereunder, the respective exercise prices for such Company Common Stock and the respective expiration dates of the Company Warrants.
(b) The outstanding shares of Company Common Stock and Company Preferred Stock (i) have been duly authorized and validly issued and are fully paid and nonassessable and (ii) were issued in compliance with all applicable federal and state securities laws. All grants of Company Options were validly issued and properly approved by the Company Board of Directors in accordance with all applicable Law. Except as set forth above in Section 4.6(a), there are no Equity Securities of the Company or any rights to subscribe for or to purchase or otherwise acquire, or any agreements providing for the issuance (contingent or otherwise) of, or any calls,
commitments or known claims of any other character relating to the issuance of, any Equity Securities of the Company or any other right the value of which relates to the value of the Companys capital stock; and the Company is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire, or to register under the Securities Act, any shares of capital stock. The Company does not have outstanding any bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the stockholders of the Company on any matter. No Subsidiary of the Company owns any Company Common Stock, Company Preferred Stock or other equity interest in the Company.
Section 4.7
Financial Information.
(a) Set forth in the Company Disclosure Statement are the audited combined balance sheets of the Company and its Subsidiaries as of December 31, 2006 and December 31, 2007 and the related audited combined statements of operations for each of the two years comprising the period ended December 31, 2007 (the
Company Financial Statements
). The Company Financial Statements have been prepared from the books, accounts and financial records of the Company and its Subsidiaries and present fairly, in all material respects, in conformity with GAAP applied on a consistent basis except to the extent provided in the notes to such financial
statements, the combined financial position of the Company and its Subsidiaries as of the dates set forth therein and the combined results of their operations for the periods set forth therein.
(b) The Company and its Subsidiaries have no Liabilities of any kind or character except for Liabilities (i) in the amounts set forth or reserved on the December 31, 2007 Company balance sheet or the notes thereto, including contingent liabilities, (ii) arising after December 31, 2007 in the ordinary course of business, (iii) incurred in connection with this Agreement or the Transaction, or (iv) which are not, individually or in the aggregate, material.
(c) To the knowledge of the Company, (i) there are no material weaknesses in the Companys internal controls relating to financial reporting or preparation of financial statements, and (ii) there is no
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fraud relating to the Companys financial reporting or preparation of financial statements, whether or not material, involving the Companys directors, management or other employees.
Section 4.8
Absence of Certain Changes.
(a) Since December 31, 2007 and until the date of the Original Agreement, the Company and its Subsidiaries have conducted their business only in the ordinary course in all material respects and there has not been a Company Material Adverse Effect.
(b) Since December 31, 2007 and until the date hereof, neither the Company nor any of its Subsidiaries has taken (I) any action which, if taken after the date hereof and prior to the Closing without the prior written consent of Parent, would violate Sections 6.1(b)(iv), (v), (vi), (ix). (x), (xi), (xii), (xiv), (xv) or (xvi) hereof, or (II) any of the following actions:
(i) amended (or proposed to amend) its Organizational Documents;
(ii) authorized for issuance, issued, sold, delivered or agreed or committed to issue, sell or deliver (whether through the issuance or granting of options, warrants, other equity-based (whether payable in cash, securities or other property or any combination of the foregoing) commitments, subscriptions, rights to purchase or otherwise) any Equity Securities;
(iii) acquired or redeemed, directly or indirectly, or amended any of its securities;
(iv) (A) incurred or assumed any long-term or short-term Indebtedness or issued any debt securities, or (B) mortgaged or pledged any of its material assets, tangible or intangible, or created or suffered to exist any Lien thereupon (other than Permitted Liens and licenses of or other grants of rights to use Business Intellectual Property in the ordinary course of business);
(v) acquired (by merger, consolidation or acquisition of stock or assets) any other Person or any equity or ownership interest therein;
(vi) entered into, renewed or amended in any material respect any transaction, agreement, arrangement or understanding between (A) the Company or any of its Subsidiaries, on the one hand, and (B) any affiliate of the Company (other than any of the Companys Subsidiaries), on the other hand, of a type that would be required to be disclosed under Item 404 of Regulation S-K under the Securities Act (if the Company were subject thereto); or
(vii) entered into an agreement to do any of the foregoing.
(c) Since the date of the Original Agreement and until the date hereof, the Company has not taken any action (or omitted to take any action) which, if taken (or omitted to be taken) after the date hereof and prior to the Closing without the prior written consent of Parent, would violate Sections 6.1(a) or (b).
(d) Since the date of the Original Agreement and until the date hereof, the Company complied in all material respects with its covenants and agreements in the Original Agreement.
Section 4.9
Taxes.
(a) Except as would not have a Company Material Adverse Effect, each of the Company and its Subsidiaries has filed all Tax Returns required to be filed by it (
Company Tax Returns
); all such Company Tax Returns were correct and complete in all material respects; and all Company Tax Returns have been timely filed with the appropriate taxing authorities in all jurisdictions in which such Company Tax Returns are or were required to be filed, or requests for extensions have been timely filed and any such extensions have been granted and have not expired. The Company has made available to Parent correct and complete copies of all U.S.
federal income Tax Returns of the Company and its Subsidiaries relating to the taxable period ending on or after January 1, 2006, filed through the date of this Agreement.
(b) All material Taxes due and owing by each of the Company and its Subsidiaries (whether or not shown on any Company Tax Return) have been paid or adequate reserves for the payment thereof have been established on the Companys December 31, 2007 balance sheet.
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(c) All material Taxes of the Company or its Subsidiaries required to be paid with respect to any completed and settled audit, examination or deficiency Action with any taxing authority have been paid in full.
(d) There is no audit, examination, claim, assessment, levy, deficiency, administrative or judicial proceeding, lawsuit or refund Action pending or threatened in writing with respect to any material Taxes of the Company or its Subsidiaries, and no taxing authority has given written notice of the commencement of any audit, examination or deficiency Action with respect to any such Taxes. The Company has delivered to Parent correct and complete copies of all material Tax examination reports, closing agreements and statements of Tax deficiencies assessed against or agreed to by any of the Company or its Subsidiaries received since December 31, 2005.
(e) There are no outstanding Contracts or waivers extending the statutory period of limitations applicable to any claim for, or the period for the collection or assessment of, material Taxes of the Company or its Subsidiaries due for any taxable period.
(f) None of the Company or its Subsidiaries has received written notice of any claim, and, to the knowledge of the Company, no claim has ever been made, by any taxing authority in a jurisdiction where the Company or its Subsidiaries does not file Company Tax Returns that it is or may be subject to taxation by that jurisdiction.
(g) No Liens for Taxes exist with respect to any of the assets or properties of the Company or its Subsidiaries, except for Permitted Liens.
(h) The Company and its Subsidiaries are not liable for the material Taxes of another Person (other than the Company or its Subsidiaries) (i) under any applicable Tax Law, (ii) as a transferee or successor, or (iii) by Contract, indemnity or otherwise.
(i) The Company or its Subsidiaries is not a party to or bound by any Tax indemnity agreement, Tax sharing agreement or Tax allocation agreement or similar agreement with respect to material Taxes (including advance pricing agreement, closing agreement or other agreement relating to Taxes with any taxing authority) that will be binding on the Company or its Subsidiaries with respect to any period following the Closing Date.
(j) None of the Company or its Subsidiaries will be required to include any material item of income in, or exclude any material item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any change in method of accounting for a taxable period ending on or prior to the Closing Date under Section 481(c) of the Code (or any corresponding or similar provision of state, local or foreign applicable Law).
(k) None of the Company or its Subsidiaries has requested or is the subject of or bound by any private letter ruling, technical advice memorandum, or similar ruling or memorandum with any taxing authority with respect to any material Taxes, nor is any such request outstanding.
(l) None of the Company or its Subsidiaries has participated in a listed transaction, as defined in Treasury Regulation §1.6011-4(b)(2).
(m) The Company is not aware of any fact or circumstance that could reasonably be expected to prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code.
(n) All representations and warranties made in this Section 4.9 that relate to Networkcar are made only with respect to periods on and following August 1, 2006 (the
Networkcar Acquisition Date
).
Section 4.10
Parent Proxy Statement.
None of the information relating to the Company or its Subsidiaries supplied by the Company, or by any other Persons acting on behalf of the Company, for inclusion in the Proxy Statement will, as of on the date that the Proxy Statement is first mailed to the Parent Stockholders (or any amendment or supplement thereto), at the time of the Parent Stockholders Meeting, or at the Effective Time, contain any statement which, at the time and in light of the circumstances under which it
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is made, is false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not false or misleading in any material respect.
