UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant
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Filed by a Party other than the
Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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EDGAR Online, Inc.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy
Statement if other than the Registrant)
Payment of Filing Fee (Check in the appropriate box):
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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Common stock, par value $0.01 per share.
Series C Convertible Preferred Stock,
par value $0.01 per share
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(2)
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Aggregate number of securities to which transaction applies:
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2,685,088 shares of common stock.
87,016 shares of Series C Convertible
Preferred Stock (convertible as of issuance into 6,001,109 shares of common stock)
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(3)
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and
state how it was determined):
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The maximum aggregate value was determined based upon 2,685,088 shares of EDGAR
Online, Inc. common stock being issued in the transaction multiplied by $1.275, which is the average of the high and low trading prices as reported on The NASDAQ Capital Market on July 23, 2010, plus 6,001,119 shares of EDGAR Online, Inc.
common stock (the number of shares of common stock into which 87,016 shares of EDGAR Online, Inc. Series C Convertible Preferred Stock are convertible as of their issuance) multiplied by $1.275, which is the average of the high and low trading
prices as reported on The NASDAQ Capital Market on July 23, 2010. The filing fee was determined by multiplying $0.00007130 by the maximum aggregate value of the transaction as determined in accordance with the preceding sentence.
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(4)
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Proposed maximum aggregate value of transaction:
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$11,074,913.93
$789.64
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously.
Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration No.:
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EDGAR Online, Inc.
50 Washington Street
Norwalk, CT 06854
(203) 852-5666
YOUR VOTE IS VERY IMPORTANT
EDGAR Online, Inc., which we refer to as we, us, our company and EDGAR Online, and UBmatrix, Inc., which we refer to as UBmatrix, have entered
into a merger agreement pursuant to which UBM Acquisition Corp., a wholly-owned subsidiary of our company, will merge with and into UBmatrix. UBmatrix will then continue as a wholly-owned subsidiary of our company. We and UBmatrix believe that the
merger will result in the creation of a global end-to-end provider of XBRL (eXtensible Business Reporting Language) software, filings services and data.
Subject to the terms and conditions of the merger agreement, at the effective time of the merger, all of the shares of capital stock of UBmatrix outstanding immediately prior to the merger will be
converted into the right to receive an aggregate of 74,379 shares of Series C Convertible Preferred Stock, par value $0.01 per share, of our company, which we refer to as Series C Stock (initially convertible into 5,129,573 shares of the
common stock, par value $0.01 per share, of our company, which we refer to as common stock) and 2,685,088 shares of our common stock. The merger consideration is subject to adjustment following closing to the extent UBmatrixs net
cash at closing is less than a closing date net cash target of $1.759 million reduced by an agreed upon amount to be utilized by UBmatrix (expected to be approximately $1.2 million) between the execution of the merger agreement and the closing of
the merger. Any such adjustment would be on a pro rata basis to the stockholders of UBmatrix and would be effected through the release to us of a number of shares held in escrow equal in value to the amount of the shortfall in net cash at closing.
The common stock issued in connection with the merger includes 1,190,056 shares issuable to certain employees of UBmatrix who
will be joining our company as of the closing and 1,495,032 shares issuable to the stockholders and current Chief Financial Officer of UBmatrix. The shares issuable to the UBmatrix employees will be issued pursuant to our 2005 Stock Award and
Incentive Plan, and, except in one case as described in the following sentence, will be subject to restrictions on vesting that will last through the recipients initial 12 months of employment with us. The stock to be issued without
restriction consists of 60,586 shares of our common stock to be issued to the current Chief Financial Officer of UBmatrix, who will not be employed by the combined entity following the consummation of the Merger, and is being issued as payment for
unpaid past bonuses. A total of 1,622,042 shares of the common stock issued in the merger will be placed into an escrow account to secure the post-closing indemnification obligations of the UBmatrix stockholders. These shares will consist of
1,434,446 of the shares issuable to the stockholders of UBmatrix, as well as 187,596 of the shares issuable, subject to restrictions, to certain employees of UBmatrix who will be joining our company as of the closing.
Furthermore, in addition to and in connection with the merger agreement, we have entered into a Series C Preferred Stock Purchase
Agreement, or the purchase agreement, with Draper Fisher Jurvetson Fund VIII, L.P., Draper Fisher Jurvetson Partners VIII, LLC and Draper Associates, L.P., all of which are stockholders of UBmatrix, pursuant to which we will issue and sell 12,637
shares of our Series C Stock (initially convertible into 871,546 shares of the common stock) for an aggregate purchase price of $2,000,000.
Through January 28, 2015, the 74,379 shares of Series C Stock issued in connection with the merger and the 12,637 shares of Series C Stock issued pursuant to the purchase agreement are expected to
receive paid-in-kind dividends that will result in those shares being convertible into an additional 2,998,957 shares and 509,542 shares, respectively, of our common stock.
Collectively, we will
issue a total of 87,016 shares of Series C Stock (initially convertible into a total of 6,001,119 shares of common stock) and 2,685,088 shares of common stock in connection with the merger and purchase agreements. Collectively, these shares
represent an approximate 15% equity ownership in the combined company at the anticipated closing date, assuming the issuance of shares of common stock then issuable upon the conversion of our Series B Convertible Preferred Stock, which we refer to
as Series B Stock, and of the shares of common stock then issuable under our 2005 Stock Award and Incentive Plan (as amended, and inclusive of the increase in shares available under the plan as contemplated by Proposal No. 5 in the
attached proxy statement).
Our common stock is currently listed on The NASDAQ Capital Market under the symbol
EDGR. We anticipate that the closing of the merger will occur not later than five business days following the affirmative vote of our stockholders.
We are asking our stockholders to approve the issuance of shares of Series C Stock and common stock at the annual meeting of stockholders to take place on Thursday, November 18, 2010, at 10:00 A.M.
Eastern Time, at our companys offices, 122 East 42nd Street, Suite 2400, New York, New York 10168. At this meeting, which will be the annual meeting of the stockholders of EDGAR Online, you will be asked to vote on the following items:
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To approve the issuance of shares of common stock and Series C Stock pursuant to the Agreement and Plan of Merger, dated as of June 23, 2010 and amended on October
20, 2010, by and among our company, UBM Acquisition Corp., UBmatrix and a representative of the stockholders of UBmatrix, as described in the attached proxy statement;
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2.
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To approve the issuance of shares of Series C Stock pursuant to the Series C Preferred Stock Purchase Agreement, dated June 23, 2010, as described in the attached
proxy statement;
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3.
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To consider and vote upon an adjournment of the meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor
of Proposal No. 1, Proposal No. 2, Proposal No. 5 or Proposal No. 6;
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To elect six (6) members to our Board of Directors (of which two (2) are elected by the holders of our Series B Stock, voting separately as a class) to serve until
our 2011 Annual Meeting of Stockholders and until their successors are duly elected and qualified or until their earlier resignation or removal;
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To consider and act upon a proposal to authorize, approve and adopt amendments to our 2005 Stock Award and Incentive Plan (i) to increase the number of shares of
our common stock available for award under such Plan and (ii) to increase the limitation on the amount of awards that may be granted to any one participant in a given year in order to qualify awards as performance-based compensation
not subject to the limitation on deductibility under Section 162(m) of the Internal Revenue Code;
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To approve an amendment to our Amended and Restated Certificate of Incorporation to increase the number of authorized shares of our common stock thereunder;
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To approve and ratify the appointment of BDO USA, LLP as the independent registered public accounting firm of our company for the year ending December 31, 2010;
and
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To transact such other business as may properly come before the Annual Meeting or any adjournment thereof.
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After careful consideration, the Board of Directors has unanimously approved the merger agreement, the stock purchase agreement and the
respective proposals referred to above, and the Board of Directors has determined that it is advisable and in the best interest of our stockholders to enter into the merger and to sell the Series C Stock pursuant to the purchase agreement. The Board
of Directors recommends that you vote FOR the proposals described in the accompanying proxy statement.
Please
give all of the detailed information on EDGAR Online, UBmatrix, the merger and the sale of the Series C Stock under the stock purchase agreement contained in this Proxy Statement your careful attention, especially the discussion in the section
entitled
Risk Factors
beginning on page 18 of this Proxy Statement.
This Proxy Statement
is dated October 20, 2010 and is first being mailed on or about October 20, 2010 to stockholders as of October 11, 2010, the record date for the Annual Meeting, holding voting shares of our common stock or outstanding shares of our Series B Stock,
who are entitled to vote on an as-converted basis at the Annual Meeting (subject to the limitations as described in the Proxy Statement) and at any adjournments or postponements thereof on all matters.
Please also see Where You Can Find More Information on page 119.
October 20, 2010
Dear Stockholder:
On behalf of
the Board of Directors of EDGAR Online, Inc., I cordially invite you to attend our 2010 Annual Meeting of Stockholders, which will be held on Thursday, November 18, 2010, at 10:00 A.M. (local time) at our offices at 122 East 42nd Street, Suite 2400,
New York, New York 10168.
At this years meeting, you will be asked: (i) to approve the issuance of shares of the
Companys common stock and Series C Convertible Preferred Stock pursuant to the Agreement and Plan of Merger, dated as of June 23, 2010 and amended on October 20, 2010, by and among the Company, UBM Acquisition Corp., UBmatrix, Inc. and a
representative of the stockholders of UBmatrix, Inc., as described in the attached proxy statement; (ii) to approve the issuance of shares of the Companys Series C Convertible Preferred Stock pursuant to the Series C Preferred Stock
Purchase Agreement, dated June 23, 2010, as described in the attached proxy statement; (iii) to consider and vote upon an adjournment of the meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not
sufficient votes in favor of Proposal No. 1, Proposal No. 2, Proposal No. 5 or Proposal No. 6; (iv) to elect six directors (of which two are elected by the holders of the Companys Series B Convertible Preferred Stock,
voting separately as a class) to serve on the Board of Directors of the Company until the Companys 2011 Annual Meeting of Stockholders and until their successors are duly elected and qualified or until their earlier resignation or removal;
(v) to approve and adopt amendments to the Companys 2005 Stock Award and Incentive Plan (a) to increase the number of shares of Common Stock available for award under such Plan and (b) to increase the limitation on the amount of
awards that may be granted to any one participant in a given year in order to qualify awards as performance-based compensation not subject to the limitation on deductibility under Section 162(m) of the Internal Revenue Code;
(vi) to approve an amendment to the Companys Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock thereunder; (vii) to approve and ratify the appointment of BDO USA, LLP as the
independent registered public accounting firm of the Company for the year ending December 31, 2010; and (viii) to transact such other business as may properly come before the Annual Meeting or any adjournment thereof.
We have attached a notice of meeting and a proxy statement that contains more information about these proposals.
You will also find enclosed a proxy card appointing proxies to vote your shares at the Annual Meeting. Please sign, date and return your
proxy card as soon as possible so that your shares can be represented and voted in accordance with your instructions, even if you cannot attend the Annual Meeting in person.
Sincerely,
David Price
Chief
Financial
Officer
EDGAR
®
ONLINE, INC.
NOTICE OF ANNUAL
MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 18, 2010
TO THE STOCKHOLDERS OF EDGAR ONLINE, INC.:
NOTICE IS HEREBY GIVEN that
the Annual Meeting of Stockholders (the Annual Meeting) of EDGAR Online, Inc., a Delaware corporation (EDGAR Online or the Company), will be held at the Companys offices, 122 East 42nd Street, Suite 2400,
New York, New York 10168, on Thursday, November 18, 2010, at 10:00 A.M. (local time) for the following purposes:
(1) To approve the issuance of shares of the Companys Common Stock and Series C Convertible Preferred Stock pursuant
to the Agreement and Plan of Merger, dated as of June 23, 2010 and amended on October 20, 2010, by and among the Company, UBM Acquisition Corp., UBmatrix, Inc. and a representative of the stockholders of UBmatrix, Inc., as described in the
attached proxy statement;
(2) To approve the issuance of shares of the Companys Series C Convertible
Preferred Stock pursuant to the Series C Preferred Stock Purchase Agreement, dated June 23, 2010, as described in the attached proxy statement;
(3) To consider and vote upon an adjournment of the meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal No. 1, Proposal
No. 2, Proposal No. 5 or Proposal No. 6;
(4) To elect six members to the Companys Board of
Directors (the Board of Directors) (of which two are elected by the holders of the Companys Series B Convertible Preferred Stock, voting separately as a class) to serve until the Companys 2011 Annual Meeting of Stockholders
and until their successors are duly elected and qualified or until their earlier resignation or removal;
(5)
To consider and act upon a proposal to authorize, approve and adopt amendments to the Companys 2005 Stock Award and Incentive Plan (the 2005 Plan) to (i) increase the number of shares of Common Stock available for award under
the 2005 Plan and (ii) to increase the limitation on the amount of awards that may be granted to any one participant in a given year in order to qualify awards as performance-based compensation not subject to the limitation on
deductibility under Section 162(m) of the Internal Revenue Code;
(6) To consider and act upon a proposal
to amend the Companys Amended and Restated Certificate of Incorporation to increase the number of authorized shares of Common Stock thereunder;
(7) To ratify the appointment of BDO USA, LLP, as the independent registered public accounting firm of the Company for the year ending December 31, 2010; and
(8) To transact such other business as may properly come before the Annual Meeting and any adjournment or postponement
thereof.
The foregoing items of business are more fully described in the Proxy Statement that is attached to and made a part
of this Notice. The Board of Directors has fixed October 11, 2010, as the record date for determining stockholders entitled to notice of, and to vote at, the Annual Meeting, or any adjournment or postponement thereof.
All stockholders are cordially invited to attend the Annual Meeting in person. Whether or not you plan to attend the Annual Meeting, your
vote is important. To assure your representation at the Annual Meeting, please sign and date the enclosed proxy card and return it promptly in the enclosed envelope, which requires no additional postage if mailed in the United States or Canada.
Should you receive more than one proxy card because your shares are registered in different names and addresses, each proxy card should be signed and returned to assure that all your shares will be voted. You may revoke your proxy at any time prior
to the Annual Meeting in the manner set forth in the Proxy Statement. If you attend the Annual Meeting and vote by ballot, your proxy will be revoked automatically and only your vote at the Annual Meeting will be counted.
The Proxy Statement and the accompanying proxy card are being mailed beginning
on or about October 20, 2010, to stockholders of record on October 11, 2010.
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By Order of the Board of Directors
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David Price
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Chief
Financial
Officer
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New York, New York
October 20, 2010
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
EDGAR
®
is a federally registered trademark of the U.S. Securities and Exchange Commission. EDGAR Online is not affiliated
with or approved by the U.S. Securities and Exchange Commission.
TABLE OF CONTENTS
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SUMMARY
This summary highlights selected information from this proxy statement and may not contain all of the information that is important to you. This summary discusses all of the material aspects of the
merger. However, to understand the merger fully and for a more complete description of the legal terms of the merger, you should read this proxy statement and the documents we have referred you to carefully. See Additional Information for
StockholdersWhere You Can Find More Information. We have included page references to direct you to a more complete description of the topics presented in this summary.
The Companies
EDGAR Online, Inc.
50 Washington Street
Norwalk, CT 06854
(203) 852-5666
We are a leading provider of XBRL (eXtensible Business Reporting Language) filing services, data sets and analysis tools. Our data
products provide highly detailed fundamental financial information along with the source documents and are created through the use of proprietary high speed software that automates much of the data extraction and calculation processes. Our XBRL
Filing service uses parts of this same proprietary data extraction and processing software along with personnel skilled in accounting, rigorous quality processes and additional proprietary tools to assist public companies in the creation of XBRL
filings for submission to the U.S. Securities and Exchange Commission. Our XBRL analysis tool is a proprietary software tool that assists users in analyzing both our own proprietary XBRL data sets and industry standard XBRL data files. We deliver
our data and analysis products via online subscriptions, as data licenses directly to end-users, embedded in other web sites and through a variety of redistributors. We deliver our filings services primarily through partnerships with financial
printers and other providers of SEC compliance services.
UBM Acquisition Corp.
50 Washington Street
Norwalk, CT 06854
(203) 852-5666
UBM Acquisition Corp., which we refer to as merger sub, is a wholly-owned subsidiary of our company that was incorporated in the State of
Washington on June 22, 2010. Merger sub does not engage in any operations and exists solely to facilitate the merger.
UBmatrix, Inc.
333 Twin Dolphin Drive
Redwood City, CA 94065
(650) 264-4510
UBmatrix is the leading provider of XBRL-based software solutions for global organizations and enterprises, enabling them to more
efficiently and effectively address the challenges of business and financial information management, governance, risk and compliance and external reporting.
UBmatrix markets through an extensive network of independent software vendors or OEM (original equipment manufacturer) partners, including Oracle, SAP, Information Builders and Wolters Kluwer, who
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license software code from UBmatrix to embed into their products, as well as systems integrators, or implementation partners, including Aguilonius Consulting, CapGemini, Ciber, CSC, Deloitte,
Kolon-Benit and NTT Data, who purchase and install our software as part of a larger project for one of their customers. Customers of UBmatrix solutions include the U.S. FDIC, Banque de France, DICO in Canada and Keane Federal Systems under contract
to the U.S. Securities and Exchange Commission. UBmatrix XBRL solutions increase operational efficiency and financial transparency and ensure reporting accuracy and regulatory compliance. UBmatrix is based in Silicon Valley with development centers
in Bellevue, WA and New Delhi, India.
The Merger
The Merger Agreement (see page 44)
The merger agreement is attached
as Annex A to this proxy statement. You are encouraged to read the merger agreement as it is the legal document that governs the merger.
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Merger Consideration (see page 44)
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Subject to the terms and conditions of the merger agreement, at the effective time of the merger, all of the shares of capital stock of UBmatrix outstanding immediately prior to the merger will be
converted into the right to receive an aggregate of 74,379 shares of our Series C Stock (initially convertible into 5,129,573 shares of our common stock) and 2,685,088 shares of our common stock. The merger consideration is subject to adjustment
following closing to the extent UBmatrixs net cash at closing is less than a closing date net cash target of $1.759 million reduced by an agreed upon amount to be utilized by UBmatrix (expected to be approximately $1.2 million) between the
execution of the merger agreement and the closing of the merger. Any such adjustment would be on a pro rata basis to the stockholders of UBmatrix and would be effected through the release to us of a number of shares held in escrow equal in value to
the amount of the shortfall in net cash at closing. Through January 28, 2015, the shares of Series C Stock issued in the merger are expected to receive paid-in-kind dividends that will result in those shares being convertible into an additional
2,998,957 shares of our common stock.
In total, we will issue a total of 74,379 shares of Series C Stock (initially
convertible into a total of 5,129,573 shares of common stock) and 2,685,088 shares of common stock in connection with the merger agreement (of which 1,190,056 shares will be issued to UBmatrix employees that will continue with the Company).
Collectively, these shares represent an approximate 13.5% equity ownership in the combined company at the anticipated closing date, assuming the issuance of shares of common stock then issuable upon the conversion of our Series B Stock and of the
shares of common stock then issuable under our 2005 Stock Award and Incentive Plan (as amended, and inclusive of the increase in shares available under the plan as contemplated by Proposal No. 5 in this proxy statement).
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Escrow Arrangement (page 44)
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The stockholders of UBmatrix will receive an initial payment of approximately 74,379 shares of our Series C Stock and 1,495,032 shares of our common stock. Certain employees of UBmatrix will receive
1,190,056 shares of common stock. A total of 1,622,042 shares of our common stock, out of 2,685,088 that will be issued, will be deposited into escrow to secure the post-closing indemnification obligations of the UBmatrix stockholders. These shares
will consist of 1,434,446 of the shares issuable to the stockholders of UBmatrix, as well as 187,596 of the shares issuable, subject to restrictions, to certain employees of UBmatrix who will be joining our company as of the closing. These shares
will be held by an internationally recognized escrow agent or bank pursuant to the terms of the merger agreement and an escrow agreement in a form mutually agreed by the parties. On the date that is 12 months following the effective date of the
merger, all shares will be released to the stockholders of UBmatrix except for such shares having a value equal to the amount of any outstanding indemnification claims.
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Treatment of UBmatrix Stock Options and Warrants (see page 45)
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All stock options exercisable for UBmatrix common stock and preferred stock and warrants to purchase UBmatrix common stock and preferred
stock that are outstanding and unexercised will be cancelled prior the effective time of the merger and will no longer represent the right to purchase UBmatrix common stock or preferred stock or any equity security of UBmatrix or EDGAR Online. All
outstanding convertible notes of UBmatrix will be repaid directly as a portion of the 74,379 shares of our Series C Stock to be issued at the closing of the merger (and be subject to the escrow arrangement). The number of shares of Series C Stock
payable to the note holders was calculated on June 23, 2010 based on the 30 day trading average of the EDGAR Online stock price and interest accrued through June 23, 2010.
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Conditions to the Completion of the Merger (see page 51)
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The merger agreement and the merger have been approved by the board of directors of each company. Holders of approximately 94% of the
outstanding shares of UBmatrix preferred stock have signed written consents approving the merger agreement, the merger and certain related matters, which satisfies the condition for approval of the merger and merger agreement by UBmatrix
stockholders. The completion of the merger remains subject to closing conditions, including the approval by our stockholders of the issuance of the shares of Series C Stock and common stock to be issued by us in connection with the merger (which is
the subject of this proxy statement), the acceptance by certain employees of UBmatrix identified in the merger agreement of our offers of employment, no more than 5% of UBmatrix stockholders exercising their dissenters rights, and certain
other conditions.
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Indemnification (see page 50)
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The merger agreement provides for us and our related parties to have full recourse against the escrow for losses or damages arising out of inaccuracies in UBmatrixs representations, UBmatrixs
breach of its pre-closing covenants and certain other matters. The indemnification obligations are capped at 10% of the total value of the Series C Stock and common stock issued pursuant to the merger agreement, except for breaches of fundamental
representations and warranties and fundamental matters in which case the indemnification obligations are capped at 100% of the total value of the Series C Stock and common stock issued pursuant to the merger agreement. These limitations shall not
apply in the event of fraud by UBmatrix.
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Termination of the Merger Agreement (see page 52)
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We and UBmatrix can jointly agree to terminate the merger agreement at any time. Either party may terminate the merger agreement if, subject to certain exceptions set forth in the merger agreement, the
merger has not been completed by November 30, 2010 (which date may be extended to December 31, 2010 if our stockholder approval has not been obtained due to insufficient proxies held by us). These dates were agreed to in Amendment No. 1 to
the merger agreement and had previously been earlier dates. In addition, we and UBmatrix will have the termination rights set forth below:
We may terminate the merger agreement if UBmatrix has violated or breached in any material respect any of its obligations to conduct its business pending the closing of the merger in accordance with the
merger agreement or its obligations to refrain from soliciting or participating in any alternate acquisition proposal and failed to cure such breach within 15 days.
UBmatrix may terminate the merger agreement if we have violated or breached in any material respect any of our obligations to prepare this proxy statement and solicit our stockholder approval and failed
to cure such breach within 15 days.
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Effect of Termination (see page 52)
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If either we, on the one hand, or UBmatrix, on the other hand, terminate the merger agreement the merger agreement shall become void, without any liability or further obligation on the part of UBmatrix,
our company or merger sub or any officer or director thereof, except for liabilities arising from a breach of the merger agreement prior to termination.
Risks Relating to the Merger (see page 18)
In evaluating the
issuance of shares of common stock in the merger, you should carefully read this proxy statement and especially consider the factors discussed in the section titled Risk Factors, starting on page 18, for a description of risks relating
to the merger.
Factors Considered by, and Recommendation of, the Board of Directors (see page 27)
We are proposing the merger because, among other things, we believe that the merger will result in the creation of a global end-to-end
provider of XBRL software, filings services and data. We also anticipate that the merger will result in additional benefits, such as the opportunity to our accelerate development plans and time to market for new solutions within the highly
competitive XBRL market, the potential synergies of combining the XBRL skills, development teams, and sales and marketing organizations of the two companies, the opportunity for our stockholders to participate in a significantly larger, more
diversified company, with greater share liquidity and the potential for realizing annual cost savings through consolidation of administrative functions. For a discussion of our reasons for the merger, please see the section entitled The Merger
TransactionFactors Considered by, and Recommendation of, the EDGAR Online Board of DirectorsReasons for the Merger Identified by the EDGAR Online Board of Directors in this proxy statement. We are selling additional shares of
Series C Stock under the stock purchase agreement largely in order to add to our financial resources for funding our operations and growth.
The Board of Directors has identified potential benefits of the merger that it believes will contribute to the success of the combined company, including the following:
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the opportunity to expand and diversify our channel distribution partnerships to include independent software vendors in the accounting books and
record and compliance software markets, original equipment manufacturers in the enterprise software space such as Oracle and SAP, and systems integrators that implement regulatory compliance tools, areas in which UBmatrix has a significant presence;
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the opportunity to expand and diversify our customer base and global market opportunities, as UBmatrix has already penetrated the international
regulatory and filings markets;
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the opportunity to expand and diversify our product offerings and business models through UBmatrixs software, which could enhance the
capabilities of our filing service and lead to improved and more comprehensive services and products as well as acceleration of our efforts to work with regulators to improve the XBRL validation filing process;
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the opportunity to cross sell more products to a larger customer base due to UBmatrixs suite of technology and products for regulatory systems
which, combined with our filing solutions and data/analytics, would allow us to target a greater portion of the financial information market;
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the opportunity to accelerate development plans and time to market for new solutions within the highly competitive XBRL market;
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the fact that UBmatrix owns and controls valuable intellectual property that we believe may be used to enhance and expand our businesses and market
opportunities, and possesses skilled XBRL resources, and we believe it would be more efficient in terms of time, expenses and resources to purchase UBmatrixs intellectual property and skilled resources through the Merger in lieu of developing
similar tools, products and resources internally;
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the potential synergies of combining the XBRL skills, development teams, and sales and marketing organizations of the two companies in order to
leverage differing but complementary skill sets, which would each allow the other to develop and be executed more efficiently;
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the opportunity for our stockholders to participate in a significantly larger, more diversified company, with greater share liquidity;
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the potential for realizing annual cost savings through consolidation of administrative functions;
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the combined company is anticipated to have sufficient financial resources to fund operations through approximately December 2010; and
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the combined company being appropriately capitalized to further develop its technology and commercial offerings.
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The Board of Directors has considered all of the proposals that are set forth in this proxy statement, and recommends that our
stockholders vote
FOR
the issuance of the shares pursuant to the merger agreement;
FOR
the issuance of the shares pursuant to the stock purchase agreement;
FOR
the adjournment of the annual meeting, if necessary, if a quorum is
present, to solicit additional proxies if there are not sufficient votes in favor of Proposal No. 1, Proposal No. 2, Proposal No. 5 or Proposal No. 6;
FOR
the election of six (6) members to our Board of Directors to serve
until the our 2011 Annual Meeting of Stockholders and until their successors are duly elected and qualified or until their earlier resignation or removal;
FOR
the amendments to our 2005 Stock Award and Incentive Plan (i) to increase the
number of shares of our common stock available for award under such Plan and (ii) to increase the limitation on the amount of awards that may be granted to any one participant in a given year in order to qualify awards as
performance-based compensation not subject to the limitation on deductibility under Section 162(m) of the Internal Revenue Code;
FOR
the amendment to our Amended and Restated Certificate of Incorporation to increase the
number of authorized shares of our common stock thereunder; and
FOR
the appointment of BDO USA, LLP as the independent registered public accounting firm of our company for the year ending December 31, 2010.
Directors and Management of EDGAR Online Following the Merger (page 53)
The current directors and management of EDGAR Online will remain in place following the merger other than our hiring of a permanent Chief
Executive Officer. At the effective time of the merger, we will file a Certificate of Designation for the Series C Stock with the Secretary of State of the State of Delaware, pursuant to which the holders of Series C Stock will have the right to
elect one director to our Board. It is expected that Barry Schuler, a director on the board of UBmatrix and former chairman and CEO of America Online Inc., will be designated to serve on our Board.
Per-Share Market Price and Dividend Information (see page 31)
Our common stock is currently listed on The NASDAQ Capital Market. UBmatrix is a private company, and as such, there is no trading market
for its common stock. On June 23, 2010, the last full trading day before we and UBmatrix issued a press release announcing the merger agreement, the closing price of our common stock as reported on The NASDAQ Capital Market was $1.30 per share.
See Per Share Market Price and Dividend Information on page 31.
Listing of EDGAR Online Common Stock
The shares of our common stock to be issued in the merger will be listed on The NASDAQ Capital Market under the symbol
EDGR. However, even though listed, the shares issued to stockholders of UBmatrix will be held in escrow and therefore not available for immediate sale, and the shares to be issued to employees of UBmatrix, except in one case as described
in the following sentence, will be subject to restrictions on vesting that
5
will last through the recipients initial 12 months of employment with us. The stock to be issued without restriction consists of 60,586 shares of our common stock to be issued to the
current Chief Financial Officer of UBmatrix, who will not be employed by the combined entity following the consummation of the Merger, and is being issued at the direction of the current shareholders of UBmatrix as payment for unpaid past bonuses.
These shares of part of, and not in addition to, consideration payable to the current shareholders of UBmatrix.
Potential Registration of Merger Consideration (see page 56)
Upon the closing of the merger, we will enter into an Amended and Restated Investor Rights Agreement with certain of the principal
stockholders of UBmatrix pursuant to which we will grant demand and piggy-back registration rights to such stockholders.
Ownership of EDGAR Online After the Merger
In the merger, UBmatrix will become a wholly-owned subsidiary of our company. Based upon the outstanding shares of our common stock on June 23, 2010, immediately following the completion of the
merger and including shares issued pursuant to the stock purchase agreement, UBmatrix stockholders and ex-employees will own approximately 15% of the combined companys common stock on a fully-diluted basis and our existing common and preferred
stockholders and employees will own approximately 85% of the combined companys common stock on a fully-diluted basis. For a more detailed discussion of the securities to be issued by us to the securityholders of UBmatrix in the merger, see
The Merger AgreementMerger Consideration on page 44. Our stockholders will continue to own their existing shares after the merger.
Vote Necessary to Approve the Proposals
The six nominees for
director receiving the highest number of affirmative votes will be elected as directors. The vote of a majority of the shares present at the annual meeting, either in person or by proxy, and entitled to vote, is required for approval of Proposal
Nos. 1, 2, 3, 5 and 7. The vote of a majority of the issued and outstanding shares of our common stock entitled to vote is required for approval of Proposal No. 6.
Accounting Treatment
We will account for the merger as a purchase
of the business, which requires the assets and liabilities of UBmatrix to be measured and recorded at their fair values as of the date of the merger. In recording the purchase, we will combine the merger and the stock purchase as if they were a
single transaction in estimating the value of shares issued. The results of operations of UBmatrix will be included in our Consolidated Statement of Operations from and after the effective time that control of UBmatrix transfers to our company,
which will occur on the date of the merger.
Regulatory Approvals (see page 30)
We are not aware of any government regulatory approval required to be obtained with respect to the consummation of the merger, except for
the filing of articles of merger with the office of the Secretary of State of the State of Washington, and compliance with all applicable state securities laws regarding the offering and issuance of the merger shares.
Voting Agreement (see page 55)
Certain principal stockholders of UBmatrix have entered a Voting Agreement and Proxy, which we refer to as the voting agreement, pursuant to which they agreed to vote all shares of UBmatrix capital stock
held by such stockholders in favor of the merger and the merger agreement, and against any action which would adversely
6
affect the merger. The voting agreement includes an irrevocable proxy to vote the shares of the stockholders in accordance with the voting agreement. Pursuant to the voting agreement, the
stockholders also agreed that they shall not sell, transfer, encumber or otherwise dispose of their shares of UBmatrix capital stock prior to the merger.
Sales Volume Agreement (see page 55)
Upon the consummation of the
merger, certain stockholders of UBmatrix, who will receive shares of our common stock in connection with the merger and will be employed by our company upon the closing of the merger, will enter into a Sales Volume Agreement pursuant to which they
will agree that they shall not sell, transfer, tender, pledge, encumber, assign or otherwise dispose of, directly or indirectly, a number of shares of our common stock received in the merger in any one-day, 30-day or 60-day period greater than the
volume limits specified in the agreement during the period commencing on the effective date of the merger and ending on the date that is 90 days following the termination of such stockholders employment with our company.
Series C Preferred Stock Purchase Agreement (see page 56)
Concurrently and in connection with the execution of the merger agreement, we and Draper Fisher Jurvetson Fund VIII, L.P., Draper Fisher
Jurvetson Partners VIII, LLC and Draper Associates, L.P., all of which are stockholders of UBmatrix, entered into the stock purchase agreement, pursuant to which we will issue and sell 12,637 shares of our Series C Stock (initially convertible into
871,546 shares of the common stock) for an aggregate purchase price of $2,000,000. The issuance of the Series C Stock will occur simultaneously with the closing of the merger.
License and Know-How Transfer Agreement (see page 56)
Concurrently
and in connection with the execution of the merger agreement, we have entered into a License and Know-How Transfer Agreement with UBmatrix, which we refer to as the license agreement, pursuant to which we license certain intellectual property from
UBmatrix in order to integrate the technology of UBmatrix with our intellectual property, products and services during the pre-closing period.
Other Business to be Conducted at the Annual Meeting
As this will be the annual meeting of our stockholders, you will also be asked to vote upon various other matters in addition to the merger and the issuance of shares under the stock purchase agreement,
including: (i) to consider and vote upon an adjournment of the meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal No. 1, Proposal No. 2, Proposal
No. 5 or Proposal No. 6; (ii) to elect six directors to serve on our Board of Directors until our 2011 Annual Meeting of Stockholders and until their successors are duly elected and qualified or until their earlier resignation or removal;
(iii) to approve and adopt amendments to our 2005 Stock Award and Incentive Plan (a) to increase the number of shares of common stock available for award under such Plan and (b) to increase the limitation on the amount of awards that
may be granted to any one participant in a given year in order to qualify awards as performance-based compensation not subject to the limitation on deductibility under Section 162(m) of the Internal Revenue Code; (iv) to
approve an amendment to our Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock thereunder; (v) to approve and ratify the appointment of BDO USA, LLP as the independent registered public
accounting firm of our company for the year ending December 31, 2010; and (vi) to transact such other business as may properly come before the Annual Meeting or any adjournment thereof.
7
THE MERGER
QUESTIONS AND ANSWERS ABOUT THE MERGER
Why am I
receiving this Proxy Statement?
You are receiving this proxy statement because you have been identified as a stockholder
of our company as of the record date, and you are entitled to vote at the annual meeting. This document serves as a proxy statement of our company used to solicit proxies for the annual meeting. This proxy statement contains important information
about the merger and the annual meeting, and you should read it carefully.
Who is paying for this proxy solicitation?
The expense of soliciting proxies, including the cost of preparing, assembling and mailing the notice, proxy statement and proxy, will be
borne by us. We may pay the expenses of persons holding common stock on behalf of others for sending proxy materials to their principals. In addition to solicitation of proxies by mail, our directors, officers and employees, without additional
compensation, may solicit proxies by telephone, electronically via e-mail and personal interview. No additional compensation will be paid to these individuals for any such services. Except as described above, we do not presently intend to solicit
proxies other than by mail.
What voting rights do I have as a stockholder?
On each matter to be voted on, holders of common stock have one vote for each outstanding share of common stock they own as of the record
date. Holders of Series B Stock outstanding as of the close of business on the record date will be entitled to vote on an as-converted basis each share held by them on the record date, subject to the provision, set forth in the Certificate of
Designation establishing the Series B Stock, that limits the number of shares of common stock into which the Series B Stock can be converted to the number of shares of common stock that would, following such conversion, cause the holder of the
Series B Stock electing such conversion to own, in the aggregate, shares of common stock representing 19.9% of all the then issued and outstanding shares of the Companys voting power. Only stockholders of record at the close of business on the
record date are entitled to receive notice of and to vote at the Annual Meeting. On the record date, there were 26,984,829 shares of common stock outstanding and entitled to vote and 120,000 shares of Series B Stock outstanding and entitled to vote.
As of the record date the Series B Stock, including accrued dividends, was convertible into an aggregate of 11,784,429 shares of common stock, but in accordance with the limitation on conversion, was convertible into a maximum of 6,704,094 shares of
common stock. Stockholders do not have the right to vote cumulatively in the election of directors.
How do I vote?
If you are a stockholder of record, you can vote (i) in person at the Annual Meeting or (ii) by completing and submitting your
proxy card.
If you are a stockholder of record, the proxy holders will vote your common stock or your Series B Stock, as the
case may be, based on your directions. If you sign and return your proxy card, but do not properly direct how your common stock or your Series B Stock, as the case may be, should be voted, the proxy holders will vote FOR each of the
seven proposals listed in this proxy statement and will use their discretion on any other proposals and other matters that may be brought before the Annual Meeting.
If you hold common stock or Series B Stock through a broker or nominee, you may vote in person at the Annual Meeting only if you have obtained a signed proxy from your broker or nominee giving you the
right to vote your shares. Your broker or nominee may provide separate voting instructions, if any, with the proxy statement. Your broker or nominee may provide proxy submission through the Internet or by telephone.
8
Can I revoke or change my vote
after I submit a proxy?
Yes. You can revoke your proxy or change your vote at any time before the proxy is exercised at
the Annual Meeting. This can be done by (i) submitting another properly completed proxy card with a later date; (ii) sending a written notice to our Secretary prior to the commencement of the Annual Meeting; or (iii) attending the
Annual Meeting and voting in person. You should be aware that simply attending the Annual Meeting will not automatically revoke your previously submitted proxy, rather you must notify an EDGAR Online representative at the Annual Meeting of your
desire to revoke your proxy and vote in person.
On what matters are our stockholders being asked to vote?
In order to complete the merger, our stockholders must vote to approve the issuance of shares of Series C Stock and common stock to
UBmatrix stockholders and employees in the merger, and the issuance of Series C Stock pursuant to the stock purchase agreement. At the annual meeting, our stockholders are being asked to vote on the following items:
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the issuance of an aggregate of 74,379 shares of our Series C Stock and 2,685,088 shares of our common stock pursuant to the merger agreement,
described under The Merger Agreement beginning on page 44;
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the issuance of an aggregate of 12,637 shares of our Series C Stock pursuant to the stock purchase agreement, described under Series C Preferred
Stock Purchase Agreement beginning on page 56;
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the adjournment of the annual meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor
of Proposal No. 1, Proposal No. 2, Proposal No. 5 or Proposal No. 6;
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a proposal to elect six members to our Board of Directors to serve until our 2011 Annual Meeting of Stockholders and until their successors are duly
elected and qualified or until their earlier resignation or removal;
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a proposal to amend our 2005 Stock Award and Incentive Plan (i) to increase the number of shares available for issuance thereunder by 5,955,109
shares, from 5,043,568 to 10,998,677 (as of June 30, 2010) and (ii) to increase from 300,000 to 1,000,000 the limitation on the amount of awards that may be granted to any one participant in a given year in order to qualify awards as
performance-based compensation not subject to the limitation on deductibility under Section 162(m) of the Internal Revenue Code;
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a proposal to amend our Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock thereunder from
50,000,000 to 75,000,000;
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a proposal to ratify the appointment of BDO USA, LLP as our independent registered public accounting firm for the year ending December 31, 2010;
and
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to transact such other business as may properly come before the Annual Meeting and any adjournment or postponement thereof.
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What will happen in the merger?
In the merger, UBmatrix will become a wholly-owned subsidiary of our company. Based upon the estimated outstanding and issuable shares of our common stock immediately following the completion of the
merger and the stock purchase, UBmatrix stockholders and ex-employees will own approximately 15% of the combined companys common stock on a fully diluted basis and our stockholders will own approximately 85% of the combined companys
common stock on a fully diluted basis.
Is stockholder approval of the merger required by the rules of The NASDAQ Stock Market?
Under NASDAQ Marketplace Rule 5635(a)(1), a company listed on NASDAQ is required to obtain stockholder approval prior to
the issuance of common stock or securities convertible into common stock in
9
connection with the acquisition of another companys stock, if the number of shares of common stock to be issued is in excess of 20% of the number of shares of common stock then outstanding.
The newly issued shares of our common stock to be issued in the merger and into which the Series C Stock to be issued in the merger and pursuant to the stock purchase agreement is convertible exceed the 20% threshold under the NASDAQ Marketplace
Rules. Thus, in order to ensure compliance with NASDAQ Marketplace Rule 5635(a)(1), we must obtain the approval of our stockholders for the issuance of the shares of our Series C Stock and common stock in the merger and pursuant to the stock
purchase agreement.
When and where is the annual meeting?
The annual meeting will take place on Thursday, November 18, 2010 at 10:00 a.m., Eastern Time, at our offices at 122 East 42nd Street, Suite 2400, New York, New York 10168.
How does the Board of Directors recommend I vote?
The Board recommends that stockholders vote Yes for the issuance of shares of our Series C Stock and common stock pursuant to the merger agreement and stock purchase agreement and for all of
the other proposals to be voted on by stockholders at the annual meeting. After careful consideration, the Board of Directors has determined by unanimous vote the merger to be in the best interests of our stockholders, and declared the merger
advisable. The Board of Directors approved the merger agreement and the stock purchase agreement and recommends that stockholders approve the issuance of the shares pursuant to the merger agreement and stock purchase agreement.
If my shares are held in street name by my broker, bank or other nominee, will my broker, bank or other nominee vote my shares for me?
If you do not provide your broker, bank or nominee with instructions on how to vote your street name shares,
your broker, bank or nominee will not be permitted to vote them on the matters that are to be considered at the annual meeting relating to the merger and the stock purchase, the election of directors, the amendments to our 2005 Stock Award and
Incentive Plan, the amendments to our certificate of incorporation, and certain other non-routine matters. You should therefore be sure to provide your broker with instructions on how to vote your shares. If you wish to vote your shares in person,
you must bring to the meeting a letter from the broker, bank or nominee confirming your beneficial ownership of the shares to be voted.
What appraisal rights do stockholders have in connection with the merger?
Under Delaware law, holders of our common stock do not have any right to an appraisal of the fair value of their shares in connection with the merger or any other proposal discussed in this proxy
statement.
What happens if I do not return a proxy card or otherwise provide proxy instructions?
The failure to return your proxy card or otherwise provide proxy instructions could be a factor in establishing a quorum for the annual
meeting for purposes of approving the issuance of shares pursuant to the merger agreement and stock purchase agreement or other actions sought to be taken, which is required to transact business at the meeting.
When do you expect the merger and stock purchase to be completed?
We are working towards completing the merger and stock purchase as quickly as possible. We hope to complete these transactions in the fourth quarter of 2010. However, the exact timing of completion of the
transactions cannot be determined yet because completion of the transactions is subject to a number of conditions, as discussed in this proxy statement.
10
How many authorized but unissued
shares of common stock will exist after the closing of the merger?
As of the close of business on October 11, 2010, the
Company had shares of common stock outstanding, reserved for issuance upon conversion of Series B Stock and exercise of outstanding warrants and options, and available for grant under the 2005 Plan, as follows:
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Shares outstanding: 26,984,829
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Shares reserved for issuance upon conversion of our Series B Stock: 11,784,429
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Shares reserved for issuance under issued and outstanding warrants: 0
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Shares reserved for issuance under issued and outstanding options: 3,339,881
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Shares reserved for issuance under our 2005 Plan: 1,684,531
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In connection with the merger, the stock purchase and the increase in shares under the 2005 Plan, we will be required to issue or reserve 14,641,316 shares as follows:
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Shares issued in connection with the merger agreement: 2,685,088
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Shares reserved for issuance upon conversion of our Series C Stock issued in connection with the merger agreement: 6,001,119
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Shares reserved for increase in our 2005 Plan: 5,955,109
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In addition, dividend commitments will require us to reserve 10,474,070 additional shares in connection with our Series B Stock and Series C Stock as follows:
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Series B dividends: 6,965,571
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Series C dividends: 3,508,499
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What are the federal income tax consequences of the merger?
We expect the
merger to be treated as a tax-free reorganization pursuant to Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code. If the merger is treated as a tax-free reorganization, generally the stockholders of UBmatrix, for
federal income tax purposes, will recognize no gain or loss upon their receipt of common stock in the merger, except with respect to cash received by UBmatrix stockholders instead of fractional shares of common stock, or upon exercise of their
dissenters rights. As a stockholder of our company, you will not incur any tax liability as a result of the merger.
Will there be
any changes to my shares of EDGAR Online common stock as a result of the merger?
No. All shares of EDGAR Online common
stock will remain outstanding after the merger, and no changes will be made to the shares of EDGAR Online common stock currently outstanding as a result of the merger.
Should I send in my EDGAR Online stock certificates with my proxy card?
No. Please DO NOT send your EDGAR Online common stock certificates with your proxy card. No changes will be made to shares of EDGAR Online
common stock in the merger and you will not be asked to send your EDGAR Online stock certificates to anyone in connection with the merger.
Whom do I call if I have questions about the annual meeting or the merger?
You may call EDGAR Online Investor Relations at (888) 870-2316.
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SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
How the Financial Statements Were Prepared
The unaudited pro forma condensed combined statements of operations and unaudited pro forma condensed combined balance sheet were prepared by combining the historical amounts of each company and the
addition of pro forma adjustments related to accounting for the merger. The companies may have performed differently had they been combined in the past. You should not rely on the unaudited pro forma condensed combined financial information as being
indicative of the historical results that we would have had or the future results that the combined company will experience after the merger. See Unaudited Pro Forma Condensed Combined Financial Statements on page 32.
We are providing the following information to aid you in your analysis of the financial aspects of the merger. This information is only a
summary and should be read in conjunction with:
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Our consolidated financial statements and related notes, and our Managements Discussion and Analysis of Financial Condition and Results of
Operations, contained in our Annual Report on Form 10-K for the year ended December 31, 2009 and in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, which are incorporated herein by reference; and
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UBmatrixs financial statements and related notes for the years ended September 30, 2009 and 2008 and for the three and nine month periods
ended June 30, 2009 and June 30, 2010, and the financial statements for the years ended September 30, 2009 and 2008 and for the three and six month periods ended March 31, 2009 and 2010, which are attached as Annex B-1 and B-2,
respectively, to this proxy statement, and its Managements Discussion and Analysis of Financial Condition and Results of Operations, which are included under the heading Other Information Regarding UBmatrixBusiness of
UBmatrix beginning on page 65.
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Merger-Related Expenses
We estimate that our merger-related fees and expenses, consisting primarily of fees and expenses of investment bankers, attorneys,
accountants, financial printing, SEC filing fees and other related charges, will be approximately $450,000 for the merger. These costs will be expensed as incurred. See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
on page 36.
Periods Covered
The unaudited pro forma condensed combined balance sheet as of June 30, 2010 gives effect to our merger with UBmatrix as if it had occurred on that date. The unaudited pro forma condensed combined
statements of operations for the six months ended June 30, 2010 and the year ended December 31, 2009 give effect to our merger with UBmatrix as if it had occurred on January 1, 2009.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF EDGAR ONLINE
You should read the following tables in conjunction with our financial statements and related notes and our Managements
Discussion and Analysis of Financial Condition and Results of Operations, contained in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 and our Annual Report on Form 10-K for the year ended December 31, 2009.
Historical results are not necessarily indicative of the results to be expected in the future.
The statement of operations
data for the years ended December 31, 2008 and 2009 and the balance sheet data as of December 31, 2008 and 2009 have been derived from our audited financial statements contained in our Annual Report on Form 10-K for the year ended
December 31, 2009. Our consolidated financial statements have been audited by BDO USA, LLP (formerly BDO Seidman, LLP), an independent registered public accounting firm. The balance sheet data as of December 31, 2005, 2006 and 2007 and the
statement of operations data for the years ended December 31, 2005, 2006 and 2007 are derived from audited financial statements not included or incorporated by reference in this proxy statement. The statement of operations data for the six
months ended June 30, 2010 and 2009, and the balance sheet data as of June 30, 2010 have been derived from unaudited financial statements contained in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010.
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Year Ended December 31,
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Six Months
Ended June
30,
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2005
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2006 (1)
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2007 (1)
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2008 (1)
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2009 (1)
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2009
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2010
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(in thousands, except share and per share information)
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Statement of Operations Data:
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Subscriptions
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$
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8,578
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$
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9,104
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$
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9,395
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$
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8,755
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$
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6,614
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$
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3,537
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$
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2,892
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Data and solutions
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5,657
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6,536
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7,996
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9,334
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8,409
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4,255
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3,811
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XBRL filings
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606
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517
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1,374
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4,151
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1,010
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2,683
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Total revenues
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14,235
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16,246
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17,908
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19,463
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19,174
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8,802
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9,386
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Cost of revenues
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2,079
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2,464
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3,019
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3,140
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4,653
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2,332
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3,462
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Gross profit
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12,156
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13,782
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14,889
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16,323
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14,521
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6,470
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5,924
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Operating expenses:
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Selling, general and administrative and development
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15,950
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18,009
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18,257
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16,616
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12,844
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|
6,662
|
|
|
|
6,433
|
|
Severance costs (2)
|
|
|
|
|
|
|
|
|
|
|
2,011
|
|
|
|
40
|
|
|
|
57
|
|
|
|
57
|
|
|
|
227
|
|
Amortization and depreciation
|
|
|
1,932
|
|
|
|
1,843
|
|
|
|
1,753
|
|
|
|
1,870
|
|
|
|
2,195
|
|
|
|
1,030
|
|
|
|
1,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(5,726
|
)
|
|
|
(6,070
|
)
|
|
|
(7,132
|
)
|
|
|
(2,203
|
)
|
|
|
(575
|
)
|
|
|
(1,279
|
)
|
|
|
(2,124
|
)
|
Interest income (expense) and other, net
|
|
|
148
|
|
|
|
144
|
|
|
|
(231
|
)
|
|
|
(456
|
)
|
|
|
(375
|
)
|
|
|
(201
|
)
|
|
|
(156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(5,578
|
)
|
|
|
(5,926
|
)
|
|
|
(7,363
|
)
|
|
|
(2,659
|
)
|
|
|
(950
|
)
|
|
|
(1,480
|
)
|
|
|
(2,280
|
)
|
Dividends and accretion on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(603
|
)
|
Net loss to common shareholders
|
|
$
|
(5,578
|
)
|
|
$
|
(5,926
|
)
|
|
$
|
(7,363
|
)
|
|
$
|
(2,659
|
)
|
|
$
|
(950
|
)
|
|
$
|
(1,480
|
)
|
|
$
|
(2,883
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted
|
|
$
|
(0.23
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic and diluted (3)
|
|
|
23,958
|
|
|
|
25,484
|
|
|
|
26,023
|
|
|
|
26,387
|
|
|
|
26,760
|
|
|
|
26,709
|
|
|
|
26,908
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,334
|
|
|
$
|
2,865
|
|
|
$
|
3,568
|
|
|
$
|
2,062
|
|
|
$
|
2,101
|
|
|
$
|
10,847
|
|
Investments
|
|
$
|
|
|
|
$
|
205
|
|
|
$
|
210
|
|
|
$
|
220
|
|
|
$
|
222
|
|
|
$
|
226
|
|
Working capital (deficit)
|
|
$
|
2,155
|
|
|
$
|
81
|
|
|
$
|
(853
|
)
|
|
$
|
(1,978
|
)
|
|
$
|
(1,485
|
)
|
|
$
|
6,542
|
|
Total assets
|
|
$
|
19,255
|
|
|
$
|
15,872
|
|
|
$
|
15,621
|
|
|
$
|
13,006
|
|
|
$
|
12,183
|
|
|
$
|
21,584
|
|
Long-term debt, including current portion
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,406
|
|
|
$
|
2,323
|
|
|
$
|
1,908
|
|
|
$
|
1,687
|
|
Stockholders equity
|
|
$
|
13,366
|
|
|
$
|
9,930
|
|
|
$
|
5,040
|
|
|
$
|
3,704
|
|
|
$
|
4,109
|
|
|
$
|
1,958
|
|
(1)
|
We adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 (FASB ASC 718) (previously
Statement of Financial Accounting Standard No. 123(R)) effective January 1, 2006. 2006 results include stock-based compensation expense of $38 in cost of revenues and $990 in selling, general and administrative and development expenses
which was not required to be recognized in prior years. 2007 results include stock-based compensation expense of $41 in cost of revenues and $1,553 in selling, general and administrative and development expenses. 2008 results include stock-based
compensation expense of $49 in cost of revenues and $1,158 in selling, general and administrative and development expenses. 2009 results include stock-based compensation expense of $51 in cost of revenues and $1,288 in selling, general and
administrative and development expenses.
|
(2)
|
In 2007, we accrued $631 of severance costs related to the termination of the employment agreements of our Executive Vice President of Sales and Chairman of the Board,
$984 related to our former CEO and workforce reductions and $396 related to our former CFO and COO. In 2008 and 2009, we accrued $40 and $57, respectively, of severance costs related to workforce reductions. In March 2010, we recorded severance of
$227 relating to the resignation of our former CFO.
|
(3)
|
Diluted loss per share has not been presented separately, as the outstanding stock options, warrants and unvested restricted stock grants are anti-dilutive for each of
the periods presented. Anti-dilutive options, warrants and grants outstanding numbered 3,372,514, 3,066,269, 3,343,973, 3,732,772 and 3,883,048 for the years ended December 31, 2005, 2006, 2007, 2008 and 2009, respectively, and 3,886,427 and
3,840,621 for the six months ended June 30, 2009 and 2010, respectively. Also excludes 1,432,182 of common shares issuable under the conversion provisions of our Series B Preferred Stock at June 30, 2010.
|
14
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF UBMATRIX
You should read the following tables in conjunction with UBmatrixs financial statements and related notes attached as Annex B-1 and
B-2 to this proxy statement, and UBmatrixs Managements Discussion and Analysis of Financial Condition and Results of Operations, which are included under the heading Business of UBmatrixManagements
Discussion and Analysis of Financial Condition and Results of Operations beginning on page 67. Historical results are not necessarily indicative of the results to be expected in the future.
The statement of operations data for the fiscal years ended September 30, 2008 and 2009 and the balance sheet data as of
September 30, 2008 and 2009 have been derived from UBmatrixs audited financial statements contained in Annex B to this proxy statement. UBmatrixs financial statements have been audited by BDO USA, LLP (formerly BDO Seidman, LLP),
independent registered public accounting firm. BDO USA, LLPs report on the financial statements for the fiscal years ended September 30, 2008 and 2009 is included elsewhere herein. The data should be read in conjunction with the financial
statements, related notes, and other financial information included in Annex B-1 to this proxy statement. The statement of operations data for the nine months ended June 30, 2010 and 2009, and the balance sheet data as of June 30, 2010, have been
derived from unaudited financial statements included as Annex B-1 to this proxy statement.
UBMATRIX, INC.
SELECTED HISTORICAL FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Nine
Months
Ended
June 30,
2009
|
|
|
Nine
Months
Ended
June 30,
2010
|
|
|
|
September 30,
2008
|
|
|
September 30,
2009
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(in thousands)
|
|
Statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,154
|
|
|
$
|
3,943
|
|
|
$
|
2,720
|
|
|
$
|
1,848
|
|
Cost of revenues
|
|
|
107
|
|
|
|
61
|
|
|
|
52
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,047
|
|
|
|
3,882
|
|
|
|
2,668
|
|
|
|
1,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
2,447
|
|
|
|
2,617
|
|
|
|
1,154
|
|
|
|
1,205
|
|
Product development
|
|
|
3,771
|
|
|
|
1,466
|
|
|
|
1,951
|
|
|
|
1,898
|
|
General and administrative
|
|
|
1,266
|
|
|
|
1,171
|
|
|
|
796
|
|
|
|
1,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,484
|
|
|
|
5,254
|
|
|
|
3,901
|
|
|
|
4,479
|
|
Loss from operations
|
|
|
(6,437
|
)
|
|
|
(1,372
|
)
|
|
|
(1,233
|
)
|
|
|
(2,718
|
)
|
Interest expense, net
|
|
|
(180
|
)
|
|
|
(1,425
|
)
|
|
|
(1,152
|
)
|
|
|
(1,309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,617
|
)
|
|
$
|
(2,797
|
)
|
|
$
|
(2,385
|
)
|
|
$
|
(4,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
113
|
|
|
$
|
452
|
|
|
|
|
|
|
$
|
1,170
|
|
Working capital deficit
|
|
$
|
(2,471
|
)
|
|
$
|
(4,565
|
)
|
|
|
|
|
|
$
|
(6,466
|
)
|
Total assets
|
|
$
|
772
|
|
|
$
|
1,086
|
|
|
|
|
|
|
$
|
1,748
|
|
Long term debt
|
|
$
|
1,715
|
|
|
$
|
1,817
|
|
|
|
|
|
|
$
|
2,718
|
|
Redeemable preferred stock
|
|
$
|
16,126
|
|
|
$
|
16,211
|
|
|
|
|
|
|
$
|
16,251
|
|
Common stockholders deficit
|
|
$
|
(20,066
|
)
|
|
$
|
(22,426
|
)
|
|
|
|
|
|
$
|
(25,311
|
)
|
15
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following selected unaudited pro forma condensed combined financial information was prepared using the purchase method of accounting.
For accounting purposes, our company is considered to be acquiring UBmatrix in this merger. The unaudited pro forma condensed combined balance sheet data of our company and UBmatrix assume that the merger of our company and UBmatrix took place on
June 30, 2010, and combines the historical balance sheet of our company at June 30, 2010 with the historical balance sheet of UBmatrix at June 30, 2010. The unaudited pro forma condensed combined statement of operations data for our company and
UBmatrix assume that the merger of our company and UBmatrix took place as of January 1, 2009. The unaudited pro forma condensed combined statement of operations data for the year ended December 31, 2009 combines our companys
historical statement of operations for year ended 2009 with UBmatrixs historical statement of operations for year ended September 30, 2009. The unaudited pro forma condensed combined statement of operations data for the six months ended
June 30, 2010 combines our companys historical statement of operations data for the six months ended June 30, 2010 with UBmatrixs historical statement of operations data for the six months ended June 30, 2010, which were derived
from the historical statements of operations for the three month periods ended March 31, 2010 and June 30, 2010.
The selected unaudited pro forma condensed combined financial data are presented for illustrative purposes only and are not necessarily
indicative of the combined financial position or results of operations of future periods or the results that actually would have been realized had the entities been a single entity during these periods. The pro forma net loss per share is computed
by dividing the pro forma net loss by the pro forma weighted average number of shares outstanding. The pro forma per share data are not necessarily indicative of the results that would have occurred, your financial interest in such results, or the
future results that will occur after the merger. Our last fiscal year ended on December 31, 2009 and UBmatrixs last fiscal year ended on September 30, 2009. The selected unaudited pro forma condensed combined financial data as of and
for the quarter ended June 30, 2010 and for the year ended December 31, 2009 are derived from the unaudited pro forma condensed combined financial statements at page 32 of this proxy statement and should be read in conjunction with those
statements and the related notes. See Unaudited Pro Forma Condensed Combined Financial Statements.
16
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
December 31,
2009
|
|
|
Six
Months
Ended
June 30,
2010
|
|
|
|
|
|
|
|
(in thousands, except per
share data)
|
|
Pro forma statement of operations data:
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
23,117
|
|
|
$
|
10,491
|
|
Cost of revenues
|
|
|
4,714
|
|
|
|
3,498
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
18,403
|
|
|
|
6,993
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
4,583
|
|
|
|
2,208
|
|
Product development
|
|
|
4,495
|
|
|
|
2,102
|
|
General and administrative
|
|
|
10,022
|
|
|
|
5,145
|
|
Severance costs
|
|
|
57
|
|
|
|
227
|
|
Depreciation and amortization
|
|
|
2,588
|
|
|
|
1,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,745
|
|
|
|
11,238
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(3,342
|
)
|
|
|
(4,245
|
)
|
Interest expense, net
|
|
|
(375
|
)
|
|
|
(156
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(3,717
|
)
|
|
|
(4,401
|
)
|
Accrued dividends and accretion on preferred stock
|
|
|
(720
|
)
|
|
|
(963
|
)
|
|
|
|
|
|
|
|
|
|
Net loss to common shareholders
|
|
$
|
(4,437
|
)
|
|
$
|
(5,364
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per common share basic
|
|
$
|
(0.15
|
)
|
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per common share diluted
|
|
$
|
(0.15
|
)
|
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
29,445
|
|
|
|
29,593
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
29,445
|
|
|
|
29,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
Pro forma balance sheet data:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
14,193
|
|
Working capital
|
|
|
|
|
|
$
|
9,497
|
|
Goodwill and other intangible assets
|
|
|
|
|
|
$
|
8,465
|
|
Total assets
|
|
|
|
|
|
$
|
30,664
|
|
Total liabilities
|
|
|
|
|
|
$
|
8,889
|
|
Redeemable preferred stock
|
|
|
|
|
|
$
|
17,877
|
|
Stockholders equity
|
|
|
|
|
|
$
|
3,898
|
|
17
RISK FACTORS
You should consider the following risk factors in determining how to vote at the annual meeting. The following factors should be considered carefully by you in evaluating whether to approve the issuance
of shares of our Series C Stock and common stock in the merger and pursuant to the stock purchase agreement. These factors should be considered in conjunction with any other information included or incorporated by reference herein, including in
conjunction with forward-looking statements made herein. See Where You Can Find More Information on page 119.
Risks Relating
to the Merger
We may not realize all of the anticipated benefits of the UBmatrix acquisition.
The success of the merger will depend, in part, on our ability to realize the anticipated growth opportunities and strategic synergies
from combining the businesses of our company and UBmatrix. Our ability to realize these benefits, and the timing of this realization, depend upon a number of factors, including:
|
|
|
continued adoption of XBRL by regulators filers and financial analysts in the United States and globally;
|
|
|
|
our ability to preserve and expand UBmatrixs and EDGAR Onlines existing and potential channel partnerships;
|
|
|
|
our ability to preserve and expand important customers of data, regulatory or filing offerings;
|
|
|
|
our ability to effectively consolidate research and development operations, software development technologies and product planning functions;
|
|
|
|
the pricing the market will bear for XBRL filing, regulation systems and data;
|
|
|
|
customer acceptance of our strategy to cross sell our products and services;
|
|
|
|
other technology solutions or service offerings that develop greater market acceptance than ours;
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prior art, prior patents or developments in intellectual property law that reduce the effectiveness of our own intellectual property positions;
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unforeseen technology integration issues or additional development that must be done to improve the competitiveness of our combined offerings
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the ability of our team to scale our infrastructure and resources to meet the demands of our customers, partners and new markets simultaneously;
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unforeseen capital requirements, skill requirements or regulatory requirements to enter new markets;
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the ability of our team to scale our infrastructure and resources using our current capital base;
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retaining and attracting key employees;
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consolidating corporate and administrative functions;
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effective business development efforts; and
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minimizing the diversion of managements attention from ongoing business concerns.
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The number of shares of our Series C Stock and common stock to be issued to the securityholders and service providers of UBmatrix
is not adjustable based on the market price of our common stock, so the merger consideration at the closing may have a greater or lesser value than at the time the merger agreement was signed.
The parties to the merger agreement have determined the number of shares of Series C Stock and common stock to be issued to
UBmatrixs securityholders and service providers, and this number is not adjustable based
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on changes in the market price of our common stock. Any changes in the market price of our common stock will not affect the number of shares that holders of UBmatrix securities will be entitled
to receive pursuant to the merger. Therefore, if the market price of our common stock declines from the market price on the date of the merger agreement prior to the consummation of the merger, UBmatrix securityholders and service providers could
receive merger consideration with considerably less value. Similarly, if the market price of our common stock increases from the market price on the date of the merger agreement prior to the consummation of the merger, UBmatrix securityholders and
service providers could receive merger consideration with considerably more value than their UBmatrix securities, and our stockholders immediately prior to the merger will not be compensated for the increased market value of our common stock.
Because the number of shares of our common stock to be issued to the securityholders and service providers of UBmatrix does not adjust as a result of changes in the value of our common stock, for each 1% that the market value of our common stock
rises or declines, there is a corresponding 1% rise or decline, respectively, in the value of the total merger consideration issued to the UBmatrix securityholders and service providers.
You may not realize a benefit from the merger commensurate with the ownership dilution you will experience in connection with the
merger.
If the combined company is unable to realize the strategic, operational and financial benefits currently
anticipated from the merger, you may experience substantial dilution of your ownership interest in our company without receiving any commensurate benefit.
The merger is subject to conditions to closing that could result in the merger being delayed or not consummated, which could negatively impact our stock price and future business and operations.
The merger is subject to conditions to closing as set forth in the merger agreement, including obtaining the requisite
approval of our stockholders. The requisite approval of the stockholders of UBmatrix to the merger was obtained on June 23, 2010. If any of the conditions to the merger are not satisfied or, where permissible, not waived, the merger will not be
consummated. Failure to consummate the merger could negatively impact our stock price, future business and operations, and financial condition. Any delay in the consummation of the merger or any uncertainty about the consummation of the merger may
adversely affect the future business, growth, revenue and results of operations of the combined company.
Changes to our
financial statements resulting from accounting for the acquisition might adversely affect the market value of our common stock following the merger.
In accordance with U.S. GAAP, the merger will be accounted for as a purchase of a business, which will result in changes to our financial statements that could have an adverse impact on the market value
of our common stock following completion of the merger. The total estimated purchase price will be allocated to UBmatrixs net tangible assets and identifiable intangible assets, including in-process research and development assets, based on
their fair values as of the date of completion of the merger. Any excess of the purchase price over those fair values will be allocated to goodwill.
The pro forma financial statements are presented for illustrative purposes only and may not be an indication of the combined companys financial condition or results of operations following the
merger.
The pro forma financial statements contained in this proxy statement are presented for illustrative purposes
only and may not be an indication of the combined companys financial condition or results of operations following the merger for several reasons. For example, the pro forma financial statements have been derived from the historical financial
statements of both our company and UBmatrix and certain adjustments and assumptions have been made regarding the combined company after giving effect to the merger. The information upon which these adjustments and assumptions have been made is
preliminary, and such adjustments and assumptions are difficult to make with complete accuracy. Moreover, the pro forma financial statements do not
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reflect all costs that are expected to be incurred by the combined company in connection with the merger. For example, the impact of any incremental costs incurred in integrating the two
companies is not reflected in the pro forma financial statements. As a result, the actual financial condition and results of operations of the combined company following the merger may differ significantly from these pro forma financial statements.
In addition, the assumptions used in preparing the pro forma financial information may not prove to be accurate, and other
factors may affect the combined companys financial condition or results of operations following the merger. Any potential decline in the combined companys financial condition or results of operations may cause significant variations in
the stock price of the combined company. See the section entitled Unaudited Pro Forma Condensed Combined Financial Statements beginning on page 32.
If UBmatrixs former stockholders, or other holders of our stock, immediately sell our common stock received in the merger, they could cause our common stock price to decline.
If the former stockholders or employees of UBmatrix who receive our shares in the merger, or other holders of our
stock, sell significant amounts of our common stock following the merger (in the case of the former stockholders or employees of UBmatrix, after the shares are released from escrow or the restrictions on vesting lapse, as the case may be), the
market price of our common stock could decline. These sales may also make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate to raise funds through future offerings of common stock.
Our business and stock price may be adversely affected if the acquisition of UBmatrix is not completed.
Our acquisition of UBmatrix is subject to several customary conditions, including the approvals of the transaction by
our stockholders. If our acquisition of UBmatrix is not completed, we could be subject to a number of risks that may adversely affect our business and stock price, including:
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the potential difficulty of unwinding business plans created in reliance on the license agreement with UBmatrix;
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the current market price of shares of our common stock reflects a market assumption that the acquisition will be completed; and
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we would not realize the benefits we expect from acquiring UBmatrix.
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After the completion of the merger, the surviving corporation, which will be a wholly-owned subsidiary of our company, will possess
not only all of the assets but also all of the liabilities of UBmatrix. Discovery of previously undisclosed or unknown liabilities could have an adverse effect on the combined companys business, operating results and financial condition.
Acquisitions involve risks, including inaccurate assessment of undisclosed, contingent or other liabilities or
problems. After the completion of the merger, the surviving corporation, which will be a wholly-owned subsidiary of our company, will possess not only all of the assets, but also all of the liabilities of UBmatrix. Although we conducted a due
diligence investigation of UBmatrix and its known and potential liabilities and obligations, it is possible that undisclosed, contingent or other liabilities or problems may arise after the completion of the merger, which could have an adverse
effect on the combined companys business, operating results and financial condition. The amount of such liabilities may be in excess of the value of the shares of our common stock that will be placed into escrow until the one-year anniversary
of the closing of the merger to cover the indemnification obligations of the UBmatrix stockholders under the merger agreement, or such liabilities may not be uncovered until after such shares have been released from escrow.
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Our ability to
use net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes is subject to limitation and may be limited further as a result of the merger with UBmatrix and sale of Series C stock.
In general, under Section 382 of the Code, a corporation that undergoes an ownership change is subject to limitations on
its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders increases by more than 50% over such
stockholders lowest percentage ownership during the testing period (generally three years).
Since inception, we have
incurred net operating losses and have incurred no federal or state income tax expense. At December 31, 2009, we had approximately $40 million in federal net operating losses which will expire between 2011 and 2029, and approximately $38
million of state net operating loss carry forwards which will expire between 2010 and 2027. We have determined that we have experienced multiple ownership changes since inception, but do not believe that these changes in ownership will restrict our
ability to use the losses and credits within the carry forward period. Approximately $13 million of our total federal net operating loss is currently subject to an annual limitation of approximately $1.4 million per year. If we have further
ownership changes, additional annual limitations on the use of our net operating loss carry-forwards may be imposed.
In
addition, as of its last fiscal year ended September 30, 2009, UBmatrix had federal net operating loss carry forwards of approximately $21 million. We believe that UBmatrix has also experienced multiple ownership changes since its inception,
and that the merger will likely result in limitations on our ability to utilize UBmatrixs net operating losses in the future.
We currently anticipate that the shares issued pursuant to the merger agreement and the sale of Series C stock, together with certain other transactions involving our common stock within the testing
period, will result in an ownership change. Even if the merger and the sale of Series C stock do not result in an immediate ownership change, they would significantly increase the likelihood that there would be an additional ownership change in the
future (which ownership change could occur as a result of transactions involving our stock that are outside of our control).
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SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This proxy statement contains statements concerning potential future events. These statements are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and are based upon assumptions by our
management, as of the date of this proxy statement, including assumptions about risks and uncertainties faced by us. In addition, management may make forward-looking statements orally or in other writings, including, but not limited to, in press
releases, in the annual report to stockholders and in our other filings with the U.S. Securities and Exchange Commission (the SEC). Readers can identify these forward-looking statements by the use of such verbs as expects, anticipates,
believes or similar verbs or conjugations of such verbs.
If any of managements assumptions prove incorrect or should
unanticipated circumstances arise, our actual results could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors including, but not limited to,
those factors identified in Part I, Item 1A, Risk Factors of this report, as well as our other periodic reports on Forms 10-K, 10-Q and 8-K filed with the SEC, from time to time. Readers are strongly encouraged to consider those
factors when evaluating any forward-looking statements concerning us. We will not update any forward-looking statements in this proxy statement to reflect future events or developments. Investors should also be aware that while we, from time to
time, do communicate with securities analysts, it is against our policy to disclose to them any material non-public information or other confidential commercial information. Investors should not assume that we agree with any report issued by any
analyst or with any statements, projections, forecasts or opinions contained in any such report. Unless otherwise indicated, all references to the Company, we, us, our, and EDGAR Online
include reference to our subsidiaries as well.
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THE MERGER TRANSACTION
General
At the effective time, merger sub, a
wholly-owned subsidiary of our company, will merge with and into UBmatrix. UBmatrix will be the surviving entity and will continue as a wholly-owned subsidiary of our company.
Subject to the terms and conditions of the merger agreement, at the effective time of the merger, all of the shares of capital stock of UBmatrix outstanding immediately prior to the merger will be
converted into the right to receive an aggregate of 74,379 shares of Series C Convertible Preferred Stock, par value $0.01 per share, of our company, which we refer to as Series C Stock (initially convertible into 5,129,573 shares of the
common stock, par value $0.01 per share, of our company, which we refer to as common stock) and 2,685,088 shares of our common stock. The merger consideration is subject to adjustment following closing to the extent UBmatrixs net
cash at closing is less than a closing date net cash target of $1.759 million reduced by an agreed upon amount to be utilized by UBmatrix (expected to be approximately $1.2 million) between the execution of the merger agreement and the closing of
the merger. Any such adjustment would be on a pro rata basis to the stockholders of UBmatrix and would be effected through the release to us of a number of shares held in escrow equal in value to the amount of the shortfall in net cash at closing.
The common stock issued in connection with the merger includes 1,190,056 shares issuable to certain employees of UBmatrix who
will be joining our company as of the closing and 1,495,032 shares issuable to the stockholders, current Chief Financial Officer and service providers of UBmatrix. The shares issuable to the UBmatrix employees will be issued pursuant to our 2005
Stock Award and Incentive Plan, and, except in one case as described in the following sentence, will be subject to restrictions on vesting that will last through the recipients initial 12 months of employment with us. The stock to be issued
without restriction consists of 60,586 shares of our common stock to be issued to the current Chief Financial Officer of UBmatrix, who will not be employed by the combined entity following the consummation of the Merger, and is being issued as
payment for unpaid past bonuses. A total of 1,622,042 shares of the common stock issued in the merger will be placed into an escrow account to secure the post-closing indemnification obligations of the UBmatrix stockholders.
Furthermore, in addition to and in connection with the merger agreement, we have entered into a Series C Preferred Stock Purchase
Agreement, or the purchase agreement, with Draper Fisher Jurvetson Fund VIII, L.P., Draper Fisher Jurvetson Partners VIII, LLC and Draper Associates, L.P., all of which are stockholders of UBmatrix, pursuant to which we will issue and sell 12,637
shares of our Series C Stock (initially convertible into 871,546 shares of the common stock) for an aggregate purchase price of $2,000,000.
Through January 28, 2015, the 74,379 shares of Series C Stock issued in connection with the merger and the 12,637 shares of Series C Stock issued pursuant to the purchase agreement are expected to
receive paid-in-kind dividends that will result in those shares being convertible into an additional 2,998,957 shares and 509,542 shares, respectively, of our common stock.
Collectively, we will issue a total of 87,016 shares of Series C Stock (initially convertible into a total of 6,001,119 shares of common stock) and 2,685,088 shares of common stock in connection with the
merger and purchase agreements. Collectively, these shares represent an approximate 15% equity ownership in the combined company at the anticipated closing date, assuming the issuance of shares of common stock then issuable upon the conversion of
our Series B Stock and of the shares of common stock then issuable under our 2005 Stock Award and Incentive Plan (as amended, and inclusive of the increase in shares available under the plan as contemplated by Proposal No. 5 in this proxy
statement).
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Background of the Merger
It is the practice of management to periodically review with the Board of Directors strategic alternatives to: (1) enhance stockholder value; (2) expand technical and intellectual property
capability; (3) capitalize, restructure or refocus our products and businesses; (4) increase our market penetration; and (5) launch new customer and strategic partnership relationships. As part of its ongoing assessment of its
strategic alternatives, management developed an acquisition strategy in early 2010 to help our company achieve its strategic alternatives, and first presented the strategy to the Board of Directors in March 2010.
Given the involvement of the companies in the XBRL industry, management of our company and of UBmatrix has been known to one another for
some time. UBmatrix is the original creator of the XBRL standard, and owner of the seminal patent in this marketplace. It is also the leader in delivering products to regulators worldwide, which results in filing opportunities being created.
UBmatrix is the XBRL vendor of choice for industry leaders such as Oracle and SAP, who have entered into distribution contracts with the firm.
Over the time the companies have been familiar with one another, as the companies strategies and businesses have evolved, members of their respective management teams have occasionally engaged in
discussions regarding potential commercial interactions between the organizations. These include a joint bid, in 2007, on a proposal for an internet-based regulatory system; discussions, in 2008, of potentially creating a joint product in the
securitized debt market, which product was not ultimately pursued; and discussions, in 2009, of technically linking together UBmatrixs position and the Companys XBRL filing service within the enterprise ERP systems, which again was not
ultimately pursued.
In February 2010, Philip Moyer, our former Chief Executive Officer, became aware from a business
colleague that UBmatrix had been seeking to raise capital. Mr. Moyer informed individuals at Bain Capital Venture Partners, LLC, a sponsor of Bain Capital Venture Integral Investors, LLC, and a holder of our Series B Preferred Stock, that he
would potentially be interested in speaking with UBmatrix regarding a combination, and asked whether Bain Capital Venture Partners had any contacts with UBmatrix or its investors. At approximately the same time, individuals at Bain Capital Venture
Partners were contacted by Joshua Raffaelli, a representative of UBmatrixs board of directors and of lead UBmatrix stockholder Draper Fisher Jurvetson, who indicated that UBmatrix was considering offers to be purchased and that it would
consider engaging in discussions with EDGAR Online as part of that process. Bain Capital Venture Partners notified Philip Moyer, our former Chief Executive Officer, of the contact with Mr. Rafaelli.
During the week of February 22, 2010, Mr. Moyer and Sunir Kapoor, the Chief Executive Officer of UBmatrix, held telephone
conversations and exchanged in correspondence to discuss potential strategic synergies between the companies and the strategic objectives that stockholders of UBmatrix might be likely to consider in analyzing a potential acquisition. In these
discussions, which also included representatives of the lead investors in UBmatrix, Messrs. Moyer and Kapoor concluded that that both companies had solid technological, intellectual property and market positions, and that their respective lines of
business were complementary. We and UBmatrix agreed that this was a strong basis for a strategic relationship between the two companies, and agreed to explore the possibility further.
On March 2, 2010, Mr. Kapoor, along with Russell McMeekin, a representative of lead UBmatrix stockholder Draper Fisher
Jurvetson, met in our New York offices with Mr. Moyer, Mark Maged, our Chairman of the Board, John Connolly, a member of our Board, Stefan Chopin, our Chief Technology Officer, Susan Childs, our former Executive Vice President, Marketing and
Business Development, and Michelle Lam, an employee of Bain Capital Venture Partners, LLC, who has been serving in a consulting capacity to us. At that meeting, the participants reviewed strategies, products, markets, customers, channels and revenue
projections of UBmatrix and discussed goals of UBmatrixs stockholders and employees. Also discussed were potential synergies in strategies, products, channels and customers. In addition, the parties discussed the impact of a transaction on our
stockholders and the timeline necessary for appropriate due diligence and Board engagement and review by our Board. The parties agreed that based on discussions to date, we should perform additional due diligence and engage our full Board in further
deliberations.
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On March 5th,
Mr. Kapoor, Mr. McMeekin and Joshua Raffaelli, also a representative of Draper Fisher Jurvetson, met with Mr. Moyer, Mr. Maged, Mr. Connolly, Jeffrey Schwartz, a member of our Board and Mrs. Lam at Bain Capitals
offices in New York. The parties discussed elements of the strategic rationale for a transaction and the potential willingness of UBmatrixs stockholders to sell their interests in UBmatrix in return for our stock, as opposed to seeking a
sale for cash to a different buyer. Initial indications from UBmatrix and its stockholders were for consideration in excess of the amount that we ultimately paid. The participants reiterated our agreement to pursue additional due diligence.
On March 11, 2010, we held a telephonic meeting of the Board during which Mr. Moyer informed the Board about
managements preliminary analysis of an acquisition of UBmatrix. At this meeting, Mr. Moyer presented managements view of the strategic rationale for moving forward in considering the acquisition, as well as managements request
for the Boards support for proceeding to conduct more in-depth due diligence of UBmatrix and negotiating a non-binding term sheet for an acquisition of UBmatrix. Mr. Moyer presented to the Board financial consideration relating to the
transaction, perspectives regarding opportunities for product and customer synergies and an analysis of the assets and intellectual property of UBmatrix. The Board expressed unanimous support for proceeding with further due diligence and negotiation
of a non-binding term sheet.
On March 15, 2010, Mr. Moyer and Mrs. Lam met in UBmatrixs California
offices with senior managers of UBmatrix including Mr. Kapoor. Discussions focused on the UBmatrix business model, team, products, strategy, roadmaps, pipeline, significant OEM partnerships and major contracts. Also discussed were the likely
views of UBmatrixs major stockholders with regard to the present and future value of the business and the investments to date in the business by the UBmatrix stockholders.
On March 15, 2010, Mr. Moyer and Ms. Lam met with representatives of major investors of UBmatrix, including
Mr. Raffaelli and Barry Schuler, a member of the UBmatrix board of directors and a representative of The Meteor Group, a stockholder of UBmatrix, and discussed the strategy and opportunity that he and Mr. Kapoor saw in a potential merger.
He was questioned on markets, growth opportunities and the potential for combined services and timelines for concluding talks. Also on March 15, 2010, Mr. Moyer met privately with some of UBmatrixs key employees to understand their
view of the strategy organization strengths and weaknesses and their views of a potential transaction.
From March 15,
2010 through March 23, 2010, Mr. Moyer and Mrs. Lam had a number of discussions with Messrs. Kapoor, McMeekin and Raffaelli regarding the terms of a non-binding term sheet between the two companies. Mr. Moyer also advised and
received input from members of our Board on the terms being negotiated, which through this period included our issuance of convertible preferred securities and restricted stock units totaling approximately 16% of the fully diluted ownership of
EdgarOnline, and contemplated that UBmatrix would have approximately $1.8 million in cash as of closing and would be sold liability-free.
On March 23, 2010, we held a telephonic meeting of the Board during which Mr. Moyer informed the Board of the progress of diligence and presented the proposed terms of a non-binding term sheet
for the transaction based on the terms described in the preceding paragraph. Mr. Moyer reviewed managements view of the strategic impetus for proceeding with the transaction. He reviewed product synergies, revenue opportunities, potential
integration strategies, details of UBmatrixs product and intellectual property portfolio, the pro-forma financial case for the transaction, risks associated with the transactions, the specific provisions of the proposed non-binding term sheet.
The Board provided guidance on certain terms that it would require be contemplated by the term sheet and suggested that management identify a point person to assist with the proper integration of these the two organizations, and provided authority
to Mr. Moyer to proceed subject to approval of those terms.
From March 23, 2010 through April 10, 2010, the
parties negotiated the non-binding term sheet. During this process, we received the advice of our outside counsel, Morgan, Lewis & Bockius LLP, and UBmatrix received the advice of its counsel, Fenwick & West LLP. On April 9,
2010, the parties executed a non-binding letter of intent regarding the transaction.
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Following the
execution of the non-binding term sheet, various members of the management teams of, and the advisors to, the Company engaged in due diligence and transaction preparation activities.
Among these were meetings in UBmatrixs offices, on April 22 and 23, 2010, between Messrs. Moyer and Chopin and members of
UBmatrixs senior management team and product development organization regarding additional due diligence surrounding on the products, services, customers, partnerships and business model of UBmatrix. During this process, members of our
technology team were given briefings on key products in UBmatrixs product portfolio.
From April 22, 2010 through
May 11, 2010, we continued our diligence process. In addition, Ms. Childs and Steve Levine, UBmatrixs Chief Marketing Officer, began to work on preliminary communications plans for employees, customers and the market. At the same
time, Mr. Moyer, Lauren Zinman, our general counsel, and Mrs. Lam, as well as Ronald Fetzer, our interim Chief Financial Officer, along with our outside counsel, engaged in multiple conversations with UBmatrixs management,
stockholders and outside counsel on transaction structure. In addition, we received the advice of Ropes & Gray LLP as outside counsel with respect to intellectual property issues.
On May 12, 2010, we held a telephonic Board meeting to consider the financial structure and other aspects of the proposed
transaction. The Board considered how best to structure the transaction in terms of shareholder approval at a meeting held on May 12, 2010. Among the matters considered at this meeting were two possible structural alternatives for the Merger.
One of these structures contemplated the issuance as merger consideration of non-convertible preferred, which would have expedited the closing process. The other structure was the structure ultimately utilized in the Merger, which was chosen in
large part because of its more standard nature and the higher likelihood of acceptance by the shareholders of UBmatrix. At that meeting, the Board authorized Mr. Moyer and management to direct the preparation of definitive transaction
documents, and designated a Strategy Committee consisting of Mr. Moyer, Mr. Connolly and Mr. Maged to guide and assist management in strategic decisions relating to the Merger without convening the entire Board. Over the next several
weeks, our and UBmatrixs respective outside counsel and management teams had multiple conversations on the drafting of the definitive transaction documents and various business and operational aspects of the potential transaction and settled
on the final structure of the merger.
An initial draft of the agreement and plan of merger was provided to UBmatrix on
May 27, 2010, and initial drafts of ancillary transaction documents were provided in the days thereafter.
Over the next
several weeks, the transaction documents were negotiated. At the same time, we continued our analysis of various financial and operational matters relating to UBmatrix. Although our rationale for the transaction was primarily predicated on the
long-term strategic value of UBmatrixs technology, intellectual property assets and strong channel relationships, we also reviewed matters such as UBmatrixs financial performance so far during its 2010 fiscal year, its projected sales
pipelines and its sales strategies, all with a focus on understanding the proper capitalization of the strategic needs of the business over the next 12 months.
In the week of June 7, 2010, Messrs. Moyer and Fetzer and Mrs. Lam worked with UBmatrixs management and investors to discuss the post deal capitalization needs of the UBmatrix business in
the context of working to ensure that the strategic needs of the business were appropriately capitalized over the next 12 months.
On June 15, 2010, we held a telephonic meeting of the Board during which Mr. Moyer led a discussion and review of the status of the transactions, the potential risks and benefits of the
transactions and the current state of our due diligence on UBmatrix. Mr. Moyer also reviewed the terms of the definitive transaction documents in their current forms. Following this discussion, Mr. Moyer recommended, and the Board so
instructed, that he seek to negotiate with UBmatrix to seek the agreement of UBmatrixs stockholder to provide additional capital to our company at closing of the merger to ensure that we would have the resources necessary to execute the
strategic plan defined in the UBmatrix acquisition.
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On June 16, 2010,
UBmatrixs investors decided on conditions to provide additional capital, ultimately in the form of the transactions contemplated by the preferred stock purchase agreement. Thereafter, on June 17, 2010, several members of our Board, along
with our management, convened a telephonic informational session during which Mr. Moyer provided a review of the progress of the transaction and the steps taken to address the post-transaction capital needs of the combined company. Throughout
the next four days Mr. Moyer, Ms. Zinman, Mr. Fetzer, Mrs. Lam and our outside counsel worked to finalize the documents and terms of the documents with UBmatrixs team.
On June 22, 2010, we held a telephonic meeting of the Board, at which all of our directors, Mrs. Lam, and our legal advisors
were present. Prior to this meeting, copies of all definitive transaction documents were sent to the Board as was various information regarding UBmatrix and the proposed transaction, updating the information previously provided to the Board as
described above. At the meeting, representatives of Morgan, Lewis reviewed with the directors their fiduciary duties under Delaware law. Mr. Moyer then updated the Board on the developments since the June 15 telephonic meeting of the
Board.
Mr. Moyer and our representatives updated the Board on the results of our due diligence review, and
representatives of Morgan, Lewis reviewed legal matters, including terms of the proposed merger agreement, preferred stock purchase agreement and other ancillary agreements. Following questions and a lengthy discussion, the Board of Directors
unanimously: (1) determined that the proposed merger agreement and preferred stock purchase agreement and the transactions contemplated thereby, including the merger and the issuance of shares of our Series C Preferred Stock and common stock in
connection with the merger and the issuance of shares of our Series C Preferred Stock pursuant to the preferred stock purchase agreement, were advisable and in the best interests of our company and its stockholders; (2) adopted resolutions
approving the proposed merger agreement and the transactions contemplated thereby; and (3) recommended, subject to the terms and conditions in the proposed merger agreement, that the stockholders of our company approve the issuance of shares in
connection with the merger. The Board also authorized the appropriate officers of our company to finalize, execute and deliver the merger agreement and related documentation, and directed Messrs. Maged and Connolly to continue to engage with
Mr. Moyer on the final aspects of the agreements between the parties.
Throughout June 23, 2010, Mr. Moyer kept
Messrs. Maged and Connolly apprised of the progress of the negotiations and the finalization of the transaction documents, and Messrs. Maged and Connolly provided guidance to Mr. Moyer in moving forward with executing the agreements. On the
evening of June 23, 2010, the parties finalized the terms of the merger agreement and related documentation and the definitive merger agreement and ancillary agreements were executed and delivered by both parties.
On the morning of June 24, 2010, we issued a press release announcing the transaction with UBmatrix and held an investor conference
call later that morning.
On October 20, 2010, the parties agreed to an amendment to the merger agreement for the sole purpose
of extending certain termination dates in the agreement.
Factors Considered by, and Recommendation of, the
EDGAR Online Board of Directors
The Board of Directors has determined that the terms of the merger and the merger
agreement, and the transactions contemplated by the stock purchase agreement, are in the best interests of, our company and its stockholders. Accordingly, the Board has approved the merger agreement and the consummation of the merger and the stock
purchase agreement and the consummation of the transactions contemplated thereby and recommends that you vote FOR approval of the issuance of the shares to be issued in connection with the merger agreement and the merger and the stock purchase
agreement. In evaluating the transaction, the Board of Directors consulted with and received information from management and our legal advisors, and considered the material factors described below.
Reasons for the Merger Identified by the EDGAR Online Board of Directors
The Board of Directors has identified potential benefits of the merger that it believes will contribute to the success of the combined
company, including the following:
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the opportunity to expand and diversify our channel distribution partnerships to include independent software vendors in the accounting books and
record and compliance software markets, original
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equipment manufacturers in the enterprise software space such as Oracle and SAP, and systems integrators that implement regulatory compliance tools, areas in which UBmatrix has a significant
presence;
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the opportunity to expand and diversify our customer base and global market opportunities, as UBmatrix has already penetrated the international
regulatory and filings markets;
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the opportunity to expand and diversify our product offerings and business models through UBmatrixs software, which could enhance the
capabilities of our filing service and lead to improved and more comprehensive services and products as well as acceleration of our efforts to work with regulators to improve the XBRL validation filing process;
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the opportunity to cross sell more products to a larger customer base due to UBmatrixs suite of technology and products for regulatory systems
which, combined with our filing solutions and data/analytics, would allow us to target a greater portion of the financial information market;
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the opportunity to accelerate development plans and time to market for new solutions within the highly competitive XBRL market;
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the fact that UBmatrix owns and controls valuable intellectual property that we believe may be used to enhance and expand our businesses and market
opportunities, and possesses skilled XBRL resources, and we believe it would be more efficient in terms of time, expenses and resources to purchase UBmatrixs intellectual property and skilled resources through the Merger in lieu of developing
similar tools, products and resources internally;
|
|
|
|
the potential synergies of combining the XBRL skills, development teams, and sales and marketing organizations of the two companies in order to
leverage differing but complementary skill sets, which would each allow the other to develop and be executed more efficiently;
|
|
|
|
the opportunity for our stockholders to participate in a significantly larger, more diversified company, with greater share liquidity;
|
|
|
|
the potential for realizing annual cost savings through consolidation of administrative functions;
|
|
|
|
the combined company is anticipated to have sufficient financial resources to fund operations through approximately December 2010;
|
|
|
|
the combined company being appropriately capitalized to further develop its technology and commercial offerings;
|
|
|
|
certain terms of the merger agreement, including the provisions that prohibit UBmatrix from soliciting other acquisition offers, increased the
certainty of the completion of the merger;
|
|
|
|
the anticipated addition, following the transaction, of a member of UBmatrixs board to our Board of Directors, which we expect to add valuable
experience and knowledge; and
|
|
|
|
the likelihood of completing the merger on the anticipated schedule indicated we would realize the benefits of the transaction in a timely fashion.
|
Potentially Negative Factors Considered by the EDGAR Online Board of Directors
The Board of Directors also identified and considered a variety of potentially negative factors in its deliberations
concerning the merger, including, but not limited to:
|
|
|
the risks that the potential benefits sought in the merger might not be fully realized;
|
|
|
|
the early stage of the XBRL market and the SECs XBRL-related requirements and the rapidly evolving and growing competition in such market;
|
28
|
|
|
the fact that several significant partnerships and relationships of both UBmatrixs and ours are in early stages which make the success of these
partnerships and relationships unknown and somewhat unpredictable;
|
|
|
|
the inherent difficulties in successfully integrating the operation of the companies;
|
|
|
|
potential threats to UBmatrixs intellectual property assets;
|
|
|
|
the potential need for additional funding if development does not proceed as anticipated;
|
|
|
|
the possibility that the merger might not be completed, and the potential adverse effect of the public announcement of the merger on our reputation and
ability to obtain financing in the future;
|
|
|
|
the significant number of shares to be issued to UBmatrix stockholders; and
|
|
|
|
other risks described under Risk Factors beginning on page 18.
|
The Board of Directors believes that these risks were outweighed by the potential benefits of the merger, though there can be no
assurance that the potential synergies or opportunities considered by the Board of Directors will be achieved through consummation of the merger. See Risk Factors beginning on page 18. The foregoing discussion is not exhaustive of all
factors considered by the Board, but it does describe all material factors considered by the Board. Individual members of the Board of Directors may have considered different factors, and the Board evaluated these factors as a whole and did not
quantify or otherwise assign relative weights to factors considered.
Recommendation of the Board of Directors
After careful consideration, the Board of Directors has unanimously determined the merger and the transactions
contemplated by the stock purchase agreement to be advisable and in the best interest of our company and its stockholders. The Board has approved the merger agreement and recommends stockholder approval of the issuance of the shares pursuant to the
merger agreement and the stock purchase agreement.
In considering the recommendation of the Board of Directors with respect
to the merger agreement, you should be aware that certain directors and officers have certain interests in the merger that are in addition to the interests of stockholders generally. For example, it is anticipated that all of the current executive
officers of our company will remain in the same positions with the combined company, and that six of the members of our Board of Directors will continue to serve on the Board of Directors of the combined company.
Material United States Federal Income Tax Consequences to UBmatrix and EDGAR Online Stockholders
We expect the merger to be treated as a tax-free reorganization pursuant to Section 368(a) of the Internal Revenue Code of 1986, as
amended. If the merger is treated as a tax-free reorganization, generally the stockholders of UBmatrix, for federal income tax purposes, will recognize no gain or loss upon their receipt of common stock in the merger, except with respect to cash
received by UBmatrix stockholders instead of fractional shares of common stock, or upon exercise of their dissenters rights. As a stockholder of our company, you will not incur any tax liability as a result of the merger.
Accounting Treatment
We will account for the merger as a purchase of the business, which requires the assets and liabilities of UBmatrix to be measured and recorded at their fair values as of the date of the merger. In
recording the purchase, we will combine the merger and the stock purchase as if they were a single transaction in estimating the value of the shares issued. The results of operations of UBmatrix will be included in our Consolidated Statement of
Operations from and after the effective time that control of UBmatrix transfers to our company, which will occur on the date of the merger.
29
Regulatory Approvals
We are not aware of any government regulatory approvals required to be obtained with respect to the consummation of the merger, other than the filing and acceptance of a certificate of merger with the
office of the Secretary of State of the State of Washington, and compliance with all applicable state securities laws regarding the offering and issuance of the merger shares.
Federal Securities Laws Consequences
The shares
of our common stock that are being issued to the UBmatrix stockholders are being issued to such stockholders pursuant to an exemption from registration provided by Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated
thereunder.
30
PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Recent Share Prices
Our
common stock is listed on The NASDAQ Capital Market under the symbol EDGR. UBmatrix is a private company, and as such there is no established public trading market for its common stock.
The following table sets forth the high and low price per share of our common stock as reported on The NASDAQ Capital Market on
June 23, 2010, the last completed trading day prior to the announcement of the merger, on June 24, 2010, the trading day on which the merger was announced, and on October 19, 2010.
|
|
|
|
|
|
|
|
|
|
|
EDGAR Online
Common Stock
|
|
|
|
High
|
|
|
Low
|
|
June 23, 2010
|
|
$
|
1.38
|
|
|
$
|
1.22
|
|
June 24, 2010
|
|
$
|
1.41
|
|
|
|
1.25
|
|
October 19, 2010
|
|
$
|
1.05
|
|
|
|
1.00
|
|
Because the market
price of our common stock is subject to fluctuation prior to the closing date of the merger, the market value of the shares of our common stock that holders of UBmatrix stock will receive in the merger may increase or decrease.
Historical Share Prices
The following table shows the range of high and low prices for our common stock for each of the two most-recently completed fiscal years.
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
High
|
|
|
Low
|
|
First Quarter
|
|
$
|
3.47
|
|
|
$
|
2.29
|
|
Second Quarter
|
|
|
2.83
|
|
|
|
1.58
|
|
Third Quarter
|
|
|
2.40
|
|
|
|
1.25
|
|
Fourth Quarter
|
|
|
2.49
|
|
|
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
High
|
|
|
Low
|
|
First Quarter
|
|
$
|
1.70
|
|
|
$
|
0.71
|
|
Second Quarter
|
|
|
1.48
|
|
|
|
0.82
|
|
Third Quarter
|
|
|
2.20
|
|
|
|
1.18
|
|
Fourth Quarter
|
|
|
1.99
|
|
|
|
1.07
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
High
|
|
|
Low
|
|
First Quarter
|
|
$
|
1.85
|
|
|
$
|
1.10
|
|
Second Quarter
|
|
|
2.12
|
|
|
|
1.21
|
|
Third Quarter
|
|
|
1.57
|
|
|
|
0.75
|
|
Fourth Quarter (through October 19, 2010)
|
|
|
1.30
|
|
|
|
0.88
|
|
Dividend Information
We have never paid cash dividends. If the merger is not consummated, the Board of Directors presently intends to continue a
policy of retaining all earnings to finance the expansion of our business. Following the merger, it is expected that the Board will continue the policy of not paying cash dividends in order to retain earnings for reinvestment in the business of the
combined company.
Holders
As of October 11, 2010, there were approximately 2,421 beneficial holders of record of our common stock.
31
EDGAR ONLINE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements assume the merger between UBM Acquisition Corp., Inc., a wholly
owned subsidiary of EDGAR Online, Inc., and UBmatrix, Inc. and the sale of Series C Stock pursuant to the stock purchase agreement. The unaudited pro forma condensed combined financial statements are based on the historical financial statements of
EDGAR Online, Inc. and subsidiaries, and UBmatrix, Inc., after giving effect to the merger agreement between EDGAR Online, Inc. and UBmatrix, Inc. and the Series C Preferred Stock Purchase Agreement, and the assumptions, reclassifications and
adjustments described in the accompanying notes to the unaudited pro forma condensed financial statements.
The unaudited pro
forma condensed combined balance sheets as of June 30, 2010 are presented as if the merger had occurred on June 30, 2010. The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2010, and the year ended
December 31, 2009, are presented as if the merger with UBmatrix, Inc. had occurred on January 1, 2009, with recurring acquisition-related adjustments reflected in the condensed combined statements of operations for each of the periods
presented.
Determination of the merger and stock purchase consideration (purchase price) and allocations of such purchase
price used in the unaudited pro forma condensed combined financial statements are based upon preliminary estimates and assumptions. Any change could result in material variances between our future financial results and the amounts presented in these
unaudited condensed combined financial statements, including variances in fair values recorded, as well as expenses associated with these items.
The unaudited pro forma condensed combined financial statements are prepared for illustrative purposes only and are not necessarily indicative of or intended to represent the results that would have been
achieved had the transaction been consummated as of the dates indicated or that may be achieved in the future. The unaudited pro forma condensed combined financial statements do not reflect any operating efficiencies and associated cost savings that
we may achieve with respect to the combined companies.
The unaudited pro forma condensed combined financial statements should
be read in conjunction with: (a) our historical consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2009 and Quarterly Report on Form 10-Q for the quarter
ended June 30, 2010; (b) the audited historical financial statements of UBmatrix, Inc. for the years ended September 30, 2009 and 2008, included elsewhere herein; (c) the historical unaudited financial statements of UBmatrix, Inc. as of
June 30, 2010 and for the three and nine months ended June 30, 2010 and June 30, 2009 included elsewhere herein; (d) the historical unaudited financial statements of UBmatrix, Inc. as of March 31, 2010 and for the three and six
months ended March 31, 2009 and 2010 included elsewhere herein; and (e) other information pertaining to EDGAR Online, Inc. and UBmatrix, Inc. contained in this proxy statement.
32
EDGAR ONLINE, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2009
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Pro Forma
Adjustments
|
|
|
Pro Forma
Combined
|
|
|
|
EDGAR
Online,
Inc.
|
|
|
Ubmatrix,
Inc.*
|
|
|
Total
|
|
|
|
Revenues
|
|
$
|
19,174
|
|
|
$
|
3,943
|
|
|
$
|
23,117
|
|
|
$
|
|
|
|
$
|
23,117
|
|
Cost of revenues
|
|
|
4,653
|
|
|
|
61
|
|
|
|
4,714
|
|
|
|
|
|
|
|
4,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
14,521
|
|
|
|
3,882
|
|
|
|
18,403
|
|
|
|
|
|
|
|
18,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
3,117
|
|
|
|
1,466
|
|
|
|
4,583
|
|
|
|
|
|
|
|
4,583
|
|
Product development
|
|
|
1,878
|
|
|
|
2,617
|
|
|
|
4,495
|
|
|
|
|
|
|
|
4,495
|
|
General and administrative
|
|
|
7,849
|
|
|
|
1,114
|
|
|
|
8,963
|
|
|
|
1,059
|
(f)
|
|
|
10,022
|
|
Severance costs
|
|
|
57
|
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
57
|
|
Depreciation and amortization
|
|
|
2,195
|
|
|
|
57
|
|
|
|
2,252
|
|
|
|
336
|
(i)
|
|
|
2,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,096
|
|
|
|
5,254
|
|
|
|
20,350
|
|
|
|
1,395
|
|
|
|
21,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(575
|
)
|
|
|
(1,372
|
)
|
|
|
(1,947
|
)
|
|
|
(1,395
|
)
|
|
|
(3,342
|
)
|
Interest expense, net
|
|
|
(375
|
)
|
|
|
(1,425
|
)
|
|
|
(1,800
|
)
|
|
|
1,425
|
(j)
|
|
|
(375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(950
|
)
|
|
|
(2,797
|
)
|
|
|
(3,747
|
)
|
|
|
30
|
|
|
|
(3,717
|
)
|
Accrued dividends and accretion on preferred stock
|
|
|
|
|
|
|
(85
|
)
|
|
|
(85)
|
|
|
|
(635
|
)(k)
|
|
|
(720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss to common shareholders
|
|
$
|
(950
|
)
|
|
$
|
(2,882
|
)
|
|
$
|
(3,832
|
)
|
|
$
|
(605
|
)
|
|
$
|
(4,437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common sharebasic
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common sharediluted
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstandingbasic
|
|
|
26,760
|
|
|
|
|
|
|
|
|
|
|
|
2,685
|
(l)
|
|
|
29,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstandingdiluted
|
|
|
26,760
|
|
|
|
|
|
|
|
|
|
|
|
2,685
|
(l)
|
|
|
29,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Ubmatrix, Inc. operates on a fiscal year ended September 30. The above illustration includes information derived from the audited financial statements of Ubmatrix
for the fiscal year ended September 30, 2009, which is within 93 days of the reporting period of EDGAR Online, Inc. permitted under SEC reporting guidelines.
|
33
EDGAR ONLINE, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2010
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Pro Forma
Adjustments
|
|
|
Pro
Forma
Combined
|
|
|
|
EDGAR
Online,
Inc.
|
|
|
Ubmatrix,
Inc.
|
|
|
Total
|
|
|
|
Revenues
|
|
$
|
9,386
|
|
|
$
|
1,105
|
|
|
$
|
10,491
|
|
|
$
|
|
|
|
$
|
10,491
|
|
Cost of revenues
|
|
|
3,462
|
|
|
|
36
|
|
|
|
3,498
|
|
|
|
|
|
|
|
3,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
5,924
|
|
|
|
1,069
|
|
|
|
6,993
|
|
|
|
|
|
|
|
6,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
1,436
|
|
|
|
772
|
|
|
|
2,208
|
|
|
|
|
|
|
|
2,208
|
|
Product development
|
|
|
832
|
|
|
|
1,270
|
|
|
|
2,102
|
|
|
|
|
|
|
|
2,102
|
|
General and administrative
|
|
|
4,165
|
|
|
|
980
|
|
|
|
5,145
|
|
|
|
|
|
|
|
5,145
|
|
Severance costs
|
|
|
227
|
|
|
|
|
|
|
|
227
|
|
|
|
|
|
|
|
227
|
|
Depreciation and amortization
|
|
|
1,388
|
|
|
|
|
|
|
|
1,388
|
|
|
|
168
|
(i)
|
|
|
1,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,048
|
|
|
|
3,022
|
|
|
|
11,070
|
|
|
|
168
|
|
|
|
11,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,124
|
)
|
|
|
(1,953
|
)
|
|
|
(4,077
|
)
|
|
|
(168
|
)
|
|
|
(4,245
|
)
|
Interest expense, net
|
|
|
(156
|
)
|
|
|
(1,195
|
)
|
|
|
(1,351
|
)
|
|
|
1,195
|
(j)
|
|
|
(156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(2,280
|
)
|
|
|
(3,148
|
)
|
|
|
(5,428
|
)
|
|
|
1,027
|
|
|
|
(4,401
|
)
|
Dividends and accretion on preferred stock
|
|
|
(603
|
)
|
|
|
(20
|
)
|
|
|
(623
|
)
|
|
|
(340
|
)(k)
|
|
|
(963
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss to common shareholders
|
|
$
|
(2,883
|
)
|
|
$
|
(3,168
|
)
|
|
$
|
(6,051
|
)
|
|
$
|
687
|
|
|
$
|
(5,364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common sharebasic
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common sharediluted
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstandingbasic
|
|
|
26,908
|
|
|
|
|
|
|
|
|
|
|
|
2,685
|
(l)
|
|
|
29,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstandingdiluted
|
|
|
26,908
|
|
|
|
|
|
|
|
|
|
|
|
2,685
|
(l)
|
|
|
29,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value per common share
|
|
$
|
(0.04
|
)
|
|
$
|
(4.01
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value per common share assuming conversion of preferred shares
|
|
$
|
0.35
|
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
EDGAR ONLINE, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 2010
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Pro Forma
Adjustments
|
|
|
Pro Forma
Combined
|
|
|
|
EDGAR
Online, Inc.
|
|
|
Ubmatrix,
Inc.
|
|
|
Total
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
10,847
|
|
|
$
|
1,171
|
|
|
$
|
12,018
|
|
|
$
|
2,175
|
(a)
|
|
$
|
14,193
|
|
Short term investments
|
|
|
226
|
|
|
|
|
|
|
|
226
|
|
|
|
|
|
|
|
226
|
|
Accounts receivable, net
|
|
|
3,031
|
|
|
|
184
|
|
|
|
3,215
|
|
|
|
|
|
|
|
3,215
|
|
Prepaid expenses and other current assets
|
|
|
240
|
|
|
|
270
|
|
|
|
510
|
|
|
|
|
|
|
|
510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
14,344
|
|
|
|
1,625
|
|
|
|
15,969
|
|
|
|
2,175
|
|
|
|
18,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
3,514
|
|
|
|
31
|
|
|
|
3,545
|
|
|
|
|
|
|
|
3,545
|
|
Goodwill
|
|
|
2,189
|
|
|
|
|
|
|
|
2,189
|
|
|
|
3,479
|
(b)
|
|
|
5,668
|
|
Other Intangible assets, net
|
|
|
1,083
|
|
|
|
36
|
|
|
|
1,119
|
|
|
|
1,678
|
(b)
|
|
|
2,797
|
|
Other assets
|
|
|
454
|
|
|
|
56
|
|
|
|
510
|
|
|
|
|
|
|
|
510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
21,584
|
|
|
$
|
1,748
|
|
|
$
|
23,332
|
|
|
$
|
7,332
|
|
|
$
|
30,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
2,888
|
|
|
$
|
512
|
|
|
$
|
3,400
|
|
|
$
|
|
(c)
|
|
$
|
3,400
|
|
Deferred revenues
|
|
|
3,227
|
|
|
|
1,665
|
|
|
|
4,892
|
|
|
|
(1,332
|
)(c)
|
|
|
3,560
|
|
Convertible note payable
|
|
|
|
|
|
|
5,914
|
|
|
|
5,914
|
|
|
|
(5,914
|
)(d)
|
|
|
|
|
Current portion of long term debt
|
|
|
1,687
|
|
|
|
|
|
|
|
1,687
|
|
|
|
|
|
|
|
1,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
7,802
|
|
|
|
8,091
|
|
|
|
15,893
|
|
|
|
(7,246
|
)
|
|
|
8,647
|
|
Long term debt, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long term liabilities
|
|
|
242
|
|
|
|
2,718
|
|
|
|
2,960
|
|
|
|
(2,718
|
)(d)
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
8,044
|
|
|
|
10,809
|
|
|
|
18,853
|
|
|
|
(9,964
|
)
|
|
|
8,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Preferred stock
|
|
|
11,582
|
|
|
|
16,251
|
|
|
|
27,833
|
|
|
|
(9,956
|
)(e)
|
|
|
17,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
279
|
|
|
|
|
|
|
|
279
|
|
|
|
26
|
(f)
|
|
|
305
|
|
Additional Paid in capital
|
|
|
74,431
|
|
|
|
|
|
|
|
74,431
|
|
|
|
2,364
|
(f)
|
|
|
76,795
|
|
Treasury stock
|
|
|
(71,066
|
)
|
|
|
|
|
|
|
(71,066
|
)
|
|
|
|
|
|
|
(71,066
|
)
|
Accumulated deficit
|
|
|
(1,686
|
)
|
|
|
|
|
|
|
(1,686
|
)
|
|
|
(450
|
)(g)
|
|
|
(2,136
|
)
|
Net deficit of UBmatrix, Inc.
|
|
|
|
|
|
|
(25,312
|
)
|
|
|
25,312
|
)
|
|
|
25,312
|
(h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,958
|
|
|
|
(25,312
|
)
|
|
|
(23,354
|
)
|
|
|
27,252
|
|
|
|
3,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable preferred stock and stockholders equity
|
|
$
|
21,584
|
|
|
$
|
1,748
|
|
|
$
|
23,332
|
|
|
$
|
7,332
|
|
|
$
|
30,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
EDGAR ONLINE, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
BASIS OF PRO FORMA PRESENTATION (in thousands, except share and per share amounts)
On June 23, 2010, EDGAR Online, Inc. (EDGAR or the Company) and UBM Acquisition Corp., a Washington
corporation and a wholly owned subsidiary of EDGAR (Acquisition Sub), entered into an Agreement and Plan of Merger (the Merger Agreement) with UBmatrix, Inc., a Washington corporation (UBmatrix).
Upon the terms and subject to the conditions of the Merger Agreement, Acquisition Sub will merge with and into UBmatrix with UBmatrix
surviving as a subsidiary of EDGAR (the Merger). At the effective time of the Merger, all of the outstanding shares of capital stock of UBmatrix will be converted into the right to receive an aggregate of 74,379 shares of EDGAR Series C
Convertible Preferred Stock (EDGAR Series C Stock) and an aggregate of 2,685,088 shares of EDGAR common stock (EDGAR Common Stock). The shares of EDGAR Common Stock to be issued are comprised of 1,495,032 shares that will be
issued to the stockholders and current Chief Financial Officer of UBmatrix and 1,190,056 shares that will be issued to employees of UBmatrix that remain with the Company.
Under the Merger Agreement, the stockholders and employees of UBmatrix will receive an initial payment of approximately 74,379 shares of EDGAR Series C Stock and 1,063,046 shares of EDGAR Common Stock. A
total of 1,622,042 shares of the common stock issued in the merger will be placed into an escrow account to secure the post-closing indemnification obligations of the UBmatrix stockholders. These shares will consist of 1,434,446 of the shares
issuable to the stockholders of UBmatrix, as well as 187,596 of the shares issuable, subject to restrictions, to certain employees of UBmatrix who will be joining our company as of the closing. The merger consideration will be adjusted post-closing
based on the difference, if any, between UBmatrixs actual cash on hand at closing as compared to forecasted amounts.
The EDGAR Series C Stock and EDGAR Common Stock to be issued at closing will be issued in a private placement exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the Securities Act). EDGAR will rely on representations made by the securityholders receiving EDGAR Series C Stock that they are acquiring the EDGAR Series C Stock
and EDGAR Common Stock for investment and not with a view to the distribution of such shares in violation of applicable securities laws and that they have sufficient knowledge and experience in business and financial matters that they are capable of
evaluating the merits and risks of an investment in the shares of EDGAR Series C Stock and EDGAR Common Stock, among others.
In connection with the Merger Agreement, on June 23, 2010, the Company entered into a Series C Preferred Stock Purchase Agreement
(the Purchase Agreement) with Draper Fisher Jurvetson Fund VIII, L.P., Draper Fisher Jurvetson Partners VIII, LLC and Draper Associates L.P., providing for the issuance and sale of 12,637 shares of EDGAR Series C Stock at a purchase
price of $100.00 per share. Each share of EDGAR Series C Stock shall be convertible into a number of shares of EDGAR Common Stock determined by dividing the sum of the purchase price per share plus accrued dividends by an initial conversion price of
$1.4481 per share, subject to adjustment for stock splits, stock dividends, declared but unpaid dividends, and other items. The holders of the EDGAR Series C Stock shall be entitled to the number of votes equal to the number of shares of EDGAR
Common Stock into which such holders EDGAR Series C Stock are convertible. The issuance will be made pursuant to Section 4(2) of the Securities Act of 1933, as amended. The EDGAR Series C Stock contains a compounding, cumulative
11.44% per annum dividend payable upon conversion of the EDGAR Series C Stock. Following January 28, 2015, the dividend shall no longer accrue unless declared by the Board of Directors of the Company. The issuance of the EDGAR Series C
Stock will occur simultaneously upon the Companys closing of the Merger.
36
EDGAR ONLINE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS(Continued)
The unaudited pro
forma condensed combined balance sheets as of June 30, 2010, the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2009 and the condensed combined statements of operations for the three months ended
June 30, 2010 are based on the historical financial statements of the Company and UBmatrix after giving effect to the principal terms of the Merger Agreement and the Purchase Agreement described above on a combined basis since the transactions are
mutually dependent. UBmatrix has a fiscal year ending on September 30 and the Company reports on a calendar year basis. The accompanying presentation of the condensed combined statement of operations for the year ended December 31, 2009,
includes the reported results of: a) the Company for the calendar year ended December 31, 2009 and b) UBmatrix for the fiscal year ended September 30, 2009 since this fiscal year end is within 93 days of the Companys year end. The
statement of operations of UBmatrix for the six months ended June 30,2010 is derived from the unaudited statements of operations of UBmatrix for the periods ended March 31, 2010 and June 30, 2010 included elsewhere herein.
The unaudited pro forma condensed combined financial statements are not intended to represent or be indicative of the consolidated
results of operations or financial position of the Company that would have been reported had the acquisition been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or
financial position of the Company. The unaudited pro forma condensed combined financial statements do not reflect any operating efficiencies or cost savings, if any, that the Company may achieve with respect to the combined companies.
The estimation and allocation of purchase price used in the unaudited pro forma condensed combined financial statements are based upon
preliminary estimates. The estimates and assumptions are subject to change upon the finalization of the valuation of the securities issued by the Company and UBmatrixs assets and liabilities acquired. The final valuation of identifiable
intangible assets and their estimated useful lives may change from the Companys preliminary estimates, which could result in a material change to the amortization of intangible assets. Additionally, changes in cash, accounts receivable, and
other financial or tangible assets and liabilities could differ substantially from June 30, 2010, which was the basis for developing the Companys fair value estimates in the unaudited pro forma condensed combined financial statements.
UBMATRIX ACQUISITION AND SERIES C PREFERRED STOCK PURCHASE AGREEMENT
(A) INITIAL PURCHASE PRICE
|
|
|
|
|
Purchase Price:
|
|
|
|
Estimated fair value of 12,637 shares of Series C redeemable preferred stock
|
|
$
|
898
|
|
Estimated fair value of 74,379 shares of Series C redeemable preferred stock
|
|
|
5,397
|
|
Estimated fair value of 1,495,032 shares of common stock
|
|
|
1,331
|
|
|
|
|
|
|
|
|
$
|
7,626
|
|
|
|
|
|
|
Fair Value of Series C Stock:
The Company has agreed to issue 74,379 shares of newly designated EDGAR Series C Stock at closing as part of the merger consideration. The
EDGAR Series C Stock is originally convertible into 5,129,573 shares of EDGAR Common Stock when issued based on a conversion rate of $1.4481 per share, subject to adjustment. The EDGAR Series C Stock carries a dividend of approximately 11.44% until
January 28, 2015 payable in additional convertible preferred shares. Including dividends, the EDGAR Series C Stock will ultimately be convertible into 8,128,530 shares of EDGAR Common Stock. The Company will also sell, for $2 million cash, an
additional
37
EDGAR ONLINE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS(Continued)
12,673 shares of EDGAR Series C Stock originally convertible into 871,546 shares of EDGAR Common Stock and, with dividends, ultimately convertible into 1,381,088 shares of EDGAR Common Stock. The
Merger Agreement and the Purchase Agreement are mutually dependent and have been combined for purposes of this illustration. Further, for purposes of this illustration and in accordance with the provisions of ASC 805- Business Combinations, the
Company has estimated the fair market value of the EDGAR Series C Stock based on the characteristics of the security. For financial reporting purposes, the Company will obtain an independent appraisal of the EDGAR Series C Stock if and
when issued, which amount may be greater or less than the fair market value estimated for purposes of this pro forma presentation.
Fair value of EDGAR Common Stock
The Company has also agreed to issue a
total of 2,685,088 shares of EDGAR Common Stock as consideration for the Merger of which 1,495,032 will be issued to stockholders of UBmatrix and one employee of UBmatrix not continuing with the Company and 1,190,056 will be issued to employees of
UBmatrix that remain with the Company. The shares to be issued to the employees will be issued pursuant to the Companys 2005 Stock Award and Incentive Plan and will be treated as compensation expense in accordance with the provisions of ASC
718,
Stock Compensation
. The shares issued to the stockholders and the one employee of UBmatrix will be recorded as purchase consideration. For financial reporting purposes, and in accordance with the provisions of ASC 805,
Business
Combinations
and related guidance thereto, the value of shares issued as consideration in a business combination is determined using the fair value at the acquisition date (determined in accordance with ASC Subtopic 820-10,
Fair Value
Measurements and DisclosuresOverall
) by multiplying the number of shares issued by the closing quoted market price of the shares on the date the shares are issued. For purposes of this pro forma presentation, the closing price of $0.89 per
share on September 20, 2010, the most recent practical date, was used in determining the fair market value of the EDGAR Common Stock issued. The closing price on the date the Merger is completed will be the relevant price in determining the value of
the EDGAR Common Stock issued for financial reporting purposes, and may be substantially different than the fair market value calculated based on the closing price on the date of the announcement.
Changes in estimated fair value of EDGAR Series C Stock and EDGAR Common Stock:
Due to the normal volatility in the price of EDGAR Common Stock, the fair market value of the EDGAR Common Stock, as well as the fair
market value of the EDGAR Series C Stock, that will be recorded for financial reporting purposes will likely be different than the amounts used in the accompanying pro forma condensed combined financial statements. A 50% increase or decrease in the
trading price of the Companys stock to $1.35 or $0.45, respectively, would result in the following fair values of the shares issued as merger consideration in connection with the Merger:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading price of common stock
|
|
Fair value of merger consideration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.89
|
|
|
$
|
1.35
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value of 12,637 shares of Series C redeemable preferred stock
|
|
$
|
898
|
|
|
$
|
1,347
|
|
|
$
|
898
|
|
Estimated fair value of 74,379 shares of Series C redeemable preferred stock
|
|
|
5,397
|
|
|
|
8,096
|
|
|
|
5,397
|
|
Estimated fair value of 1,495,032 shares of common stock
|
|
|
1,331
|
|
|
|
2,018
|
|
|
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,626
|
|
|
$
|
11,461
|
|
|
$
|
6,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of stock compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value of 1,190,056 shares of common stock
|
|
$
|
1,059
|
|
|
$
|
1,607
|
|
|
$
|
536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
EDGAR ONLINE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS(Continued)
The fair market
value of the EDGAR Series C Stock in this illustration is assumed to be the greater of: a) the fair market value as determined using the method indicated above or, or b) the assumed trading price of the EDGAR Common Stock multiplied by the number of
shares that would be issuable upon conversion of the EDGAR Series C Stock issued upon closing of the Merger Agreement. The fair market value of the shares of EDGAR Common Stock is equal to the assumed trading price times the number of shares of
EDGAR Common Stock issuable at closing.
(B) PRELIMINARY PURCHASE PRICE ALLOCATION
The total initial purchase price was allocated to UBmatrixs tangible, identifiable intangible, and financial assets acquired and
liabilities assumed based on their estimated fair values. The excess of the purchase price over the net tangible and identifiable intangible assets over the purchase price will be recorded as goodwill. Based on preliminary estimates, the total
initial purchase price will be allocated as follows:
|
|
|
|
|
Preliminary purchase price allocation:
|
|
|
|
Cash
|
|
|
$3,796
|
|
Accounts receivable
|
|
|
184
|
|
Other assets
|
|
|
326
|
|
property and equipment
|
|
|
31
|
|
Identifiable intangible assets
|
|
|
1,714
|
|
Goodwill
|
|
|
3,479
|
|
Accounts payable
|
|
|
(1,571
|
)
|
Deferred revenue
|
|
|
(333)
|
|
|
|
|
|
|
Total preliminary purchase price allocation
|
|
|
$7,626
|
|
|
|
|
|
|
Cash, accounts receivable, other assets and property and equipment
The Company valued cash,
accounts receivable, other assets and property and equipment at their respective carrying amount as of June 30, 2010 as the Company believes that these amounts approximate their current values. The Company has increased the historical carrying value
of cash by the $0.625 million additional equity investment due related to the signing of the Merger Agreement by the current investors in UBmatrix and by $2 million proceeds from the Purchase Agreement, less estimated transaction fees of $450. The
Company expects to make additional adjustments based upon the actual valuation of assets acquired and liabilities assumed as of the date of the acquisition.
Accounts Payable
The Company valued accounts payable at its carrying amount. In addition, accounts payable was increased by $1,059 to reflect the value of compensation payable to employees of
UBmatrix that will be settled with the issuance of EDGAR Common Stock upon the closing of the Merger. Once the shares are issued to the employees, this liability will be reclassified as additional paid in capital.
Deferred Revenue
In accordance with the provisions of
ASC 805Business Combinations
, the Company has estimated
deferred revenue at fair market value which is defined as the cost to complete the respective contracts plus a standard gross profit margin. The historical carrying value of deferred revenue in the financial statements is comprised of deferred
revenue related to software previously delivered and installed for which no future costs are anticipated, and deferred revenue related to ongoing maintenance and support services for which future costs are expected. Based on discussion with UBmatrix
personnel, the Company has estimated that 20% of the historical deferred revenue is comprised of ongoing maintenance and support.
39
EDGAR ONLINE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS(Continued)
Identifiable
intangible assets
Pursuant to the terms of the Merger Agreement, the Company will acquire certain intangible assets of UBmatrix including, but not limited to, trademarks, software, research and development in process, license agreements,
workforce in place and non-compete agreements of certain key employees. For financial reporting purposes, if the Merger is completed the Company will engaged a valuation firm to assist it in identification and valuation of these intangible assets.
For purposes of this pro forma analysis, the Company has estimated that one third of the excess of cost of the merger consideration determined above over the fair value of identifiable tangible and financial assets acquired net of liabilities
assumed will be attributable to amortizable identifiable intangible assets acquired with an estimated average useful life of 5 years. The remainder of the excess of cost of merger consideration over the fair value of identifiable tangible, financial
and intangible assets will be comprised of goodwill.
Goodwill
Goodwill represents the excess of the merger
consideration over the net tangible and identifiable intangible assets expected to be acquired. Changes in the estimated fair market value of merger consideration, and changes to carrying amounts of assets and liabilities between June 30, 2010 and
the closing of the Merger Agreement and changes resulting from the final valuation of identifiable intangible assets will result in changes to the purchase price allocated to goodwill.
PRO FORMA ADJUSTMENTS
The following pro forma adjustments are included in
the unaudited pro forma condensed combined financial statements:
|
a.
|
CashThe pro forma adjustments include $0.625 million in additional capital that the existing investors in UBmatrix have committed to make into UBmatrix relating
to the Merger Agreement (an investment of $1.125 million has already been made and is included in the financial statements), and $2.0 million in proceeds from the sale of additional shares of Series C preferred stock which is anticipated upon
closing of the Merger Agreement, less our anticipated costs related to the Merger Agreement and Purchase Agreement of $450.
|
|
b.
|
Identifiable intangible assets and goodwillTo record the difference between the preliminary fair value and the historical amounts of intangible assets of UBmatrix
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
Amount, net
|
|
|
Preliminary
Fair Value
|
|
|
Increase
(Decrease)
|
|
|
Annual
Amortization
|
|
|
Estimated
Life
|
|
Identifiable intangibles
|
|
$
|
36
|
|
|
$
|
1,714
|
|
|
$
|
1,678
|
|
|
$
|
336
|
|
|
|
5 years
|
|
Goodwill
|
|
|
|
|
|
|
3,479
|
|
|
|
3,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36
|
|
|
$
|
5,193
|
|
|
$
|
5,157
|
|
|
$
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The pro rata pro forma adjustment for amortization for the six months ended June 30, 2010 is $168.
|
c.
|
Deferred RevenueTo record the estimated adjustment to fair market value of deferred revenue acquired as follows:
|
|
|
|
|
|
Carrying amount of UBmatrix deferred revenue
|
|
$
|
1,665
|
|
Estimated future costs plus normal gross profit on service type contracts
|
|
|
(333)
|
|
|
|
|
|
|
Adjustment to deferred revenue
|
|
$
|
1,332
|
|
|
|
|
|
|
40
EDGAR ONLINE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS(Continued)
Accounts
PayableTo record the estimated value of compensation payable ($1,059) by UBmatrix that was reversed by crediting additional paid in capital, upon the closing of the Merger, by the issuance of 1,190,056 shares of EDGAR Common Stock.
|
d.
|
The existing liabilities on the books of UBmatrix relating to convertible notes payable and warrant liabilities will be extinguished upon closing of the Merger
Agreement in exchange for merger consideration received by the respective investors.
|
|
e.
|
The net adjustment to redeemable preferred stock is comprised as follows:
|
|
|
|
|
|
Retirement of Ubmatrix redeemable preferred stock in respect of merger consideration
|
|
$
|
(16,251
|
)
|
Issuance of EDGAR Online Series C stock pursuant to merger agreement
|
|
|
5,397
|
|
Issuance of EDGAR Online Series C stock pursuant to stock purchase agreement
|
|
|
898
|
|
|
|
|
|
|
|
|
$
|
(9,956
|
)
|
|
|
|
|
|
|
f.
|
Issuance of 2,685,088 shares of EDGAR Common Stock, par value $0.01, with a total fair market value of $2,390 based on closing price of $0.89 per share on
September 20, 2010. In addition, the liability for compensation payable to UBmatrix employees was reversed by crediting paid in capital.
|
|
|
The total amount is comprised as follows:
|
|
|
|
|
|
Reversal of compensation payable
|
|
$
|
1,059
|
|
Merger consideration
|
|
|
1,331
|
|
|
|
|
|
|
|
|
$
|
2,390
|
|
|
|
|
|
|
|
|
and is included in the accompanying pro forma condensed combined balance sheet as:
|
|
|
|
|
|
Common stock
|
|
$
|
26
|
|
Additional paid in capital
|
|
|
2,364
|
|
|
|
|
|
|
|
|
$
|
2,390
|
|
|
|
|
|
|
|
|
The stock compensation expense will be recorded over the one year vesting period of the underlying shares and has been included in the accompanying Unaudited Pro Forma
Condensed Combined Statement of Operations for the year ended December 31, 2009.
|
|
g.
|
Estimated deal costs of $450 to be paid by EDGAR Online in respect of the Merger Agreement and Purchase Agreement.
|
|
h.
|
To eliminate historical net deficit of UBmatrix.
|
|
i.
|
To record amortization expense relating to identifiable intangible assets acquired detailed in (b) above of $336 for the year ended December 31, 2009 and $168
for the six months ended June 30, 2010.
|
|
j.
|
To eliminate historical interest expense (which includes amortization of finance costs and debt discount) of UBmatrix relating to convertible note payable that is
extinguished upon closing of the merger agreement.
|
41
EDGAR ONLINE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS(Continued)
|
k.
|
To record estimated dividends on EDGAR Online preferred stock issued in connection with the Merger Agreement and Stock Purchase Agreement, as well as to give effect in
the year ended December 31, 2009 for other preferred stock issued by EDGAR Online in January 2010 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated pro forma dividends on:
|
|
Face or
Estimated Value
|
|
|
Dividend
Rate
|
|
|
Year Ended
December 31,
2009
|
|
|
Six Months
Ended
June 30,
2010
|
|
Series C preferred stock issued as merger consideration pursuant to the merger agreement
|
|
$
|
5,397
|
|
|
|
11.44
|
%
|
|
$
|
617
|
|
|
$
|
309
|
|
Series C preferred stock issued pursuant to the Stock Purchase Agreement
|
|
|
898
|
|
|
|
11.44
|
%
|
|
|
103
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,295
|
|
|
|
|
|
|
|
720
|
|
|
|
360
|
|
Series B preferred stock issued for cash in January, 2010
|
|
|
11,582
|
|
|
|
11.44
|
%
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total preferred stock - pro forma
|
|
$
|
17,877
|
|
|
|
|
|
|
|
720
|
|
|
|
360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less historical amount of UBmatrix, Inc.
|
|
|
|
|
|
|
|
|
|
|
(85
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma adjustment - dividends
|
|
|
|
|
|
|
|
|
|
$
|
635
|
|
|
$
|
(340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
No dividends, issuance costs or other features of the EDGAR Online Series B preferred stock issued in January 2010 are included in the adjustments for the year ended
December 31, 2009 since they are not directly related to the merger. The annual amount and issuance costs related to the Series B preferred stock is approximately $1.3 million. The pro forma adjustment for the six months ended June 30,
2010 applies to the historical dividends and other features of UBmatrix, Inc. since the historical amounts of EDGAR reflect dividends and other features of the Series B shares issued in January 2010 which would not change.
|
|
l.
|
To record 2,685,088 common shares issued as consideration with respect to the Merger Agreement.
|
42
EDGAR ONLINE, INC.
AND SUBSIDIARIES
UNAUDITED CONDENSED COMBINED STATEMENT OF OPERATIONS OF UBMATRIX, INC.
SIX MONTHS ENDED JUNE 30, 2010
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Three Months
Ended March 31,
2010
|
|
|
Three Months
Ended June 30,
2010
|
|
|
Six Months
Ended June 30,
2010
|
|
Revenues
|
|
$
|
501
|
|
|
$
|
604
|
|
|
$
|
1,105
|
|
Cost of revenues
|
|
|
17
|
|
|
|
19
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
484
|
|
|
|
585
|
|
|
|
1,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
372
|
|
|
|
400
|
|
|
|
772
|
|
Product development
|
|
|
587
|
|
|
|
683
|
|
|
|
1,270
|
|
General and administrative
|
|
|
322
|
|
|
|
658
|
|
|
|
980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,281
|
|
|
|
1,741
|
|
|
|
3,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(797
|
)
|
|
|
(1,156
|
)
|
|
|
(1,953
|
)
|
Interest expense, net
|
|
|
(151
|
)
|
|
|
(1,041
|
)
|
|
|
(1,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(948
|
)
|
|
|
(2,200
|
)
|
|
|
(3,148
|
)
|
Dividends and accretion on preferred stock
|
|
|
(20
|
)
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss to common stockholders
|
|
$
|
(968
|
)
|
|
$
|
(2,200
|
)
|
|
$
|
(3,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
THE MERGER AGREEMENT
The following summary of the merger agreement is qualified by reference to the complete text of the merger agreement, which is incorporated by reference and attached hereto as Annex A-1, along with
Amendment No. 1 to the merger agreement, which is incorporated by reference and attached hereto as Annex A-2. The merger agreement has been included to provide you with information regarding its terms. You are encouraged to read the entire merger
agreement. The merger agreement is not intended to provide any other factual information about our company or UBmatrix. Such information can be found elsewhere in this proxy statement and in the other public filings that we make with the SEC, which
are available without charge at
www.sec.gov
.
Structure of the Merger
Under the merger agreement, merger sub will merge with and into UBmatrix, with UBmatrix becoming the surviving corporation and a
wholly-owned subsidiary of our company.
Timing of Closing; Effective Time of the Merger
The closing will occur at a time and date to be specified by the parties, which shall be no later than the second business day after the
day on which the last of the conditions set forth in the merger agreement has been satisfied or waived, unless we and UBmatrix mutually agree to a different date or the merger agreement has been terminated prior to such date. We expect that, as soon
as practicable following the approval by our stockholders of Proposal Nos. 1 and 2 at the annual meeting, the parties will file articles of merger with the Secretary of State of Washington, at which time the merger will be effective.
Merger Consideration
Subject to the terms and conditions of the merger agreement, at the effective time of the merger, all of the shares of capital stock of UBmatrix outstanding immediately prior to the merger will be
converted into the right to receive an aggregate of 74,379 shares of our Series C Stock (initially convertible into 5,129,573 shares of our common stock) and 2,685,088 shares of our common stock. The merger consideration is subject to adjustment
following closing to the extent UBmatrixs net cash at closing is less than a closing date net cash target of $1.759 million reduced by an agreed upon amount to be utilized by UBmatrix (expected to be approximately $1.2 million) between the
execution of the merger agreement and the closing of the merger. Any such adjustment would be on a pro rata basis to the stockholders of UBmatrix and would be effected through the release to us of a number of shares held in escrow equal in value to
the amount of the shortfall in net cash at closing. Through January 28, 2015, the shares of Series C Stock issued in the merger are expected to receive paid-in-kind dividends that will result in those shares being convertible into an additional
2,998,957 shares of our common stock.
In total, we will issue a total of 74,379 shares of Series C Stock (initially
convertible into a total of 5,129,573 shares of common stock) and 2,685,088 shares of common stock in connection with the merger agreement. Collectively, these shares represent an approximate 13.5% equity ownership in the combined company at the
time of the merger, assuming the issuance of shares of common stock then issuable upon the conversion of our Series B Stock and of the shares of common stock then issuable under our 2005 Stock Award and Incentive Plan (as amended, and inclusive of
the increase in shares available under the plan as contemplated by Proposal No. 5 in this proxy statement).
Escrow Arrangement
At the effective time of the merger, we shall deduct from the number of shares of common stock to be issued to the stockholders and employees of UBmatrix 1,622,042 shares of our common stock. These shares
will consist of 1,434,446 of the shares issuable to the stockholders of UBmatrix, as well as 187,597 of the shares issuable, subject to restrictions, to certain employees of UBmatrix who will be joining our company as of the
44
closing. We shall deposit such shares of our common stock, which we refer to as the escrow shares, with an internationally recognized escrow agent or bank mutually agreed by the parties, for the
purpose of securing the indemnification obligations of the stockholders of UBmatrix under the merger agreement. The escrow shares shall be held by the escrow agent in accordance with the terms of the merger agreement and of an escrow agreement in a
form mutually agreed by the parties, which we refer to as the escrow agreement. On the date that is 12 months following the effective date of the merger, the escrow agent shall release the escrow shares and deliver to the stockholders of UBmatrix
all of the escrow shares, minus such number of escrow shares having a value (based on a value of the average closing price per share of common stock on The NASDAQ Capital Market for the 15 immediately preceding days) equal to the amount of any claim
or claims that have been set forth in a notice delivered pursuant to the merger agreement (whether or not such claim or claims have been determined to be valid as of such date) (the remaining escrow shares after the date that is 12 months following
the effective date of the merger that either have not been released to the stockholders of UBmatrix or have not been released to us in respect of any claims being referred to herein as the escrow balance), and the escrow balance shall be retained in
escrow pending final resolution of the claims covered by such escrow balance.
Upon the final determination of a claim, if the
escrow balance exceeds the aggregate amount of all remaining unresolved claims, we shall instruct the escrow agent to release, to the stockholders of UBmatrix, such number of escrow shares representing such excess from the escrow shares retained by
the escrow agent, it being understood that if at such time the aggregate number of escrow shares being retained by the escrow agent have a value that is less than or equal to the aggregate amount of all claims pending at such time, we shall not be
obligated to release any escrow shares to the stockholders of UBmatrix,
subject
,
however
to the final adjudication of such claims.
The release of escrow shares by the escrow agent to our company in accordance with the terms and conditions of the merger agreement and the escrow agreement shall be the sole and exclusive remedy
available to us to satisfy any of our rights to indemnification set forth in the merger agreement, except as to certain fundamental indemnification matters.
Treatment of UBmatrix Stock Options and Warrants and Convertible Notes
All stock options exercisable for UBmatrix common stock and preferred stock and warrants to purchase UBmatrix common stock and preferred stock that are outstanding and unexercised will be cancelled prior
the effective time of the merger and will no longer represent the right to purchase UBmatrix common stock or preferred stock or any equity security of UBmatrix or EDGAR Online. All outstanding convertible notes of UBmatrix will be repaid directly as
a portion of the 74,379 shares of our Series C Stock to be issued at the closing of the merger (and be subject to the escrow arrangement). The number of shares of Series C Stock payable to the note holders was calculated on June 23, 2010 based
on the 30 day trailing average of the EDGAR Online stock price and interest accrued through June 23, 2010.
Exchange of Shares
Promptly after the effective time of the merger, we will provide to each holder of UBmatrix stock instructions explaining how to surrender UBmatrix stock certificates to us. Holders of UBmatrix stock that
surrender their certificates to us, together with a properly completed letter of transmittal, will receive the appropriate merger consideration. Holders of unexchanged shares of UBmatrix stock will not be entitled to receive any dividends or other
distributions payable by us after the closing until their certificates are surrendered.
Covenants
UBmatrix Covenants: Limitation on Soliciting, Initiating or Discussing Other Acquisition Proposals
The merger agreement contains detailed provisions prohibiting UBmatrix from seeking or entering into an alternative
transaction to the merger. Under these standstill and related provisions, subject to specific
45
exceptions described below, UBmatrix has agreed that it will not, directly or indirectly (and that it will ensure that its representatives do not directly or indirectly):
|
|
|
solicit, initiate or knowingly encourage (including by way of furnishing information) or take any other action to facilitate any inquiries or the
makings of any proposal that constitutes or could lead to an acquisition proposal; or
|
|
|
|
participate in any discussions regarding any acquisition proposal.
|
If UBmatrix should receive an acquisition proposal at any time prior to the effective time, UBmatrix shall promptly (but in any event
within 24 hours) advise us orally and in writing of such acquisition proposal or any inquiry regarding the making of an acquisition proposal, including any request for information, the material terms and conditions of any such request, acquisition
proposal or inquiry and the identity of the person making any such request, acquisition proposal or inquiry, and shall keep us fully informed of the status and details of such request, acquisition proposal or inquiry.
UBmatrix shall, and shall cause its representatives to, immediately cease and terminate any existing solicitation, initiation, knowing
encouragement, activity, discussion or negotiation with any person conducted prior to the date of the merger agreement with respect to any acquisition proposal. UBmatrix shall promptly request the return or destruction of any information that was
delivered by or on behalf of UBmatrix in connection with any acquisition proposal.
For the purposes of the merger agreement,
an acquisition proposal means any proposal or offer (other than pursuant to the merger agreement) for a tender, or exchange offer, merger, consolidation or other business combination involving any proposal to acquire in any manner any material
equity interest of UBmatrix, or any material portion of UBmatrixs assets.
UBmatrix Covenants: Conduct of Business
Prior to the Merger
From the date of the merger agreement through the closing date, UBmatrix will conduct its business
in accordance with the proposed operating plan previously provided to us, and shall use its best commercially practicable efforts to preserve its assets, keep available the services of its current officers, key employees and consultants, preserve
its business organizations intact and maintain its existing relations and goodwill with customers, suppliers distributors, creditors and lessors, and comply in all material respects with all applicable laws.
UBmatrix shall not, without our prior written consent:
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pledge or hypothecate any of its assets or otherwise permit any of its assets to become subject to any encumbrance, other than encumbrances for taxes
not yet due or being contested in good faith, deposits or pledges to secure payments of workmens compensation, unemployment and similar insurance, mechanics liens or similar encumbrances for service or work in progress, restrictions on
transfers of securities imposed by securities laws and imperfections of title which are not material;
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incur any liability, indebtedness, guaranty or other obligation except in the ordinary course of its business consistent with past practices;
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make any loan or advance to any person;
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assume, guarantee or become liable for any obligation of any person;
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commit for any capital expenditure in excess of $5,000 in any single case or $25,000 in the aggregate;
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purchase, lease, sell, abandon or otherwise acquire or dispose of any business or assets (except in the ordinary course of its business consistent with
past practice);
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waive or release any right, or cancel or forgive any debt or claim, involving in excess of $5,000 in any single case or $25,000 in the aggregate;
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discharge any encumbrance or indebtedness or other obligation (except in the ordinary course of its business consistent with past practice);
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assume or enter into any contract other than the merger agreement and contracts for the sale of its products in the ordinary course of business
consistent with its past practices;
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amend or terminate any current contract (other than termination upon expiration of the contractually specified term);
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increase the compensation or benefits provided to its directors, officers, employees, salesmen, agents or representatives (other than pursuant to the
existing terms of a contract);
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establish, adopt or amend any UBmatrix employee benefit plan;
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declare or pay any dividend or make any other distribution in respect of its capital stock, other securities or other assets;
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repurchase, redeem or reacquire any shares of capital stock or other securities;
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sell or issue any shares of capital stock or other securities (other than upon the exercise or conversion of options, warrants or convertible notes);
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amend its certificate of incorporation;
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enter into any merger, consolidation, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction;
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accrue any deferred bonuses or compensation due to any stockholder, employee or agent of UBmatrix, or pay any such deferred bonuses or compensation
except to the extent such bonuses or compensation was accrued on the balance sheet of UBmatrix as of March 31, 2010;
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change any of its methods of accounting or accounting practices in any respect; or
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make any tax election, change any method of tax accounting or enter into any agreement with respect to taxes.
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Even in the ordinary course of its business consistent with its past practices, UBmatrix will not incur any obligation, make any loan,
acquire or dispose of any business or assets, enter into any contract (other than customer contracts) or other transaction, or do any of the things described above, involving an amount exceeding $20,000 in any single case or $100,000 in the
aggregate (other than incurring and/or paying off trade payables and other operation liabilities contemplated by the operating plan, transaction expenses in connection with the merger agreement, or indebtedness as contemplated by the merger
agreement.
Affirmative Covenants of EDGAR Online.
Subject to certain exceptions, we have agreed in the merger agreement as promptly as reasonably practicable after the execution of the
merger agreement, to prepare and file with the SEC a proxy statement with respect to the merger relating to the meeting of our stockholders to be held to consider approval of the issuance of Series C Stock and common stock to the UBmatrix
stockholders pursuant to the merger agreement. We have agreed to use commercially reasonable efforts to cause the proxy statement to be cleared by the SEC as promptly as practicable after the date of the merger agreement, and, prior to such date, we
have agreed to take all action required under any applicable laws in connection with the stock issuance contemplated by the merger agreement. We have agreed to mail, or cause to be mailed, to our stockholders, and to duly call the stockholders
meeting, as promptly as reasonably practicable in accordance with applicable laws following the date on which the SEC clears the proxy statement.
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Affirmative
Covenants of UBmatrix.
Subject to certain exceptions, UBmatrix agreed in the merger agreement to provide EDGAR Online
and merger sub with complete access at all reasonable times to its officers, employees, agents, properties, offices, plants and other facilities, and books and records, and to furnish EDGAR Online and merger sub with such financial, operating and
other data and information as they may reasonably request.
Affirmative Covenants of EDGAR Online and UBmatrix.
During the period commencing on the date of the merger agreement and ending upon the earlier to occur of the
termination of the merger agreement and the closing date:
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each party to the merger agreement agrees to use commercially reasonable efforts to deliver such instruments as the other may reasonably request for
the purpose of carrying out the merger agreement and to consummate the transactions contemplated thereby;
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each party to the merger agreement will use commercially reasonable efforts to take, or cause to be taken, all actions, and do, or cause to be done,
all things necessary, with respect to (i) obtaining from any governmental entity any consents, licenses, permits, waivers, approvals, authorizations or orders necessary for the transactions contemplated by the merger agreement and
(ii) effecting all necessary registrations and other filings and submissions, with respect to the merger agreement and the transactions contemplated thereby, including the merger, required under; and
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each party to the merger agreement shall use reasonable best efforts to cause the merger to qualify, and will not take any actions, or fail to take any
action, which could reasonably be expected to prevent the merger from qualifying as a reorganization under the provisions of Section 368 of the Internal Revenue Code of 1986, as amended.
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Representations and Warranties
The merger agreement contains customary representations and warranties of each of our company and merger sub, on the one hand, and UBmatrix, on the other hand, made solely for the benefit of the other.
Many of the representations and warranties may not be accurate or complete as of any particular date because they are subject to a contractual standard of materiality or material adverse effect different from that generally applicable to public
disclosures to stockholders. The representations and warranties were used for the purpose of allocating risk between the parties to the merger agreement rather than establishing matters of fact. For the foregoing reasons, you should not rely on the
representations and warranties contained in the merger agreement as statements of factual information. Further, to the extent that specific material facts exist that contradict the representations or warranties in the merger agreement, we have
provided corrective disclosure regarding these facts. The representations and warranties in the merger agreement and the description of them in this proxy statement should be read in conjunction with the other information contained in the reports,
statements and filings that we publicly file with the SEC. This description of the representations and warranties is included to provide stockholders with information regarding the terms of the merger agreement.
The merger agreement contains representations and warranties made by UBmatrix to us with respect to, among other things, UBmatrixs:
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Authority; Non-Contravention
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Effect of Agreement; Inapplicability of Anti-Takeover Statutes
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Financial and Corporate Records
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Compliance with Laws; Permits
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Operations Since the Latest Balance Statement Date
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Software and Other Intangibles
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Employees and Independent Contractors
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Proceedings and Judgments
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Related Party Transactions
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The merger agreement contains representations and warranties made by us and merger sub to UBmatrix with respect to, among other things, our:
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Authority; Non-Contravention
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Financial and Corporate Records
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Compliance with Laws; Permits
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No Material Adverse Effect since Latest Balance Sheet Date
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Proceedings and Judgments
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Related Party Transactions
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Survival of Representations and Warranties
Other than fundamental representations and warranties and those arising
from fraud, the representations and warranties of UBmatrix, our company and merger sub in the merger agreement survive the closing of the merger for a period of one year.
Indemnification by the Stockholders of UBmatrix
The stockholders and employees of UBmatrix receiving consideration in connection with the merger have agreed, severally and not jointly,
to indemnify our company and our affiliates (including any officer, director, employee, stockholder or agent of our company or any affiliate) from and against all obligations, claims, demands, judgments, losses, costs or expenses, including
reasonable fees and expenses of attorneys, consultants and other professionals incurred by us, the surviving corporation, or any of our or its subsidiaries arising out of, in connection with or resulting from: (i) any breach of any
representation or warranty of UBmatrix contained in or made pursuant to the merger agreement or any document related to the merger agreement, or any certificate or other instrument furnished or to be furnished to us or merger sub under the merger
agreement; (ii) any nonfulfillment of any covenant or agreement of UBmatrix contained in or made pursuant to the merger agreement; (iii) any tax in excess of the amount reserved on the closing balance sheet and resulting in a decrease in
the amount of the closing date net cash position; (iv) any obligation owed to any UBmatrix employee not accrued on the closing balance sheet; (v) any breach by an officer or director of UBmatrix of any fiduciary duty owed to stockholders
of UBmatrix; (vi) any amount paid to any stockholder of UBmatrix with respect to any dissenting shares in excess of the value such stockholder would have received in the merger; (vii) any obligation of UBmatrix with respect to expenses
incurred in connection with the merger not accrued on the closing balance sheet; (viii) any indebtedness of UBmatrix that has not been paid and finally discharged; (ix) any net cash adjustment pursuant to the merger agreement that has not
been otherwise satisfied in cash; or (x) any costs and expenses incident to any of the foregoing.
We are only entitled
to indemnification for breaches of representation and warranties when and to the extent damages exceed $165,000. The aggregate amount of damages for which the stockholders of UBmatrix may be obligated to indemnify any person with respect to all
claims pursuant to the merger agreement shall not exceed ten percent (10%) of the total value of the aggregate number of shares of Series C Stock and common stock issued pursuant to the merger agreement; except for breaches of fundamental
representations and warranties and fundamental matters as described in the merger agreement, in which case the aggregate indemnification obligations shall not exceed one hundred percent (100%) of the total value of the aggregate number of
shares of Series C Stock and common stock issued pursuant to the merger agreement. However, these limitations shall not apply in the event of fraud by UBmatrix.
Indemnification by EDGAR Online
We agreed to
indemnify the stockholders of UBmatrix (including any officer, director, employee, stockholder or agent of such stockholders) from and against all obligations, claims, demands, judgments, losses, costs or expenses, including reasonable fees and
expenses of attorneys, consultants and other professionals incurred by the stockholders arising out of, in connection with or resulting from: (i) any breach of any representation or warranty of our company contained in or made pursuant to the
merger agreement or any
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document related to the merger agreement, or any certificate or other instrument furnished or to be furnished to us or merger sub under the merger agreement; (ii) any nonfulfillment of any
covenant or agreement of our company contained in or made pursuant to the merger agreement; or (iii) any costs and expenses incident to any of the foregoing.
The stockholders of UBmatrix are only entitled to indemnification for breaches of representation and warranties when and to the extent damages exceed $165,000. The aggregate amount of damages for which we
may be obligated to indemnify any person with respect to all claims pursuant to the merger agreement shall not exceed ten percent (10%) of the total value of the aggregate number of shares of Series C Stock and common stock issued pursuant to
the merger agreement; except for breaches of fundamental representations and warranties and fundamental matters as described in the merger agreement, in which case the aggregate indemnification obligations shall not exceed one hundred percent
(100%) of the total value of the aggregate number of shares of Series C Stock and common stock issued pursuant to the merger agreement. However, these limitations shall not apply in the event of fraud by our company.
Conditions to the Completion of the Merger
The completion of the merger depends upon the satisfaction or waiver of a number of conditions, including the following:
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The principal stockholders of UBmatrix entitled to receive at least 90% of the merger consideration shall have executed and delivered a joinder
agreement, which we refer to as the joinder (such joinder was delivered on June 23, 2010);
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The representations and warranties of UBmatrix, our company and merger sub contained in the merger agreement and of the principal stockholders of
UBmatrix contained in the joinder agreement which are qualified by materiality, Material Adverse Effect or similar words shall be true, correct and accurate as of the date when made and at and as of the closing date of the merger as though such
representations and warranties were made at and as of such date (except to the extent such representations are made as of a date specific), and all other representations and warranties of UBmatrix, our company and merger sub contained in the merger
agreement and of the principal stockholders of UBmatrix contained in the joinder agreement shall be true, complete and accurate in all material respects as of the date when made and at and as of the closing date of the merger as though such
representations and warranties were made at and as of such date (except to the extent such representations are made as of a date specific);
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We, merger sub, UBmatrix and the principal stockholders of UBmatrix shall have performed and complied in all material respects with all covenants,
agreements, and conditions required by the merger agreement and the joinder to be performed or complied with prior to the closing of the merger;
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No demand, claim, suit, action, litigation, investigation, notice of violation, arbitration, administrative hearing or other proceeding by any
governmental body or other person or legal or administrative proceeding shall be pending or threatened where an unfavorable judgment, decree or order would prevent the carrying out of the merger agreement or transactions contemplated thereby,
declare any of such transactions unlawful, or would reasonably be expected to impair our right to own, operate, control or benefit from the assets of UBmatrix;
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All governmental bodies having jurisdiction with respect to any of the transactions contemplated by the merger agreement shall have taken such action
as may be required to permit the consummation of such transactions;
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UBmatrix shall have delivered to us the other items required to be delivered to us in accordance with the merger agreement;
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Shares of UBmatrix stock held by stockholders exercising dissenters rights shall not represent more than five percent (5%) of the
outstanding shares of capital stock of UBmatrix;
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All unexercised stock options and warrants of UBmatrix shall have been terminated;
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UBmatrix shall have terminated its 401(k) plan effective immediately prior to the closing;
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Certain employees of UBmatrix identified in the merger agreement shall have accepted our offers of employment;
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We shall have delivered to UBmatrix, or caused to be delivered to UBmatrix, the other items required to be delivered to UBmatrix in accordance with the
merger agreement;
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All transaction expenses incurred by UBmatrix in connection with the merger have been paid in full;
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UBmatrix shall have available an amount in cash equal to (i) $1.759 million, minus (ii) the amount calculated by the parties of
UBmatrixs anticipated cash expenditures from June 23, 2010 through the closing date of the merger;
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All indebtedness of UBmatrix shall have been paid in full or otherwise finally discharged;
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All parties to the Sales Volume Agreement shall have executed such agreement;
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We and the principal stockholders of UBmatrix receiving our Series C Stock in connection with the merger shall have executed the Amended and Restated
Investor Rights Agreement;
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The stockholders of our company approve Proposal No. 1 relating to the issuance of common stock and Series C Stock pursuant to the merger
agreement and Proposal No. 2 relating to the issuance of Series C Stock pursuant to the stock purchase agreement;
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We and merger sub shall have delivered to UBmatrix or the representative of the stockholders of UBmatrix, the other items required to be delivered by
us or merger sub in accordance with the merger agreement; and
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The transactions contemplated by the Series C Preferred Stock Purchase Agreement shall have been consummated.
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Material Adverse Effect
Several of the representations, warranties, covenants and closing conditions of our company, merger sub and UBmatrix in the merger agreement are qualified by reference to whether the item in question has
had or could reasonably be expected to have a material adverse effect on the applicable company. The merger agreement provides that material adverse effect means, when used in connection with our company or UBmatrix, any
event, occurrence or change that is materially adverse to or has a material adverse effect on the financial condition, financial performance, results of operations, business or long-term prospects or assets or obligations of our company or UBmatrix;
provided that none of the foregoing shall be deemed to include any event, change or occurrence which arises with respect to (a) conditions of change that are primarily the result of the national economy or industry, (b) uniformly applied
laws or orders or accounting principles, (c) political conditions or acts of war, sabotage or terrorism, (d) natural disasters, weather conditions and other force majeure events, (e) the announcement of the merger agreement or
consummation of the transactions contemplated thereby, (f) compliance with the terms of the merger agreement or (g) any fees in expenses incurred in connection with the merger.
Termination of the Merger Agreement
We and
UBmatrix can jointly agree to terminate the merger agreement at any time. Either party may terminate the merger agreement if, subject to certain exceptions set forth in the merger agreement, the merger has not been completed by November 30,
2010 (which date may be extended to December 31, 2010 if our stockholder approval has not been obtained due to insufficient proxies held by us). These dates were agreed to in Amendment No. 1 to the merger agreement, and had previously been
earlier dates. In addition, we and UBmatrix will have the termination rights set forth below:
We may terminate the merger
agreement if UBmatrix has violated or breached in any material respect any of its obligations to conduct its business pending the closing of the merger in accordance with the merger agreement or its obligations to refrain from soliciting or
participating in any alternate acquisition proposal and failed to cure such breach within 15 days.
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UBmatrix may terminate
the merger agreement if we have violated or breached in any material respect any of our obligations to prepare this proxy statement and solicit our stockholder approval and failed to cure such breach within 15 days.
If either we, on the one hand, or UBmatrix, on the other hand, terminate the merger agreement, the merger agreement shall become void,
without any liability or further obligation on the part of UBmatrix, our company or merger sub or any officer or director thereof, except for liabilities arising from a willful breach of the merger agreement prior to termination.
Amendment, Extension and Waiver of the Merger Agreement
The merger agreement may be amended by the parties, by action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the merger by stockholders of our company and UBmatrix, provided, that after any such approval, no amendment shall be made that by law requires further approval by the stockholders
of our company or UBmatrix, as the case may be, without such further approval. The merger agreement may not be amended except by an instrument in writing signed on behalf of the party to be charged with such amendment.
At any time prior to the effective time of the merger, any party to the merger agreement may, by written consent, extend the other
partys time for the performance of any of the obligations or other acts under the merger agreement, waive any inaccuracies in the other partys representations and warranties contained in the merger agreement or in any document delivered
pursuant to the merger agreement and waive compliance by the other party with any of the agreements or conditions contained in the merger agreement. The conditions requiring the approval of the stockholders of our company and of the stockholders of
UBmatrix, however, cannot be waived.
Board of Directors and Related Matters
At the effective time of the merger, we will file a Certificate of Designation of Series C Preferred Stock with the Secretary of State of
the State of Delaware, pursuant to which the holders of Series C Stock will have the right to elect one director to our Board.
It is expected that Barry Schuler, a director on the board of UBmatrix, will be designated to serve on our Board. Mr. Schuler has an
impressive record of 25 years of visioneering. He was formerly Chairman and CEO of America Online Inc. and is considered one of the pioneers of the Internet. He has made many notable contributions to the IT industry including developing early video
games in the 1970s, pioneering the color desktop presentation category, co-developing the first commercial interactive ecommerce technology which included wallet-based 1-click checkout, co-developing the predecessor to interactive CRM technology,
developing the first version of America Online designed to appeal to mass market consumers, and notably serving as a member and ultimately leader of the senior management team that matured AOL from $400M to $350B in market cap during 20 consecutive
quarters of growth. Mr. Schuler is a serial entrepreneur and a DFJ alumnus. He joined America Online through the acquisition of DFJ-backed Medior, Inc., and was previously CEO of Cricket Software (acquired by Computer Associates). He is highly
experienced in M&A and rollup activities. Mr. Schuler has worked with venture capitalists for 20 years and has had a long-standing close relationship with DFJ. Mr. Schuler is also Chairman and Co-founder of Raydiance, Inc., a DFJ
Growth Fund portfolio company, and serves on the board of Hands-On Mobile, Inc., UBmatrix, Visto Corporation and Raydiance, Inc. Mr. Schuler graduated with a B.A. from Rutgers University.
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CERTIFICATE OF DESIGNATION
Pursuant to the merger agreement and share purchase agreement, we will issue shares of Series C Stock having the rights, privileges and preferences set forth in the Certificate of Designation of the
Series C Preferred Stock to be filed with the Secretary of State of the State of Delaware designating 90,000 shares of Series C Stock with the following rights:
Rank
With respect to the distribution of assets
upon liquidation, dissolution or winding up of our company, the Series C Stock ranks (1) pari passu with the Series B Stock and (2) senior to common stock and all other preferred stock.
Dividends
Through January 28, 2015, cumulative paid-in-kind dividends accrue daily on the Series C Stock at an annual rate of approximately 11.44%, compounded annually. The holders of the Series C Stock are
entitled to participate in dividends paid to the common stock on an as-converted basis.
Liquidation Rights
In the event of a liquidation, dissolution or winding up of our company, before any distribution is made to the holders of
any security junior to the Series C Stock, the holders of the Series C Stock are entitled to be paid out of the assets of our company available for distribution an amount equal to the greater of (1) $100.00 per share of Series C Stock plus all
accrued but unpaid dividends on the Series C Stock, and (2) the amount payable with respect to such shares of Series C Stock as if they had been converted into common stock.
Voting Rights
The holders of the Series C Stock
are entitled to vote with the holders of the common stock on an as-converted basis.
Optional Conversion
Each share of Series C Stock is convertible at any time at the option of the holder thereof into shares of common stock.
The number of shares of common stock into which the Series C Stock is convertible is equal to (i) the original purchase price per share of $100.00 plus all accrued and unpaid dividends divided by (ii) a conversion price of $1.4481, subject
to adjustments for stock splits and combinations, dividends and distributions, reclassifications, exchanges or substitutions, mergers or reorganizations, and similar events. To the extent that at any time sufficient shares of common stock are not
available for the purpose of effecting the conversion of Series C Stock, a holder of Series C Stock may elect to require us to redeem such holders shares of Series C Stock (but only to the extent sufficient shares of common stock are not
available).
Protective Covenants
We may not, without the prior written consent of the holders of a majority of the then outstanding shares of the Series B Stock and the Series C Stock in the aggregate: (1) create any capital stock
having rights, preferences or privileges senior to or on parity with the Series C Stock; (ii) alter, amend or waive our Certificate of Incorporation or Bylaws; (iii) declare or pay any dividends on, or make any redemption of any capital
stock, except for certain repurchases from employees; (iv) create any subsidiary that is not 100% owned by us; (v) enter into any merger or consolidation except for transactions resulting in issuances of consideration not more than 5% of
our market capitalization; (vi) acquire or invest in any person or entity in excess of 5% of our market capitalization; (vii) sell, transfer or dispose of more than 25% of the fair market value of our assets; (viii) enter
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into any transactions with our affiliates or senior management, except for arms-length employment agreements; (ix) enter into any debt or lease transaction in excess of $3 million;
(x) change the size of our board of directors; or (xi) take any action that would adversely affect, amend, alter or waive the rights, preferences or privileges of the Series B Stock or the Series C Stock.
We may not, without the prior written consent of the holders of a majority of the then outstanding shares of the Series C Stock:
(1) increase or decrease the number of authorized shares of Series C Stock; (ii) take any action that would adverse affect, amend, alter or waive the rights, preferences or privileges of the Series C Stock differently or disproportionately
than the Series B Stock; or (iii) declare or pay any dividends or distributions on, or make any redemption of the Series B Stock unless a dividend or distribution is declared or paid on, or a redemption is made of, the Series C Stock on a
proportional and pro rata basis.
Board of Directors
As long as at least 50% of the Series C Stock originally issued remains outstanding, the holders of a majority of the then outstanding
shares of the Series C Stock shall be entitled (i) to elect one (1) member of the Board; and (ii) to receive advance notice of Board meetings and written consent and access to information as provided to the Board, and to designate one
individual to participate as an observer in each meeting of the Board.
Redemption
At any time after the earlier of the holders of the Series B Stock notifying us of their election to require the redemption of the Series
B Stock or the eighth anniversary of the issuance date of the Series C Stock, the holders of a majority of the then outstanding shares of Series C Stock shall have the right to require us to redeem such shares of Series C Stock for cash at a price
per share equal to the original purchase price of $100.00 plus all accrued and unpaid dividends. Upon a change of control, each holder of Series C Stock shall have the right to require us to redeem such holders shares for cash at a price per
share equal to the greater of the (i) the fair market value per share valued as of the date of change of control determined on an as-converted to common stock basis and (ii) the original purchase price of $100.00 plus all accrued and
unpaid dividends.
VOTING AGREEMENTS
Certain principal stockholders of UBmatrix have entered a Voting Agreement and Proxy pursuant to which they agreed to vote all shares of
UBmatrix capital stock held by such stockholders in favor of the merger and the merger agreement, and against any action which would adversely affect the merger. The voting agreement includes an irrevocable proxy to vote the shares of the
stockholders in accordance with the voting agreement. Pursuant to the voting agreement, the stockholders also agreed that they shall not sell, transfer, encumber or otherwise dispose of their shares of UBmatrix capital stock prior to the merger.
SALES VOLUME AGREEMENT
Upon the consummation of the merger, certain stockholders of UBmatrix, who will receive shares of our common stock in connection with the
merger and will be employed by our company upon the closing of the merger, will enter into a Sales Volume Agreement pursuant to which they will agree that they shall not sell, transfer, tender, pledge, encumber, assign or otherwise dispose of,
directly or indirectly, a number of shares of our common stock received in the merger in any one-day, 30-day or 60-day period greater than the volume limits specified in the agreement during the period commencing on the effective date of the merger
and ending on the date that is 90 days following the termination of such stockholders employment with our company.
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SERIES C PREFERRED STOCK PURCHASE AGREEMENT
Concurrently and in connection with the execution of the merger agreement, we and Draper Fisher Jurvetson Fund VIII, L.P., Draper Fisher
Jurvetson Partners VIII, LLC and Draper Associates, L.P., all of which are stockholders of UBmatrix, entered into the stock purchase agreement, pursuant to which we will issue and sell 12,637 shares of our Series C Stock (initially convertible into
871,546 shares of the common stock) for an aggregate purchase price of $2 million. The issuance of the Series C Stock will occur simultaneously upon the closing of the merger, and we will use the proceeds of the sale for general corporate purposes.
The closing of the stock purchase agreement is conditioned upon the stockholders of our company approving Proposal No. 2 relating to the issuance of Series C Stock pursuant to the stock purchase agreement
LICENSE AND KNOW-HOW TRANSFER AGREEMENT
Concurrently and in connection with the execution of the merger agreement, we have entered into the license agreement with UBmatrix
pursuant to which we license certain intellectual property from UBmatrix in order to integrate the technology of UBmatrix with our intellectual property, products and services prior to the closing. The term of the license continues until the
termination or expiration of the merger agreement, unless UBmatrix breaches a covenant or fails to meet a closing condition of the merger agreement, in which case the term of the license continues indefinitely. The license agreement also provides
for certain collaboration, transfer and training obligations of UBmatrix with respect to its technology.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
At the effective time of the merger, we will enter into an Amended and
Restated Investor Rights Agreement, which we refer to as the investor rights agreement, with certain of the principal stockholders of UBmatrix. For purposes of the investor rights agreement, registrable stock means the shares of our
common stock issued or issuable upon conversion of the Series B Stock and Series C Stock, excluding any shares which have been registered under the Securities Act or public sold pursuant to Rule 144 under the Securities Act.