Section 4.11
Assets and Properties.
(a) Each of the Company and its Subsidiaries has (i) good title to all of its real or tangible material assets and properties (whether real, personal or mixed, or tangible) and (ii) valid leasehold interests in all of its real or tangible assets and properties which it leases, in each case (with respect to both clause (i) and (ii) above), free and clear of any Liens, other than Permitted Liens.
(b) The Company and its Subsidiaries do not own, and, to the knowledge of the Company, have never owned, any real property.
(c) Section 4.11(c) of the Company Disclosure Statement contains a complete and accurate list of all material real estate leased, subleased or occupied by the Company or its Subsidiaries pursuant to a lease (the
Company Leased Premises
). The Company and/or its Subsidiaries enjoy peaceful and undisturbed possession of all Company Leased Premises, except as would not have a Company Material Adverse Effect.
(d) All of the tangible assets and properties owned or leased by the Company and its Subsidiaries are adequately maintained and are in good operating condition and repair and free from any defects, except as would not have a Company Material Adverse Effect.
Section 4.12
Contracts.
(a) Section 4.12(a) of the Company Disclosure Statement lists all of the Company Material Contracts.
(b) Each of the Company and its Subsidiaries (and, to the knowledge of the Company, each of the other party or parties thereto) has performed, in all material respects, all obligations required to be performed by it under each Company Material Contract. Except as would not have a Company Material Adverse Effect, no event has occurred or circumstance exists with respect to any of the Company or its Subsidiaries or, to the knowledge of the Company, with respect to any other Person that (with or without lapse of time or the giving of notice or both) does or may contravene, conflict with or result in a violation or breach of or give any of the Company
or its Subsidiaries or any other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity of, or to cancel, terminate or modify, any Company Material Contract. To the knowledge of the Company, no party to any Company Material Contract has repudiated any material provision thereof or terminated any Company Material Contract. All Company Material Contracts are valid and binding on the Company or its Subsidiaries and, to the knowledge of the Company, the other parties thereto, and are in full force and effect. The Company has provided to Parent true, accurate and complete copies or originals of the Company Material Contracts.
Section 4.13
Litigation.
Except as would not have a Company Material Adverse Effect, (i) no judgment, ruling, order, writ, decree, stipulation, injunction or determination by or with any arbitrator, court or other Governmental Entity to which the Company or its Subsidiaries is party or by which the Company or its Subsidiaries or any assets thereof is bound, and which relates to or affects the Company and its Subsidiaries, the assets, properties, Liabilities or employees of Company or its Subsidiaries is in effect and (ii) there is no Action pending or, to the knowledge of the Company, threatened against any of
the Company or its Subsidiaries or the assets or properties of the Company or its Subsidiaries.
Section 4.14
Environmental Matters.
Neither the Company nor its Subsidiaries have any material Liability under any applicable Law existing and in effect on the date of the Original Agreement relating to pollution or protection of the environment (an
Environmental Law
) or under any Contract with respect to or as a result of the presence, discharge, generation, treatment, storage, handling, removal, disposal, transportation or release of any substance defined as hazardous, toxic or a pollutant under any Environmental Law (
Hazardous Materials
). The Company is and has been at all
times in compliance in all material respects with all Environmental Laws.
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(a) Other than with regard to customary filings and notice obligations, the Company has not received any notice of violation or potential Liability under any Environmental Laws from any Person or any Governmental Entity or any inquiry, request for information, or demand letter under any Environmental Law relating to operations or properties of the Company which could reasonably be expected to result in the Company incurring material liability under Environmental Laws. The Company is not subject to any orders arising under Environmental Laws nor are there any administrative, civil or criminal actions, suits, proceedings or investigations pending or,
to the knowledge of the Company, threatened, against the Company under any Environmental Law which could reasonably be expected to result in the Company incurring material liability under Environmental Laws. The Company has not entered into any agreement pursuant to which the Company has assumed or will assume any liability under Environmental Laws, including, without limitation, any obligation for costs of remediation, of any other Person.
(b) To the knowledge of the Company, there has been no release or threatened release of a Hazardous Material on, at or beneath any of the Company Leased Premises or other properties currently or previously owned or operated by the Company or any surface waters or groundwaters thereon or thereunder which requires any material disclosure, investigation, cleanup, remediation, monitoring, abatement, deed or use restriction by the Company, or which would be expected to give rise to any other material liability or damages to the Company under any Environmental Laws.
(c) The Company has not arranged for the disposal of any Hazardous Material, or transported any Hazardous Material, in a manner that has given, or could reasonably be expected to give, rise to any material liability for any damages or costs of remediation.
(d) The Company has made available to Parent copies of all environmental studies, investigations, reports or assessments concerning the Company, the Company Leased Premises and any real property currently or previously owned or operated by the Company.
Section 4.15
Compliance with Applicable Law.
Each of the Company and its Subsidiaries is in compliance and has complied at all times with all Laws applicable to the Company and its Subsidiaries, except such non-compliance as would not have a Company Material Adverse Effect. Except as would not have a Company Material Adverse Effect, no claims or complaints from any Governmental Entities or other Persons have been asserted or received by the Company or its Subsidiaries within the past three years related to or affecting the Company or its Subsidiaries and, to the knowledge of the Company, no claims or complaints
are threatened, alleging that the Company or its Subsidiaries are in violation of any Laws or Permits applicable to the Company and its Subsidiaries. To the knowledge of the Company, no investigation, inquiry or review by any Governmental Entity with respect to the Company or its Subsidiaries is pending or threatened. The subject matter of Sections 4.9, 4.14 and 4.20 are excluded from the provisions of this Section 4.15 and the representations and warranties of the Company with respect to those subject matters are exclusively set forth in those referenced sections.
Section 4.16
Permits.
Except as would not have a Company Material Adverse Effect, each of the Company and its Subsidiaries has all the Permits (the
Company Permits
) that are necessary for the Company and its Subsidiaries to conduct their business and operations in compliance with all applicable Laws and the Company and its Subsidiaries have complied in all material respects with all of the terms and requirements of the Company Permits.
Section 4.17
Employee Matters.
(a) Section 4.17(a) of the Company Disclosure Statement includes a complete list of all Employee Benefit Plans.
(b) With respect to each Employee Benefit Plan, the Company has delivered or made available to Parent a true, correct and complete copy of: (i) each writing constituting a part of such Employee Benefit Plan, including without limitation all plan documents, employee communications, benefit schedules, trust agreements, and insurance contracts and other funding vehicles; (ii) the most recent Annual Report (Form 5500 Series) and accompanying schedule, if any; (iii) the current summary plan description and any material modifications thereto, if any (in each case, whether or not required to be furnished under ERISA); (iv) the most recent annual financial
report, if any; (v) the most recent actuarial report, if any;
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and (vi) the most recent determination letter from the Internal Revenue Service, if any. Except as specifically provided in the foregoing documents delivered or made available to Parent, as of the date of this Agreement there are no amendments to any Employee Benefit Plan that have been adopted or approved nor has the Company or any of its Subsidiaries undertaken to make any such amendments or to adopt or approve any new Employee Benefit Plan.
(c) The Internal Revenue Service has issued a favorable determination letter with respect to each Employee Benefit Plan that is intended to be a qualified plan within the meaning of Section 401(a) of the Code (
Qualified Plans
) that has not been revoked and, to the knowledge of the Company, there are no existing circumstances and no events have occurred that would reasonably be expected to adversely affect the qualified status of any Qualified Plan.
(d) All contributions required to be made to any Employee Benefit Plan by applicable Law or regulation or by any plan document or other contractual undertaking, and all premiums due or payable with respect to insurance policies funding any Employee Benefit Plan, for any period through the date of the Original Agreement, have been timely made or paid in full.
(e) With respect to each Employee Benefit Plan, the Company and its Subsidiaries have complied, and are now in compliance, in all material respects, with all provisions of ERISA, the Code and all Laws and regulations applicable to such Employee Benefit Plans. Each Employee Benefit Plan has been administered in all material respects in accordance with its terms. There is not now, nor do any circumstances exist that would reasonably be expected to give rise to, any requirement for the posting of security with respect to any Employee Benefit Plan or the imposition of any Lien (except for Permitted Liens) on the assets of the Company or any of its
Subsidiaries under ERISA or the Code.
(f) No Employee Benefit Plan is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code.
(g) (i) No Employee Benefit Plan is a Multiemployer Plan or a plan that has two or more contributing sponsors at least two of whom are not under common control, within the meaning of Section 4063 of ERISA (a
Multiple Employer Plan
); (ii) none of the Company and its Subsidiaries nor any of their respective ERISA Affiliates has, at any time during the last six years, contributed to or been obligated to contribute to any Multiemployer Plan or Multiple Employer Plan; and (iii) none of the Company and its Subsidiaries nor any of their respective ERISA Affiliates has incurred any Withdrawal Liability that has not been satisfied in full.
(h) There does not now exist, nor do any circumstances exist that would reasonably be expected to result in, any Controlled Group Liability that would be a liability of the Company or any of its Subsidiaries following the Closing.
(i) The Company and its Subsidiaries have no liability for life, health, medical or other welfare benefits to former employees or beneficiaries or dependents thereof, except for health continuation coverage as required by Section 4980B of the Code or Part 6 of Title I of ERISA and at no expense to the Company and its Subsidiaries. There has been no communication to employees by the Company or any of its Subsidiaries which would reasonably be interpreted to promise or guarantee such employees retiree health or life insurance or other retiree death benefits on a permanent basis.
(j) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (either alone or in conjunction with any other event) (i) require the funding of any trust or other funding vehicle, (ii) result in, cause the accelerated vesting, funding or delivery of, or increase the amount or value of, any payment (including forgiveness of indebtedness) or benefit to any employee, officer or director of the Company or any of its Subsidiaries, or (iii) result in any limitation on the right of the Company or any of its Subsidiaries to amend, merge or terminate any Employee Benefit Plan or related trust.
Without limiting the generality of the foregoing, no amount paid or payable (whether in cash, in property, or in the form of benefits) by the Company or any of its Subsidiaries in connection with the transactions contemplated hereby (either solely as a result thereof or as a result of such transactions in conjunction with any other event) will be an excess parachute payment within the meaning of Section 280G of the Code.
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(k) No labor organization or group of employees of the Company or any of its Subsidiaries has made a pending demand for recognition or certification, and there are no representation or certification proceedings or petitions seeking a representation proceeding presently pending or threatened to be brought or filed, with the National Labor Relations Board or any other labor relations tribunal or authority. There are no organizing activities, strikes, work stoppages, slowdowns, lockouts, material arbitrations or material grievances, or other material labor disputes pending or threatened against or involving the Company or any of its Subsidiaries. Each
of the Company and its Subsidiaries is in compliance with all applicable Laws and collective bargaining agreements respecting employment and employment practices, terms and conditions of employment, wages and hours and occupational safety and health.
(l) None of the Company and its Subsidiaries nor any other Person, including any fiduciary, has engaged in any prohibited transaction (as defined in Section 4975 of the Code or Section 406 of ERISA), which would reasonably be expected to subject any of the Employee Benefit Plans or their related trusts, the Company, any of its Subsidiaries or any person that the Company or any of its Subsidiaries has an obligation to indemnify, to any material Tax or penalty imposed under Section 4975 of the Code or Section 502 of ERISA.
(m) Each Employee Benefit Plan that is a nonqualified deferred compensation plan within the meaning of Section 409A(d)(1) of the Code (a
Nonqualified Deferred Compensation Plan
) and any award thereunder, in each case that is subject to Section 409A of the Code, has been operated in compliance in all material respects with Section 409A of the Code, based upon a good faith, reasonable interpretation of Section 409A of the Code and the final regulations issued thereunder or Internal Revenue Service Notice 2005-1.
(n) Each Company Option (i) was granted in compliance with all applicable Laws and all of the terms and conditions of the Company Stock Plan pursuant to which it was issued, (ii) has an exercise price per share of Company Common Stock equal to or greater than the fair market value of a share of Company Common Stock on the date of such grant, and (iii) has a grant date identical to the date on which the Company Board of Directors or compensation committee actually awarded such Company Option.
Section 4.18
Insurance.
(a) Except as would not have a Company Material Adverse Effect, the insurance policies and surety bonds which the Company and its Subsidiaries maintain with respect to their assets, Liabilities, employees, officers or directors (
Company Insurance Policies
), (i) are in full force and effect and will not lapse or be subject to suspension, modification, revocation, cancellation, termination or nonrenewal by reason of the execution, delivery or performance of any Transaction Document or consummation of the Transaction; and (ii) are sufficient for compliance with all requirements of Law and Contracts of the Company and its
Subsidiaries. The Company and its Subsidiaries are current in all premiums or other payments due under each Company Insurance Policy and have otherwise performed in all material respects all of their respective obligations thereunder.
(b) The Company or its Subsidiaries have not received during the past three years from any insurance carrier with which it has carried any material insurance (i) any refusal of coverage or notice of material limitation of coverage or any notice that a defense will be afforded with reservation of rights in respect of claims that are or would be reasonably expected to be material to the Company or its Subsidiaries or (ii) any notice of cancellation or any notice that any insurance policy is no longer in full force or effect or will not be renewed or that the issuer of any Company Insurance Policy is not willing or able to perform its obligations
thereunder.
Section 4.19
Transactions with Affiliates.
(a) Except for agreements related to employment with the Company or its Subsidiaries or as otherwise provided in Section 4.19(a) of the Company Disclosure Statement, (i) there are no transactions, agreements, arrangements or understandings between the Company or any of its Subsidiaries, on the one hand, and any director, officer or stockholder (or Affiliate thereof) of the Company, on the other hand,
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that would be required to be disclosed under Item 404 of Regulation S-K under the Securities Act (if the Securities Act were applicable to the Company), (ii) no director, officer or employee of the Company or its Subsidiaries or Affiliate of the Company (other than its Subsidiaries) has any material interest in any Company Material Contract, material tangible asset or material Business Intellectual Property (other than through such Persons equity interest) that is used by the Company or its Subsidiaries in the conduct of its business as it has been conducted prior to the Closing Date, and (iii) no Affiliate of any director, officer or employee
of the Company or its Subsidiaries has entered into any agreement whereby such Person owes any material Indebtedness to or is owed any material Indebtedness from any of the Company or its Subsidiaries, other than employment relationships and compensation, benefits, repayment of travel, entertainment and other advances made in the ordinary course of business.
(b) The agreements set forth on Section 4.19(b) of the Company Disclosure Statement shall have been terminated prior to the Effective Time without current or future obligations or liabilities applicable to or on the Company, Parent or any of their respective Subsidiaries (and copies of the related termination agreements shall have been provided to Parent).
Section 4.20
Business Intellectual Property.
(a) Subject to Sections 4.20(d)(iv) through 4.20(d)(viii), each of the Company and its Subsidiaries owns or has a valid license or right to use all Business Intellectual Property, free and clear of any liens and security interests (except Permitted Liens).
(b) Section 4.20(b) of the Company Disclosure Statement sets forth as of the date of the Original Agreement all applications, patents, registrations and issuances for all Business Intellectual Property, owned by the Company and its Subsidiaries, and all material license agreements relating to any Business Intellectual Property (other than license agreements (i) in which grants of Business Intellectual Property are incidental or (ii) granting rights to use readily available commercial software) to which the Company or any of its Subsidiaries is a party.
(c) The consummation of the transactions contemplated by this Agreement will not materially impair or materially alter the right of the Company and its Subsidiaries to use the Business Intellectual Property or Developed Software, any computer software used by the Company and its Subsidiaries in the ordinary course of business, or any information technology, telecommunications, network and peripheral equipment used by the Company and its Subsidiaries.
(d) Except as would not have a Company Material Adverse Effect:
(i) there are no infringement, opposition, interference or cancellation suits, Actions or proceedings pending or, to the knowledge of the Company, threatened, before any court, patent office or registration authority in any jurisdiction against the Company or its Subsidiaries with respect to any Business Intellectual Property;
(ii) no person is infringing or misappropriating, or has infringed or misappropriated any of the Business Intellectual Property;
provided that
, with respect to the intellectual property acquired by the Company in the acquisition of Networkcar, this representation in this clause (ii) shall only apply to infringements or misappropriations since the Networkcar Acquisition Date;
(iii) the material Business Intellectual Property that is registered and owned by the Company or its Subsidiaries is valid, enforceable and subsisting and nothing has been done or omitted to be done which may cause any of it to cease to be so;
(iv) the manufacturing, importation, use, practice, sale and offer for sale of the products and services of any of the Company and its Subsidiaries, and any and all activities of any of the Company and its Subsidiaries, including the Generation 1 Products and Services, as currently conducted, does not infringe or misappropriate and have not infringed or misappropriated any intellectual property of any third party;
(v) since the Networkcar Acquisition Date, the Company and its Subsidiaries have not received any written claim or notice that the manufacturing, importation, use, practice, sale, offer for sale of
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any products or services of any of the Company and its Subsidiaries, or any other activities of any of the Company and its Subsidiaries, infringe or misappropriate, or have infringed or misappropriated, any intellectual property of any third party, where such claim or notice (A) remains unresolved or (B) exposes the Company to any liability, whether contingent or otherwise;
(vi) the Company and its Subsidiaries are licensed or otherwise have the legal right to use all computer programs owned by a third party which are used by the Company or its Subsidiaries in the ordinary course of business (
Developed Software
);
(vii) each of the Company and its Subsidiaries owns or has the legal right to use all computer programs designed, written, developed or configured by, on behalf of, or for the use of, the Company or its Subsidiaries which are used by the Company or its Subsidiaries in the ordinary course of business, except for any Developed Software; and
(viii) the Company and its Subsidiaries own or otherwise have the legal right to use all information technology, telecommunications, network and peripheral equipment used by the Company and its Subsidiaries.