Demand Registrations.
The holders of at least 20% of the outstanding shares of registrable stock may request the registration for resale under the Securities Act of all or part of the registrable stock; provided that the
aggregate offering price of such registration shall not be less than $2 million. If we receive a request for a demand registration, we shall use reasonable commercial efforts to file a registration statement registering for resale such number of
shares of registrable stock as requested to be so registered within 45 days after receipt of the request for such registration. We will not be required to comply with more than two demand requests in any twelve month period.
Piggyback Registrations.
Subject to certain exceptions, whenever we propose to register any of our securities under the Securities Act for sale to the public, we shall give prompt written notice to the holders of the outstanding
registrable stock of our intention to effect such a registration and shall include in such registration statement all registrable shares with respect to which we have received a written request for inclusion therein from any holder of registrable
stock within 30 days after our giving of notice.
The number of shares of registrable stock to be included in any piggyback
registration that is initiated as an underwritten public offering shall be subject to limitation if the managing underwriter is of the opinion that the inclusion of the shares of registrable stock would adversely affect the marketing of the
securities to be sold by us.
56
Expenses.
We will pay all registration expenses in connection with each registration of securities pursuant to the investor rights agreement. Each participating seller shall bear its pro rata cost of all
underwriting discounts and selling commissions associated with any sale of registrable shares.
Purchase rights.
If we propose to issue any equity securities, each holder of the Series B Stock and the Series C Stock shall have the
right to purchase its pro rata share of the equity securities for the same price and upon the same terms and conditions as we proposed by giving us written notice within 15 days of our notice of the proposed issuance.
APPRAISAL RIGHTS
Under Delaware law, holders of our common stock do not have any right to an appraisal of the fair value of their shares in connection with the merger.
57
INFORMATION ABOUT THE MEETING AND VOTING
The Board of Directors is using this proxy statement to solicit proxies from the holders of our common stock for use at the annual
meeting. This proxy statement and accompanying form of proxy is being first mailed to stockholders on or about October 20, 2010.
Matters Relating to the Meeting
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Date, Time and Place:
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Thursday, November 18, 2010
10:00 A.M., Eastern Time
EDGAR Online,
Inc.
122 East 42nd Street, Suite 2400
New York, New York 10168
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Purpose of Meeting is to Vote on the Following Items:
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1.The issuance of shares of common stock and Series C Stock pursuant to the merger
agreement, described under The Merger on page 8;
2.The issuance of shares of Series C Stock pursuant to the stock purchase agreement, described under Series C Preferred Stock Purchase Agreement on page 56;
3.The adjournment of the meeting, if
necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal No. 1, Proposal No. 2, Proposal No. 5 or Proposal No. 6;
4.The election of six members to our Board
of Directors to serve until our 2011 Annual Meeting of Stockholders and until their successors are duly elected and qualified or until their earlier resignation or removal;
5.An amendment to our 2005 Stock Award and
Incentive Plan (i) to increase the number of shares of common stock available for award under such Plan and (ii) to increase the limitation on the amount of awards that may be granted to any one participant in a given year in order to qualify awards
as performance-based compensation not subject to the limitation on deductibility under Section 162(m) of the Internal Revenue Code;
6.An amendment to our Amended and Restated Certificate of Incorporation to increase the number of authorized
shares of our common stock thereunder;
7.The ratification of the appointment of BDO USA, LLP, as the independent registered public accounting firm of our company for the year ending December 31, 2010; and
8.Such other business as may properly come
before the Annual Meeting and any adjournment or postponement thereof.
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Record Date:
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The record date for shares entitled to vote is October 11, 2010.
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Outstanding Shares on Record Date:
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As of the record date, there were 26,984,829 shares of our common stock outstanding and 120,000 shares of our Series B Stock
outstanding. As of the record date the Series B Stock, including
accrued dividends, was convertible into an aggregate of
11,784,429
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shares of common stock; however, based on limitations contained in the Certificate of Designation establishing the Series B Stock, the Series B Stock can be converted, as of the
record date, into a maximum of 6,704,094 shares of common stock.
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Shares Entitled to Vote:
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Shares entitled to vote are shares of common stock and Series B Stock held at the close of business on the record date. Each share of common stock that you own entitles you to
one vote and each share of Series B Stock that you own entitles you to vote on an as-converted basis, subject to the overall limitation on conversion of the Series B Stock as described above. Shares held by us in treasury, if any, are not
voted.
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Quorum Requirement:
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A quorum of stockholders is necessary to hold a valid meeting. The presence in person or by proxy at the annual meeting of shares representing a majority in interest of the
common stock issued and outstanding and entitled to vote at the annual meeting is a quorum. Abstentions and broker non-votes count as present for establishing a quorum. A broker non-vote occurs on an item when a broker is not permitted to vote on
that item without instruction from the beneficial owner of the shares and no instruction is given.
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Outstanding Shares Entitled to Vote and Owned by Directors, Executive Officers and their Affiliates as of the Record
Date.
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As of the record date, our directors, executive officers and their affiliates owned an aggregate of 480,176 shares of common stock outstanding and entitled to vote (exclusive of
unexercised options). In addition, as of the record date, all of the outstanding shares of the Series B Stock, which as of such date, based upon applicable limitations, could be converted into a maximum of 6,704,094 shares of common stock, were
owned by affiliates of one of our directors. Collectively, these shares represent approximately 21.3% of the voting power of our common stock and Series B Stock on an as-converted basis outstanding and entitled to vote at the annual
meeting.
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Vote Necessary to Approve the Proposals
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Item
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Vote Necessary
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Merger Proposal
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Approval of the issuance of the shares of common stock and Series C Stock pursuant to the merger agreement, as described in The MergerThe Merger Transaction,
requires an affirmative vote of a majority of the shares of common stock and Series B Stock on an as-converted basis, voting together as a single class, present at the annual meeting, either in person or by proxy, and entitled to vote. Abstentions
will be counted towards the vote total for this proposal, and will have the same effect as Against votes. Broker non-votes have no effect and will not be counted towards the vote total for this proposal.
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Stock Purchase Agreement Proposal
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Approval of the issuance of the shares of Series C Stock pursuant to the stock purchase agreement, as described in The MergerSeries C Preferred Stock Purchase
Agreement, requires an affirmative vote of a majority of the shares of common stock and Series B Stock on an as-converted basis, voting together as a single class, present at the annual meeting, either in person or by proxy, and entitled to
vote. Abstentions will be counted towards the vote total for this proposal, and will have the same effect as Against votes. Broker non-votes have no effect and will not be counted towards the vote total for this
proposal.
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Item
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Vote Necessary
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Adjournment of the meeting, if necessary
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Approval of the adjournment of the annual meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes to approve Proposal No.
1, Proposal No. 2, Proposal No. 5 or Proposal No. 6 requires the affirmative vote of a majority of the shares of common stock and Series B Stock on an as-converted basis, voting together as a single class, present at the annual meeting, either in
person or by proxy, and entitled to vote, regardless of whether a quorum is present. Abstentions will be counted towards the vote total for this proposal, and will have the same effect as Against votes. Broker non-votes have no effect
and will not be counted towards the vote total for this proposal.
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Election of Directors
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The election of six directors to our Board of Directors, as described in Proposal No. 4Election of Directors, requires the affirmative vote of a plurality of
the votes cast. Both abstentions and broker non-votes have no effect and will not be counted towards the vote total for this proposal. Two directors will be elected by the holders of our Series B Stock, voting separately as a class.
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Amendments to our 2005 Stock Award and Incentive Plan
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The approval of the amendments to our 2005 Stock Award and Incentive Plan (i) to increase the number of shares available for award thereunder and (ii) to increase the limitation
on the amount of awards that may be granted to any one participant in a given year in order to qualify awards as performance-based compensation not subject to the limitation on deductibility under Section 162(m) of the Internal Revenue
Code, as described in Proposal No. 5Proposal to Approve Amendments to the 2005 Plan to Increase the Number of Shares of Common Stock Available for Award Under Such Plan and to Increase the Limitation on the Amount of Awards That May be
Granted to any One Participant in a Given Year, requires the affirmative vote of a majority of the shares of common stock and Series B Stock on an as-converted basis, voting together as a single class, present at the annual meeting, either in
person or by proxy, and entitled to vote. Abstentions will be counted towards the vote total for this proposal, and will have the same effect as Against votes. Broker non-votes have no effect and will not be counted towards the vote
total for this proposal.
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Amendment to our Amended and Restated Certificate of Incorporation
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The approval of an amendment to our Amended and Restated Certificate of Incorporation to increase the number of authorized shares of our common stock thereunder, as described in
Proposal No. 6 Amendment to the Companys Amended and Restated Certificate of Incorporation to Increase the Number of Authorized Shares of Common Stock Thereunder, requires the affirmative vote of a majority of the issued and
outstanding shares of common stock and Series B Stock on an as-converted basis, voting together as a single class, entitled to vote as of the record date and the affirmative vote of a majority of the issued and outstanding shares of Series B Stock
entitled to vote as of the record date, voting separately as a class. Both abstentions and broker non-votes will have the same effect as Against votes.
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Item
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Vote Necessary
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Ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm
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The ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm, as described in Proposal No. 7Ratification of Independent
Registered Public Accounting Firm, requires the affirmative vote of a majority of the shares of common stock and Series B Stock on an as-converted basis, voting together as a single class, present at the annual meeting, either in person or by
proxy, and entitled to vote. Abstentions will be counted towards the vote total for this proposal, and will have the same effect as Against votes. Broker non-votes have no effect and will not be counted towards the vote total for this
proposal.
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Voting
You may vote in person at the annual meeting or by proxy. We recommend you vote by proxy even if you plan to attend the meeting. You can always change your vote at the meeting.
Voting instructions are included on your proxy or proxy card. If you properly give your proxy and submit it in time to vote (or vote
electronically via the Internet or telephone), one of the individuals named as your proxy will vote your shares as you have directed. You may vote for or against the proposals or abstain from voting. Other than in respect of election of directors,
if you mark your proxy abstain with respect to any proposal, you will be in effect voting against the proposal. In addition, if you fail to send in your proxy, this, too, will have the same negative effect. If your shares are held in
street name by a broker, bank or other nominee, the broker cannot vote your shares on any proposal without your instructions. This is a broker non-vote. A broker non-vote with respect to a proposal may, depending
on the required vote, have the effect of a vote against that proposal.
How to Vote by Proxy
Complete, sign, date and return your proxy card in the enclosed envelope. You may also vote electronically by Internet or telephone if
your proxy card so indicates.
You are encouraged to vote electronically if you have that option.
If you submit your
proxy but do not make specific choices, your proxy will follow the Board of Directors recommendations and vote your shares:
FOR
the issuance of shares of common stock and Series C Stock in the merger;
FOR
the issuance of shares of Series C Stock in the stock purchase;
FOR
the adjournment of the annual meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes to approve Proposal No. 1, Proposal
No. 2, Proposal No. 5 or Proposal No. 6;
FOR
the election of six (6) persons to
our Board of Directors (of which two (2) are elected by the holders of our Series B Stock, voting separately as a class), each to hold office until the 2011 annual meeting of stockholders and until their successors are duly elected and qualified or
until their earlier resignation or removal;
FOR
the amendments of our 2005 Stock Award and
Incentive Plan (i) to increase the number of shares available for award thereunder and (ii) to increase the limitation on the amount of awards that may be granted to any one participant in a given year in order to qualify awards as
performance-based compensation not subject to the limitation on deductibility under Section 162(m) of the Internal Revenue Code;
FOR
the amendment to our Amended and Restated Certificate of Incorporation to increase the number of authorized shares of our common stock thereunder;
61
FOR
the ratification of BDO USA, LLP as the independent registered public accounting firm of our
company; and
In its discretion as to any other business that may properly come before the annual meeting.
Revoking Your Proxy.
You may revoke your proxy before it is voted by:
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submitting a new proxy with a later date,
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submitting a vote electronically via the Internet or by telephone with a later date, if that was how the original vote was submitted,
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notifying the Secretary of EDGAR Online in writing before the meeting that you have revoked your proxy, or
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voting in person at the meeting.
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Voting in person.
If you plan to attend the meeting and wish to vote in person, we will give you a ballot at the meeting. However, if your shares are held in the name of your broker, bank or other
nominee, and you are a stockholder of our company, you must bring an account statement or letter from the nominee indicating that you are the beneficial owner of the shares on October 11, 2010, the record date for shares entitled to vote at the
annual meeting.
People with disabilities.
We can provide reasonable assistance to help you participate in the meeting
if you tell us about your needs and your plan to attend. Please call or write to the Secretary of EDGAR Online at least two weeks before the meeting at the number or address under The Companies on page 1.
Proxy solicitation.
We will pay our own costs, if any, of soliciting proxies.
Solicitation.
The solicitation of proxies will be conducted by mail, and we will bear all attendant costs. These costs will
include the expense of preparing and mailing proxy materials for the annual meeting and reimbursements paid to brokerage firms and others for their expenses incurred in forwarding solicitation materials regarding the annual meeting to beneficial
owners of our common stock. We intend to use the services of Alliance Advisors, LLC, in soliciting proxies and, as a result, we expect to pay an amount not to exceed $6,500, plus out-of-pocket expenses, for such services. We may conduct further
solicitation personally, telephonically, electronically or by facsimile through our officers, directors and regular employees, none of whom would receive additional compensation for assisting with the solicitation.
The extent to which these proxy soliciting efforts will be necessary depends entirely upon how promptly proxies are submitted. You should
send in your proxy without delay. We also reimburse brokers and other nominees for their expenses in sending these materials to you and getting your voting instructions.
Other Business; Adjournments
We are not
currently aware of any other business to be acted upon at the meeting other than as discussed in this proxy statement. If other matters are properly brought before the annual meeting, or any adjourned meeting, your proxies will have discretion to
vote or act on those matters according to their best judgment, including adjourning the meeting.
Adjournments may be made for
the purpose of, among other things, soliciting additional proxies. Any adjournment may be made from time to time by approval of the holders of shares representing a majority of the votes present in person or by proxy at the meeting, whether or not a
quorum exists, without further notice other than by an announcement made at the meeting. We do not currently intend to seek an adjournment of the meeting.
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Appraisal Rights
Holders of our common stock do not have any right to an appraisal under Delaware law in connection with any matters to be voted on at the annual meeting.
Important Notice Regarding the Availability of Proxy Materials for the
Annual Meeting of Stockholders to be Held on November 18, 2010
This proxy statement and our 2009 annual report to stockholders, as well as other
proxy materials distributed with this proxy statement, are available at
http://www.edgar-online.com/About/InvestorRelations/ProxyMaterials.aspx
.
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OTHER INFORMATION REGARDING EDGAR ONLINE
BUSINESS OF EDGAR ONLINE
The description of our business, properties and legal proceedings contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, filed with the SEC on March 31, 2010,
as amended, is incorporated herein by reference.
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OTHER INFORMATION REGARDING UBMATRIX
BUSINESS OF UBMATRIX
Price Per-Share
UBmatrix is a private company,
and as such there is no established public trading market for its common stock. The most recent independent valuation of UBmatrixs common stock was conducted by SVB Analytics, Inc. which prepared and issued a written report valuing the price
per share of UBmatrixs common stock at $0.04 as of July 31, 2009. This report was prepared for purposes of the regulations promulgated under Section 409A of the Internal Revenue Code of 1986, as amended.
UBmatrix Stockholders and the Effect of Merger on the Ownership of UBmatrix Common Stock
UBmatrix currently has a total of 42 stockholders, eight of which hold shares of UBmatrixs common stock and 35 of which hold shares
of UBmatrixs preferred stock. The merger agreement provides, among other things, that upon consummation of the merger, all of the issued and outstanding shares of UBmatrix capital stock will be converted into EDGAR Online capital stock or
canceled without payment in the merger. The shares of our capital stock to be issued in the merger will represent approximately 16% of the fully-diluted capitalization of EDGAR Online (assuming full accrual of the mandatory dividends on our Series C
Stock to be issued in the merger).
Accordingly, as a result of the merger, (1) UBmatrix stockholders who are entitled to
receive merger consideration will no longer own shares and corresponding percentage ownership interests in UBmatrix, but rather shares and corresponding percentage ownership interests in EDGAR Online, while (2) UBmatrix stockholders who are not
entitled to receive merger consideration will no longer own shares and corresponding percentage ownership interest in UBmatrix and will not receive shares and corresponding ownership interests in EDGAR Online. For those UBmatrix stockholders who are
entitled to receive merger consideration, their EDGAR Online share amounts compared to their UBmatrix share amounts will be determined according to the exchange provisions of the merger agreement; it is expected that such stockholders will hold less
EDGAR Online shares than UBmatrix shares. For those UBmatrix stockholders who are entitled to receive merger consideration, their EDGAR Online percentage ownership positions compared to their UBmatrix percentage ownership positions will be
determined according to the capitalization figures for UBmatrix and EDGAR Online; it is expected that such stockholders will hold smaller percentage ownership positions in EDGAR Online than UBmatrix. The foregoing effects of the merger apply to
UBmatrix stockholders generally, including beneficial owners of more than 5% of UBmatrix common stock, UBmatrixs directors who are stockholders and UBmatrixs directors and officers as a group who are stockholders. All stock options to
purchase UBmatrix common stock, including any such options held by such persons, will be canceled in connection with the merger if not exercised prior to the closing, pursuant to the terms of the merger agreement.
Dividends
UBmatrix has not declared any dividends during the fiscal years ended September 30, 2008 and 2009 or during the nine months ended June 30, 2010.
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Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information regarding shares of UBmatrixs common stock that were issuable as of September 30, 2009
under UBmatrixs Amended and Restated 2005 Combined Incentive and Nonqualified Stock Option Plan (the UBmatrix Option Plan). The UBmatrix Option Plan has been approved by the UBmatrix stockholders and is the only compensation plan
under which UBmatrix equity securities are authorized for issuance.
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Plan Category
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Number of securities to
be issued upon exercise
of outstanding options,
warrants and
rights as
of September 30, 2009
(a)
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Weighted-average
exercise price
of
outstanding options,
warrants and rights as
of September 30, 2009
(b)
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Number of securities
remaining available for
future issuance under
equity
compensation
plans (excluding
securities reflected in
column (a)) as of
September 30, 2009
(c)
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Equity compensation plans approved by security holders
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12,199,035
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$
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0.0811
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88,922
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Equity compensation plans not approved by security holders
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N/A
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N/A
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N/A
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Total
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12,199,035
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$
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0.0811
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88,922
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Change
in Independent Accountant
In April, 2010, UBmatrix dismissed Mohler, Nixon & Williams LLP as its independent
account and engaged in its place BDO USA, LLP (formerly BDO Seidman, LLP). UBmatrix dismissed Mohler, Nixon & Williams LLP as its independent account because UBmatrix wanted a larger and more well-recognized independent accountant to
conduct its audits, not because of any disagreement or reportable event (as such terms are used in Item 304(a) of Regulation S-K).
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Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should be read together with
UBmatrixs financial statements and accompanying notes included in this proxy statement. This discussion contains forward-looking statements based on current expectations and related to future events and UBmatrixs future financial
performance that involve risks and uncertainties. UBmatrixs actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors, including those set forth under Risk
Factors and elsewhere herein. See Special Note on Forward-Looking Statements.
Overview
UBmatrix was incorporated in the State of Washington on September 10, 2004 and provides comprehensive and flexible XBRL (eXtensible
Business Reporting Language) based software solutions to the regulatory compliance and financial reporting markets. UBmatrixs information exchange products allow its clients to more efficiently and effectively address the challenges of
business and financial information management, exchange and reporting by increasing operational efficiency and financial transparency, while ensuring reporting accuracy and regulatory compliance. XBRL is a global open standard-based method to
prepare; publish, validate, exchange and analyze business and financial data.
UBmatrix is based in Silicon Valley with
software development teams in Bellevue, Washington and New Delhi, India. UBmatrixs products are covered by US Patent No. 6,947,947 and other pending patents. UBmatrix has more than seven years of experience delivering products and
services to its clients; including the United States Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corporation (FDIC), the National Bank of Belgium, the Government of Singapore, and the Central Bank of France. UBmatrix also
has reseller and OEM partner agreements with SAP and Oracle.
Since inception, UBmatrix has generated significant losses. As
of June 30, 2010, UBmatrix had an accumulated deficit of approximately $29 million. UBmatrix has funded its operations through June 30, 2010 (i) through proceeds of approximately $23.4 million from the sale of equity securities and convertible
notes payable to investors and (ii) from the proceeds of sales of XBRL products, maintenance and support, and professional services to customers.
UBmatrix is a development stage company and has focused its efforts since inception primarily on research and development, developing intellectual property rights, recruiting management and technical
staff, and raising capital. UBmatrix has not achieved profitability on an annual basis. UBmatrix expects its net losses to decrease primarily due to its increase in sales through OEM and partner channels. UBmatrix anticipates that its operating
results will fluctuate for the foreseeable future. Therefore, period-to-period comparisons should not be relied upon as predictive of the results in future periods. UBmatrixs sources of potential funding for the next several years are expected
to include proceeds from the sale of XBRL software license products, the maintenance and support of those software products, professional services related to those products, and the sale of equity.
Critical Accounting Policies and Estimates
While UBmatrixs significant accounting policies are more fully described in the notes to its financial statements, UBmatrix believes the following accounting policies to be the most critical in
understanding the judgments and estimates it uses in preparing its financial statements. The financial statements, footnotes and any matters referred to for the periods ending June 30, 2010 and 2009 are unaudited. They are management representations
using generally accepted accounting principles as UBmatrix deems appropriate.
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
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of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates used in preparing these financial statements include the income
tax provision, valuation of stock awards and the valuation of warrants. Actual results could differ from those estimates and such differences could be material to the financial position and results of operations.
Revenue Recognition
UBmatrixs revenues are derived from the licensing of software products, the maintenance and
support of those software products and the performance of other professional services. Revenue is recognized when persuasive evidence of an arrangement exists, product delivery has occurred or services have been rendered, the sale price is fixed or
determinable, and collectability is reasonably assured. If any of the criteria have not been met, then revenue is deferred until such time as all criteria have been met.
Under the terms of UBmatrixs current agreements with certain customers, the customers take possession of UBmatrixs software license, typically bundled with a twelve-month maintenance and
support contract. In these situations, license revenues are recognized in accordance with the FASB Accounting Standards Codification (ASC) 985-605 (formerly referenced as the American Institute of Certified Public Accountants Statement of Position
(SOP) No. 97-2,
Software Revenue Recognition
) when a non-cancelable license agreement has been signed, the product has been delivered, the fees are fixed or determinable, and collectability is probable. Based on UBmatrixs present
business practices, there is not sufficient vendor-specific objective evidence (VSOE) to support the separate determination of the fair value of the software license fee and the undelivered maintenance and support element. Therefore, UBmatrix
initially records the software license and the maintenance and support and services as deferred revenue and recognizes this revenue ratably over the support period.
Some agreements with customers call for UBmatrix to provide professional services during the implementation period. UBmatrix evaluates whether these professional services represent a separate unit of
accounting, as defined by ASC 605-25-30 (formerly referenced as Emerging Issue Task Force (EITF) 00-21,
Revenue Arrangements with Multiple Deliverables
), using all applicable facts and circumstances, including whether (i) UBmatrix sold,
or could readily sell, the element unaccompanied by the other elements, (ii) the element has stand-alone value to the customer, (iii) there is objective reliable evidence of the fair value of the undelivered item based on contractual
requirements, and (iv) there is a general right of return. If the criteria for consideration as a separate unit of accounting is met, professional services revenue is recognized based on the objective reliable evidence of the fair value of such
services as they are performed. If the criteria are not met, then the service revenue is recognized ratably over the support period.
When professional services are deemed essential to the functionality of the software element of the arrangement and separate accounting for the services is not permitted, contract accounting is applied to
both the software and service elements. For these projects, revenue is recognized in accordance with ASC 605-35 (formerly referenced as SOP No. 81-1,
Accounting for Performance of Construction Type and Certain Production Type Contracts
.)
UBmatrix uses the completed-contract method for a single contract or a group of contracts when reasonably dependable estimates cannot be made or when inherent hazards make cost estimates and profit estimates doubtful. Under these circumstances, all
direct external costs and revenue are deferred until the project is completed. Estimated losses on uncompleted contracts are recorded in the period in which it is first determined that a loss is apparent.
Accounts Receivable and Allowance for Bad Debts
Accounts receivable are recorded at the invoiced amount and do not
bear interest. Management reviews accounts receivable periodically and provides allowances as necessary for accounts expected to become uncollectable. To date, UBmatrix has not experienced any significant bad debts. This may change in the future, as
changes occur to UBmatrixs markets and customers. Bad debts are written off once they are identified.
Concentration of Credit Risk and Credit Risk Evaluations
Financial instruments that potentially subject UBmatrix to
concentrations of credit risk consist primarily of a line of credit with UBmatrixs bank, cash, and trade accounts receivable. Substantially all of UBmatrixs cash and cash equivalents are maintained with one domestic financial institution
with high credit standing. At times, cash balances may exceed amounts insured by the FDIC and the Securities Investor Protection Corporation (SIPC).
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Property, Plant,
and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, normally three years. Leasehold improvements are amortized on a
straight-line basis over the shorter of the term of the lease or the estimated useful life of the improvement. Maintenance and repairs are charged to expense as incurred; improvements and betterments are capitalized.
Software Development Costs
UBmatrix offers customers the option to purchase a license for its software. In such
situations, the software development costs should be accounted for in accordance with ASC 985-20 (formerly referenced as SFAS No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed
)
.
Certain software development costs incurred subsequent to the establishment of technological feasibility are capitalized. When the software is ready for its intended use, the costs are amortized over the estimated lives of the related products.
Technological feasibility is established upon completion of a working model. As such, to date all software development costs have been charged to expense, and included in the caption product development expense, in the accompanying statements of
operations.
Deferred Revenue
Deferred revenue arises when customers pay for software licenses and
maintenance in advance of revenue recognition. UBmatrixs deferred revenue consists primarily of unearned revenue on software licenses and maintenance for which revenue is recognized ratably over the maintenance term. From time to time,
customers are required to provide a deposit at the time the product or service is ordered. These advanced payments and customer deposits are deferred and subsequently recognized as revenue at the time the risk and rewards associated with a product
transfer to the customer or upon service performance completion.
Cost of Revenue
Out of pocket costs that
are incurred directly for the requirements of a contract (primarily for service revenue) are charged as a cost of revenue. These costs are primarily composed of third party labor from contracted software developers.
Product Development
Product development costs are charged to expense as incurred. Product development expenses consist
of costs incurred for internal and out sourced labor (primarily India) associated with the software development of XBRL products. These costs include direct and research-related overhead expenses. The ability to estimate total development costs and
effort can vary significantly for each XBRL software product or functional upgrades due to the inherent complexities and uncertainties in software development.
Sales and Marketing Expenses
Sales and marketing costs are charged to expense as incurred and are presented as sales and marketing expenses in the accompanying statements of operations.
Sales and marketing expenses consist of costs incurred for internal labor, commissions, consulting, and travel and related expenses associated with the sale and marketing of UBmatrixs XBRL products. These costs include related overhead
expenses. The ability to estimate sales costs can vary as sales commissions are directly related to sales volume.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation,
including stock-based compensation, for employees in executive and finance functions. Other significant costs include employee-related travel expenses, and professional fees for administrative financial and legal services.
69
Results of Operations
Comparison of Results of Operations (in thousands) for the
Three Month Periods Ended June 30, 2010 to June 30, 2009 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Change
|
|
|
|
2010
|
|
|
2009
|
|
|
License and service revenues
|
|
$
|
604
|
|
|
$
|
1,062
|
|
|
$
|
(458
|
)
|
Cost of revenues
|
|
|
19
|
|
|
|
12
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
585
|
|
|
|
1,050
|
|
|
|
(465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development
|
|
|
683
|
|
|
|
604
|
|
|
|
79
|
|
Sales and marketing
|
|
|
400
|
|
|
|
299
|
|
|
|
101
|
|
General and administrative
|
|
|
658
|
|
|
|
265
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,741
|
|
|
|
1,168
|
|
|
|
573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(1,156
|
)
|
|
|
(118
|
)
|
|
|
(1,038)
|
|
Interest expense
|
|
|
1,044
|
|
|
|
189
|
|
|
|
855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,200
|
)
|
|
$
|
(307
|
)
|
|
$
|
(1,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of Results of Operations (in thousands) for the
Nine Month Periods Ended June 30, 2010 to June 30, 2009 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
June 30,
|
|
|
Change
|
|
|
|
2010
|
|
|
2009
|
|
|
License and service revenues
|
|
$
|
1,848
|
|
|
$
|
2,720
|
|
|
$
|
(872
|
)
|
Cost of revenues
|
|
|
87
|
|
|
|
52
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
1,761
|
|
|
|
2,668
|
|
|
|
(907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
development
|
|
|
1,898
|
|
|
|
1,951
|
|
|
|
(53
|
)
|
Sales and marketing
|
|
|
1,205
|
|
|
|
1,154
|
|
|
|
51
|
|
General and administrative
|
|
|
1,376
|
|
|
|
796
|
|
|
|
580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,479
|
|
|
|
3,901
|
|
|
|
578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(2,718
|
)
|
|
|
(1,233
|
)
|
|
|
(1,485
|
)
|
Interest expense
|
|
|
1,309
|
|
|
|
1,152
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,027
|
)
|
|
$
|
(2,385
|
)
|
|
$
|
(1,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
Comparison of
Results of Operations (in thousands) for the
Years Ended September 30, 2009 to September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
September 30,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
License and services revenues
|
|
$
|
3,943
|
|
|
$
|
1,154
|
|
|
$
|
2,789
|
|
Cost of revenues
|
|
|
61
|
|
|
|
107
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
3,882
|
|
|
|
1,047
|
|
|
|
2,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development
|
|
|
2,616
|
|
|
|
3,771
|
|
|
|
(1,154
|
)
|
Sales and marketing
|
|
|
1,467
|
|
|
|
2,447
|
|
|
|
(981
|
)
|
General and administrative
|
|
|
1,171
|
|
|
|
1,266
|
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,254
|
|
|
|
7,484
|
|
|
|
(2,230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(1,372
|
)
|
|
|
(6,437
|
)
|
|
|
(5,065
|
)
|
Interest expense
|
|
|
1,425
|
|
|
|
180
|
|
|
|
1,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,797
|
)
|
|
$
|
(6,617
|
)
|
|
$
|
(3,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
UBmatrix revenues are derived from the licensing of software products, the maintenance and support of those software products and the performance of other professional services. Revenue decreased to
approximately $0.604 million in the three months ended June 30, 2010 compared to $1.062 million in the three months ended June 30, 2009 due to a decrease in license sales. Revenue decreased to approximately $1.848 million in the nine months ended
June 30, 2010 compared to $2.720 million in the nine months ended June 30, 2009 also due to the decrease in license sales. Revenue was approximately $3.943 million in 2009 compared to $1.154 million in 2008. The $2.789 million increase is primarily
attributable to license revenue from a US government end user and from sales to OEMs.
Product Development Expenses
UBmatrix expenses product development costs (which are primarily labor and related expenses) as incurred. Product development expenses
increased to approximately $0.683 million in the three months ended June 30, 2010 compared to $0.604 million in the three months ended June 30, 2009 due to increases in labor costs. Product development expenses decreased to approximately $1.898
million in the nine months ended June 30, 2010 compared to $1.951 million in the nine months ended June 30, 2009 due to a reduction in both UBmatrixs internal and outsourced research and development work force. Product development expenses
were approximately $2.617 million in 2009 compared to $3.771 million in 2008. The $1.154 million reduction was driven primarily by reduction in UBmatrixs outsourced work force. UBmatrix expects to continue to devote substantial resources to
product development. UBmatrix expects that product development expenses will increase in the future.
Sales and Marketing Expenses
Sales and marketing costs are expensed as incurred. These costs are primarily internal labor and related, consulting,
sales commissions, and travel and associated expenses. Sales and marketing expenses increased in the three months ended June 30, 2010 to $0.400 million from $0.299 million for the three months ended June 30, 2009 primarily as sales commissions
increased from higher commissionable sales. Sales and marketing expenses increased from $1.154 million in the nine months ended June 30, 2009 to $1.205 million in the nine months ended June 30, 2010, which was primarily attributable to increased
sales commissions resulting from greater commissionable sales. Sales and marketing expenses were $1.466 million in 2009, down from $2.447 million in 2008. This decrease was driven by reduced marketing and sales headcount, and the decrease in
commissionable sales.
71
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related expenses, professional fees, and general
corporate activities. General and administrative expenses increased to approximately $0.658 million in the three months ended June 30, 2010 compared to $0.265 million in the three months ended June 30, 2009 due to transaction costs recorded in
the 2010 period relating to merger activities. General and administrative expenses increased to approximately $1.376 million in the nine months ended June 30, 2010 compared to $0.796 million in the nine months ended June 30, 2009 due to transaction
costs recorded in the 2010 period relating to merger activities. General and administrative expenses were approximately $1.171 million in 2009 compared to $1.266 million in 2008. This $0.95 million decrease was primarily due to the reduction in
general administrative costs such as accounting and legal.
Interest
Interest expense increased from $0.189 million for the three month period ending June 30, 2009 to $1.044 million in the three months ended
June 30, 2010 primarily because of foreign exchange rate variance related to UBmatrixs Euro receivables. Interest expense increased from $1.152 million for the nine month period ending June 30, 2009 to $1.309 million in the nine months ended
June 30, 2010. The increase is the result of warrant and bridge note interest. Interest expense increased from $0.180 million in 2008 to $1.425 million in 2009 primarily from the interest charge for amortization of debt discounts related to warrants
and beneficial conversion features of the convertible debt.
Liquidity and Capital Resources
Cash Flows
Since
inception, UBmatrix has generated significant losses. As of June 30, 2010, UBmatrix had an accumulated deficit of approximately $29 million. UBmatrix has funded its operations through June 30, 2010 primarily through (i) proceeds of
approximately $23.4 million from the sale of equity securities and convertible notes payable to investors and (ii) the sale of XBRL products and services to customers. As of June 30, 2010, UBmatrix had cash and cash equivalents of approximately
$1.2 million, consisting primarily of money market instruments, compared to cash and cash equivalents of $0.452 million as of September 30, 2009.
Net cash used in operating activities increased to approximately $2.948 million in the nine months ended June 30, 2010 compared to $0.710 million in the nine months ended June 30, 2009. The increase was
due primarily to a higher net loss in the 2010 period. Net cash used in operating activities was approximately $0.806 million in 2009 and $5.125 million in 2008. The decrease was driven by a $2.789 million increase in revenue and a $2.230 million
decrease in overall expenses. The use of cash in both periods resulted primarily from funding UBmatrixs efforts in research and development, developing intellectual property rights, sales and marketing expenses and general corporate
activities.
For the nine months ended June 30, 2010 the Company used $0.002 million for investing activities; for the
nine months ended June 30, 2009 no cash was used for or generated by investing activities.
Net cash generated from
financing activities was approximately $3.669 million in the nine months ended June 30, 2010 and $1.545 million in the nine months ended June 30, 2009 both amounts consisted primarily from the sale of convertible notes payable. Net cash provided by
financing activities was approximately $3.294 million in 2008 and $1.145 million in 2009. The net cash provided by financing activities in 2008 resulted primarily from the sale of convertible preferred stock and convertible notes payable, while the
net cash provided by financing activities in 2009 resulted primarily from the sale of convertible notes payable.
In May 2009,
UBmatrix entered into a Loan and Security Agreement (Agreement) for a $1 million Accounts Receivable Facility (AR Line) with Silicon Valley Bank (Lender). The Agreement gave UBmatrix the right to
72
borrow funds against domestic accounts receivable through May 2010. In October 2009 the Agreement was restated to increase the AR Line to $1.5 million and allow for advances against both domestic
and international accounts receivables, as well as against accounts receivables resulting from both software license sales and maintenance and support sales. Each advance must be repaid within ninety days of the advance. The principal amount of each
advance accrues interest at a fixed per annum rate equal to the prime rate plus 2%. UBmatrixs obligations under the Agreement are secured by substantially all of UBmatrix assets with the exception of its intellectual property. For the year
ended September 30, 2009 there were four (4) advances made under the Agreement. UBmatrixs ability to borrow funds under the Agreement will expire on January 31, 2011. There were no advances made for the year ended September 30,
2008.
Based on its current operating plan, UBmatrix believes that its existing cash reserves and projected revenues will be
sufficient to fund its planned operations through the end of 2011. However, UBmatrix may require significant amounts of additional funding earlier than it currently expects if revenues are not earned as planned.
Recent Financing Activities
Since March 31, 2010 UBmatrix received net proceeds of approximately $3.5 million from the sale of convertible notes payable. These proceeds are to fund existing operations and meet the net cash
target provided for in the merger agreement.
Off-Balance Sheet Arrangements
UBmatrix does not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special purpose entities.
Recent Accounting Pronouncements
Recent accounting pronouncements that may be applicable to UBmatrix include the following:
In October 2009, the FASB issued Accounting Standards Update (ASU) 2009-13, which amends ASC Topic 605,
Revenue Recognition
, to
require companies to allocate revenue in multiple-element arrangements based on an elements estimated selling price if vendor specific or other third-party evidence of value is not available. ASU 2009-13 is effective beginning January 1,
2011. Earlier application is permitted. UBmatrix is currently evaluating both the timing and the impact of the pending adoption of the ASU on UBmatrixs financial statements.
In June 2009, the FASB issued ASU No. 2009-01 (formerly referenced as SFAS No. 168,
The FASB Accounting Standards
Codification and Hierarchy of Generally Accepted Accounting Principles
(ASC or Codification)). The Codification is the single source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied to
nongovernmental entities. The Codification does not change current GAAP, but is intended to simplify user access to all authoritative GAAP by providing all the authoritative literature related to a particular topic in one place. All existing
accounting standard documents are superseded and all other accounting literature not included in the Codification is considered non-authoritative. The Codification is effective for interim and annual reporting periods ending after September 15,
2009. UBmatrix has made the appropriate changes to GAAP references in the financial statements.
On May 28, 2009, the
FASB issued new guidance for accounting for subsequent events. The new guidance, which is now part of ASC 855 (formerly, SFAS No. 165,
Subsequent Events
) is consistent with existing auditing standards in defining subsequent events as
events or transactions that occur after the balance sheet date but before the financial statements are issued or are available to be issued, but it also requires the disclosure of the date through which an entity has evaluated subsequent events and
the basis for that date. The new guidance defines two types of subsequent events: recognized subsequent events and non-recognized subsequent events. Recognized subsequent events provide additional evidence about conditions
that existed at the balance
73
sheet date and must be reflected in UBmatrixs financial statements. Non-recognized subsequent events provide evidence about conditions that arose after the balance sheet date and are not
reflected in the financial statements of a company. Certain non-recognized subsequent events may require disclosure to prevent the financial statements from being misleading. The new guidance was effective for interim or annual periods ending after
June 15, 2009. UBmatrix adopted the provisions of ASC 855 as required.
In June 2008, the FASB ratified ASC 815-40-15-7
(formerly referenced as EITF Issue 07-5,
Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock
)
.
ASC 815-10-15-74 (formerly referenced as Statement 133, paragraph 11(a),
Accounting for
Derivative Instruments and Hedging Activities)
, specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to UBmatrixs own stock and (b) classified in stockholders equity in
the statement of financial position would not be considered a derivative financial instrument. ASC 815-40-15-7 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an
issuers own stock and thus able to qualify for the ASC 815-10-15-74 scope exception. ASC 815-40-15-7 will be effective for the first annual reporting period beginning after December 15, 2008, and early adoption is prohibited. Effective
October 1, 2009, UBmatrix evaluated the effects of adopting ASC 815-40-15-7 on its financial position and results of operations. There was no impact from the adoption of this standard.
In May 2008, the FASB issued new guidance, ASC 470-20 (formerly referenced as FASB Staff Position (FSP) No. 14-1,
Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
)
,
which specifies that issuers of these instruments should separately account for the liability and equity components in a manner
that reflects the entitys nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This guidance was effective October 1, 2009 for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. This guidance is also to be applied retrospectively to all periods presented except if these instruments were not outstanding during any of the periods that are presented in the
annual financial statements for the period of adoption but were outstanding during an earlier period. The adoption of this statement did not have a material effect on UBmatrixs financial position and results of operations.
In December 2007, the FASB revised the guidance on business combinations which is now part of ASC 805, (formerly referenced as Statement
No. 141 (revised 2008),
Business Combinations
), which is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.
The revised statement requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for
all assets and liabilities assumed; and requires the acquirer to disclose to investors and other user all of the information they need to evaluate and understand the nature and financial effect of the business combination. UBmatrix adopted this new
statement for the fiscal year beginning October 1, 2009. In September 2006, the FASB issued new guidance on fair value measurements, ASC 820-10 (formerly referenced as Statement No. 157,
Fair Value Measurements
). This guidance
defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This statement was effective for financial statements issued for fiscal years beginning after November 15, 2007. In
February 2008, the FASB agreed to delay the effective date for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, to fiscal years
beginning after November 15, 2008. UBmatrix adopted this standard on October 1, 2008 for financial assets and liabilities and other assets currently carried at fair value on a recurring basis. ASC 820-10 establishes three levels of inputs
that may be used to measure fair value:
Level 1: Quoted prices in active markets for identical assets or liabilities;
Level 2: Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or
liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or
liabilities; or
74
Level 3: Unobservable inputs that are
supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The
adoption of the effective portion of the standard had no impact on UBmatrixs financial statements and UBmatrix does not anticipate that adoption of the deferred portion will have a material effect on its financial position and results of
operations.
In June 2006, the FASB issued new guidance for the accounting for uncertainty in income taxes in ASC 740-10
(formerly referenced as Interpretation No. 48,
Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109
). This Interpretation prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and
transition. For non-public entities such as UBmatrix, the FASB has postponed the required effective date of FIN48 to fiscal years beginning after December 15, 2008. On October 1, 2009, UBmatrix adopted the Interpretation. There was no
impact from the adoption of this standard.
Quantitative and Qualitative Disclosures about Market Risk
UBmatrix is exposed to market risk related to changes in interest rates. UBmatrixs current investment policy is to maintain an
investment portfolio consisting mainly of U.S. money market and government-grade securities, directly or through managed funds, with maturities of one year or less. UBmatrixs cash is deposited in and primarily invested through a highly rated
financial institution in North America, primarily in money market funds as of June 30, 2010.
75
ANNUAL MEETING PROPOSALS
PROPOSAL NO. 1MERGER PROPOSAL
For
summary and detailed information regarding the merger proposal, see The Merger.
Vote Required and Board of Directors
Recommendation
Assuming a quorum is present, the affirmative vote of the holders of a majority of the shares present at
the annual meeting, either in person or by proxy, and entitled to vote, is required for approval of Proposal No. 1. For purposes of this Proposal No. 1, abstentions will have the same effect as a vote against this proposal, and broker
non-votes will have no effect on the result of the vote.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE FOR PROPOSAL NO. 1
76
PROPOSAL NO. 2SERIES C ISSUANCE PROPOSAL
For summary and detailed information regarding the Series C issuance proposal, see The Series C Preferred Stock Purchase
Agreement.
Vote Required and Board of Directors Recommendation
Assuming a quorum is present, the affirmative vote of the holders of a majority of the shares present at the annual meeting, either in
person or by proxy, and entitled to vote, is required for approval of Proposal No. 2. For purposes of this Proposal No. 2, abstentions will have the same effect as a vote against this proposal, and broker non-votes will have no effect on
the result of the vote.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE FOR PROPOSAL NO. 2
77
PROPOSAL NO. 3POSSIBLE ADJOURNMENT OF THE ANNUAL MEETING
If we fail to receive a sufficient number of votes to approve Proposal No. 1, Proposal No. 2, Proposal No. 5 or Proposal
No. 6, we may propose to adjourn the annual meeting, if a quorum is present, for the purpose of soliciting additional proxies to approve Proposal No. 1, Proposal No. 2, Proposal No. 5 or Proposal No. 6. We currently do not
intend to propose adjournment of the annual meeting if there are sufficient votes to approve Proposal No. 1, Proposal No. 2, Proposal No. 5 and Proposal No. 6. If approval of the proposal to adjourn the annual meeting for the
purpose of soliciting additional proxies is submitted to stockholders for approval, such approval requires the affirmative vote of the holders of a majority of the votes cast in person or by proxy at the annual meeting.
Vote Required and Board of Directors Recommendation
Assuming a quorum is present, the affirmative vote of the holders of a majority of the shares present at the annual meeting, either in person or by proxy, and entitled to vote, is required for approval of
Proposal No. 3. For purposes of this Proposal No. 3, abstentions will have the same effect as a vote against this proposal, and broker non-votes will have no effect on the result of the vote.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE FOR PROPOSAL NO. 3
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PROPOSAL NO. 4ELECTION OF DIRECTORS
The Companys By-laws provide that the number of directors constituting the Board of Directors shall be fixed by resolutions of the
Board of Directors from time to time. The current number of directors is six. The Board of Directors reserves the right to increase or reduce the size of the Board of Directors as provided in the Companys By-laws.
At the Annual Meeting, the stockholders will elect six directors, of whom two (nominees John M. Connolly and Jeffrey Schwartz) will be
elected by the holders of our Series B Stock, voting separately as a class. The nominees other than Messrs. Connolly and Schwartz have been recommended by the Nominating Committee of the Board of Directors. All of the elected directors will serve a
one-year term until the 2011 Annual Meeting of Stockholders or until a successor is elected or appointed and qualified or until such directors earlier resignation or removal. If any nominee is unable or unwilling to serve as a director,
proxies may be voted for a substitute nominee designated by the present Board of Directors. The Board of Directors has no reason to believe that the persons named below will be unable or unwilling to serve as nominees or as directors if elected.
Proxies received will be voted FOR the election of all nominees unless otherwise directed. Pursuant to applicable Delaware corporation law, assuming the presence of a quorum, six directors will be elected from among those persons duly
nominated for such positions by a plurality of the votes actually cast by stockholders entitled to vote at the Annual Meeting who are present in person or by proxy.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE
NOMINEES NAMED BELOW.
INFORMATION CONCERNING NOMINEES
Certain information about each of the six nominees (including the two nominees to be elected by the holders of the Series B Stock) is set forth below. This information sets forth the experience,
qualifications, attributes and skills that led the Nominating Committee to recommend these candidates for nomination, and the Board of Directors to conclude that these nominees should serve as members of our Board of Directors. Each nominee (except
Alfred R. Berkeley, III) has served continuously as a member of the Board of Directors since his first election as indicated below.
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Name
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Age
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Position
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Director Since
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Mark Maged (1)
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Chairman of the Board
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1999
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Alfred R. Berkeley, III
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65
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Nominee for Director
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N/A
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John M. Connolly (2)
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58
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Director, Interim Chief Executive Officer and President
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2010
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Richard L. Feinstein (1)(4)
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66
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Director
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2003
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William J. ONeill, Jr. (3)(4)
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67
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Director
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2007
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Jeffrey Schwartz (1)(3)
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45
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Director
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2010
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(1)
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Member of the Nominating Committee
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(2)
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Mr. Connolly has been named Interim Chief Executive Officer and President, effective September 30, 2010.
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(3)
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Member of the Compensation Committee
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(4)
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Member of the Audit Committee
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Mark Maged
has been a member of the Board of Directors since March 1999 and became Chairman in July 2007. Since 1992,
Mr. Maged, either individually or as Chairman of MJM Associates, LLC, has engaged in various private investment banking activities in the U.S. and internationally. Earlier in his career he was Chief Executive of Schroders, Incorporated, the
U.S. arm of the international merchant bank, Schroders Plc. and also a member of the Board and Group Management Committee of Schroders Plc. Mr. Maged received a B.S.S. from the College of the City of New York and an M.A. and L.L.B. from Harvard
University.
Alfred R. Berkeley, III
is currently the Chairman of Pipeline Financial Group, Inc., the parent of
Pipeline Trading Systems, L.L.C., an equity trading brokerage service. Prior to that, he was Vice Chairman of The
79
NASDAQ Stock Market, Inc. from July 2000 through July 2003 and President from 1996 until 2000. Mr. Berkeley was the Chairman of XBRL US, the non-profit organization established to set data
standards for the modernization of the SECs EDGAR reporting system until 2008 and is now on its Board of Directors. He also is currently a director of ACI Worldwide, Inc., a payment services software company, a position he has held since 2008.
Mr. Berkeley is the Vice Chairman of the Presidents National Infrastructure Advisory Council and from 2003 to 2009, served as Vice Chairman of the Nomination Evaluation Committee for the National Medal of Technology and Innovation which
makes candidate recommendations to the Secretary of Commerce. Mr. Berkeley received a B.A. from the University of Virginia and an M.B.A. from the Wharton School at the University of Pennsylvania.
John M. Connolly
has been named Interim Chief Executive Officer and President effective September 30, 2010 and has served on
the Board of Directors since January 2010. He is also an Operating Partner at Bain Capital Venture Partners, LLC, a position he held since 2009. Prior to joining Bain Capital Venture Partners, Mr. Connolly was President, Chief Executive Officer
and Chairman of M|C Communications. Prior to M|C, Mr. Connolly was President and Chief Executive Officer of Institutional Shareholder Services (ISS). During his tenure, ISS doubled in revenues and realized 250% increase in profit over three
years. ISS was sold to the The RiskMetrics Group in 2006. Previously, Mr. Connolly founded Mainspring Inc, a provider of strategic consulting, research and advisory services to Fortune 1000 companies. Under his leadership, Mainspring grew from
a start up to a publicly traded company and was purchased by IBM in 2001. At IBM, Mr. Connolly built a strategy and consulting practice that eventually led to the creation of IBM business consulting where he served as the Global General
Manager. Prior to founding Mainspring, Mr. Connolly founded Course Technology, which was sold to The Thomson Corporation. Mr. Connolly received his BA from St. Norbert College. Mr. Connolly attended the Executive Education
Program at INSEAD.
Richard L. Feinstein
has been a member of the Board of Directors since April 2003.
Mr. Feinstein, a retired partner of KPMG LLP, is currently a private consultant providing management and financial advice to clients in a variety of industries. From April 2004 to December 2004, Mr. Feinstein, as a consultant, served as
Chief Financial Officer for Image Technology Laboratories, Inc. (OTCBB: IMTL) a developer and provider of radiological imaging, archiving and communications systems. From December 1997 to October 2002, Mr. Feinstein was a Senior Vice President
and Chief Financial Officer for The Major Automotive Companies, Inc. (Pink Sheets: MJRC.PK), formerly a diversified holding company, but now engaged solely in retail automotive dealership operations. Since September 2009, Mr. Feinstein has
served on the Board and as Chief Financial Officer of USA Fitness Corps, a startup not-for-profit organization, engaged in fighting childhood obesity through physical fitness and nutrition education, coached, mentored and trained by returning
military veterans. Beginning in February 2010, Mr. Feinstein has served on the Board (Chair of the Audit Committee) of mktg, inc. (Nasdaq:cmkg), an integrated sales promotional and marketing services company. Mr. Feinstein, a
certified public accountant, received a B.B.A. degree from Pace University.
William J. ONeill, Jr.
has been a
member of the Board of Directors since June 2007. He is currently the Dean of the Sawyer Business School at Suffolk University in Boston, Massachusetts. Prior to this appointment, Mr. ONeill spent thirty years (1969-1999) with the
Polaroid Corporation where he held the positions of Executive Vice President of the Corporation, President of Corporate Business Development and Chief Financial Officer. Mr. ONeill was also previously a Senior Financial Analyst at Ford
Motor Company. Mr. ONeill was a Trustee at the Dana Farber Cancer Institute and is currently a member of the Massachusetts Bar Association as well as a member of the Board of Directors of the Greater Boston Chamber of Commerce.
Mr. ONeill is Chairman of the Board of AdvanSource Biomaterials (AMEX: ASB) and has been a director there since 2004. Mr. ONeill is currently a director of Concord Camera Corp. (NASDAQ: LENS). Mr. ONeill earned a
B.A. at Boston College in mathematics, an M.B.A. in finance from Wayne State University and a J.D. from Suffolk University Law School.
Jeffrey Schwartz
has been a member of the Board of Directors since January 2010. Mr. Schwartz is a Founding Partner and Managing Director of Bain Capital Venture Partners, LLC, the
Boston-based venture
80
capital affiliate of Bain Capital, LLC, a private investment firm whose affiliates have approximately $67 billion of assets under management worldwide. Mr. Schwartzs current and past
portfolio company Board responsibilities include Appriss, Gamelogic, Nomis Solutions, Profitlogic (sold to ORCL), Regulatory Data Corporation, Soleil Securities, Taleo (NASDAQ; TLEO), Thor Technologies (sold to ORCL), LogicSource, and The
Receivables Exchange. Prior to joining Bain Capital at the beginning of 2000, Mr. Schwartz was a portfolio manager at Wellington Management Company where he managed public equity funds. He also served in the Equity Capital Markets Group of
Merrill Lynch. Mr. Schwartz serves on the Board of Noble and Greenough School and MetroLacrosse. He received a bachelors degree in economics from Dartmouth College and a M.B.A. from Harvard Business School.
Elizabeth DeMarse and Douglas K. Mellinger are current members of the Board of Directors not nominated for re-election.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held 12 meetings and took one action by written consent during 2009. The Board of Directors has
an Audit Committee, a Compensation Committee and a Nominating Committee. Each director attended or participated in 75% or more of the aggregate of: (i) the total number of meetings of the Board of Directors; and (ii) the total number of
meetings held by all committees of the Board of Directors on which such director served during 2009. Each director is expected to attend and participate in, either in person or by means of telephonic conference, all scheduled Board of Director
meetings and meetings of committees on which such director is a member. Each director attended last years annual meeting of stockholders, and members of the Board of Directors are encouraged to attend the annual meeting each year. Our Board of
Directors has concluded that a majority of our Board of Directors, specifically Ms. DeMarse and Messrs. Connolly, Feinstein, Maged, Mellinger, ONeill and Schwartz, qualify as independent within the meaning of the director
independence standards of The Nasdaq Stock Market, Inc. (Nasdaq). In reaching its conclusions regarding Messrs. Connolly and Schwartz, the Board did consider the fact that they were appointed in accordance with the rights of the holders
of our Series B Stock (currently Bain Capital Venture Integral Investors, LLC) to cause two directors to be elected to the Board of Directors. Messrs. Schwartz and Connolly are principals of Bain Capital Venture Partners, LLC as discussed below.
Individuals may communicate directly with members of the Board of Directors or members of the Board of Directors standing committees by writing to the following address: EDGAR Online, Inc., 122 East 42
nd
Street, Suite 2400, New York, New York 10168, Attention: Corporate
Secretary.
The Corporate Secretary will summarize all correspondence received and periodically forward summaries to the Board
of Directors. Members of the Board of Directors may, at any time, request copies of any such correspondence. Communications may be addressed to the attention of the Board of Directors, a standing committee of the Board of Directors, or any
individual member of the Board of Directors or a committee. Communication that is primarily commercial in nature, relates to an improper or irrelevant topic, or requires investigation to verify its content may not be forwarded.
Audit Committee
The Audit Committee reviews, acts on and reports to the Board of Directors with respect to various auditing and accounting matters, including selecting the Companys independent registered public
accounting firm, the scope of the annual audits, fees to be paid to the accountants, the performance of the independent registered public accounting firm and the Companys accounting practices. The members of the Audit Committee currently are
Ms. DeMarse and Messrs. Feinstein, and ONeill, each of whom is a non-employee director and, as required by Nasdaq, qualifies as independent. The Audit Committee also includes at least one independent member who is determined
by the Board to meet the qualifications of an audit committee financial expert in accordance with U.S. Securities and Exchange Commission (SEC) rules, including that the person meets the relevant definition of an
independent director.
Richard L. Feinstein, the Chairman of the Audit Committee, is the independent director who
has been determined by our Board of Directors to be an audit committee financial expert. Stockholders should understand
81
that this designation is a disclosure requirement of the SEC related to Mr. Feinsteins experience and understanding with respect to certain accounting and auditing matters. The
designation does not impose upon Mr. Feinstein any duties, obligations or liability that are greater than are generally imposed on him as a member of the Audit Committee and the Board of Directors, and his designation as an audit committee
financial expert pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of the Audit Committee or the Board of Directors. The Board of Directors has also determined that each Audit Committee member
has sufficient knowledge in reading and understanding the Companys financial statements to serve on the Audit Committee. The Audit Committee held eight meetings during 2009. On June 12, 2000, the Board of Directors adopted a charter for
the Audit Committee. Subsequently, on March 23, 2004, the Board of Directors adopted an Amended and Restated Audit Committee Charter, a copy of which is available on our website at
www.edgar-online.com
.
Compensation Committee
The primary purpose of our Compensation Committee is to discharge our Boards responsibilities relating to compensation and benefits of our officers and directors. The Compensation Committee reviews
and approves the compensation and benefits of the Companys key executive officers, administers the Companys employee benefit plans and makes recommendations to the Board of Directors regarding such matters. The current members of the
Compensation Committee are Ms. DeMarse and Messrs. Mellinger, ONeill and Schwartz, each of whom is independent within the meaning of the director independence standards of Nasdaq. Mr. ONeill serves as the Chairman of the
Compensation Committee. The Compensation Committee took one action by written consent during 2009.
The functions of our
Compensation Committee include:
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Designing and implementing competitive compensation policies to attract and retain key personnel;
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Reviewing and formulating policy and determining or making recommendations to our Board of Directors regarding compensation of our executive officers;
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Administering our equity incentive plans and granting or recommending grants of equity awards to our executive officers and directors under these
plans; and
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Reviewing and establishing Company policies in the area of management perquisites.
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Our Chief Executive Officer does not participate in the determination of his own compensation. However, he makes recommendations to, and
participates in deliberations with our Compensation Committee regarding the amount and composition of the compensation of our other officers. The Compensation Committee operates under a formal Compensation Committee Charter, which is available on
our website at
www.edgar-online.com
, and contains a detailed description of such Committees duties and responsibilities
Nominating Committee
The Nominating Committee reviews and assesses
the composition of the Board of Directors, assists in identifying potential new candidates for director and nominates candidates for election to the Board of Directors. The Nominating Committee currently consists of Ms. DeMarse and Messrs.
Feinstein, Maged and Schwartz, each of whom is independent within the meaning of the director independence standards of Nasdaq. The Nominating Committee held one meeting during 2009.
The Nominating Committee operates under a formal Nominating Committee Charter, which is available on our website at
www.edgar-online.com
, and contains a detailed description of such Committees duties and responsibilities. As more fully described in its charter, the functions of the Nominating Committee include identifying individuals qualified to
become directors and making recommendations to the Board of Directors for the selection of such candidates for directorship, with the goal of assembling a Board of Directors that brings the Company a variety of perspectives and skills derived from
business and professional experience.
82
Candidates for
Nomination
Candidates for nomination as director come to the attention of our Nominating Committee from time to time
through incumbent directors, management, stockholders or third parties. In addition, the holders of our Series B Stock are entitled to elect two directors to the Board, and in connection with this right have caused the nominations of, and intend to
elect, Messrs. Connolly and Schwartz. Mr. Schwartz will serve on the nominating and compensation committees of the Board. These candidates may be considered at meetings of our Nominating Committee at any point during the year. Such candidates
are evaluated against the criteria set forth below. If our Nominating Committee believes at any time that it is desirable that our Board consider additional candidates for nomination, the Committee may poll directors and management for suggestions
or conduct research to identify possible candidates and may, if our Nominating Committee believes it is appropriate, engage a third-party search firm to assist in identifying qualified candidates.
The Nominating Committee will evaluate director candidates recommended by stockholders in light of the Committees criteria for the
selection of new directors. Such criteria include:
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the appropriate size of our Board and its committees;
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the perceived needs of our Board for particular skills, background and business experience;
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the skills, background, reputation, and business experience of nominees compared, in a manner designed to enhance the diversity of the Board (though
not by associate diversity with any particular qualities or attributes), to the skills, background, reputation, and business experience already possessed by other Board members;
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nominees independence from management;
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applicable regulatory and listing requirements, including independence requirements and legal considerations, such as antitrust compliance;
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the benefits of a constructive working relationship among directors; and
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the desire to balance the considerable benefit of continuity with the periodic injection of the fresh perspective provided by new members.
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Any stockholder recommendation of a director candidate should include the name and address of the
stockholder and the person nominated; a representation that the stockholder (1) is a holder of record of our Common Stock on the date of such notice, and (2) intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; a description of all arrangements or understandings between the nominating stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the stockholder is making the
nomination or nominations; such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the SEC, had the nominee been nominated, or intended
to be nominated, by our Board; and the consent of each nominee to serve as a director, if elected.
All
director nominees must also complete a customary form of directors questionnaire as part of the nomination process. The evaluation process may also include interviews and additional background and reference checks for non-incumbent nominees,
at the discretion of our Nominating Committee. Any stockholder recommendation of a director candidate should be sent to EDGAR Online, Inc., 122 East 42
nd
Street, Suite 2400, New York, New York 10168, Attention: Corporate Secretary. Any stockholder recommendations must be
submitted in sufficient time for an appropriate evaluation by the Nominating Committee. In addition, any stockholder wishing to nominate a director for consideration at an annual meeting of stockholders must follow the procedures set forth in this
proxy statement.
83
AUDIT COMMITTEE REPORT
The Audit Committee oversees the Companys financial reporting process on behalf of the Board of Directors. Management is responsible for the Companys internal controls, financial reporting
process and compliance with laws and regulations and ethical business standards. The independent registered public accountants are responsible for performing an independent audit of the Companys consolidated financial statements in accordance
with the auditing standards of the Public Company Accounting Oversight Board and to issue a report thereon. The Audit Committee has the power and authority to engage the independent registered public accountants, reviews the preparations for and the
scope of the audit of the Companys annual financial statements, reviews drafts of the statements and monitors the functioning of the Companys accounting and internal control systems through discussions with representatives of management,
the independent registered public accountants and the accounting staff.
On February 9, 2010, the Audit Committee met to
review the Companys audited financial statements for 2009 as well as the process and results of the Companys assessment of internal control over financial reporting. The Audit Committee met with management to discuss the financial
statements and internal control over financial reporting. Management has represented to the Audit Committee that the financial statements were prepared in accordance with accounting principles generally accepted in the United States, that internal
control over financial reporting was effective and that no material weaknesses in those controls existed as of the fiscal year-end reporting date, December 31, 2009. The Audit Committee also met with BDO USA, LLP, formerly BDO Seidman, LLP
(BDO USA), the Companys independent registered public accounting firm, to discuss the financial statements.
The Audit Committee has received from BDO USA the written disclosures and the letter required by applicable requirements of the Public
Company Accounting Oversight Board regarding the independent accountants communications with the Audit Committee concerning independence and discussed with BDO USA their independence from the Company and its management. The Audit Committee
also received reports from BDO USA regarding all critical accounting policies and practices used by the Company, generally accepted accounting principles that have been discussed with management, and other material written communications between BDO
USA and management. There were no differences of opinion reported between BDO USA and the Company regarding critical accounting policies and practices used by the Company. In addition, the Audit Committee discussed with BDO USA all matters required
to be discussed by Statement on Auditing Standards No. 61, as amended
(Communication with Audit Committees) as adopted by the Public Company Accounting Oversight Board in Rule 3200T
. Based on these reviews, activities and discussions,
the Audit Committee recommended to the Board of Directors, and the Board of Directors has approved, that the Companys audited financial statements be included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2009, which was filed with the SEC on March 31, 2010.
The Audit Committee plans to meet with BDO USA
during the current fiscal year to review the scope of the 2010 audit and other matters.
Submitted by the
Audit Committee:
Richard L. Feinstein, Chairman
Elisabeth DeMarse
William J. ONeill, Jr.
84
CORPORATE GOVERNANCE AND RISK RELATED MATTERS
Leadership Structure of our Board of Directors
The Board of Directors may determine from time to time what leadership structure it believes is most beneficial to the Company, including whether the same individual should serve both as our Chairman and
our Chief Executive Officer. In addition, the Board of Directors may choose to have a Lead Director. Currently, our Board of Directors has a Chairman of the Board, Mark Maged, who is independent of management. Mr. Mageds primary role as
Chairman is to provide effective leadership for our independent directors, and to interface on a frequent basis with management, thereby enhancing the ability of the Board of Directors to provide active and independent oversight of the
Companys operations.
In addition, the Board of Directors receives strong leadership from all of its independent
members. The independent directors meet in executive session on a periodic basis in connection with regularly-scheduled meetings of the full Board of Directors, as well as in their capacity as members of our Audit Committee, Compensation Committee
and Nominating Committee. The Board believes that this open structure facilitates a strong sense of responsibility among our directors, as well as active and effective oversight by the independent directors of our operations and strategic
initiatives, including the risks that may be attendant thereto. Our Board meetings generally include time for discussion of items not on the formal agenda.
Risk Oversight by our Board of Directors
The role of our Board of
Directors in our risk oversight process includes receiving regular reports from members of management on areas of material risk to us, including operational, financial, legal and strategic risks. Our Board of Directors also works to oversee risk
through its consideration and authorization of significant matters, such as major strategic, operational and financial initiatives and its oversight of managements implementation of those initiatives.
In particular, our Audit Committee takes an active role in these matters, discussing with management and the Companys independent
auditor, as need be, items relating to risk assessment and risk management policies, including the Companys major exposures to financial risk and the steps taken by management to monitor and mitigate such exposures. As appropriate, the Audit
Committee reports to the full Board of Directors on the activities of the Audit Committee in this regard, allowing the Audit Committee and the full Board to coordinate their risk oversight activities.
The Company also believes that its risk management capabilities are enhanced by the ability of individuals to communicate directly with
members of the Board of Directors or members of the Board of Directors standing committees, as discussed above.
85
INFORMATION CONCERNING EXECUTIVE OFFICERS
The executive officers of the Company as of the date of this proxy statement are identified below. Executive officers are elected
annually by the Board of Directors and serve at the pleasure of the Board of Directors.
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Name
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Age
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Position
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John M. Connolly
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58
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Interim Chief Executive Officer and President
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David Price
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47
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Chief Financial Officer
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Diana Bourke
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56
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Chief Operations Officer
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Stefan Chopin
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51
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Chief Technology Officer
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John M.
Connolly
: Please see Mr. Connollys full biography under Proposal No. 4, Information Concerning Current Directors and Nominees.
David Price
joined us as Executive Vice President and Chief Financial Officer in July 2010. Mr. Price was previously employed by Cornerstone Therapeutics, Inc. (Nasdaq: CRTX), a pharmaceutical
company that specializes in the respiratory market, most recently serving as its Executive Vice President, Finance, Chief Financial Officer, Treasurer and Assistant Secretary. From April 2006 to September 2008, Mr. Price served as a Managing
Director for Jefferies & Company, Inc, an investment banking firm, in the Specialty Pharmaceutical and Pharmaceutical Services investment banking practice. From September 2000 to March 2006, Mr. Price served as a Managing Director for
Bear, Stearns & Co. Inc., an investment banking firm, in London and in New York. Prior to that, he worked in the auditing capacity at several prominent international accounting firms. Mr. Price attained an Honours degree in Accounting
and Financial Management at Lancaster University.
Diana Bourke
joined us as Chief Operations Officer in March 2010.
Prior to this appointment, Ms. Bourke was President and Chief Executive Officer of Inveshare Inc., formerly known as Swingvote Inc. Prior to joining Inveshare Inc., Ms. Bourke was the Executive Vice President and General Manager of Voting
and Transaction Processing Services for Institutional Shareholder Services (ISS) from 2004 to 2007. Before joining ISS in 2004, Ms. Bourke had over 25 years business experience with a focus on technology and operations in a variety
of industries. Ms. Bourke is currently a Member of the Board of Trustees of Trudeau Institute, a research institute specializing in basic research regarding the human immune system with a special focus on tuberculosis, located in Saranac Lake,
New York. Ms. Bourke holds a B.A. in Economics and Philosophy and graduated Summa Cum Laude, Phi Beta Kappa from the University of Notre Dame.
Stefan Chopin
was a member of the Board of Directors from 1996 until February 2004, when he was appointed Chief Technology Officer. Mr. Chopin was previously the President of Pequot Group
Inc., a technology development company for the financial services industry. From October 1998 to November 2001, Mr. Chopin was the Senior Vice President of Technology for iXL Enterprises, Inc., an e-business solutions provider.
86
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview of Compensation Program
Our Compensation Committee (for purposes of this analysis, the Committee) of the Board of Directors has responsibility for
establishing, implementing and continually monitoring adherence with our compensation philosophy. The Committee works to ensure that the total compensation paid to the Named Executive Officers (as defined in the Summary Compensation Table below) is
fair, reasonable and competitive.
Compensation Philosophy and Objectives
The Committee believes that the compensation programs for executive officers should reflect our performance and the value created for our
stockholders. In addition, the Committee believes that the compensation program should support our short-term and long-term strategic goals and values and should reward individual contributions to our success. The Committee works to ensure that the
executive compensation policies and plans provide the necessary total remuneration program to properly align our performance with the interests of our stockholders through the use of competitive and equitable executive compensation in a balanced and
reasonable manner, for both the short and long-term.
Our overall compensation philosophy is to provide a total compensation
package that is competitive and enables us to attract, motivate, reward and retain key executives and other employees who have the skills and experience necessary to promote our short and long-term financial performance and growth.
The Committee recognizes the critical role of our executive officers in the significant growth and success of the Company. Accordingly,
our executive compensation policies are designed to: (1) align the interests of executive officers and stockholders by encouraging stock ownership by executive officers and by making a significant portion of executive compensation dependent
upon our financial performance; (2) provide compensation that will attract and retain talented professionals; (3) reward individual results through base salary, annual cash bonuses, long-term incentive compensation in the form of stock
options and various other benefits; and (4) manage compensation based on skill, knowledge, effort and responsibility needed to perform a particular job successfully.
In its review of salary, bonuses and long-term incentive compensation for our executive officers, the Committee takes into account both the position and expertise of a particular executive, as well as the
Committees understanding of the competitive compensation for similarly situated executives in the Companys industry.
Role of
Executive Officers in Compensation Decisions
The Committee makes all compensation decisions for the Named Executive
Officers. Decisions regarding the compensation of other officers and employees are made by our President and Chief Executive Officer and our Chief Financial Officer.
Our President and Chief Executive Officer and our Chief Financial Officer annually review the performance of each Named Executive Officers (except that of our Chief Financial Officer who is reviewed by
our President and Chief Executive Officer, and that of our President and Chief Executive Officer, whose performance is reviewed solely by the Committee). The conclusions reached and recommendations based on these reviews, including with respect to
salary adjustments and annual award amounts, are presented to the Committee. The Committee can exercise its discretion in modifying any recommended adjustments or awards to such executives.
87
Setting Executive Compensation
Based on the foregoing objectives, the Committee has structured our annual and long-term incentive-based cash and non-cash
executive compensation to motivate our executives to achieve the business goals set by us and reward the executives for achieving such goals. A percentage of total compensation is allocated to incentives as a result of the philosophy mentioned
above. There is no pre-established policy or target for the allocation between either cash and non-cash, or short-term and long-term incentive compensation. Rather, the Committee reviews all relevant information to determine the appropriate level
and mix of incentive compensation. Income from such incentive compensation is realized as a result of the performance of the Company or the individual, depending on the type of award, compared to established goals.
Compensation Consultant
In 2009, the Company, at the direction of the Compensation Committee, engaged Compensia, a California-based management consulting firm
that provides executive advisory services to compensation committees and senior management of knowledge based companies. The nature and scope of Compensias engagement included (i) the development of an executive compensation peer group of
companies of comparable size and industry to the Company, (ii) an assessment of the Companys executive compensation programs based on an analysis of the peer group information and best practices based on client experience and data from
Compensias proprietary data base and (iii) conducting a competitive executive compensation market analysis. The competitive executive compensation market analysis covered five senior positions and included direct comparison to industry
and peer group data and included consideration of current and projected retention value of executives equity holdings. Compensia was directed to report to the Compensation Committee, take direction from the Compensation Committee Chairman and
not engage directly with management on compensation or other projects unless in accordance with the scope of the engagement.
2009
Executive Compensation Components
For 2009, the principal components of compensation for the Named Executive Officers
were:
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performance-based incentive compensation;
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long-term equity compensation; and
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perquisites and other benefits.
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Base Salary
We provide the Named Executive Officers and other
employees with base salary to compensate them for services rendered during the fiscal year. Base salary ranges for the Named Executive Officers are determined on an individual basis by evaluating each executives scope of responsibility,
performance, prior experience and salary history, as well as the salaries for similar positions at comparable companies.
Salary levels are typically considered annually as part of the Companys performance review process as well as upon a promotion or
other change in job responsibility. Merit based increases to salaries of the Named Executive Officers are based on the Committees assessment of the individuals performance.
Performance-Based Incentive Compensation
Performance-based incentive compensation is intended to encourage the Named Executive Officers to achieve short-term goals that we believe are integrally linked to long-term value creation. The incentive
award ranges are established annually by the Committee for the Named Executive Officers and management employees. The business criteria used by the Committee in establishing performance goals applicable to performance awards to the Named Executive
Officers are selected from among the following:
88
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Expenses or expense ratios;
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|
Operating income, earnings from operations, earnings before or after taxes, earnings before or after interest, depreciation, amortization, or
extraordinary or special items;
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Net income or net income per common share (basic or diluted; including or excluding extraordinary items);
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Return on assets, return on investment, return on capital, or return on equity;
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Cash flow, free cash flow, cash flow return on investment, or net cash provided by operations;
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Economic profit or value created;
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Stock price or total stockholder return; and
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|
Specific strategic or operational business criteria, including market penetration, geographic expansion, new concept development goals, new projects,
new products, or new ventures; customer satisfaction; staffing, training and development, succession planning or employee satisfaction; goals relating to acquisitions, divestitures, affiliates or joint ventures.
|
The overall assessment of the achievement of each Named Executive Officers goal determines the percent of the target award that
will be paid to the executive as an annual incentive award.
The Committee retains discretion to set the level of performance
for a given business criteria that will result in the earning of a specified amount under a performance award. These goals may be set with fixed, quantitative targets, targets relative to past Company performance, or targets compared to the
performance of other companies, such as a published or special index or a group of companies selected by the Committee for comparison. The Committee may specify that these performance measures will be determined before payment of bonuses, capital
charges, non-recurring or extraordinary income or expense, or other financial and general and administrative expenses for the performance period, if so specified by the Committee.
Performance-based incentive compensation was awarded to Philip D. Moyer, Stefan Chopin and Sue Bratone Childs for services rendered in
2009 based upon increased revenues and improved EBITDA in 2009 as compared to 2008
Long-Term Compensation
The Committee believes that equity-based compensation in the form of stock options and restricted stock links the
interests of executives with the long-term interests of our stockholders, encourages executives to remain in our employ and maintains competitive levels of total compensation. We grant stock options and restricted stock in accordance with the 2005
Plan. The 2005 Plan authorizes a broad range of awards, including stock options, stock appreciation rights, restricted stock grants, and deferred stock grants. We have not granted any appreciation rights or deferred stock grants under the 2005 Plan.
The Board of Directors goal is to tie the stockholders interest securely with that of the Companys
officers, employees and directors, so that the financial performance of the Company is directly linked to compensation and recipients of grants pursuant to the 2005 Plan are increasingly motivated to perform at their optimal level. Stock options are
granted based on a number of factors, including the individuals level of responsibility, the amount and term of options already held by the individual, the individuals contributions to the achievement of performance goals, and industry
practices and norms. Stock options are generally awarded on an annual basis and, from time to time, when employees are hired or promoted. All options granted to the Named Executive Officers and other employees are approved by the Committee.
Stock options and restricted stock are awarded at Nasdaqs closing price of our Common Stock on the
date of the grant. The majority of the options granted by the Committee vest at a rate of 33
1
/
3
% per year over the first three years of the ten-year option term while the vesting of restricted stock may vary from no vesting period to
89
between one to three years or upon a change of control, as determined at the discretion of the Committee. Prior to the exercise of an option or the vesting of restricted stock, the holder has no
rights as a stockholder with respect to the shares subject to such option, including voting rights and the right to receive dividends or dividend equivalents. An employee granted restricted stock shall have all of the rights of a stockholder,
including the right to vote the restricted stock and the right to receive dividends thereon once the restricted stock vests. Restricted stock awards are generally subject to forfeiture if the grantee is no longer an employee at the time of vesting.
Perquisites and Other Benefits
We provide the Named Executive Officers with limited perquisites and other personal benefits not provided generally to all employees, such as a commutation allowance, as well as partial relocation
reimbursement to our Chief Executive Officer, that the Company and the Committee believe are reasonable and consistent with its overall compensation program to better enable us to attract and retain superior employees for key positions. All such
perquisites are reflected in the All Other Compensation column of the Summary Compensation Table and the accompanying footnotes.
The Named Executive Officers participate in the same Company 401(k) program as provided to other employees. The Company did not provide any special 401(k) benefits to the Named Executive Officers, and
their health care and insurance coverage is the same as that provided to other employees.
Trading Windows / Hedging
We restrict the ability of employees to freely trade in our Common Stock because of their periodic access to material non-public
information regarding the Company. Under our insider trading policy, the Named Executive Officers, our EVP Marketing, Controller, employees of our Finance Department, General Counsel and directors are restricted from purchasing or selling our Common
Stock, exercising stock options or selling shares of restricted stock during certain blackout periods. In addition, all employees, including our Named Executive Officers, are prohibited from hedging against or speculating in the potential changes in
the value of our Common Stock.
Change in Control Protections
Some of our Named Executive Officers are parties to written employment agreements. The value of the change in control benefits provided under agreements is summarized in the section below
entitled Potential Payments Upon Termination or Change in Control. The Company does not gross-up any executive payments for potential taxes that may be incurred in connection with a change in control.
Policy with Respect to Section 162(m) Deduction Limit
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally disallows a tax deduction to publicly held companies for compensation exceeding $1 million paid to certain of the
Companys executive officers. The limitation applies only to compensation that is not considered to be performance-based. The non-performance based compensation paid to our executive officers in 2009 did not exceed the $1 million limit per
officer. Our stock option plan is structured so that any compensation deemed paid to an executive officer in connection with the exercise of option grants or vesting of restricted stock made under that plan will qualify as performance-based
compensation which will not be subject to the $1 million limitation. The Committee currently intends to limit the dollar amount of all other compensation payable to the Companys executive officers to no more than $1 million. The Committee is
aware of the limitations imposed by Section 162(m), and the exemptions available therefrom, and will address the issue of deductibility when and if circumstances warrant.
90
Compensation Committee Report
The Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of
Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
The Compensation Committee:
William J. ONeill, Jr., Chairman
Elisabeth DeMarse
Douglas K. Mellinger
Jeffrey Schwartz
Summary Compensation Table
The following table sets forth certain information regarding compensation paid for all services rendered to us in all capacities during
fiscal years 2007, 2008 and 2009 by our principal executive officer, principal financial officer and our two other executive officers (collectively, the Named Executive Officers). Mr. Ferrara resigned from the Company effective
March 31, 2010. Ms. Childs resigned from the Company effective June 30, 2010. Mr. Moyer resigned from the Company effective September 30, 2010.
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|
Name and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($) (1)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
Philip D. Moyer
|
|
|
2007
|
|
|
$
|
237,291
|
|
|
$
|
|
|
|
$
|
944,500
|
(2)
|
|
$
|
|
|
|
$
|
38,770
|
(6)
|
|
$
|
1,220,561
|
|
President and Chief Executive Officer
|
|
|
2008
|
|
|
$
|
335,000
|
|
|
$
|
50,000
|
(4)
|
|
$
|
|
|
|
$
|
220,500
|
|
|
$
|
53,716
|
(6)
|
|
$
|
659,216
|
|
|
|
2009
|
|
|
$
|
297,180
|
|
|
$
|
79,500
|
(5)
|
|
$
|
101,000
|
(2)
|
|
$
|
67,000
|
|
|
$
|
49,490
|
(6)
|
|
$
|
594,170
|
|
|
|
|
|
|
|
|
|
John C. Ferrara
|
|
|
2007
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Chief Financial Officer
|
|
|
2008
|
|
|
$
|
187,500
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
141,400
|
|
|
$
|
5,625
|
(3)
|
|
$
|
334,525
|
|
|
|
2009
|
|
|
$
|
235,417
|
|
|
$
|
45,500
|
|
|
$
|
50,500
|
(2)
|
|
$
|
33,500
|
|
|
$
|
1,813
|
(3)
|
|
$
|
366,730
|
|
|
|
|
|
|
|
|
|
Stefan Chopin
|
|
|
2007
|
|
|
$
|
275,333
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
24,750
|
(7)
|
|
$
|
300,083
|
|
Chief Technology Officer
|
|
|
2008
|
|
|
$
|
292,000
|
|
|
$
|
25,000
|
(4)
|
|
$
|
25,920
|
(2)
|
|
$
|
36,300
|
|
|
$
|
24,900
|
(7)
|
|
$
|
404,120
|
|
|
|
2009
|
|
|
$
|
277,400
|
|
|
$
|
23,500
|
(5)
|
|
$
|
30,300
|
(2)
|
|
$
|
19,600
|
|
|
$
|
11,190
|
(7)
|
|
$
|
361,990
|
|
|
|
|
|
|
|
|
|
Sue Bratone Childs
|
|
|
2007
|
|
|
$
|
200,000
|
|
|
$
|
|
|
|
$
|
308,000
|
(2)
|
|
$
|
120,500
|
|
|
$
|
6,000
|
(3)
|
|
$
|
634,500
|
|
Executive Vice President, Marketing and Business Development
|
|
|
2008
|
|
|
$
|
250,000
|
|
|
$
|
12,000
|
(4)
|
|
$
|
|
|
|
$
|
24,200
|
|
|
$
|
6,900
|
(3)
|
|
$
|
293,100
|
|
|
|
2009
|
|
|
$
|
237,500
|
|
|
$
|
23,000
|
(5)
|
|
$
|
10,100
|
(2)
|
|
$
|
6,700
|
|
|
$
|
1,875
|
(3)
|
|
$
|
279,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1)
|
The amounts shown represent the grant date fair value of the options awarded during the calendar year. See Note 2(l), Stock-Based Compensation to our
audited financial statements in our Form 10-K for the year ended December 31, 2009 for the assumptions used in such calculations.
|
(2)
|
The amounts shown represent the grant date fair value of the restricted shares (and in the case of Mr. Moyer, shares issued in 2009 without restriction) awarded
during the calendar year. See Note 2(l), Stock-Based Compensation to our audited financial statements in our Form 10-K for the year ended December 31, 2009 for the assumptions used in such calculations.
|
(3)
|
The amounts shown represent, for the Named Executive Officers, matching contributions made by the Company to each of the Named Executive Officers pursuant to the
Companys 401(k) Savings Plan. The amount attributable to each such perquisite or benefit for each Named Executive Officer does not exceed the greater of $25,000 or 10% of the total amount of perquisites received by such Named Executive
Officer.
|
(4)
|
The amounts shown represent amounts paid in 2008 related to bonuses accrued in 2007.
|
91
(5)
|
The amounts shown represent amounts paid in 2009 related to bonuses accrued in 2008. In 2010, certain of the Named Executive Officers received bonuses accrued in 2009.