Section 4.21
Sufficiency of Assets.
The business and operations of the Company and its Subsidiaries, taken together, constitute substantially all of the business reflected on the Company Financial Statements as of December 31, 2007.
Section 4.22
Stockholder Approval.
In accordance with the DGCL and the Companys Organizational Documents, the stockholders of the Company will, on the date hereof, by written consent, approve and adopt this Agreement, the Merger and the other transactions contemplated hereby, and such consent shall not be rescinded, revoked or impaired in any manner. Other than such consent, no other vote, approval or consent of holders of the securities of the Company is required to authorize and approve the consummation of the Transaction.
Section 4.23
Relationships with Customers, Suppliers and Research Collaborators.
Section 4.23 of the Company Disclosure Statement sets forth a list of the Companys top five customers (together with DaimlerChrysler Company and Mercedes-Benz USA, the
Customers
) and top five Suppliers, in each case listing the dollar amounts paid to the Company by and to such Customers and Suppliers for the fiscal year ended December 31, 2007. No such Customer or Supplier has cancelled or otherwise terminated or materially reduced or materially and adversely modified its relationship with the Company, nor
has any such Customer or Supplier expressed to the Company its intention to do any of the foregoing. To the knowledge of the Company, no research collaborator of the Company has expressed to the Company its intention to cancel or otherwise terminate or materially reduce or materially and adversely modify its relationship with the Company.
Section 4.24
Trust Account.
The Company hereby acknowledges that it has reviewed the final prospectus of Parent, dated January 11, 2008 (the
Prospectus
) and the Investment Management Trust Agreement by and between Parent and Continental Stock Transfer & Trust Company, dated as of January 11, 2008 (the
Trust Agreement
), and is aware that disbursements from the Trust Account are available only in the limited circumstances set forth therein.
Section 4.25
Section 203 of the DGCL.
Prior to the date of this Agreement, the Company Board of Directors has taken all action necessary so that the restrictions on business combinations contained in Section 203 of the DGCL will not apply with respect to or as a result of this Agreement, the Original Agreement, the Amended and Restated Company Support Agreement, any other Transaction Documents or the transactions contemplated hereby or thereby, including the Merger, without any further action on the part of the Companys stockholders or the Board of the Directors of the Company. No other state takeover
statute is applicable to the Merger.
Section 4.26
No Additional Representations.
The Company acknowledges that neither Parent, its officers, directors or stockholders, nor any Person has made any representation or warranty, express or implied, of any kind, including without limitation any representation or warranty as to the accuracy or
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completeness of any information regarding Parent furnished or made available to the Company and any of its representatives, in each case except as expressly set forth in Article V (as modified by the Parent Disclosure Statement).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Notwithstanding anything to the contrary, all representations and warranties contained in this Article V and in all schedules and exhibits referenced herein and made a part hereto shall be deemed to be made as of the date of the Original Agreement as well as of the date hereof; provided that Sections 5.7, 5.8, 5.9(a) and 5.10(b) hereof and Section 2.8(b) of the Parent Disclosure Statement (attached hereto) shall be deemed to be made as of the date hereof only. Except as set forth in the Parent Disclosure Statement (subject to Section 9.10), Parent represents and warrants to the Company as follows:
Section 5.1
Organization.
(a) Parent is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Delaware. Parent has all requisite corporate or other power and authority to own, lease and operate its assets and properties and to carry on its business as presently conducted and as it will be conducted through the Closing Date. Parent is duly qualified to transact business in each jurisdiction in which the ownership, leasing or holding of its properties or the conduct or nature of its business makes such qualification necessary, except where the failure to be so qualified would not have a Parent Material Adverse Effect. Parent is
not, and has not been, in violation of any of the provisions of its Organizational Documents.
(b) Parent does not have any Subsidiaries or own beneficially or otherwise, directly or indirectly, any Equity Securities or ownership interest in, or have any obligation to form or participate in, any other Person (including the Company). No Person related to the Parent (within the meaning of Treasury Regulations Section 1.368-(e)(4)) owns, beneficially or otherwise, any Equity Securities or any other ownership interest in the Company, or has any right or obligations to acquire any such Equity Securities or other ownership interest, other than pursuant to this Agreement.
Section 5.2
Authority
. Parent has the corporate power, authority and legal right to execute and deliver the Original Agreement and each Transaction Document delivered or to be delivered by it and to perform all of its obligations under the Original Agreement and the Transaction Documents. The execution and delivery of the Original Agreement and each Transaction Document to which Parent is a party has been duly and validly authorized by all necessary corporate action on the part of Parent, and no further corporate proceedings on the part of Parent are necessary to authorize this Agreement, the Original Agreement
and each Transaction Document to which Parent is a party, or to consummate the transactions contemplated hereby, other than the Parent Stockholder Approval.
Section 5.3
Binding Obligation.
This Agreement and each Transaction Document delivered or to be delivered by Parent has been duly authorized, executed and delivered by Parent and assuming the valid execution and delivery by the other parties thereto constitutes the legal, valid and binding obligation of Parent, enforceable against Parent in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar Laws relating to or affecting the enforcement of creditors rights in general and by general principles of equity (regardless of
whether enforcement is sought in equity or at law).
Section 5.4
No Breach.
None of the execution, delivery or performance by Parent of the Original Agreement or any Transaction Document delivered or to be delivered by it or the consummation of the Transaction does or will, with or without the giving of notice or the lapse of time or both (a) except as would not have a Parent Material Adverse Effect, result in the creation of any Lien upon any of the properties or assets of Parent (except for Permitted Liens), or (b) conflict with, or result in a breach or violation of or a default under, or give rise to a right of amendment, termination, cancellation or
acceleration of any obligation or to a loss of a benefit under (i) any Organizational Documents of Parent, (ii) any Parent Contract or (iii) assuming compliance with the matters referred to in Section 5.6 of the Parent Disclosure Statement, any Law,
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license, Permit or other requirement to which Parents properties or assets are subject, except, in the case of clauses (ii) and (iii), for any conflicts, breaches, violations or defaults as would not have a Parent Material Adverse Effect.
Section 5.5
No Brokers.
There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Parent who is or will be entitled to any fee, commission or payment from Parent in connection with the negotiation, preparation, execution or delivery of the Original Agreement or any Transaction Document or the consummation of the Transaction.
Section 5.6
Governmental Approvals.
Except as would not have a Parent Material Adverse Effect, any approval required pursuant to the HSR Act or expressly contemplated by this Agreement, no Consent or Order of, with or to any Governmental Entity is required to be obtained or made by or with respect to Parent in connection with the execution, delivery and performance by Parent of the Original Agreement or any Transaction Document or the consummation by Parent of the Transaction.
Section 5.7
Capitalization.
(a) The Parent Disclosure Statement sets forth, as of the date hereof, (i) the authorized Equity Securities of Parent, (ii) the number of Equity Securities of Parent that are issued and outstanding, (iii) the number of Equity Securities of Parent held in treasury, and (iv) the number of Equity Securities of Parent that are reserved for issuance.
(b) No shares of capital stock or other securities of Parent (other than the Parent Common Stock and the Parent Warrants) are issued, reserved for issuance or outstanding. All of the outstanding shares of Parent Common Stock are duly authorized, validly issued, fully paid and non-assessable and were not issued in violation of, and are not subject to, any preemptive rights. There are no bonds, debentures, notes or other Indebtedness of any type whatsoever of Parent having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which any stockholders of Parent may vote. Other than the Parent
Warrants, the rights granted to the Company under the Original Agreement, this Agreement and pursuant to the Transaction Documents, there are no outstanding options, warrants, calls, demands, stock appreciation rights, Contracts or other rights of any nature to purchase, obtain or acquire from Parent, or otherwise relating to, or any outstanding securities or obligations convertible into or exchangeable for, or any voting agreements with respect to, any shares of capital stock of Parent or any other securities of Parent and, other than as set forth in Section 5.7(b) of the Parent Disclosure Statement, Parent is not obligated, pursuant to any securities, options, warrants, calls, demands, Contracts or other rights of any nature or otherwise, now or in the future, contingently or otherwise, to issue, deliver, sell, purchase or redeem any capital stock of Parent, any other securities of Parent or any interest in or assets of Parent to or from any Person or to issue, deliver, sell,
purchase or redeem any stock appreciation rights or other Contracts relating to any capital stock or other securities of Parent to or from any Person.
(c) Except as contemplated by the Transaction Documents, there are no registration rights, and there is no voting trust, proxy, rights plan, anti-takeover plan or other Contracts or understandings to which Parent is a party or by which Parent is bound with respect to any Equity Security of Parent.
(d) As a result of the consummation of the Transaction, no shares of capital stock, warrants, options or other securities of Parent are issuable and no rights in connection with any shares, warrants, rights, options or other securities of Parent accelerate or otherwise become triggered (whether as to vesting, exercisability, convertibility or otherwise).
Section 5.8
Absence of Undisclosed Liabilities.
(a) Parent has no Liabilities of any kind or character except for Liabilities (i) in the amounts set forth or reserved on the June 30, 2008 Parent balance sheet or the notes thereto, as included in the Form 10-Q Parent filed with the SEC on August 13, 2008 (the
June 30, 2008 Parent Balance Sheet
), including contingent liabilities, (ii) arising after June 30, 2008 in the ordinary course of business, (iii) incurred in connection with this Agreement or the Transaction, or (iv) which are not, individually or in the aggregate, material;
provided
, that any Liabilities outstanding as of the date hereof in excess of
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$25,000 individually which are not set forth or reserved on the June 30, 2008 Parent Balance Sheet are set forth in Section 5.8(a) of the Parent Disclosure Statement.
Section 5.9
Absence of Certain Changes.
(a) Since June 30, 2008 and until the date of the Original Agreement, Parent has conducted its business only in the ordinary course in all material respects and there has not been a Parent Material Adverse Effect.
(b) Since March 31, 2008 and until the date of the Original Agreement, Parent has not taken any action which, if taken after the date hereof and prior to the Closing without the prior written consent of the Company, would violate Sections 6.1(d)(i) (ix) hereof.
(c) Since the date of the Original Agreement and until the date hereof, the Company complied in all material respects with its covenants and agreements in the Original Agreement.
Section 5.10
Taxes.
(a) Parent has filed all material Tax Returns required to be filed by it (
Parent Tax Returns
) and has made correct and complete copies of all such Parent Tax Returns available to the Company. All such Parent Tax Returns were correct and complete in all material respects. All Parent Tax Returns have been timely filed with the appropriate taxing authorities in all jurisdictions in which such Parent Tax Returns are or were required to be filed or requests for extensions have been timely filed and any such extensions have been granted and have not expired.
(b) All material Taxes due and owing by Parent have been paid or adequate reserves for the payment thereof have been established on the June 30, 2008 Parent Balance Sheet.
(c) All material Taxes of Parent required to be paid with respect to any completed and settled audit, examination or deficiency Action with any taxing authority have been paid in full.
(d) There is no audit, examination, claim, assessment, levy, deficiency, administrative or judicial proceeding, lawsuit or refund Action pending or threatened in writing with respect to any material Taxes of Parent, and no taxing authority has given written notice of the commencement of any audit, examination or deficiency Action with respect to any such Taxes. Parent has delivered to the Company correct and complete copies of all material Tax examination reports, closing agreements and statements of Tax deficiencies assessed against or agreed to by Parent filed or received since December 31, 2006.
(e) There are no outstanding Contracts or waivers extending the statutory period of limitations applicable to any claim for, or the period for the collection or assessment of, material Taxes of Parent due for any taxable period.
(f) Parent has not received written notice of any claim, and, to the knowledge of Parent, no claim has ever been made, by any taxing authority in a jurisdiction where Parent does not file Parent Tax Returns that Parent is or may be subject to taxation by that jurisdiction.
(g) No Liens for Taxes exist with respect to any of the assets or properties of Parent, except for Permitted Liens.
(h) Parent has not requested, nor is the subject of or bound by, any private letter ruling, technical advise memorandum, closing agreement or similar ruling, memorandum or agreement with any taxing authority with respect to any material Taxes, nor is any such request outstanding.
(i) Parent has not participated in a listed transaction, as defined in Treasury Regulation §1.6011-4(b)(2).
(j) Parent is not aware of any fact or circumstance that could reasonably be expected to prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code.
Section 5.11
Assets and Properties.
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(a) Parent has (i) good title to all of its real or tangible material assets and properties (whether real, personal or mixed, or tangible) (including all assets and properties recorded on the June 30, 2008 Parent Balance Sheet, other than assets and properties disposed of in the ordinary course of business since December 31, 2007) and (ii) valid leasehold interests in all of its real or tangible assets and properties which it leases, in each case (with respect to both clauses (i) and (ii) above), free and clear of any Liens, other than Permitted Liens.
(b) Parent does not own or lease any real property.
Section 5.12
Contracts.
(a) Section 5.12 of the Parent Disclosure Statement lists all of the Parent Contracts.
(b) Each Parent Contract is valid, binding and enforceable against Parent and, to the knowledge of Parent, against each other party thereto in accordance with its terms, and is in full force and effect. Parent has performed all material obligations required to be performed by it to date under, and is not in material default or delinquent in performance, status or any other respect (claimed or actual) in connection with, any Parent Contract, and no event has occurred which, with due notice or lapse of time or both, would constitute such a default thereunder. To the knowledge of Parent, no other party to any Parent Contract is in material default in
respect thereof, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, except in each case as would not have a Parent Material Adverse Effect.
Section 5.13
Litigation.
There are no material Actions pending or, to the knowledge of Parent, threatened, before any Governmental Entity, or before any arbitrator, of any nature, brought by or against any of Parent or, to the knowledge of Parent, any of its respective officers or directors involving or relating to Parent or the assets, properties or rights of Parent or the transactions contemplated by this Agreement. There is no material judgment, decree, injunction, rule or order of any Governmental Entity or before any arbitrator, of any nature outstanding or, to the knowledge of Parent, threatened against
Parent.
Section 5.14
Environmental Matters.
Except as would not have a Parent Material Adverse Effect, Parent does not have any Liability under any applicable Environmental Law or under any Contract with respect to or as a result of the presence, discharge, generation, treatment, storage, handling, removal, disposal, transportation or Release of any Hazardous Material.
Section 5.15
Compliance with Applicable Law.
Except as would not have a Parent Material Adverse Effect, (i) Parent is in compliance and has complied with all Laws applicable to Parent and its business, and (ii) no claims or complaints from any Governmental Entities or other Persons have been asserted or received by Parent since formation related to or affecting Parent and its business and, to the knowledge of Parent, no claims or complaints are threatened, alleging that Parent is in violation of any Laws or Permits applicable to Parent and its business.
Section 5.16
Permits.
There are no Permits that are necessary for Parent to operate its business and to own and use its assets in compliance with all applicable Laws.
Section 5.17
Insurance.
Except for directors and officers liability insurance, Parent does not maintain any insurance policies or surety bonds.
Section 5.18
Parent SEC Reports.
(a) Parent has timely filed all required registration statements (including the registration statement on Form S-1 (File No. 333-145759)), reports, schedules, forms, statements and other documents required to be filed by it with the SEC since January 1, 2008 (collectively, as they have been amended since the time of their filing and including all exhibits thereto, the
Parent SEC Reports
). None of the Parent SEC Reports, as of their respective dates (or if amended or superseded by a filing prior to the date of this Agreement or the Closing Date, then on the date of such filing), contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited financial statements and unaudited interim financial statements, if any, (including, in each case,
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the notes and schedules, if any, thereto) included in the Parent SEC Reports complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto, were prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto and except with respect to unaudited statements as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited interim financial statements included therein, to normal year-end adjustments and the absence of complete footnotes) in all material respects the financial
position of Parent as of the respective dates thereof and the results of their operations and cash flows for the respective periods then ended.
(b) The information in the Proxy Statement (other than information relating to the Company supplied by the Company for inclusion in the Proxy Statement) will not, as of the date of its distribution to the Parent Stockholders (or any amendment or supplement thereto) or at the time of the Parent Stockholders Meeting, contain any statement which, at such time and in light of the circumstances under which it is made, is false or misleading with respect to any material fact, or omits to state any material fact required to be stated therein or necessary in order to make the statement therein not false or misleading.