Mr. Moyer, Mr. Chopin and Ms. Childs received $110,000, $40,000 and $30,000, respectively.
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(6)
|
The amounts shown represent, for the Named Executive Officer: (i) matching contributions made by the Company to the Named Executive Officer pursuant to the
Companys 401(k) Savings Plan of $6,750, $6,900 and $2,407 for 2007, 2008 and 2009, respectively; and (ii) rent expense relating to a Company provided apartment in New York City of $32,020, $46,816 and $47,083 for 2007, 2008 and 2009,
respectively, in accordance with the Companys determination that such amounts are appropriately characterized as a perquisite and thus shown as compensation under All Other Compensation.
|
(7)
|
The amounts shown represent, for the Named Executive Officer: (i) a commutation allowance; and (ii) matching contributions made by the Company to the Named
Executive Officer pursuant to the Companys 401(k) Savings Plan. The amount attributable to each such perquisite or benefit for the Named Executive Officer does not exceed the greater of $25,000 or 10% of the total amount of perquisites
received by the Named Executive Officer.
|
Grants of Plan Based Awards
The following table provides information regarding equity awards granted to our Named Executive Officers in 2009.
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|
Name
|
|
Grant Date
|
|
|
All Other
Stock
Awards:
Shares of Stock
or Units
(#)
|
|
|
All Other Option Awards:
Number of Securities
Underlying Options (#)
|
|
|
Exercise or Base Price of
Stock or Option
Awards (1)
|
|
|
Grant Date
Fair
Value of
Stock and
Option Awards
|
|
Philip D. Moyer
|
|
|
2/2/09
|
|
|
|
|
|
|
|
100,000
|
|
|
$
|
1.01
|
|
|
$
|
67,000
|
(2)
|
|
|
|
2/2/09
|
|
|
|
100,000
|
|
|
|
|
|
|
$
|
1.01
|
|
|
$
|
101,000
|
(3)
|
|
|
|
|
|
|
John C. Ferrara
|
|
|
2/2/09
|
|
|
|
|
|
|
|
50,000
|
|
|
$
|
1.01
|
|
|
$
|
33,500
|
(2)
|
|
|
|
2/2/09
|
|
|
|
50,000
|
|
|
|
|
|
|
$
|
1.01
|
|
|
$
|
50,500
|
(3)
|
|
|
|
|
|
|
Stefan Chopin
|
|
|
2/2/09
|
|
|
|
|
|
|
|
25,000
|
|
|
$
|
1.01
|
|
|
$
|
16,750
|
(2)
|
|
|
|
2/2/09
|
|
|
|
30,000
|
|
|
|
|
|
|
$
|
1.01
|
|
|
$
|
30,300
|
(3)
|
|
|
|
3/16/09
|
|
|
|
|
|
|
|
5,000
|
|
|
$
|
0.86
|
|
|
$
|
2,850
|
(2)
|
|
|
|
|
|
|
Sue Bratone Childs
|
|
|
2/2/09
|
|
|
|
|
|
|
|
10,000
|
|
|
$
|
1.01
|
|
|
$
|
6,700
|
(2)
|
|
|
|
2/2/09
|
|
|
|
10,000
|
|
|
|
|
|
|
$
|
1.01
|
|
|
$
|
10,100
|
(3)
|
(1)
|
The amounts shown represent the closing market value of our Common Stock on the date of grant.
|
(2)
|
The amounts shown represent the total FASB ASC Topic 718(previously SFAS 123(R) Share Based Payments) grant date fair value of the options awarded to the
Named Executive Officer. This expense is being recognized over the three-year vesting terms of the options. See Note 2(1), Stock-Based Compensation to our audited financial statements in our Form 10-K for the year ended December 31,
2009 for the assumptions used in such calculations.
|
(3)
|
The amount shown represent the total grant date fair value determined by the closing market value of our Common Stock on the date of grant of the restricted shares
awarded to the Named Executive Officer. These restricted shares vested immediately. Therefore, this expense was recorded in 2009.
|
92
Outstanding Equity Awards at Fiscal
Year-End
The following table provides information on the exercise and holdings of previously awarded equity grants
outstanding as of December 31, 2009.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Option
Exercise
Price ($)
|
|
|
Option
Expiration
Date
|
|
|
Share Awards
|
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
|
Number
of
Securities
Underlying
Unexercised
Options (#)
Unexercisable (1)
|
|
|
|
|
Number of
Shares
or
Units of
Stock that
Have
Not
Vested (#)
|
|
|
Market Value
of Shares
or
Units of
Stock that
Have
Not
Vested (2)
|
|
Philip D. Moyer
|
|
|
16,667
|
|
|
|
33,333
|
|
|
$
|
2.88
|
|
|
|
1/16/18
|
|
|
|
|
|
|
|
|
|
|
|
|
33,334
|
|
|
|
66,666
|
|
|
$
|
1.76
|
|
|
|
6/23/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
$
|
1.01
|
|
|
|
2/2/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,476
|
(3)
|
|
$
|
135,714
|
|
|
|
|
|
|
|
|
John C. Ferrara
|
|
|
16,667
|
|
|
|
33,333
|
|
|
$
|
2.69
|
|
|
|
3/3/18
|
|
|
|
|
|
|
|
|
|
|
|
|
13,334
|
|
|
|
26,666
|
|
|
$
|
1.76
|
|
|
|
6/23/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
$
|
1.01
|
|
|
|
2/2/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stefan Chopin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,500
|
(4)
|
|
$
|
6,750
|
|
|
|
|
33,333
|
|
|
|
|
|
|
$
|
1.72
|
|
|
|
2/18/14
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
$
|
0.95
|
|
|
|
6/17/14
|
|
|
|
|
|
|
|
|
|
|
|
|
33,333
|
|
|
|
|
|
|
$
|
1.32
|
|
|
|
1/31/15
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
$
|
1.92
|
|
|
|
1/11/16
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
$
|
3.01
|
|
|
|
2/8/16
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
20,000
|
|
|
$
|
1.76
|
|
|
|
6/23/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
$
|
1.01
|
|
|
|
2/2/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
$
|
0.86
|
|
|
|
3/16/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sue Bratone Childs
|
|
|
15,000
|
|
|
|
|
|
|
$
|
1.25
|
|
|
|
10/29/14
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
$
|
1.32
|
|
|
|
1/31/15
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
$
|
1.92
|
|
|
|
1/11/06
|
|
|
|
|
|
|
|
|
|
|
|
|
33,333
|
|
|
|
16,667
|
|
|
$
|
3.08
|
|
|
|
2/5/17
|
|
|
|
|
|
|
|
|
|
|
|
|
6,667
|
|
|
|
13,333
|
|
|
$
|
1.76
|
|
|
|
6/23/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
1.01
|
|
|
|
2/2/19
|
|
|
|
|
|
|
|
|
|
(1)
|
All options vest at a rate of 33
1
/3% per year over the first three years of the ten-year option term.
|
(2)
|
Amount calculated based on $1.50, the closing price of our Common Stock on December 31, 2009.
|
(3)
|
Mr. Moyers restricted stock vesting schedule is as follows: (i) 83,333 shares vested after six months of service on 10/16/2007 with the remaining
166,667 shares vesting in seven equal six-monthly installments of 23,810 from 4/16/08 through 4/16/2011; (ii) 29,528 upon grant on 10/16/2007; and (iii) 16,667 shares vested six months after the grant on 1/31/2008 with the remaining 33,333
shares vesting in seven equal six- monthly installments of 4,762 from 7/31/2008 through 7/31/2011.
|
(4)
|
Mr. Chopins grant of 9,000 shares of restricted stock vests at a rate of 50% per year over the two-year period beginning January 16, 2008.
|
93
Option Exercises and Stock Vested
The following table shows information for 2009 regarding the exercise of stock options and vesting of restricted stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
Name
|
|
Number of
Shares
Acquired on
Exercise (#)
|
|
|
Value
Realized on
Exercise
|
|
|
Number of
Shares
Acquired on
Vesting (#)
|
|
|
Value
Realized on
Vesting (1)
|
|
Philip D. Moyer
|
|
|
|
|
|
$
|
|
|
|
|
157,143
|
|
|
$
|
171,809
|
|
John C. Ferrara
|
|
|
|
|
|
$
|
|
|
|
|
50,000
|
|
|
$
|
50,500
|
|
Stefan Chopin
|
|
|
|
|
|
$
|
|
|
|
|
34,500
|
|
|
$
|
35,655
|
|
Sue Bratone Childs
|
|
|
|
|
|
$
|
|
|
|
|
60,000
|
|
|
$
|
97,600
|
|
(1)
|
Amount represents the market price of our Common Stock on the day of vesting.
|
Employment Agreements and Arrangements; Potential Payments upon Termination or Change of Control
The following is a summary of the terms of each of our Named Executive Officers employment agreements. Where applicable, the tables below reflect the amount of compensation payable to each of the
Named Executive Officers in the event of termination of such executives employment. The amount of compensation payable to each Named Executive Officer upon termination for cause, termination in the event of death or disability,
involuntary not-for-cause termination, termination for good reason, and termination following a change of control is shown below.
Philip D. Moyer
Mr. Moyer resigned from his officer positions
and as a member of the Board, effective September 30, 2010. The discussion following this paragraph describes the arrangements with him prior to his resignation. In connection with his resignation, Mr. Moyer and we entered into an
agreement pursuant to which he will provide consulting and advisory services to us for a period of six months following his resignation as an independent contractor, for which he will receive $16,500 per month. The agreement also contained customary
non-compete and confidentiality provisions as well as mutual releases, and indicated that Mr. Moyer will not receive any severance benefits in connection with his resignation.
On April 9, 2007 we entered into an employment agreement with Philip D. Moyer to serve as our President and on July 30, 2007 he
became Chief Executive Officer. On December 10, 2008, we amended Mr. Moyers employment agreement to allow Mr. Moyers stock options and restricted stock grants, upon certain events which terminate his Agreement, including
death and disability, to immediately vest and remain exercisable for the period of the lesser of the original term of the stock option or five years.
Mr. Moyers Agreement provides that if the Company terminates him for cause he will only be entitled to his earned but unpaid base salary, bonus and benefits. Cause under
Mr. Moyers Agreement, means: (a) the substantial and repeated failure of Mr. Moyer to perform his duties and responsibilities; (b) the conviction of, or plea of guilty or nolo contendere to a felony, or other crime
involving moral turpitude or the commission of any other act or omission involving dishonesty or fraud that is injurious to the Company or any of its subsidiaries or any of its or their respective customers or suppliers; (c) the use of illegal
drugs (whether or not at the workplace); (d) any act or omission aiding or abetting a competitor, supplier or customer of the Company or any of its subsidiaries to the material disadvantage or detriment of the Company and its subsidiaries; or
(e) gross negligence or willful misconduct with respect to the Company or any of its subsidiaries, after the exhaustion of all available appeals, or the violation by Mr. Moyer of the representations made by him of the covenants in the
Agreement including with respect to the use and disclosure of the Companys trade secrets and confidential information or the obligation not to compete with the Company or to solicit employees, customers or suppliers of the Company.
94
Mr. Moyers
compensation pursuant to the Agreement includes an annual base salary of $335,000, bonus incentives of up to 75% of such salary based on the achievement of certain financial objectives specified in the Agreement, a one-time grant of 50,000
restricted shares of Common Stock and a $75,000 bonus upon his assuming the role of Chief Executive Officer. In addition to salary and bonus compensation, Mr. Moyer received 250,000 restricted shares of Common Stock with one-third of the
restricted stock vesting after the first six months of employment and the remaining stock vesting at the end of each successive six-month period in seven equal installments. Mr. Moyers employment continues until terminated and contains
customary termination provisions for disability, death and cause, as modified on December 10, 2008 as described above. During the first year, either party was entitled to terminate the Agreement without cause upon thirty days written notice. If
such termination had occurred during the first six months of employment, Mr. Moyer would have received three months base salary severance pay, any earned bonus and three months acceleration of the unvested portion of his restricted stock award.
If such termination had occurred after six months of employment but prior to the one year anniversary of employment, Mr. Moyer would have received six months base salary severance pay, any earned bonus and six months acceleration of the
unvested portion of his restricted stock award.
Mr. Moyer is entitled to terminate the Agreement for good
reason in the event of a material change in his compensation or duties, a material breach of the Agreement by the Company or a change of control of the Company with which he disagrees. If such termination for good reason had occurred during
the first six months of employment, Mr. Moyer would have received six months base salary severance pay and any earned bonus, plus six months acceleration of the unvested portion of his restricted stock award. If such termination had
occurred after six months of employment but prior to the one year anniversary of the Agreement, Mr. Moyer would have received twelve months base salary severance pay and any earned bonus, plus twelve months acceleration of the unvested portion
of his restricted stock award. If such termination occurs now or in the future, Mr. Moyer shall be entitled to receive twelve months base salary severance pay, any earned bonus, 24 months acceleration of the unvested portion of his restricted
stock award and the immediately vesting of all outstanding stock grants and options which shall remain exercisable for the period of the lesser of the original term of the stock option or five years.
For purposes of Mr. Moyers Agreement, Change of Control means: (a) any consolidation or merger of the Company
pursuant to which a majority of the outstanding voting securities of the surviving or resulting company are not owned collectively by the holders of the Companys outstanding voting securities as of the date of the transaction (the
Current Control Group); (b) any sale, lease, exchange or other transfer of all, or substantially all, of the assets of the Company other than any sale, lease, exchange or other transfer to any company where the Company owns,
directly or indirectly, 100% of the outstanding voting securities of such company after any such transfer; (c) any person, other than the Current Control Group, acquiring or becoming the beneficial owner of a majority or more of outstanding
voting securities of the Company; (d) commencement by any entity, person, or group of a tender offer or exchange offer where the offeror acquires a majority of the then outstanding voting securities of the Company; (e) in the event of a
vote of the stockholders to elect directors of the Company, the vote by a majority of stockholders present at the meeting in favor of candidates other than those nominated by the Companys then existing Board of Directors; or (f) when,
during any period of 24 consecutive months, the individuals who, at the beginning of such period, constitute the Companys Board of Directors (the Incumbent Directors) cease for any reason other than death to constitute at least a
majority thereof; provided, however, that a director who was not a director at the beginning of such 24 month period shall be deemed to have satisfied such 24 month requirement (and be an Incumbent Director) if such director was elected by, or on
the recommendation of or with the approval of, at least two-thirds (2/3) a majority of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24 month period) or through the
operation of this proviso.
Good Reason means: (a) the occurrence, without Mr. Moyers consent, of
a change of control; (b) a material breach of the terms of the Agreement by the Company if such breach is not cured within 15 business days after Mr. Moyer provides notice of such breach; (c) an involuntary change in
Mr. Moyers status or position with the Company which constitutes a demotion from Mr. Moyers then current responsibilities and scope of
95
powers, authority or duties inherent in such position; (d) a reduction by the Company in Mr. Moyers base salary (unless all executive officers of the Company also have their
salaries reduced in an equivalent percentage as part of an overall Company cost cutting plan) or material change in Mr. Moyers bonus structure; or (e) the Companys requiring Mr. Moyer to maintain his primary location of
employment at a location more than 125 miles from Wayne, Pennsylvania.
The following chart details the severance benefits
that would be received by Mr. Moyer according to his contract if the severance event occurred on December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Benefits and
Payments (1)
|
|
Termination
for cause
on
December 31,
2009
|
|
|
Death on
December 31,
2009
|
|
|
Disability on
December 31,
2009
|
|
|
Not-for-cause
termination
on
December 31,
2009
|
|
|
Termination
for good
reason on
December 31,
2009
|
|
|
Change of
Control on
December 31,
2009
|
|
|
Non-Renewal
on
December
31,
2009
|
|
Restricted Stock
|
|
|
|
|
|
$
|
135,714
|
(2)
|
|
$
|
135,714
|
(2)
|
|
$
|
135,714
|
(2)
|
|
$
|
135,714
|
(2)
|
|
$
|
135,714
|
(2)
|
|
|
|
|
Stock Options
|
|
|
|
|
|
|
49,000
|
(3)
|
|
|
49,000
|
(3)
|
|
|
49,000
|
(3)
|
|
|
49,000
|
(3)
|
|
|
49,000
|
(3)
|
|
|
|
|
Cash Severance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
445,000
|
(4)
|
|
$
|
445,000
|
(4)
|
|
$
|
445,000
|
(4)
|
|
|
|
|
(1)
|
Assumes no additional payments of accrued salary or discretionary bonus due to payments made in full to Mr. Moyer prior to December 31, 2009 in accordance
with normal payroll procedures.
|
(2)
|
Assumes vesting of all unvested restricted stock grants at $1.50, the closing price of our Common Stock on December 31, 2009.
|
(3)
|
Assumes immediate vesting of all options as well as the exercise of options with an exercise price exceeding $1.50 per share, the closing price of our Common Stock on
December 31, 2009.
|
(4)
|
Amount payable in one lump sum payment unless Mr. Moyer elects in writing to receive pro-rata bi-monthly payments over twelve months following termination.
|
John C. Ferrara
On February 29, 2008, we entered into an employment agreement with John C. Ferrara to serve as our Chief Financial Officer. On March 31, 2010, we signed a separation of employment and general
release agreement with Mr. Ferrara. Per this agreement, Mr. Ferrara will receive a gross total of $187,500 over 10 months through our regularly scheduled payroll. In addition, the Company will provide Mr. Ferrara with health and
dental benefits totaling $10,150 during this period. At the separation date, options to purchase 50,000 shares of our common stock immediately vested. After these options vested, Mr. Ferrara had outstanding options to purchase 113,334 shares of
our common stock which are exercisable over the shorter of five years after the separation date, or the original life of the options. The value of these outstanding options, based on the closing price of our common stock at March 31, 2010, was
$43,900.
Ronald P. Fetzer
On April 12, 2010, we entered into a consulting agreement with Ronald P. Fetzer to serve as our Interim Chief Financial Officer. Mr. Fetzers compensation for his services is $3,850 per
week plus reimbursement of reasonable business expenses. Mr. Fetzer can be terminated by any time without cause by the Company upon ten (10) days notice. Mr. Fetzer agreed to standard confidentiality, work-for-hire, and
non-solicitation restrictions pursuant to the Agreement. On July 6, 2010 we hired David J. Price as our Chief Financial Officer.
Diana Bourke
On March 24, 2010, Ms. Diana Bourke was
appointed to serve as our Chief Operations Officer at an annual base salary of $250,000. Ms. Bourke does not have an employment agreement with the Company.
96
Stefan Chopin
On March 13, 2008, we entered into an employment agreement with Mr. Chopin. The Agreement provides that the
Company will have cause to terminate Mr. Chopin if (a) he fails to substantially perform his job related duties, (b) he engages in criminal acts (e.g., embezzlement or fraud) or unprofessional conduct which is injurious to the
Company, (c) he is convicted or pleads guilty to a felony or misdemeanor involving theft, larceny, or moral turpitude; or (d) he is grossly negligent in the performance of his duties. If Mr. Chopin is terminated for cause he will only
be entitled to his earned but unpaid base salary, bonus and benefits up to his date of termination. On January 25, 2010, we amended Mr. Chopins agreement making him eligible to receive an additional $10,000 in bonus opportunity based
on his 2009 annual performance in exchange for additional non-solicit and non-competition provisions.
Under the terms of
Mr. Chopins Agreement, Mr. Chopin will receive a minimum annual salary of $250,000 and a discretionary annual bonus. In the event his employment is terminated without cause by the Company, he shall receive 12 months salary from the
last date of employment. In the event of a change of control or if Mr. Chopins employment is terminated without cause by the Company, his stock options and other awards shall immediately vest and remain exercisable by him for
the lesser of the original term of the stock option grant or award or five years. A change of control means: (a) the acquisition of fifty percent (50%) or more of the Companys outstanding Common Stock or voting
securities; (b) the sale of all or substantially all of the Companys assets which is approved by the Companys stockholders; or (c) the reorganization, merger or consolidation of the Company into another entity, approved by the
Companys stockholders. The Agreement also contains a standard confidentiality and twelve month non-solicitation and non-competition provisions which are further defined in the amendment dated January 25, 2010.
The following chart details the severance benefits that would be received by Mr. Chopin according to his contract if the severance
event occurred on December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Benefits and
Payments (1)
|
|
Termination
for
cause on
December 31,
2009
|
|
|
Death on
December 31,
2009
|
|
|
Disability on
December 31,
2009
|
|
|
Termination
without
cause on
December 31,
2009
|
|
|
Change of
Control on
December 31,
2009
|
|
|
Non-Renewal
on
December 31,
2009
|
|
Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,750
|
(2)
|
|
$
|
6,750
|
(2)
|
|
|
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,825
|
(3)
|
|
$
|
22,825
|
(3)
|
|
|
|
|
Cash Severance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
292,000
|
(4)
|
|
|
|
|
|
|
|
|
(1)
|
Assumes no additional payments of accrued salary or discretionary bonus due to payments made in full to Mr. Chopin prior to December 31, 2009, in accordance
with normal payroll procedures.
|
(2)
|
Assumes vesting of all unvested restricted stock grants at $1.50, the closing price of our Common Stock on December 31, 2009.
|
(3)
|
Assumes immediate vesting of all options as well as the exercise of options with an exercise price exceeding $1.50 per share, the closing price of our Common Stock on
December 31, 2009.
|
(4)
|
Amount payable in pro-rata bi-monthly payments over 12 months following termination.
|
Sue Bratone Childs
On May 15, 2007 we entered into an employment agreement with Ms. Childs. This Agreement provides that in the event the Company terminates her employment for any reason other than for cause or
there is a change of control of the Company and Ms. Childs employment is terminated (excluding a termination for cause) within one year of this change of control, we will provide Ms. Childs with severance equal to the sum of her base
salary and the average of any bonus paid to her during the two prior years. A change of control is not defined in Ms. Childs Agreement.
97
The following chart
details the severance benefits that would be received by Ms. Childs according to her contract if the severance event occurred on December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Benefits and
Payments (1)
|
|
Termination
for cause on
December 31,
2009
|
|
|
Death on
December 31,
2009
|
|
|
Disability on
December 31,
2009
|
|
|
Termination
without cause
on
December 31,
2009
|
|
|
Change of
Control on
December 31,
2009
|
|
|
Non-Renewal on
December 31,
2009
|
|
Cash Severance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
267,500
|
|
|
$
|
267,500
|
|
|
$
|
|
|
(1)
|
Assumes no additional payments of accrued salary or discretionary bonus due to payments made in full to Ms. Childs prior to December 31, 2009 in accordance
with normal payroll procedures.
|
Ms. Childs resigned from the Company effective June 30, 2010.
David Price
On June 25, 2010 we entered into an employment agreement with Mr. Price. Mr. Prices compensation, set forth in the employment agreement, includes an annual base salary of at least
$250,000, a $125,000 bonus opportunity based on his annual performance in the first year of his employment, a one time $40,000 signing bonus payable across six (6) months, and reimbursement of up to $60,000 in relocation expenses.
Mr. Price will also receive 675,000 restricted shares of the Companys common stock on July 6, 2010, as an inducement grant under the NASDAQ rules and not under the Companys 2005 Stock Award and Incentive Plan, as amended. The
restricted shares will vest in equal installments on the first three anniversaries of such date. The employment agreement contains customary provisions for termination For Cause. In addition, the Company may terminate Mr. Prices
employment without Cause (as defined in the employment agreement) and Mr. Price may resign his employment for Good Reason (as defined in the employment agreement). In the case of a termination without Cause or a resignation for Good Reason,
Mr. Price will be entitled to receive six (6) months base salary as severance pay, a prorated share of his bonus during such period and the continued vesting of all stock options and restricted stock awards that are not performance based
according to their predefined schedule (in an amount equivalent to six (6) months of monthly vesting) over the six (6) month period following the date of such termination which will then remain exercisable for the remainder of the term of
such stock option. In the event of a Change of Control of the Company (as defined in the employment agreement), Mr. Prices stock options and other stock awards immediately vest and remain exercisable for the remainder of the original term
of each stock option. In addition, in the event of a Change of Control of the Company in connection with which Mr. Prices employment is terminated without Cause or he resigns for Good Reason, Mr. Price shall receive six
(6) months base salary. Mr. Price is required, pursuant to the employment agreement, to deliver to the Company a general release of liability prior to receiving any payments or benefits to which his entitled under the employment agreement
(other than earned but unpaid base salary, bonus and benefits). The employment agreement also contains restrictive confidentiality, non-disclosure and inventions assignment obligations. Mr. Price is also subject to a non-solicitation and
non-compete covenant for a period of six (6) months following the termination of Mr. Prices employment for any reason.
98
DIRECTOR COMPENSATION
The Company uses a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on the Board of Directors. In setting director compensation, the Company
considers the significant amount of time that directors expend in fulfilling their duties to the Company, as well as the skill-level required by the Company of members of the Board of Directors.
Cash Compensation Paid to Board Members
For 2009, members of the Board who are not employees of the Company are entitled to receive an annual cash retainer of $10,000. Directors are also eligible to receive $5,000 per year for serving on each
of the Audit Committee and the Compensation Committee. The Chairman of the Audit Committee and the Chairman of the Compensation Committee are also eligible to receive additional compensation $7,500 and $2,500, respectively. The Chairman of the
Boards compensation was set at $50,000 per year and he was also granted 38,462 shares of restricted stock which vest in three equal installments over three years. Directors who are employees of the Company receive no compensation for their
service as directors. Cash compensation is paid to members of the Board on a semi-annual basis.
In 2009, the Company
requested, in an effort to preserve the financial resources of that Company, that members of the Board receive their compensation for service for the period of January 1, 2009 through June 30, 2009 in stock options rather than cash
compensation. Messrs. Feinstein, Maged and ONeill all agreed to receive their compensation for such period in stock options based on the grant date fair value of the options and Mr. Mellinger and Ms. DeMarse elected to defer their
compensation initially, but have since received it.
Stock Options
Directors are currently eligible to receive stock options every three years under the 2005 Plan, which replaced the 1996 Stock Option Plan
(the 1996 Plan), the 1999 Stock Option Plan (the 1999 Plan) and the 1999 Outside Directors Stock Option Plan (the 1999 Directors Plan). Each new non-employee director is granted, at the time of his or her
appointment and on each third anniversary thereafter, a nonstatutory option to purchase 15,000 shares of Common Stock. The exercise price of each of these options is equal to the fair market value of Common Stock on the date of grant. These options
vest equally over a three-year period. The table below summarizes the options and restricted stock granted to directors for the year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Grant
Date
|
|
|
All Other Option Awards:
Number of Securities
Underlying Options (#)
|
|
|
Number of
Securities
Underlying
Restricted
Stock
Grants (#)
|
|
|
Exercise or Base Price
of Awards (1)
|
|
|
Grant Date
Fair Value
|
|
Mark Maged
|
|
|
7/17/09
|
|
|
|
29,850
|
|
|
|
|
|
|
$
|
1.35
|
|
|
$
|
25,000
|
(2)
|
|
|
|
8/3/09
|
|
|
|
|
|
|
|
33,784
|
|
|
$
|
1.48
|
|
|
$
|
50,000
|
(3)
|
|
|
|
8/20/09
|
|
|
|
|
|
|
|
4,678
|
|
|
$
|
1.95
|
|
|
$
|
9,122
|
(3)
|
|
|
|
|
|
|
Richard Feinstein
|
|
|
7/17/09
|
|
|
|
13,440
|
|
|
|
|
|
|
$
|
1.35
|
|
|
$
|
11,250
|
(2)
|
|
|
|
|
|
|
William J. ONeill, Jr.
|
|
|
7/17/09
|
|
|
|
13,440
|
|
|
|
|
|
|
$
|
1.35
|
|
|
$
|
11,250
|
(2)
|
(1)
|
The amounts shown represent the closing market value of our Common Stock on the date of grant.
|
(2)
|
The amounts shown represent the grant date fair value of the options awarded to the Director based on the cash value of services rendered. This expense was recognized
entirely in 2009 as the options vested immediately.
|
(3)
|
The amounts shown represent the total grant date fair value determined by the closing market value of our Common Stock on the date of grant of the restricted shares
awarded to the Director. This expense is being recognized over a three-year vesting term.
|
99
Director Summary Compensation Table
The table below summarizes the compensation paid by the Company to non-employee directors for the year ended
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name (1)
|
|
Fees
Earned or
Paid in
Cash ($)
|
|
|
Stock
Awards
($) (2)
|
|
|
Option
Awards
($) (3)
|
|
|
Non-Equity
Incentive Plan
Compensation ($)
|
|
|
Change
in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
|
|
|
All Other
Compensation ($)
|
|
|
Total ($)
|
|
Mark Maged, Chairman
|
|
$
|
25,000
|
|
|
$
|
59,122
|
|
|
$
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
109,122
|
|
Elisabeth DeMarse
|
|
$
|
18,333
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,333
|
|
Richard L. Feinstein
|
|
$
|
11,250
|
|
|
|
|
|
|
$
|
11,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,500
|
|
Douglas K. Mellinger
|
|
$
|
15,000
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,000
|
|
John Mutch
|
|
$
|
5,000
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,000
|
|
William J. ONeill, Jr.
|
|
$
|
11,250
|
|
|
|
|
|
|
$
|
11,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,500
|
|
(1)
|
Philip D. Moyer, the Companys former President and Chief Executive Officer, is not included in this table as he received no compensation for his services as a
director. The compensation he receives is shown in the Summary Compensation Table.
|
(2)
|
The amounts shown represent the grant date fair value of the restricted shares awarded during the calendar year. See Note 2(l), Stock-Based Compensation to
our audited financial statements in our Form 10-K for the year ended December 31, 2009 for the assumptions used in such calculations.
|
(3)
|
The amounts shown represent the grant date fair value of the options awarded during the calendar year. See Note 2(l), Stock-Based Compensation to our
audited financial statements in our Form 10-K for the year ended December 31, 2009 for the assumptions used in such calculations.
|
Compensation Committee Interlocks and Insider Participation
No
interlocking relationships exist between any members of the Board of Directors or the Compensation Committee and the board of directors or compensation committee of any other company, nor has any such interlocking relationship existed in the past.
CODE OF ETHICS
We have adopted a written Code of Ethics (the Code of Ethics) that applies to our Chief Executive Officer and senior financial officers and a written Code of Conduct (the Code of
Conduct) that applies to all our directors, officers and employees.
A copy of the Code of Ethics and the Code of
Conduct is available on our web site at
www.edgar-online.com
and print copies are available to any stockholder that requests a copy. Any amendment to the Code of Ethics or the Code of Conduct or any waiver of the Code of Ethics or the Code of
Conduct will be disclosed on our web site promptly following the date of such amendment or waiver.
100
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information regarding the beneficial ownership of our Common Stock as of October 11, 2010
by:
|
|
|
each person, or group of affiliated persons, known by us to be the beneficial owner of more than 5% of our outstanding Common Stock;
|
|
|
|
each of our directors and nominees for director;
|
|
|
|
each of the Named Executive Officers; and
|
|
|
|
all of our directors, nominees for director and executive officers as a group.
|
Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all of our Common Stock
owned by them.
|
|
|
|
|
|
|
|
|
Name of Beneficial Owner
|
|
Number of
Shares (1)
|
|
|
Percent
of Shares
Owned
|
|
Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
Philip D. Moyer (2)
|
|
|
655,720
|
|
|
|
2.4
|
%
|
Stefan Chopin (3)
|
|
|
598,963
|
|
|
|
2.2
|
%
|
Ronald P. Fetzer
|
|
|
|
|
|
|
*
|
|
Diana Bourke
|
|
|
|
|
|
|
*
|
|
Alfred R. Berkeley, III
|
|
|
|
|
|
|
*
|
|
John M. Connolly
|
|
|
|
|
|
|
*
|
|
Elizabeth DeMarse (4)
|
|
|
55,000
|
|
|
|
*
|
|
Richard L. Feinstein (5)
|
|
|
71,773
|
|
|
|
*
|
|
Mark Maged (6)
|
|
|
222,730
|
|
|
|
*
|
|
Douglas K. Mellinger (7)
|
|
|
35,000
|
|
|
|
*
|
|
William J. ONeill, Jr. (8)
|
|
|
48,440
|
|
|
|
*
|
|
David Price
|
|
|
|
|
|
|
*
|
|
Jeffrey Schwartz
|
|
|
|
|
|
|
*
|
|
John Ferrara (9)
|
|
|
213,334
|
|
|
|
*
|
|
Sue Childs
|
|
|
87,750
|
|
|
|
*
|
|
All executive officers, directors and nominees for director as a group (15 persons)
|
|
|
1,988,710
|
|
|
|
7.2
|
%
|
|
|
|
Other 5% Stockholders:
|
|
|
|
|
|
|
|
|
Dawson-Herman Capital Management (10)
|
|
|
2,861,421
|
|
|
|
10.6
|
%
|
354 Pequot Avenue
|
|
|
|
|
|
|
|
|
Southport, CT 06890
|
|
|
|
|
|
|
|
|
|
|
|
Theodore L. Cross (11)
|
|
|
2,036,100
|
|
|
|
7.6
|
%
|
One Cambelton Circle
|
|
|
|
|
|
|
|
|
Princeton, NJ 08540
|
|
|
|
|
|
|
|
|
|
|
|
Susan Strausberg (12)
|
|
|
1,596,500
|
|
|
|
5.9
|
%
|
603 Hurst Creek Road
|
|
|
|
|
|
|
|
|
Austin, TX 78734
|
|
|
|
|
|
|
|
|
|
|
|
Basil P. Regan c/o Regan Partners, L.P. (13)
|
|
|
1,425,202
|
|
|
|
5.3
|
%
|
32 East 57
th
Street, 20
th
Floor
|
|
|
|
|
|
|
|
|
New York, NY 10002
|
|
|
|
|
|
|
|
|
|
|
|
R.L. Renck & Co., Inc (13)
|
|
|
1,411,215
|
|
|
|
5.2
|
%
|
116 West 23rd Street, Suite 500
|
|
|
|
|
|
|
|
|
New York, NY 10011
|
|
|
|
|
|
|
|
|
(1)
|
Shares of Common Stock underlying options currently exercisable or exercisable within 60 days are deemed outstanding for the purpose of computing the percentage
ownership of the person holding such options but are not deemed outstanding for computing the percentage ownership of any other person.
|
101
(2)
|
Includes 133,334 shares issuable upon exercise of options exercisable within 60 days.
|
(3)
|
Includes shares owned jointly with Barbara Chopin, his wife, and 249,167 shares issuable upon exercise of options exercisable within 60 days.
|
(4)
|
Includes 55,000 shares issuable upon exercise of options exercisable within 60 days.
|
(5)
|
Includes 71,773 shares issuable upon exercise of options exercisable within 60 days.
|
(6)
|
Includes 92,350 shares issuable upon exercise of options exercisable and vesting of restricted stock within 60 days. Does not include 39,199 shares of restricted stock
issuable on vesting after 60 days.
|
(7)
|
Includes 35,000 shares issuable upon exercise of options exercisable within 60 days.
|
(8)
|
Includes 48,440 shares issuable upon exercise of options exercisable within 60 days.
|
(9)
|
Includes 113,334 shares issuable upon exercise of options within 60 days.
|
(10)
|
Reflects amount derived from such entitys Schedule 13G, as filed with the SEC on February 16, 2010.
|
(11)
|
Reflects amount derived from such entitys Schedule 13G, as filed with the SEC on February 5, 2010.
|
(12)
|
Reflects amount derived from such entitys Schedule 13G, as filed with the SEC on February 10, 2010.
|
(13)
|
Reflects amount derived from such entitys Schedule 13G, as filed with the SEC on February 11, 2010.
|
The following table sets forth information regarding the beneficial ownership of our Series B Preferred Stock as of October 11, 2010 by
Bain Capital Venture Integral Investors, LLC, which owns 100% of such stock, and has sole voting and investment power with respect to such stock.
|
|
|
|
|
|
|
|
|
Name of Beneficial Owner
|
|
Number of
Shares
|
|
|
Percent of
Shares
Owned
|
|
Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
Jeffrey Schwartz (1)
|
|
|
120,000
|
|
|
|
100
|
%
|
|
|
|
Other 5% Stockholders:
|
|
|
|
|
|
|
|
|
Bain Capital Venture Integral Investors, LLC (2)
|
|
|
120,000
|
|
|
|
100
|
%
|
111 Huntington Avenue
|
|
|
|
|
|
|
|
|
Boston, MA 02199
|
|
|
|
|
|
|
|
|
(1)
|
Mr. Schwartz is a member and Managing Director of Bain Capital Venture Investors, LLC (BCVI). BCVI is the administrative member of Bain Capital Venture
Integral Investors, LLC (BCVII). By virtue of these relationships Mr. Schwartz may be deemed to share voting and dispositive power with the respect to the shares held by BCVII. Mr. Schwartz and BCVI disclaim beneficial
ownership of these securities except to their pecuniary interest therein.
|
(2)
|
Reflects amount derived from such entitys Schedule 13D, as filed with the SEC on February 10, 2010.
|
Including accrued dividends, the holders of our Series B Preferred Stock are entitled to vote 11,784,429 common shares on an as-converted
basis.
Equity Compensation Plans
The following table sets forth information as of December 31, 2009 with respect to compensation plans under which our equity securities are authorized for issuance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Securities To Be
Issued Upon Exercise Of
Outstanding
Options,
Warrants and Rights
|
|
|
Weighted
Average Exercise Price of
Outstanding Options,
Warrants and
Rights
|
|
|
Number Of Securities
Remaining Available For
Future Issuance
|
|
Equity compensation plans approved by stockholders
|
|
|
3,883,048
|
(1)
|
|
$
|
2.17
|
|
|
|
1,428,185
|
(2)
|
Equity compensation plans not approved by stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,883,048
|
(1)
|
|
$
|
2.17
|
|
|
|
1,428,185
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
(1)
|
Includes 27,500 options issued and outstanding in the 1996 Plan with a weighted average exercise price of $1.10 per share, 1,096,216 options issued and outstanding
under the 1999 Plan with a weighted average exercise price of $2.21 per share, 45,000 options issued and outstanding in the 1999 Directors Plan with a weighted average exercise price of $1.59 per share, 2,444,646 shares outstanding under the 2005
Plan with a weighted average exercise price of $2.13 per share, 169,686 unvested shares of restricted stock with a weighted average exercise price of $0.00 and 100,000 warrants with a weighted average exercise price of $2.81 per share.
|
(2)
|
Includes Common Stock available for issuance under the 2005 Plan.
|
Stock Option Plan Information
We previously had three stock option plans:
the 1996 Plan, the 1999 Plan, as amended, and the 1999 Directors Plan. The 1996 Plan provided for the granting of options to purchase up to an aggregate of 800,000 shares of our authorized but unissued Common Stock to our officers, directors,
employees and consultants. The 1999 Plan provided for the granting of options to purchase up to an aggregate of 3,200,000 shares of our authorized but unissued Common Stock to our officers, directors, employees and consultants. The 1999 Directors
Plan provided for the granting of options to purchase up to an aggregate of 100,000 shares of our authorized but unissued Common Stock to outside directors. We also assumed the FreeEDGAR Stock Option Plan (the FreeEDGAR Plan) related to
our acquisition of FreeEDGAR in 1999.
In May 2005, we adopted the 2005 Plan. The 2005 Plan replaced the 1999 Plan, the
FreeEDGAR Plan, the 1996 Plan and the 1999 Directors Plan, so that shares are available for future awards only under the 2005 Plan. The remaining available shares under the 1999 Plan, the FreeEDGAR Plan, the 1996 Plan and the Directors Plan were
made available under the 2005 Plan. In addition, the 2005 Plan made 1,087,500 new shares of our Common Stock available for equity awards. At the Annual Meeting of Stockholders held on June 23, 2008, the 2005 Plan was amended to increase the
number of shares available for grant by 1,000,000. On June 10, 2009, the 2005 Plan was further amended to increase the number of shares available for grant by 1,000,000 and also to make clear that, under such plan, the Company may not reprice
stock options or stock appreciation rights without stockholder approval
The 2005 Plan authorizes a broad range of awards,
including stock options, stock appreciation rights, restricted stock grants, and deferred stock grants. Our executive officers and other employees and our subsidiaries, directors, and non-employee directors, consultants and others who provide
substantial services to us and our subsidiaries, are eligible to be granted awards under the 2005 Plan.
The exercise price
and term of options (including both incentive and non-qualified options) granted under the 2005 Plan are determined by the Compensation Committee or the entire Board of Directors, except that the exercise price of incentive stock options must be at
least as equal to the fair market value of our Common Stock on the date of grant and the option term cannot exceed ten years. In addition, no incentive stock option may be granted to an individual who, at the time the option is granted, owns,
directly or indirectly, stock possessing more than 10% of the total combined voting power of all classes of our Common Stock, unless (1) such option has an exercise price of at least 110% of the fair market value of the Common Stock on the date
of the grant of such option and (2) such option cannot be exercised more than five years after the date it is granted. The 2005 Plan also authorizes the Board of Directors to provide for option vesting to accelerate and become fully vested in
the event of certain significant corporate transactions if the options are not assumed or substituted by a successor corporation.
At June 30, 2010, options to purchase 2,676,380 shares and 52,021 unvested restricted shares were outstanding under the 2005 Plan, options to purchase 977,816 shares were outstanding under the 1999 Plan,
options to purchase 27,500 shares were outstanding under the 1996 Plan and options to purchase 45,000 shares were outstanding under the 1999 Directors Plan. In addition, there are 1,264,851 options available for future grants under the 2005
Plan at June 30, 2010.
103
Related Persons Transactions Policy
The Board of Directors is charged with approving transactions involving our directors, executive officers or any nominees
for director and any stockholder holding more than 5% of our Common Stock and their immediate family members. There were no such transactions during our last fiscal year. The types of transactions covered by this policy are transactions,
arrangements or relationships or any series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) we (including any of our subsidiaries) were, or will be a participant,
(2) the aggregate amount involved exceeds $120,000 in any calendar year, and (3) any related person had, has or will have a direct or indirect interest (other than solely as a result of being a director or holding less than a 10 percent
beneficial ownership interest in another entity), and which is required by the rules and regulations of the SEC to be disclosed in our public filings. The Board of Directors will only approve transactions with related persons when the Board of
Directors determines such transactions are in our best interests or the best interests of our stockholders. In determining whether to approve or ratify a related person transaction, the Board of Directors will apply the following standards and such
other standards it deems appropriate:
|
|
|
whether the related person transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or
similar circumstances;
|
|
|
|
whether the transaction is material to us or the related person;
|
|
|
|
the role the related person has played in arranging the related person transaction;
|
|
|
|
the structure of the related person transaction;
|
|
|
|
the extent of the related persons interest in the transaction; and
|
|
|
|
whether there are alternative sources for the subject matter of the transaction.
|
Indemnification Agreements
We have entered into indemnification agreements with each of our directors and officers. The indemnification agreements and our certificate of incorporation and by-laws require us to indemnify our
directors and officers to the fullest extent permitted by Delaware law.
SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers
and directors, and any person or entity who own more than 10% of a registered class of our Common Stock or other equity securities, to file with the SEC certain reports of ownership and changes in ownership of our securities. Executive officers,
directors and stockholders who hold more than 10% of our outstanding Common Stock are required by the SEC to furnish us with copies of all required forms filed under Section 16(a). We prepare Section 16(a) forms on behalf of our executive
officers and directors (except for Mr. Connolly and Mr. Schwartz who prepare their own filings) based on the information provided by them. Based solely on review of this information, we believe that, during 2009, no reporting person failed
to file the forms required by Section 16(a) of the Securities Exchange Act of 1934 on a timely basis.
Vote Required and Board of
Directors Recommendation
Assuming a quorum is present, the affirmative vote of the holders of a plurality of the
shares present at the annual meeting, voting in person or by proxy, and entitled to vote, is required for the approval of Proposal No. 4. For purposes of this Proposal No. 4, both abstentions and broker non-votes will have no effect on the
result of the vote. Two directors will be elected by the holders of our Series B Stock, voting separately as a class.
104
PROPOSAL NO. 5PROPOSAL TO APPROVE AMENDMENTS TO THE 2005 PLAN TO
INCREASE THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE
FOR AWARD UNDER SUCH PLAN AND TO INCREASE THE LIMITATION ON THE AMOUNT OF AWARDS THAT MAY BE GRANTED TO ANY ONE PARTICIPANT IN A GIVEN YEAR
Stockholders will be asked at the Annual Meeting to vote on a proposal to approve amendments (i) to increase the number of shares of
Common Stock available for award under the 2005 Plan by 5,955,109 shares of Common Stock and (ii) to increase from 300,000 to 1,000,000 the limitation on the amount of awards that may be granted to any one participant in a given year in order
to qualify awards as performance-based compensation not subject to the limitation on deductibility under Section 162(m) of the Internal Revenue Code. The shares are requested to issue grants to new and existing employees, including
the issuance of performance-based grants which align employee performance with the stock and financial success of the Company. The increase in the limitation on the amount of awards that may be granted to any one participant may also result in
grants to existing employees, including our executive officers, that are larger than they would be under the terms of the current 2005 Plan. The affirmative vote of a majority of the shares of Common Stock present in person or by proxy at the Annual
Meeting is required to approve this proposal. A copy of the amendments to the 2005 Plan is attached hereto as Annex C, and a copy of the 2005 Plan itself is attached hereto as Annex D.
The purpose of the 2005 Plan is to attract and retain skilled and qualified officers, employees and directors by providing long-term
incentive compensation opportunities competitive with those made available by other companies, motivate participants to achieve the long-term success and growth of the Company, facilitate ownership of shares of the Company and align the interests of
the participants with those of the Companys stockholders.
The 2005 Plan was approved by the Board of Directors on
May 19, 2005, and approved by the Companys stockholders at the 2005 Annual Meeting of Stockholders. At the Annual Meeting of Stockholders held on June 23, 2008, the number of shares available for grant under the 2005 Plan was
increased by 1,000,000. At the Annual Meeting of Stockholders held on June 10, 2009, the number of shares available for grant under the 2005 Plan was increased by 1,000,000. As of October 11, 2010, there were only 1,684,531 shares of Common
Stock available for future grant under the 2005 Plan.
The Board of Directors believes that equity awards made under the 2005
Plan have been, and continue to be, an important incentive for our officers, employees, and directors. Consequently, we have consistently included equity incentives, in the form of stock options or occasionally restricted stock grants, as a
significant component of compensation for our officers and key employees. The Board of Directors goal is to tie the stockholders interest securely with that of the Companys officers, employees and directors, so that the financial
performance of the Company is directly linked to compensation and recipients of grants pursuant to the 2005 Plan are increasingly motivated to perform at their optimal level.
The Board of Directors believes that the increase in the number of shares available for grant under the 2005 Plan, and the ability to make larger grants to individuals than it could currently make in a
given year under the 2005 Plan if it wanted the grants to qualify as performance-based compensation not subject to the limitation on deductibility under Section 162(m) of the Code, are critical to the successful implementation of
the Companys strategic and operational initiatives over the next several years, as these changes will enable us to provide competitive long-term incentives to the officers and key employees who are responsible for directing and delivering
these initiatives. The Board of Directors further believes that the successful completion of these initiatives are essential to building and sustaining long-term stockholder value.
Further, the approval of the increase in the number of shares available for grant under the 2005 Plan and the ability to make larger
grants to individuals than we could currently make in a given year under the 2005 Plan will enable us to continue to grant stock options and other awards at levels determined appropriate by the Board of Directors as part of our long-term incentive
compensation program. The increases will also provide us with
105
flexibility in designing equity incentives in an environment where a number of companies have moved from traditional stock option grants to other stock-based awards, including SARs, restricted
stock awards, restricted stock unit awards, and performance stock awards. Accordingly, the share reserve increase and annual limit increase will allow us to continue to use equity incentives to secure and retain the services of our officers,
employees, and directors, and to provide long-term incentives that align their interests with those of the Companys stockholders.
General Plan Information
The Board of Directors and the Compensation Committee approved the 2005 Plan to help the Company:
|
|
|
Attract, retain, motivate and reward officers, employees and directors of the Company and its subsidiaries and consultants and advisors to the Company
and its subsidiaries (collectively, Participants);
|
|
|
|
Provide equitable and competitive compensation opportunities; and
|
|
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Promote creation of long-term value for stockholders by closely aligning the interests of Participants with the interests of stockholders.
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The Board of Directors and the Compensation Committee believe that awards linked to Common Stock and awards
with terms tied to Company performance can provide incentives for the achievement of important performance objectives and promote the long-term success of the Company. Therefore, they view the 2005 Plan as a key element of the Companys overall
compensation program.
Overview of 2005 Plan Awards
The 2005 Plan authorizes a broad range of awards, including:
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restricted stock, a grant of actual shares subject to a risk of forfeiture and restrictions on transfer;
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deferred stock, a contractual commitment to deliver shares at a future date, which may or may not be subject to a risk of forfeiture (forfeitable
deferred stock is sometimes called restricted stock units);
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other awards based on Common Stock;
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performance shares or other stock-based performance awards (these include deferred stock or restricted stock awards that may be earned by achieving
specific performance objectives);
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cash-based performance awards tied to achievement of specific performance objectives; and
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shares issuable in lieu of rights to cash compensation.
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Administration
The 2005 Plan is administered by the Compensation Committee
on the basis of a plan year ending on December 31. Each member of the Compensation Committee is a non-employee director within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, an outside
director as set forth in Section 162(m) of the Internal Revenue Code (the Code), and an independent director under The NASDAQ Stock Market Marketplace Rules. The Compensation Committees authority under the
2005 Plan includes, but is not limited to, the authority to: (i) grant awards under the 2005 Plan; (ii) select the officers, employees and eligible directors to whom awards are granted; (iii) determine the types of awards granted and
the timing of such awards; (iv) determine whether an award is, or is intended to be, performance-based compensation within the
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meaning of 162(m) of the Code; (v) determine or modify the terms and conditions of any award, to the extent not inconsistent with the terms of the 2005 Plan and any operative employment or
other agreement; (vi) determine whether any conditions or objectives relating to awards have been met; (vii) adopt, alter and repeal such administrative rules, guidelines, practices and administrative forms governing the 2005 Plan as it
deems advisable; (viii) construe, interpret, administer and implement the terms of the 2005 Plan, any award and related agreements; (ix) correct any defect, supply any omission and reconcile any inconsistency in or between the 2005 Plan,
any award and related agreements; (x) prescribe any legends to be affixed to certificates representing Common Stock or other interests granted or issued under the 2005 Plan; (xi) subsequently modify or waive any terms and conditions of
awards, not inconsistent with the terms of the 2005 Plan and any operative employment or other agreement; (xii) promulgate such administrative forms as they from time to time deem necessary or appropriate for administration of the 2005 Plan;
and (xiii) otherwise supervise the administration of the 2005 Plan securities to be offered.
For more information on the
total number of shares available under the Companys equity compensation plans and subject to outstanding options, warrants and rights as of the end of the last fiscal year, see Equity Compensation Plans above.
Restriction on Repricing and Loans
Consistent with the requirements of Nasdaq, the 2005 Plan includes a restriction providing that, without stockholder approval, the Company will not amend or replace options or SARs previously granted
under the 2005 Plan in a transaction that constitutes a repricing. For this purpose, a repricing is defined as amending the terms of an option or SAR after it is granted to lower its exercise price, any other action that is
treated as a repricing under generally accepted accounting principles, or canceling an option at a time when its strike price is equal to or greater than the fair market value of the underlying stock in exchange for another option, SAR, restricted
stock, or other equity, unless the cancellation and exchange occurs in connection with a merger, acquisition, spin-off or other similar corporate transaction. Adjustments to the exercise price or number of shares subject to an option or SAR to
reflect the effects of a stock split or other extraordinary corporate transaction will not constitute a repricing.
The 2005 Plan does not authorize loans from the Company to participants.
Only the number of shares actually delivered to participants in connection with an award after all restrictions have lapsed will be
counted against the number of shares reserved under the 2005 Plan. Thus, shares will remain available for new awards if an award expires, is forfeited, or is settled in cash, if shares are withheld or separately surrendered to pay the exercise price
of an option or to satisfy tax withholding obligations relating to an award, if fewer shares are delivered upon exercise of an SAR than the number to which the SAR related, or if shares that had been issued as restricted stock are forfeited. The
maximum number of shares that may be issued under the 2005 Plan is not affected by (i) the payment in cash of dividends or dividend equivalents in connection with outstanding awards or (ii) the granting or payment of stock-denominated
awards that by their terms may be settled only in cash. Shares delivered under the 2005 Plan may be either newly issued or treasury shares.
Per-Person Award Limitations
. The 2005 Plan includes a limitation on the amount of awards that may be granted to any one participant in a given year in order to qualify awards as
performance-based compensation not subject to the limitation on deductibility under Section 162(m) of the Code. Under this annual per-person limitation, no participant may in any year be granted share-denominated awards under the
2005 Plan relating to more than his or her Annual Limit. The Annual Limit currently equals 300,000 shares plus the amount of the participants unused Annual Limit relating to share-based awards as of the close of the previous year,
subject to adjustment for splits and other extraordinary corporate events. In the case of cash-denominated awards, the 2005 Plan limits performance awards that may be earned by a participant to the participants defined Annual Limit, which for
this purpose equals $1 million plus the amount of the participants unused cash Annual Limit as of the
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close of the previous year. The per-person limit for cash-denominated performance awards does not operate to limit the amount of share-based awards, and vice versa. These limits apply only to
awards under the 2005 Plan, and do not limit the Companys ability to enter into compensation arrangements outside of the 2005 Plan.
Stockholders will be asked at the Annual Meeting to vote on a proposal to approve an amendment to the 2005 Plan to increase from 300,000 to 1,000,000 the limitation on the amount of awards that may be
granted to any one participant in a given year in order to qualify awards as performance-based compensation not subject to the limitation on deductibility under Section 162(m) of the Internal Revenue Code. At the time the 2005 Plan
was approved, we had approximately 25 million shares outstanding. If our shareholders approve the acquisition of UBmatrix and the other proposals in this proxy, then on a fully diluted basis accounting for all preferred shares, over the next
four years our fully diluted shares outstanding will rise to an amount just over 67 million shares outstanding. Our Board believes that to attract and retain key personnel we must have the ability to offer competitive compensation packages.
When evaluating compensation packages, employee candidates and compensations consultants generally compare the equity component of a compensation package based on the percent ownership granted on a fully diluted basis versus similar employment
opportunities at other companies. We are asking for this increase to have the ability to achieve equity ownership percentages in line with the market.
Adjustments.
Adjustments to the number and kind of shares subject to the share limitations and specified in the share-based Annual Limit are authorized in the event of a large, special or
non-recurring dividend or distribution, recapitalization, stock split, stock dividend, reorganization, business combination, or other similar corporate transaction or event affecting the Common Stock. The Company is also obligated to adjust
outstanding awards upon the occurrence of these types of events to preserve, without enlarging, the rights of the 2005 Plan participants with respect to such awards. The Compensation Committee may adjust performance conditions and other terms of
awards in response to these kinds of events or to changes in applicable laws, regulations, or accounting principles, except that adjustments to awards intended to qualify as performance-based generally must conform to requirements
imposed by Section 162(m).
Eligibility.
Executive officers and other employees of the Company and its
subsidiaries, and non-employee directors, consultants and others, who provide substantial services to the Company and its subsidiaries, are eligible to be granted awards under the 2005 Plan. In addition, any person who has been offered employment by
the Company or a subsidiary may be granted awards, but such prospective grantee may not receive any payment or exercise any right relating to an award until he or she has commenced employment or the providing of services.
Administration
. The 2005 Plan is administered by the Compensation Committee, except that the Board of Directors may itself act to
administer the Plan. (References to the Committee here mean the Compensation Committee or the full Board of Directors exercising authority with respect to a given Award.) Subject to the terms and conditions of the 2005 Plan, the
Committee is authorized to select participants, determine the type and number of awards to be granted and the number of shares to which awards will relate or the amount of a performance award, specify times at which awards will be exercisable or
settled, including performance conditions that may be required as a condition thereof, set other terms and conditions of such awards, prescribe forms of award agreements, interpret and specify rules and regulations relating to the 2005 Plan, and
make all other determinations which may be necessary or advisable for the administration of the 2005 Plan. Nothing in the 2005 Plan precludes the Committee from authorizing payment of other compensation, including bonuses based upon performance, to
officers and employees, including the Named Executive Officers, outside of the 2005 Plan. The 2005 Plan provides that members of the Committee and the Board of Directors shall not be personally liable, and shall be fully indemnified, in connection
with any action, determination, or interpretation taken or made in good faith under the 2005 Plan.
Stock Options and
SARs
. The Committee is authorized to grant stock options, including both incentive stock options (ISOs), which can result in potentially favorable tax treatment to the participant, and non-qualified
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stock options. SARs may also be granted, entitling the participant to receive the excess of the fair market value of a share on the date of exercise over the SARs designated base
price. The exercise price of an option and the base price of an SAR are determined by the Committee, but generally may not be less than the fair market value of the shares on the date of grant (except as described below under
Other
Terms of Awards
). The maximum term of each option or SAR will be ten years. Subject to this limit, the times at which each option or SAR will be exercisable and provisions requiring forfeiture of unexercised options (and in some cases
gains realized upon an earlier exercise) at or following termination of employment or upon the occurrence of other events generally are fixed by the Committee. Options may be exercised by payment of the exercise price in cash, shares having a fair
market value equal to the exercise price or surrender of outstanding awards or other property having a fair market value equal to the exercise price, as the Committee may determine. This may include withholding of option shares to pay the exercise
price if that would not result in additional accounting expense. The Committee also is permitted to establish procedures for broker-assisted cashless exercises. Methods of exercise and settlement and other terms of SARs will be determined by the
Committee. SARs may be exercisable for shares or for cash, as determined by the Committee. Options and stock appreciation rights may be granted on terms that cause such awards not to be subject to Code Section 409A (Section 409A).
Alternatively, such awards and cash stock appreciation rights may have terms that cause those awards to be deemed deferral arrangements subject to Section 409A. The Committee can require that outstanding options be surrendered in exchange for a
grant of SARs with economically matching terms.
Restricted and Deferred Stock/Restricted Stock Units
. The Committee is
authorized to grant restricted stock and deferred stock. Prior to the end of the restricted period, shares granted as restricted stock may not be sold, and will be forfeited in the event of termination of employment in specified circumstances. The
Committee will establish the length of the restricted period for awards of restricted stock. Aside from the risk of forfeiture and non-transferability, an award of restricted stock entitles the participant to the rights of a stockholder of the
Company, including the right to vote the shares and to receive dividends (which may be forfeitable or non-forfeitable), unless otherwise determined by the Committee.
Deferred stock gives a participant the right to receive shares at the end of a specified deferral period. Deferred stock subject to forfeiture conditions may be denominated as an award of restricted
stock units. The Committee will establish any vesting requirements for deferred stock/restricted stock units granted for continuing services. One advantage of restricted stock units, as compared to restricted stock, is that the period during
which the award is deferred as to settlement can be extended past the date the award becomes non-forfeitable, so the Committee can require or permit a participant to continue to hold an interest tied to Common Stock on a tax-deferred basis. Prior to
settlement, deferred stock awards, including restricted stock units, carry no voting or dividend rights or other rights associated with stock ownership, but dividend equivalents (which may be forfeitable or non-forfeitable) will be paid or accrued
if authorized by the Committee.
Other Stock-Based Awards, Stock Bonus Awards, and Awards in Lieu of Other Obligations.
The 2005 Plan authorizes the Committee to grant awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to Common Stock. The Committee will determine the terms and conditions of
such awards, including the consideration to be paid to exercise awards in the nature of purchase rights, the periods during which awards will be outstanding, and any forfeiture conditions and restrictions on awards. In addition, the Committee is
authorized to grant shares as a bonus free of restrictions, or to grant shares or other awards in lieu of obligations under other plans or compensatory arrangements, subject to such terms as the Committee may specify.
Performance-Based Awards.
The Committee may grant performance awards, which may be cash-denominated awards or share-based awards.
Generally, performance awards require satisfaction of pre-established performance goals, consisting of one or more business criteria and a targeted performance level with respect to such criteria as a condition of awards being granted or becoming
exercisable or settleable, or as a condition to accelerating the timing of such events. Performance may be measured over a period of any length specified by the Committee. If so determined by the Committee, in order to avoid the limitations on tax
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deductibility under Section 162(m) of the Code, the business criteria used by the Committee in establishing performance goals applicable to performance awards to the named executive officers
will be selected from among the following:
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Expenses or expense ratios;
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Operating income, earnings from operations, earnings before or after taxes, earnings before or after interest, depreciation, amortization, or
extraordinary or special items;
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Net income or net income per common share (basic or diluted; including or excluding extraordinary items);
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Return on assets, return on investment, return on capital, or return on equity;
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Cash flow, free cash flow, cash flow return on investment, or net cash provided by operations;
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Economic profit or value created;
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Stock price or total stockholder return; and
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Specific strategic or operational business criteria, including market penetration, geographic expansion, new concept development goals, new projects,
new products, or new ventures; customer satisfaction; staffing, training and development, succession planning or employee satisfaction; goals relating to acquisitions, divestitures, affiliates or joint ventures.
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The Committee retains discretion to set the level of performance for a given business criteria that will result in the earning of a
specified amount under a performance award. These goals may be set with fixed, quantitative targets, targets relative to past Company performance, or targets compared to the performance of other companies, such as a published or special index or a
group of companies selected by the Committee for comparison. The Committee may specify that these performance measures will be determined before payment of bonuses, capital charges, non-recurring or extraordinary income or expense, or other
financial and general and administrative expenses for the performance period, if so specified by the Committee.
Annual
Incentive Awards
. One type of performance award that may be granted under the 2005 Plan is annual incentive awards, settleable in cash or in shares upon achievement of preestablished performance objectives achieved during a specified period of
up to one year. The Committee generally must establish the terms of annual incentive awards, including the applicable performance goals and the corresponding amounts payable (subject to per-person limits), and other terms of settlement, and all
other terms of these awards, not later than 90 days after the beginning of the fiscal year. As stated above, annual incentive awards granted to Named Executives Officers are intended to constitute performance-based compensation not
subject to the limitation on deductibility under Code Section 162(m). In order for such an annual incentive award to be earned, one or more of the performance objectives described in the preceding paragraph will have to be achieved. The
Committee may specify additional requirements for the earning of such awards.
Other Terms of Awards
. Awards may be
settled in cash, shares, other awards or other property, in the discretion of the Committee. The Committee may require or permit participants to defer the settlement of all or part of an award, including shares issued upon exercise of an option
subject to compliance with Code Section 409A, in accordance with such terms and conditions as the Committee may establish, including payment or crediting of interest or dividend equivalents on any deferred amounts. The 2005 Plan allows vested
but deferred awards to be paid out to the participant in the event of an unforeseeable emergency. The Committee is authorized to place cash, shares or other property in trusts or make other arrangements to provide for payment of the Companys
obligations under the 2005 Plan. The Committee may condition awards on the payment of taxes, and may provide for mandatory or elective withholding of a portion of the shares or other property to be distributed in order to satisfy tax obligations.
Awards granted under the 2005 Plan generally may not be pledged
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or otherwise encumbered and are not transferable except by will or by the laws of descent and distribution, or to a designated beneficiary upon the participants death, except that the
Committee may permit transfers of awards other than incentive stock options on a case-by-case basis. This flexibility can allow for estate planning or other limited transfers consistent with the incentive purpose of the 2005 Plan.
The Committee is authorized to impose non-competition, non-solicitation, confidentiality, non-disparagement and other requirements as a
condition on the participants right to retain an award or gains realized by exercise or settlement of an award. Awards under the 2005 Plan may be granted without a requirement that the participant pay consideration in the form of cash or
property for the grant (as distinguished from the exercise), except to the extent required by law.
The Committee may not
grant awards in substitution for, exchange for or as a buyout of other awards under the 2005 Plan, awards under other Company plans, or other rights to payment from the Company, and to exchange or buy out outstanding awards for cash or other
property without stockholder approval. In addition, it may not grant awards in addition to and in tandem with other awards or rights without stockholder approval.
Dividend Equivalents.
The Committee may grant dividend equivalents. These are rights to receive payments equal in value to the amount of dividends paid on a specified number of shares of Common
Stock while an award is outstanding. These amounts may be in the form of cash or rights to receive additional awards or additional shares of Common Stock having a value equal to the cash amount. The awards may be granted on a stand-alone basis or in
conjunction with another award, and the Committee may specify whether the dividend equivalents will be forfeitable or non-forfeitable. Typically, rights to dividend equivalents are granted in connection with restricted stock units or deferred stock,
so that the participant can earn amounts equal to dividends paid on the number of shares covered by the award while the award is outstanding.
Vesting, Forfeitures, and Related Award Terms.
The Committee may in its discretion determine the vesting schedule of options and other awards, the circumstances that will result in forfeiture of
the awards, the post-termination exercise periods of options and similar awards, and the events that will result in acceleration of the ability to exercise and the lapse of restrictions, or the expiration of any deferral period, on any award.
In addition, the 2005 Plan provides that following a Change in Control, the Committee may take any of the
following actions with respect to an award: provide for its full vesting, provide for its termination beyond the date of full vesting, deem performance goals to have been met, provide for the settlement of an award in cash or for termination of the
award or cause the award to be assumed as part of the transaction. A Change of Control generally includes (A) a merger, reorganization, consolidation, or similar transaction in which the stockholders of the Company immediately prior
to the transaction do not own more than 50% of the voting power of the surviving corporation in substantially the same proportions as before the transaction , (B) stockholder approval of a liquidation or dissolution of the Company,
(C) sale of substantially all assets of the Company, (D) any person becomes the owner, directly or indirectly of shares representing at least 25% of the Companys voting power, or (E) certain changes of more than half
of the membership of the Board of Directors. Change in control provisions are limited, however, by applicable restrictions under Code Section 409A.
Amendment and Termination of the 2005 Plan.
The Board of Directors may amend, suspend, discontinue, or terminate the 2005 Plan or the Committees authority to grant awards thereunder without
stockholder approval, except as required by law or regulation or under the Marketplace Rules of the Nasdaq. Nasdaq Marketplace rules now require stockholder approval of any material amendment to plans such as the 2005 Plan. Under these rules,
however, stockholder approval will not necessarily be required for all amendments which might increase the cost of the 2005 Plan or broaden eligibility. Unless earlier terminated, the authority of the Committee to make grants under the 2005 Plan
will terminate ten years after the latest stockholder approval of the 2005 Plan, and the 2005 Plan will terminate when no shares remain available and the Company has no further obligation with respect to any outstanding award.
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Federal Income Tax Implications of
the 2005 Plan
The Company believes that under current law the following Federal income tax consequences generally would
arise with respect to awards under the 2005 Plan.
Options and SARs that are not deemed to be deferral arrangements under
Section 409A would have the following tax consequences: The grant of an option or an SAR will create no federal income tax consequences for the participant or the Company. A participant will not have taxable income upon exercising an option
which is an ISO, except that the alternative minimum tax may apply. Upon exercising an option which is not an ISO, the participant generally must recognize ordinary income equal to the difference between the exercise price and the fair market value
of the freely transferable and nonforfeitable shares acquired on the date of exercise. Upon exercising an SAR, the participant must generally recognize ordinary income equal to the cash or the fair market value of the shares received.
Upon a disposition of shares acquired upon exercise of an ISO before the end of the applicable ISO holding periods, the participant must
generally recognize ordinary income equal to the lesser of (i) the fair market value of the ISO shares at the date of exercise minus the exercise price or (ii) the amount realized upon the disposition of the ISO shares minus the exercise
price. Otherwise, a participants sale of shares acquired by exercise of an option generally will result in short-term or long-term capital gain or loss measured by the difference between the sale price and the participants tax
basis in such shares. The tax basis normally is the exercise price plus any amount he or she recognized as ordinary income in connection with the options exercise. A participants sale of shares acquired by
exercise of an SAR generally will result in short-term or long-term capital gain or loss measured by the difference between the sale price and the tax basis in the shares, which generally is the amount he or she recognized as ordinary
income in connection with the SARs exercise.
The Company normally can claim a tax deduction equal to the amount
recognized as ordinary income by a participant in connection with an option or SAR, but no tax deduction relating to a participants capital gains. Accordingly, the Company will not be entitled to any tax deduction with respect to an ISO if the
participant holds the shares for the applicable ISO holding periods before selling the shares.
Some options and SARs, such as
those with deferral features, and an SAR settleable in cash, may be subject to Code Section 409A, which regulates deferral arrangements. In such case, the distribution to the participant of shares or cash relating to the award would have to
meet certain restrictions in order for the participant not to be subject to tax and a tax penalty at the time of vesting. One significant restriction would be a requirement that the distribution not be controlled by the participants
discretionary exercise of the option or stock appreciation right (subject to limited exceptions). If the distribution and other award terms meet applicable requirements under Section 409A, the participant would realize ordinary income at the
time of distribution rather than earlier, with the amount of ordinary income equal to the distribution date value of the shares less any exercise price actually paid. The Company would not be entitled to a tax deduction at the time of exercise, but
would become entitled to a tax deduction at the time shares are delivered at the end of the deferral period.
Awards other
than options and stock appreciation rights that result in a transfer to the participant of cash or shares or other property generally will be structured under the 2005 Plan to meet applicable requirements under Code Section 409A. If no
restriction on transferability or substantial risk of forfeiture applies to amounts distributed to a participant, the participant generally must recognize ordinary income equal to the cash or the fair market value of shares actually received. Thus,
for example, if the Company grants an award of deferred stock that has vested or requires or permits deferral of receipt of cash or shares under a vested award, the participant should not become subject to income tax until the time at which shares
are actually delivered, and the Companys right to claim a tax deduction will be deferred until that time. On the other hand, if a restriction on transferability and substantial risk of forfeiture applies to shares or other property actually
distributed to a participant under an award (such as, for example, a grant of restricted stock), the participant generally must recognize ordinary income equal to the fair market value of the transferred amounts at the earliest time either the
transferability
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restriction or risk of forfeiture lapses. In all cases, the Company can claim a tax deduction in an amount equal to the ordinary income recognized by the participant, except as discussed below. A
participant may elect to be taxed at the time of grant of restricted stock or other property rather than upon lapse of restrictions on transferability or the risk of forfeiture, but if the participant subsequently forfeits such shares or property he
or she would not be entitled to any tax deduction, including as a capital loss, for the value of the shares or property on which he or she previously paid tax.
Any award that is deemed to be a deferral arrangement (excluding certain exempted short-term deferrals) will be subject to Code Section 409A. Certain participant elections and the timing of
distributions relating to such awards must meet requirements under Section 409A in order for income taxation to be deferred and tax penalties avoided by the participant upon vesting of the award.
As discussed above, compensation that qualifies as performance-based compensation is excluded from the $1 million
deductibility cap of Code Section 162(m), and therefore remains fully deductible by the company that pays it. Under the 2005 Plan, options and SARs granted with an exercise price or base price at least equal to 100% of fair market value of the
underlying stock at the date of grant, annual incentive awards to employees the Committee expects to be named executive officers at the time compensation is received, and certain other awards which are conditioned upon achievement of performance
goals are intended to qualify as such performance-based compensation. A number of requirements must be met in order for particular compensation to so qualify, however, so there can be no assurance that such compensation under the 2005
Plan will be fully deductible under all circumstances. In addition, other awards under the 2005 Plan generally will not so qualify, so that compensation paid to named executive officers in connection with such awards may, to the extent it and other
compensation subject to Section 162(m)s deductibility cap exceed $1 million in a given year, not be deductible by the Company as a result of Section 162(m).
The foregoing provides only a general description of the application of federal income tax laws to certain awards under the 2005 Plan. This discussion is intended for the information of stockholders
considering how to vote at the Annual Meeting and not as tax guidance to participants in the 2005 Plan, as the consequences may vary with the types of awards made, the identity of the recipients and the method of payment or settlement. Different tax
rules may apply, including in the case of variations in transactions that are permitted under the 2005 Plan (such as payment of the exercise price of an option by surrender of previously acquired shares). The summary does not address the effects of
other federal taxes (including possible golden parachute excise taxes) or taxes imposed under state, local, or foreign tax laws.
New Plan Benefits
The
amount, if any, of any awards to officers, directors, employees and consultants under the 2005 Plan will be determined in the future discretion of our Board of Directors and is not presently determinable. Information regarding awards to our named
executive officers and directors in fiscal year 2009 and awards held by such officers and directors at December 31, 2009 is provided in the Grants of Plan Based Awards table, the Outstanding Equity Awards at Fiscal Year-End table and the
Director Summary Compensation table in the Executive Compensation section of this proxy statement.
Vote Required and Board of
Directors Recommendation
Assuming a quorum is present, the affirmative vote of the holders of a majority of the
shares present at the annual meeting, voting in person or by proxy, and entitled to vote, is required for the approval of Proposal No. 5. For purposes of this Proposal No. 5, abstentions will have the same effect as a vote against this
proposal, and broker non-votes will have no effect on the result of the vote.
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THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENTS TO THE 2005 PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE FOR AWARD UNDER SUCH PLAN AND TO INCREASE THE LIMITATION ON THE AMOUNT OF AWARDS THAT MAY
BE GRANTED TO ANY ONE PARTICIPANT IN A GIVEN YEAR
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PROPOSAL NO. 6AMENDMENT TO THE COMPANYS AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES
OF COMMON STOCK THEREUNDER
Stockholders will be asked at the Annual Meeting to vote on a proposal to approve an amendment to the Companys Amended and Restated Certificate of Incorporation to increase the number of authorized
shares of the Companys common stock from 50,000,000 to 75,000,000 and to increase the aggregate number of authorized shares of capital stock from 51,000,000 to 76,000,000, with no increase in the 1,000,000 authorized shares of preferred stock.
The Board of Directors has unanimously approved this amendment and recommended it to the stockholders for approval. If the amendment is approved by the stockholders, the text of the first paragraph of Article IV of the Companys Amended and
Restated Certificate of Incorporation will be amended and restated to read in its entirety as follows:
The total number
of shares of all classes of stock which the corporation has authority to issue is Seventy-six Million (76,000,000) shares, consisting of two classes: Seventy-five Million (75,000,000) shares of Common Stock, $0.01 par value per share, and
One Million (1,000,000) shares of Preferred Stock, $0.01 par value per share.
As more fully set forth below, the
proposed amendment is intended to improve the Companys flexibility in meeting our future needs for unreserved common stock. However, and while this is not the intent of the proposal, in addition to general corporate purposes, the proposed
amendment can be used to make more difficult a change in control of the Company.
As of the close of business on October 11,
2010, the Company had shares of common stock outstanding, reserved for issuance upon conversion of Series B Stock and exercise of outstanding warrants and options, and available for grant under the 2005 Plan, as follows:
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Shares outstanding: 26,984,829
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Shares reserved for issuance upon conversion of our Series B Stock: 11,784,429
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Shares reserved for issuance under issued and outstanding warrants: 0
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Shares reserved for issuance under issued and outstanding options: 3,339,881
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Shares reserved for issuance under our 2005 Plan: 1,684,531
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After taking into consideration the above shares issued and outstanding and reserved for issuance and assuming no increase in the number of authorized shares, the Company has only 6,206,330 unreserved
shares of common stock available, which would not be sufficient to accommodate the merger, the stock purchase and the increase in shares under the 2005 Plan and other commitments.
Reasons for the Amendment
The Company has, for most of its existence,
utilized its common stock and securities convertible into common stock for a variety of purposes, including transactions relating to the development of its business and technology and the acquisition of assets, including intellectual property. The
Company has also engaged in public and private offerings of common stock (and securities convertible into common stock) as a primary method of raising capital to fund its operations, and equity grants have comprised a substantial portion of the
Companys compensation program. It is the Companys intention to continue to engage in all of these practices. Without the ability to do so, the Company believes that our future progress would be severely jeopardized and result in adverse
consequences for our stockholders.
The Board of Directors believes that the proposed increase in the number of authorized
shares of common stock is essential to facilitate the Companys ability to develop its technology, acquire assets that will enhance the growth and development of the Companys business, raise capital to fund our operations and compensate
our employees. The shares proposed for authorization could be used, among other things, to increase funding through
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potential equity transactions with institutional or other investors or to help secure commercial agreements with potential business partners who might wish to have such an equity arrangement as
part of an agreement, as well as for other bona fide corporate purposes.
If the stockholders do not approve this proposal to
increase the number of authorized shares, the Company believes that it will be substantially limited in its ability to advance its operational and strategic plans.
The increased number of authorized shares of common stock will be available for issue from time to time for such purposes and consideration as the Board of Directors may approve and no further vote of
stockholders of the Company will be required, except as provided under Delaware law or under the rules of the NASDAQ Capital Market or any other national securities exchange or market on which our common stock may be listed. The availability of
additional shares for issuance, without the delay and expense of obtaining the approval of stockholders at a subsequent special meeting, will afford us greater flexibility in acting upon proposed transactions.
Except with respect to the shares of common stock that would be issued in the merger and the shares of common stock that we would reserve
for issuance upon the conversion of the Series C Stock that would be issued in the merger and pursuant to the stock purchase agreement, we currently have no plans to issue any additional shares of Common Stock other than the shares that previously
have been reserved for issuance as described above.
The increase in authorized common stock will not have any immediate
effect on the rights of existing stockholders. To the extent that additional authorized shares are issued in the future, they would decrease the existing stockholders percentage equity ownership and, depending on the price at which they are
issued, may be dilutive to existing stockholders. The additional shares of common stock for which authorization is sought would have identical rights, preferences and privileges to the shares of our common stock authorized prior to approval of this
proposal. Holders of common stock do not have preemptive rights to subscribe to additional securities that may be issued by us, which means that current stockholders do not have a prior right to purchase any new issue of the Companys capital
stock in order to maintain their proportionate ownership thereof.
The increase in the authorized common stock may facilitate
certain other anti-takeover devices that may be advantageous to management if management attempts to prevent or delay a change of control. For example, the Board of Directors could cause additional shares to be issued to a holder or holders who
might side with the Board of Directors in opposing a takeover bid. Additionally, the existence of such shares might have the effect of discouraging any attempt by a person or entity, through an acquisition of a substantial number of shares of Common
Stock, to acquire control of the Company, since the issuance of such shares could dilute the common stock ownership of such person or entity. Employing such devices may adversely impact stockholders who desire a change in management or who desire to
participate in a tender offer or other sale transaction involving the Company. At the present time, the Company is not aware of any contemplated mergers, tender offers or other plans by a third party to attempt to effect a change in control of the
Company, and this proposal is not being made in response to any such attempts.
The Amended and Restated Certificate of
Incorporation of the Company authorize the issuance of 1,000,000 shares of preferred stock, of which 880,000 shares remain undesignated as of October 11, 2010. The Board of Directors, within the limitations and restrictions contained in the Amended
and Restated Certificate of Incorporation, applicable law and stock exchange regulations, and without further action by the Companys stockholders, has the authority to issue the remaining undesignated preferred stock with rights that could,
under certain circumstances, have the effect of delaying or preventing a change in control of the Company.
No Dissenters Rights
Under Delaware law, stockholders are not entitled to dissenters rights of appraisal with respect to this proposal.
116
Vote Required and Board of
Directors Recommendation
The affirmative vote of the holders of a majority of the issued and outstanding shares of
common stock and Series B Stock on an as-converted basis, voting together as a single class, entitled to vote, and the affirmative vote of the holders of a majority of the issued and outstanding shares of Series B Stock entitled to vote, voting
separately as a class, is required for the approval of Proposal No. 6. For purposes of this Proposal No. 6, both abstentions and broker non-votes will have the same effect as a vote against this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE COMPANYS AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK THEREUNDER
117
PROPOSAL NO. 7RATIFICATION OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Companys Audit Committee has appointed the firm of BDO USA to serve as the Companys independent registered public accounting firm for the fiscal year ending December 31, 2010, and is
asking the stockholders to ratify this appointment. The affirmative vote of a majority of the shares of Common Stock present in person or by proxy at the Annual Meeting is required to ratify the selection of BDO USA. A representative of BDO USA is
expected to be present at the Annual Meeting and will have an opportunity to make a statement at such time and respond to appropriate questions.
In the event the stockholders fail to ratify the appointment, the Audit Committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee in its
discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if they determine that such a change would be in the best interests of the Company and its stockholders.
FEES PAID TO BDO USA
During 2008 and 2009, we retained our principal accountants, BDO USA, in several capacities (in thousands):
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|
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|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
Audit FeesAnnual Audit and Quarterly Reviews
|
|
$
|
215
|
|
|
$
|
192
|
|
Audit-Related Fees
|
|
|
53
|
|
|
|
48
|
|
Tax Fees
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|
|
|
|
|
|
20
|
|
All Other Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
268
|
|
|
$
|
260
|
|
|
|
|
|
|
|
|
|
|
Audit Fees
. Audit fees represent amounts incurred in connection with the audit of our annual
financial statements included in our Form 10-K and review of quarterly financial statements included in our Forms 10-Q.
Audit-Related Fees
. Audit-related fees are fees for assurance and related services that are reasonably related to the performance
of the audit or review of our financial statements and internal controls over financial reporting, including services in connection with the audit of our employee benefit plan and various consultations.
Tax Fees
. Tax fees represent amounts incurred in connection with the preparation of our federal and state income tax returns and
other tax matters.
AUDIT COMMITTEE POLICY ON PRE-APPROVAL OF SERVICES OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Pre-Approval Policies
. Pursuant to the rules and regulations of the SEC, before our independent registered accounting firm is
engaged to render audit or non-audit services, the engagement must be approved by the Audit Committee or entered into pursuant to the Audit Committees pre-approval policies and procedures. The policy granting pre-approval to certain specific
audit and audit-related services and specifying the procedures for pre-approving other services is set forth in the Amended and Restated Charter of the Audit Committee, a copy of which is available on our website at
www.edgar-online.com
.
All fees paid by us to our independent registered public accounting firm were approved by the Audit Committee in advance of
the services being performed by such auditors.
Vote Required and Board of Directors Recommendation
Assuming a quorum is present, the affirmative vote of the holders of a majority of the shares present at the annual meeting, voting in
person or by proxy, and entitled to vote, is required for the approval of Proposal No. 7. For purposes of this Proposal No. 7, abstentions will have the same effect as a vote against this proposal, and broker non-votes will have no effect
on the result of the vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE SELECTION OF BDO USA TO
SERVE AS THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2010.
118
OTHER MATTERS
The Company knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters properly come before the Annual Meeting, it is the intention of the persons named
in the enclosed form of proxy to vote the shares they represent as the Board of Directors may recommend. Discretionary authority with respect to such other matters is granted by the execution of the enclosed proxy.
STOCKHOLDER PROPOSALS
Our By-laws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of stockholders. We expect our 2011 Annual Meeting of Stockholders to be held earlier in
2011 than this annual meeting is being held in 2010, likely in June 2011. We will announce the specific date, either in a future report we file with the SEC or by other means. Stockholder proposals and director nominations intended to be presented
at our 2011 Annual Meeting of Stockholders must be received by us at our corporate headquarters by a reasonable time before we begin to print and send its proxy materials for that meeting. This notice requirement does not apply to (i) any
stockholder holding at least twenty-five percent (25%) of our outstanding common stock or (ii) any stockholder who has an agreement with us for the nomination of a person or persons for election to the Board of Directors. A copy of the
full text of the By-law provisions discussed above may be obtained by writing to our Secretary at our corporate headquarters.
In addition to our By-law provisions, stockholder proposals submitted pursuant to Rule 14a-8 under the Securities Exchange Act of 1934,
as amended, and intended to be presented at the 2011 Annual Meeting of Stockholders must be received by our Secretary at our corporate headquarters by a reasonable time before we begin to print and send its proxy materials for that meeting in order
to be considered for inclusion in our proxy materials for that meeting.
If the stockholder does not also comply with the
requirements of Rule 14a-4(c)(2) under the Securities Exchange Act of 1934, we may exercise discretionary voting under proxies that we solicit to vote in accordance with our best judgment on any such stockholder proposal or nomination.
WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE
The SEC allows us to incorporate by reference certain information into this proxy statement, which means that we can disclose
important information to our stockholders by referring our stockholders to other documents that we filed separately with the SEC. Our stockholders should consider the incorporated information as if we reproduced it in this proxy statement, except
for any information directly superseded by information contained in this proxy statement.
We incorporate by reference into
this proxy statement the following financial statements and other information which contain important information about our company and our business and financial results:
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The financial statements, selected financial data, selected quarterly financial data, managements discussion and analysis of financial condition
and results of operations and market risk disclosures and risk factors contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, filed with the SEC on March 31, 2010, as amended, and our Quarterly Report on
Form 10-Q for the period ended June 30, 2010, filed with the SEC on August 13, 2010;
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The description of our business, properties and legal proceedings contained in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2009, filed with the SEC on March 31, 2010, as amended;
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We may file additional
documents with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 on or after the date of this proxy statement and before the special meeting. The SEC allows us to incorporate by reference into this proxy
statement such documents. Our stockholders should
119
consider any statement contained in this proxy statement (or in a document incorporated into this proxy statement) to be modified or superseded to the extent that a statement in a subsequently
filed document modifies or supersedes such statement.
This proxy statement is accompanied by a copy of each of the following
documents, which are incorporated by reference into this proxy statement to the extent set forth above:
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Our Annual Report on Form 10-K, filed with the SEC on March 31, 2010, as amended; and
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Our Quarterly Report on Form 10-Q, filed with the SEC on August 13, 2010.
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Upon written request, we will send to stockholders of record, without charge, additional copies of our Annual Report
on Form 10-K, as amended (without exhibits), additional copies of our Quarterly Report on Form 10-Q (without exhibits) and additional copies of this proxy statement, each of which we have filed with the Securities and Exchange Commission. In
addition, upon written request and payment of a fee equal to our reasonable expenses, we will send to stockholders of record copies of any exhibit to our Annual Report on Form 10-K, as amended, or our Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission. All written requests should be sent to EDGAR Online, Inc., 122 East 42
nd
Street, Suite 2400, New York, New York, 10168, Attention: Corporate Secretary.
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By Order of the Board of Directors
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David Price
Chief Financial
Officer
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Dated: October 20, 2010
120
Annex A-1
Execution Copy
AGREEMENT AND PLAN OF MERGER
dated June 23, 2010
by and among
EDGAR ONLINE, INC.,
UBM ACQUISITION CORP.,
and
UBMATRIX, INC.
TABLE OF CONTENTS
A-1-i
TABLE OF
CONTENTS(Continued)
A-1-ii
TABLE OF
CONTENTS(Continued)
A-1-iii
TABLE OF
CONTENTS(Continued)
A-1-iv
AGREEMENT AND PLAN
OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this
Agreement
) is made and entered into as of the 23rd
day of June, 2010, by and among EDGAR ONLINE, INC., a Delaware corporation (
Acquiror
), UBM ACQUISITION CORP., a Washington corporation and a wholly owned subsidiary of Acquiror (
Merger Sub
, and together with
Acquiror, the
Acquiring Parties
), and UBMATRIX, INC., a Washington corporation (
Target
), and Draper Fisher Jurvetson, in its capacity as Stockholders Representative (collectively, the
Parties
).
BACKGROUND
The respective Boards of Directors of Target, Acquiror and Merger Sub have approved a merger (the
Merger
) of Merger Sub with and into Target in accordance with the Washington Business
Corporation Act (the WBCA), on the terms and conditions set forth herein. The Merger provides for the payment of the consideration specified in
Section 2.6
to the holders of Targets equity securities. For federal income
tax purposes, the parties intend that the Merger will qualify as a reorganization described in Section 368(a) of the Code and that this Agreement shall constitute a plan of reorganization for the purposes of Sections 354 and 361 of
the Code.
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the premises and of the representations, warranties, covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:
SECTION 1.
DEFINED TERMS
1.1 Definitions
. Certain defined terms used in this Agreement and not specifically defined in context are defined in this
Section 1
as follows:
Accounts Payable
means any obligation for payment for goods bought, leased or licensed or for
services rendered, whether or not it has been earned by performance, whether billed or unbilled, and whether or not it is evidenced by any Contract.
Accounts Receivable
means (a) any right to payment for goods sold, leased or licensed or for services rendered, whether or not it has been earned by performance, whether
billed or unbilled, and whether or not it is evidenced by any Contract, (b) any note receivable, (c) any escrow, bid, performance, lease, utility or other deposits or (d) any other receivable or right to payment of any nature.
Acquiror Business
means the entire business and operations of Acquiror, as described
in Acquirors Annual Report on Form 10-K for the year ended December 31, 2009.
Acquiror
Common Stock
means Acquirors common stock, par value $0.01.
Acquiror
Company
means Acquiror and each of the Acquiror Subsidiaries.
Acquiror Preferred
Stock
means Acquirors preferred stock, par value $0.01.
Acquiror Disclosure
Schedule
means the disclosure schedule of Acquiror delivered to Target hereunder setting forth the information required to be disclosed by Acquiror pursuant to the provisions of
Section 6
, and setting forth exceptions to
the representations and warranties set forth in
Section 6
, and incorporated herein.
A-1-1
Acquiror Employee Benefit Plan
means (i) any employee benefit plan as defined in
Section 3(3) of ERISA that is maintained or sponsored by Acquiror or to which Acquiror contributes or for which Acquiror otherwise has or may have any Obligation, contingent or otherwise, whether directly or through an ERISA Affiliate and
(ii) any other benefit arrangement, obligation, or practice to provide benefits, other than salary, as compensation for services rendered, to one or more present or former employees, directors, agents, or independent contractors, that is
maintained or sponsored by Acquiror or to which Acquiror contributes or for which Acquiror otherwise has or may have any Obligation, contingent or otherwise, whether directly or through an ERISA Affiliate including employment agreements, severance
policies or agreements, executive compensation arrangements, incentive arrangements, sick leave, vacation pay, salary continuation, consulting or other compensation arrangements, workers compensation, bonus plans, stock option, stock grant or
stock purchase plans, phantom stock, stock appreciation rights, medical/dental insurance, life insurance, tuition reimbursement programs or scholarship programs, any plans subject to section 125 of the Code, and any plans providing benefits or
payments in the event of a change of ownership or control.
Acquiror Intangible
means
all Intangibles used in the Acquiror Business as currently conducted, other than off-the-shelf Software licensed to the Acquiror Companies pursuant to shrink-wrap licenses.
Acquiror Owned Intangible
means (a) any and all Acquiror Intangibles that are
owned by or exclusively licensed to the Acquiror Company and (b) any and all Acquiror Intangibles that were developed for the Acquiror Company by full or part time employees, consultants or independent contractors of the Acquiror Company.
Acquiror Products
means all products and services marketed, licensed,
supported, maintained or currently under development by the Acquiror Company.
Acquiror SEC
Reports
means the current and periodic reports filed by Acquiror with the SEC under the Exchange Act, including the exhibits thereto and documents incorporated by reference therein.
Acquiror Series C Preferred Stock
means the Series C Convertible Preferred Stock of the
Acquiror, par value $0.01 per share, to be created pursuant to the filing with the Secretary of State of the Series C Certificate of Designations.
Acquiror Stockholder Approval
means the approval of the Share Issuance by the affirmative vote of the holders of a majority of the voting power of the shares of Acquiror Common
Stock and Acquiror Preferred Stock represented in person or by proxy at the Acquiror Stockholders Meeting, as required by NASDAQ Listing Rule 5635(a)(1).
Acquiror Subsidiaries
means the subsidiaries of Acquiror identified on
Section 6.1 of the Acquiror Disclosure Schedule
.
Affiliates
means, with respect to a particular Party, Persons or Entities controlling,
controlled by or under common control with that Party.
Amended and Restated Investor Rights
Agreement
means an agreement, substantially in the form of the Investor Rights Agreement, dated as of January 28, 2010, by and among Acquiror and the Purchasers (as defined therein), which is amended and restated to make the
Target Principal Holders receiving Acquiror Series C Preferred Stock in connection with the Merger party thereto, with rights substantially the same as such Purchasers.
Asset
means any real, personal, mixed, tangible or intangible property of any nature including
Cash Assets, Accounts Receivable, Tangible Property, Real Property, Software, Contract Rights, Intangibles and goodwill, and claims, causes of action and other legal rights and remedies.
Business Day
means any day other than a Saturday or Sunday, or a day on which the banking
institutions of the State of New York are authorized or obligated by law or executive order to close.
Cash Asset
means any cash on hand, cash in bank or other accounts, readily marketable
securities, and other cash-equivalent liquid assets of Target in each case as of the Closing Date.
A-1-2
Charter Documents
means an Entitys certificate or articles of incorporation, certificate
defining the rights and preferences of securities, articles of organization, general or limited partnership agreement, certificate of limited partnership, joint venture agreement or similar document governing the Entity.
Code
means the Internal Revenue Code of 1986, as amended, and all regulations and rules
promulgated thereunder.
Common Value Per Share
means the volume-weighted average of
the closing prices of the shares of Acquiror Common Stock on the Nasdaq Capital Market on the fifteen (15) trading days ending on the trading day prior to the date of determination.
Consent
means any consent, approval, order or authorization of, or any declaration, filing or
registration with, or any application, notice or report to, or any waiver by, or any other action (whether similar or dissimilar to any of the foregoing) of, by or with, any Person, which is necessary in order to take a specified action or actions
in a specified manner and/or to achieve a specified result.
Contract
means any
legally binding written or oral contract, agreement, instrument, order, arrangement, commitment or understanding of any nature including sales orders, purchase orders, leases, subleases, data processing agreements, maintenance agreements, license
agreements, sublicense agreements, support agreements, loan agreements, promissory notes, security agreements, pledge agreements, deeds, mortgages, guaranties, indemnities, warranties, employment agreements, consulting agreements, sales
representative agreements, joint venture agreements, buy-sell agreements, options or warrants.
Contract Right
means any right, power or remedy of any nature under any Contract including
rights to receive property or services or otherwise derive benefits from the payment, satisfaction or performance of another partys Obligations, rights to demand that another party accept property or services or take any other actions, and
rights to pursue or exercise remedies or options.
Default
means (a) a breach,
default or violation, (b) the occurrence of an event that with or without the passage of time or the giving of notice, or both, would constitute a breach, default or violation or cause an Encumbrance to arise, or (c) with respect to any
Contract, the occurrence of an event that with or without the passage of time or the giving of notice, or both, would give rise to a right of termination, cancellation, amendment, renegotiation or acceleration or a right to receive damages or a
payment of penalties or any additional compensation thereunder.
delivered
means,
with respect to any statement in Section 4 of this Agreement to the effect that any information, document or other material has been delivered, provided or made available to Acquiror or its representatives,
that such information, document or material was (a) available for review by Acquiror or its representatives in the virtual data room set up by Fenwick & West LLP in connection with this Agreement at least one day prior to the date
hereof, or (b) delivered to Acquiror or its representatives in the manner described in Section 11.2 of this Agreement on or prior to the date hereof.
Encumbrance
means any lien, security interest, pledge, right of first refusal, mortgage, easement, covenant, restriction, reservation, conditional sale, prior assignment, royalty
obligation, defect of title, or other encumbrance, claim, burden or charge of any nature whatsoever on any property or property interest, including any restriction on the use, voting, transfer, receipt of income or other exercise of any attribute of
ownership. For the avoidance of doubt, the term Encumbrance shall not include a license of intellectual property.
Entity
means any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust,
company (including any company limited by shares, limited liability company or joint stock company), firm, society or other enterprise, association, organization or entity.
Environmental Laws
means all applicable Laws and Judgments relating to the public health and
safety, pollution or protection of the environment as well as any applicable common law principles of public or private nuisance or under which a Person may be held liable for the discharge of any Hazardous Substance into the environment.
A-1-3
ERISA
means the Employee Retirement Income Security Act of 1974, as amended, and all regulations
and rules issued thereunder, or any successor Law.
ERISA Affiliate
means any Person
that, together with Target or Acquiror, as the case may be, is or was at any time after June 30, 1996 treated as a single employer under Section 414 of the Code or Section 4001 of ERISA and any general partnership of which Target or
Acquiror, as the case may be, is or has been a general partner.
Escrow Account
means
the escrow account established pursuant to the Escrow Agreement.
Escrow Agent
means
Wells Fargo Bank, N.A.
Escrow Agreement
means an agreement by and among Acquiror,
the Escrow Agent and the Stockholders Representative, on behalf of the Holders, in substantially the same form as
Exhibit A
hereto, together with such modifications thereto as are acceptable to Acquiror and Stockholders
Representative.
Escrow Fund
means the fund of 1,622,042 shares of Acquiror Common
Stock deposited with and held by the Escrow Agent pursuant to the Escrow Agreement that may be available at any particular time to satisfy any claim for indemnification made by Acquiror pursuant to this Agreement.
Exchange Act
means the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC thereunder.
Fenwick & West
means Fenwick &
West LLP, outside legal counsel to Target.
Fraud
means: (a) defendants
false representation, usually of fact; (b) made either with knowledge or belief or with reckless indifference to its falsity; (c) with an intent to induce the plaintiff to act or refrain from acting; (d) the plaintiffs action or
inaction resulted from a reasonable reliance on the representation; and (e) reliance damaged the defendant.
GAAP
means generally accepted accounting principles under current U.S. accounting rules and
regulations, consistently applied in accordance with the past practices of Target.
Governmental
Body
means any: (a) nation, principality, republic, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other
government; (c) governmental or quasi-governmental authority of any nature (including any governmental division, subdivision, department, agency, bureau, branch, office, commission, council, board, instrumentality, officer, official,
representative, organization, unit, body or Entity and any court, arbitrator or other tribunal); (d) multi-national organization or body; or (e) individual, Entity or body exercising, or entitled to exercise, any executive, legislative,
judicial, administrative, regulatory, police, military or taxing authority or power of any nature.
Hazardous Substances
means any substance, waste, contaminant, pollutant or material that has
been determined by any Governmental Body to be capable of posing a risk of injury or damage to health, safety, property or the environment including (a) all substances, wastes, contaminants, pollutants and materials defined, designated or
regulated as hazardous, dangerous or toxic pursuant to any Law, and (b) asbestos, polychlorinated biphenyls, petroleum, petroleum products and urea formaldehyde, and mold, but excluding office and janitorial supplies that are safely maintained.
Indebtedness
means with respect to any Person all liabilities (including any
applicable penalties (including with respect to any prepayment thereof), interest and premiums) (i) for borrowed money or extensions of credit (including bank overdrafts and advances), (ii) evidenced by notes, bonds, debentures, loan
agreements or similar instruments, (iii) for the deferred purchase price of property, goods or services (other than trade payables or accruals incurred in the ordinary course of business not past due for more than sixty (60) days past the
due date), (iv) of such Person as lessee capitalized in accordance with GAAP, (v) of others secured by an Encumbrance on any asset of such Person, whether or not such obligations are assumed by such Person, (vi) in respect of
bankers acceptances, letters of credit (including standby and commercial), bank guaranties, surety bonds and similar instruments, and under reverse repurchase agreements, (vii) of
A-1-4
such Person in respect of futures contracts, swaps, derivative transactions, other financial Contracts and other similar obligations (including any option to enter into any of the foregoing)
(determined on a net basis as if such Contract or obligation was being terminated early, on the date of such determination) or (viii) in the nature of guarantees of the obligations described in clauses (i) through (vii) above of any
other Person.
Insurance Policy
means any public liability, product liability,
general liability, comprehensive, property damage, vehicle, life, hospital, medical, dental, disability, workers compensation, key man, fidelity bond, theft, forgery, errors and omissions, directors and officers liability, or other
insurance policy of any nature.
Intangible
means (a) any name, corporate name,
domain name, fictitious name, trademark, trademark application, service mark, service mark application, trade name, brand name, product name, slogan, design, logo, trade dress, (b) trade secret, know-how, methods, processes, customer lists,
supplier lists, pricing and cost information, marketing and sales data and research, product plans, research and development, patent, patent application, formula, invention, product right, (c) copyright and copyright applications (published or
unpublished), documentation, proposals, tools, Software, manuals, training materials, data, data compilations and databases, (d) web sites, web pages, web site content, web site addresses, domain names, and (e) other intangible asset of
any nature, whether in use, under development or design, or inactive and all good will associated therewith in any form throughout the world, including any registration or applications relating to the foregoing and any extensions, modifications,
renewal, reissuance, continuation or continuation-in-part, reexamination, improvement and any licenses or sublicenses pursuant to which any of the foregoing rights are granted or pursuant to which any of the foregoing rights are transferred.
IP License Agreement
means an agreement, substantially in the form of
Exhibit B
hereto, by and between Target and Acquiror.
Judgment
means any judgment, decree,
injunction, order, ruling, writ, citation or award of any nature whatsoever of any Governmental Body or other authority that is binding on any Person or its property under applicable Law.
Knowledge, to the knowledge of,
or phrases of similar import, with respect to an
individual, means an individual shall be deemed to have knowledge of a particular fact or other matter if (a) that individual is actually aware of that fact or matter; (b) such individual would reasonably be expected to have known of that
fact or matter in the course of performing his/her regular job duties Party in question; or (c) if such individual does not have principal operational responsibility for that fact or matter, such individual would reasonably be expected to
discover or otherwise become aware of that fact or matter in the course of conducting a reasonable inquiry of the individual who does have principal operational responsibility for that fact or matter for the Party in question.
With respect to Target, knowledge, to the knowledge of or phrases of similar import means the
knowledge (as defined above) of Sunir Kapoor, Steve Levine, Mike Makris, Frederic Chapus and Thomas Reinemer.
With respect to Acquiror, knowledge, to the knowledge of or phrases of similar import means the
knowledge (as defined above) of Philip Moyer, Stefan Chopin, Lauren Zinman, Ronald Fetzer, Sue Childs and Diana Bourke.
Law
means any provision of any foreign, federal, state or local law, statute, ordinance, charter, constitution, treaty, code, rule, regulation or guideline, including common law.
Letter of Transmittal
means a letter of transmittal in a form acceptable to Acquiror
and Stockholders Representative to be delivered to Acquiror by each Holder.
Material Adverse
Effect
means, with respect to a Person, any event, occurrence or change that is materially adverse to or has a material adverse effect on, the financial condition, financial performance, results of operations, business or long-term
prospects of such Person or the Assets or Obligations of such
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Person, taken as a whole;
provided
,
however
, that the foregoing shall not be deemed to include any event, occurrence or change which arises with respect to or as a result of
(a) conditions of change that are primarily the result of the national economy or the industry in which such Person operates, whereby the effect or change is generally applicable upon businesses as a whole or within such industry as a whole,
(b) uniformly applied legislative or judicial laws or orders or accounting principles or standards that have general applicability to business as a whole or an industry as a whole, (c) political conditions or acts of war, sabotage or
terrorism, (d) natural disasters, weather conditions and other force majeure events, (e) the announcement of this Agreement or the pendency or consummation of the transactions contemplated hereby, (f) compliance with the terms of, or
the taking of any action required by, this Agreement, or (g) any fees or expenses incurred in connection with the transactions contemplated by this Agreement, and, in each of cases (a), (b), (c) and (d), that does not disproportionately
affect Target.
Merger Consideration
means the aggregate number of shares of Acquiror
Series C Preferred Stock issuable to the Target Principal Holders pursuant to
Section 2.6
.
Morgan Lewis
means Morgan, Lewis & Bockius LLP, outside legal counsel to Acquiror.
Net Cash Position of Target
means the amount of cash held by Target as of any day,
net of any unpaid Indebtedness of Target, Accounts Payable of Target and Transaction Expenses.
Obligation
means any direct or indirect liability, Indebtedness, obligation, expense, debt,
claim, loss, damage, deficiency, guaranty or endorsement of any nature, of or by any Person, whether absolute or contingent, known or unknown, secured or unsecured, recourse or non-recourse, filed or unfiled, accrued or unaccrued, due or to become
due, or liquidated or unliquidated.
Permits
means any permits, licenses,
registrations, certificates of occupancy, approvals, privileges or other authorizations of any nature whatsoever, granted, issued, approved or allowed by any Governmental Body.
Permitted Encumbrances
means Encumbrances (a) for Taxes, governmental charges, assessments
or levies,
provided
, that such Taxes, governmental charges, assessments or levies are not yet due or are being contested in good faith by appropriate proceedings, and in any case, for which Target made an appropriate reserve on the Closing
Balance Sheet, (b) deposits, Encumbrances or pledges to secure payments of workmens compensation, unemployment and other similar insurance, (c) mechanics, workmens, materialmens, repairmens,
warehousemens, vendors; landlords or carriers liens, or other similar Encumbrances arising in the ordinary course of business consistent with past practice and securing sums which are not past due or are being contested in good
faith by appropriate proceedings, (d) with respect to Target securities, any restrictions on transfer imposed by applicable federal and state securities laws, and (d) such imperfections of title and encumbrances, if any, which are not
material in character, amount or extent, and which do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby.
Person
means any individual, Entity or Governmental Body.
Post-Closing Period
means any taxable period or portion thereof beginning after the Closing
Date. If a taxable period begins on or before the Closing Date and ends after the Closing Date, then the portion of the taxable period that begins on the day following the Closing Date shall constitute a Post-Closing Period.
Prime Rate
means the prime rate of general application as set forth in the Money
Rates section (or such future section as shall replace it) of
The Wall Street Journal
(Eastern Edition), as published on a specified date or dates, or, if no date(s) are specified, as the same shall be published from time to time.
Pre-Closing Period
means any taxable period or portion thereof that is not a
Post-Closing Period.
Pro Rata Share
means with respect to each Indemnifying Target
Party, a quotient, (a) the numerator of which is the value of the Merger Consideration issuable to such Indemnifying Target Party pursuant to Section 2.6, and (ii) the denominator of which is the total value of the Merger
Consideration issuable to all
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Indemnifying Target Parties pursuant to Section 2.6 (where each share of Acquiror Common Stock is deemed to have a value equal to the Common Value Per Share and each share of Acquiror Series
C Preferred Stock is deemed to have a value equal to the Series C Value Per Share, in each case as of the Closing Date).
Proceeding
means any demand, claim, suit, action, litigation, investigation, notice of violation, arbitration, administrative hearing or other proceeding of any nature.
Real Property
means any real estate, land, building, condominium, town house,
structure or other real property of any nature, all shares of stock or other ownership interests in cooperative or condominium associations or other forms of ownership interest through which interests in real estate may be held, and all appurtenant
and ancillary rights thereto including easements, covenants, water rights, sewer rights and utility rights.
Sales Volume Agreement
means an agreement, substantially in the form of
Exhibit C
hereto,
by and among Acquiror and the persons listed on
Schedule 9.12
hereto.
SEC
means the United States Securities and Exchange Commission.
Securities Act
means the
Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder.
Series C
Certificate of Designation
means the Certificate of Designation, in substantially the form attached hereto as
Exhibit D
, filed with the Secretary of State of the State of Delaware and establishing the rights, preferences and
privileges of the Acquiror Series C Preferred Stock.
Series C Stock Purchase Agreement
means an agreement, substantially in the form of
Exhibit E
hereto, by and among Acquiror and the Target Principal Holders listed on
Schedule 9.16
hereto.
Series C Value Per Share
means (A) the volume-weighted average of the closing prices of the
shares of Acquiror Common Stock on the Nasdaq Capital Market on the fifteen (15) trading days ending on the trading day prior to the date of determination, multiplied by (B) the number of shares of Acquiror Common Stock issuable upon the
conversion of a share of Acquiror Series C Preferred Stock as of the date of determination, assuming for this purpose that accrued and unpaid dividends at such time include all dividends that would have accrued on the Series C Preferred Stock from
the Issue Date through and including January 28, 2015.
Software
means any
computer program, operating system, applications system, firmware or software of any nature, whether operational, under development or inactive including all object code, source code, comment code, algorithms, menu structures or arrangements, icons,
operational instructions, scripts, commands, syntax, screen designs, reports, designs, concepts, technical manuals, test scripts, user manuals and other documentation therefore, whether in machine-readable form, programming language or any other
language or symbols, and whether stored, encoded, recorded or written on disk, tape, film, memory device, paper or other media of any nature and all data bases necessary or appropriate to operate any such computer program, operating system,
applications system, firmware or software.
Tangible Property
means any furniture,
fixtures, leasehold improvements, vehicles, office equipment, computer equipment, other equipment, machinery, tools, forms, supplies or other tangible personal property of any nature.
Target Business
means the entire business and operations of Target.
Target Common Stock
means Targets common stock, par value $0.01.
Target Company
means Target and each of the Target Subsidiaries.
Target Disclosure Schedule
means the disclosure schedule of Target delivered to the Acquiring
Parties hereunder setting forth the information required to be disclosed by Target pursuant to the provisions of
Section 4
, and setting forth exceptions to the representations and warranties set forth in
Section 4
, and
incorporated herein.
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Target Employee Benefit Plan
means (i) any employee benefit plan as defined in
Section 3(3) of ERISA that is maintained or sponsored by Target or to which Target contributes or for which Target otherwise has or may have any Obligation, contingent or otherwise, whether directly or through an ERISA Affiliate and
(ii) any other benefit arrangement, obligation, or practice to provide benefits, other than salary, as compensation for services rendered, to one or more present or former employees, directors, agents, or independent contractors, that is
maintained or sponsored by Target or to which Target contributes or for which Target otherwise has or may have any Obligation, contingent or otherwise, whether directly or through an ERISA Affiliate including employment agreements, severance
policies or agreements, executive compensation arrangements, incentive arrangements, sick leave, vacation pay, salary continuation, consulting or other compensation arrangements, workers compensation, bonus plans, stock option, stock grant or
stock purchase plans, phantom stock, stock appreciation rights, medical/dental insurance, life insurance, tuition reimbursement programs or scholarship programs, any plans subject to section 125 of the Code, and any plans providing benefits or
payments in the event of a change of ownership or control.
Target Intangible
means
all Intangibles used in the Target Business as currently conducted, other than off-the-shelf Software licensed to the Target Companies pursuant to shrink-wrap licenses.
Target Owned Intangible
means (a) any and all Target Intangibles that are owned by or
exclusively licensed to the Target Company and (b) any and all Target Intangibles that were developed for the Target Company by full or part time employees, consultants or independent contractors of the Target Company.
Target Products
means all products marketed, licensed, supported, maintained or currently under
development by the Target Company.
Target Option Plan
means the UBMatrix, Inc.
Amended and Restated 2005 Combined Incentive and Nonqualified Stock Option Plan.
Target
Options
means an option to purchase shares of Target Common Stock pursuant to the Target Option Plan.
Target Preferred Stock
means the Target Series A Junior Preferred Stock, the Target Series A Senior Preferred Stock and the Series B Preferred Stock, collectively.
Target Principal Holders
means (i) the holders of Target Preferred Stock, (ii) the
holders of Target bridge notes, (iii) participants in the Target Change of Control Bonus Plan and (iv) members of Target management entitled to receive stock in lieu of accrued bonuses, in each case who are entitled to receive Merger
Consideration pursuant to this Agreement.
Target Series A Junior Preferred Stock
means Targets Series A Junior Preferred Stock, par value $0.01.
Target Series A Senior
Preferred Stock
means Targets Series A Senior Preferred Stock, par value $0.01.
Target Series B Preferred Stock
means Targets Series B Preferred Stock, par value $0.01.
Target Stock
means the Target Common Stock and the Target Preferred Stock,
collectively.
Target Subsidiaries
means the subsidiaries of Target identified on
Section 4.1 of the Target Disclosure Schedule
.
Target Warrants
means the
warrants to purchase shares of Target Stock, described on
Section 4.4 of the Target Disclosure Schedule
Targeted Closing Date Net Cash Position
means $1.759 million, less an amount calculated by the parties, and set forth on
Schedule 9.1
, which reflects the anticipated cash
expenditures of Target to be incurred between the date hereof and the Effective Time (it being understood that such schedule will have cash expenditure levels for the ensuing months on a month-end basis and if the Closing occurs mid-month, the
deduction will be calculated by prorating between the month-end levels before and after the Closing).
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Tax
means all federal, state, local, or foreign net or gross income, gross receipts, net
proceeds, sales, use, ad valorem, value added, franchise, bank shares, withholding, payroll, employment, excise, property, escheat, deed, stamp, alternative or add-on minimum, environmental, profits, windfall profits, transaction, license, lease,
service, use, occupation, severance, energy, unemployment, social security, workers compensation, capital or premium tax, or other taxes, assessments, customs, duties, fees, levies, or other governmental charges of any nature whatever (except
charges for specific property or services), whether disputed or not, together with any interest, penalties, additions to tax, or additional amounts with respect thereto including any liability for the payment of the foregoing obligations of another
Person as a result of (a) being or having been a member of an affiliated, consolidated, combined, unitary or aggregate group of corporations, (b) being or having been a party to any tax sharing agreement or any express or implied
obligation to indemnify any Person for taxes, or (c) being or having been a transferee, successor, or otherwise assuming the obligations of another Person to pay the foregoing amounts.
Tax Return
means any return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof required to be filed with a Taxing Authority with respect to Taxes.
Taxing Authority
means any Governmental Body having jurisdiction with respect to any Tax.
Transaction Documents
means this Agreement, the Escrow Agreement and the Articles of
Merger.
Transactions
means the Merger and the other transactions contemplated by the
Transaction Documents.
Transfer Taxes
means sales, use, transfer, real property
transfer, recording, documentary, stamp, registration, stock transfer, and other similar taxes and fees (including any penalties and interest).
U.S.
means the United States of America.
Voting Agreement and Proxy
means an agreement, substantially in the form of
Exhibit F-1
hereto, by and among Acquiror and the Target Principal Holders set forth on
Exhibit F-2
hereto.
1.2 Table of Definitions
. The following listing identifies additional defined terms used in this Agreement and the page numbers hereof on which they are defined.
|
|
|
|
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Defined Term
|
|
Location of Defined Term
|
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280G Approval
|
|
|
54
|
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Acquiring Parties
|
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|
1
|
|
Acquiror
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|
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1
|
|
Acquiror Board
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|
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38
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Acquiror Financial Statements
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40
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Acquiror Relevant Group
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43
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Acquiror Stockholders Meeting
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|
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38
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Acquisition Agreement
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|
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53
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Acquisition Proposal
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53
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Action
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|
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63
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Agreement
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|
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1
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Arbiter
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|
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17
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Articles of Merger
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12
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Certificates
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14
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Claim Notice
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61
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Claim Response
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61
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Closing
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48
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Closing Date
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48
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Closing Date Net Cash Position
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17
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Confidential Information
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52
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Defined Term
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Location of Defined Term
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Confidentiality Agreement
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52
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Damages
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59
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Dissenting Shares
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15
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Dissenting Stockholders
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15
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Effective Time
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13
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Escrow Merger Consideration
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13
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Estimated Statement of Net Cash Position
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16
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Expiration Date
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63
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Final Statement of Net Cash Position
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16
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Governmental Clearances
|
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52
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Holder
|
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14
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Indemnified Acquiror Party
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58
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Indemnified Party
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61
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Indemnified Target Party
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60
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Indemnitor
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61
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Initial Merger Consideration
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13
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IRS
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31
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Joinder
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46
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Latest Balance Sheet
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22
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Latest Balance Sheet Date
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22
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Liquidated Claim Notice
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61
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Maximum Indemnification Amount
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62
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Merger
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1
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Merger Sub
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1
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Net Cash Adjustment
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17
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Operating Plan
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50
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Parties
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1
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Post-Closing Payments
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16
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Response Period
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61
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Securityholder Documents
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14
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Share Issuance
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38
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Statement of Expenses
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54
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Stockholders Representative
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68
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Straddle Period
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57
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Surviving Corporation
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12
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Takeover Laws
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20
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Target
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1
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Target Adverse Recommendation Change
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53
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Target Board
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16
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Target Board Recommendation
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20
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Target Customer Contracts
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27
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Target Domain Names
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26
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Target Environmental Condition
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25
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Target Financial Statements
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22
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Target Relevant Group
|
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33
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Target Specified Contracts
|
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27
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Threshold Amount
|
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61
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Transaction Expenses
|
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54
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Unliquidated Claim
|
|
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61
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WARN
|
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30
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WBCA
|
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1
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1.3 Interpretation
. Unless the context of this Agreement clearly requires otherwise,
(a) references to the plural include the singular, the singular the plural, the part the whole, (b) references to any gender include all genders, (c)
including
has the inclusive meaning frequently identified with
the phrase
but not limited to
and (d) references to
hereunder
or
herein
relate to this Agreement. Any determination as to whether a situation is material shall be made by taking into
account the effect of all other provisions of this Agreement that contain a qualification with respect to materiality so that the determination is made after assessing the aggregate effect of all such situations. Each accounting term used herein
that is not specifically defined herein shall have the meaning given to it under GAAP.
SECTION 2.
THE MERGER
2.1 The Merger
. Upon the terms and subject to the conditions hereof, and in accordance with the relevant provisions of the WBCA, Merger Sub shall be merged with and
into Target at the Effective Time. Target shall be the surviving corporation (the
Surviving Corporation
) and shall continue its existence under the laws of the State of Washington, and the separate corporate existence of Merger
Sub shall cease.
2.2 Effective Time
. Unless this Agreement is earlier terminated
pursuant to the provisions of
Section 13
, the Merger shall be consummated by filing with the Secretary of State of the State of Washington articles of merger in a form acceptable to Acquiror and the Stockholders Representative (the
Articles of Merger
), as is required by, and executed in accordance with, the relevant provisions of the WBCA. The Merger shall become effective at the time of the filing of or such other time as is contemplated in the Articles of
Merger (the
Effective Time
).
2.3 Effects of the Merger
. The Merger
shall have the effects set forth in the WBCA. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the Assets of the Target and Merger Sub shall vest in the Surviving Corporation and all Obligations and
duties of the Target and Merger Sub shall become Obligations and duties of the Surviving Corporation.
2.4 Certificate of Incorporation and Bylaws
. The certificate of incorporation of Merger Sub shall be the certificate of incorporation of the Surviving Corporation at the Effective Time and thereafter until amended in accordance with
applicable Law and the terms thereof. The bylaws of Merger Sub shall be the bylaws of the Surviving Corporation at the Effective Time and thereafter until amended in accordance with applicable Law and the terms thereof.
2.5 Directors and Officers
. The directors of the Merger Sub shall be the initial directors of the
Surviving Corporation at the Effective Time, and the initial officers of the Surviving Corporation at the Effective Time shall be the individuals specified in
Schedule 2.5
.
2.6 Conversion of Target Securities
.
(a)
All shares of the Target Common Stock and Target Preferred Stock issued and outstanding immediately prior to
the Effective Time (together with all participant interests under the Target Change in Control Bonus Plan, certain rights to accrued bonuses payable by Target and certain bridge notes of Target) shall, by virtue of the Merger or as otherwise
contemplated by this Agreement and without any action on the part of Acquiror, Target or the Holder thereof, be converted into the right to receive:
(i)
an aggregate of (A) 74,379 shares of the Acquiror Series C Preferred Stock and (B) an aggregate of 2,685,088 shares of the Acquiror Common Stock minus the number of shares of Acquiror
Common Stock comprising the Escrow Merger Consideration under Section 2.6(a)(ii) (collectively, the
Initial Merger Consideration
); and
(ii)
an aggregate of 1,622,042 shares of the Acquiror Common Stock (collectively, the
Escrow Merger Consideration
), to be deposited in the Escrow Fund.
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For the avoidance of
doubt, shares of Target Stock held by Persons other than Target Principal Holders who are not participants in the Target Change of Control Bonus Plan shall be cancelled and extinguished without consideration.
(b)
The Acquiror Series C Preferred Stock issued as Merger Consideration shall be divided among the Target
Principal Holders as set forth on
Schedule 2.6
hereto (which schedule shall be finalized and attached hereto as of the Closing).
(c)
At the Effective Time, each share of capital stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part
of Acquiror, Merger Sub or Target, be converted into one share of common stock of the Surviving Corporation.
(d)
Until surrendered in accordance with the provisions of
Section 2.7
, each share of Target Common
Stock or Target Preferred Stock outstanding immediately prior to the Effective Time and the certificates representing such shares (
Certificates
) shall, after the Effective Time, represent for all purposes, only the right to
receive that portion of the Merger Consideration such share of Target Common Stock or Target Preferred Stock would entitle the holder thereof to receive hereunder.
2.7 Delivery of Merger Consideration
.
(a)
At and after the Effective Time, each record holder (a
Holder
), as of the Effective Time, of Target Stock that is also a Target Principal Holder shall deliver a duly executed
Letter of Transmittal and the Certificates, in the case of Target Stock, or the Target Warrant, as the case may be, evidencing the same, (such documents, collectively, being the
Securityholder Documents
) to Acquiror. In the event
any certificates evidencing shares of Target Common Stock or Target Preferred Stock shall have been lost, stolen or destroyed, Acquiror may condition delivery of the Merger Consideration to be received by the Holder of such lost, stolen or destroyed
certificates in exchange for such lost, stolen or destroyed certificates as such lost, stolen or destroyed certificates would entitle the Holder to receive under
Section 2.6(a)
, upon the making of an affidavit of that fact by the
registered Holder in form and substance acceptable to Acquiror;
provided
,
however
, that Acquiror may, in its sole and absolute discretion and as a condition precedent to the delivery of any portion of the Merger Consideration, require
the owner of such lost, stolen or destroyed certificates to provide an indemnity or deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Acquiror or the Surviving Corporation with respect to
such certificates alleged to have been lost, stolen or destroyed.
(b)
Upon receipt of the appropriate
Securityholder Documents, Acquiror shall promptly deliver to the Holder delivering such Securityholder Documents that portion of the Merger Consideration to which the Holder is entitled under
Section 2.6
.
(c)
No interest shall accrue or be paid on the Merger Consideration payable upon the surrender of any Certificate
for the benefit of the Holder of such Certificate. If the payment of the Merger Consideration is to be made to a Person other than the Person in whose name the surrendered Certificate formerly evidencing shares of Target Stock is registered on the
stock transfer books of the Target, it shall be a condition of payment that the Certificate so surrendered be endorsed properly or otherwise be in proper form for transfer and that the Person requesting such payment shall have paid all transfer and
other similar Taxes required by reason of the payment of the Merger Consideration to a Person other than the Holder of the Certificate surrendered, or shall have established to the reasonable satisfaction of Acquiror that such Taxes either have been
paid or are not applicable.
(d)
As of and after the date that is 271 days after the Effective Time, any
remaining Holders who are entitled to but have not received Merger Consideration in accordance with this
Section 2.7
shall be entitled to look to the Surviving Corporation (subject to abandoned property, escheat and other similar Laws),
certificates and other documents in its possession relating to the Transactions. Thereafter, each holder of a Certificate may surrender such Certificate to the Surviving Corporation or any successor entity and (subject to any applicable abandoned
property, escheat or similar Law) receive in consideration therefor the
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aggregate Merger Consideration relating thereto, without any interest thereon, except as otherwise provided in this Agreement. Notwithstanding the foregoing, neither the Surviving Corporation nor
Acquiror shall be liable to any Holder for any Merger Consideration delivered in respect of such share to a public official pursuant to any abandoned property, escheat or other similar Law. If any Certificates shall not have been surrendered prior
to five years after the Effective Time (or immediately prior to such earlier date on which any Merger Consideration in respect of such Certificate would otherwise escheat to or become the property of any Governmental Body), any amounts payable in
respect of such Certificate shall, to the extent permitted by applicable Law, become the property of Acquiror, free and clear of all claims or interest of any Person previously entitled thereto.
2.8 No Further Transfer of Shares
. After the Effective Time, there shall be no transfers of Target
Stock that was outstanding immediately prior to the Effective Time on the stock transfer books of the Surviving Corporation. If, after the Effective Time, Certificates or any other securities of the Target are presented to the Surviving Corporation
for transfer, they shall be canceled and exchanged for the Merger Consideration as provided in this
Section 2
. As of the Effective Time, the stock ledger of Target shall be closed.
2.9 Dissenters Rights
. Notwithstanding anything in this Agreement to the contrary, shares of
Target Stock (the
Dissenting Shares
) that are issued and outstanding immediately prior to the Effective Time and are held by stockholders of Target who have not voted in favor of the Merger, consented thereto in writing or
otherwise contractually waived their dissenters rights and who have complied with all of the relevant provisions of Section 23B.13.230 of the WBCA (the
Dissenting Stockholders
) shall not be converted into or be
exchangeable for the right to receive the Merger Consideration, unless and until such Holders shall have failed to perfect or shall have effectively withdrawn or lost their dissenters rights under the WBCA. Target shall give Acquiror
(i) prompt notice of any written demands for dissenters rights with respect to any shares of Target Stock, attempted withdrawals of such demands and any other instruments served pursuant to the WBCA and received by Target relating to
dissenters rights, and (ii) the opportunity to direct all negotiations and Proceedings with respect to demands for dissenters rights under the WBCA. Neither Target nor the Surviving Corporation shall, except with the prior written
consent of Acquiror, voluntarily make any payment with respect to, or settle or offer to settle, any such demand for dissenters rights. If any Dissenting Stockholder shall fail to perfect or shall have effectively withdrawn or lost such
Dissenting Stockholders dissenters rights, then as of the occurrence of such event, such Holders Dissenting Shares shall cease to be Dissenting Shares and shall be converted into and represent the right to receive the Merger
Consideration payable pursuant to
Section 2.6
.
2.10 Withholding Rights
.
Notwithstanding anything in this Agreement to the contrary, Acquiror, the Target Companies, or their agents, as applicable, shall be entitled to deduct and withhold from any amounts required to be paid to all Persons pursuant to this Agreement,
whether as Merger Consideration or otherwise, such amounts as Acquiror, the Target Companies, or their agents, as applicable, are required to deduct and withhold with respect to the making of such payments under the Code or any applicable provision
of state, local or foreign Tax Law. To the extent that amounts are so deducted or withheld by Acquiror, the Target Companies, or their agents, such deducted or withheld amounts shall be treated for all purposes of this Agreement as having been paid
to the Person in respect of which such deduction and withholding was made, and Acquiror, the Target Companies, or their agents, as applicable, shall timely disburse such deducted or withheld amounts to the applicable Tax Authority.
2.11 Target Options
.
(a)
The Board of Directors of Target (the
Target Board
) (or, if appropriate, any committee
thereof administering the Target Option Plan) shall adopt, no later than the date of this Agreement, such resolutions or take such other actions as are required:
(i)
to cause, pursuant to the Target Option Plan, each Target Option outstanding and unexercised immediately prior
to the Effective Time to be cancelled and to no longer represent the right to purchase Target Stock or any other equity security of the Target Entities, Acquiror, the Surviving Corporation or any other Person or any other consideration effective as
of the Effective Time; and
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(ii)
to terminate as of or immediately prior to the Effective Time, the Target Option Plan and any other equity incentive plan of Target and any and all agreements relating to such plans or awards thereunder.
(b)
After the execution of this Agreement, but in any event, no later than fifteen (15) days prior to the
Closing Date, Target shall provide notice of the proposed Merger to each Person who is a holder of Target Options, which notice shall be in a form agreed to by Target and Acquiror in their mutual reasonable discretion.
SECTION 3.
POST-CLOSING CONSIDERATION AND CLOSING FINANCIAL STATEMENTS
3.1 Estimated Net Cash Position.
(a)
No later than five (5) days prior to the Closing Date, Target shall deliver to Acquiror an estimate of the
Net Cash Position of Target as of the Closing Date (the
Estimated Statement of Net Cash Position
). The Estimated Statement of Net Cash Position will be prepared by Targets management using assumptions and estimates made by
Targets management in good faith.
(b)
The Surviving Corporation shall prepare or cause to be
prepared a statement of the Net Cash Position of Target as of the Closing Date (the
Final Statement of Net Cash Position
), in accordance with the following provisions:
(i)
The Final Statement of Net Cash Position shall give effect to the Transactions contemplated hereby to occur on
the Closing Date prior to the Effective Time, but shall not give effect to the Merger or the transactions intended to take place following the Effective Time including the payment of all closing expenses of Target and the Target Principal Holders
related to the Merger (collectively, the
Post-Closing Payments
).
(ii) Delivery of
Documents
. The Surviving Corporation shall deliver the Final Statement of Net Cash Position to the Stockholders Representative on behalf of the Holders within 60 days after the Closing Date.
3.2 Closing Date Net Cash Adjustment.
(a)
Closing Date Net Cash Position
shall equal the Net Cash Position of Target as reflected on
the Closing Balance Sheet.
(b)
The Stockholders Representative shall notify Acquiror of any
objections to the calculation of the Closing Date Net Cash Position within 30 days after Stockholders Representative receives the Final Statement of Net Cash Position. If the Stockholders Representative does not notify Acquiror of any
such objections by the end of that 30-day period, then the Final Statement of Net Cash Position, as prepared by Acquiror, shall be considered final on the last day of that 30-day period. If the Stockholders Representative does notify Acquiror
of any such objections by the end of that 30-day period, and the Stockholders Representative and Acquiror are unable to resolve their differences within 30 days thereafter, then the disputed items on the Final Statement of Net Cash Position
shall be reviewed, as soon as possible, at the Stockholders Representatives expense, by the Stockholders Representatives accountants. Acquiror and the Stockholders Representative shall instruct their respective
accountants to, in good faith, use their best efforts to resolve such disputed items to their mutual satisfaction and to deliver a conclusive Final Statement of Net Cash Position to Acquiror and the Stockholders Representative as soon as
possible. If Acquirors accountants and the Stockholders Representatives accountants are unable to resolve any such disputed items within 30 days after receiving such instructions, then the remaining disputed items shall be
submitted to an accounting firm nationally recognized in the United States and not affiliated with or a past or present
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provider of services to any of Acquiror, the Stockolders Representative or any of the Target Principal Holders (the
Arbiter
), for resolution, with the costs thereof paid
50% by Acquiror and 50% by the Stockholders Representative, and the Arbiter shall be instructed to deliver a conclusive Final Statement of Net Cash Position to Acquiror and the Stockholders Representative as soon as possible.
(c)
Within 5 Business Days after the Final Statement of Net Cash Position is finalized in accordance with
Section 3.2(b)
, if the Closing Date Net Cash Position, as finally determined in accordance with
Section 3.2(b)
, is less than the Targeted Closing Date Net Cash Position (such difference is referred to herein as the
Net Cash Adjustment
), then the Target Principal Holders shall, unless the Stockholders Representative is notified by Acquiror within 2 Business Days after the Final Statement of Net Cash Position is so finalized, deliver to
Acquiror, in cash, on a several and not joint basis and in proportion to their Pro Rata Shares, the amount of such shortfall. Should the Acquiror prefer, it may satisfy any such shortfall from the Escrow Fund, in which case it will provide the
notification to the Stockholders Representative contemplated by the preceding sentence.
SECTION 4.
REPRESENTATIONS AND WARRANTIES OF TARGET
Except as set forth in the Target Disclosure Schedule (and whether or not the Target Disclosure Schedule is specifically referenced in any subsection of this Section 4), Target represents and
warrants to the Acquiror and Merger Sub that the statements contained in this Section 4 are complete and accurate as of the date of this Agreement. The Target Disclosure Schedule shall be arranged in sections corresponding to the numbered and
lettered sections and subsections contained in this Section 4, and the disclosures in any section or subsection of the Target Disclosure Schedule shall qualify other sections and subsections in this Section 4 only to the extent it is
readily apparent from a reasonable reading of the disclosure that such disclosure is applicable to such other sections and subsections.
4.1 Organization.
(a)
Target is a corporation, duly organized, validly existing and in good standing under the laws of the State of Washington. Each of the Target Subsidiaries is an entity duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Target possesses the full corporate power and authority to (i) own and use its Assets in the manner in which such Assets are currently owned and used and (ii) conduct the Target Business as such business is
currently being conducted. Each Target Company is registered, qualified or licensed to do business, as the case may be, and in good standing in each of the jurisdictions where the ownership of any of its Assets or the conduct of its business would
require it to be so registered, qualified or licensed, as the case may be, except where the absence of any such registration, qualification or license would not reasonably be expected to have a Material Adverse Effect.
(b)
Section 4.1 of the Target Disclosure Schedule
sets forth a true, correct and complete list of any
Person in which Target owns, directly or indirectly, any equity interest and, in respect of each such Person, the nature and extent of Targets interest and any other interests that are held by other Persons. Except as disclosed on
Section 4.1 of the Target Disclosure Schedule
, Target has never acquired or succeeded to all or any portion of the Assets or businesses of any other Person, and there is no other Person that may be deemed to be a predecessor of Target.
(c)
Section 4.1 of the Target Disclosure Schedule
sets forth, for Target and each Target
Subsidiary, in each case as of the date hereof: (i) its exact legal name, (ii) its corporate business form and jurisdiction and date of formation, (iii) its federal employer identification number, (iv) its headquarters address,
telephone number and facsimile number, (v) its directors and officers, indicating all current title(s) of each individual, (vi) its registered agent and/or office in its jurisdiction of formation (if applicable), (vii) all foreign
jurisdictions in which it is qualified or registered to do business, the date it so qualified or registered, and its
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registered agent and/or office in each such jurisdiction (if applicable), (viii) all fictitious, assumed or other names of any type that are registered or used by it or under which it has
done business at any time since Targets date of incorporation and (ix) any name changes, recapitalizations, mergers, reorganizations or similar events since its date of formation.
(d)
Accurate and complete copies of the Charter Documents of each Target Company and all Contracts relating to the
acquisition or formation of each Target Company (or its affiliates or predecessors) have been delivered to Acquiror, and each is, as of the date hereof, effective under applicable Law.
4.2 Authority; Non-Contravention.
(a)
Target has the corporate right, power and authority to enter into, execute and deliver this Agreement and the
other Transaction Documents to which it is a party and to perform or satisfy, as the case may be, its obligations hereunder and thereunder, and the (i) execution and delivery of this Agreement and the other Transaction Documents to which Target
is a party, (ii) performance or satisfaction, as the case may be, of Targets obligations under this Agreement and the other Transaction Documents to which Target is a party and (iii) consummation by Target of the Transactions to
which Target is a party, in each case, have been duly authorized by all necessary corporate actions of Target, including without limitation the approval of the stockholders of Target as required under the WBCA and the Charter Documents of Target.
Target has delivered to Acquiror duly executed counterparts from a requisite number of holders of Target Stock of a written consent approving the Merger pursuant to Section 23B.07.040 of the WBCA. This Agreement and the other Transaction
Documents to which Target is a party constitutes the legal, valid and binding agreement of Target, enforceable against Target in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the
relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.
(b)
Except as set forth on
Section 4.2 of the Target Disclosure Schedule
, neither the execution or delivery of this Agreement or the other Transaction Documents to which Target is a
party nor the performance of its obligations or consummation of any of the Transactions contemplated hereby or thereby by Target will, directly or indirectly:
(i)
result in a Default under (A) any of the provisions of the Charter Documents of Target or (B) any resolution adopted by the stockholders, board of directors or any committees thereof
of Target;
(ii)
result in a Default under any Law or Judgment to which any Target Company or any of its
Assets are bound or subject, or give any Governmental Body or other Person the right to challenge any of the Transactions contemplated by this Agreement or any of the other Transaction Documents or to exercise any remedy or obtain any relief under,
any Law or Judgment to which Target or any of its Assets is subject;
(iii)
result in a Default under,
or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Permit that is held by any Target Company or that otherwise relates to any of the businesses of any Target Company or to any of the Assets owned
or used by any Target Company;
(iv)
result in a Default under any provision of any Target Specified
Contract; or
(v)
result in the imposition or creation of any Encumbrance upon or with respect to any
asset owned or used by any Target Company.
(c)
Except as set forth on
Section 4.2 of the Target
Disclosure Schedule
, no Consents are necessary in connection with the execution and delivery of this Agreement by Target or any of the other Transaction Documents to which Target is a party or the consummation or performance of any of the
Transactions.
(d)
No Consents, approvals or notices are required to be obtained or given to any Person,
and no payment to any Person is required to be made, by Target, the Acquiring Parties or the customers of Target as of Closing Date in order to allow the Acquiring Parties to access or manage customer personnel, software, hardware or facilities or
otherwise perform under the Target Customer Contracts, except, in each case,
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(i) for any Consent, approval, notice or payment that is required to be obtained, given or made pursuant to the terms of any Contract by and between Acquiror and any Person other than Target
or (ii) as set forth on
Section 4.2 of the Target Disclosure Schedule
.
(e)
Neither the
Merger nor any other transactions contemplated by this Merger Agreement shall constitute or be deemed a Liquidation under the Charter Documents of Target.
4.3 Effect of Agreement; Inapplicability of Anti-takeover Statutes
. Target is not subject to any moratorium, control share, fair
price or other antitakeover Laws of any state or other jurisdiction (collectively the
Takeover Laws
) that could affect this Agreement or the Transactions. The Target Board has approved this Agreement and the Transactions,
including the Merger, for purposes of such Takeover Laws. Targets board of directors has by the unanimous vote, or written consent in lieu thereof, of all directors of Target (a majority of whom are disinterested directors) (i) determined
that this Agreement and the Transactions, including the Merger, are fair to and in the best interests of Target and its stockholders, (ii) approved and adopted this Agreement and the Transactions, including the Merger, in accordance with the
requirements of the WBCA, (iii) declared that this Agreement is advisable, (iv) resolved to recommend that stockholders of Target approve the Merger and adopt this Agreement (the recommendation of the Target Board that the stockholders of
Target approve and adopt this Agreement being referred to as the
Target Board Recommendation
), (v) to the extent necessary, adopted a resolution having the effect of causing Target, this Agreement, the other Transaction
Documents and the Transactions contemplated hereby and thereby not to be subject to any Takeover Law or similar Law, including under Chapter 23B.19 of the WBCA, that might otherwise apply to the Merger or any of the other Transactions, and
(vi) approved and authorized all actions necessary under the Target Option Plan, as amended, to provide for the termination of all unexercised Target Options in full prior to the consummation of the Merger.
4.4 Capitalization.
(a)
As of the date of this Agreement, Target has authorized (i) 90,000,000 shares of Target Common Stock, of
which 6,307,506 shares are issued and outstanding, and (ii) 66,925,831 shares of Target Preferred Stock, of which (A) 11,642,717 are designated as Target Series A Senior Preferred Stock, 11,415,548 shares of which are issued and
outstanding, (B) 2,283,114 are designated as Target Series A Junior Preferred Stock, 2,283,096 shares of which are issued and outstanding, and (C) 53,000,000 are designated as Target Series B Preferred Stock, 43,436,457 shares of which are
issued and outstanding. As of the date of this Agreement, all outstanding shares of Target Common Stock and Target Preferred Stock are owned of record by the Persons set forth in
Section 4.4(a) of the Target Disclosure Schedule
in the
respective amounts set forth thereon and the names and addresses set forth thereon are true and correct. After giving effect to the termination of Target Options and Target Warrants pursuant to
Section 2.11
, there will be 6,307,506
shares of Target Common Stock, 11,415,548 shares of Target Series A Senior Preferred Stock, 2,283,096 shares of Target Series A Junior Preferred Stock and 43,436,457 shares of Target Series B Preferred Stock issued and outstanding immediately prior
to the Effective Time, all of which will be owned of record by the Persons set forth in
Section 4.4(a) of the Target Disclosure Schedule
(assuming no share transfers take place between the date of this Agreement and the Effective Time).
(b)
Except as set forth in
Section 4.4 of the Target Disclosure Schedule
, there are no
(i) outstanding options, warrants, convertible securities, Contracts or rights of any kind to purchase or otherwise acquire from Target any shares of Target Common Stock, or (ii) Contracts under which Target is obligated to redeem,
repurchase or otherwise acquire any shares of outstanding Target Common Stock or any other securities. Except for issuances of Target Stock upon the exercise or termination of the rights disclosed on
Section 4.4 of the Target Disclosure
Schedule
, no shares of Target Stock are reserved or authorized for issuance other than pursuant to the Target Option Plan as in effect on the date hereof.
(c)
All outstanding shares of Target Stock have been duly authorized and validly issued, are fully paid and non-assessable and were issued in compliance with all applicable Charter Documents of
Target, all Contracts binding upon Target and all applicable Laws, including applicable securities Laws.
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(d)
Other than as set forth herein, no Target Company currently has any outstanding vote, plan or pending proposal involving any merger or consolidation of any Target Company with or into any other Person, any sale of Target Stock or any sale of
Assets of any Target Company (excluding plans or proposals for the sale or license of Target products and services in the ordinary course of its business consistent with past practice).
(e)
To Targets knowledge, except as set forth in
Section 4.4 of the Target Disclosure Schedule
,
there are no Contracts among any Persons which affect or relate to the voting or giving of written consents with respect to any Target Stock.
4.5 Financial and Corporate Records.
(a)
The books and records of Target have been properly prepared and maintained in form and substance adequate for preparing audited financial statements in accordance with GAAP.
(b)
Accurate and complete copies of the contents of the minute books and stock books for Target have been delivered
to Acquiror. Such minute books and stock books include (i) minutes of all meetings of the stockholders and the Target Board subsequent to January 1, 2005 and any committees of the Target Board subsequent to January 1, 2005 at which
any material action was taken, which minutes accurately record all material actions taken at such meetings, (ii) accurate and complete written statements of all actions taken by the stockholders of Target in their capacities as stockholders of
Target and the Target Board subsequent to January 1, 2005 and any committees of the Target Board subsequent to January 1, 2005, in each case, acting by written consent without a meeting and (iii) accurate and complete records of the
subscription, issuance, transfer and cancellation of all shares of capital stock and all other securities issued since the date of incorporation. None of the stockholders, the Target Board or any committee of the Target Board acting in his, her, its
or their capacity as such has taken any material action with respect to Target other than those actions reflected in the records referenced in clauses (i) and (ii) of the preceding sentence.
(c)
Section 4.5 of the Target Disclosure Schedule
contains an accurate and complete list of all of
Targets bank accounts, other accounts, certificates of deposit, marketable securities, other investments, safe deposit boxes, lock boxes and safes, and the names of all officers, employees or other individuals who have access thereto or are
authorized to make withdrawals therefrom or dispositions thereof.
4.6 Compliance with Laws;
Permits.
(a)
Except as set forth on
Section 4.6 of the Target Disclosure Schedule
,
(i) each Target Company is in compliance in all material respects with each Judgment and with each material Law that is applicable to it or to the conduct of any of its business or the ownership or use of any of its Assets, (ii) each
Target Company has at all times been in compliance in all material respects with each Judgment or material Law that is or was applicable to it or to the conduct of any of its businesses or the ownership or use of any of its Assets, (iii) no
event has occurred, and no condition or circumstance exists, that might (with or without notice or lapse of time) constitute or result in a Default by any Target Company of any Judgment, or a failure on the part of any Target Company to comply in
any material respect with, any Law applicable to it and (iv) no Target Company has received, at any time, any notice or other communication (in writing or otherwise) from any Governmental Body or any other Person regarding (A) any actual,
alleged, possible or potential material violation of, or material failure to comply with, any Judgment or applicable Law or (B) any actual, alleged, possible or potential obligation on the part of any Target Company to undertake, or to bear all
or any portion of the cost of, any environmental cleanup or any environmental remedial, corrective or response action of any nature.
(b)
Except as set forth on
Section 4.6 of the Target Disclosure Schedule
, each Target Company has obtained and holds all Permits required for the lawful operation of its business as and
where such business is presently conducted. All Permits held by the Target Companies are listed on
Section 4.6 of the Target Disclosure Schedule
, and accurate and complete copies of such Permits have been delivered to Acquiror.
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4.7 Target Financial Statements.
(a)
Targets Fiscal Year ends on September 30.
(b)
Target has delivered to Acquiror correct and complete copies of (i) its annual audited consolidated
financial statements for the 2008 and 2009 fiscal years and the related statements of income and cash flows and stockholders equity for such fiscal years and (ii) a balance sheet of the Target Business (the
Latest Balance
Sheet
) as of March 31, 2010 (the
Latest Balance Sheet Date
) and related unaudited statements of income and cash flows and stockholders equity of Target for the six months then ended. All such financial
statements are referred to herein collectively as the
Target Financial Statements
.
(c)
The Target Financial Statements are consistent in all material respects with the books and records of Target, and there have not been any material transactions that have not been recorded in the accounting records underlying such Target
Financial Statements. The profit and loss statements reflect all costs that historically have been incurred by the Target Business. The Target Financial Statements (other than the unaudited Target Financial Statements) have been prepared in
accordance with GAAP and present fairly the financial position of Target as of the dates thereof, and the results of its operations for the periods then ended, subject to the absence of notes in the case of unaudited Target Financial Statements.
4.8 Assets.
(a)
Section 4.8 of the Target Disclosure Schedule
contains an accurate and complete list of all Assets
of Target as reflected on the Latest Balance Sheet including (i) Cash Assets, itemized by bank or other account, showing cost and market value if different from cost, (ii) each Account Receivable and in respect thereof aging of such
Account Receivable as of the Latest Balance Sheet Date and showing customer names, individual invoice dates, individual invoice amounts and allowances for doubtful accounts, or, in the case of earned but not billed receivables, customer names and
individual dates on which the receivables are billable, (iii) other current Assets (other than Accounts Receivable), itemized by category and with appropriate explanation, (iv) Tangible Property, grouped as to type, showing cost,
accumulated depreciation and net book value and (v) Software and Intangibles, showing cost or amount capitalized, accumulated amortization and net book value.
(b)
Section 4.8 of the Target Disclosure Schedule
accurately identifies all Assets that are being
leased or licensed to any Target Company as of the Latest Balance Sheet Date, other than those Assets licensed to a Target Company pursuant to shrink-wrap licenses for off-the-shelf software.
(c)
Except as disclosed on
Section 4.8 of the Target Disclosure Schedule
, each Target Company owns and
has good and marketable title to, all of its Assets that are purported to be owned by it and has the right to transfer all rights, title and interest in such Assets, free and clear of any Encumbrance except for Permitted Encumbrances.
(d)
Except for the Assets listed on
Section 4.8 of the Target Disclosure Schedule
, Target has all
Assets, excluding Intangibles of Target (which are covered by
Section 4.15
), necessary to operate, or which are material to the operation of, the Target Business as currently conducted.
4.9 Obligations.
(a)
Section 4.9 of the Target Disclosure Schedule
contains an accurate and complete list of all of
Targets Obligations reflected on the Latest Balance Sheet, itemized by balance sheet account, and with aggregate net balances equal to the balances on the Latest Balance Sheet including (i) Accounts Payable, (ii) accrued expenses and
reserves, itemized by category and with appropriate explanation, (iii) deferred revenues, itemized by customer and time periods and (iv) other current and long-term liabilities.
(b)
Target does not have any Obligations required to be set forth on a balance sheet prepared in accordance with
GAAP, other than (i) Obligations identified as such in the liabilities column on the Latest Balance Sheet, (ii) Obligations set forth on
Section 4.9 of the Target Disclosure Schedule
, (iii) Obligations
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under Contracts of the type listed on
Section 4.16 of the Target Disclosure Schedule
,
provided
that as of the Latest Balance Sheet Date, no such Obligation consisted of or
resulted from a Default under any such Contract and (iv) Obligations that were incurred since the Latest Balance Sheet Date in the ordinary course of business. Except as described on
Section 4.9 of the Target Disclosure Schedule
,
none of Targets Obligations are guaranteed by any Person.
4.10 Operations Since the
Latest Balance Sheet Date
. Except as set forth on
Section 4.10 of the Target Disclosure Schedule
, since the Latest Balance Sheet Date:
(a)
to the date of this Agreement, no Target Company has (i) pledged or hypothecated any of its Assets or otherwise permitted any of its Assets to become subject to any Encumbrance other than
Permitted Encumbrances, if any, (ii) incurred or suffered the incurrence of any Obligation (except in the ordinary course of its business consistent with its past practices), (iii) made any loan or advance to any Person, (iv) assumed,
guaranteed or otherwise become liable for any Obligation of any Person, (v) committed for any capital expenditure involving in excess of $25,000 in any single case or $50,000 in the aggregate, (vi) purchased, leased, sold, abandoned or
otherwise acquired or disposed of any business or Assets (except in the ordinary course of its business consistent with its past practices), (vii) waived or released any right or canceled or forgiven any debt or claim involving in excess of
$25,000 in any single case or $50,000 in the aggregate, (viii) discharged any Encumbrance or discharged or paid any Indebtedness or other Obligation (except in the ordinary course of its business consistent with its past practices),
(ix) assumed or entered into any material Contract other than this Agreement and the Target Specified Contracts, (x) amended or terminated any Target Specified Contract (other than termination upon expiration of the contractually specified
term thereof), (xi) increased, or authorized an increase in, the compensation or benefits paid or provided to any of its directors, officers, employees, salesmen, agents or representatives (other than pursuant to the existing terms of a Target
Specified Contract), (xii) established, adopted or amended (including any amendment with a future effective date) any Target Employee Benefit Plan, (xiii) declared, accrued, set aside, or paid any dividend or made any other distribution (other
than a stock repurchase) in respect of any shares of capital stock, other securities or other Assets, (xiv) repurchased, redeemed or otherwise reacquired any shares of capital stock or other securities (other than repurchases of unvested shares
or forfeitures of unvested options upon termination of service), (xv) sold or otherwise issued any shares of capital stock or any other securities (other than option or warrant exercises reflected in
Section 4.4 of the Target Disclosure
Schedule
), (xvi) amended its Charter Documents, (xvii) been a party to any merger, consolidation, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction, (xviii) accrued any deferred
bonuses or compensation due to any stockholder, employee or agent of Target, or paid any such deferred bonuses or compensation except to the extent such deferred bonuses or compensation was accrued on the Latest Balance Sheet, (xix) changed any
of its methods of accounting or accounting practices in any respect or (xx) made any Tax election or entered into any agreement or arrangement with respect to Taxes.
(b)
there has been no Material Adverse Effect on or material casualty loss affecting Target or the Target Business,
and there has been no loss, damage or destruction to, any of the Assets (whether or not covered by insurance) of Target.
4.11 Accounts Receivable
. Set forth on
Section 4.8 of the Target Disclosure Schedule
is a list of all Accounts Receivable of Target as of the Latest Balance Sheet Date. All such accounts arose in the ordinary course of business
and are proper and valid Accounts Receivable, and, except to the extent reserves have been established for such Accounts Receivable and such reserves are reflected on the Latest Balance Sheet, can, to Targets knowledge, be collected by Target
in full (without any counterclaim or setoff). There are no refunds, discounts, rights of setoff or assignments affecting any such Accounts Receivable. Amounts of deferred revenues appear on Targets books and records, in accordance with GAAP,
with respect to Targets (a) billed but unearned Accounts Receivable, (b) previously billed and collected Accounts Receivable still unearned, and (c) unearned customer deposits. To Targets knowledge, except as may pertain
to any matter described on
Schedule 4.16 of the Target Disclosure Schedule
, there are no facts or circumstances (other than general conditions affecting the
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U.S. economy or Targets industry and not disproportionately affecting Target or any of its customers) that are reasonably likely to result in any increase in the uncollectibility of the
Accounts Receivable of Target.
4.12 Tangible Property
. The material Tangible Property
of the Target Companies, wherever located, in the aggregate (a) is in satisfactory operating condition, ordinary wear and tear excepted for the purposes for which it is employed by the Target companies and (b) is suitable in all material
respects for the Target Business as presently conducted.
4.13 Real Property
. No Target
Company owns, nor has any Target Company ever owned, any Real Property.
Section 4.13 of the Target Disclosure Schedule
contains an accurate and complete list of all Real Property leased by the Target Companies, showing use (e.g., sales
office, headquarters), location, rental cost and landlord. All Real Property under lease to the Target Companies is in good condition, ordinary wear and tear excepted, and is sufficient for the current and currently contemplated business of Target.
To the knowledge of Target, (i) no such leased Real Property, nor the occupancy, maintenance or use thereof, is in Default under any Contract or Law, and (ii) no notice or threat from any lessor, Governmental Body or other Person has been
received by any Target Company or served upon any such leased Real Property claiming any Default or Obligation under any Contract or Law, or requiring or calling attention to the need for any work, repairs, construction, alteration, installations or
environmental remediation. To the knowledge of Target, no Proceedings are pending which would affect the zoning or use of any Real Property leased by any Target Company. To the knowledge of Target, no portion of Real Property leased by any Target
Company is within an identified flood plain or other designated flood hazard area as established under any Law or otherwise by any governmental authority. All utilities, including water, gas, telephone, electricity, sanitary and storm sewers, are
currently available to all of the Real Property leased by the Target Companies at market rates, and are adequate to serve the Real Property leased by the Target Companies for the current and currently contemplated use thereof.
4.14 Environmental Matters
. All Target Companies are in material compliance with all applicable
Environmental Laws, which material compliance includes the possession by the Target Companies of all Permits required under applicable Environmental Laws, and in material compliance with the terms and conditions thereof. To the knowledge of Target,
there has not been any Target Environmental Condition (a) at the premises at which the Target Business has been conducted by the Target Companies or any predecessor thereof, (b) at any property owned, leased or operated at any time by any
Target Company, any Person controlled by any Target Company or any predecessor of any of them or (c) at any property at which wastes have been deposited or disposed by or at the behest or direction of any of the foregoing, nor has any Target
Company received notice of any such Target Environmental Condition.
Target Environmental Condition
means any condition or circumstance, including a Release or the presence of Hazardous Substances, whether created by any Target
Company or any third party, at or relating to any such property or premises specified in any of clauses (a) through (c) of the preceding sentence that affects any Target Company and does or may reasonably be expected to (x) require
abatement or correction under an Environmental Law, (y) give rise to any civil or criminal liability on the part of any Target Company under an Environmental Law or (z) create a public or private nuisance.
4.15 Software and Other Intangibles.
(a)
Section 4.15 of the Target Disclosure Schedule
contains an accurate and complete list of all Target
Intangibles, and with respect to each item indicates whether it is owned or licensed.
Section 4.15 of the Target Disclosure Schedule
also sets forth all applications and registrations covering the Target Intangibles registered in the
Target Company name, including the application or registration number, the subject matter and the expiration or renewal dates. Except as set forth on
Section 4.15 of the Target Disclosure Schedule
, no other Target Intangibles are used in
the operation of the Target Business as currently conducted. Except as set forth on
Section 4.15 of the Target Disclosure Schedule
, no Target Intangible has been applied for, registered, recorded or filed by any Target Company in the
Target Company name in or with the U.S. Copyright Office, the U.S. Patent and Trademark Office or any equivalent Governmental Body anywhere in
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the world, nor has any application to register been filed by any Target Company in any such office or with any such Governmental Body, including any intent-to-use application.
(b)
All Target Owned Intangibles are valid, enforceable and subsisting and in compliance with all formal legal
requirements. The Target Companies have good and indefeasible title to, or have the full right to use, all of the Target Intangibles, free and clear of any Encumbrance as to Target Owned Intangibles. Except as set forth on
Section 4.15 of
the Target Disclosure Schedule
, no rights of any third party are necessary to market, license, sell, use, support, maintain, modify, update, and/or create derivative works of the Target Products. Except as set forth on
Section 4.15 of
the Target Disclosure Schedule
, as of the Closing Date all Target Owned Intangibles will continue to be fully transferable, alienable or licensable by the Surviving Corporation without restriction and without payment of any kind to any third
party. No Affiliate of Target uses or licenses any of the Target Intangibles and Target does not use any Intangibles held by any of its Affiliates.
(c)
Except as set forth on
Section 4.15 of the Target Disclosure Schedule
, all of the Target Owned Intangibles were created as a work for hire (as defined under U.S. copyright law) by
regular full time employees, consultants or independent contractors of the Target Companies. Except as set forth on
Section 4.15 of the Target Disclosure Schedule
, all past, and present employees, consultants or independent contractors
of the Target Companies have entered into valid and binding written agreements with Target sufficient to vest title in Target of all Target Owned Intangibles, including all accompanying copyright, patent, trade secret and other proprietary and
intellectual property rights, created by such employee, consultant or independent contractor while employed by the Target Companies.
(d)
None of the Target Products or their respective past or current uses by the Target Companies, including the preparation, distribution, marketing, licensing, support or maintenance thereof, has
violated or infringed upon, or is violating or infringing upon, any Software, technology, patent, copyright, trade secret or other proprietary or intellectual property right of any Person; the foregoing representation is given to the knowledge of
the Target Company with respect to patents. None of the Target Products are subject to any Judgment applicable to any Target Company. To the knowledge of the Target Company, no proceeding is pending or is threatened, nor has any claim or demand been
made, which challenges or challenged the legality, validity, enforceability, use or exclusive ownership by Target Company of any of the Target Owned Intangibles. To the knowledge of the Target Company, no Person is violating or infringing upon, or
has violated or infringed upon at any time, any of the Target Owned Intangibles.
(e)
Target has taken
adequate steps to protect Targets rights in all trade secrets and copyrights with respect to the Target Intangibles. Target has and enforces a policy requiring each employee and consultant to execute and deliver a nondisclosure agreement
substantially in the form previously provided to Acquiror and, except in the case of those employees or consultants whose duties could not materially affect the operations of Target or the services provided to any individual customer of Target, all
employees and consultants of Target have executed and delivered such an agreement to Target.
(f)
Any
license, sublicense or other Contract covering or relating to any Target Intangible is listed on
Section 4.15 of the Target Disclosure Schedule
and is legal, valid, binding, enforceable and in full force and effect, and upon consummation
of the transactions contemplated hereby, will continue to be legal, valid, binding, enforceable and in full force and effect on terms identical to those in effect immediately prior to the consummation of the transactions contemplated hereby and
without payment of any additional amounts or consideration other than outgoing fees, royalties or payments which any Target Company would otherwise be required to pay and without obtaining the consent or permission or giving notice to any party to
such licenses, sublicenses or other Contracts. Neither any Target Company, nor, to Targets knowledge, the other party to any license, sublicense or other Contract covering or relating to any Target Intangible is in Default under any such
license, sublicense or other Contract, or has performed any act or omitted to perform any act which, with notice or lapse of time or both, will become or result in a material violation, breach or default thereunder. To the knowledge of Target, no
Proceeding is pending or is being or has been threatened nor has any claim or demand been made, which challenges the legality, validity, enforceability or ownership of any license, sublicense or other Contract to which any Target Company is a party
covering or relating to any Target Intangible.
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(g)
Set forth on
Section 4.15 of the Target Disclosure Schedule
are all Internet domain names related to the Target Business (
Target Domain Names
). Target is the registrant of all Target Domain Names, and all
registrations of Target Domain Names are in good standing until such dates as set forth on
Section 4.15 of the Target Disclosure Schedule
. No action has been taken or is pending to challenge rights to, suspend, cancel or disable any
Target Domain Name, registration therefor or the right of Target to use a Target Domain Name. Target has all right, title and interest in and to, and rights to use on the Internet and otherwise as a trademark and trade name, the Target Domain Names.
(h)
Target has at all times maintained in connection with its operations, activity, conduct, and
business on the World Wide Web (
Web
) and any and all other applicable Internet operations, activity, conduct, and business, at all times during such operations, activity, conduct, and business, a written privacy statement or
policy governing the collection, maintenance, and use of data and information collected from users of Web sites owned, operated, or maintained by, on behalf of, or for the benefit of Target in connection with or related to the Target Business . Such
statement or policy, along with Targets collection, maintenance, and use of user data and information and transfer thereof to Acquiror under this Agreement, complies in all material respects with all applicable Laws, including Laws of the U.S.
Federal Trade Commission and Targets privacy statements and policies. Targets privacy statement or policy does not in any manner restrict or limit Targets or Targets successors rights to use, sell, license, distribute,
and disclose such collected data.
(i)
To the knowledge of the Target Company, there are no linking,
hyperlinking, deep-linking, framing, or other means or method by which a Target Web Site visitor may move or transfer directly from any Target Web Site to another Web site or view or access another Web site from any Target Web Site.
4.16 Contracts.
(a)
Section 4.16(a) of the Target Disclosure Schedule
contains an accurate and complete list of all of
the following types of Contracts to which any Target Company is a party or by which any Target Company is bound as of the date of this Agreement (such listed Contracts, collectively, the
Target Specified Contracts
), and in the
case of the Target Specified Contracts, grouped into the following categories:
(i)
Contracts under
which a Target Company is the licensor or provider of services, and other customer Contracts (the
Target Customer Contracts
);
(ii)
Contracts (other than Target Customer Contracts) providing a Target Company with access to third party Software in connection with the performance of any Customer Contract, other than
shrink-wrap licenses for off-the-shelf software;
(iii)
Contracts for the purchase or lease
of Real Property or otherwise concerning Real Property (including service Contracts) owned, leased or otherwise used by a Target Company;
(iv)
loan agreements, mortgages, notes, debentures, bonds, guarantees, letters of credit and other financing Contracts;
(v)
except as disclosed pursuant to clause (ii) above, Contracts for the purchase, lease and/or maintenance of
computer equipment and other equipment, Contracts for the purchase, license, lease and/or maintenance of Software under which a Target Company is the purchaser, licensee, lessee or user in excess of $25,000 in any individual case or $50,000 in the
aggregate with respect to any particular Person, and other supplier Contracts in excess of $25,000 in any individual case or $50,000 in the aggregate with respect to any particular Person;
(vi)
employment, consulting and sales representative or agency Contracts (excluding (A) Contracts which
constitute Target Employee Benefit Plans listed on
Section 4.18 of the Target Disclosure Schedule
, (B) Contracts with employees for at will employment which may be terminated by Target on 30 days or less notice without
further liability (other than pursuant to applicable Law), and (C) Contracts with independent contractors engaged by a Target Company for services that individually involve less than $50,000);
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(vii)
except as disclosed pursuant to clauses (ii) or (v) above or Section 4.15, Contracts under
which any rights in and/or ownership of any Software product, technology or other Target Intangible, or any prior version thereof, or any part of the customer base, business or Assets of any Target Company, or any shares or other ownership interests
in Target (or any of its predecessors) was acquired (other than Targets standard form of employee invention assignment agreement);
(viii)
Contracts other than Target Customer Contracts containing clauses that prohibit or restrict any Target Company from soliciting any employee or customer of any other Person;
(ix)
Contracts not covered by the foregoing clauses for the future purchase of, or payment for, supplies or
products, or the performance of services by a third party, in excess of $25,000 in any individual case, or any Contracts for the sale of supplies or products or the performance of services that involve an amount in excess of $50,000 with respect to
any one supplier or other party;
(x)
except to the extent disclosed pursuant to the foregoing clauses,
Contracts for any capital expenditure or leasehold improvements;
(xi)
except to the extent disclosed
pursuant to the foregoing clauses, Contracts under which any Encumbrances (other than Permitted Encumbrances) exist;
(xii)
other Contracts material to the Target Business (excluding Contracts which constitute Insurance Policies listed on
Section 4.21 of the Target Disclosure Schedule
); and
(xiii)
Contracts prohibiting or restricting any Target Company from engaging in any business in any material
respect through a most-favored-nation clause, non-solicitation provision, restrictions as to operating territories or any similar means.
A description of each oral Target Specified Contract is included on
Section 4.16(a) of the Target Disclosure Schedule
, and true and correct copies of each written Specified Contract have been
delivered to Acquiror.
(b)
Each Target Specified Contract is valid and in full force and effect, and is
enforceable by the Target Companies in accordance with its terms.
(c)
Except as set forth on
Section 4.16(c) of the Target Disclosure Schedule
, (i) no Target Company is in Default under any Target Specified Contract in any material respect, and, to Targets knowledge, as of the date of this Agreement, no other Person
is in Default under any Target Specified Contract in any material respect, (ii) as of the date of this Agreement, no written notice to an appropriate recipient at any Target Company has been received regarding any actual, alleged, possible or
potential Default under any Specified Contract and (iii) no Target Company has waived any of its material rights under any Target Specified Contract. Except as set forth on
Section 4.16(c) of the Target Disclosure Schedule
, as of
the date of this Agreement none of the customers of any Target Company under a Target Customer Contract has informed Target Company, in writing or otherwise, that (x) it will or intends to terminate or not renew its Contract with a Target
Company before the scheduled expiration date, (y) it will otherwise terminate its relationship with a Target Company or (z) it may otherwise reduce the volume of business transacted with the Target Companies below historical levels. To
Targets knowledge, the Transactions do not and will not adversely affect any Target Companys relations with any of its customers. Target has delivered to Acquiror an accurate and complete copy of the most recent customer surveys of
Target (if any).
(d)
The performance of the Target Specified Contracts in accordance with their
respective terms will not result in any violation of or failure to comply with any Judgment or material Law applicable to any Target Company on or prior to the Closing Date.