Section 5.19
Required Vote of the Parent Stockholders.
The affirmative vote of holders of a majority of the shares of Parent Common Stock (i) issued in its initial public offering present and voting at the Parent Stockholders Meeting to approve the Transaction contemplated by this Agreement, (ii) present and voting to approve the issuance and sale of the Parent Common Stock (to the extent that such issuance requires stockholder approval under the rules of the NYSE Alternext US), assuming a quorum is present at the Parent Stockholders Meeting, and (iii) outstanding to approve the Transaction and the amendments
to the Certificate of Incorporation of Parent as required so that the Certificate of Incorporation of Parent can be amended and restated in the form set forth on
Exhibit B,
are the only votes of holders of securities of Parent which are required to obtain the Parent Stockholder Approval and to authorize the consummation of the Transaction (
provided
that, even if such vote were obtained, the Parent Stockholder Approval shall be deemed not to have occurred if holders of 30% or more of the shares of Parent Common Stock that were issued in Parents initial public offering vote against the Transaction and properly elect conversion of their shares).
Section 5.20
Transactions with Affiliates.
Except as contemplated by the Transaction Documents, there are no Contracts or transactions between Parent and any other Person of a type that would be required to be disclosed under Item 404 of Regulation S-K under the Securities Act and the Exchange Act and no loans by Parent to any of its employees, officers or directors, or any of its Affiliates.
Section 5.21
No Additional Representations.
Parent acknowledges that neither the Company, its officers, directors or stockholders, nor any Person has made any representation or warranty, express or implied, of any kind, including without limitation any representation or warranty as to the accuracy or completeness of any information regarding the Company furnished or made available to Parent and any of its representatives, in each case except as expressly set forth in Article IV (as modified by the Company Disclosure Statement).
ARTICLE VI
COVENANTS AND AGREEMENTS
Section 6.1
Conduct of Business.
Except (i) as required by the Transaction Documents or Law; (ii) as set forth in Section 6.1 of each of the Company Disclosure Statement or Parent Disclosure Statement, as applicable; (iii) in the case of the Company, with the consent in advance in writing by Parent, such consent not to be unreasonably withheld, conditioned or delayed; or (iv) in the case of Parent with the consent of the Company, such consent not to be unreasonably withheld, conditioned or delayed, at all times during the period commencing with the execution and delivery of this Agreement and continuing until the
earlier to occur of the termination of this Agreement and the Closing Date:
(a) The Company shall (and shall cause each of its Subsidiaries to):
(i) carry on its business in all material respects in the ordinary course of business; and
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(ii) use reasonable best efforts to (A) preserve intact relationships with Hughes Communications, Inc. and automobile manufacturers with which it has contractual relationships (
OEM Relationships
) and (B) keep available the services of its present officers and key employees.
(b) Without limiting Section 6.1(c) hereof, the Company shall not, nor will it cause or permit any of its Subsidiaries to, do any of the following:
(i) propose to adopt any amendments to or amend its Organizational Documents that would prevent, restrict or otherwise impair the consummation of the Transaction or the Reorganization Actions in accordance with the terms hereof or be reasonably expected to materially delay such consummation;
(ii) except as may be required pursuant to rights existing on the date of the Original Agreement, authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, other equity-based (whether payable in cash, securities or other property or any combination of the foregoing) commitments, subscriptions, rights to purchase or otherwise) Equity Securities for net consideration of more than $75,000,000 in the aggregate;
provided
that (A) any issuance of Equity Securities permitted by the foregoing shall be completed not later than ten Business Days prior to the
Proxy Statement Date; (B) no purchasers or other recipients of such Equity Securities shall be entitled to, nor shall any such purchasers receive, any dividends or other distributions upon the Equity Securities following the Effective Time; (C) any such Equity Securities issued in a form other than shares of Company Common Stock or Company Options shall be converted into shares of Company Common Stock immediately prior to the Effective Time; (D) as a condition precedent to the purchase or issuance of Equity Securities (other than Credit Facility Warrants), the Company shall require the purchasers or other recipients of such Equity Securities to (x) vote in favor of approval of the Merger contemplated by this Agreement in any stockholder vote or consent and (y) agree to (I) not transfer such Equity Securities (in the same manner that the Company Stockholders are prohibited from doing so under the Amended and Restated Company Support Agreement) prior to the termination of this Agreement
and (II) not transfer any Transaction Shares, Converted Options or Converted Option Shares that such purchaser or recipient receives in connection with the Merger (in the same manner (other than the length of such lock-up period) that the Company Stockholders will be prohibited from doing so under the Shareholders Agreement) until the later of (a) six months following the Closing or (b) one year following the issuance of such Equity Securities; (E) any agreements or documents to which such purchaser or recipient is a party or which is applicable to such Equity Securities or the issuance thereof shall be terminated (without liability to any party thereto) prior to the Closing (other than this Agreement, the other Transaction Documents and any reasonable and customary registration rights agreement) and (F) as soon as practicable prior to any such issuance the Company shall notify Parent with details and information surrounding such issuance (including all financial and legal terms of the
issuance and the name of the counterparty),
provided,
the foregoing provisions of this Section 6.1(b)(ii) (other than clauses (A) through (E), which shall be applicable) shall not apply to any issuance of Equity Securities (i) in the form of Company Options in the ordinary course to employees, advisers or consultants in connection with the performance of services for or on behalf of the Company, (ii) to any Person with which the Company has a commercial relationship, provided such issuance is primarily for purposes other than a capital raising transaction and (iii) in the form of Credit Facility Warrants in connection with additional borrowings under the Credit Facility (provided that such Credit Facility Warrants issued from and after the date hereof shall be no less favorable to the Company as the Credit Facility Warrants that are outstanding as of the date of the Original Agreement (including, without limitation, with respect to providing for the automatic exercise thereof
upon the consummation of the Transaction)). Under no circumstances shall any issuance of Equity Securities by the Company materially impair the consummation of the Transaction in accordance with the terms hereof or be reasonably expected to materially delay such consummation;
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(iii) except as may be required pursuant to rights described on Section 6.1(b)(iii) of the Company Disclosure Statement, acquire or redeem, directly or indirectly, or amend any of its securities;
(iv) make any distribution or declare, pay or set aside any dividend with respect to, or split, combine or reclassify any shares of capital stock or other Equity Securities;
(v) propose or adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of it;
(vi) forgive any loans to any of its employees, officers or directors, or any of its Affiliates (other than the Companys Subsidiaries);
(vii) except as permitted under the Credit Facility, (A) incur or assume any long-term or short-term Indebtedness or issue any debt securities, or (B) mortgage or pledge any of its material assets, tangible or intangible, or create or suffer to exist any Lien thereupon (other than Permitted Liens and licenses of or other grants of rights to use Business Intellectual Property in the ordinary course of business);
(viii) acquire (by merger, consolidation or acquisition of stock or assets) any other Person or any equity or ownership interest therein that would materially impair the consummation of the Transaction in accordance with the terms hereof or be reasonably expected to materially delay such consummation;
(ix) sell or dispose of (by merger, consolidation or sale of stock or assets) any other Person or any equity or ownership interest therein (other than Permitted Liens) that would materially impair the consummation of the Transaction in accordance with the terms hereof or be reasonably expected to materially delay such consummation;
(x) make any change in any of the accounting principles or practices used by it except as required by Law or GAAP, or as recommended by the independent auditors of the Company;
(xi) acquire, sell, lease, license or dispose of any property or assets in any single transaction or series of related transactions, except for transactions that would not materially impair the consummation of the Transaction in accordance with the terms hereof or be reasonably expected to materially delay such consummation;
(xii) take any action, or fail to take any action, which action or failure to act could reasonably be expected to prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code;
(xiii) except with respect to any transaction with Hughes Communications, Inc. or any of its Subsidiaries, enter into, renew or amend in any material respect any transaction, agreement, arrangement or understanding between (A) the Company or any of its Subsidiaries, on the one hand, and (B) any affiliate of the Company (other than any of the Companys Subsidiaries), on the other hand, of a type that would be required to be disclosed under Item 404 of Regulation S-K under the Securities Act (if the Company were subject thereto);
provided
that the Company may terminate the agreements set forth on Section 4.19(b) of the Company Disclosure
Statement;
(xiv) (A) amend, modify, waive, release any terms of, or grant, assign or transfer any of its material rights or claims under, any Contracts governing its OEM Relationships in a manner materially adverse to the Company or the Companys Subsidiaries or (B) terminate any Contracts governing its OEM Relationships;
(xv) change any material Tax election, amend any Tax Returns, change any Tax accounting method, settle or compromise any material Tax liability, or consent to the extension or waiver of the limitations period applicable to a material Tax claim or assessment;
(xvi) enter into, amend, or extend any collective bargaining agreement; or
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(xvii) enter into a Contract to do any of the foregoing or, notwithstanding anything in this Section 6.1(b), knowingly take (A) any action which is reasonably expected to result in any of the conditions to the consummation of the Transaction not being satisfied or (B) any action which would materially impair the consummation of the Transaction in accordance with the terms hereof or be reasonably expected to materially delay such consummation.
(c) In addition to the restrictions set forth in Section 6.1(a) and (b), following the Proxy Statement Date and until the earlier of the Closing Date or termination of this Agreement, the Company shall not do any of the following:
(i) authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, other equity-based (whether payable in cash, securities or other property or any combination of the foregoing) commitments, subscriptions, rights to purchase or otherwise) any Equity Securities;
(ii) except for the issuance of Company Options in the ordinary course of business consistent with past practice to newly-hired employees, grant any stock options, stock appreciation rights, restricted shares, restricted stock units, deferred equity units, awards based on the value of Companys capital stock or other equity-based award with respect to shares of Company Common Stock under the Company Stock Plan or otherwise, or grant any individual, corporation or other entity any right to acquire any shares of its capital stock;
(iii) except as required under applicable Law or the terms of any Employee Benefit Plan existing as of the date of the Original Agreement, (A) increase in any manner the compensation or benefits of any of the current or former directors, executive officers, key employees, consultants, independent contractors or other service providers of the Company or its Subsidiaries (collectively,
Employees
), other than increases in the ordinary course of business for Employees (other than directors), (B) become a party to, establish, amend in any manner that increases the costs thereunder, commence participation in, terminate or commit itself
to the adoption of any stock option plan or other stock-based compensation plan, compensation (including any employee co-investment fund), severance, pension, retirement, profit-sharing, welfare benefit, or other employee benefit plan or agreement or employment agreement with or for the benefit of any Employee (other than (1) agreements evidencing awards and payments made under Employee Benefit Plans existing as of the date of the Original Agreement made in the ordinary course of business or (2) new arrangements with respect to Employees hired after the date hereof), (C) accelerate the vesting of or lapsing of restrictions with respect to any stock-based compensation or other long-term incentive compensation under any Employee Benefit Plans or employment agreements, (D) cause the funding of any rabbi trust or similar arrangement or take any action to fund or in any other way secure the payment of compensation or benefits under any Employee Benefit Plan, (E) materially change any
actuarial or other assumptions used to calculate funding obligations with respect to any Employee Benefit Plan or change the manner in which contributions to such plans are made or the basis on which such contributions are determined, except as may be required by GAAP or applicable Law, or (F) (x) hire employees in the position of executive officer (except for replacement hires or hires currently budgeted for) or (y) terminate the employment of any executive officer, other than termination for cause;
(iv) acquire, sell, lease, license or dispose of any property or assets in any single transaction or series of related transactions, except for transactions in the ordinary course of business;
(v) acquire (by merger, consolidation or acquisition of stock or assets) any other Person or any equity or ownership interest therein for consideration of more than $5 million in the aggregate;
(vi) settle or compromise any pending or threatened Action or pay, discharge or satisfy or agree to pay, discharge or satisfy any Liability, in each case which is material to the business (other than (A) the payment of Liabilities in the ordinary course of business and (B) the payment of Liabilities existing on the date of the Original Agreement pursuant to their terms);
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(vii) enter into, renew or amend in any material respect any transaction, agreement, arrangement or understanding between (A) the Company or any of its Subsidiaries, on the one hand, and (B) any affiliate of the Company (other than any of the Companys Subsidiaries), on the other hand, of a type that would be required to be disclosed under Item 404 of Regulation S-K under the Securities Act (if the Company were subject thereto);
(viii) (A) enter into a Contract that would be deemed a Company Material Contract hereunder if in effect as of the date hereof or (B) amend or modify in any material respect or terminate any Company Material Contract, or waive, release, grant, assign or transfer any of its material rights or claims thereunder;
(ix) waive, settle, or release any material rights or claims of it (including material claims or rights relating to Business Intellectual Property) against third parties; or
(x) enter into a Contract to do any of the foregoing.
(d) Parent shall not do any of the following:
(i) propose to adopt any amendments to or amend its Organizational Documents (other than as provided in Section 6.2 and Section 6.12);
(ii) except as required to consummate the Transaction and to comply with this Agreement, authorize for issuance, issue, sell, deliver (whether through the issuance or granting of options, warrants, other equity-based (whether payable in cash, securities or other property or any combination of the foregoing) securities) any of its securities;
(iii) acquire or redeem, directly or indirectly, or amend any of its securities or make any distribution or declare, pay or set aside any dividend with respect to, or split, combine or reclassify any of its equity interests or any shares of capital stock, except, in each case, in connection with the exercise of conversion rights by Parent stockholders pursuant to paragraph C of Article Seventh of Parents Amended and Restated Certificate of Incorporation;
(iv) propose or adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization;
(v) make any change in any of the accounting principles or practices used by Parent except as required by changes in GAAP;
(vi) take any action, or fail to take any action, which action or failure to act could reasonably be expected to prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code;
(vii) change any material Tax election, amend any Tax Returns, change any Tax accounting method, settle or compromise any material Tax liability, or consent to the extension or waiver of the limitations period applicable to a material Tax claim or assessment;
(viii) enter into any Contract to do any of the foregoing or knowingly take any action which is reasonably expected to result in any of the conditions to the consummation of the Transaction not being satisfied or knowingly take any action which would materially impair its ability to consummate the Transaction in accordance with the terms hereof or be reasonably expected to materially delay such consummation;
(ix) enter into a Contract that would be deemed a Parent Contract hereunder if in effect as of the date hereof; or
(x) take any action after the delivery of the Working Capital Certificate that would cause the Working Capital Certificate to be inaccurate in any material respect.
Section 6.2
Proxy Statement; Parent Stockholders Meeting.
(a) As promptly as practicable after the execution of this Agreement, Parent will prepare and file the Proxy Statement with the SEC. Parent will respond to any comments of the SEC, and Parent will use its
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commercially reasonable efforts to mail the Proxy Statement to its stockholders as promptly as practicable. As promptly as practicable after the execution of this Agreement, Parent will prepare and file any other filings required under the Securities Act or the Exchange Act or any other Federal, foreign or Blue Sky Laws relating to the Transaction (collectively, the
Other Filings
). Parent will notify the Company promptly upon the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff or any other governmental officials for amendments or supplements to the Proxy Statement or any Other Filing or
for additional information and will supply the Company with copies of all correspondence between Parent or any of its representatives, on the one hand, and the SEC, or its staff or other government officials, on the other hand, with respect to the Proxy Statement or any Other Filing. Parent shall permit the Company to participate in the preparation of the Proxy Statement and any exhibits, amendment or supplement thereto and shall consult with the Company and its advisors concerning any comments from the SEC with respect thereto and shall not file the Proxy Statement or any exhibits, amendments or supplements thereto or any response letters to any comments from the SEC without the prior consent of the Company, such consent not to be unreasonably withheld, conditioned or delayed (it being understood and agreed that it shall not be deemed reasonable to withhold, condition or delay consent to prevent or object to the disclosure of a fact, circumstance or item that is required to be
disclosed by applicable Law, rule or regulation or by the staff of the SEC after reasonable consideration of all relevant facts and circumstances). Parent agrees that the Proxy Statement and the Other Filings will comply in all material respects with all applicable Laws and the rules and regulations promulgated thereunder. Whenever any event occurs which is required to be set forth in an amendment or supplement to the Proxy Statement or any Other Filing, the Company or Parent, as the case may be, will promptly inform the other party of such occurrence and cooperate in filing with the SEC or its staff or any other government officials, and/or mailing to Parent Stockholders, such amendment or supplement. The Proxy Statement will be sent to the Parent Stockholders for the purpose of soliciting proxies from Parent Stockholders to vote in favor of (i) approval of the Initial Business Combination contemplated by this Agreement; (ii) the issuance and sale of the Parent Common Stock to the
extent that such issuance requires stockholder approval under the rules of the applicable stock exchange; and (iii) approving amendments to the Certificate of Incorporation of Parent as required so that the Certificate of Incorporation of Parent can be amended and restated in the form set forth on
Exhibit B
(the matters described in clauses (i) through (iii), the
Voting Matters
).