(e)
Except as set forth on
Section 4.16(e) of the Target Disclosure Schedule
, as of the date of this
Agreement, no Person is renegotiating, or has given written notice to an appropriate recipient that it intends to renegotiate, any amount paid or payable to a Target Company under any Target Specified Contract that is a Customer Contract or any
other term or provision of any Target Specified Contract that is a Customer Contract.
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(f)
The Target Specified Contracts are all the Contracts necessary and sufficient to operate the Target Business. Except as set forth on
Section 4.16(f) of the Target Disclosure Schedule
, none of the Target Specified Contracts require
any Target Company to purchase minimum amounts of goods or services. Except as set forth on
Section 4.16(f) of the Target Disclosure Schedule
, there are no currently outstanding formal proposals or offers submitted in writing by any
Target Company to any customer, prospect, supplier or other Person which, if accepted, would result in a legally binding Contract of such Person involving an amount or commitment exceeding $10,000 in any single case or an aggregate amount or
commitment exceeding $50,000.
4.17 Employees and Independent Contractors.
(a)
Target has delivered to Acquiror an accurate and complete list of all of the employees of the Target Companies
(including any such employee who is on a leave of absence or on layoff status) and (i) their titles, (ii) their social security numbers and principal residence address, (iii) their dates of hire, (iv) their current salaries or
wages and all bonuses, commissions and incentives paid at any time during 2009, (v) their last compensation changes and the dates on which such changes were made, (vi) any specific bonus, commission or incentive plans or agreements for or
with them; (vi) any Permit that is held by them and that relates to the Target Business and (vii) any outstanding loans or advances made to them. For all employees who are currently on a leave of absence (whether paid or unpaid), the list
also includes the reasons for the leave of absence, the expected return date, and whether reemployment of such employee is guaranteed under contract or statute. For all employees who have requested a leave of absence to commence at any time after
the date of this agreement, the list also includes the reason for the leave, the expected length of such leave, and whether reemployment of such employee is guaranteed by contract or statute.
(b)
Except pursuant to a Contract listed on
Section 4.16 of the Target Disclosure Schedule
, no Target
Company has engaged any sales representatives, temporary employees or independent contractors for services involving individually in excess of $50,000.
(c)
Except as limited by the specific and express terms of any employment Contracts listed on
Section 4.16 of the Target Disclosure Schedule
and except for any limitations of general
application which may be imposed under applicable employment Laws, the Target Companies have the right to terminate the employment of each of its employees and temporary employees at will and to terminate the engagement of any of its independent
contractors without payment to such employee, temporary employee or independent contractor other than for services rendered through termination and without incurring any penalty or Obligation other than liability for severance pay in accordance with
Targets disclosed severance pay policy. Except as set forth on
Section 4.17 of the Target Disclosure Schedule
, target has no liabilities or Obligations with respect to any employee, temporary employee, director or consultant of any
Target Subsidiary and the termination of such employment or severance by any Target Subsidiary will not result in any liability or Obligation of, or penalty to Target.
(d)
Except as disclosed in
Section 4.17 of the Target Disclosure Schedule
, each Target Company is, and
each Target Company has been at all material times, in material compliance with all applicable material Laws relating to employment and employment practices, terms and conditions of employment and wages and hours, including, any such Laws respecting
minimum wage and overtime payments, employment discrimination, workers compensation, family and medical leave, the Immigration Reform and Control Act, and occupational safety and health requirements, and has not and is not engaged in any
unfair labor practice. No Target Company has any material obligations under COBRA or any similar state law with respect to any former employee or qualifying beneficiaries thereunder. There are no controversies pending or, to Targets knowledge,
threatened between any Target Company and any of its employees or former employees. No Target Company has incurred any liability under, and has complied in all material respects with, the worker adjustment and retraining notification act
(WARN), or any similar state law, to the extent applicable to the Target Companies, and to Targets knowledge, no fact or event exists that would reasonably be expected to give rise to liability under WARN, or any equivalent state
law. Target has delivered to Acquiror accurate and complete copies of all employee manuals and handbooks, disclosure materials, policy statements and
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other materials relating to the employment of the current and employees during the two years prior to the date hereof of the Target Companies. To the knowledge of Target, the relations of the
Target Companies with their employees are currently on a good and normal basis.
(e)
No Target
Company has ever been a party to or bound by any union or collective bargaining Contract, nor is any such Contract currently in effect or being negotiated by or on behalf of any Target Company.
(f)
Set forth on
Section 4.17 of the Target Disclosure Schedule
is a list of all employees who have
entered into noncompete, or non solicitation agreements with any Target Company. To Targets knowledge, none of these employees are in breach of their respective agreements.
(g)
To Targets knowledge, (i) no employee of any Target Company has received an offer to join a business
that may be competitive with any Target Company or the Target Business and (ii) no employee of any Target Company is a party to or is bound by any confidentiality agreement, noncompetition agreement or other Contract (with any Person) that may
have an adverse effect on (A) the performance by such employee of any of his duties or responsibilities as an employee of a Target Company, or (B) any of the businesses or operations of the Target Companies.
(h)
To Targets knowledge, all Persons classified by the Target Companies as independent contractors satisfy
and have at all times satisfied the requirements of applicable Law to be so classified; each Target Company has fully and accurately reported their compensation on IRS Forms 1099 when required to do so; and no Target Company has any obligations to
provide benefits with respect to such Persons under the Target Employee Benefit Plans or otherwise.
(i)
No individuals are currently providing, or have ever provided, services to any Target Company pursuant to a leasing agreement or similar type of arrangement, nor has any Target Company entered into any arrangement whereby services will be
provided by such individuals.
(j)
Except as set forth on
Section 4.17 of the Target Disclosure
Schedule
, since December 31, 2008, no employee of any Target Company having an annual salary of $50,000 or more has indicated an intention to terminate or has terminated his or her employment with such Target Company. To Targets
knowledge, the Transactions will not adversely affect relations with any employees of any Target Company.
4.18 Target Employee Benefit Plans.
(a)
Section 4.18 of the Target Disclosure
Schedule
contains an accurate and complete list of all Target Employee Benefit Plans. Accurate and complete copies of all the following documents with respect to each Target Employee Benefit Plan, to the extent applicable, have been delivered to
Acquiror: (A) all documents constituting the Target Employee Benefit Plan, including trust agreements, insurance policies, service agreements, and amendments thereto; (B) the three most recently filed Forms 5500 and any financial
statements attached thereto; (C) all Internal Revenue Service (
IRS
) determination letters for the Target Employee Benefit Plan; (D) the most recent summary plan description and any amendments or modifications thereof;
(E) all reports submitted within the preceding three years by third-party administrators, actuaries, investment managers, consultants, or other independent contractors; (F) all notices that were issued within the preceding three years by
the IRS, United States Department of Labor, or any other Governmental Body with respect to the Target Employee Benefit Plan; and (G) all employee manuals or handbooks containing personnel or employee relations policies. For purposes of the
following provisions of this
Section 4.18
, the term Target includes any ERISA Affiliate of Target.
(b)
Target has not proposed any employee benefit plans or arrangements which it plans to establish or maintain or to which it plans to contribute or proposed any changes to any Target Employee
Benefit Plans now in effect, except as may otherwise be required pursuant to this Agreement.
(c)
Each
Target Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code (i) has received, or has applied for, a favorable determination letter from the IRS that such Target Employee Benefit Plan satisfies the
qualification requirements of Section 401(a) of the Code and that such
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Target Employee Benefit Plans related trust is exempt from tax under Section 501(a) of the Code or (ii) is maintained under an IRS approved prototype plan with respect to which
Target may rely on the opinion letter issue to the prototype sponsor as to such Target Employee Benefit Plans qualified status. Other than the Target Employee Benefit Plans listed on
Section 4.18 of the Target Disclosure Schedule
,
Target has never maintained or contributed to any other Target Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code. No fact exists or is reasonably expected to arise, with respect to the design or operation
of each such Target Employee Benefit Plan that could cause the loss of such qualification or exemption or the imposition of any material liability, lien, penalty, or tax under ERISA or the Code. Each such Target Employee Benefit Plan has been timely
amended to comply with current Law.
(d)
With respect to the Target Employee Benefit Plans, Target will
have made, on or before the Closing Date, all payments required to be made by them on or before the Closing Date and will have accrued (in accordance with GAAP) as of the Closing Date all payments due but not yet payable as of the Closing Date. All
monies withheld from employee paychecks with respect to Target Employee Benefit Plans have been transferred to the appropriate Target Employee Benefit Plan in a timely manner as required by applicable Law.
(e)
All of the Target Employee Benefit Plans conform and are, and have been, operated in material compliance with
their provisions and with all applicable Laws including ERISA and the Code and the regulations and rulings thereunder.
(f)
With respect to each Target Employee Benefit Plan, there has occurred no non-exempt prohibited transaction (within the meaning of Section 4975 of the Code or Section 406
of ERISA) or breach of any fiduciary duty described in Section 404 of ERISA that could result in any material Obligation, direct or indirect, for Target or any stockholder, officer, director, or employee of Target.
(g)
Target does not sponsor, maintain or contribute to, and has never sponsored, maintained or contributed to, or
had any Obligation with respect to, any employee benefit plan subject to Section 302 of ERISA, Section 412 of the Code or Title IV of ERISA. Target does not contribute to, and has never contributed to or had any other Obligation with
respect to, a multiemployer plan (as defined in Section 3(37) of ERISA). No Target Employee Benefit Plan is a multiple employer plan within the meaning of Section 413 of the Code. Target does not have any plan administration
responsibilities, Obligations or fiduciary responsibilities or duties with respect to any benefit plan which is maintained by an employer that is not an ERISA Affiliate.
(h)
Except as set forth on
Section 4.18 of the Target Disclosure Schedule
, neither the execution and
delivery of this Agreement or any of the other Transaction Documents nor the consummation of the Transactions will (i) result in any payment (including any severance, unemployment compensation or golden parachute payment) becoming due from
Target under any of the Target Employee Benefit Plans, (ii) increase any benefits otherwise payable under any of the Target Benefit Plans, or (iii) result in the acceleration of the time of payment or vesting of any such benefits to any
extent. No payments or benefits under any Target Employee Benefit Plan or other agreement of Target are, or are expected to be, subject to the disallowance of a deduction under Section 162(m) of the Code. Target has no obligation to indemnify,
hold harmless or gross-up any individual with respect to any excise tax imposed under Section 4999 of the Code.
(i)
Target has not incurred any Obligation for any excise, income or other taxes or penalties with respect to any Target Employee Benefit Plan, and to Targets knowledge, no event has occurred
and no circumstance exists or has existed that could give rise to any Obligation. There are no pending Proceedings that have been asserted or instituted against any of the Target Employee Benefit Plans, the Assets of any of the trusts under such
plans, the plan sponsor, the plan administrator or any fiduciary of any such plan (other than routine benefit claims), including Proceedings by the IRS, U.S. Department of Labor or any other Government Body, and, to Targets knowledge, there
are no facts which could form the basis for any such Proceedings. No matters are pending with respect to any Target Employee Benefit Plan under any IRS correction program.
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(j)
All Target Employee Benefit Plans may be amended or terminated without penalty or increased liability (other than for benefits accrued to date of amendment or termination under such plan) by Acquiror at any time on or after the Effective Time.
(k)
Any Target Employee Benefit Plan that is a group health plan (within the meaning of
Section 4980B(g)(2) of the Code) complies, and in each and every case has substantially complied, with all of the requirements of Section 4980B of the Code, ERISA, Title XXII of the Public Health Service Act, the applicable provisions of
the Social Security Act, the Health Insurance Portability and Accountability Act of 1996, and other applicable Laws, and no such Target Employee Benefit Plan provides health or other benefits after an employees or former employees
retirement or other termination of employment except as required by Section 4980B of the Code.
(l)
Except as disclosed on
Section 4.18 of the Target Disclosure Schedule
, no employee, director or consultant of any Target Subsidiary is eligible to participate in, or is entitled to any benefit under any Target Employee Benefit Plan.
(m)
Target does not maintain, have any obligation to contribute to or have any Obligation with respect
to, any benefit plan or arrangement outside the U.S. and has never had any Obligation or liability with respect to any such benefit plan or arrangement. Target does not employ and has never employed any individual outside of the United States.
(n)
Target has never been party to any arrangement that is or was a nonqualified deferred
compensation plan within the meaning of Section 409A of the Code. Any Target Employee Benefit Plan that is deemed to constitute a nonqualified deferred compensation plan subject to Section 409A of the Code has been operated between
January 1, 2005 and December 31, 2008 in good faith compliance with Section 409A of the Code and the applicable notices and proposed regulations thereunder, and since January 1, 2009 has been operated in accordance with, and is
in material documentary compliance with, the final regulations under Section 409A of the Code. Target has no obligation to indemnify, hold harmless or gross up any individual with respect to any penalty tax or interest under Section 409A
of the Code.
4.19 Taxes
. Except as set forth on
Section 4.19 of the Target
Disclosure Schedule
:
(a)
All material Tax Returns required to have been filed by or with respect to
any Target Company or any affiliated, combined, consolidated, unitary or similar group of which any Target Company is a member (a
Target Relevant Group
) have been duly and timely filed (or, if due between the date hereof and the
Closing Date, will be duly and timely filed), and each such Tax Return correctly and completely reflects Obligation for Taxes and all other information required to be reported thereon in all material respects . All material Taxes owed by any Target
Company or any member of a Target Relevant Group (whether or not shown on any Tax Return) have been timely paid, or adequately reserved for on the Closing Balance Sheet. The Target Companies have adequately provided for, in their books of account
and related records, all Obligations for any material unpaid Taxes, being current Taxes not yet due and payable.
(b)
No action or audit is currently pending with respect to any Target Company in respect of any Taxes. No action
or audit has been proposed nor dispute or claim raised, in writing by an applicable Taxing Authority with respect to any Target Company in respect of Taxes. No Target Company is the beneficiary of any extension of time within which to file any Tax
Return, nor has any Target Company made (or had made on their behalf) any requests for such extensions. No claim has been made within the past five years by an authority in a jurisdiction where any Target Company does not file Tax Returns that any
of them is or may be subject to taxation by that jurisdiction or that any of them must file Tax Returns. There are no liens on any assets of any Target Company with respect to Taxes except for Taxes not yet due and payable.
(c)
The Target Companies have withheld and timely paid all material Taxes required to have been withheld and paid
and have complied with all information reporting and backup withholding requirements, including maintenance of required records with respect thereto.
(d)
Section 4.19 of the Target Disclosure Schedule
lists those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. Correct and
complete copies of all income
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Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by any Target Company have been delivered to Acquiror. No Target Company has waived (or is subject
to a waiver of) any statute of limitations in respect of Taxes or has agreed to (or is subject to) any extension of time with respect to a Tax assessment or deficiency which has not expired.
(e)
No Target Company has ever been a U.S. real property holding corporation within the meaning of
Section 897(c)(2) of the Code. No Target Company has made any payments, is obligated to make any payments or take other action, or is a party to any agreement that under certain circumstances could obligate it to make payments that would result
in a nondeductible expense under Section 280G of the Code or an excise tax to the recipient of such payments pursuant to Section 4999 of the Code.
(f)
No Target Company has agreed to or is required to make by reason of a change in accounting method or otherwise any adjustment under Section 481(a) of the Code. No Target Company has been
the distributing corporation (within the meaning of Section 355(c)(2) of the Code) with respect to a transaction described in Section 355 of the Code within the five-year period ending as of the date of this Agreement. Within
the past five years, no Target Company has received any ruling from any Taxing Authority or has entered into any agreement with a Taxing Authority. Each Target Company has disclosed on its income Tax Returns all positions taken therein that could
give rise to a substantial understatement of income Tax within the meaning of Section 6662 of the Code (or similar provision of applicable Tax Law).
(g)
No Target Company is a party to any Tax allocation or sharing agreement. No Target Company has an Obligation for the Taxes of any Person, other than under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local, or foreign law) with respect to any Target Relevant Group of which such Target Company currently is a member, (i) as a transferee or successor, (ii) by contract, (iii) under
Section 1.1502-6 of the Treasury regulations (or any similar provision of applicable Tax Law), or (iv) otherwise. No Target Company is a party to any joint venture, partnership or other arrangement that is treated as a partnership for
federal income Tax purposes.
(h)
Except to the extent offset by Pre-Closing tax attributes of any
Target Company, no Target Company will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any
(i) intercompany transactions or excess loss accounts described in Treasury regulations under Section 1502 of the Code (or any similar provision of applicable Tax Law), (ii) Section 481 adjustment made prior to the Closing Date,
(iii) installment sale or open transaction disposition made on or prior to the Closing Date or (iv) prepaid amount received on or prior to the Closing Date.
(i)
No Target Company is or has been a party to any reportable transaction as defined in
Section 6707A(c)(1) and section 1.6011-4(b) of the Treasury regulations.
(j)
No Target Company has
taken or agreed to take any action not contemplated by this Agreement, or is aware of any fact or circumstance outside the scope of this Agreement, that would prevent the Merger from qualifying as a reorganization within the meaning of
Section 368 of the Code.
4.20 Proceedings and Judgments.
(a)
Except as set forth on
Section 4.20 of the Target Disclosure Schedule
, (i) no Proceeding is
currently pending or, or Targets knowledge, threatened, nor has any Proceeding occurred at any time since December 31, 2005, to which any Target Company is or was a party, or by which any Target Company or any material Assets or business
of any Target Company is or was affected, (ii) no Judgment is currently outstanding, nor has any Judgment been outstanding at any time since December 31, 2005, against any Target Company, or by which any Target Company or any Assets or
business of any Target Company is or was affected and (iii) no breach of contract, breach of warranty, tort, negligence, infringement, product liability, discrimination, wrongful discharge or other claim of any similar nature has been asserted
or, to Targets knowledge, threatened by or against any Target Company at any time since December 31, 2005. Except as set forth on Section 4.20 of the Target Disclosure Schedule, to Targets knowledge, no event has
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occurred, and no claim, dispute or other condition or circumstance exists, that would reasonably be expected to give rise to or serve as a basis for, directly or indirectly, the commencement of
any Proceeding described in this Section 4.20(a).
(b)
As to each matter described on
Section 4.20 of the Target Disclosure Schedule
, accurate and complete copies of all pertinent pleadings, Judgments, orders, correspondence and other legal documents have been delivered to Acquiror.
(c)
To Targets knowledge, no officer or employee of any Target Company is subject to any Judgment that
prohibits such officer or employee from engaging in or continuing any conduct, activity or practice relating to the Target Business.
(d)
There is no proposed Judgment to which any Target Company would be a party, or by which any Target Company or any material Assets or business of any Target Company would be affected, or, to the
knowledge of Target, any other proposed Judgment, that, if issued or otherwise put into effect, to Targets knowledge, (i) would reasonably be expected to have an adverse effect on business, condition, assets, technology, liabilities,
operations, employees, financial performance, revenues, net income, political environment, economic environment or prospects of or with respect to any Target Company (or on any aspect or portion thereof) or on the ability of any Target Company to
comply with or perform any covenant or obligation under this Agreement or (ii) would reasonably be expected to have the effect of preventing, delaying, making illegal or otherwise interfering with any of the Transactions or making it more
difficult for Acquiror to realize any anticipated benefit of any of the Transactions.
4.21
Insurance
.
Section 4.21 of the Target Disclosure Schedule
contains an accurate and complete list and description of all Insurance Policies (excluding Insurance Policies that constitute the Target Employee Benefit Plans described on
Section 4.18 of the Target Disclosure Schedule
) currently owned or maintained by any Target Company. All such Insurance Policies are on a claims made basis. Except as set forth on
Section 4.21 of the Target Disclosure
Schedule
, accurate and complete copies of all Insurance Policies described or required to be described on
Section 4.21 of the Target Disclosure Schedule
have been made available to Acquiror. Each such Insurance Policy is in full
force and effect; no Target Company has received notice of cancellation with respect to any such Insurance Policy; and there is no basis for the insurer thereunder to terminate any such Insurance Policy. Except as set forth on
Section 4.21
of the Target Disclosure Schedule
, there are no claims that are pending under any of the Insurance Policies described on
Section 4.21 of the Target Disclosure Schedule
. There is no Default with respect to any such Insurance Policy,
nor has there been any failure to give any notice or present any claim under any such Insurance Policy in a timely fashion or in the manner or detail required by the Insurance Policy.
4.22 Questionable Payments
. No Target Company nor any of the current or former stockholders,
directors, executives, officers, representatives, agents or employees of Target or any Target Subsidiary (when acting in such capacity or otherwise on behalf of Target, any Target Subsidiary or any of their predecessors) (a) has used or is
using any corporate funds for any illegal contributions, gifts, entertainment or other unlawful expenses relating to political activity, (b) has used or is using any corporate funds for any direct or indirect unlawful payments to any foreign or
domestic government officials or employees, (c) has violated or is violating any provision of the Foreign Corrupt Practices Act of 1977, (d) has established or maintained, or is maintaining, any unlawful or unrecorded fund of corporate
monies or other properties, (e) has made at any time since December 31, 2004, any false or fictitious entries on the books and records of any Target Company, (f) has made any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment of any nature using corporate funds or otherwise on behalf of any Target Company or (g) has made any material favor or gift that is not deductible for federal income tax purposes using corporate funds or otherwise on behalf of
any Target Company.
4.23 Related Party Transactions
. Except (a) as set forth on
Section 4.23 of the Target Disclosure Schedule
, (b) for fees payable to any director of Target in respect of his or her service in such capacity and (c) for any employment Contracts listed on
Section 4.16 of the Target
Disclosure Schedule
, there are no real estate
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leases, personal property leases, loans, guarantees, Contracts, transactions, understandings or other arrangements of any nature between or among any Target Company and any current or former
stockholder, director, officer or controlling Person of any Target Company (or any of its predecessors) or any other Person affiliated with any Target Company (or any of its predecessors).
4.24 Brokerage Fees
. Except as set forth on
Section 4.24 of the Target Disclosure
Schedule
, no Person acting on behalf of any Target Company or the stockholders of Target is or shall be entitled to any brokerage or finders fee in connection with the Transactions.
4.25 Acquisition Proposals
. Since January 1, 2008, no Target Company has, directly or
indirectly, discussed, negotiated, or consummated with any Person (other than its employees, consultants, representatives, and professional advisors) any transaction involving the issuance, sale, exchange, or other disposition of any capital stock
or other securities of Target or the sale, exchange or other disposition of all or any material Assets of the Target Business.
4.26 Full Disclosure
. No representation or warranty made by Target in this Agreement or pursuant
hereto (a) contains any untrue statement of any fact or (b) omits to state any fact that is necessary to make the statements made, in the context in which made, not false or misleading in any material respect. The copies of documents
attached as Schedules to this Agreement or otherwise delivered to Acquiror in connection with the Transactions, are accurate and complete, and are not missing any amendments, modifications, correspondence or other related papers which would be
pertinent to Acquirors understanding thereof in any material respect.
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SECTION 5.
INTENTIONALLY OMITTED
SECTION 6.
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Except as disclosed in the Acquiror SEC Reports or as set forth in the Acquiror Disclosure Schedule (and whether or not the Acquiror
Disclosure Schedule is specifically referenced in any subsection of this Section 6), Acquiror represents and warrants to Target and the Holders that the statements contained in this Section 6 are complete and accurate as of the date of
this Agreement. The Acquiror Disclosure Schedule shall be arranged in sections corresponding to the numbered and lettered sections and subsections contained in this Section 6, and the disclosures in any section or subsection of the Acquiror
Disclosure Schedule shall qualify other sections and subsections in this Section 6 only to the extent it is readily apparent from a reasonable reading of the disclosure that such disclosure is applicable to such other sections and subsections.
6.1 Organization.
(a)
Acquiror is a corporation duly organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Washington. Each of the other Acquiror Subsidiaries is an entity duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization. Acquiror possesses the full corporate power and authority to (i) own and use its Assets in the manner in which such Assets are currently owned and used and (ii) conduct the Acquiror Business as
such business is currently being conducted. Each Acquiror Company is registered, qualified or licensed to do business, as the case may be, and in good standing in each of the jurisdictions where the ownership of any of its Assets or the conduct of
its business would require it to be so registered, qualified or licensed, as the case may be, except where the absence of any such registration, qualification or license would not reasonably be expected to have a Material Adverse Effect.
(b)
Section 6.1 of the Acquiror Disclosure Schedule
sets forth a true, correct and complete list of any
Person in which Acquiror owns, directly or indirectly, any equity interest and, in respect of each such Person, the nature and extent of Acquirors interest and any other interests that are held by other Persons. Acquiror has never acquired or
succeeded to all or any portion of the Assets or businesses of any other Person, and there is no other Person that may be deemed to be a predecessor of Acquiror.
6.2 Authority; Non-Contravention.
(a)
Subject to the receipt of the Acquiror Stockholder Approval, each of Acquiror and Merger Sub has the corporate right, power and authority to enter into, execute and deliver this Agreement and
the other Transaction Documents to which it is a party and to perform or satisfy, as the case may be, its obligations hereunder and thereunder, and the (i) execution and delivery of this Agreement and the other Transaction Documents to which
Acquiror or Merger Sub, as the case may be, is a party, (ii) performance or satisfaction, as the case may be, of Acquirors or Merger Subs obligations under this Agreement and the other Transaction Documents to which Acquiror or
Merger Sub, as the case may be, is a party and (iii) consummation by Acquiror or Merger Sub, as the case may be, of the Transactions to which Acquiror or Merger Sub is a party, in each case, have been duly authorized by all necessary corporate
actions of Acquiror or Merger Sub, as the case may be. This Agreement and the other Transaction Documents to which Acquiror or Merger Sub, as the case may be, is a party constitutes the legal, valid and binding agreement of Acquiror or Merger Sub,
as the case may be, enforceable against Acquiror or Merger Sub, as the case may be, in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of
law governing specific performance, injunctive relief and other equitable remedies. The Board of Directors of Acquiror (the
Acquiror Board
) has adopted resolutions, by unanimous vote at a meeting duly called at which a quorum of
directors of
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Acquiror was present, (i) approving the execution, delivery and performance of this Agreement, (ii) determining that entering into this Agreement is in the best interests of Acquiror
and its stockholders, (iii) declaring this Agreement advisable and (iv) recommending that Acquirors stockholders vote in favor of approval of the issuance of Acquiror Series C Preferred Stock and Acquiror Common Stock constituting
the Merger Consideration (the
Share Issuance
) and directing that the Share Issuance be submitted to Acquirors stockholders for approval at a duly held meeting of such shareholders for such purpose (the
Acquiror
Stockholders Meeting
). As of the date of this Agreement, such resolutions have not been amended or withdrawn.
(b)
Neither the execution or delivery of this Agreement or the other Transaction Documents to which Acquiror or Merger Sub is a party nor the performance of its obligations or consummation of any
of the Transactions contemplated hereby or thereby by Acquiror or Merger Sub will, directly or indirectly:
(i)
result in a Default under (A) any of the provisions of the Charter Documents of Acquiror or Merger Sub, as
the case may be, or (B) any resolution adopted by the stockholders, board of directors or any committees thereof of Acquiror or Merger Sub, as the case may be;
(ii)
result in a Default under any Law or Judgment to which any Acquiror Company or any of its respective Assets
are bound or subject, or give any Governmental Body or other Person the right to challenge any of the Transactions contemplated by this Agreement or any of the other Transaction Documents or to exercise any remedy or obtain any relief under, any Law
or Judgment to which Acquiror or Merger Sub, or any of its respective Assets, is subject;
(iii)
result
in a Default under, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Permit that is held by any Acquiror Company or that otherwise relates to any of the businesses of any Acquiror Company or to
any of the Assets owned or used by any Acquiror Company;
(iv)
result in a Default under any provision
of any Acquiror Specified Contract; or
(v)
result in the imposition or creation of any Encumbrance upon
or with respect to any asset owned or used by any Acquiror Company.
(c)
Except as set forth on
Section 6.2 of the Acquiror Disclosure Schedule
, no Consents are necessary in connection with the execution and delivery of this Agreement by Acquiror or Merger Sub or any of the other Transaction Documents to which Acquiror or Merger
Sub is a party or the consummation or performance of any of the Transactions.
6.3
Capitalization.
(a)
As of the date of this Agreement, and after giving effect to the filing of the
Series C Certificate of Designation and the Closing, Acquiror has authorized (i) 50,000,000 shares of Acquiror Common Stock and (ii) 1,000,000 shares of Acquiror Preferred Stock, of which (A) 120,000 shares are designated Series B
Preferred Stock and (B) 87,016 shares are designated Series C Preferred Stock. As of the date hereof, and after giving effect to the filing of the Certificate of Designation and the Closing, there are 26,960,911 outstanding shares of Acquiror
Common Stock, 120,000 outstanding shares of Acquirors Series B Convertible Preferred Stock and 87,016 outstanding shares of Acquiror Series C Preferred Stock, and 15,245,530 shares of Acquiror Common Stock are available for issuance upon the
exercise of outstanding stock options, warrants, or other convertible rights and 1,264,851 shares of Acquiror Common Stock are reserved for issuance under Acquirors 2005 Stock Award and Incentive Plan. As of the date hereof, and after giving
effect to the filing of the Series C Certificate of Designation and the Closing, Acquiror has no other shares of capital stock authorized, issued or outstanding.
(b)
Except as set forth in
Section 6.3 of the Acquiror Disclosure Schedule
, there are no
(i) outstanding options, warrants, convertible securities, Contracts or rights of any kind to purchase or otherwise acquire from Acquiror any shares of Acquiror Common Stock, or (ii) Contracts under which Acquiror is obligated to redeem,
repurchase or otherwise acquire any shares of outstanding Acquiror Common Stock or any other securities.
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Except for issuances of Acquiror Stock upon the exercise or termination of the rights disclosed on
Section 6.3 of the Acquiror Disclosure Schedule
, no shares of Acquiror Stock are
reserved or authorized for issuance other than pursuant to Acquirors 2005 Stock Award and Incentive Plan as in effect on the date hereof.
(c)
All outstanding shares of Acquiror Stock have been duly authorized and validly issued, are fully paid and non-assessable and were issued in compliance with all applicable Charter Documents of
Acquiror, all Contracts binding upon Acquiror and all applicable Laws, including applicable securities Laws.
(d)
Other than as set forth herein, no Acquiror Company currently has any outstanding vote, plan or pending
proposal involving any merger or consolidation of any Acquiror Company with or into any other Person, any sale of Acquiror Stock or any sale of Assets of any Acquiror Company (excluding plans or proposals for the sale or license of Acquiror products
and services ).
(e)
To Acquirors knowledge, except as set forth in
Section 6.3 of the
Acquiror Disclosure Schedule
, there are no Contracts among any Persons which affect or relate to the voting or giving of written consents with respect to any Acquiror Stock.
6.4 Financial and Corporate Records
. The books and records of Acquiror have been properly prepared
and maintained in form and substance adequate for preparing audited financial statements in accordance with GAAP.
6.5 Compliance with Laws; Permits.
(a)
(i) each Acquiror Company is in compliance in all
material respects with each Judgment and with each material Law that is applicable to it or to the conduct of the Acquiror Business or the ownership or use of any of its Assets, (ii) each Acquiror Company has at all times been in compliance in
all material respects with each Judgment or material Law that is or was applicable to it or to the conduct of any of its businesses or the ownership or use of any of its Assets, (iii) no event has occurred, and no condition or circumstance
exists, that might (with or without notice or lapse of time) constitute or result in a Default by any Acquiror Company of any Judgment, or a failure on the part of any Acquiror Company to comply in any material respect with, any Law applicable to it
and (iv) no Acquiror Company has received, at any time, any notice or other communication (in writing or otherwise) from any Governmental Body or any other Person regarding (A) any actual, alleged, possible or potential material violation
of, or material failure to comply with, any Judgment or applicable Law or (B) any actual, alleged, possible or potential obligation on the part of any Acquiror Company to undertake, or to bear all or any portion of the cost of, any
environmental cleanup or any environmental remedial, corrective or response action of any nature.
(b)
Each Acquiror Company has obtained and holds all Permits required for the lawful operation of its business as and where such business is presently conducted.
6.6 Acquiror Financial Statements.
(a)
Acquirors Fiscal Year ends on December 31.
(b)
Acquiror has filed with the SEC under the Exchange Act (i) its annual audited consolidated financial
statements for the 2008 and 2009 fiscal years and the related statements of income and cash flows and stockholders equity for such fiscal years and (ii) its balance sheet as of March 31, 2010 and related unaudited statements of
income and cash flows and stockholders equity of Acquiror for the three months then ended. All such financial statements are referred to herein collectively as the
Acquiror Financial Statements
.
(c)
The Acquiror Financial Statements are consistent in all material respects with the books and records of
Acquiror, and there have not been any material transactions that have not been recorded in the accounting records underlying such Acquiror Financial Statements. The profit and loss statements reflect all costs that historically have been incurred by
the Acquiror Business. The Acquiror Financial Statements (other than the unaudited Acquiror Financial Statements) have been prepared in accordance with GAAP and present fairly
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the financial position of Acquiror as of the dates thereof, and the results of its operations for the periods then ended, subject to the absence of notes in the case of unaudited Acquiror
Financial Statements.
6.7 Assets.
(a)
Each Acquiror Company owns and has good and marketable title to, all of its Assets that are purported to be
owned by it and has the right to transfer all rights, title and interest in such Assets, free and clear of any Encumbrance except for Permitted Encumbrances.
(b)
Acquiror has all Assets, excluding Intangibles of Acquiror (which are covered under
Section 6.9
), necessary to operate, or which are material to the operation of, the Acquiror
Business as currently conducted.
6.8 No Material Adverse Effect since Latest Balance Sheet
Date.
Since the Latest Balance Sheet Date, there has been no Material Adverse Effect on or material casualty loss affecting Acquiror its business, and there has been no loss, damage or destruction to, any of the Assets (whether or not covered by
insurance) of Acquiror.
6.9 Intangibles of Acquiror.
(a)
The Acquiror Owned Intangibles are valid, enforceable and subsisting and in compliance with all formal legal
requirements. The Acquiror Companies have good and indefeasible title to, or have the full right to use, all of the Acquiror Intangibles, free and clear of any Encumbrance as to Acquiror Owned Intangibles.
(b)
To the knowledge of Acquiror, no proceeding, claim or demand is pending which alleges past or current uses by
the Acquiror Companies, including the preparation, distribution, marketing, licensing, support or maintenance thereof, of any Software, technology, patent, copyright, trade secret or other proprietary or intellectual property right of any Person. To
the knowledge of Acquiror, none of the Acquiror Products are subject to any Judgment applicable to any Acquiror Company. To the knowledge of Acquiror, no proceeding, claim or demand is pending or threatened which challenges the validity,
enforceability, use or ownership by Acquiror Companies of any of the Acquiror Owned Intangibles. To the knowledge of Acquiror, no Person is violating or infringing upon, or has violated or infringed upon, any of the Acquiror Owned Intangibles,
except for such violation or infringement which would not be material to Acquiror.
(c)
The Acquiror
Companies have taken steps to protect Acquiror Companies rights in all trade secrets and copyrights with respect to the Acquiror Intangibles. The Acquiror Companies have and enforced a policy requiring each key employee, consultant or
independent contractor to execute and deliver a nondisclosure agreement substantially in the form previously provided to the Target Company and, except in the case of those key employees, consultants or independent contractors whose duties could not
materially affect the operations of the Acquiror Companies or the services provided to any individual customer of the Acquiror Companies, all key employees, consultants and independent contractors of the Acquiror Companies have executed and
delivered such an agreement to the Acquiror Companies.
(d)
The Acquiror Companies maintain policies and
procedures regarding data security, privacy and data use that are commercially reasonable and, in any event, comply with the Acquiror Companies obligations to its customers and applicable laws, rules and regulations.
6.10 Contracts.
(a)
All contracts, agreements, understandings and arrangements required to be filed as exhibits to the Acquiror SEC
Reports (
Acquiror Specified Contracts
) have been so filed. No Acquiror Company is in Default in any material respect under any contract, agreement, understanding or arrangement so filed that remains in effect in accordance with
its terms, and, to Acquirors knowledge, no other Person is in Default in any material respect under any such contract, agreement, understanding or arrangement. As of the date of this Agreement, no written notice to an appropriate recipient at
any Acquiror Company has been received regarding any actual, alleged, possible or potential Default under any such contract, agreement,
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understanding or arrangement. No Acquiror Company has waived any of its material rights under any such contract, agreement, understanding or arrangement.
(b)
Each Acquiror Specified Contract is valid and in full force and effect, and is enforceable by the Acquiror
Companies in accordance with its terms.
(c)
The performance of the Acquiror Specified Contracts in
accordance with their respective terms will not result in any violation of or failure to comply with any Judgment or material Law applicable to any Acquiror Company on or prior to the Closing Date.
6.11 Acquiror Employee Benefit Plans.
(a)
No director or officer or other employee of Acquiror will become entitled to any retirement, severance or
similar benefit or enhanced or accelerated benefit (including any acceleration of vesting) or lapse of repurchase rights or obligations with respect to any Acquiror Employee Benefit Plan solely as a result of the transactions contemplated in this
Agreement.
(b)
No executive officer, to the knowledge of Acquiror, is, or is now expected to be, in
violation of any term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant, and, to the knowledge of Acquiror, the
continued employment of each such executive officer does not subject Acquiror or any of the Acquiror Subsidiaries to any liability with respect to any of the foregoing matters, except for such violations which would not be material to Acquiror.
(c)
The Acquiror Companies are in compliance with all applicable federal, state, local and foreign
statutes, laws (including, without limitation, common law), judicial decisions, regulations, ordinances, rules, judgments, orders and codes respecting employment, employment practices, labor, terms and conditions of employment and wages and hours,
and no work stoppage or labor strike against any Acquiror Company is pending or, to their knowledge, threatened, nor is any Acquiror Company involved in or, to their knowledge, threatened with any labor dispute, grievance or litigation relating to
labor matters involving any employees of any Acquiror Company, except for any of the foregoing which would not be material to Acquiror. To the knowledge of Acquiror, there are no suits, actions, disputes, claims (other than routine claims for
benefits), investigations or audits pending or, to the knowledge of Acquiror, threatened in connection with any Acquiror Employee Benefit Plan. To the knowledge of the Acquiror Companies, the relations of the Acquiror Companies with their
employees are currently on a good and normal basis.
(d)
No Acquiror Company has ever been a party to or
bound by any union or collective bargaining Contract, nor is any such Contract currently in effect or being negotiated by or on behalf of any Acquiror Company.
(e)
Each Acquiror Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code (i) has received, or has applied for, a favorable determination letter from the
IRS that such Acquiror Employee Benefit Plan satisfies the qualification requirements of Section 401(a) of the Code and that such Acquiror Employee Benefit Plans related trust is exempt from tax under Section 501(a) of the Code or
(ii) is maintained under an IRS approved prototype plan with respect to which Acquiror may rely on the opinion letter issue to the prototype sponsor as to such Acquiror Employee Benefit Plans qualified status. No fact exists or is
reasonably expected to arise, with respect to the design or operation of each such Acquiror Employee Benefit Plan that could cause the loss of such qualification or exemption or the imposition of any material liability, lien, penalty, or tax under
ERISA or the Code, except for any of the foregoing which would not be material to Acquiror. Each such Acquiror Employee Benefit Plan has been timely amended to comply with current Law.
(f)
With respect to each Acquiror Employee Benefit Plan, there has occurred no non-exempt prohibited
transaction (within the meaning of Section 4975 of the Code or Section 406 of ERISA) or breach of any fiduciary duty described in Section 404 of ERISA that could result in any material Obligation, direct or indirect, for
Acquiror.
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(g)
Acquiror does not sponsor, maintain or contribute to, and has never sponsored, maintained or contributed to, or had any Obligation with respect to, any employee benefit plan subject to Section 302 of ERISA, Section 412 of the Code or
Title IV of ERISA. Acquiror does not contribute to, and has never contributed to or had any other Obligation with respect to, a multiemployer plan (as defined in Section 3(37) of ERISA). No Acquiror Employee Benefit Plan is a multiple
employer plan within the meaning of Section 413 of the Code. Acquiror does not have any plan administration responsibilities, Obligations or fiduciary responsibilities or duties with respect to any benefit plan which is maintained by an
employer that is not an ERISA Affiliate.
6.12 Taxes.
(a)
All material Tax Returns required to have been filed by or with respect to any Acquiror Company or any
affiliated, combined, consolidated, unitary or similar group of which any Acquiror Company is a member (an
Acquiror Relevant Group
) have been duly and timely filed (or, if due between the date hereof and the Closing Date, will be
duly and timely filed), and each such Tax Return correctly and completely reflects Obligation for Taxes and all other information required to be reported thereon in all material respects . All material Taxes owed by any Acquiror Company or any
member of an Acquiror Relevant Group (whether or not shown on any Tax Return) have been timely paid. The Acquiror Companies have adequately provided for, in their books of account and related records, all Obligations for any material unpaid Taxes,
being current Taxes not yet due and payable.
(b)
No action or audit is currently pending with respect
to any Acquiror Company in respect of any Taxes. No action or audit has been proposed nor dispute or claim raised, in writing by an applicable Taxing Authority with respect to any Acquiror Company in respect of Taxes. No Acquiror Company is the
beneficiary of any extension of time within which to file any Tax Return, nor has any Acquiror Company made (or had made on their behalf) any requests for such extensions. No claim has been made within the past five years by an authority in a
jurisdiction where any Acquiror Company does not file Tax Returns that any of them is or may be subject to taxation by that jurisdiction or that any of them must file Tax Returns. There are no liens on any assets of any Acquiror Company with respect
to Taxes except for Taxes not yet due and payable.
(c)
The Acquiror Companies have withheld and timely
paid all material Taxes required to have been withheld and paid and have complied with all information reporting and backup withholding requirements, including maintenance of required records with respect thereto.
(d)
No Acquiror Company has waived (or is subject to a waiver of) any statute of limitations in respect of Taxes or
has agreed to (or is subject to) any extension of time with respect to a Tax assessment or deficiency which has not expired.
(e)
No Acquiror Company has agreed to or is required to make by reason of a change in accounting method or otherwise, any adjustment under Section 481(a) of the Code. Each Acquiror Company has
disclosed on its income Tax Returns all positions taken therein that could give rise to a substantial understatement of income Tax within the meaning of Section 6662 of the Code (or similar provision of applicable Tax Law).
(f)
No Acquiror Company is a party to any Tax allocation or sharing agreement. No Acquiror Company has an
Obligation for the Taxes of any Person, other than under Section 1.1502-6 of the Treasury regulations (or any similar provision of state, local, or foreign law) with respect to any Acquiror Relevant Group of which such Acquiror Company
currently is a member, (i) as a transferee or successor, (ii) by contract, (iii) under Section 1.1502-6 of the Treasury regulations (or any similar provision of applicable Tax Law), or (iv) otherwise.
(g)
No Acquiror Company is or has been a party to any reportable transaction as defined in
Section 6707A(c)(1) and section 1.6011-4(b) of the Treasury regulations.
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(h)
No Acquiror Company has taken or agreed to take any action not contemplated by this Agreement, or is aware of any fact or circumstance outside the scope of this Agreement, that would prevent the Merger from qualifying as a reorganization within
the meaning of Section 368 of the Code.
6.13 Proceedings and Judgments.
(a)
Except as set forth on
Section 6.13 of the Acquiror Disclosure Schedule
,
(i) no Proceeding is currently pending or, or Acquirors knowledge, threatened, nor has any Proceeding occurred at any time since December 31, 2005, to which any Acquiror Company is or was a party, or by which any Acquiror Company or
any material Assets or business of any Acquiror Company is or was affected, (ii) no Judgment is currently outstanding, nor has any Judgment been outstanding at any time since December 31, 2005, against any Acquiror Company, or by which any
Acquiror Company or any Assets or business of any Acquiror Company is or was affected and (iii) no breach of contract, breach of warranty, tort, negligence, infringement, product liability, discrimination, wrongful discharge or other claim of
any nature has been asserted or, to Acquirors knowledge, threatened by or against Acquiror or any Acquiror Subsidiary at any time since December 31, 2005. Except as set forth on Section 6.13 of the Acquiror Disclosure Schedule, to
Acquirors knowledge, no event has occurred, and no claim, dispute or other condition or circumstance exists, that would reasonably be expected to give rise to or serve as a basis for, directly or indirectly, the commencement of any Proceeding
described in this Section 6.13(a).
(b)
As to each matter described on
Section 6.13 of the
Acquiror Disclosure Schedule
, accurate and complete copies of all pertinent pleadings, Judgments, orders, correspondence and other legal documents have been delivered to Target.
(c)
To Acquirors knowledge, no officer or employee of any Acquiror Company is subject to any Judgment that
prohibits such officer or employee from engaging in or continuing any conduct, activity or practice relating to the Acquiror Business.
(d)
There is no proposed Judgment that, if issued or otherwise put into effect, (i) may have an adverse effect on business, condition, assets, technology, liabilities, operations, employees,
financial performance, revenues, net income, political environment, economic environment or prospects of or with respect to any Acquiror Company (or on any aspect or portion thereof) or on the ability of any Acquiror Company to comply with or
perform any covenant or obligation under this Agreement or (ii) may have the effect of preventing, delaying, making illegal or otherwise interfering with any of the Transactions or making it more difficult for Target to realize any anticipated
benefit of any of the Transactions.
6.14 Questionable Payments.
No Acquiror Company nor
any of the current or former stockholders, directors, executives, officers, representatives, agents or employees of Acquiror or any Acquiror Subsidiary (when acting in such capacity or otherwise on behalf of Acquiror, any Acquiror Subsidiary or any
of their predecessors) (a) has used or is using any corporate funds for any illegal contributions, gifts, entertainment or other unlawful expenses relating to political activity, (b) has used or is using any corporate funds for any direct
or indirect unlawful payments to any foreign or domestic government officials or employees, (c) has violated or is violating any provision of the Foreign Corrupt Practices Act of 1977, (d) has established or maintained, or is maintaining,
any unlawful or unrecorded fund of corporate monies or other properties, (e) has made at any time since December 31, 2004, any false or fictitious entries on the books and records of any Acquiror Company, (f) has made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment of any nature using corporate funds or otherwise on behalf of any Acquiror Company or (g) has made any material favor or gift that is not deductible for federal income tax
purposes using corporate funds or otherwise on behalf of any Acquiror Company.
6.15 Related
Party Transactions
. Except (a) as set forth on
Section 6.15 of the Acquiror Disclosure Schedule
, (b) for fees payable to any director of Acquiror in respect of his or her service in such capacity and (c) for any
employment Contracts, there are no real estate leases, personal property leases, loans, guarantees, Contracts, transactions, understandings or other arrangements of any nature between or among any Acquiror Company and any
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current or former Stockholder, director, officer or controlling Person of any Acquiror Company (or any of its predecessors) or any other Person affiliated with any Acquiror Company (or any of its
predecessors).
6.16 Brokerage Fees
. No Person acting on behalf of any Acquiror Company
or the stockholders of Acquiror is or shall be entitled to any brokerage or finders fee in connection with the Transactions.
6.17 Full Disclosure
. No representation or warranty made by Acquiror in this Agreement or pursuant hereto (a) contains any untrue statement of any fact or
(b) omits to state any fact that is necessary to make the statements made, in the context in which made, not false or misleading in any material respect. The copies of documents attached as Schedules to this Agreement or otherwise delivered to
Target in connection with the Transactions, are accurate and complete, and are not missing any amendments, modifications, correspondence or other related papers which would be pertinent to Targets understanding thereof in any material respect.
SECTION 7.
CONDITIONS TO CLOSING
7.1 Conditions to
the Obligation of the Acquiring Parties to Consummate the Closing
. Each and all of the obligations of each of Acquiror and the Merger Sub to consummate the Transactions are subject to fulfillment, satisfaction or such condition being correct, as
the case may be, (or waiver by Acquiror and the Merger Sub) prior to or at the Closing of the following conditions:
(a)
The representations and warranties of Target contained herein, which are qualified by materiality, Material Adverse Effect or other words of similar import shall be true, correct and accurate
when made and as of the Closing, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall have been true, correct and accurate when made), and all other
representations and warranties of Target contained herein, shall be true, correct and accurate in all material respects when made and as of the Closing, except to the extent such representations and warranties expressly relate to an earlier date (in
which case such representations and warranties shall have been true, correct and accurate when made), and Acquiror shall have received applicable certifications from the Targets Chief Executive Officer and Chief Financial Officer, each, in his
capacity as such, with respect to the representations and warranties of Target to such effect . Target shall have in all material respects performed all of the obligations and complied with each and all of the covenants, agreements and conditions
required to be performed or complied with by it on or prior to the Closing pursuant to this Agreement and Acquiror shall have received applicable certifications from the Targets Chief Executive Officer and Chief Financial Officer, each, in his
capacity as such, to such effect.
(b)
No Proceeding before any Governmental Body shall be pending or
threatened wherein an unfavorable judgment, decree or order would prevent the carrying out of this Agreement and the other Transaction Documents or any of the Transactions, declare any Transaction unlawful, thereby causing such Transactions to be
rescinded, or which would reasonably be expected to impair the right of Acquiror to own, operate, control or benefit from the Assets of Target.
(c)
All Governmental Bodies having jurisdiction with respect to any aspect of the Transactions or the consummation thereof shall have taken such action as may be required to permit the consummation
of the Transactions and such actions shall remain in full force and effect and shall be reasonably satisfactory in form and substance to Acquiror and its counsel.
(d)
All of the other Transaction Documents and each of the documents and instruments required to be delivered on or
before the Closing Date in connection therewith shall have been executed substantially in the forms attached hereto and delivered by all of the parties thereto and shall be in full force and effect.
(e)
Dissenting Shares shall not represent more than five percent (5%) of the outstanding shares of Target
Stock as of the Closing Date.
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(f)
Target Principal Holders entitled to receive at least 90% of the Merger Consideration shall have executed and delivered to Acquiror a joinder agreement in substantially the form attached hereto as
Exhibit G
pursuant to which they
will agree to the matters set forth therein (a
Joinder
). With respect to each such executed Joinder: (i) the representations and warranties of the Target Principal Holder contained in the Joinder, which are qualified by
materiality, Material Adverse Effect or other words of similar import shall be true, correct and accurate when made and as of the Closing, except to the extent such representations and warranties expressly relate to an earlier date (in which case
such representations and warranties shall have been true, correct and accurate when made), and all other representations and warranties of the Target Principal Holder contained in the Joinder, shall be true, correct and accurate in all material
respects when made and as of the Closing, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall have been true, correct and accurate when made), and
Acquiror shall have received applicable certifications from the Target Principal Holder with respect to the representations and warranties of such Target Principal Holder; and (ii) the Target Principal Holder shall have performed all of the
obligations and complied with each and all of the covenants, agreements and conditions required to be performed or complied with by such Target Principal Holder on or prior to the Closing pursuant to the Joinder and Acquiror shall have received
applicable certifications from the Target Principal Holder to such effect.
(g)
Fenwick & West
shall have delivered a legal opinion regarding matters relating to Target in substantially the form attached hereto as
Exhibit H
.
(h)
All unexercised Target Options shall have been terminated in accordance with
Section 2.11
, as is contemplated in the resolutions of the Target Board, and there shall not be any
Target Options (vested or unvested) outstanding as of the Closing.
(i)
Each Target Warrant shall have
been terminated in exchange for the issuance and distribution of shares of Target Stock, as contemplated in the resolutions of the Target Board, and there shall not be any Target Warrants outstanding as of the Closing.
(j)
Target shall have delivered to Acquiror:
(i)
blank bank account signature cards for each account of Target; and
(ii)
those items required to be delivered by Target to Acquiror at the Closing pursuant to
Section 8.2(a)
;
(k)
At the direction of Acquiror, Target shall terminate Targets
401(k) plan effective immediately (or one day) prior to Closing pursuant to resolutions of Targets Board of Directors. Target shall provide Acquiror with the resolutions evidencing such termination.
(l)
The employees of Target identified on
Schedule 9.11
hereto shall have accepted the offers of employment
by Acquiror made as contemplated by
Section 9.11
.
(m)
All of the Transaction Expenses,
whether or not reflected in the Statement of Expenses, have been paid in full.
(n)
The Net Cash
Position of Target as of the Closing Date shall not be less than the Targeted Closing Date Net Cash Position.
(o)
All Indebtedness of Target shall have been paid in full or otherwise finally discharged by Target.
(p)
Acquiror shall have received the Sales Volume Agreement, executed by all of the persons listed on
Schedule
9.12
hereto.
(q)
Acquiror shall have received the Amended and Restated Investor Rights Agreement,
executed by all Target Principal Holders receiving Acquiror Series C Preferred Stock in connection with the Merger.
(r)
The Acquiror Stockholder Approval shall have been obtained.
(s)
The transactions contemplated by the Series C Stock Purchase Agreement shall have been consummated.
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(t)
Target shall deliver evidence to Acquiror that all of Targets obligations under its Change of Control Bonus Plan have been satisfied, and that all Persons who are entitled to receive any Change of Control Bonus (as defined therein) have
acknowledged that their entitlements under the Change of Control Bonus Plan are satisfied in full and that they have no further rights thereunder.
7.2 Conditions to Targets Obligation to Consummate the Closing
. Each and all of the obligations of Target to consummate the Transactions are subject to
fulfillment, satisfaction or such condition being correct, as the case may be, (or waiver by Target) prior to or at the Closing of the following conditions:
(a)
The representations and warranties of the Acquiring Parties contained herein which are qualified by materiality, Material Adverse Effect or other words of similar import shall be true correct
and accurate when made and as of the Closing, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall have been true, correct and accurate when made), and
all other representations and warranties of the Acquiring Parties contained herein shall be true, correct and accurate in all material respects when made and as of the Closing, except to the extent such representations and warranties expressly
relate to an earlier date (in which case such representations and warranties shall have been true, correct and accurate when made), and Target shall have received a certification from a duly authorized officer of Acquiror to such effect. Each
Acquiring Party shall have in all material respects performed all of the obligations and complied with each and all of the covenants, agreements and conditions required to be performed or complied with by it on or prior to the Closing pursuant to
this Agreement and the other Transaction Documents and Target shall have received a certification from a duly authorized officer of Acquiror to such effect.
(b)
No Proceeding before any Governmental Body shall be pending or threatened wherein an unfavorable judgment, decree or order would prevent the carrying out of this Agreement and the other
Transaction Documents or any of the Transactions, declare any of the Transactions unlawful and thereby, cause such Transaction to be rescinded.
(c)
All of the other Transaction Documents and each of the documents and instruments required to be delivered by the Acquiring Parties on or before the Closing Date in connection therewith have
been executed and delivered substantially in the form attached hereto by the Acquiring Parties and shall be in full force with respect to such parties.
(d)
The Acquiror shall have delivered to the Stockholders Representative those items required to be so delivered pursuant to
Section 8.2(b)
.
(e)
The Target Principal Holders receiving Acquiror Series C Preferred Stock in connection with the Merger shall
have received the Amended and Restated Investor Rights Agreement, executed by all other parties thereto.
(f)
The Acquiror Stockholder Approval shall have been obtained.
(g)
Morgan, Lewis & Bockius LLP shall have delivered a legal opinion regarding matters relating to
Acquiror in substantially the form attached hereto as
Exhibit I
.
(h)
The transactions
contemplated by the Series C Stock Purchase Agreement shall have been consummated.
SECTION 8.
CLOSING
8.1 Closing
. The consummation of the Transactions contemplated by this Agreement (the
Closing
) shall take place at the offices of Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, PA 19103, as promptly as practicable (and in no event later than two (2) Business Days) following the
satisfaction or waiver of the conditions (excluding conditions that, by their terms, cannot be satisfied until the Closing Date but subject to
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the satisfaction or waiver of such conditions on the Closing Date) set forth in Section 7, or at such other place and on such other date as Acquiror and Target may mutually agree. The date
of the Closing is sometimes herein referred to as the
Closing Date
.
8.2
Closing Deliveries
. At the Closing:
(a)
the Target shall deliver or cause to be delivered to
Acquiror the following:
(i)
a certificate of the Secretary of Target, in form and substance
satisfactory to Acquiror and its counsel, regarding Targets Charter Documents, good standing, all board resolutions and stockholder consents relating to the Transactions contemplated by this Agreement and the incumbency of Targets
officers;
(ii)
applicable certifications from its Chief Executive Officer and Chief Financial Officer
contemplated by
Section 7.1(a)
regarding the fulfillment of the conditions set forth therein and from each of the Target Principal Holders executing the Joinder, applicable certifications contemplated by
Section 7.1(f)
regarding the fulfillment of the conditions set forth therein;
(iii)
letters of resignation in the
name of and executed by each (A) member of the Target Board resigning his/her position as a director of such Entity effective as of the Closing Date, and (B) officer of Target resigning his/her position as an officer of Target effective as
of the Closing Date, in each case, except as otherwise agreed to by the Parties;
(iv)
duly executed
counterparts to each of the Transaction Documents to which Target is a party;
(v)
all corporate, minute
and stock records of Target;
(vi)
evidence that all of the Transaction Expenses, whether or not
reflected in the Statement of Expenses, have been paid in full;
(vii)
audited consolidated balance
sheets of the Target as of September 30, 2008 and 2009 and the related statements of operations and cash flows and stockholders equity for the fiscal years then ended, which (A) shall not be materially different than those Target
Financial Statements previously disclosed to Acquiror pursuant to clause (ii) of
Section 4.7(b)
, (B) shall have been prepared in accordance with GAAP applied on a consistent basis during the periods involved and (C) shall
comply in all respects with the requirements of Regulation S-X promulgated by the SEC such that they may be filed by Acquiror with the SEC in accordance with applicable requirements of the Exchange Act, Regulation S-K promulgated by the SEC and the
instructions to Current Report on Form 8-K;
(viii)
unaudited consolidated balance sheets of the Target
as of June 30, 2009 and 2010 and the related statements of operations and cash flows and stockholders equity for the nine month periods then ended, which (A) shall have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except for normal and recurring year-end adjustments) and (B) shall satisfy the requirements of clauses (B) and (C) of Section 8.2(a)(vii);
(ix)
the certificate described in
Section 10.7
; and
(x)
the Amended and Restated Investor Rights Agreement, executed by all the Target Principal Holders receiving
Acquiror Series C Preferred Stock in connection with the Merger.
(b)
Acquiror shall deliver the
following:
(i)
to each Holder who executes and delivers the applicable Securityholder Documents in the
manner set forth in
Section 2.7
, that portion of the Merger Consideration issuable to such Holder pursuant to
Section 2.6
;
(ii)
to the Escrow Agent, the Escrow Merger Consideration;
(iii)
to the Stockholders Representative, a certificate (A) of the Secretary of each Acquiring Party, in
form and substance satisfactory to the Stockholders Representative and its counsel, regarding such
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Acquiring Partys Charter Documents, good standing, all board resolutions relating to the Transactions contemplated by this Agreement and the incumbency of such Acquiring Partys
officers and (B) an officer of each Acquiring Party certifying that the statements set forth in
Section 7.2(a)
are true, correct and accurate and have been fulfilled;
(iv)
duly executed counterparts to each of the Transaction Documents to which each Acquiring Party is a party; and
(v)
the Amended and Restated Investor Rights Agreement, executed by Acquiror and the requisite parties
thereto other than the Target Principal Holders.
(c)
Merger Sub shall file with the Secretary of State
of the State of Washington duly executed and verified Articles of Merger, as required by the WBCA, and the Parties shall take all such other and further actions as may be required by law to make the Merger effective upon the terms and subject to the
conditions hereof.
SECTION 9.
COVENANTS OF THE PARTIES
9.1 Conduct of
Business by Target Pending the Merger
. Target covenants and agrees as to the Target Companies that, from the date of this Agreement until the earlier of the Effective Time and termination of this Agreement in accordance with the terms hereof,
except with Acquirors prior written approval, the business of the Target Companies shall be conducted in accordance with the proposed operating plan set forth on
Schedule 9.1
hereto (the Operating Plan) and, to the
extent consistent therewith, the Target Companies shall use their best commercially practicable efforts to (i) preserve their assets, (ii) keep available the services of current officers, key employees and consultants of the Target
Companies, (iii) preserve the Target Companies business organizations intact and maintain their existing relations and goodwill with customers, suppliers, distributors, creditors, and lessors, and (iv) comply in all material respects
with all applicable Laws. Without limiting the generality of the foregoing, and as an extension thereof, Target shall not, and shall not permit any of the Target Companies, from the date of this Agreement until the Effective Time, directly or
indirectly, to do, or agree to do, any of the following without the prior written consent of Acquiror:
(a)
except as described in
Schedule 9.1
, Target will not (i) pledge or hypothecate any of its Assets or otherwise permit any of its Assets to become subject to any Encumbrance, other than Permitted Encumbrances, (ii) incur or suffer
the incurrence of any Obligation (except in the ordinary course of its business consistent with its past practices), (iii) make any loan or advance to any Person, (iv) assume, guarantee or otherwise become liable for any Obligation of any
Person, (v) commit for any capital expenditure involving in excess of $5,000 in any single case or $25,000 in the aggregate, (vi) purchase, lease, sell, abandon or otherwise acquire or dispose of any business or Assets (except in the
ordinary course of its business consistent with its past practices), (vii) waive or release any right or canceled or forgive any debt or claim involving in excess of $5,000 in any single case or $25,000 in the aggregate, (viii) discharge
any Encumbrance or discharge or pay any Indebtedness or other Obligation (except in the ordinary course of its business consistent with its past practices), (ix) assume or enter into any Target Specified Contract other than this Agreement and
Contracts for the sale of Target Products in the ordinary course of business consistent with its past practices, (x) amend or terminate any Target Specified Contract (other than termination upon expiration of the contractually specified term
thereof), (xi) increase, or authorize an increase in, the compensation or benefits payable or provided to any of its directors, officers, employees, salesmen, agents or representatives (other than pursuant to the existing terms of a Target
Specified Contract), (xii) establish, adopt or amend (including any amendment with a future effective date) any Target Employee Benefit Plan, (xiii) declare, accrue, set aside, or pay any dividend or make any other distribution in respect
of any shares of capital stock, other securities or other Assets, (xiv) repurchase, redeem or otherwise reacquire any shares of capital stock or other securities, (xv) sell or otherwise issue any shares of
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capital stock or any other securities (other than upon the exercise or conversion of options, warrants or convertible notes reflected in
Section 4.4 of the Target Disclosure
Schedule
), (xvi) amend its Charter Documents, (xvii) enter into or become obligated to enter into any merger, consolidation, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction,
(xviii) accrue any deferred bonuses or compensation due to any Holder, employee or agent of Target, or pay any such deferred bonuses or compensation except to the extent such deferred bonuses or compensation was accrued on the Latest Balance
Sheet, (xix) change any of its methods of accounting or accounting practices in any respect or (xx) make any Tax election, change any method of Tax accounting or enter into any agreement or arrangement with respect to Taxes.
(b)
even in the ordinary course of its businesses consistent with its past practices, Target will not incur any
Obligation, make any loan to any Person, acquire or dispose of any business or Assets, enter into any Contract (other than customer Contracts) or other transaction, or do any of the other things described in Section 9.1(a), involving an amount
exceeding $20,000 in any single case or $100,000 in the aggregate (other than incurring and/or paying off (i) trade payables and other operating liabilities contemplated by the Operating Plan, (ii) Transaction Expenses, or
(iii) Indebtedness as contemplated by this Agreement).
9.2 Preparation of Proxy
Statement; Acquiror Stockholders Meeting.
(a)
As promptly as reasonably practicable following the
date of this Agreement, Acquiror shall prepare and cause to be filed with the SEC a proxy statement to be sent to the stockholders of Acquiror relating to the Acquiror Stockholders Meeting (together with any amendments or supplements thereto, the
Proxy Statement). Target shall furnish all information concerning Target and its Affiliates to Acquiror, and provide such other assistance, as may be reasonably requested in connection with the preparation, filing and distribution of the
Proxy Statement, and the Proxy Statement shall include all information reasonably requested by such other party to be included therein. Target covenants that such information shall be true and correct in all material respects. Acquiror shall
promptly notify Target upon the receipt of any comments from the SEC or any request from the SEC for amendments or supplements to the Proxy Statement and shall provide Target with copies of all correspondence between it and its Representatives, on
the one hand, and the SEC, on the other hand.
Acquiror shall use its best commercially practicable efforts to
respond as promptly as reasonably practicable to any comments from the SEC with respect to the Proxy Statement. Notwithstanding the foregoing, prior to mailing the Proxy Statement (or any amendment or supplement thereto) or responding to any
comments of the SEC with respect thereto, Acquiror (i) shall provide Target an opportunity to review and comment on such document or response (including the proposed final version of such document or response) and (ii) shall include in
such document or response all comments reasonably proposed by Target.
(b)
If prior to the Effective
Time, any event occurs with respect to any Target Company, or any change occurs with respect to other information supplied by Target for inclusion in the Proxy Statement, which is required to be described in an amendment of, or a supplement to, the
Proxy Statement, Target shall promptly notify Acquiror of such event, and Target and Acquiror shall cooperate in the prompt filing with the SEC of any necessary amendment or supplement to the Proxy Statement and, as required by Law, in disseminating
the information contained in such amendment or supplement to Acquirors stockholders. Nothing in this Section 9.2(b) shall limit the obligations of any party under Section 9.2(a).
(c)
Acquiror shall, as soon as reasonably practicable following the date of this Agreement, duly call, give notice
of, convene and hold the Acquiror Stockholders Meeting at which it will seek the Acquiror Stockholder Approval. Acquiror shall use its best commercially practicable efforts to (i) cause the Proxy Statement to be mailed to Acquirors
stockholders as promptly as practicable and to hold the Acquiror Stockholders Meeting as soon as practicable and (ii) solicit the Acquiror Stockholder Approval. Acquiror shall, through the Acquiror Board, recommend to its stockholders that they
give the Acquiror Stockholder Approval, shall include such recommendation in the Proxy Statement and shall not adversely modify or withdraw such recommendation. Notwithstanding the foregoing provisions of this Section 9.2(c), if on a date for
which the Acquiror Stockholders Meeting is scheduled, Acquiror has not received proxies
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representing a sufficient number of shares of Acquiror Common Stock to obtain the Acquiror Stockholder Approval, whether or not a quorum is present, Acquiror shall make one or more successive
postponements or adjournments of the Acquiror Stockholders Meeting in order that such sufficient proxies shall be received, provided that the Acquiror Stockholders Meeting is not postponed or adjourned to a date that is more than 60 days after the
date for which the Acquiror Stockholders Meeting was originally scheduled (excluding any adjournments or postponements required by applicable Law), and provided further that in lieu of such a postponement or adjournment beyond 60 days, Acquiror
shall notice and call another Acquiror Stockholders Meeting and prepare, file and circulate another Proxy Statement in the manner contemplated by this Section 9.2.
9.3 Cooperation.
(a)
Target, Acquiror and Merger Sub shall each use commercially reasonable efforts to deliver or cause to be delivered to the other prior to the Closing Date, and at such other times and places as shall be reasonably agreed to, such instruments as
the other may reasonably request which are contemplated by this Agreement for the purpose of carrying out this Agreement.
(b)
Each Party shall use its commercially reasonable efforts to consummate the Transactions, in accordance with this Transaction Documents.
(c)
Without limiting the generality of the foregoing, Target, Acquiror and Merger Sub agree to use their
commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done all things necessary, with respect to (i) seeking to obtain prior to the Closing Date all Permits or Consents of any Governmental Body as
is necessary for the consummation of the Transactions as set forth below (collectively, the
Governmental Clearances
), and (ii) seeking to effect all necessary registrations and other filings and submissions of information
requested by any Governmental Body in connection with this Agreement and the Transactions;
provided
,
however
, that such action shall not include commencing or participating in any litigation or offer or grant of any accommodation
(financial or otherwise) to any third party;
provided
,
further
, that no Party shall be obligated hereunder to divest, either individually or in the aggregate, of any of its or any of its affiliates Assets, rights or properties
owned prior to the Closing Date. Acquiror, Merger Sub and Target shall cooperate with each other to the extent reasonable in connection with the foregoing.
(d)
Each of Acquiror, Merger Sub and Target shall keep the other apprised in a timely manner of the status and substance of all meaningful actions or communications between it (or its advisors) and
any such agency relating to this Agreement or any of the matters described in this
Section 9.3(d)
. Each of Acquiror, Merger Sub and Target shall not take any meaningful actions or enter into any accommodation, resolution or settlement
with any such agency relating to this Agreement or any of the matters described in this
Section 9.3(d)
without discussing it with the other Party.
9.4 Access to Information; Confidentiality; Return/Destruction of Target Confidential Information.
(a)
From the date hereof until the Effective Time, except to the extent prohibited by applicable Law, Target shall,
and shall cause each of its officers, directors, employees, auditors and agents to, afford the officers, employees and agents of Acquiror and Merger Sub complete access at all reasonable times to the officers, employees, agents, properties, offices,
plants and other facilities, books and records of Target, and shall furnish Acquiror and Merger Sub with such financial, operating and other data and information as Acquiror or Merger Sub, through their officers, employees or agents, may reasonably
request. Any investigation pursuant to this
Section 9.4
shall be conducted in a manner as not to interfere unreasonably with the conduct of the business of Target or its Subsidiaries.
(b)
Acquiror and Target shall continue to be bound by the Confidentiality Agreement, entered into in September 2008
(the
Confidentiality Agreement
), and all information disclosed pursuant to
Section 9.4(a)
shall be deemed to be
Confidential Information
.
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9.5 Standstill.
(a)
From and after the date hereof, Target shall not, nor shall it permit any of its officers, managers, partners,
members, directors, employees or agents or any investment banker, financial advisor, attorney, accountant or other representative retained by, or acting on behalf of, it to, directly or indirectly, through another Person (a) solicit, initiate
or knowingly encourage (including by way of furnishing information), or take any other action to facilitate or designed to facilitate, any inquiries or the making of any proposal that constitutes, or that could lead to, an Acquisition Proposal (as
defined below), or (b) participate in any discussions regarding any Acquisition Proposal. In the event that Target receives an Acquisition Proposal, then it shall promptly, but in any event within 24 hours receipt of an Acquisition Proposal,
(x) advise Acquiror orally and in writing of any Acquisition Proposal or any inquiry regarding the making of an Acquisition Proposal, including any request for information, the material terms and conditions of such request, Acquisition Proposal
or inquiry and the identity of the person or entity making such request, Acquisition Proposal or inquiry and (y) keep Acquiror fully informed of the status and details of such request, Acquisition Proposal or inquiry. Target shall, and shall
cause any of its officers, managers, partners, members, directors, employees or agents and any investment banker, financial advisor, attorney, accountant or other representative retained by, or acting on behalf of, it to, immediately cease and
terminate any existing solicitation, initiation, knowing encouragement, activity, discussion or negotiation with any Person conducted heretofore by any of them with respect to any Acquisition Proposal and promptly (provided it has the contractual
right to do so and has not already done so) request the return or destruction of any information delivered by any of them in connection with such Acquisition Proposal. As used herein,
Acquisition Proposal
means a proposal or offer
(other than pursuant to this Agreement) for a tender or exchange offer, merger, consolidation or other business combination involving any proposal to acquire in any manner any material equity interest in Target, or any material portion of,
Targets Assets.
(b)
Neither the Target Board nor any committee thereof shall
(i) (A) withdraw (or modify in any manner adverse to Acquiror), or propose publicly to withdraw (or modify in any manner adverse to Acquiror), the approval, recommendation or declaration of advisability by the Target Board or any such
committee thereof with respect to this Agreement or (B) approve, recommend or declare advisable, or propose publicly to approve, recommend or declare advisable, any Acquisition Proposal (any action in this clause (i) being referred to as a
Target Adverse Recommendation Change
or (ii) approve, recommend or declare advisable, or propose publicly to approve, recommend or declare advisable, or allow Target or any of its Affiliates to execute or enter into, any
letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement, option agreement, joint venture agreement, alliance agreement, partnership agreement or other agreement or arrangement (an
Acquisition Agreement) constituting or related to, or that is intended to or would reasonably be expected to lead to, any Acquisition Proposal, or requiring, or reasonably expected to cause, Target or Merger Sub to abandon, terminate,
delay or fail to consummate, or that would otherwise impede, interfere with or be inconsistent with, the Merger or any of the other transactions contemplated by this Agreement, or requiring, or reasonably expected to cause, Target or Merger Sub to
fail to comply with this Agreement.
9.6 Notification of Certain Matters
. Promptly after
Target has or obtains actual knowledge of any of the following, Target shall give prompt notice to Acquiror of (a) the occurrence, or non-occurrence, of any event the occurrence, or non-occurrence, of which reasonably could be expected to cause
any of its representations or warranties contained in this Agreement to be untrue or inaccurate and (b) any failure of Target to comply with or satisfy any covenant or agreement to be complied with or satisfied by it hereunder;
provided
,
however
, that the delivery of any notice pursuant to this
Section 9.6
shall not limit or otherwise affect the (x) remedies available to any of the Acquiring Parties under
Section 12
or (y) obligation of any
of the Acquiring Parties to consummate the Transactions pursuant to
Section 7.1
had any such notification pursuant to this
Section 9.6
not been made.
9.7 Public Announcements
. No public release or announcement concerning this Agreement or any of the Transactions or any manner of dissemination of information
regarding Target or the Target Business shall be issued or made by Target before the Closing without the prior consent of Acquiror, except (i) trade communications
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regarding the Target Business made in the ordinary course of business consistent with past practice, (ii) to the extent that Target is required by law, regulation, rule, order, judgment,
subpoena or decree to divulge or disclose such information, in which case Target shall use commercially reasonable efforts to cooperate with Acquiror (at Acquirors sole expense) to limit such disclosure to the extent permitted under applicable
law, (iii) to the extent any information is reasonably relevant for enforcing Targets rights or defending against assertions by Acquiror in connection with any legal proceedings involving a dispute between Target and Acquiror, and
(iv)
to the extent that such information has otherwise been made public through no wrongful action by Target.
9.8 Transaction Expenses
. Whether or not the Merger is consummated, all liabilities outside of the ordinary course of business consistent with past practice and fees and expenses incurred by Target (for which Target may pay or reimburse
others or may otherwise be obligated to pay or reimburse others or may be or may become liable) in connection with the Merger and the transactions contemplated hereby including, without limitation, all Taxes of any Target Company related to the
Merger, all legal, accounting, consulting, investment banking, financial advisory, and brokerage fees and expenses and all other fees and expenses of third parties (including any costs incurred to obtain any financial statements of Target, consents,
waivers or approvals as a result of compliance with this Agreement), as well as the amount of the premium to cover the purchase of any insurance policies purchased under
Section 9.13
(the
Transaction Expenses
), shall
be the Liability and obligation of Target to be satisfied at or prior to the Closing and shall not be obligations of Acquiror or the Surviving Corporation to the extent provided in Section 12. At least three (3) Business Days prior to the
Closing, Target shall provide Acquiror with a statement of estimated Transaction Expenses in form reasonably satisfactory to Acquiror which statement shall be accompanied by final invoices from Targets legal, accounting, financial, consulting
and other advisors providing services in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby reflecting such advisors final billable Transaction Expenses (the
Statement of Expenses
).
9.9 Payment of Target Indebtedness
. Prior to
the Effective Time, (i) all Indebtedness of Target shall have been paid in full by Target by wire transfer out of Targets available cash and cash equivalents or otherwise finally discharged by conversion into Target Stock or the right to
receive a portion of the Merger Consideration, (ii) all obligations of Target relating to such Indebtedness shall have been terminated, and (iii) Acquiror shall have been provided with evidence thereof that is reasonably acceptable to
Acquiror.
9.10 280G Matters
. Target shall seek the necessary stockholder approval of
any payments or benefits under any Target Employee Benefit Plan or other agreement which would be a parachute payment under Section 280G of the Code as a result of the transactions contemplated by this Agreement; provided that any
communications to the stockholders regarding such approval shall be made available to Acquiror and Acquiror shall have the right to review and approve (which approval shall not be unreasonably withheld) such communications before they are
distributed to the stockholders. Target shall deliver to Acquiror prior to the Closing reasonable evidence either (a) that the stockholder approval was solicited in conformance with Section 280G and the regulations promulgated thereunder
and the necessary stockholder approval was obtained with respect to any payments and/or benefits that were subject to the stockholder vote (the
280G Approval
), or (b) that the 280G Approval was not obtained and, as a
consequence, that such parachute payments shall not be made or provided, as authorized under the waivers of those payments and/or benefits which were executed by all of the affected individuals.
9.11 Employee Offers
. Acquiror shall, promptly after the date of this Agreement, make offers of
employment to the employees of Target set forth on
Schedule 9.11
hereto. The terms of these offers will specify that such employment shall commence immediately after the Effective Time, and shall include cash compensation, long-term equity
incentives and benefits consistent with those received by similarly situated employees of Acquiror, and shall include non-compete (to the extent legally permissible under applicable Law), non-solicit, confidentiality and proprietary information and
invention agreements. The offers of employment shall be voidable by Acquiror if not accepted within 15 days after being made. Nothing in the Agreement, expressed or implied, is intended or shall be construed to constitute an offer of employment, to
any individual employee of any Target Company, or a right of any such person to continued employment with the Surviving Corporation or with Acquiror following the Closing.
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9.12 Issuance of Acquiror Common Stock; Limitations on Resale.
(a)
At the Effective Time, Acquiror will issue to the persons named on
Schedule 9.12
up to 1,250,642 shares
of the Acquiror Common Stock (minus up to 187,596 shares of the Acquiror Common Stock constituting Escrow Merger Consideration), allocated among such persons in the amounts set forth opposite their respective names on
Schedule 2.6
. Such
shares are a component of, and not in addition to, the total number of shares of Acquiror Common Stock included in the Merger Consideration as set forth in
Section 2.6
. Acquiror, the Target Companies, or their agents, as applicable,
shall be entitled to deduct and withhold with respect to such shares of Acquiror Common Stock such amounts (in shares of Acquiror Common Stock) as Acquiror, the Target Companies, or their agents, as applicable, are required to deduct and withhold
with respect to the making of such payments under the Code or any applicable provision of state, local or foreign Tax Law. Any amounts or shares so deducted or withheld by Acquiror, the Target Companies, or their agents shall be treated for all
purposes of this Agreement as having been paid or issued to the Person in respect of which such deduction and withholding was made.
(b)
The holders of the Acquiror Common Stock issued pursuant to this
Section 9.12
who are named on Schedule A to such agreement shall be subject to the volume limitations on resale of
the Acquiror Common Stock described in the Sales Volume Agreement.
(c)
The shares of Acquiror Common
Stock issued pursuant to this
Section 9.12
shall be issued pursuant to Acquirors 2005 Stock Award and Incentive Plan, and shall vest in two equal tranches on the dates that are six and twelve months after the Closing Date, subject
to vesting acceleration as described in the grant agreements relating to such grants. Such agreements shall contemplate acceleration of vesting (i) in the event of a termination of the employment with the Company of the holder of such shares
(A) by the Company without Cause (as defined in Acquirors 2005 Stock Award and Incentive Plan) or (B) by such holder for Good Reason (as it shall be defined in the agreement) and (ii) in the event of at Change of Control (as
defined in Acquirors 2005 Stock Award and Incentive Plan).
9.13 Indemnification of
Target Directors and Officers.
(a)
If the Merger is consummated, then until the sixth anniversary
of the Effective Time, Acquiror will cause the Surviving Corporation to fulfill and honor in all respects the obligations of the Target Companies to the individuals who served as their respective directors and officers at any time prior to the
Effective Time (the
Target D&O Indemnitees
) pursuant to any indemnification provisions under the Target Companies respective certificates of incorporation or bylaws or similar organizational documents as in effect on the
date of this Agreement and pursuant to any indemnification agreements between the Target Companies and such Target D&O Indemnitees existing as of the date of this Agreement that are set forth in Section 4.23 of the Target Disclosure Letter
(the
Target Indemnification Provisions
), with respect to claims arising out of matters occurring at or prior to the Effective Time. Any claims for indemnification made under this
Section 9.13(a)
on or prior to the
sixth anniversary of the Effective Time shall survive such anniversary until the final resolution thereof.
(b)
Acquiror shall maintain a tail policy under Targets existing directors and
officers insurance policy that (i) has an effective term of six years from the Effective Time, (ii) covers only those persons who are currently covered by Targets directors and officers insurance policy in effect as
of the date of this Agreement and only for matters occurring at or prior to the Effective Time, and (iii) contains terms comparable to those applicable to the currently covered directors and officers of the Target Companies. Acquiror shall
reasonably cooperate with the Target D&O Indemnitees in enforcing such policy against the insurer if requested to do so.
(c)
The provisions of this
Section 9.13
are intended to be for the benefit of, and shall be enforceable by, the Target D&O Indemnitees.
9.14 Employee Benefit Matters.
As promptly as reasonably practicable after the Effective Time,
Acquiror shall enroll those persons who were employees of the Target Companies immediately prior to the Effective Time and who remain employees of the Surviving Corporation or its subsidiaries or become employees of Acquiror
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following the Effective Time (
Continuing Employees
) in the Acquiror Employee Benefit Plans for which such employees are eligible, including its medical plan, dental plan, life
insurance plan and disability plan, on substantially similar terms applicable to employees of Acquiror who are similarly situated based on levels of responsibility, to the extent permitted by the terms of the applicable Acquiror Employee Benefit
Plans;
provided
,
however
, that Acquiror shall not be obligated to enroll any Continuing Employee in Acquiror Employee Benefit Plans if Acquiror maintains in effect comparable Target Employee Benefit Plans for the benefit of such
employee following the Closing. Without limiting the generality of the foregoing, for Continuing Employees so enrolled in Acquiror Employee Benefit Plans, Acquiror shall recognize the prior service with the Target Companies of each of the Continuing
Employees for purposes of eligibility and vesting, to the extent permitted by the terms of the applicable Acquiror Employee Benefit Plans. Notwithstanding anything in this
Section 9.14
to the contrary, this
Section 9.14
shall
not operate to (a) duplicate any benefit provided to any Continuing Employee or to fund any such benefit, (b) require Acquiror to continue to maintain any employee benefit plan in effect following the Effective Time for Acquirors
employees, including the Continuing Employees, (c) be construed to mean the employment of the Continuing Employees is not terminable by Acquiror at will at any time, with or without cause, for any reason or no reason, or (d) amend any
ERISA plan or create any third party rights of causes of action for any person.
9.15 IP License Agreement
. The parties
shall enter into the IP License Agreement on the date hereof.
9.16 Purchase of Acquiror Common Stock by Certain Target
Principal Holders
. The Target Principal Holders named on
Schedule 9.16
shall enter into the Series C Stock Purchase Agreement on the date hereof.
SECTION 10.