(b) As soon as practicable following its approval by the SEC, Parent shall distribute the Proxy Statement to the Parent Stockholders and, pursuant thereto, shall call a meeting of the Parent Stockholders (the
Parent Stockholders Meeting
) in accordance with the DGCL and solicit proxies from such holders to vote in favor of the approval of the Transaction and the other Voting Matters.
(c) Parent shall comply, and the Company shall provide Parent with such information concerning the Company reasonably requested by Parent that is necessary for the information concerning the Company in the Proxy Statement to comply, with all applicable provisions of and rules under the Exchange Act and other applicable federal securities laws and all applicable provisions of the DGCL in the preparation, filing and distribution of the Proxy Statement, the solicitation of proxies thereunder, and the calling and holding of the Parent Stockholders Meeting. Without limiting the foregoing, Parent shall ensure that the Proxy Statement does not, as of
the date on which it is distributed to the Parent Stockholders, and as of the date of the Parent Stockholders Meeting, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading (
provided
that Parent shall not be responsible for the accuracy or completeness of any information relating to the Company or any other information furnished by the Company for inclusion in the Proxy Statement).
(d) Subject to its fiduciary duties under Delaware Law, the Parent Board of Directors shall recommend that the Parent Stockholders vote in favor of approval of the Transaction and the other Voting Matters, and Parent, acting through the Parent Board of Directors, shall include in the Proxy Statement such recommendation, and shall otherwise use best efforts to obtain the Parent Stockholder Approval;
provided
that under no circumstances shall Parents directors, officers or shareholders be required to expend any personal funds (other than reasonable business expenses reimbursable by Parent), incur any
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liabilities or bring (or threaten to bring) any Action against a third party in order to obtain the Parent Stockholder Approval. This Section 6.2(d) shall not be construed to require Parent to be required to make any payment to any shareholder in exchange for such shareholders vote in favor of the Merger. The Company shall use reasonable best efforts to assist Parent in obtaining the Parent Stockholder Approval, including by participating in customary investor presentations and road shows.
(e) The Company shall review the Proxy Statement and shall ensure and shall confirm in writing to Parent, as of the date of mailing the Proxy Statement to Parent Stockholders, that the information relating to the Company contained in the Proxy Statement does not, to the knowledge of the Company, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading (the
Proxy Confirmation
). From and after the date on which the Proxy Statement is mailed to the Parent Stockholders, the Company will give
Parent written notice of any action taken or not taken by the Company or its Subsidiaries which is known by the Company to cause the Proxy Confirmation to be incorrect or inaccurate in any material respect;
provided
that, if any such action shall be taken or fail to be taken, the Company and Parent shall cooperate fully to cause an amendment to be made to the Proxy Statement such that the Proxy Confirmation is no longer incorrect or inaccurate in any material respect with respect to any information concerning the Company required to be included in the Proxy Statement.
(f) The Company shall provide to Parent, in form and substance appropriate for inclusion in the Proxy Statement, audited consolidated financial statements of the Company and its Subsidiaries as of September 30, 2008 and for the nine months ended September 30, 2008 (including the associated report of the Companys auditors) (the
September Financial Materials
), as soon as reasonably practicable but no later than December 31, 2008.
Section 6.3
Directors and Officers of Parent After Closing.
Parent and the Company shall take all necessary action so that the persons listed on Section 6.3 of the Company Disclosure Statement are appointed or elected, as applicable, to the position of directors of Parent, to serve in such positions effective immediately after the Closing.
Section 6.4
Governmental Filings.
In furtherance of the obligations set forth in Section 6.8, if required pursuant to the HSR Act, as promptly as practicable after the date of this Agreement, Parent and the Company shall each prepare and file the notification required of it thereunder in connection with the Transaction and shall promptly and in good faith respond to all information requested of it by the Federal Trade Commission and Department of Justice in connection with such notification and otherwise cooperate in good faith with each other and such Governmental Entities. Parent and the Company shall use
reasonable best efforts to (a) determine whether any registrations, declarations or filings are required to be made with, or consents permits, authorizations, waivers, clearances, approvals, and expirations or terminations of waiting periods are required to be obtained from any third parties or other Governmental Entities in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, (b) timely make all such registrations, declarations or filings and timely obtain all such consents, permits, authorizations or approvals (including with respect to the HSR Act, if applicable) and (c) take all reasonable steps as may be necessary to avoid any Action by any Governmental Entity. Parent and the Company shall (1) promptly inform the other of any communication to or from the Federal Trade Commission, the Department of Justice or any other Governmental Entity regarding the Transaction; (2) give the other prompt notice of the
commencement of any Action by or before any Governmental Entity with respect to the Transaction; and (3) keep the other reasonably informed as to the status of any such Action. Filing fees with respect to the notifications required under the HSR Act and with respect to any other approvals or filings with Governmental Entities shall be paid by Company.
Section 6.5
Required Information.
(a) The Company and Parent each shall, upon request by the other, furnish the other with all information concerning themselves and their Subsidiaries (if any), their respective directors, officers, stockholders and partners (including the directors of Parent to be elected effective as of the Closing) and such other matters as may be reasonably necessary or advisable in connection with the Transaction, or
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any other statement, filing, notice or application made by or on behalf of the Company and Parent to any third party and/or any Governmental Entity in connection with the Transaction.
(b) From the date hereof through the Closing Date, each of the parties will provide to the other parties and their respective Representatives full access during normal business hours to their respective properties, books, records, employees to make or cause to be made such review of the business, the assets, properties and Liabilities and financial and legal condition as any party deems necessary or advisable,
provided
that any such review shall not interfere unnecessarily with normal operations of the Company and Parent.
Section 6.6
Confidentiality.
Each of the Company and Parent agree that all information exchanged in connection with the Merger (and not required to be filed with the SEC pursuant to applicable Law) shall be subject to the Mutual Confidentiality and Non-Disclosure Agreement, dated as of February 25, 2008, between the Company and Parent (the
Confidentiality Agreement
), which shall remain in full force and effect pursuant to its terms.
Section 6.7
Public Disclosure.
From the date of this Agreement until the Closing or termination, the parties shall cooperate in good faith to jointly prepare all press releases and public announcements pertaining to this Agreement and the Transaction, and no party shall issue or otherwise make any public announcement or communication pertaining to this Agreement or the Transaction without the prior consent of Parent (in the case of the Company) or the Company (in the case of Parent), except as required by any Laws or by the rules and regulations of, or pursuant to any agreement of, a stock exchange. Each party
will not unreasonably withhold approval from the others with respect to any press release or public announcement. If any party determines that it is required by any Laws or by the rules and regulations of, or pursuant to any agreement with, a stock exchange, to make this Agreement and the terms of the Transaction public or otherwise issue a press release or make public disclosure with respect thereto, it shall, to the extent permitted by Law, at a reasonable time before making any public disclosure, consult with the other party regarding such disclosure and give the other party reasonable time to comment on such release or announcement in advance of such issuance. This provision will not apply to communications by any party to its counsel, accountants and other professional advisors. The parties hereto acknowledge that Parent will be required by Law to file with the SEC a Current Report on Form 8-K pursuant to the Exchange Act to report the execution of this Agreement and to abide by
certain contractual disclosure obligations of Parent of which the Company is aware.
Section 6.8
Reasonable Best Efforts.
Upon the terms and subject to the conditions set forth in this Agreement and except where a different standard is expressly applicable, each of the parties agrees to use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Transaction, including using reasonable best efforts to accomplish the following: (i) the taking of all reasonable acts
necessary to cause the conditions precedent set forth in Article III to be satisfied; (ii) the obtaining of all consents, approvals or waivers from third parties required to consummate the Transaction; (iii) the defending of any Actions challenging this Agreement or the consummation of the Transaction, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed; and (iv) the execution or delivery of any additional instruments reasonably necessary to consummate the Transaction, and to fully carry out the purposes of this Agreement, including, without limitation, providing certificates as to factual matters in connection with legal opinions.
Section 6.9
Notices of Certain Events.
From the date hereof through the earlier of the Closing Date or termination of this Agreement, the Company will notify Parent, and Parent will notify the Company, of: (i) any notice or other communication from any Person alleging that the Consent of such Person is or may be required in connection with the Transaction or the Reorganization Actions; and (ii) any Action commenced affecting the Company or Parent, the assets, Liabilities or employees of the Company or Parent, or the consummation of the Transaction. No notice pursuant to this Section will affect any
representations or warranties, covenants, obligations, agreements or conditions set forth herein or otherwise affect any available remedies.
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