TAX COVENANTS
10.1 Tax-Deferred Reorganization
. Prior to the Closing, each of the Target and the Target Principal
Holders shall use its best efforts to cause the Merger to qualify as a reorganization under Section 368 of the Code, and shall not take any action independent of the transactions contemplated by this Agreement that are reasonably likely to
cause the Merger not so to qualify. The Acquiror shall not take, or cause or permit the Target to take, any action after the Closing that would reasonably be expected to cause the Merger not to qualify as a reorganization under Section 368 of
the Code unless otherwise required by a Tax Authority. None of the Target, the Target Principal Holders or Acquiring Parties will take any position on any federal income Tax Return that is inconsistent with the treatment of the Merger as a
reorganization for U.S. federal income tax purposes as of the Effective Date. Notwithstanding the foregoing, and notwithstanding any statement or inference to the contrary in any other provision of this Agreement or any other agreement contemplated
by this Agreement, it is agreed that no party to this Agreement shall be considered to have made any representation or warranty to any other party as to the qualification of the transactions contemplated by this Agreement as a reorganization under
Section 368 of the Code. Each party agrees that it has obtained independent tax advice in respect of the proper treatment of the Merger for federal income tax purposes.
10.2 Preparation and Filing of Pre-Closing and Post-Closing Period Tax Returns.
(a)
Acquiror shall, at its sole expense, prepare or cause to be prepared and file or cause to be filed all Tax
Returns of the Target Companies for all periods ending on or prior to the Closing Date which are filed after the Closing Date. Such returns shall be prepared consistent with past practices and procedures, unless otherwise required by applicable Law
or such practice or procedure would, in the good faith judgment of Acquiror, result in the imposition of penalties. The amount of any Taxes allocable to the Pre-Closing Period (consistent with
Section 10.4
) in excess of the Taxes
reserved therefor on the Closing Balance Sheet and resulting in a decrease in the amount of Closing Date Net Cash Position shall be deemed to be an indemnification obligation under
Section 12
, and it shall not be subject to dispute by
any Indemnifying Party under
Section 12
or related provisions of the Escrow Agreement.
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(b)
Acquiror shall, at its sole expense, prepare or cause to be prepared and file or cause to be filed all Tax Returns of the Target Companies for Tax periods which begin before the Closing Date and end after the Closing Date (a
Straddle
Period
). The amount of any Taxes allocable to the Pre-Closing Period of such Straddle Period (consistent with
Section 10.4
) in excess of the Taxes reserved therefor on the Closing Balance Sheet and resulting in a decrease in
the amount of Closing Date Net Cash Position shall be deemed to be an indemnification obligation under
Section 12
, and it shall not be subject to dispute by any Indemnifying Party under
Section 12
or related provisions of the
Escrow Agreement.
10.3 Cooperation in Filing Tax Returns
. Acquiror and the
Stockholders Representative shall, and shall each cause their respective Affiliates to, provide to the other such cooperation and information, as and to the extent reasonably requested, in connection with the filing of any Tax Return, amended
Tax Return or claim for refund, determining liability for Taxes or a right to refund of Taxes, or in conducting any audit, litigation or other proceeding with respect to Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Tax Returns, together with relevant accompanying schedules and relevant work papers, relevant documents relating to rulings and other determinations by Taxing Authorities, and relevant records concerning the ownership
and Tax basis of property, which any such Party may possess. Each Party will retain all Tax Returns, schedules, work papers, and all material records and other documents relating to Tax matters, of the Target Companies for the Tax period first
ending after the Closing Date and for all prior Tax periods until the later of either (i) the expiration of the applicable statute of limitations (and, to the extent notice in provided with respect thereto, any extensions thereof) for the Tax
periods to which the Tax Returns and other documents relate or (ii) eight years following the due date (without extension) for such Tax Returns. Thereafter, the Party holding such Tax Returns or other documents may dispose of them provided that
such Party shall give to the other Party the notice described in
Section 14.2
prior to doing so. Each Party shall make its employees reasonably available on a mutually convenient basis at its cost to provide explanation of any documents
or information so provided.
10.4 Allocation of Certain Taxes.
(a)
If the Target Companies are permitted but not required under applicable income Tax Laws to treat the Closing
Date as the last day of a taxable period, then the Parties shall treat that day as the last day of a taxable period.
(b)
In the case of Taxes arising in a Straddle Period, except as provided in
Section 10.4(c)
, the allocation of such Taxes between the Pre-Closing Period and the Post-Closing Period
portion of the Straddle Period shall be made on the basis of an interim closing of the books as of the end of the Closing Date. For the avoidance of doubt, for purposes of this
Section 10
, any Tax resulting from the Transactions is
attributable to the Pre-Closing Period.
(c)
In the case of any Taxes that are imposed on a periodic
basis and are payable for a Straddle Period, the portion of such Tax allocable to the Pre-Closing Period of the Straddle Period shall in the case of any Taxes other than (i) Taxes based upon or related to income or receipts, (ii) franchise
Taxes, or (iii) Taxes based on capitalization, debt or shares of stock authorized, issued or outstanding, be deemed to be the amount of such Taxes for the entire Straddle Period multiplied by a fraction the numerator of which is the number of
days in the portion of the Straddle Period ending on the Closing Date and the denominator of which is the number of days in the entire Straddle Period. All determinations necessary to give effect to the foregoing allocations shall be made in a
manner consistent with the prior practice of the Target Companies.
10.5 Payment of Transfer
Taxes and Fees
. Notwithstanding anything else in this Agreement, the Target Principal Holders shall file all necessary documentation and Tax Returns with respect to any Transfer Taxes arising out of, resulting from or relating to the
Transactions, and shall be solely responsible for the payment of any such Transfer Taxes.
10.6 Termination of Tax Sharing Agreements
. Any and all Tax allocation or sharing agreements or
other agreements or arrangements binding the Target Companies shall be terminated with respect to the Target
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Companies as of the day before the Closing Date and, from and after the Closing Date, the Target Companies shall not be obligated to make any payment to any Target Party or Affiliate, Taxing
Authority or other Person pursuant to any such agreement or arrangement for any past or future period.
10.7 FIRPTA Certificates
. Target shall deliver to the Acquiror on the Closing Date a duly completed and executed certification providing that no Target Company is a United States real property holding corporation pursuant to applicable
Treasury regulations.
10.8 Characterization of Payments
. Except as otherwise required
by applicable Law, the Parties shall treat any indemnification payment made pursuant to
Section 12
as an adjustment to purchase price.
SECTION 11.
INTENTIONALLY OMITTED
SECTION 12.
INDEMNIFICATION
12.1 By the Target
Indemnifying Parties
. To the extent provided in this
Section 12
, following the Effective Time, the Target Principal Holders (the
Indemnifying Target Parties
) shall, severally (according to their respective Pro Rata
Shares) and not jointly, indemnify and hold each member of the Acquiror Group, and each of their respective successors and assigns, and any of their officers, directors, employees, stockholders, agents, Affiliates and any Person who controls
Acquiror within the meaning of the Securities Act or the Exchange Act (each, an
Indemnified Acquiror Party
) harmless from and against the following (
Indemnifiable Target Matters
):
(a)
any Obligations, claims, demands, judgments, losses, costs, damages or expenses whatsoever (including
reasonable fees and expenses of attorneys, consultants and other professionals incurred by such Indemnified Acquiror Party in connection therewith) (collectively,
Damages
) that such Indemnified Acquiror Party may sustain, suffer
or incur and that result from, arise out of or relate to:
(i)
any inaccuracy of any representation or
warranty of Target in this Agreement or of the certifications delivered by Targets Chief Executive Officer and Chief Financial Officer pursuant to
Section 7.1(a)
;
(ii)
any nonfulfillment prior to the Effective Time of any covenant or agreement on the part of Target set forth in
this Agreement;
(iii)
any Tax in excess of the amount reserved therefor on the Closing Balance Sheet
and resulting in a decrease in the amount of Closing Date Net Cash Position:
(A)
imposed on any Target
Company with respect to any Pre-Closing Period;
(B)
imposed on any Target Company as a result of being
a member of an affiliated group of corporations of which any Target Company (or any predecessor) is or was a member on or prior to the Closing Date pursuant to Section 1.1502-6 of the Regulations (or any similar provision of state, local, or
foreign Law);
(C)
imposed upon any Target Company as a transferee or successor, by Contract, or
otherwise with respect to any arrangement or event entered into on or prior to the Closing Date; and
(D)
imposed upon any Target Company arising directly or indirectly from a breach or inaccuracy of a representation or warranty set forth in Section 4.19.
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(iv)
any Obligation of Target owing to any Target employee (except, in the case of any employee of Target that has been disclosed to Acquiror in writing, for salary or other compensation or ordinary course business expense reimbursements due to such
individual) to the extent not accrued on the Closing Balance Sheet;
(v)
any breach by any officer or
director of Target of any fiduciary duty owed by such officer or director to any current of former stockholders of Target, which breach occurred prior to, in connection with or as a result of the Closing and the Transactions to take place at the
Closing;
(vi)
any amount paid by Acquiror, Target or the Surviving Corporation to any Holder with
respect to Dissenting Shares in excess of the value such Holder would have received in the Merger for such Dissenting Shares had such shares been converted in accordance with Section 2.6, and all interest, costs, expenses and fees incurred by
Acquiror, Target or the Surviving Corporation in connection with the exercise or attempted exercise of any dissenters rights;
(vii)
any Obligation of Target owing to any Person with respect to expenses incurred in connection with and in furtherance of the Merger to the extent not accrued on the Closing Balance Sheet;
(viii)
any Indebtedness of Target that has not been paid and finally discharged pursuant to
Section 9.9;
(ix)
any Net Cash Adjustment pursuant to Section 3.2(c) that has not been
otherwise satisfied in cash by the Target Principal Holders;
(x)
any and all costs and other expenses
(including reasonable attorneys fees and expenses) incident to any of the foregoing or to the enforcement by any Indemnified Acquiror Party of this
Section 12.1
.
For the avoidance of doubt, amounts described in the preceding clauses (iii), (iv), (vii) and (viii) shall only constitute
Damages to the extent that (x) they have not already been taken into account in the procedures set forth in Section 3.2 (Closing Date Net Cash Adjustment) and (y) they would result in the Closing Date Net Cash Position being less than
the lower of (i) the Closing Date Net Cash Position finally determined pursuant to Section 3.2 or (ii) the Targeted Closing Date Net Cash Position.
(b)
For purposes of this
Section 12.1
, Taxes resulting from transactions not contemplated by the
Transaction Documents, occurring on the Closing Date but under Acquirors sole direction and control, shall be allocated to the Post-Closing Period.
12.2 By Acquiror
. To the extent provided in this
Section 12
, Acquiror shall indemnify and hold the Holders, their heirs, successors and assigns and if any
Holders are Entities, any of their officers, directors, employees, stockholders, agents, Affiliates and any Person who controls such Holders within the meaning of the Securities Act or the Exchange Act (each, an
Indemnified Target
Party
) harmless from and against the following (
Indemnifiable Acquiror Matters
):
(a)
any Damages that such Indemnified Target Party may sustain, suffer or incur and that result from, arise out of
or relate to:
(i)
any inaccuracy of any representation or warranty of Acquiror contained in this
Agreement or of the certifications delivered pursuant to
Section 7.2(a)
; and
(ii)
any
nonfulfillment of any covenant or agreement of Acquiror contained in this Agreement; and
(b)
any and
all costs and other expenses (including reasonable attorneys fees and expenses) incident to any of the foregoing or to the enforcement by any Indemnified Target Party of this
Section 12.3
.
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12.3 Procedure for Claims
.
(a)
An Indemnified Acquiror Party or an Indemnified Target Party that desires to seek indemnification under any
part of this
Section 12
(each, an
Indemnified Party
) shall give notice (a
Claim Notice
) to each Party responsible or alleged to be responsible for indemnification hereunder (an
Indemnitor
) prior to any applicable Expiration Date. The Stockholders Representative shall administer all claims for indemnification under this
Section 12
. Such notice shall briefly explain the nature of the
claim and the parties known to be involved, and shall specify the amount thereof. If the matter to which a claim relates shall not have been resolved as of the date of the applicable Claim Notice, the Indemnified Party shall estimate in good faith
the amount of the claim in the Claim Notice, but also specify therein that the claim has not yet been liquidated (an
Unliquidated Claim
). If an Indemnified Party gives a Claim Notice for an Unliquidated Claim, the Indemnified
Party shall also give a second Claim Notice (the
Liquidated Claim Notice
) within 30 days after the matter giving rise to the claim becomes finally resolved, and the Liquidated Claim Notice shall specify the actual amount of the
claim. Each Indemnitor to which a Claim Notice is given shall respond to any Indemnified Party that has given a Claim Notice (a
Claim Response
) within 30 days (the
Response Period
) after the later of
(i) the date that the Claim Notice is given and (ii) if a Claim Notice is first given with respect to an Unliquidated Claim, the date on which the Liquidated Claim Notice is given. Any Claim Notice or Claim Response shall be given in
accordance with the notice requirements hereunder, and any Claim Response shall specify whether or not the Indemnitor giving the Claim Response disputes the claim described in the Claim Notice. If any Indemnitor fails to give a Claim Response within
the Response Period, such Indemnitor shall be deemed not to dispute the claim described in the related Claim Notice. If any Indemnitor elects not to dispute a claim described in a Claim Notice, whether by failing to give a timely Claim Response or
otherwise, then the amount of such claim shall be conclusively deemed to be an obligation of such Indemnitor. No delay on the part of an Indemnified Acquiror Party or Indemnified Target Party in delivering a Claim Notice shall relieve the
Indemnifying Target Parties or Acquiror respectively from any of their indemnification obligations under this Section 12 unless (and then only to the extent that) the Indemnifying Target Parties or Acquiror respectively are/is prejudiced
thereby.
(b)
If any Indemnitor shall be obligated to indemnify an Indemnified Party hereunder, such
Indemnitor shall pay to such Indemnified Party within 30 days after the last day of the Response Period the amount to which such Indemnified Party shall be entitled. If there shall be a dispute as to the amount or manner of indemnification under
this
Section 12
, the Indemnified Party may pursue whatever legal remedies may be available for recovery of the Damages claimed from any Indemnitor. If any Indemnitor fails to pay all or part of any indemnification obligation when due
(which shall be the date that such claim for Damages is finally resolved in favor of the Indemnified Party pursuant to the terms hereof), then such Indemnitor shall also be obligated to pay to the applicable Indemnified Party interest on the unpaid
amount for each day during which the obligation remains unpaid at an annual rate equal to the Prime Rate, and the Prime Rate in effect on the first Business Day of each calendar quarter shall apply to the amount of the unpaid obligation during such
calendar quarter.
(c)
Notwithstanding any other provision of this
Section 12
:
(i)
an Indemnified Party shall be entitled to indemnification with respect to Sections 12.1(a)(i) or 12.2(a)(i), as
the case may be, only when the aggregate of all Damages to such Indemnified Party exceeds $165,000 (the
Threshold Amount
) and then such Indemnified Party shall be entitled to indemnification for all of its Damages above the
Threshold Amount;
provided
, that the Threshold Amount shall not be applicable to Fundamental Target Matters or Fundamental Acquiror Matters;
(ii)
in no event shall the aggregate indemnification obligations of the Indemnifying Target Parties, taken together, as to
Section 12.1(a)
, exceed 10% of the Merger Consideration value
(the
Maximum Indemnification Amount
) (where the Merger Consideration is valued based on the Common Value Per Share and Series C Value Per Share, as applicable, as of the Closing Date), except in the case of (x) any inaccuracy
of any representation or warranty of Target in Sections 4.1(a) (Organization), 4.2(a) (Authority), 4.4(a)-(b) (Capitalization), 4.18 (Target Employee Benefit Plans), 4.19 (Taxes) and 4.24 (Brokerage Fees) (collectively, the
Fundamental
Target Representations
) (y) the Indemnifiable
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Target Matters described in clauses (ii)-(ix) of Section 12.1(a), and (z) the Indemnifiable Target Matters described in clause (x) of Section 12.1(a) to the extent they
pertain to the immediately preceding clauses (x) and (y) (collectively, the
Fundamental Target Matters
); provided that in the case of the Fundamental Target Matters, in no event shall the aggregate indemnification
obligations of the Indemnifying Target Parties, taken together, exceed 100% of the Merger Consideration value (where the Merger Consideration is valued based on the Common Value Per Share and Series C Value Per Share, as applicable, as of the
Closing Date);
(iii)
in no event shall the aggregate indemnification obligations of the Acquiror, as to
Section 12.2
, exceed the Maximum Indemnification Amount, except in the case of (x) any inaccuracy of any representation or warranty of Acquiror in Sections 6.1(a) (Organization), 6.2(a) (Authority), 6.3(a)-(b) (Capitalization),
6.11 (Acquiror Employee Benefit Plans), 6.12 (Taxes) and 6.16 (Brokerage Fees) (collectively, the
Fundamental Acquiror Representations
), (y) the Indemnifiable Acquiror Matters described in clause (ii) of
Section 12.2(a), and (z) the Indemnifiable Acquiror Matters described in clause (b) of Section 12.2 to the extent they pertain to the immediately preceding clauses (x) and (y) (collectively, the
Fundamental
Acquiror Matters
); provided that in the case of the Fundamental Acquiror Matters, in no event shall the aggregate indemnification obligations of Acquiror exceed 100% of the Merger Consideration value (where the Merger Consideration is
valued based on the Common Value Per Share and Series C Value Per Share, as applicable, as of the Closing Date);
(iv)
clauses (ii) and (iii) notwithstanding, as to any Claims arising from Fraud with respect to this
Agreement committed by Target, any Target Principal Holder or any Acquiror, there shall be no limitation on indemnification obligations (it being understood that as to such Fraud committed by a Target Principal Holder (that does not also constitute
Fraud committed by Target), such holder (and not the other Indemnifying Target Parties) shall be the liable party);
The
parties hereto agree and acknowledge that the aforementioned liability limits are overlapping and inclusive of one another (whether consumed by moving from a lower limit to a higher limit or from a higher limit to a lower limit) and not separate
from one another. By way of illustration, in the event a claim based on a breach of a representation and warranty contained in Section 4.4 (Capitalization) is made after all of the Escrow Fund has been exhausted, then the maximum amount that
may be recovered from any Indemnifying Target Party shall be limited to an amount equal to the difference between (i) such Indemnifying Target Partys Pro Rata Share of 100% of the Merger Consideration and (ii) such Indemnifying
Target Partys Pro Rata Share of the Escrow Fund (where the Merger Consideration and Escrow Fund are valued based on the Common Value Per Share and Series C Value Per Share, as applicable, as of the Closing Date).
(v)
for purposes of this
Section 12
and solely with respect to (A) determining whether a breach of
representation or warranty has occurred (other than as to knowledge qualifiers, for which this clause (A) is not applicable) and (B) the calculation of Damages, including without limitation for purposes of calculating the Threshold Amount,
resulting from a breach of representation or warranty, all of the representations and warranties set forth in this Agreement or in any certification delivered pursuant hereto that are qualified by materiality, Material Adverse Effect, or the
knowledge of a particular Party shall be deemed to have been made without any such qualification;
(vi)
Damages shall exclude special, consequential, indirect or punitive damages, unless paid to a third party by an Indemnified Acquiror Party or Indemnified Target Party. Damages shall be calculated net of actual recoveries under existing insurance
policies (net of any applicable collection costs and reserves, deductibles, premium adjustments and retrospectively rated premiums), it being understood that an Indemnified Acquiror Party or Indemnified Target Party shall not be obligated to seek
recovery under insurance policies with respect to any particular Indemnifiable Target Matter or Indemnifiable Acquiror Matter respectively; Notwithstanding anything to the contrary herein, Damages shall exclude the employer portion of any payroll
Taxes associated with the shares of Acquiror Common Stock issuable pursuant to this Agreement; and
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(vii)
No Indemnified Acquiror Party or Indemnified Target Party may make a claim for Fraud with respect to the
disclosure of any matter arising after the date hereof that Target discloses as an exception to the certificate delivered pursuant to Section 7.1(a) or Acquiror discloses as an exception to the certificate delivered pursuant to
Section 7.2(a) (which, for the avoidance of doubt, such disclosure being for informational purposes only and not as a limitation to the Indemnified Acquiror Parties or Indemnified Target Parties ability to otherwise seek recovery
for Damages arising from any such disclosure pursuant to Section 12), unless the matter being disclosed has arisen out of or results from the Fraud of the party disclosing it.
12.4 Claims Period
.
Expiration Date
means:
(a)
for all claims arising under Sections 12.1(a)(i) or 12.2(a)(i), other than Fundamental Target Representations
and Fundamental Acquiror Representations, the first day following the first anniversary of the Closing Date.
(b)
for all other claims arising under Section 12.1(a) or 12.2, other than those arising from Fraud, as to
which there shall be no Expiration Date, 60 days following the date on which the applicable statute of limitations expires.
So long as an Indemnified Party gives a bona-fide Claim Notice for an Unliquidated Claim on or before the applicable Expiration Date,
such Indemnified Party shall be entitled to pursue its rights to indemnification with respect to such Unliquidated Claim regardless of the date on which such Indemnified Party gives the related Liquidated Claim Notice.
12.5 Third Party Claims
. An Indemnified Party that desires to seek indemnification under any part
of this
Section 12
with respect to any actions, suits or other administrative or judicial proceedings (each, an
Action
) that may be instituted by a third party shall give each Indemnitor prompt notice of a third
partys institution of such Action. After such notice, any Indemnitor shall, if requested by such Indemnified Party, participate in such Action. Any failure to give prompt notice under this
Section 12.6
shall not bar an Indemnified
Partys right to claim indemnification under this
Section 12
, except to the extent that an Indemnitor shall have been materially harmed by such failure.
12.6 Satisfaction of Indemnification Obligations.
(a)
Notwithstanding anything herein to the contrary, the sole and exclusive recourse and remedy of any Indemnified Acquiror Party against any Indemnifying Target Party for the satisfaction of any
Damages under
Section 12.1(a)
(not including, however, Damages relating to Fundamental Target Matters or amounts payable to Acquiror under
Section 3.2(c)
) for which any Indemnifying Target Party may be liable, shall be such
Indemnifying Target Partys Pro Rata Share of the Escrow Fund.
(b)
Any Damages satisfied from the
Escrow Fund in respect of a claim made pursuant to
Section 12.1(a)
, including Damages for Fundamental Target Matters which are satisfied from the Escrow Fund, shall reduce each Indemnifying Target Partys Pro Rata Share of the
Escrow Fund.
(c)
For purposes of satisfying any Damages for which a Indemnifying Target Party is
responsible under this Section 12, (i) any Escrow Shares used to satisfy such Damages shall be deemed to have a value per share equal to the Common Value Per Share as of the date they are released pursuant to the Escrow Agreement in order
to satisfy such Damages, (ii) any other Merger Consideration shares used to satisfy such Damages shall be deemed to have a value per share equal to the Common Value Per Share or Series C Value Per Share, as applicable, as of the date they are
used to satisfy such Damages and (iii) such Indemnifying Target Party may elect in its discretion to satisfy such Damages with cash in lieu of forfeiting Escrow Shares or other Merger Consideration shares (and in the event that such
Indemnifying Target Party does so, such shares shall no longer be subject to risk of forfeiture for such Damages and if such shares are Escrow Shares, they shall promptly be released to such Indemnified Target Party).
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12.7 No Contribution/Indemnification
. The Target D&O Indemnitees shall not seek, nor will
they be entitled to, contribution from, or indemnification by, Target, under Targets Charter Documents, this Agreement, applicable corporate laws or other laws or otherwise, in respect of amounts due from the Target D&O Indemnitees in
their capacities as Indemnifying Target Parties to an Indemnified Acquiror Party under this
Section 12
, and the Target D&O Indemnitees will hold the Surviving Corporation and the Indemnified Acquiror Parties harmless in respect of
all such amounts and shall not seek to join the Surviving Corporation in connection with any suit arising under this Agreement regarding such amounts. The Target D&O Indemnitees shall not make claim against any directors and officers insurance
policy maintained or to be maintained by the Surviving Corporation in respect of amounts due by the Target D&O Indemnitees in their capacities as Indemnifying Target Parties to an Indemnified Acquiror Party under this
Section 12
, if
the carrier of such insurance policy would have any right of subrogation against the Surviving Corporation in respect of such claim, and shall indemnify and hold harmless the Acquiror Indemnified Parties from any such action. By way of illustration,
in the event that (i) a particular third party claim involves Damages in the aggregate amount of $25,000, (ii) the Indemnified Acquiror Parties are entitled to recovery under this Section 12 for the entire amount of such Damages from
the Indemnifying Target Parties and a Target D&O Indemnitees Pro Rata Share of such Damages is $1,000, and (iii) a Target D&O Indemnitee is entitled to indemnification under Section 9.13 for the entire amount of such Damages,
then (x) the Indemnified Acquiror Parties shall be entitled to recover $1,000 from the Target D&O Indemnitee in his or her capacity as an Indemnifying Target Party (and the Target D&O Indemnitee may not seek indemnification under
Section 9.13 for such $1,000) and (y) the Target D&O Indemnitee shall be entitled to indemnification in the amount of $25,000 in his capacity as a Target D&O Indemnitee.
12.8 Anticipated Damages
. Subject to all applicable provisions of this
Section 12
,
including
Section 12.5
, nothing herein shall be deemed to prevent an Indemnified Party from making a claim hereunder that complies with the procedural requirements of
Section 12.4
for Damages resulting from a third party
claim that the Indemnified Party has reason to believe will be made in the future;
provided
, the Claim Notice sets forth the specific basis for any such anticipated Damages and the Indemnified Party has reasonable grounds to believe that a
claim will be made in the future (it being understood that such Damages will not actually be paid to an Indemnified Party unless and until such third party claim is actually made and it is determined according to the term of this Section 12
that the Indemnitor is obligated to indemnify for such Damages).
12.9 Exclusive Remedy
.
Following the Closing, (a) this Section 12 and the remedy provisions of the Joinder shall together constitute the sole and exclusive remedy for recovery of Damages by the Indemnified Acquiror Parties and Indemnified Target Parties for all
Indemnifiable Target Matters and Indemnifiable Acquiror Matters respectively, (b) all applicable statutes of limitations or other claims periods with respect to claims for Indemnifiable Target Matters and Indemnifiable Acquiror Matters shall be
shortened to the applicable claims periods and survival periods expressly set forth herein, and (c) the Indemnified Acquiror Parties and Indemnified Target Parties irrevocably waive any and all rights they may have to make claims against the
Indemnifying Target Parties and Acquiror respectively under statutory and common law as a result of any Damages and any and all other losses or damages incurred by the Indemnified Acquiror Parties and Indemnified Target Parties respectively with
respect to this Agreement, whether or not in excess of the maximum amounts permitted to be recovered pursuant to this Section 12; provided, however, nothing in this Section 12.11 shall limit the liability of the Indemnifying Target Parties
or Acquiror with respect to Fraud with respect to this Agreement committed by Target or Acquiror respectively.
SECTION 13.
TERMINATION
13.1 Termination
. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, notwithstanding any requisite approval and
adoption of this Agreement and the approval of the Merger by the Holders:
(a)
by mutual written
agreement of the Parties, duly authorized by the board of directors of each of Acquiror and Target;
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(b)
by any of Acquiror or Target if (i) the Merger has not been consummated on or before September 30, 2010 (which date shall be extended to October 31, 2010 in the event that as of September 30, 2010 the Acquiror Stockholder
Approval has not yet been obtained due to either unresolved SEC comments on the Proxy Statement or insufficient proxies being held by Acquiror and Acquiror confirms in writing to Target that it will fully comply with its covenants under
Section 9.2 to resolve such SEC comments or obtain sufficient proxies prior to October 31, 2010);
provided
that the right to terminate this Agreement under this clause (i) of this
Section 13.1(b)
shall not be
available to any Party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Merger to have been consummated or any of the conditions precedent to the Closing set forth in
Section 7
to have been fulfilled or satisfied on or before such date or (ii) there shall be any Law that makes consummation of any of the Transactions, including the Merger, illegal or otherwise prohibited or if any court of
competent jurisdiction or a Governmental Body shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the Merger and such order, decree, ruling, or other action shall have become final
and non-appealable;
(c)
by Acquiror if Target shall have violated or breached in any material respect
any of its obligations under Sections 9.1 (Conduct of Business by Target Pending the Merger) or 9.5 (Standstill) and failed to cure such violation within 15 days after receipt of notice from Acquiror regarding such violation or breach; and
(d)
by Target if Acquiror shall have violated or breached in any material respect any of its
obligations under Section 9.2 (Preparation of Proxy Statement; Acquiror Stockholders Meeting) and failed to cure such violation within 15 days after receipt of notice from Target regarding such violation or breach.
13.2 Effect of Termination
. In the event of the termination of this Agreement pursuant to
Section 13.1
, this Agreement shall forthwith become void, there shall be no Obligation under this Agreement on the part of Acquiror, Merger Sub or Target or any of their respective officers or directors and all rights and obligations of
any Party shall cease; provided, that if
provided
,
however
, if such termination shall result from the (i) willful failure of either Party to fulfill a condition to the performance of the obligations of the other Party or
(ii) willful failure of either Party to perform a covenant hereof, such Party shall be fully liable for any and all liabilities and damages incurred or suffered by the other Party as a result of such failure. The provisions of
Sections 14.1,
14.2, 14.12 and 14.13
shall survive any termination hereof pursuant to
Section 13.1
.
SECTION 14.
OTHER PROVISIONS
14.1 Fees and Expenses
. Each Party shall bear its costs and expenses incurred in connection with the Transactions and delivery of any materials required to be
delivered at the Closing, including without limitation in the case of Target the unaudited financial statements contemplated by
Section 8.2(a)(ix)
.
14.2 Notices
. All notices, consents or other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have
been duly given when delivered personally or one Business Day after being sent by a nationally recognized overnight delivery service, postage or delivery charges prepaid or five Business Days after being sent by registered or certified mail, return
receipt requested, postage charges prepaid. Notices also may be given by facsimile or e-mail and shall be effective on the date transmitted if confirmed within 48 hours thereafter by a signed original sent in one of the manners provided in the
preceding sentence. Notices to Target prior to the Closing or the Stockholders Representative shall be sent to 333 Twin Dolphin Drive, Redwood City, CA 94065, to the attention of Sunir Kapoor (facsimile: (650) 264-4515, e-mail:
sunir.kapoor@ubmatrix.com), with a copy sent simultaneously to Fenwick & West LLP, Silicon Valley Center, 801 California Street, Mountain View, CA to the attention of Cynthia C. Hess, Esquire and Andrew Y. Luh, Esquire (facsimile:
(650) 938-5200, e-mail: aluh@fenwick.com). Notices to an Acquiring Party shall be sent to EDGAR Online Inc., 50 Washington Street, 11th Floor, Norwalk, CT 06854, to the attention of its Chief Executive Officer
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(facsimile: (203) 852-5667, e-mail: pmoyer@edgar-online.com), with copies sent simultaneously to the same address, to the attention of its General Counsel (facsimile: (203) 852-5667,
e-mail: lzinman@edgar-online.com) and to Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, PA 19103 to the attention of Justin W. Chairman, Esquire (facsimile: (215) 963-5061, e-mail: jchairman@morganlewis.com). Any Party
may change its address for notice and the address to which copies must be sent by giving notice of the new addresses to the other parties in accordance with this
Section 14.2
,
provided
that any such change of address notice shall
not be effective unless and until received.
14.3 Interpretation of Representations
.
Each representation and warranty made in this Agreement or pursuant hereto is independent of all other representations and warranties made by the same parties, whether or not covering related or similar matters, and must be independently and
separately satisfied. Exceptions or qualifications to any such representation or warranty shall not be construed as exceptions or qualifications to any other representation or warranty.
14.4 Reliance by Parties
. Notwithstanding the right of any Acquiring Party to investigate the
business, Assets and financial condition of Target, and notwithstanding any knowledge obtained or obtainable by any Acquiring Party as a result of such investigation, each Acquiring Party has the unqualified right to rely upon, and have relied upon,
each of the representations and warranties made by Target in this Agreement or pursuant hereto. Notwithstanding the right of Target or any Indemnified Target Party to investigate the business, Assets and financial condition of Acquiror, and
notwithstanding any knowledge obtained or obtainable by Target or any Indemnified Target Party as a result of such investigation, Target and each Indemnified Target Party has the unqualified right to rely upon, and has relied upon, each of the
representations and warranties made by Acquiror in this Agreement or pursuant hereto.
14.5
Entire Understanding
. This Agreement, together with the Exhibits and Schedules hereto and the Acquiror Disclosure Schedule, state the entire understanding among the parties with respect to the subject matter hereof, and supersede all prior oral
and written communications and agreements, and all contemporaneous oral communications and agreements, with respect to the subject matter hereof including all confidentiality letter agreements and letters of intent previously entered into among some
or all of the parties hereto. No amendment or modification of this Agreement shall be effective unless in writing and signed by the Party against whom enforcement is sought. Nothing contained in
Section 14
or elsewhere in this Agreement
shall be deemed to limit (or adversely affect) in any manner any right or remedy of any Indemnitee under any of the agreements contemplated by this Agreement.
14.6 Assignment
. This Agreement shall bind, benefit, and be enforceable by and against the Parties and their respective successors and consented-to assigns. No Party
shall in any manner assign any of its, his or her rights or obligations under this Agreement without the express prior written consent of the other Parties,
provided
,
however
, no Acquiring Party shall not be required to obtain the
express prior written consent of the other Parties in connection with its assignment of this Agreement or any of its rights or obligations hereunder in connection with any reorganization of, or transfer of Assets to, Acquiror, or any of
Acquirors direct or indirect subsidiaries and/or Affiliates.
14.7 Waivers
.
Except as otherwise expressly provided herein, no waiver with respect to this Agreement shall be enforceable unless in writing and signed by the Party against whom enforcement is sought. Except as otherwise expressly provided herein, no failure to
exercise, delay in exercising, or single or partial exercise of any right, power or remedy by any Party, and no course of dealing between or among any of the Parties, shall constitute a waiver of, or shall preclude any other or further exercise of,
any right, power or remedy. Notwithstanding the foregoing, any waiver of any of the rights of any Holder hereunder shall be effective if executed by the Stockholders Representative.
14.8 Severability
. If any provision of this Agreement is construed to be invalid, illegal or
unenforceable, then the remaining provisions hereof shall not be affected thereby and shall be enforceable without regard thereto.
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14.9 Counterparts
. This Agreement may be executed in any number of counterparts (delivery of
which may occur via facsimile or e-mail in pdf format), each of which when so executed and delivered shall be an original hereof, and it shall not be necessary in making proof of this Agreement to produce or account for more than one counterpart
hereof.
14.10 Section Headings; Satisfaction
. Section and subsection headings in this
Agreement are for convenience of reference only, do not constitute a part of this Agreement, and shall not affect its interpretation. Section, subsection, clause, Schedule and Exhibit references are to this Agreement unless otherwise specified. Any
reference to a Partys being satisfied with any particular item or to a Partys determination of a particular item presumes that such standard will not be achieved unless such Party shall be satisfied or shall have made such determination
in its sole or complete discretion.
14.11 References
. All words used in this Agreement
shall be construed to be of such number and gender as the context requires or permits.
14.12 Controlling Law
. THIS AGREEMENT IS MADE UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW AND WITHOUT REGARD TO ANY CHOICE OF LAW OR CHOICE OF FORUM PROVISION, RULE
OR PRINCIPLE (WHETHER OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION).
14.13
Jurisdiction and Process
. In any action between or among any of the parties, whether arising out of this Agreement, any of the agreements contemplated hereby or otherwise, (a) each of the parties irrevocably consents to the exclusive
jurisdiction and venue of the federal and state courts located in the State of New York, (b) if any such action is commenced in a state court, then, subject to applicable law, no Party shall object to the removal of such action to any federal
court located in the State of New York, (c) each of the parties irrevocably waives the right to trial by jury, (d) each of the Parties irrevocably consents to service of process by first class certified mail, return receipt requested,
postage prepaid, to the address at which such Party is to receive notice in accordance with
Section 14.2
, and (e) the prevailing parties shall be entitled to recover their reasonable attorneys fees, costs and disbursements
from the other parties (in addition to any other relief to which the prevailing parties may be entitled).
14.14 No Third-Party Beneficiaries
. No provision of this Agreement is intended to or shall be construed to grant or confer any right to enforce this Agreement, or any remedy for breach of this Agreement, to or upon any Person other than the
parties hereto including any customer, prospect, supplier, employee, contractor, salesman, agent or representative of Target; provided, however, that notwithstanding the foregoing the Target D&O Indemnitees, Indemnified Acquiror Parties and
Indemnified Target Parties are intended third party beneficiaries of this Agreement.
14.15
Bankruptcy Qualification
. Each representation or warranty made in or pursuant to this Agreement regarding the enforceability of any Contract shall be qualified to the extent that such enforceability may be effected by bankruptcy, insolvency and
other similar Laws or equitable principles (but not those concerning fraudulent conveyance) generally affecting creditors rights and remedies.
14.16 Neutral Construction
. In view of the fact that each of the parties hereto have been represented by their own counsel and this Agreement has been fully
negotiated by all parties, the legal principle that ambiguities in a document are construed against the draftsperson of that document shall not apply to this Agreement.
14.17 Stockholders Representative
.
(a)
Draper Fisher Jurvetson shall be constituted and appointed as agent (
Stockholders Representative
) for and on behalf of the Indemnifying Target Parties to enter into the
Escrow Agreement,
A-1-59
to give and receive notices and communications made pursuant to this Agreement or the Escrow Agreement, to authorize delivery to an Acquiring Party of the all or a portion of Escrow Fund in
satisfaction of claims by any of the Acquiring Parties against the Escrow Fund pursuant to this Agreement or the Escrow Agreement, to object to such deliveries, to agree to, negotiate, enter into settlements and compromises of, and demand
arbitration and comply with orders of courts and awards of arbitrators with respect to such claims, and to take all actions necessary or appropriate in the judgment of the Stockholders Representative for the accomplishment of the foregoing.
Such agency may be changed by the holders of a majority in interest of the Escrow Fund from time to time upon not less than ten Business Days prior written notice to Acquiror. No bond shall be required of the Stockholders Representative,
and the Stockholders Representative shall receive no compensation for his/her services. Notices or communications to or from the Stockholders Representative shall constitute notice to or from each of the Indemnifying Target Parties for
purposes of this Agreement and the Escrow Agreement with respect to claims against the Escrow Fund.
(b)
The Stockholders Representative shall not be liable for any act done or omitted hereunder as Stockholders Representative while acting in good faith and not in a manner constituting gross negligence, and any act done or omitted
pursuant to the advice of counsel shall be conclusive evidence of such good faith. The Indemnifying Target Parties shall severally indemnify the Stockholders Representative and hold him/her harmless against any loss, liability or expense
incurred without gross negligence or bad faith on the part of the Stockholders Representative and arising out of or in connection with the acceptance or administration of his/her duties hereunder. Upon any contemplated distribution from the
Escrow Fund to the Indemnifying Target Parties, the Stockholders Representative shall have the right to recover such losses, liabilities and expenses from such distribution before it is made to the Indemnifying Target Parties. In no event
shall any bond be required by the Stockholders Representative.
(c)
The approval by any Holder of
the Merger shall be deemed to be approval of the terms of the provisions of this
Section 14.17
and the indemnification obligations of the Holders set forth in
Section 12
, and the appointment of the Stockholders
Representative.
(d)
A decision, act, consent or instruction of the Stockholders Representative
shall constitute a decision of all Holders and shall be final, binding and conclusive upon each such Holder, and the Acquiring Parties may rely exclusively upon any such decision, act, consent or instruction of the Stockholders Representative
as being the decision, act, consent or instruction of each and every Holder. Each of the Acquiring Parties is hereby relieved from any Obligation to any Person for any acts done by it in accordance with such decision, act, consent or instruction of
the Stockholders Representative. Except for a notice regarding the change of the Stockholders Representative (as contemplated by
Section 14.2
), each of the Acquiring Parties shall be entitled to disregard any notices or
communications given or made by the Holders unless given or made through the Stockholders Representative.
(e)
In the event that the Stockholders Representative is unable to serve as the Stockholders
Representative because of his or her death or disability or illness, or is unwilling to serve as Stockholders Representative for any reason whatsoever, then he or she shall appoint a successor Stockholders Representative, and if he or
she is unable or unwilling to appoint a successor Stockholders Representative, the Indemnifying Target Parties shall, as promptly as practicable, vote to elect a successor Stockholders Representative. A successor Stockholders
Representative shall be elected by the affirmative vote, or written consent, of a majority of the votes cast by Indemnifying Target Parties (or their heirs, personal representatives, successors or assigns) with each Indemnifying Target Party being
entitled to cast one vote for each dollar of Merger Consideration allocated to such Indemnifying Target Party pursuant to this Agreement.
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{REMAINDER OF
PAGE INTENTIONALLY BLANK}
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IN WITNESS WHEREOF,
this Agreement has been executed by the parties hereto as of the day and year first written above.
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EDGAR ONLINE, INC.
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By:
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Name:
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Philip D. Moyer
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Title:
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President and Chief Executive Officer
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UBM ACQUISITION CORP.
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By:
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Name:
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Philip D. Moyer
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Title:
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President
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UBMATRIX, INC.
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By:
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Name:
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Title:
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STOCKHOLDERS REPRESENTATIVE:
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Name:
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Signature Page to
Agreement and Plan of Merger
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Annex A-2
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (this
Amendment
) is made and entered into as of October 20, 2010
by and among EDGAR Online, Inc., a Delaware corporation (
Parent
), UBM Acquisition Corp., a Washington corporation and direct wholly-owned Subsidiary of Parent (
Merger Sub
), UBmatrix, Inc., a Washington
corporation (the
Company
) and the Stockholders Representative named on the signature page hereof, and amends that certain Agreement and Plan of Merger made and entered into as of June 23, 2010 by and among Parent,
Merger Sub and the Company (the
Agreement
). All capitalized terms that are used in this Amendment and not defined herein shall have the respective meanings ascribed thereto in the Agreement.
RECITALS
WHEREAS, Parent and the Company deem it advisable to amend the Agreement to provide for the matters hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual agreements, covenants and other premises set forth herein, the mutual benefits to be
gained by the performance thereof, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, the parties hereto hereby agree as follows:
AGREEMENT
1. Amendment.
Section 13.1(b) of the Agreement is hereby amended and restated in its entirety as follows:
(b) by any of Acquiror or Target if (i) the Merger has not been consummated on or before November 30, 2010 (which date shall be extended to December 31, 2010 in the event that as of
November 30, 2010 the Acquiror Stockholder Approval has not yet been obtained due to insufficient proxies being held by Acquiror and Acquiror confirms in writing to Target that it will fully comply with its covenants under Section 9.2 to
obtain sufficient proxies prior to December 31, 2010); provided that the right to terminate this Agreement under this clause (i) of this Section 13.1(b) shall not be available to any Party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the Merger to have been consummated or any of the conditions precedent to the Closing set forth in Section 7 to have been fulfilled or satisfied on or before such date or
(ii) there shall be any Law that makes consummation of any of the Transactions, including the Merger, illegal or otherwise prohibited or if any court of competent jurisdiction or a Governmental Body shall have issued an order, decree or ruling
or taken any other action restraining, enjoining or otherwise prohibiting the Merger and such order, decree, ruling, or other action shall have become final and non-appealable;
2.
Counterparts
.
This Amendment may be executed in one or more counterparts (including by facsimile or portable
document format (.PDF)), all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
A-2-1
3.
No Other
Amendment.
Except as modified by this Amendment, the Agreement shall remain in full force and effect in all respects without any modification. By executing this Amendment below, Parent, Merger Sub, the Company and the Stockholders
Representative certify that this Amendment has been executed and delivered in compliance with the requirements of the Agreement.
4.
Governing Law
.
THIS AGREEMENT IS MADE UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED SOLELY THEREIN, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW AND WITHOUT REGARD TO ANY CHOICE OF LAW OR CHOICE OF FORUM PROVISION, RULE OR PRINCIPLE (WHETHER OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION).
[R
EMAINDER
OF
P
AGE
I
NTENTIONALLY
L
EFT
B
LANK
]
A-2-2
IN WITNESS WHEREOF,
Parent, Merger Sub, the Company and the Stockholders Representative have executed, or caused this Amendment to be executed, all as of the date first written above.
|
|
|
EDGAR ONLINE, INC.
|
|
|
By:
|
|
|
Name:
|
|
David L. Price
|
Title:
|
|
Chief Financial Officer
|
|
UBM ACQUISITION CORP.
|
|
|
By:
|
|
|
Name:
|
|
David L. Price
|
Title:
|
|
President
|
|
UBMATRIX, INC.
|
|
|
By:
|
|
|
Name:
|
|
Sunir Kapoor
|
Title:
|
|
Chief Executive Officer
|
|
STOCKHOLDERS REPRESENTATIVE:
|
|
Draper Fisher Jurvetson Fund VIII, L.P.
|
|
|
By:
|
|
Draper Fisher Jurvetson Partners VIII, L.P.
|
Its:
|
|
General Partner
|
|
|
By:
|
|
|
Name:
|
|
Timothy C. Draper
|
Title:
|
|
Managing Partner, Draper Fisher Jurvetson
Partners, VIII, L.P.
|
[S
IGNATURE
P
AGE
TO
A
MENDMENT
N
O
. 1
TO
A
GREEMENT
AND
P
LAN
OF
M
ERGER
]
A-2-3
Annex B-1
|
|
|
|
|
|
|
|
Financial Statements
For the years ending
September 30, 2009 and
2008
|
|
|
Unaudited Interim Financial Statements for
the nine month
periods ending
June 30, 2010 and 2009
|
|
|
Unaudited Interim Statements of Operations
for the three month periods ending
June 30, 2010 and 2009
|
|
|
|
|
|
|
|
Tel: 415-397-7900
Fax:
415-397-2161
www.bdo.com
|
|
One Market, Suite 1100
Spear Tower
San Francisco, CA
94105
|
Independent Auditors Report
The Board of Directors and Stockholders
UBMatrix. Inc.
Redwood City, California
We have audited the accompanying balance sheets of UBMatrix, Inc. as of September 30, 2009 and 2008 and the related statements
operations, redeemable convertible preferred stock and stockholders deficit, and cash flows for the years then ended. 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 in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of UBMatrix, Inc. at September 30, 2009 and 2008, and the results of its
operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
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 suffered recurring
losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Managements 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.
(formerly known as BDO Seidman, LLP)
May 29, 2010
B-1-1
Balance Sheets
UBmatrix, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
June
30,
2010
|
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
113,054
|
|
|
$
|
452,065
|
|
|
$
|
1,170,696
|
|
Accounts receivable
|
|
|
394,664
|
|
|
|
269,994
|
|
|
|
184,399
|
|
Deferred costs
|
|
|
|
|
|
|
197,000
|
|
|
|
259,305
|
|
Prepaid expenses
|
|
|
17,656
|
|
|
|
|
|
|
|
11,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
525,374
|
|
|
|
919,059
|
|
|
|
1,625,484
|
|
Property and equipment, net
|
|
|
124,072
|
|
|
|
66,602
|
|
|
|
31,187
|
|
Other assets
|
|
|
65,728
|
|
|
|
55,728
|
|
|
|
55,728
|
|
Intangible assets, net
|
|
|
57,108
|
|
|
|
44,615
|
|
|
|
35,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
772,282
|
|
|
$
|
1,086,004
|
|
|
$
|
1,748,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
667,893
|
|
|
$
|
287,011
|
|
|
$
|
177,950
|
|
Accrued liabilities
|
|
|
398,215
|
|
|
|
354,395
|
|
|
|
333,984
|
|
Deferred revenue
|
|
|
837,681
|
|
|
|
1,844,865
|
|
|
|
1,664,393
|
|
Line of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
215,706
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, net
|
|
|
878,123
|
|
|
|
2,997,502
|
|
|
|
5,914,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,997,618
|
|
|
|
5,483,773
|
|
|
|
8,090,793
|
|
Deferred rent, less current portion
|
|
|
36,491
|
|
|
|
8,772
|
|
|
|
|
|
Long term debt, less current portion
|
|
|
42,623
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
|
1,636,266
|
|
|
|
1,808,209
|
|
|
|
2,718,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
4,712,998
|
|
|
|
7,300,754
|
|
|
|
10,809,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock, $0.0001 par value,
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Senior 11,642,717 shares authorized; 11,415,548 shares issued and outstanding at September 30, 2009 and 2008
and June 30, 2010 (aggregate liquidation preference of $5,000,010 at June 30, 2010)
|
|
|
4,992,290
|
|
|
|
4,998,189
|
|
|
|
5,000,010
|
|
|
|
|
|
Series A Junior 2,283,114 shares authorized; 2,283,096 shares issued and outstanding at September 30, 2009 and 2008
and June 30, 2010 (aggregate liquidation preference of $999,996 at June 30, 2010)
|
|
|
999,996
|
|
|
|
999,996
|
|
|
|
999,996
|
|
|
|
|
|
Series B 53,000,000 shares authorized; 43,436,457 shares issued and outstanding at September 30, 2009 and 2008 and
June 30, 2010 (aggregate liquidation preference of $10,251,004 at June 30, 2010)
|
|
|
10,133,333
|
|
|
|
10,212,721
|
|
|
|
10,251,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Redeemable Convertible Preferred Stock
|
|
|
16,125,619
|
|
|
|
16,210,906
|
|
|
|
16,251,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Notes 6, 7, 8, 10 and 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, no par value, 90,000,000 share authorized; 5,895,151 and 6,307,506 and 6,307,506 shares issued and outstanding at
September 30, 2008, September 30, 2009 and June 30, 2010, respectively
|
|
|
81,613
|
|
|
|
120,088
|
|
|
|
120,088
|
|
Additional paid-in capital
|
|
|
1,896,841
|
|
|
|
2,295,848
|
|
|
|
3,436,956
|
|
Accumulated deficit
|
|
|
(22,044,789
|
)
|
|
|
(24,841,592
|
)
|
|
|
(28,868,886
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Deficit
|
|
|
(20,066,335
|
)
|
|
|
(22,425,656
|
)
|
|
|
(25,311,842
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities, Redeemable Convertible Preferred Stock, and Stockholders Deficit
|
|
$
|
772,282
|
|
|
$
|
1,086,004
|
|
|
$
|
1,748,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
B-1-2
Statements of Operations
UBmatrix, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
|
|
Nine Months
Ended
June 30,
|
|
|
Three Months Ended
June
30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
License and Service Revenues
|
|
$
|
1,153,778
|
|
|
|
3,942,796
|
|
|
|
2,719,887
|
|
|
|
1,848,389
|
|
|
|
1,061,561
|
|
|
|
603,571
|
|
Cost of Revenues
|
|
|
107,497
|
|
|
|
60,532
|
|
|
|
51,670
|
|
|
|
86,911
|
|
|
|
11,942
|
|
|
|
18,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
1,046,281
|
|
|
|
3,882,264
|
|
|
|
2,668,217
|
|
|
|
1,761,478
|
|
|
|
1,049,619
|
|
|
|
584,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development
|
|
|
3,771,209
|
|
|
|
2,616,415
|
|
|
|
1,951,339
|
|
|
|
1,898,131
|
|
|
|
604,326
|
|
|
|
683,157
|
|
Sales and marketing
|
|
|
2,447,333
|
|
|
|
1,466,465
|
|
|
|
1,153,831
|
|
|
|
1,205,136
|
|
|
|
299,264
|
|
|
|
399,706
|
|
General and administration
|
|
|
1,264,727
|
|
|
|
1,170,341
|
|
|
|
795,588
|
|
|
|
1,375,878
|
|
|
|
264,197
|
|
|
|
657,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
7,483,269
|
|
|
|
5,253,221
|
|
|
|
3,900,758
|
|
|
|
4,479,145
|
|
|
|
1,167,787
|
|
|
|
1,740,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(6,436,988
|
)
|
|
|
(1,370,957
|
)
|
|
|
(1,232,541
|
)
|
|
|
(2,717,667
|
)
|
|
|
(118,168
|
)
|
|
|
(1,155,880
|
)
|
Interest expense
|
|
|
179,514
|
|
|
|
1,425,046
|
|
|
|
1,151,666
|
|
|
|
1,309,027
|
|
|
|
188,829
|
|
|
|
1,044,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Taxes
|
|
|
(6,616,502
|
)
|
|
|
(2,796,003
|
)
|
|
|
(2,384,207
|
)
|
|
|
(4,026,694
|
)
|
|
|
(306,997
|
)
|
|
|
(2,199,916
|
)
|
State taxes
|
|
|
800
|
|
|
|
800
|
|
|
|
600
|
|
|
|
600
|
|
|
|
200
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(6,617,302
|
)
|
|
$
|
(2,796,803
|
)
|
|
$
|
(2,384,807
|
)
|
|
$
|
(4,027,294
|
)
|
|
$
|
(307,197
|
)
|
|
$
|
(2,200,116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
B-1-3
Statements of Redeemable Convertible Preferred Stock and Stockholders Deficit
UBmatrix, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
convertible
preferred stock
|
|
|
|
|
|
Common Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders
Deficit
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
Balance at September 30, 2007
|
|
|
47,508,915
|
|
|
$
|
13,924,733
|
|
|
|
|
|
|
|
5,864,473
|
|
|
$
|
78,545
|
|
|
$
|
1,482,691
|
|
|
$
|
(15,427,487
|
)
|
|
$
|
(13,866,251
|
)
|
Issuance of Series B redeemable convertible preferred stock at $0.236 net of $112,954 issuance costs
|
|
|
9,626,186
|
|
|
|
2,158,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature of warrants issued with convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
414,030
|
|
|
|
|
|
|
|
414,030
|
|
Employee stock-based Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,181
|
|
|
|
|
|
|
|
42,181
|
|
Exercise of options for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,678
|
|
|
|
3,068
|
|
|
|
|
|
|
|
|
|
|
|
3,068
|
|
Accretion of preferred stock redemption value
|
|
|
|
|
|
|
42,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,061
|
)
|
|
|
|
|
|
|
(42,061
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,617,302
|
)
|
|
|
(6,617,302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2008
|
|
|
57,135,101
|
|
|
|
16,125,619
|
|
|
|
|
|
|
|
5,895,151
|
|
|
|
81,613
|
|
|
|
1,896,841
|
|
|
|
(22,044,789
|
)
|
|
|
(20,066,335
|
)
|
Beneficial conversion feature of warrants issued with convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
418,542
|
|
|
|
|
|
|
|
418,542
|
|
Employee stock-based Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,752
|
|
|
|
|
|
|
|
65,752
|
|
Exercise of options for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
412,355
|
|
|
|
38,475
|
|
|
|
|
|
|
|
|
|
|
|
38,475
|
|
Accretion of preferred stock redemption value
|
|
|
|
|
|
|
85,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85,287
|
)
|
|
|
|
|
|
|
(85,287
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,796,803
|
)
|
|
|
(2,796,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009
|
|
|
57,135,101
|
|
|
|
16,210,906
|
|
|
|
|
|
|
|
6,307,506
|
|
|
|
120,088
|
|
|
|
2,295,848
|
|
|
|
(24,841,592
|
)
|
|
|
(22,425,656
|
)
|
Beneficial conversion feature of warrants issued with convertible notes payable (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,111,212
|
|
|
|
|
|
|
|
1,111,212
|
|
Employee stock-based Compensation (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,000
|
|
|
|
|
|
|
|
70,000
|
|
Accretion of preferred stock redemption value (unaudited)
|
|
|
|
|
|
|
40,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,104
|
)
|
|
|
|
|
|
|
(40,104
|
)
|
Net loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,027,294
|
)
|
|
|
(4,027,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010 (unaudited)
|
|
|
57,135,101
|
|
|
$
|
16,251,010
|
|
|
|
|
|
|
|
6,307,506
|
|
|
$
|
120,088
|
|
|
$
|
3,436,956
|
|
|
|
$(28,868,886
|
)
|
|
$
|
(25,311,842
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
B-1-4
Statements of Cash Flow
UBmatrix, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
September 30,
|
|
|
Nine Months Ended
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,617,302
|
)
|
|
$
|
(2,796,803
|
)
|
|
$
|
(2,384,807
|
)
|
|
$
|
(4,027,294
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs and debt discount
|
|
|
318,880
|
|
|
|
1,415,628
|
|
|
|
1,177,946
|
|
|
|
1,252,721
|
|
Stock-based compensation
|
|
|
42,181
|
|
|
|
65,752
|
|
|
|
40,000
|
|
|
|
70,000
|
|
Revaluation of warrants to fair value
|
|
|
(197,462
|
)
|
|
|
(246,599
|
)
|
|
|
(215,360
|
)
|
|
|
(201,121
|
)
|
Depreciation and amortization
|
|
|
73,497
|
|
|
|
69,963
|
|
|
|
52,913
|
|
|
|
46,169
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
643,823
|
|
|
|
124,670
|
|
|
|
(288,313
|
)
|
|
|
85,595
|
|
Deferred costs
|
|
|
|
|
|
|
(197,000
|
)
|
|
|
(197,000
|
)
|
|
|
(62,305
|
)
|
Prepaid expenses
|
|
|
(8,939
|
)
|
|
|
17,656
|
|
|
|
(7,898
|
)
|
|
|
(11,084
|
)
|
Other assets
|
|
|
(65,728
|
)
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
497,572
|
|
|
|
(380,882
|
)
|
|
|
(507,548
|
)
|
|
|
(109,061
|
)
|
Accrued liabilities
|
|
|
34,667
|
|
|
|
(71,539
|
)
|
|
|
3,537
|
|
|
|
(29,183
|
)
|
Accrued interest on convertible notes payable
|
|
|
16,448
|
|
|
|
176,054
|
|
|
|
123,651
|
|
|
|
218,034
|
|
Deferred revenue
|
|
|
109,955
|
|
|
|
1,007,184
|
|
|
|
1,493,188
|
|
|
|
(180,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Operating Activities
|
|
|
(5,152,408
|
)
|
|
|
(805,916
|
)
|
|
|
(709,691
|
)
|
|
|
(2,948,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(123,250
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities
|
|
|
(123,250
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable
|
|
|
1,405,000
|
|
|
|
1,400,000
|
|
|
|
1,400,000
|
|
|
|
3,668,633
|
|
Payments on long-term debt
|
|
|
(272,581
|
)
|
|
|
(293,548
|
)
|
|
|
(293,548
|
)
|
|
|
|
|
Proceeds from line of credit
|
|
|
|
|
|
|
1,000,000
|
|
|
|
400,000
|
|
|
|
915,209
|
|
Payments on line of credit
|
|
|
|
|
|
|
(1,000,000
|
)
|
|
|
|
|
|
|
(915,209
|
)
|
Proceeds from issuance of common stock
|
|
|
3,068
|
|
|
|
38,476
|
|
|
|
38,125
|
|
|
|
|
|
Proceeds from issuance of Series B redeemable convertible preferred stock
|
|
|
2,271,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of issuance costs
|
|
|
(112,954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
3,294,312
|
|
|
|
1,144,927
|
|
|
|
1,544,577
|
|
|
|
3,668,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
|
|
(1,981,346
|
)
|
|
|
339,011
|
|
|
|
834,886
|
|
|
|
718,631
|
|
Cash and Cash Equivalents at Beginning of Period
|
|
|
2,094,400
|
|
|
|
113,054
|
|
|
|
113,054
|
|
|
|
452,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
113,054
|
|
|
$
|
452,065
|
|
|
$
|
947,940
|
|
|
$
|
1,170,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
40,459
|
|
|
$
|
80,060
|
|
|
$
|
68,000
|
|
|
$
|
9,166
|
|
Non-cash financing items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
|
414,030
|
|
|
|
418,542
|
|
|
|
418,542
|
|
|
|
1,111,212
|
|
Beneficial conversion feature on convertible notes
|
|
|
414,030
|
|
|
|
418,542
|
|
|
|
418,542
|
|
|
|
1,111,212
|
|
Accretion of redeemable convertible preferred stock
|
|
|
42,061
|
|
|
|
85,287
|
|
|
|
61,606
|
|
|
|
40,104
|
|
See accompanying
notes to financial statements.
B-1-5
1.
Summary of Accounting Policies
Nature of Business and Basis of Presentation
UBmatrix, Inc. (the Company
or we or our) was incorporated in the State of Washington on September 14, 2004 and provides comprehensive and flexible XBRL-based software solutions to the regulatory compliance and financial reporting markets. Our
information exchange products allow our clients to more efficiently and effectively address the challenges of business and financial information management, exchange and reporting by increasing operational efficiency and financial transparency,
while ensuring reporting accuracy and regulatory compliance. XBRL (eXtensible Business Reporting Language) is a global standard-based method to prepare; publish, validate, exchange and analyze business and financial data.
UBmatrix, Inc. is based in Silicon Valley with software development teams in Bellevue, Washington and New Delhi, India. Our products are covered by US
Patent No. 6,947,947 and other pending patents. We have more than seven years of experience delivering products and services to our clients; including the United States Securities and Exchange Commission (SEC), the Federal Deposit Insurance
Corporation (FDIC), the National Bank of Belgium, the Government of Singapore, and the Central Bank of France. We also have reseller and OEM partner agreements with SAP and Oracle.
Unaudited Interim Financial Statements
The financial statements, footnotes and any matters referred to for the three month and nine month periods ending June 30, 2010 and 2009
are unaudited. It is the opinion of management that such interim financial statements include all adjustments for a fair presentation of such interim information using generally accepted accounting principles as deemed appropriate. As such, the
interim financial information should be read in conjunction with the audited Financial Statements for the years ending September 30, 2009 and 2008. Interim results are not necessarily indicative of results expected in future periods.
Going Concern Uncertainty
The accompanying financial statements have been prepared assuming the Company will continue as
a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses from operations and negative cash flows since inception and has an accumulated
deficit of $24,841,592 and $22,044,789 as of September 30, 2009 and 2008, respectively, and $28,868,886 (unaudited) as of June 30, 2010. These conditions raise substantial doubt as to the Companys ability to continue to operate as a
going concern.
To date, the Company has been funded primarily by issuing equity securities and the proceeds of borrowings from banks.
Management expects that it will be required to obtain additional debt or equity financing in order to fund operations for the foreseeable future. The sale of convertible debt securities or additional equity securities could result in additional
dilution to the Companys stockholders. The incurrence of indebtedness would result in incurring debt service obligations and could result in operating and financial covenants that would restrict the Companys operations. There is no
assurance that the Company will be successful in obtaining sufficient funding on acceptable terms, if at all, or in generating sufficient revenues to fund operations.
Managements plan to achieve profitability and control costs includes a strategy to increase sales volume through Original Equipment Manufacturers and Independent Software Vendors. Management intends
to continue to seek additional customers for its products and to generate additional revenue. Although there are no present understandings, commitments or agreements with respect to the acquisition of any other businesses, the Company may, from time
to time, evaluate potential acquisitions of other businesses. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As discussed more fully in Note 11 Subsequent Events, the Company has entered into negotiations for the sale of the Company.
Reclassifications
Certain reclassifications of prior year amounts have been made to conform to the current year presentation with no impact on previously reported revenues, net income
and stockholders deficit.
B-1-6
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 revenues and expenses during the reporting period. Significant estimates used in preparing these financial statements
include the income tax provision, valuation of stock awards and the valuation of warrants. Actual results could differ from those estimates and such differences could be material to the financial position and results of operations.
Revenue Recognition
The Companys revenues are derived from the licensing of software products, the maintenance and support of
those software products and the performance of other professional services. Revenue is recognized when persuasive evidence of an arrangement exists, product delivery has occurred or services have been rendered, the sale price is fixed or
determinable, and collectability is reasonably assured. If any of the criteria have not been met, then revenue is deferred until such time as all criteria have been met.
Under the terms of the Companys current agreements with certain customers, the customers take possession of the Companys software license, typically bundled with a twelve-month maintenance and
support contract. In these situations, license revenues are recognized in accordance with the FASB Accounting Standards Codification (ASC) 985-605 (formerly referenced as the American Institute of Certified Public Accountants Statement of Position
(SOP) No. 97-2,
Software Revenue Recognition
) when a non-cancelable license agreement has been signed, the product has been delivered, the fees are fixed or determinable, and collectability is probable. Based on the Companys
present business practices, there is not sufficient vendor-specific objective evidence (VSOE) to support the separate determination of the fair value of the software license fee and the undelivered maintenance and support element. Therefore, the
Company initially records the software license and the maintenance and support and services as deferred revenue and recognizes this revenue ratably over the support period.
Some agreements with customers call for the Company to provide professional services during the implementation period. The Company evaluates whether these professional services represent a separate unit
of accounting, as defined by ASC 605-25-30 (formerly referenced as Emerging Issue Task Force (EITF) 00-21,
Revenue Arrangements with Multiple Deliverables
), using all applicable facts and circumstances, including whether (i) the Company
sold, or could readily sell, the element unaccompanied by the other elements, (ii) the element has stand-alone value to the customer, (iii) there is objective reliable evidence of the fair value of the undelivered item based on contractual
requirements, and (iv) there is a general right of return. If the criteria for consideration as a separate unit of accounting is met, professional services revenue is recognized based on the objective reliable evidence of the fair value of such
services as they are performed. If the criteria are not met, then the service revenue is recognized ratably over the support period.
When
professional services are deemed essential to the functionality of the software element of the arrangement and separate accounting for the services is not permitted, contract accounting is applied to both the software and service elements. For these
projects, revenue is recognized in accordance with ASC 605-35 (formerly referenced as SOP No. 81-1,
Accounting for Performance of Construction Type and Certain Production Type Contracts
.) The Company uses the completed-contract method
for a single contract or a group of contracts when reasonably dependable estimates cannot be made or when inherent hazards make cost estimates and profit estimates doubtful. Under these circumstances, all direct external costs and revenue are
deferred until the project is completed. Estimated losses on uncompleted contracts are recorded in the period in which it is first determined that a loss is apparent
Cash and Cash Equivalents
The Company may invest its excess cash in money market accounts. Cash equivalents are recorded at cost, which approximates market value. The Company
considers all highly liquid investments with original maturities of 90 days or less at the time of purchase to be cash equivalents. During the periods presented, the Company has no investments with stated maturities of greater than three months.
B-1-7
Restricted Cash
The Company is required to post cash collateral or maintain minimum cash balances at a financial institution in relation to certain financing arrangements and contracts. Restricted cash is recorded at cost, which approximates its fair
value.
Fair Value of Financial Instruments
Financial instruments for which the fair value is deemed to approximate
carrying value due to the short term nature of the instrument include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities. Financial instruments also consist of debt, for which management has determined that it
is not practical to estimate the fair value, due to the lack of comparable available credit facilities.
Accounts Receivable and
Allowance for Bad Debts
Accounts receivable are recorded at the invoiced amount and do not bear interest. Management reviews accounts receivable periodically and provides allowances as necessary for accounts expected to become
uncollectable. To date, the Company has not experienced any significant bad debts. This may change in the future, as changes occur to our markets and customers. Bad debts are written off once they are identified.
Concentration of Credit Risk and Credit Risk Evaluations
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of a line of credit with our bank, cash, and trade accounts receivable. Substantially all of the Companys cash and cash equivalents are maintained with one domestic financial institution with
high credit standing. At times, cash balances may exceed amounts insured by the FDIC and the Securities Investor Protection Corporation (SIPC).
The Company performs periodic evaluations of the relative credit standing of this institution and has not experienced any losses on its cash and cash
equivalents to date.
The Company conducts business in the United States and internationally on a credit basis. The Company does not require
collateral of its customers.
For the years ended September 30, 2009 and 2008, three customers accounted for 28%, 24% and 11% and two
customers accounted for 23% and 14% of total revenues, respectively. For the unaudited nine months ended June 30, 2010 and 2009, three customers accounted for 30%, 20% and 16% and three customers accounted for 30%, 26% and 10% of total
revenues, respectively. For the unaudited three months ended June 30, 2010 and 2009, three customers accounted for 39%, 18% and 11% and five customers accounted for 26%, 21%, 15%, 11%, and 10% of total revenues, respectively.
For total gross accounts receivable as of September 30, 2009 and 2008, one customer represented 21% and four customers represented 45%, 12%, 11% and
10% respectively. As of June 30, 2010 (unaudited) and 2009 (unaudited), three customers represented 55%, 21% and 14% and one customer accounted for 84% of total gross accounts receivable, respectively.
Property, Plant, and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided using the straight-line
method over the estimated useful lives of the assets, normally three years. Leasehold improvements are amortized on a straight-line basis over the shorter of the term of the lease or the estimated useful life of the improvement. Maintenance and
repairs are charged to expense as incurred; improvements and betterments are capitalized.
Intangible Assets
Intangible
assets consists of patents which are stated at cost less accumulated amortization. Amortization is computed on the straight-line basis over terms of up to seven years.
Software Development Costs
The Company offers customers the option to purchase a license for its software. In such situations, the software development costs should be
accounted for in accordance with ASC 985-20 (formerly referenced as SFAS No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased,
or
B-1-8
Otherwise Marketed
)
.
Certain software development costs incurred subsequent to the establishment of technological feasibility are capitalized. When the software is ready for its
intended use, the costs are amortized over the estimated lives of the related products. Technological feasibility is established upon completion of a working model. As such, to date all software development costs have been charged to expense, and
included in the caption product development expense, in the accompanying statements of operations.
Impairment of Long-lived
Assets
The Company evaluates the long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on expected undiscounted cash flows
attributable to that asset. The amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. During the years ended September 30, 2009 and 2008, management concluded that an
impairment write-down was not necessary. No impairment was recognized through June 30, 2010.
Deferred Rent Obligations
The Company accounts for rent expense under non-cancelable operating leases with scheduled rent increases on a straight-line basis over the lease term beginning with the effective lease commencement date. The excess of straight-line rent expense
over scheduled payment amounts is recorded as an accrued liability, the balance of which was $19,322 (unaudited) at June 30, 2010 and $36,491 and $53,583 at September 30, 2009 and 2008, respectively.
Deferred Revenue
Deferred revenue arises when customers pay for software licenses and maintenance in advance of revenue recognition.
The Companys deferred revenue consists primarily of unearned revenue on software licenses and maintenance for which revenue is recognized ratably over the maintenance term. From time to time, customers are required to provide a deposit at the
time the product or service is ordered. These advanced payments and customer deposits are deferred and subsequently recognized as revenue at the time the risk and rewards associated with a product transfer to the customer or upon service performance
completion.
Research and Development
Research and development costs are charged to expense as incurred and are presented
as product development expenses in the accompanying statements of operations.
Advertising Costs
Advertising costs, which
approximated $5,876 and $5,114 for the unaudited nine month periods ended June 30, 2010 and 2009, respectively, and $1,797 and $1,427 for the unaudited three month periods ended June 30, 2010 and 2009, respectively, and $6,319 and $29,929 during the
years ended September 30, 2009 and 2008, respectively, are expensed as incurred.
Sales Taxes
The Company remits
sales taxes to various taxing jurisdictions as a result of revenue earned from the sale of products and services to its customers as necessary. Specific sales tax rates applicable to the Companys products and services vary by taxing
jurisdiction and certain of the Companys products and services are deemed to be tax exempt. The Company records sales tax as a current liability at the time the revenue is earned. The liability is relieved upon the remittance of the sales tax
owed to the various taxing jurisdictions.
Income Taxes
The Company accounts for income taxes in accordance with
ASC 740-10 (formerly referenced as SFAS No. 109,
Accounting for Income Taxes
), which requires the use of the liability method in accounting for income taxes. Under ASC 740-10, deferred tax assets and liabilities are measured based on
differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Further, the Company analyzes whether it is more
likely than not that deferred tax assets will be realizable. Based on this analysis, the Company establishes a valuation allowance for amounts that are not expected to be realized. Effective October 1, 2009 the Company adopted ASC 740, Income
Taxes (formerly referenced as FASB Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes). The adoption did not have any impact to the Companys financial statements.
B-1-9
Share-Based Payments
The Company accounts for compensation costs related to stock options in accordance with ASC 718 (formerly referenced as SFAS No. 123 (revised 2004),
Share-Based Payment)
. The Company uses the Black-Scholes Merton option pricing
model to determine the fair value of stock options at the grant date and recognizes the resulting compensation expense on a straight-line basis over the employees requisite service period.
Compensation expense calculated under ASC 718-10 relies on the value of the common stock as determined by the Companys Board of Directors and
assumptions such as volatility, expected life, interest rates, and other factors to determine the fair value of share-based payments using the Black-Scholes Merton option pricing model. Changes in the value of the common stock, the underlying
assumptions in the calculations, the number of options granted or the terms of such options, the treatment of tax benefits and other changes may result in significant differences in the amounts or timing of the compensation expense recognized. The
Company utilizes the historical volatility of representative public companies to determine implied volatility as there is no public trading of the Companys common stock. Compensation expense is reduced for options that are not expected to
vest.
Options and other equity awards granted to nonemployees are accounted for in accordance with ASC 718-10 and ASC 505-50 (formerly
referenced as EITF Issue No. 96-18,
Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services)
, at estimated fair value using the Black-Scholes method and
are subject to periodic re-measurement over the period during which services are rendered.
Warranties and Indemnifications
The Company generally provides a warranty for its products, software and services to its customers and accounts for its warranties under the provisions of ASC 450-20 (formerly referenced as SFAS No. 5,
Accounting for
Contingencies
). The warranty period for all products commences on the effective date of the support agreement and continues in effect for the duration of a valid support agreement between the Company and the customer under which the payment of
support and maintenance fee is current. In the event there is a failure of the product in breach of such warranties, the Company may provide third-party products, software and/or services. To date, the Companys product warranty expense has not
been significant, and the Company did not provide for a warranty accrual as of June 30, 2010 (unaudited) or for the years ended September 30, 2009 and 2008.
The Company generally agrees to defend and indemnify its customers against legal claims that the Companys products infringe certain United States patents or copyrights and accounts for its
indemnification obligations under ASC 450-20. To date, the Company has not been required to make any payment resulting from infringement claims asserted against the Companys customers and believes the estimated fair value of these agreements
is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of June 30, 2010 (unaudited) or for the years ended September 30, 2009 and 2008.
Under its bylaws, the Company has agreed to indemnify, to the maximum extent and in the manner permitted by the Code, each of its directors against expenses, judgments, fines, settlement, and other
amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was a director of the Company. A director of the Company includes any person (i) who is or was a director of the
Company, (ii) who was a director of a Company, partnership, joint venture, trust or other enterprises, or (iii) who was a director of a corporation which was a predecessor corporation of the Company or of another enterprise at the request
of such predecessor corporation.
The maximum potential amount of future payments the Company could be required to make under these
indemnification provisions is unlimited. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is
minimal. Accordingly, the Company has no liabilities recorded for these agreements as of June 30, 2010 (unaudited) or for the years ended September 30, 2009 and 2008.
B-1-10
Classification of Securities
The Company applies the principles of ASC 480-10 (formerly referenced as SFAS 150
Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity
), and ASC 480-10-25 and ASC 480-10-55 (formerly
referenced as FASB Staff Position (FSP) No. FAS 150-5,
Issuers Accounting under Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares that are Redeemable
) to account for financial instruments and warrants.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability (e.g., the exit price) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches as may be appropriate in the circumstance, including
using the Black-Scholes valuation method.
Recent Accounting Pronouncements
Recent accounting pronouncements that may be
applicable to the Company include the following:
In October 2009, the FASB issued Accounting Standards Update (ASU) 2009-13, which amends ASC
Topic 605,
Revenue Recognition
, to require companies to allocate revenue in multiple-element arrangements based on an elements estimated selling price if vendor specific or other third-party evidence of value is not available. ASU
2009-13 is effective beginning January 1, 2011. Earlier application is permitted. The Company is currently evaluating both the timing and the impact of the pending adoption of the ASU on the Companys financial statements.
In June 2009, the FASB issued ASU No. 2009-01 (formerly referenced as SFAS No. 168,
The FASB Accounting Standards Codification and Hierarchy
of Generally Accepted Accounting Principles
(ASC or Codification)). The Codification is the single source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied to
nongovernmental entities. The Codification does not change current GAAP, but is intended to simplify user access to all authoritative GAAP by providing all the authoritative literature related to a particular topic in one place. All existing
accounting standard documents are superseded and all other accounting literature not included in the Codification is considered non-authoritative. The Codification is effective for interim and annual reporting periods ending after September 15,
2009. The Company has made the appropriate changes to GAAP references in the financial statements.
On May 28, 2009, the FASB issued new
guidance for accounting for subsequent events. The new guidance, which is now part of ASC 855 (formerly, SFAS No. 165,
Subsequent Events
) is consistent with existing auditing standards in defining subsequent events as events or
transactions that occur after the balance sheet date but before the financial statements are issued or are available to be issued, but it also requires the disclosure of the date through which an entity has evaluated subsequent events and the basis
for that date. The new guidance defines two types of subsequent events: recognized subsequent events and non-recognized subsequent events. Recognized subsequent events provide additional evidence about conditions that existed
at the balance sheet date and must be reflected in the companys financial statements. Non-recognized subsequent events provide evidence about conditions that arose after the balance sheet date and are not reflected in the financial statements
of a company. Certain non-recognized subsequent events may require disclosure to prevent the financial statements from being misleading. The new guidance was effective for interim or annual periods ending after June 15, 2009. The Company
adopted the provisions of ASC 855 as required.
In June 2008, the FASB ratified ASC 815-40-15-7 (formerly referenced as EITF Issue 07-5,
Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock
)
.
ASC 815-10-15-74 (formerly referenced as Statement 133, paragraph 11(a),
Accounting for Derivative Instruments and Hedging
Activities)
, specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Companys own stock and (b) classified in stockholders equity in the statement of financial position
would not be considered a derivative financial instrument. ASC 815-40-15-7 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuers own stock and thus able to
qualify for the ASC 815-10-15-74 scope exception. ASC 815-40-15-7 will be
B-1-11
effective for the first annual reporting period beginning after December 15, 2008, and early adoption is prohibited. Effective October 1, 2009, the Company evaluated the effects of
adopting ASC 815-40-15-7 on its financial position and results of operations. There was no impact from the adoption of this standard.
In May
2008, the FASB issued new guidance, ASC 470-20 (formerly referenced as FASB Staff Position (FSP) No. 14-1,
Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
)
,
which specifies that issuers of these instruments should separately account for the liability and equity components in a manner that reflects the entitys nonconvertible debt borrowing rate when interest cost is recognized in subsequent
periods. This guidance was effective October 1, 2009 for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. This guidance is also to be applied retrospectively to
all periods presented except if these instruments were not outstanding during any of the periods that are presented in the annual financial statements for the period of adoption but were outstanding during an earlier period. The adoption of this
statement for the fiscal year beginning October 1, 2009 did not have a material effect on the Companys financial position and results of operations.
In December 2007, the FASB revised the guidance on business combinations which is now part of ASC 805, (formerly referenced as Statement No. 141 (revised 2008),
Business Combinations
), which
is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The revised statement requires the acquiring entity in a business
combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets and liabilities assumed; and requires the acquirer to
disclose to investors and other user all of the information they need to evaluate and understand the nature and financial effect of the business combination. The Company adopted this new statement for the fiscal year beginning October 1, 2009
In June 2006, the FASB issued new guidance for the accounting for uncertainty in income taxes in ASC 740-10 (formerly referenced as Interpretation No. 48,
Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement
No. 109
). This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on
de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. For non-public entities such as the Company, the FASB has postponed the required effective date of FIN48 to fiscal years beginning
after December 15, 2008. On October 1, 2009, the Company adopted the Interpretation. There was no impact from the adoption of this standard.
2. Intangible Assets
Information regarding the Companys identified intangible
assets, consisting of patents and trademarks subject to amortization, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
|
September 30,
2009
|
|
|
June 30,
2010
(unaudited)
|
|
Gross carrying amount
|
|
$
|
81,696
|
|
|
$
|
81,696
|
|
|
$
|
81,696
|
|
Accumulated amortization
|
|
|
(24,588
|
)
|
|
|
(37,081
|
)
|
|
|
(45,834
|
)
|
Net Value
|
|
$
|
57,108
|
|
|
$
|
44,615
|
|
|
$
|
35,862
|
|
Intangible assets are being amortized
using straight-line methods over their estimated useful lives, normally seven years. Amortization expense for the unaudited nine month periods ended June 30, 2010 and 2009 was $8,753 and $8,753, respectively, and $2,918 and $2,918 for the unaudited
three month periods ended June 30, 2010 and 2009, respectively. For the years ended September 30, 2009 and 2008, amortization expense was $15,845 and $12,493, respectively.
B-1-12
The expected future annual
amortization expense of intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30,
|
|
September 30,
2009
|
|
|
Year ended September 30,
|
|
June 30, 2010
(unaudited)
|
|
2010
|
|
$
|
11,671
|
|
|
2010 (remaining 3 months)
|
|
$
|
2,918
|
|
2011
|
|
|
11,671
|
|
|
2011
|
|
|
11,671
|
|
2012
|
|
|
11,671
|
|
|
2012
|
|
|
11,671
|
|
Thereafter
|
|
|
9,602
|
|
|
Thereafter
|
|
|
9,602
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
44,615
|
|
|
Total
|
|
$
|
35,862
|
|
|
|
|
|
|
|
|
|
|
|
|
3. Property and Equipment
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30,
2008
|
|
|
September
30,
2009
|
|
|
June
30,
2010
unaudited
|
|
|
|
|
|
Computer equipment
|
|
$
|
174,691
|
|
|
$
|
172,957
|
|
|
$
|
174,958
|
|
Furniture and other equipment
|
|
|
92,124
|
|
|
|
92,124
|
|
|
|
92,124
|
|
Leasehold improvements
|
|
|
14,469
|
|
|
|
14,469
|
|
|
|
14,469
|
|
Less accumulated depreciation and amortization
|
|
|
(157,212
|
)
|
|
|
(212,948
|
)
|
|
|
(250,364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
124,072
|
|
|
$
|
66,602
|
|
|
$
|
31,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the unaudited nine month periods ended June 30, 2010 and 2009 was $37,416 and $43,680,
respectively, and $12,114 and $13,683 for the unaudited three month periods ended June 30, 2010 and 2009, respectively. For the years ended September 30, 2009 and 2008, depreciation expense was $57,470 and $57,652, respectively.
4. Fair Value Measurements
In September
2006, the FASB issued new guidance on fair value measurements, ASC 820-10 (formerly referenced as Statement No. 157,
Fair Value Measurements
). This guidance defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. This statement was effective for financial statements issued for fiscal years beginning after November 15, 2007. In February 2008, the FASB agreed to delay the effective date for all
non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, to fiscal years beginning after November 15, 2008. The Company adopted this
standard on October 1, 2008 for financial assets and liabilities and other assets currently carried at fair value on a recurring basis. ASC 820-10 establishes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices in active markets for identical assets or liabilities;
Level 2: Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar
assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The adoption of the effective portion of the standard had no impact on the Companys financial statements and the Company does not
anticipate that adoption of the deferred portion will have a material effect on its financial position and results of operations.
B-1-13
The following table represents the
fair value hierarchy for our financial assets and liabilities held by the Company measured at fair value on a recurring basis as of September 30, 2009 and June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash
|
|
$
|
452,065
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
452,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
452,065
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
452,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,808,209
|
|
|
$
|
1,808,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,808,209
|
|
|
$
|
1,808,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010 (unaudited)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash
|
|
$
|
1,170,696
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,170,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
1,170,696
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,170,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,718,300
|
|
|
$
|
2,718,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,718,300
|
|
|
$
|
2,718,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The activity related to level 3 liabilities for the year ended September 30, 2009 and the unaudited six month period
ended June 30, 2010 is summarized below:
|
|
|
|
|
|
|
Preferred stock
warrant liability
|
|
Carrying value as of September 30, 2008
|
|
$
|
1,636,266
|
|
Issuance of warrants
|
|
|
418,542
|
|
Change in fair value
|
|
|
(246,599
|
)
|
|
|
|
|
|
Carrying value as of September 30, 2009
|
|
$
|
1,808,209
|
|
Issuance of warrants (unaudited)
|
|
|
1,111,212
|
|
Change in fair value (unaudited)
|
|
|
(201,121
|
)
|
|
|
|
|
|
Carrying value as of June 30, 2010 (unaudited)
|
|
$
|
2,718,300
|
|
|
|
|
|
|
The warrants were valued using a Black-Scholes valuation method. See Note 6 for assumptions used in that valuation.
5. Accrued Liabilities
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
|
September 30,
2009
|
|
|
June 30, 2010
(unaudited)
|
|
Compensation accruals
|
|
$
|
229,394
|
|
|
$
|
181,215
|
|
|
$
|
191,070
|
|
Accrued commission
|
|
|
106,929
|
|
|
|
119,863
|
|
|
|
97,392
|
|
Current portion of deferred rent
|
|
|
17,091
|
|
|
|
27,719
|
|
|
|
19,322
|
|
Other accrued liabilities
|
|
|
44,800
|
|
|
|
25,598
|
|
|
|
26,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
398,215
|
|
|
$
|
354,395
|
|
|
$
|
333,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-1-14
6. Financing Arrangements
Loan and Security agreement
- Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
|
September 30,
2009
|
|
|
June 30,
2010
unaudited
|
|
Term loan
|
|
$
|
293,548
|
|
|
$
|
|
|
|
$
|
|
|
Less debt discount
|
|
|
(35,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258,329
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
215,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term portion
|
|
$
|
42,623
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2008, the Company had borrowings outstanding under a Loan and Security Agreement with a financial
institution in the amount of $293,548, which is reflected in the Companys Balance Sheet at its carrying value of $258,548, net of $35,219 in unamortized debt discount. The borrowings have a maturity date of December 1, 2009 and bear
interest at the financial institutions prime rate plus 2% (7% at September 30, 2008). The borrowings are collateralized by various assets of the Company. The Company paid off this loan in full during the year ended September 30, 2009
and wrote off the remaining unamortized debt discount at that time.
In connection with the February 2005 Loan and Security Agreement,
including amendments thereto dated May 2006 and January 2007, respectively, the Company granted warrants to the financial institution to purchase 34,246 shares of Series A redeemable convertible preferred stock (Series A) and 612,288 shares of
Series B redeemable convertible preferred stock (Series B) at $0.236 per share. The fair value of the warrants was estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used to value the warrants issued in
March of 2005 were as follows: dividend yield of zero; risk free interest rate of 3.38%; volatility of 55% and a term of seven years. The assumptions used to value the warrants issued in May of 2006 were as follows: dividend yield of zero; risk free
interest rate of 3.85%; volatility of 57% and a term of ten years. The assumptions used to value the warrants issued in January of 2007 were as follows: dividend yield of zero; risk free interest rate of 4.7%; volatility of 57% and a term of ten
years. The warrants estimated fair value of $103,554 was recorded as a discount, reducing the carrying value of the loan and was amortized over the repayment period of the loan. Accordingly, the Company recorded $35,219 and $34,145 in interest
expense during the years ended September 30, 2009 and 2008 in relation to these warrants. The warrants have not been exercised as of June 30, 2010.
Line of Credit
In May 2009, the Company entered into an amended revolving line of credit with the same financial institution that held the term loan. Under this line of credit the
Company can borrow up to 80% of qualified domestic accounts receivable and 70% of international accounts receivable up to $1,250,000. The line of credit matures in May 2010, bears interest at a prime rate plus 2.4% (6.4% at September 30, 2009)
and is collateralized primarily by the accounts receivable and by other various assets of the Company. In October 2009, the revolving line of credit was amended to allow maximum borrowings of $2,000,000 with an extended maturity date of October
2010. It bears interest at the prime rate plus 2.4% (6.4% at June 30, 2010) and is collateralized primarily by the accounts receivable and by other various assets of the Company.
As of June 30, 2010 (unaudited) and September 30, 2009, there was no outstanding amount under the line of credit.
B-1-15
Convertible Notes
Payable
- Convertible notes payable consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
|
September 30,
2009
|
|
|
June 30, 2010
(unaudited)
|
|
Promissory notes
|
|
$
|
1,405,000
|
|
|
$
|
2,805,000
|
|
|
$
|
6,473,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less discount due to issuance of warrants
|
|
|
(414,030
|
)
|
|
|
(832,572
|
)
|
|
|
(1,943,784
|
)
|
Less discount due to beneficial conversion feature
|
|
|
(414,030
|
)
|
|
|
(832,572
|
)
|
|
|
(1,943,784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate discount
|
|
|
(828,060
|
)
|
|
|
(1,665,144
|
)
|
|
|
(3,887,568
|
)
|
Amortization of debt discount
|
|
|
284,735
|
|
|
|
1,665,144
|
|
|
|
2,917,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining unamortized discount
|
|
|
(543,325
|
)
|
|
|
|
|
|
|
(969,703
|
)
|
Accrued interest
|
|
|
16,448
|
|
|
|
192,502
|
|
|
|
410,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Promissory notes, net of discounts
|
|
$
|
878,123
|
|
|
$
|
2,997,502
|
|
|
$
|
5,914,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From August 2006 to May 2007, the Company issued convertible promissory notes to investors in the aggregated amount of
$5,225,000 bearing interest at 8% per annum. In September 2007, the notes plus accrued interest totaling $5,479,225 were converted to Series B. In connection with the issuance of these promissory notes, the Company issued warrants to purchase
8,951,225 shares of Series B at $0.236 per share, with a seven year contractual life.
Between June 25, 2008 and May 11, 2009, the
Company raised $2,805,000 through the issuance of convertible promissory notes. During the unaudited nine month period ended June 30, 2010, the Company raised approximately an additional $3,669,000 through the issuance of convertible promissory
notes. Under the original terms of the promissory notes, the principal was due and payable in full on December 31, 2008. Subsequent to the issuance of the original promissory notes, the due date was extended multiple times and now matures
August 31, 2010. The promissory notes accrue interest at 8%, due and payable at the maturity date.
Accrued interest amounted to $192,502
and $16,448 at September 30, 2009 and 2008, respectively and $410,536 (unaudited) as of June 30, 2010.
The promissory notes
automatically convert into Series C preferred stock (Series C) (at the price of the Series C) upon closing of a Series C financing, if the financing occurs prior to the maturity date and is greater than $4.5 million. If Series C financing does not
occur, or if there is a buy-out, the promissory notes plus accrued interest, at the option of the payee, shall be converted into Series B at $0.236 per share or into Series C at the stated price.
Along with the promissory notes, investors received warrants to purchase preferred stock. Each warrant shall be exercisable for a number of shares of
preferred stock equal to 50% of the principal amount of the note. The warrants are exercisable into Series C at the price established at the time of sale, so long as the Series C financing occurs before the maturity date and raises at least $4.5
million. If Series C financing never occurs, then at the election of the note holder, the warrant may be exercised into Series B at $0.236 per share. Through September 30, 2009, the Company issued warrants to purchase 5,942,797 shares of Series
C or Series B at $0.236. During the nine months ended June 30, 2010 (unaudited), the Company issued additional warrants to purchase 7,772,528 shares of Series C or Series B at $0.236. These warrants carry a contractual life of seven years
before expiration.
As of June 30, 2010 (unaudited), none of the warrants have been exercised.
B-1-16
As noted above, in connection with the
promissory notes issued between June 25, 2008 and May 11, 2009, the Company issued warrants to purchase 2,966,102 and 2,976,695 shares of preferred stock during the years ending September 30, 2009 and 2008, respectively. During the
unaudited three and nine months ended June 30, 2010, the Company issued warrants to purchase 6,122,106 and 7,772,528 shares of preferred stock, respectively.
The Company determined the fair value of the warrants at issuance to be $418,542, $414,030, $870,653, and $1,111,212 during the years ended September 30, 2009 and 2008, and the unaudited three and
nine months ended June 30, 2010, respectively, using the Black-Scholes valuation model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
The year ended
|
|
The nine months ended
|
Warrants issued during:
|
|
September 30,
2008
|
|
September 30,
2009
|
|
June 30, 2010
(unaudited)
|
Risk free interest rate
|
|
3.32%-3.78%
|
|
2.28%-3.48%
|
|
2.59%-3.31%
|
Dividend yield
|
|
0%
|
|
0%
|
|
0%
|
Expected volatility
|
|
55%
|
|
58%
|
|
59%
|
Contractual life
|
|
7 years
|
|
7 years
|
|
7 years
|
The Company classified these
warrants as liabilities in accordance with ASC 480-10 and ASC 480-10-25
,
therefore the fair value of the warrants were recorded as a reduction to the carrying value of the loan, as a debt discount.
In accordance with ASC 470-20 (formerly referenced as EITF 98-5,
Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios
), the Company also recorded a beneficial conversion feature related to the convertible notes.
During the unaudited nine month periods ending June 30, 2010 and 2009, the Company recorded beneficial conversion charges totaling $1,111,212 and
$418,542, respectively, as an additional reduction to the carrying value of the loans, as a debt discount. During the years ending September 30, 2009 and 2008, the Company recorded beneficial conversion charges totaling $418,542 and $414,030 as
an additional reduction to the carrying value of the loans, as a debt discount.
The debt discount attributable to the issuance of the
warrants, and the beneficial conversion feature, are amortized over the contractual term of the debt, resulting in additional interest expense totaling $1,380,409 and $284,735 during the years ending September 30, 2009 and 2008, respectively,
and additional interest expense totaling $1,252,721 and $1,142,727 during the unaudited nine months ended June 30, 2010 and 2009, respectively. Interest expense attributable to amortization of the debt discount for the unaudited three months ended
June 30, 2010 and 2009 was $1,108,028 and $310,042, respectively.
Warrants
-
At September 30, 2008 and 2009, and
June 30, 2010 (unaudited) the Company revalued the outstanding warrants recorded as liabilities using the following assumptions:
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
September 30,
2009
|
|
June 30, 2010
(unaudited)
|
Warrants outstanding
|
|
12,574,484
|
|
15,540,586
|
|
23,313,113
|
Risk free interest rate
|
|
2.98%-3.38%
|
|
1.88%-2.62%
|
|
1.00%-2.42%
|
Dividend yield
|
|
0%
|
|
0%
|
|
0%
|
Expected volatility
|
|
56-70%
|
|
57-58%
|
|
55-58%
|
Remaining contractual life
|
|
5-7 years
|
|
4-6 years
|
|
3-7 years
|
The change in value was
recognized as a reduction to interest expense totaling $246,599 and $197,462 for years ending September 30, 2009 and 2008, $201,121 and $215,360 for the unaudited nine months ended June 30, 2010 and 2009, respectively, and $112,364 and $162,059
for the unaudited three month periods ended June 30, 2010 and 2009, respectively.
B-1-17
7. Commitments and Contingencies
The Company leases two facilities in the United States: in Redwood City, California and Bellevue, Washington. These facilities are leased
under non-cancelable operating leases which expire in August 2010 and July 2011, respectively. The leases do not require the Company to pay operating costs, including property taxes, normal maintenance, and insurance.
Future minimum lease obligations under these operating leases at September 30, 2009, are as follow:
|
|
|
|
|
Years ended September 30
|
|
Amount
|
|
2010
|
|
$
|
302,000
|
|
2011
|
|
|
102,000
|
|
|
|
|
|
|
Total Minimum Lease Payments
|
|
$
|
404,000
|
|
|
|
|
|
|
Rent expense under operating lease arrangements for the unaudited nine month periods ended June 30, 2010 and 2009, was
$247,275 and $219,692 respectively, and $101,870 and $129,406 for the unaudited three month periods ended June 30, 2010 and 2009, respectively. For the years ended September 30, 2009 and 2008, the rent expense was $290,933 and $180,571,
respectively.
A future obligation to pay bonuses, deferred compensation, and consulting fees exists upon a qualified transaction involving
the sale of the Company. As of June 30, 2010 (unaudited) the liabilities are $245,000 for fiscal 2007 management bonuses, $315,000 for fiscal 2008 management bonuses, $97,000 for fiscal 2009 deferred employee compensation, and $86,000 for
consulting fees.
The Company is party to various legal proceedings in the ordinary course of business which, in the opinion of management,
will not have a material adverse impact on its financial position or results of operations.
8. Stockholders Deficit, Redeemable
Convertible Preferred Stock and Share-Based Payments
Under the Amended and Restated Articles of Incorporation (Amended Articles) dated
September 14, 2007, the Company is authorized to issue 156,925,831 shares of capital stock, comprising 90,000,000 shares of common stock and 66,925,831 shares of redeemable convertible preferred stock. All classes of the Companys stock
have a par value of $0.001 per share.
Redeemable Convertible Preferred Stock
The authorized, issued, and outstanding shares of redeemable convertible preferred stock (Preferred Stock) are as follows as of September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Authorized
|
|
|
Shares
Issued
|
|
|
Liquidation
Preference
|
|
|
Gross
proceeds
|
|
Series A Senior
|
|
|
11,642,717
|
|
|
|
11,415,548
|
|
|
$
|
5,000,010
|
|
|
$
|
5,000,010
|
|
Series A Junior
|
|
|
2,283,114
|
|
|
|
2,283,096
|
|
|
|
999,996
|
|
|
|
999,996
|
|
Series B
|
|
|
53,000,000
|
|
|
|
43,436,457
|
|
|
|
10,251,004
|
|
|
|
10,251,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,925,831
|
|
|
|
57,135,101
|
|
|
$
|
16,251,010
|
|
|
$
|
16,251,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-1-18
The authorized, issued, and
outstanding shares of redeemable convertible preferred stock (Preferred Stock) are as follows at June 30, 2010 (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Authorized
|
|
|
Shares
Issued
|
|
|
Liquidation
Preference
|
|
|
Gross
proceeds
|
|
Series A Senior
|
|
|
11,642,717
|
|
|
|
11,415,548
|
|
|
$
|
5,000,010
|
|
|
$
|
5,000,010
|
|
Series A Junior
|
|
|
2,283,114
|
|
|
|
2,283,096
|
|
|
|
999,996
|
|
|
|
999,996
|
|
Series B
|
|
|
53,000,000
|
|
|
|
43,436,457
|
|
|
|
10,251,004
|
|
|
|
10,251,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,925,831
|
|
|
|
57,135,101
|
|
|
$
|
16,251,010
|
|
|
$
|
16,251,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company issued Series A in 2005 for $0.438 per share for gross proceeds of $6,000,006.
In 2007, the Company issued 33,810,271 shares of the Companys Series B for $0.236 per share upon conversion of notes payable and related interest
totaling $5,479,225 and cash proceeds of $2,500,000.
During the year ended September 30, 2008, the Company issued 9,626,186 shares of
the Companys Series B for $0.236 per share for gross proceeds of $2,271,779. From October 1, 2008 to June 30, 2010 the Company issued no new Preferred Stock.
The holders of Preferred Stock have various rights and preferences as follows:
Dividends -
The holders of shares of Preferred Stock are entitled to receive dividends at the rate of 8% per annum of Preferred Stock price per share on each outstanding share of Preferred Stock (as adjusted for any stock dividends, combinations, or splits
with respect to such shares). Dividends are payable in preference and priority to any payment of any dividend on common stock of the Company. Such dividends are payable only when, as, and if declared by the Board of Directors, but only out of funds
that are legally available, and are non-cumulative. No dividends have been declared through
June 30,
2010.
Conversion -
Each
share of Series A is convertible, at the option of the holder, into a number of fully paid and non-assessable shares of common stock determined by dividing $0.438 by the Series A conversion price in effect on the date the certificate is surrendered
for conversion.
Each share of Series B is convertible at the option of the holder, into a number of fully paid and non-assessable shares of
common stock determined by dividing $0.236 by the Series B conversion price in effect on the date the certificate is surrendered for conversion.
The conversion rate is subject to adjustment from time to time for the effect of a stock split, stock dividend, or other similar distribution. Additionally, conversion is automatic upon the closing of a
qualified public offering of common stock, with gross proceeds of at least $3.5 million in the aggregate or at the election of holders of at least 60% of the outstanding shares of Preferred Stock, voting together.
Liquidation Preference -
In the event of any liquidation, sale, dissolution, or winding up of the Company, whether voluntary or involuntary, the
holders of Series A are entitled to receive, prior, and in preference, to any distribution of the assets of the Company to the holders of common stock, by reason of their ownership:
|
|
|
an amount equal to two times $0.438 for each share of Series A, plus any declared but unpaid dividends with respect to such shares
|
|
|
|
the holders of Series B are entitled to receive, prior and in preference to any distribution of the assets of the Company to the holders of common
stock, by reason of their ownership, an amount equal to $0.236 for each share of Series B, plus any declared by unpaid dividends with respect to such shares
|
B-1-19
After payment has been made to the
holders of Preferred Stock of the full amounts to which they are entitled, the holders of Series B and Common Stock shall be entitled to receive the remaining assets of the Company, pro rata, based on the number of shares of Common Stock held by
each holder on an as-converted basis. However, the aggregate distributions made with respect to per share of Series B shall not exceed an amount equal to three times the Series B price per share plus any declared but unpaid dividends.
Redemption Rights
To the extent that any shares of Preferred Stock have not been converted into common stock prior to March 11, 2010,
the Company shall, upon receiving at any time after March 11, 2010 a written request for the redemption of any holder or holders of then outstanding preferred shares, redeem that number of preferred shares specified for redemption. The
redemption price of such requests shall be an amount equal to the greater of the original issue price plus declared, but unpaid dividends, or the fair market value as determined by independent appraisal. No redemption request has been made through
June 30, 2010.
Voting -
The holders of Preferred Stock are entitled to the number of votes equal to the number of shares of Common
Stock into which each share of Preferred Stock is convertible.
Share-Based Payments
In May 2005, the Companys Board of Directors approved the adoption of a stock option plan (the Option Plan). As amended, the Option Plan permits the
Company to grant options to purchase up to 13,732,913 shares of common stock. The 2005 Plan provides for the granting of incentive and non-statutory stock options to employees, nonemployee directors and consultants of the Company. Option awards are
generally granted with an exercise price equal to its fair value, which is based on the value of the Company on the date of issuance, as determined by the Board of Directors. The term of the options granted under the 2005 Plan is generally 10 years,
with a typical vesting requirement of 25% after one year of service and monthly thereafter, with options becoming fully vested upon completion of the fourth year of service. At the discretion of the Companys Board of Directors, certain options
may be exercisable immediately in the event of a change in control or terminated within one year of a change of control. All options are exercisable only to the extent vested.
A summary of the Companys stock option activity under the Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options available
for Grant
|
|
|
Number of
Options
|
|
|
Weighted-Average
Exercise Price per Share
|
|
Outstanding at September 30, 2007
|
|
|
7,405,631
|
|
|
|
5,407,546
|
|
|
$
|
0.10
|
|
Granted
|
|
|
(5,812,018
|
)
|
|
|
5,812,018
|
|
|
$
|
0.07
|
|
Exercised
|
|
|
|
|
|
|
(30,687
|
)
|
|
$
|
0.10
|
|
Canceled/forfeited
|
|
|
480,269
|
|
|
|
(562,447
|
)
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2008
|
|
|
2,073,882
|
|
|
|
10,626,430
|
|
|
$
|
0.08
|
|
Granted
|
|
|
(2,499,712
|
)
|
|
|
2,499,712
|
|
|
$
|
0.07
|
|
Exercised
|
|
|
|
|
|
|
(412,355
|
)
|
|
$
|
0.09
|
|
Canceled/forfeited
|
|
|
514,752
|
|
|
|
(514,752
|
)
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009
|
|
|
88,922
|
|
|
|
12,199,035
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled/forfeited
|
|
|
776,142
|
|
|
|
(776,142
|
)
|
|
$
|
0.07
|
|
Outstanding at June 30, 2010
(unaudited
)
|
|
|
865,064
|
|
|
|
11,422,893
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2009
|
|
|
6,897,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2010
(unaudited)
|
|
|
7,351,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-1-20
The weighted average fair value of
options granted to employees during the years ended September 30, 2009 and 2008 was $0.05 and $0.04, respectively. There was approximately $66,000 and $40,000 of stock-based compensation expense for the year ended September 30, 2009 and
2008, respectively. Stock-based compensation expense for the unaudited nine month periods ended June 30, 2010 and 2009 was $70,000 and $35,000, respectively, and $40,000 and $25,000 for the unaudited three month periods ended June 30, 2010 and 2009,
respectively. As of September 30, 2009 and June 30, 2010 (unaudited), there was approximately $286,000 and $216,000 respectively, of total unrecognized compensation costs related to non-vested stock options. The cost is expected to be
recognized over a weighted average period of 2.3 years.
At September 30, 2009, the aggregated intrinsic value of currently exercisable
and vested options was zero. There were no options exercised during the unaudited nine months ended June 30, 2010.
Stock options outstanding
at September 30, 2009 consist of:
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Exercise Price
|
|
Number
Outstanding
|
|
|
Weighted Average
Remaining
Contractual Life
|
|
$0.07
|
|
|
7,703,177
|
|
|
|
8.76
|
|
0.10
|
|
|
4,495,858
|
|
|
|
6.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,199,035
|
|
|
|
7.95
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding at June 30, 2010 consist of:
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding (unaudited)
|
|
Exercise Price
|
|
Number
Outstanding
|
|
|
Weighted Average
Remaining
Contractual Life
|
|
$0.07
|
|
|
6,927,035
|
|
|
|
8.26
|
|
0.10
|
|
|
4,495,858
|
|
|
|
6.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,422,893
|
|
|
|
7.45
|
|
|
|
|
|
|
|
|
|
|
The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards. All options are
amortized ratably over the requisite service periods of the awards, which are generally the vesting periods.
The fair value for options
granted was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
Year
Ended
September 30,
|
|
|
2009
|
|
2008
|
Risk free interest rate
|
|
2.68%-2.89%
|
|
2.93%-3.66%
|
Dividend yield
|
|
0%
|
|
0%
|
Expected volatility
|
|
58%
|
|
61%
|
Expected life of the options
|
|
6.25
|
|
6.25
|
No options were issued during the
unaudited nine month period ended June 30, 2010.
Expected Life -
The expected term of options granted represents the period of time
that options granted are expected to be outstanding and was determined by calculating the midpoint between the date of full vesting and the contractual life. The Company has estimated the expected term using the simplified method provided in SEC
Staff Accounting Bulletin No. 107.
B-1-21
Expected Volatility
Volatility is based on the average historical volatility of a peer group of six public companies over the past five to seven years of trading, which was selected on the basis of operational and economic similarities with the principal business
operations of the Company.
Risk-Free Interest rate
The risk-free interest rate is derived from the United States Treasury
yield curve in effect at the date of the grant based on the expected life of the options.
Dividend Yield
The Company does not
currently anticipate paying any cash dividends on its common stock. Consequently, the Company used an expected dividend yield of zero in the Black-Scholes option pricing model.
Forfeitures
ASC 718 requires the Company to estimate forfeitures at the time of the grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates.
To determine an expected forfeiture rate, the Company examined the historical employee turnover rate for the past five years.
9. Income
Taxes
As discussed in Note 1, the Company adopted provisions of ASC 740 as of October 1, 2009. There was no impact from this
standard. The Company recorded income tax provisions relating to minimum state taxes of $800 and $800 for the years ended September 30, 2009 and 2008. The Companys effective tax rate differed from the statutory rate for the years ended
September 30, 2009 and 2008 due primarily to the valuation allowance established on the net operating losses.
The components of deferred
tax assets and liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
|
September 30,
2009
|
|
|
June 30,
2010
(unaudited)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals and reserves
|
|
$
|
126,256
|
|
|
$
|
154,947
|
|
|
$
|
116,714
|
|
Stock-based compensation
|
|
|
2,525
|
|
|
|
2,581
|
|
|
|
2,911
|
|
Accumulated depreciation and amortization
|
|
|
(11,577
|
)
|
|
|
(5,473
|
)
|
|
|
(2,700
|
)
|
Net operating loss carry forwards
|
|
|
6,343,875
|
|
|
|
7,224,533
|
|
|
|
8,300,000
|
|
Tax credits, other
|
|
|
338,496
|
|
|
|
420,190
|
|
|
|
480,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
6,799,575
|
|
|
$
|
7,796,778
|
|
|
$
|
8,896,925
|
|
Valuation allowance
|
|
|
6,799,575
|
|
|
|
7,796,778
|
|
|
|
8,896,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realization of deferred tax assets is dependent upon future earnings, if any, and the timing and amount of which are
uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance was increased by $1,010,388 and $689,184 during 2009 and 2008 and by $983,432 (unaudited) in the first nine months of fiscal
2010.
As of September 30, 2009, the Company had federal net operating loss carry forwards of approximately $21,079,000. As of
June 30, 2010 (unaudited) the Company had net operating loss carry forwards of approximately $24,626,000. The net operating loss carry forwards begin to expire in 2025, if not utilized. As of September 30, 2009 and June 30, 2010
(unaudited) the Company had federal research and development tax credits of approximately $420,190 and $480,000, respectively, which start to expire in the year 2025.
Utilization of the Companys net operating losses and credits may be subject to a substantial annual limitation due to the change in ownership provisions of the Internal Revenue Code of
1986, as amended and similar state provisions. The annual limitation may result in the expiration of net operating loss and tax credit carry forwards before utilization.
B-1-22
10. Benefit Plan
401(k) plan
The Company sponsors a 401(k) defined contribution plan covering eligible employees who elect to participate. The Company is
allowed to make discretionary 401(k) matching contributions as defined in the plan and as approved by the Board of Directors.
11.
Subsequent Events
Annual financial statements -
Subsequent events were evaluated through May 29, 2010 which is the date the
annual financial statements financial statements were available to be issued.
In the months of December 2009 and February 2010 (unaudited),
the Company obtained debt financing in the aggregate principal amount of $420,000. This debt must be repaid in an amount of three (3) times the principal amount upon an acquisition of the Company, and is convertible into Series C Preferred
Stock in the event the Company closes a Series C financing of not less than $4,500,000 on or before June 18, 2010. In the unaudited months of March and April of 2010, the Company increased the total principal amount authorized for issuance by
$1,860,000 for a total principal amount available under the financing of $2,280,000. Promissory notes in the aggregate principal amount of $1,443,399 were issued subsequent to the initial $420,000 of debt. These promissory notes also pay no
dividends and are convertible into Series C Preferred Stock in the event the Company closes a Series C financing of not less than $4,500,000 on or before June 18, 2010, and are to be repaid in an amount of one (1) times the principal
amount plus accrued but unpaid interest upon an acquisition of the Company. All notes issued under this Bridge financing carry an annual interest rate of 8% (which is due and payable upon maturity of the promissory notes) and warrant coverage of
fifty percent (50%). As of May 29, 2010 (unaudited) the Company had borrowed an aggregate principal amount of $1,863,399.
On
April 6, 2010, the Companys Board of Directors authorized the Companys Chief Executive Officer to execute and deliver a Term Sheet Proposal For Tax-Deferred Merger received from a third party and to conduct negotiations with such
third party regarding definitive agreements for the sale of the Company. The sale is subject to the completion of customary closing conditions including completion of due diligence.
Interim financial statements -
Additional unaudited subsequent events have been evaluated through August 30, 2010 which is the date the unaudited interim financial statements were available to be
issued.
In June 2010, the Companys Board of Directors authorized the Company to work with promissory note holders to amend the above
agreements such that they are convertible into Series C Preferred Stock in the event the Company closes a Series C financing of not less than $4,500,000 on or before August 31, 2010 (previously June 18, 2010). All other terms remain unchanged.
On June 24, 2010 the Company announced that a definitive merger agreement had been reached with an SEC public registrant. The definitive
merger agreement has been approved by the Boards of Directors of both companies and by the shareholders of UBmatrix. Closing of this agreement is contingent on certain shareholder approvals of the registrant as well as other customary closing
conditions. If the agreement is approved by shareholders, it is anticipated that the merger will be consummated in the fourth calendar quarter of 2010.
B-1-23
Annex B-2
|
|
|
|
|
|
|
|
Financial Statements
For the years ending
September 30, 2009 and
2008
Unaudited Interim Financial Statements for
the six month periods
ending
March 31, 2010 and 2009
Unaudited Interim Statements of
Operations
for the three month periods ending
March 31, 2010 and 2009
|
The report accompanying these financial
statements was issued by
BDO Seidman, LLP, a New York limited liability partnership and the U.S.
member of BDO International Limited, a UK company limited by guarantee.
|
|
|
|
|
|
|
Tel: 415-397-7900
Fax:
415-397-2161
www.bdo.com
|
|
One Market, Suite 1100
Spear Tower
San Francisco, CA
94105
|
Independent Auditors Report
The Board of Directors and Stockholders
UBmatrix, Inc.
Redwood City, California
We have audited the accompanying balance sheets of UBmatrix, Inc. as of September 30, 2009 and 2008 and the related statements
operations, redeemable convertible preferred stock and stockholders deficit, and cash flows for the years then ended. 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 in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of UBmatrix, Inc. at September 30, 2009 and 2008, and the results of its
operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
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 suffered recurring
losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Managements 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.
May 29, 2010
BDO Seidman, LLP, a New York limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of
independent member firms.
BDO is the brand name for the BDO network and for each of the BDO Member Firms.
B-2-1
Balance Sheets
UBmatrix, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March
31,
2010
|
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
113,054
|
|
|
$
|
452,065
|
|
|
$
|
227,817
|
|
Accounts receivable
|
|
|
394,664
|
|
|
|
269,994
|
|
|
|
144,548
|
|
Deferred costs
|
|
|
|
|
|
|
197,000
|
|
|
|
245,000
|
|
Prepaid expenses
|
|
|
17,656
|
|
|
|
|
|
|
|
16,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
525,374
|
|
|
|
919,059
|
|
|
|
633,690
|
|
Property and equipment, net
|
|
|
124,072
|
|
|
|
66,602
|
|
|
|
41,300
|
|
Other assets
|
|
|
65,728
|
|
|
|
55,728
|
|
|
|
55,728
|
|
Intangible assets, net
|
|
|
57,108
|
|
|
|
44,615
|
|
|
|
38,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
772,282
|
|
|
$
|
1,086,004
|
|
|
$
|
769,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
667,893
|
|
|
$
|
287,011
|
|
|
$
|
336,068
|
|
Accrued liabilities
|
|
|
398,215
|
|
|
|
354,395
|
|
|
|
360,279
|
|
Deferred revenue
|
|
|
837,681
|
|
|
|
1,844,865
|
|
|
|
1,826,303
|
|
Line of credit
|
|
|
|
|
|
|
|
|
|
|
487,341
|
|
Current portion of long-term debt
|
|
|
215,706
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, net
|
|
|
878,123
|
|
|
|
2,997,502
|
|
|
|
3,569,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,997,618
|
|
|
|
5,483,773
|
|
|
|
6,579,072
|
|
|
|
|
|
Deferred rent, less current portion
|
|
|
36,491
|
|
|
|
8,772
|
|
|
|
1,704
|
|
Long term debt, less current portion
|
|
|
42,623
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
|
1,636,266
|
|
|
|
1,808,209
|
|
|
|
1,960,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
4,712,998
|
|
|
|
7,300,754
|
|
|
|
8,540,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock, $0.0001 par value,
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Senior 11,642,717 shares authorized; 11,415,548 shares issued and outstanding at September 30, 2009 and
March 31, 2010 (aggregate liquidation preference of $5,000,010 at March 31, 2010 and September 30, 2009, respectively)
|
|
|
4,992,290
|
|
|
|
4,998,189
|
|
|
|
5,000,010
|
|
|
|
|
|
Series A Junior 2,283,114 shares authorized; 2,283,096 shares issued and outstanding at September 30, 2009 and
March 31, 2010 (aggregate liquidation preference of $999,996 at March 31, 2010 and September 30, 2009, respectively)
|
|
|
999,996
|
|
|
|
999,996
|
|
|
|
999,996
|
|
|
|
|
|
Series B 53,000,000 shares authorized; 43,436,457 shares issued and outstanding at September 30, 2009 and
March 31, 2010 (aggregate liquidation preference of $10,251,004 at March 31, 2010 and September 30, 2009, respectively)
|
|
|
10,133,333
|
|
|
|
10,212,721
|
|
|
|
10,251,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Redeemable Convertible Preferred Stock
|
|
|
16,125,619
|
|
|
|
16,210,906
|
|
|
|
16,251,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Notes 6, 7, 8, 10 and 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, no par value, 90,000,000 share authorized; 6,307,506 and 5,895,151 shares issued and outstanding at
September 30, 2009 and March 31, 2010, respectively
|
|
|
81,613
|
|
|
|
120,088
|
|
|
|
120,088
|
|
Additional paid-in capital
|
|
|
1,896,841
|
|
|
|
2,295,848
|
|
|
|
2,526,343
|
|
Accumulated deficit
|
|
|
(22,044,789
|
)
|
|
|
(24,841,592
|
)
|
|
|
(26,668,770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Deficit
|
|
|
(20,066,335
|
)
|
|
|
(22,425,656
|
)
|
|
|
(24,022,339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities, Redeemable Convertible Preferred Stock,
and Stockholders Deficit
|
|
$
|
772,282
|
|
|
$
|
1,086,004
|
|
|
$
|
769,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
B-2-2
Statements of Operations
UBmatrix, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
|
|
Six Months Ended
March 31,
|
|
|
Three Months Ended
March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
License and Service Revenues
|
|
$
|
1,153,778
|
|
|
|
3,942,796
|
|
|
|
1,658,326
|
|
|
|
1,244,818
|
|
|
|
802,637
|
|
|
|
501,653
|
|
Cost of Revenues
|
|
|
107,497
|
|
|
|
60,532
|
|
|
|
39,728
|
|
|
|
68,149
|
|
|
|
1,094
|
|
|
|
17,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
1,046,281
|
|
|
|
3,882,264
|
|
|
|
1,618,598
|
|
|
|
1,176,669
|
|
|
|
801,543
|
|
|
|
484,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development
|
|
|
3,771,209
|
|
|
|
2,616,415
|
|
|
|
1,347,013
|
|
|
|
1,214,974
|
|
|
|
679,686
|
|
|
|
587,423
|
|
Sales and marketing
|
|
|
2,447,333
|
|
|
|
1,466,465
|
|
|
|
854,567
|
|
|
|
805,430
|
|
|
|
347,546
|
|
|
|
372,162
|
|
General and administration
|
|
|
1,264,727
|
|
|
|
1,170,341
|
|
|
|
531,391
|
|
|
|
718,052
|
|
|
|
262,793
|
|
|
|
321,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
7,483,269
|
|
|
|
5,253,221
|
|
|
|
2,732,971
|
|
|
|
2,738,456
|
|
|
|
1,290,025
|
|
|
|
1,281,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(6,436,988
|
)
|
|
|
(1,370,957
|
)
|
|
|
(1,114,373
|
)
|
|
|
(1,561,787
|
)
|
|
|
(488,482
|
)
|
|
|
(797,028
|
)
|
Interest expense
|
|
|
179,514
|
|
|
|
1,425,046
|
|
|
|
962,837
|
|
|
|
264,991
|
|
|
|
116,373
|
|
|
|
151,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Taxes
|
|
|
(6,616,502
|
)
|
|
|
(2,796,003
|
)
|
|
|
(2,077,210
|
)
|
|
|
(1,826,778
|
)
|
|
|
(604,855
|
)
|
|
|
(948,098
|
)
|
State taxes
|
|
|
800
|
|
|
|
800
|
|
|
|
400
|
|
|
|
400
|
|
|
|
200
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(6,617,302
|
)
|
|
$
|
(2,796,803
|
)
|
|
$
|
(2,077,610
|
)
|
|
$
|
(1,827,178
|
)
|
|
$
|
(605,055
|
)
|
|
$
|
(948,298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
B-2-3
Statements of Redeemable Convertible Preferred Stock and Stockholders Deficit
UBmatrix, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable convertible
preferred stock
|
|
|
|
|
Common Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders
Deficit
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007
|
|
|
47,508,915
|
|
|
$
|
13,924,733
|
|
|
|
|
|
5,864,473
|
|
|
$
|
78,545
|
|
|
$
|
1,482,691
|
|
|
$
|
(15,427,487
|
)
|
|
$
|
(13,866,251
|
)
|
Issuance of Series B redeemable convertible preferred stock at $0.236 net of $112,954 issuance costs
|
|
|
9,626,186
|
|
|
|
2,158,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficiary conversion feature of warrants issued with convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
414,030
|
|
|
|
|
|
|
|
414,030
|
|
Employee Stock Based Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,181
|
|
|
|
|
|
|
|
42,181
|
|
Exercise of options for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
30,678
|
|
|
|
3,068
|
|
|
|
|
|
|
|
|
|
|
|
3,068
|
|
Accretion of preferred stock redemption value
|
|
|
|
|
|
|
42,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,061
|
)
|
|
|
|
|
|
|
(42,061
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,617,302
|
)
|
|
|
(6,617,302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2008
|
|
|
57,135,101
|
|
|
|
16,125,619
|
|
|
|
|
|
5,895,151
|
|
|
|
81,613
|
|
|
|
1,896,841
|
|
|
|
(22,044,789
|
)
|
|
|
(20,066,335
|
)
|
Beneficiary conversion feature of warrants issued with convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
418,542
|
|
|
|
|
|
|
|
418,542
|
|
Employee Stock Based Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,752
|
|
|
|
|
|
|
|
65,752
|
|
Exercise of options for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
412,355
|
|
|
|
38,475
|
|
|
|
|
|
|
|
|
|
|
|
38,475
|
|
Accretion of preferred stock redemption value
|
|
|
|
|
|
|
85,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85,287
|
)
|
|
|
|
|
|
|
(85,287
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,796,803
|
)
|
|
|
(2,796,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009
|
|
|
57,135,101
|
|
|
|
16,210,906
|
|
|
|
|
|
6,307,506
|
|
|
|
120,088
|
|
|
|
2,295,848
|
|
|
|
(24,841,592
|
)
|
|
|
(22,425,656
|
)
|
Beneficiary conversion feature of warrants issued with convertible notes payable (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240,599
|
|
|
|
|
|
|
|
240,599
|
|
Employee Stock Based Compensation (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
30,000
|
|
Accretion of preferred stock redemption value (unaudited)
|
|
|
|
|
|
|
40,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,104
|
)
|
|
|
|
|
|
|
(40,104
|
)
|
Net loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,827,178
|
)
|
|
|
(1,827,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010 (unaudited)
|
|
|
57,135,101
|
|
|
$
|
16,251,010
|
|
|
|
|
|
6,307,506
|
|
|
$
|
120,088
|
|
|
$
|
2,526,343
|
|
|
$
|
(26,668,770
|
)
|
|
$
|
(24,022,339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
B-2-4
Statements of Cash Flow
UBmatrix, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
September 30,
|
|
|
Six Months Ended
March 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,617,302
|
)
|
|
$
|
(2,796,803
|
)
|
|
$
|
(2,077,610
|
)
|
|
$
|
(1,827,178
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs and debt discount
|
|
|
318,880
|
|
|
|
1,415,628
|
|
|
|
846,772
|
|
|
|
144,693
|
|
Stock-based compensation
|
|
|
42,181
|
|
|
|
65,752
|
|
|
|
10,000
|
|
|
|
30,000
|
|
Revaluation of warrants to fair value
|
|
|
(197,462
|
)
|
|
|
(246,599
|
)
|
|
|
(53,301
|
)
|
|
|
(88,757
|
)
|
Depreciation and amortization
|
|
|
73,497
|
|
|
|
69,963
|
|
|
|
36,314
|
|
|
|
31,137
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
643,823
|
|
|
|
124,670
|
|
|
|
(285,782
|
)
|
|
|
125,446
|
|
Deferred costs
|
|
|
|
|
|
|
(197,000
|
)
|
|
|
|
|
|
|
(48,000
|
)
|
Prepaid expenses
|
|
|
(8,939
|
)
|
|
|
17,656
|
|
|
|
17,656
|
|
|
|
(16,325
|
)
|
Other assets
|
|
|
(65,728
|
)
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
497,572
|
|
|
|
(380,882
|
)
|
|
|
(439,640
|
)
|
|
|
49,057
|
|
Accrued liabilities
|
|
|
34,667
|
|
|
|
(71,539
|
)
|
|
|
13,819
|
|
|
|
(1,184
|
)
|
Accrued interest on convertible notes payable
|
|
|
16,448
|
|
|
|
176,054
|
|
|
|
142,118
|
|
|
|
128,084
|
|
Deferred revenue
|
|
|
109,955
|
|
|
|
1,007,184
|
|
|
|
964,673
|
|
|
|
(18,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Operating Activities
|
|
|
(5,152,408
|
)
|
|
|
(805,916
|
)
|
|
|
(824,981
|
)
|
|
|
(1,491,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(123,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities
|
|
|
(123,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable
|
|
|
1,405,000
|
|
|
|
1,400,000
|
|
|
|
1,142,684
|
|
|
|
780,000
|
|
Payments on long-term debt
|
|
|
(272,581
|
)
|
|
|
(293,548
|
)
|
|
|
(104,839
|
)
|
|
|
|
|
Proceeds from line of credit
|
|
|
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
915,209
|
|
Payments on line of credit
|
|
|
|
|
|
|
(1,000,000
|
)
|
|
|
|
|
|
|
(427,868
|
)
|
Proceeds from issuance of common stock
|
|
|
3,068
|
|
|
|
38,475
|
|
|
|
18,125
|
|
|
|
|
|
Proceeds from issuance of Series B redeemable convertible preferred stock
|
|
|
2,271,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of issuance costs
|
|
|
(112,954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
3,294,312
|
|
|
|
1,144,927
|
|
|
|
1,055,970
|
|
|
|
1,267,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
|
|
(1,981,346
|
)
|
|
|
339,011
|
|
|
|
230,989
|
|
|
|
(224,248
|
)
|
|
|
|
|
|
Cash and Cash Equivalents at Beginning of Period
|
|
|
2,094,400
|
|
|
|
113,054
|
|
|
|
113,054
|
|
|
|
452,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
113,054
|
|
|
$
|
452,065
|
|
|
$
|
344,043
|
|
|
$
|
227,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
40,459
|
|
|
$
|
80,060
|
|
|
$
|
76,953
|
|
|
$
|
47,926
|
|
Non-cash financing items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
|
414,030
|
|
|
|
418,542
|
|
|
|
341,657
|
|
|
|
240,599
|
|
Beneficial conversion feature on convertible notes
|
|
|
414,030
|
|
|
|
418,542
|
|
|
|
341,657
|
|
|
|
240,599
|
|
Accretion of redeemable convertible preferred stock
|
|
|
42,061
|
|
|
|
85,287
|
|
|
|
41,508
|
|
|
|
40,104
|
|
See accompanying
notes to financial statements.
B-2-5
1.
Summary of Accounting Policies
Nature of Business and Basis of Presentation
UBmatrix, Inc. (the
Company or we or our) was incorporated in the State of Washington on September 14, 2004 and provides comprehensive and flexible XBRL-based software solutions to the regulatory compliance and financial
reporting markets. Our information exchange products allow our clients to more efficiently and effectively address the challenges of business and financial information management, exchange and reporting by increasing operational efficiency and
financial transparency, while ensuring reporting accuracy and regulatory compliance. XBRL (eXtensible Business Reporting Language) is a global standard-based method to prepare; publish, validate, exchange and analyze business and financial data.
UBmatrix, Inc. is based in Silicon Valley with software development teams in Bellevue, Washington and New Delhi, India. Our products are
covered by US Patent No. 6,947,947 and other pending patents. We have more than seven years of experience delivering products and services to our clients; including the United States Securities and Exchange Commission (SEC), the Federal Deposit
Insurance Corporation (FDIC), the National Bank of Belgium, the Government of Singapore, and the Central Bank of France. We also have agreements with SAP and Oracle.
Unaudited Interim Financial Statements
The financial statements, footnotes and any matters referred to for the three month and six month periods ending March 31, 2010 and
2009 are unaudited. They are the opinion of management using generally accepted accounting principles as deemed appropriate. As such, the interim financial information should be read in conjunction with the audited Financial Statements for the years
ending September 30, 2009 and 2008. Interim results are not necessarily indicative of results expected in future periods.
Going
Concern Uncertainty
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal
course of business. The Company has incurred losses from operations and negative cash flows since inception and has an accumulated deficit of $24,841,592 and $22,044,789 as of September 30, 2009 and 2008, respectively, and $26,668,770
(unaudited) and $24,122,399 (unaudited) as of March 31, 2010 and 2009, respectively. These conditions raise substantial doubt as to the Companys ability to continue to operate as a going concern.
To date, the Company has been funded primarily by issuing equity securities and the proceeds of borrowings from banks. Management expects that it will be
required to obtain additional debt or equity financing in order to fund operations for the foreseeable future. The sale of convertible debt securities or additional equity securities could result in additional dilution to the Companys
stockholders. The incurrence of indebtedness would result in incurring debt service obligations and could result in operating and financial covenants that would restrict the Companys operations. There is no assurance that the Company will be
successful in obtaining sufficient funding on acceptable terms, if at all, or in generating sufficient revenues to fund operations.
Managements plan to achieve profitability and control costs includes a strategy to increase sales volume through Original Equipment Manufacturers
and Independent Software Vendors.
Management intends to continue to seek additional customers for its products and to generate additional
revenue. Although there are no present understandings, commitments or agreements with respect to the acquisition of any other businesses, the Company may, from time to time, evaluate potential acquisitions of other businesses. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
B-2-6
As discussed more fully in Note 10
Subsequent Events, the Company has entered into negotiations for the sale of the Company.
Reclassifications
Certain reclassifications of prior year amounts have been made to conform to the current year presentation with no impact on previously reported revenues, net income and stockholders deficit.
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 revenues and expenses during the reporting period. Significant estimates used in preparing these financial statements include the income tax provision, valuation of stock awards and the valuation of warrants. Actual results could differ
from those estimates and such differences could be material to the financial position and results of operations.
Revenue
Recognition
The Companys revenues are derived from the licensing of software products, the maintenance and support of those software products and the performance of other professional services. Revenue is recognized when
persuasive evidence of an arrangement exists, product delivery has occurred or services have been rendered, the sale price is fixed or determinable, and collectability is reasonably assured. If any of the criteria have not been met, then revenue is
deferred until such time as all criteria have been met.
Under the terms of the Companys current agreements with certain customers, the
customers take possession of the Companys software license, typically bundled with a twelve-month maintenance and support contract. In these situations, license revenues are recognized in accordance with the FASB Accounting Standards
Codification (ASC) 985-605 (formerly referenced as the American Institute of Certified Public Accountants Statement of Position (SOP) No. 97-2,
Software Revenue Recognition)
when a non-cancelable license agreement has been signed, the
product has been delivered, the fees are fixed or determinable, and collectability is probable. Based on the Companys present business practices, there is not sufficient vendor-specific objective evidence (VSOE) to support the separate
determination of the fair value of the software license fee and the undelivered maintenance and support element. Therefore, the Company initially records the software license and the maintenance and support and services as deferred revenue and
recognizes this revenue ratably over the support period.
Some agreements with customers call for the Company to provide professional services
during the implementation period. The Company evaluates whether these professional services represent a separate unit of accounting, as defined by ASC 605-25-30 (formerly referenced as Emerging Issue Task Force (EITF) 00-21,
Revenue Arrangements
with Multiple Deliverables),
using all applicable facts and circumstances, including whether (i) the Company sold, or could readily sell, the element unaccompanied by the other elements, (ii) the element has stand-alone value to the
customer, (iii) there is objective reliable evidence of the fair value of the undelivered item based on contractual requirements, and (iv) there is a general right of return. If the criteria for consideration as a separate unit of
accounting is met, professional services revenue is recognized based on the objective reliable evidence of the fair value of such services as they are performed. If the criteria are not met, then the service revenue is recognized ratably over the
support period.
When professional services are deemed essential to the functionality of the software element of the arrangement and separate
accounting for the services is not permitted, contract accounting is applied to both the software and service elements. For these projects, revenue is recognized in accordance with ASC 605-35 (formerly referenced as SOP No. 81-1,
Accounting
for Performance of Construction Type and Certain Production Type Contracts.)
B-2-7
The Company uses the completed-contract method for a single contract or a group of contracts when reasonably dependable estimates cannot be made or when inherent hazards make cost
estimates and profit estimates doubtful. Under these circumstances, all direct external costs and revenue are deferred until the project is completed. Estimated losses on uncompleted contracts are recorded in the period in which it is first
determined that a loss is apparent
Cash and Cash Equivalents
The Company may invest its excess cash in money
market accounts. Cash equivalents are recorded at cost, which approximates market value. The Company considers all highly liquid investments with original maturities of 90 days or less at the time of purchase to be cash equivalents. During the
periods presented, the Company has no investments with stated maturities of greater than three months.
Restricted Cash
The Company is required to post cash collateral or maintain minimum cash balances at a financial institution in relation to certain financing arrangements and contracts. Restricted cash is recorded at cost, which approximates its fair
value.
Fair Value of Financial Instruments
Financial instruments for which the fair value is deemed to
approximate carrying value due to the short term nature of the instrument include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities. Financial instruments also consist of debt, for which management has
determined that it is not practical to estimate the fair value, due to the lack of comparable available credit facilities.
Accounts
Receivable and Allowance for Bad Debts
Accounts receivable are recorded at the invoiced amount and do not bear interest. Management reviews accounts receivable periodically and provides allowances as necessary for accounts
expected to become uncollectable. To date, the Company has not experienced any significant bad debts. This may change in the future, as changes occur to our markets and customers. Bad debts are written off once they are identified.
Concentration of Credit Risk and Credit Risk Evaluations
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of a line of credit with our bank, cash, and trade accounts receivable. Substantially all of the Companys cash and cash equivalents are maintained with one domestic financial institution with
high credit standing. At times, cash balances may exceed amounts insured by the FDIC and the Securities Investor Protection Corporation (SIPC).
The Company performs periodic evaluations of the relative credit standing of this institution and has not experienced any losses on its cash and cash
equivalents to date.
The Company conducts business in the United States and internationally on a credit basis. The Company does not require
collateral of its customers.
For the years ended September 30, 2009 and 2008, three customers accounted for 28%, 24% and 11% and two
customers accounted for 23% and 14% of total revenues, respectively. For the unaudited six months ended March 31, 2010 and 2009, three customers accounted for 27%, 22% and 20% and two customers accounted for 33%, and 29% of total revenues,
respectively. For the unaudited three months ended March 31, 2010 and 2009, two customers accounted for 32% and 29% and two customers accounted for 34% and 27% of total revenues, respectively.
B-2-8
For total gross accounts
receivable as of September 30, 2009 and 2008, one customer represented 21% and four customers represented 45%, 12%, 11% and 10% respectively. As of March 31, 2010 (unaudited) and 2009 (unaudited), three customers represented 46%, 16% and
11% and four customers accounted for 26%, 19%, 18% and 11% of total gross accounts receivable, respectively.
Property, Plant, and
Equipment
Property, plant and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, normally three years. Leasehold improvements are amortized on a
straight-line basis over the shorter of the term of the lease or the estimated useful life of the improvement. Maintenance and repairs are charged to expense as incurred; improvements and betterments are capitalized.
Intangible Assets
Intangible assets consists of patents which are stated at cost less accumulated amortization. Amortization
is computed on the straight-line basis over terms of up to seven years.
Software Development Costs
The Company
offers customers the option to purchase a license for its software. In such situations, the software development costs should be accounted for in accordance with ASC 985-20 (formerly referenced as SFAS No. 86,
Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed).
Certain software development costs incurred subsequent to the establishment of technological feasibility are capitalized. When the software is ready for its intended use, the costs
are amortized over the estimated lives of the related products. Technological feasibility is established upon completion of a working model. As such, to date all software development costs have been charged to expense, and included in the caption
product development expense, in the accompanying statements of operations.
Impairment of Long-lived Assets
The
Company evaluates the long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on expected undiscounted cash flows attributable to that asset. The amount
of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. During the years ended September 30, 2009 and 2008, management concluded that an impairment write-down was not necessary. No
impairment was recognized through March 31, 2010.
Deferred Rent Obligations
The Company accounts for rent
expense under non-cancelable operating leases with scheduled rent increases on a straight-line basis over the lease term beginning with the effective lease commencement date. The excess of straight-line rent expense over scheduled payment amounts is
recorded as an accrued liability, the balance of which was $25,045 (unaudited) at March 31, 2010 and $36,491 and $53,583 at September 30, 2009 and 2008, respectively.
Deferred Revenue
Deferred revenue arises when customers pay for software licenses and maintenance in advance of revenue recognition. The Companys deferred revenue
consists primarily of unearned revenue on software licenses and maintenance for which revenue is recognized ratably over the maintenance term. From time to time, customers are required to provide a deposit at the time the product or service is
ordered. These advanced payments and customer deposits are deferred and subsequently recognized as revenue at the time the risk and rewards associated with a product transfer to the customer or upon service performance completion.
Research and Development
Research and development costs are charged to expense as incurred and are presented as product
development expenses in the accompanying statements of operations.
B-2-9
Advertising Costs
Advertising costs, which approximated $4,079 and $3,687 for the unaudited six month periods ended March 31, 2010 and 2009, respectively, and $1,824 and $1,365 for the unaudited three month periods ended March 31, 2010 and 2009,
respectively, and $6,319 and $29,929 during the years ended September 30, 2009 and 2008, respectively, are expensed as incurred.
Sales Taxes
The Company remits sales taxes to various taxing jurisdictions as a result of revenue earned from the sale of
products and services to its customers as necessary. Specific sales tax rates applicable to the Companys products and services vary by taxing jurisdiction and certain of the Companys products and services are deemed to be tax exempt. The
Company records sales tax as a current liability at the time the revenue is earned. The liability is relieved upon the remittance of the sales tax owed to the various taxing jurisdictions.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740-10 (formerly referenced as SFAS No. 109,
Accounting for Income Taxes),
which requires
the use of the liability method in accounting for income taxes. Under ASC 740-10, deferred tax assets and liabilities are measured based on differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates
and laws that are expected to be in effect when the differences are expected to reverse. Further, the Company analyzes whether it is more likely than not that deferred tax assets will be realizable. Based on this analysis, the Company establishes a
valuation allowance for amounts that are not expected to be realized. Effective October 1, 2009 the Company adopted ASC 740, Income Taxes (formerly referenced as FASB Financial Interpretation No. 48, Accounting for Uncertainty in Income
Taxes). The adoption did not have any impact to the Companys financial statements.
Share-Based Payments
The
Company accounts for compensation costs related to stock options in accordance with ASC 718 (formerly referenced as SFAS No. 123 (revised 2004),
Share-Based
Payment).
The Company uses the Black-Scholes Merton option pricing model
to determine the fair value of stock options at the grant date and recognizes the resulting compensation expense on a straight-line basis over the employees requisite service period.
Compensation expense calculated under ASC 718-10 relies on the value of the common stock as determined by the Companys Board of Directors and assumptions such as volatility, expected life, interest
rates, and other factors to determine the fair value of share-based payments using the Black-Scholes Merton option pricing model. Changes in the value of the common stock, the underlying assumptions in the calculations, the number of options granted
or the terms of such options, the treatment of tax benefits and other changes may result in significant differences in the amounts or timing of the compensation expense recognized. The Company utilizes the historical volatility of representative
public companies to determine implied volatility as there is no public trading of the Companys common stock. Compensation expense is reduced for options that are not expected to vest.
Options and other equity awards granted to nonemployees are accounted for in accordance with ASC 718-10 and ASC 505-50 (formerly referenced as EITF Issue No. 96-18,
Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services),
at estimated fair value using the Black-Scholes method and are subject to periodic re-measurement over the period during which
services are rendered.
Warranties and Indemnifications
The Company generally provides a warranty for its
products, software and services to its customers and accounts for its warranties under the provisions of ASC 450-20 (formerly referenced as SFAS No. 5,
Accounting for Contingencies).
The warranty period for all products commences on the
effective date of the support agreement and continues in effect for the duration of a valid support agreement
B-2-10
between the Company and the customer under which the payment of support and maintenance fee is current. In the event there is a failure of the product in breach of such warranties, the Company
may provide third-party products, software and/or services. To date, the Companys product warranty expense has not been significant, and the Company did not provide for a warranty accrual as of March 31, 2010 (unaudited) or for the years
ended September 30, 2009 and 2008.
The Company generally agrees to defend and indemnify its customers against legal claims that the
Companys products infringe certain United States patents or copyrights and accounts for its indemnification obligations under ASC 450-20. To date, the Company has not been required to make any payment resulting from infringement claims
asserted against the Companys customers and believes the estimated fair value of these agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of March 31, 2010 (unaudited) or for the years
ended September 30, 2009 and 2008.
Under its bylaws, the Company has agreed to indemnify, to the maximum extent and in the manner
permitted by the Code, each of its directors against expenses, judgments, fines, settlement, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was a director of
the Company. A director of the Company includes any person (i) who is or was a director of the Company, (ii) who was a director of a Company, partnership, joint venture, trust or other enterprises, or (iii) who was a director of a
corporation which was a predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation.
The
maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification
agreements. As a result, the Company believes the estimated fair value of these agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of March 31, 2010 (unaudited) or for the years ended
September 30, 2009 and 2008.
Classification of Securities
The Company applies the principles of ASC 480-10
(formerly referenced as SFAS 150
Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity),
and ASC 480-10-25 and ASC 480-10-55 (formerly referenced as FASB Staff Position (FSP) No. FAS 150-5,
Issuers Accounting under Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares that are Redeemable)
to account for financial instruments and warrants.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
(e.g., the exit price) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches as may be appropriate in the circumstance, including using the
Black-Scholes valuation method.
Recent Accounting Pronouncements
Recent accounting pronouncements that may be
applicable to the Company include the following:
In October 2009, the FASB issued Accounting Standards Update (ASU) 2009-13, which amends ASC
Topic 605,
Revenue Recognition,
to require companies to allocate revenue in multiple-element arrangements based on an elements estimated selling price if vendor specific or other third-party evidence of value is not available. ASU
2009-13 is effective beginning January 1, 2011. Earlier application is permitted. The Company is currently evaluating both the timing and the impact of the pending adoption of the ASU on the Companys financial statements.
B-2-11
In June 2009, the FASB issued ASU
No. 2009-01 (formerly referenced as SFAS No. 168,
The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles
(ASC or Codification)). The Codification is the single
source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied to nongovernmental entities. The Codification does not change current GAAP, but is intended to simplify user access to all
authoritative GAAP by providing all the authoritative literature related to a particular topic in one place. All existing accounting standard documents are superseded and all other accounting literature not included in the Codification is considered
non-authoritative. The Codification is effective for interim and annual reporting periods ending after September 15, 2009. The Company has made the appropriate changes to GAAP references in the financial statements.
On May 28, 2009, the FASB issued new guidance for accounting for subsequent events. The new guidance, which is now part of ASC 855 (formerly, SFAS
No. 165,
Subsequent Events)
is consistent with existing auditing standards in defining subsequent events as events or transactions that occur after the balance sheet date but before the financial statements are issued or are available to
be issued, but it also requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. The new guidance defines two types of subsequent events: recognized subsequent events and
non-recognized subsequent events. Recognized subsequent events provide additional evidence about conditions that existed at the balance sheet date and must be reflected in the companys financial statements. Non-recognized
subsequent events provide evidence about conditions that arose after the balance sheet date and are not reflected in the financial statements of a company. Certain non-recognized subsequent events may require disclosure to prevent the financial
statements from being misleading. The new guidance was effective for interim or annual periods ending after June 15, 2009. The Company adopted the provisions of ASC 855 as required.
In June 2008, the FASB ratified ASC 815-40-15-7 (formerly referenced as EITF Issue 07-5,
Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock).
ASC
815-10-15-74 (formerly referenced as Statement 133, paragraph 11(a),
Accounting for Derivative Instruments and Hedging Activities),
specifies that a contract that would otherwise meet the definition of a derivative but is both
(a) indexed to the Companys own stock and (b) classified in stockholders equity in the statement of financial position would not be considered a derivative financial instrument. ASC 815-40-15-7 provides a new two-step model to
be applied in determining whether a financial instrument or an embedded feature is indexed to an issuers own stock and thus able to qualify for the ASC 815-10-15-74 scope exception. ASC 815-40-15-7 will be effective for the first annual
reporting period beginning after December 15, 2008, and early adoption is prohibited. Effective October 1, 2009, the Company evaluated the effects of adopting ASC 815-40-15-7 on its financial position and results of operations. There was
no impact from the adoption of this standard.
In May 2008, the FASB issued new guidance, ASC 470-20 (formerly referenced as FASB Staff
Position (FSP) No. 14-1,
Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)),
which specifies that issuers of these instruments should separately account for the
liability and equity components in a manner that reflects the entitys nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This guidance was effective October 1, 2009 for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. This guidance is also to be applied retrospectively to all periods presented except if these instruments were not outstanding during any of the
periods that are presented in the annual financial statements for the period of adoption but were outstanding during an earlier period. The adoption of this statement for the fiscal year beginning October 1, 2009 did not have a material effect
on the Companys financial position and results of operations.
B-2-12
In December 2007, the FASB revised
the guidance on business combinations which is now part of ASC 805, (formerly referenced as Statement No. 141 (revised 2008),
Business Combinations),
which is effective for business combinations for which the acquisition date is on
or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The revised statement requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities
assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets and liabilities assumed; and requires the acquirer to disclose to investors and other user all of the information they need to
evaluate and understand the nature and financial effect of the business combination. The Company adopted this new statement for the fiscal year beginning October 1, 2009. In June 2006, the FASB issued new guidance for the accounting for
uncertainty in income taxes in ASC 740-10 (formerly referenced as Interpretation No. 48,
Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109).
This Interpretation prescribes a recognition threshold
and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. For non-public entities such as the Company, the FASB has postponed the required effective date of FIN48 to fiscal years beginning after December 15, 2008. On October 1, 2009, the Company adopted the
Interpretation. There was no impact from the adoption of this standard.
2. Intangible Assets
Information regarding the Companys identified intangible assets, consisting of patents and trademarks subject to amortization, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
|
September 30,
2009
|
|
|
March 31, 2010
(unaudited)
|
|
Gross carrying amount
|
|
$
|
81,696
|
|
|
$
|
81,696
|
|
|
$
|
81,544
|
|
Accumulated amortization
|
|
|
(24,588
|
)
|
|
|
(37,081
|
)
|
|
|
(42,764
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Value
|
|
$
|
57,108
|
|
|
$
|
44,615
|
|
|
$
|
38,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets are being amortized using straight-line methods over their estimated useful lives, normally seven years.
Amortization expense for the unaudited six month periods ended March 31, 2010 and 2009 was $5,683 and $7,423, respectively, and $2,847 and $3,717 for the unaudited three month periods ended March 31, 2010 and 2009, respectively. For the
years ended September 30, 2009 and 2008, amortization expense was $15,845 and $12,493, respectively.
The expected future annual
amortization expense of intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended September 30,
|
|
September 30,
2009
|
|
|
Year ended September 30,
|
|
March 31,
2010
(unaudited)
|
|
2010
|
|
$
|
11,671
|
|
|
2010 (remaining 6 months)
|
|
$
|
5,988
|
|
2011
|
|
|
11,671
|
|
|
2011
|
|
|
11,671
|
|
2012
|
|
|
11,671
|
|
|
2012
|
|
|
11,671
|
|
Thereafter
|
|
|
9,602
|
|
|
Thereafter
|
|
|
9,602
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
44,615
|
|
|
Total
|
|
|
38,932
|
|
|
|
|
|
|
|
|
|
|
|
|
B-2-13
3. Property and Equipment
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
|
September 30,
2009
|
|
|
March 31, 2010
(unaudited)
|
|
Computer equipment
|
|
$
|
174,691
|
|
|
$
|
172,957
|
|
|
$
|
172,957
|
|
Furniture and other equipment
|
|
|
92,124
|
|
|
|
92,124
|
|
|
|
92,124
|
|
Leasehold improvements
|
|
|
14,469
|
|
|
|
14,469
|
|
|
|
14,469
|
|
|
|
|
|
Less accumulated depreciation and amortization
|
|
|
(157,212
|
)
|
|
|
(212,948
|
)
|
|
|
(238,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
124,072
|
|
|
$
|
66,602
|
|
|
$
|
41,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the unaudited six month periods ended March 31, 2010 and 2009 was $25,302 and $25,326,
respectively, and $12,651 and $12,658 for the unaudited three month periods ended March 31, 2010 and 2009, respectively. For the years ended September 30, 2009 and 2008, depreciation expense was $57,470 and $57,652, respectively.
4. Fair Value Measurements
In September 2006, the FASB issued new guidance on fair value measurements, ASC 820-10 (formerly referenced as Statement No. 157,
Fair Value
Measurements).
This guidance defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This statement was effective for financial statements issued for fiscal years beginning
after November 15, 2007. In February 2008, the FASB agreed to delay the effective date for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a
recurring basis, to fiscal years beginning after November 15, 2008. The Company adopted this standard on October 1, 2008 for financial assets and liabilities and other assets currently carried at fair value on a recurring basis. ASC 820-10
establishes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices in active markets for identical assets or
liabilities;
Level 2: Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices in active markets
for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of
the assets or liabilities; or
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the
fair value of the assets or liabilities.
The adoption of the effective portion of the standard had no impact on the Companys financial
statements and the Company does not anticipate that adoption of the deferred portion will have a material effect on its financial position and results of operations.
B-2-14
The following table represents the
fair value hierarchy for our financial assets and liabilities held by the Company measured at fair value on a recurring basis as of September 30, 2009 and March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash
|
|
$
|
452,065
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
452,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
452,065
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
452,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,808,209
|
|
|
$
|
1,808,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,808,209
|
|
|
$
|
1,808,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010 (unaudited)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash
|
|
$
|
227,817
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
227,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
227,817
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
227,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,960,051
|
|
|
$
|
1,960,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,960,051
|
|
|
$
|
1,960,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The activity related to level 3 liabilities for the year ended September 30, 2009 and the unaudited six month period
ended March 31, 2010 is summarized below:
|
|
|
|
|
|
|
Preferred stock
warrant liability
|
|
Carrying value as of September 30, 2008
|
|
$
|
1,636,266
|
|
Issuance of warrants
|
|
|
418,542
|
|
Change in fair value
|
|
|
(246,599
|
)
|
|
|
|
|
|
Carrying value as of September 30, 2009
|
|
$
|
1,808,209
|
|
Issuance of warrants (unaudited)
|
|
|
240,599
|
|
Change in fair value (unaudited)
|
|
|
(88,757
|
)
|
|
|
|
|
|
Carrying value as of March 31, 2010 (unaudited)
|
|
$
|
1,960,051
|
|
|
|
|
|
|
The warrants were valued using a Black-Scholes valuation method. See Note 6 for assumptions used in that valuation.
5. Accrued Liabilities
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
|
September 30,
2009
|
|
|
March 31, 2010
(unaudited)
|
|
Compensation accruals
|
|
$
|
229,394
|
|
|
$
|
181,215
|
|
|
$
|
160,247
|
|
Accrued commission
|
|
|
106,929
|
|
|
|
119,863
|
|
|
|
150,691
|
|
Current portion of deferred rent
|
|
|
17,091
|
|
|
|
27,719
|
|
|
|
23,341
|
|
Other accrued liabilities
|
|
|
44,800
|
|
|
|
25,598
|
|
|
|
26,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
398,215
|
|
|
$
|
354,395
|
|
|
$
|
360,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-2-15
6. Financing Arrangements
Loan and Security agreement
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
|
September 30,
2009
|
|
|
March 31, 2010
(unaudited)
|
|
Term Loan
|
|
$
|
293,548
|
|
|
$
|
|
|
|
$
|
|
|
Less debt discount
|
|
|
(35,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258,329
|
|
|
|
|
|
|
|
|
|
Less Current Portion
|
|
|
215,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term Portion
|
|
$
|
42,623
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2008, the Company had borrowings outstanding under a Loan and Security Agreement with a financial
institution in the amount of $293,548, which is reflected in the Companys Balance Sheet at its carrying value of $258,548, net of $35,219 in unamortized debt discount. The borrowings have a maturity date of December 1, 2009 and bear
interest at the financial institutions prime rate plus 2% (7% at September 30, 2008). The borrowings are collateralized by various assets of the Company. The Company paid off this loan in full during the year ended September 30, 2009
and wrote off the remaining unamortized debt discount at that time.
In connection with the February 2005 Loan and Security Agreement,
including amendments thereto dated May 2006 and January 2007, respectively, the Company granted warrants to the financial institution to purchase 34,246 shares of Series A redeemable convertible preferred stock (Series A) and 612,288 shares of
Series B redeemable convertible preferred stock (Series B) at $0.236 per share. The fair value of the warrants was estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used to value the warrants issued in
March of 2005 were as follows: dividend yield of zero; risk free interest rate of 3.38%; volatility of 55% and a term of seven years. The assumptions used to value the warrants issued in May of 2006 were as follows: dividend yield of zero; risk free
interest rate of 3.85%; volatility of 57% and a term of ten years. The assumptions used to value the warrants issued in January of 2007 were as follows: dividend yield of zero; risk free interest rate of 4.7%; volatility of 57% and a term of ten
years. The warrants estimated fair value of $103,554 was recorded as a discount, reducing the carrying value of the loan and was amortized over the repayment period of the loan. Accordingly, the Company recorded $35,219 and $34,145 in interest
expense during the years ended September 30, 2009 and 2008 in relation to these warrants. The warrants have not been exercised as of March 31, 2010.
Line of Credit
In May 2009, the Company entered into an amended revolving line of credit with the same financial institution that held the term loan. Under this line of credit the
Company can borrow up to 80% of qualified domestic accounts receivable and 70% of international accounts receivable up to $1,250,000. The line of credit matures in May 2010, bears interest at a prime rate plus 2.4% (6.4% at September 30, 2009)
and is collateralized primarily by the Accounts Receivable and by other various assets of the Company. In October 2009, the revolving line of credit was amended to allow maximum borrowings of $2,000,000 with an extended maturity date of October
2010. It bears interest at the prime rate plus 2.4% (6.4% at March 31, 2010) and is collateralized primarily by the Accounts Receivable and by other various assets of the Company.
As of March 31, 2010 (unaudited), $487,341 was outstanding under the Accounts Receivable line. At September 30, 2009, there were no amounts outstanding.
B-2-16
Convertible Notes
Payable
Convertible notes payable consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
|
September 30,
2009
|
|
|
March 31, 2010
(unaudited)
|
|
Promissory notes
|
|
$
|
1,405,000
|
|
|
$
|
2,805,000
|
|
|
$
|
3,585,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less discount due to issuance of warrants
|
|
|
(414,030
|
)
|
|
|
(832,572
|
)
|
|
|
(240,599
|
)
|
Less discount due to beneficial conversion feature
|
|
|
(414,030
|
)
|
|
|
(832,572
|
)
|
|
|
(240,599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate discount
|
|
|
(828,060
|
)
|
|
|
(1,665,144
|
)
|
|
|
(481,198
|
)
|
Amortization of debt discount
|
|
|
284,735
|
|
|
|
1,665,144
|
|
|
|
144,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining unamortized discount
|
|
|
(543,325
|
)
|
|
|
|
|
|
|
(336,505
|
)
|
Accrued interest
|
|
|
16,448
|
|
|
|
192,502
|
|
|
|
320,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Promissory notes, net of discounts
|
|
$
|
878,123
|
|
|
$
|
2,997,502
|
|
|
$
|
3,569,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From August 2006 to May 2007, the Company issued convertible promissory notes to investors in the aggregated amount of
$5,225,000 bearing interest at 8% per annum. In September 2007, the notes plus accrued interest totaling $5,479,225 were converted to Series B. In connection with the issuance of these promissory notes, the Company issued warrants to purchase
8,951,225 shares of Series B at $0.236 per share, with a seven year contractual life.
Between June 25, 2008 and May 11, 2009, the
Company raised $2,805,000 through the issuance of convertible promissory notes. During the unaudited six month period ended March 31, 2010, the Company raised an additional $779,000 through the issuance of convertible promissory notes. Under
the original terms of the promissory notes, the principal was due and payable in full on December 31, 2008. Subsequent to the issuance of the original promissory notes, the due date was extended to September 30, 2010. The promissory notes
accrue interest at 8%, due and payable at the maturity date.
Accrued interest amounted to $192,502 and $16,448 at September 30, 2009 and
2008, respectively and $320,586 (unaudited) as of March 31, 2010.
The promissory notes automatically convert into Series C preferred
stock (Series C) (at the price of the Series C) upon closing of a Series C financing, if the financing occurs prior to the maturity date and is greater than $3.5 million. If Series C financing does not occur, or if there is a buy-out, the promissory
notes plus accrued interest, at the option of the payee, shall be converted into Series B at $0.236 per share or into Series C at the stated price.
Along with the promissory notes, investors received warrants to purchase preferred stock. Each warrant shall be exercisable for a number of shares of preferred stock equal to 50% of the principal amount
of the note. The warrants are exercisable into Series C at the price established at the time of sale, so long as the Series C financing occurs before the maturity date and raises at least $3.5 million. If Series C financing never occurs, then at the
election of the note holder, the warrant may be exercised into Series B at $0.236 per share. Through September 30, 2009, the Company issued warrants to purchase 5,942,797 shares of Series C or Series B at $0.236 for a total amount of
$1,402,500. Through March 31, 2010 (unaudited) the Company issued additional warrants to purchase 1,650,422 shares of Series C or Series B at $0.236 for a total amount of $389,500. These warrants carry a contractual life of seven years before
expiration.
B-2-17
As of March 31, 2010
(unaudited), none of the warrants have been exercised
As noted above, in connection with the promissory notes issued between June 25,
2008 and May 11, 2009, the Company issued warrants to purchase 2,966,102 and 2,976,695 shares of preferred stock during the years ending September 30, 2009 and 2008, respectively. During the unaudited three and six months ended
March 31, 2010, the Company issued warrants to purchase 1,332,627 and 1,650,422 shares of Preferred stock, respectively.
The Company
determined the fair value of the warrants at issuance to be $418,542, $414,030, $193,941, and $240,599 during the years ended September 30, 2009 and 2008, and unaudited three and six months ended March 31, 2010, respectively, using the
Black-Scholes valuation model with the following assumptions:
|
|
|
|
|
|
|
|
|
The year ended
|
|
The six months ended
|
Warrants issued during:
|
|
September 30,
2008
|
|
September 30,
2009
|
|
March 31, 2010
(unaudited)
|
Risk free interest rate
|
|
3.32%-3.78%
|
|
2.28%-3.48%
|
|
3.28%
|
Dividend yield
|
|
0%
|
|
0%
|
|
0%
|
Expected volatility
|
|
55%
|
|
58%
|
|
58%
|
Contractual life
|
|
7 years
|
|
7 years
|
|
7 years
|
The Company classified these
warrants as liabilities in accordance with ASC 480-10 and ASC 480-10-25, therefore the fair value of the warrants were recorded as a reduction to the carrying value of the loan, as a debt discount.
In accordance with ASC 470-20 (formerly referenced as EITF 98-5,
Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios),
the Company also recorded a beneficial conversion feature related to the convertible notes. During the unaudited six month periods ending March 31, 2010 and 2009, the Company recorded beneficial
conversion charges totaling $240,599 and $341,657, respectively, and $193,041 and $46,618 for the unaudited three month periods ending March 31, 2010 and 2009, respectively, as an additional reduction to the carrying value of the loans, as a
debt discount. During the years ending September 30, 2009 and 2008, the Company recorded beneficial conversion charges totaling $418,542 and $414,030 as an additional reduction to the carrying value of the loans, as a debt discount.
The debt discount attributable to the issuance of the warrants, and the beneficial conversion feature, are amortized over the contractual term of the
debt, resulting in additional interest expense totaling $1,380,409 and $284,735 during the years ending September 30, 2009 and 2008, respectively, and an additional interest expense totaling $144,693 during the unaudited six months ended
March 31, 2010. Interest expense attributable to amortization of the debt discount for the unaudited three months ended March 31, 2010 and 2009 was $138,056 and $45,544, respectively.
Warrants
At September 30, 2008 and 2009, and March 31, 2010 (unaudited) the Company revalued the outstanding
warrants recorded as liabilities using the following assumptions:
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
September 30,
2009
|
|
March 31, 2010
(unaudited)
|
Warrants outstanding
|
|
12,574,484
|
|
15,540,586
|
|
17,191,008
|
Risk free interest rate
|
|
2.98%-3.38%
|
|
1.88%-2.62%
|
|
1.60%-3.28%
|
Dividend yield
|
|
0%
|
|
0%
|
|
0%
|
Expected volatility
|
|
56-70%
|
|
57-58%
|
|
56-59%
|
Remaining contractual life
|
|
5-7 years
|
|
4-6 years
|
|
4-6 years
|
B-2-18
The change in value was recognized
as a reduction to interest expense totaling $246,599 and $197,462 for years ending September 30, 2009 and 2008, $88,757 and $53,301 for the unaudited six months ended March 31, 2010 and 2009, respectively, and $97,610 and $17,771 for the
unaudited three month periods ended March 31, 2010 and 2009, respectively.
7. Commitments and Contingencies
The Company leases two facilities in the United States: in Redwood City, California and Bellevue, Washington. These facilities are leased under
non-cancelable operating leases which expire in August 2010 and July 2011, respectively. The leases do not require the Company to pay operating costs, including property taxes, normal maintenance, and insurance.
Future minimum lease obligations under these operating leases at September 30, 2009, are as follow:
|
|
|
|
|
Years ended September 30
|
|
Amount
|
|
2010
|
|
$
|
302,000
|
|
2011
|
|
|
102,000
|
|
|
|
|
|
|
Total Minimum Lease Payments
|
|
$
|
404,000
|
|
|
|
|
|
|
Rent expense under operating lease arrangements for the unaudited six month periods ended March 31, 2010 and 2009, was
$145,405 and $90,286 respectively, and $74,043 and $72,381 for the unaudited three month periods ended March 31, 2010 and 2009, respectively. For the years ended September 30, 2009 and 2008, the rent expense was $290,933 and $180,571,
respectively. A future obligation to pay bonuses and deferred compensation exists upon a qualified transaction involving the sale of the Company. The liabilities are $245,000 for fiscal 2007 management bonuses, $315,000 for fiscal 2008 management
bonuses, and $97,000 for fiscal 2009 deferred employee compensation.
The Company is party to various legal proceedings in the ordinary course
of business which, in the opinion of management, will not have a material adverse impact on its financial position or results of operations.
8. Stockholders Deficit, Redeemable Convertible Preferred Stock and Share-Based Payments
Under the Amended and Restated Articles of Incorporation (Amended Articles) dated September 14, 2007, the Company is authorized to issue 156,925,831
shares of capital stock, comprising 90,000,000 shares of common stock and 66,925,831 shares of redeemable convertible preferred stock. All classes of the Companys stock have a par value of $0.001 per share.
Redeemable Convertible Preferred Stock
The authorized, issued, and outstanding shares of redeemable convertible preferred stock (Preferred Stock) are as follows as of September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Authorized
|
|
|
Shares
Issued
|
|
|
Liquidation
Preference
|
|
|
Gross
proceeds
|
|
Series A Senior
|
|
|
11,642,717
|
|
|
|
11,415,548
|
|
|
$
|
5,000,010
|
|
|
$
|
5,000,010
|
|
Series A Junior
|
|
|
2,283,114
|
|
|
|
2,283,096
|
|
|
|
999,996
|
|
|
|
999,996
|
|
Series B
|
|
|
53,000,000
|
|
|
|
43,436,457
|
|
|
|
10,251,004
|
|
|
|
10,251,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,925,831
|
|
|
|
57,135,101
|
|
|
$
|
16,251,010
|
|
|
$
|
16,251,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-2-19
The authorized, issued, and
outstanding shares of redeemable convertible preferred stock (Preferred Stock) are as follows at March 31, 2010 (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Authorized
|
|
|
Shares
Issued
|
|
|
Liquidation
Preference
|
|
|
Gross
proceeds
|
|
Series A Senior
|
|
|
11,642,717
|
|
|
|
11,415,548
|
|
|
$
|
5,000,010
|
|
|
$
|
5,000,010
|
|
Series A Junior
|
|
|
2,283,114
|
|
|
|
2,283,096
|
|
|
|
999,996
|
|
|
|
999,996
|
|
Series B
|
|
|
53,000,000
|
|
|
|
43,436,457
|
|
|
|
10,251,004
|
|
|
|
10,251,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,925,831
|
|
|
|
57,135,101
|
|
|
$
|
16,251,010
|
|
|
$
|
16,251,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company issued Series A in 2005 for $0.438 per share for gross proceeds of $6,000,006.
In 2007, the Company issued 33,810,271 shares of the Companys Series B for $0.236 per share upon conversion of notes payable and related interest
totaling $5,479,225 and cash proceeds of $2,500,000.
During the year ended September 30, 2008, the Company issued 9,626,186 shares of
the Companys Series B for $0.236 per share for gross proceeds of $2,271,779. From October 1, 2008 to March 31, 2010 the Company issued no new Preferred Stock.
The holders of Preferred Stock have various rights and preferences as follows:
Dividends
The holders of shares of Preferred Stock are entitled to receive dividends at the rate of 8% per annum of Preferred Stock price per share on each outstanding share of Preferred Stock (as adjusted for any stock dividends,
combinations, or splits with respect to such shares). Dividends are payable in preference and priority to any payment of any dividend on common stock of the Company. Such dividends are payable only when, as, and if declared by the Board of
Directors, but only out of funds that are legally available, and are non-cumulative. No dividends have been declared through March 31, 2010.
Conversion
Each share of Series A is convertible, at the option of the holder, into a number of fully paid and non-assessable shares of common stock determined by dividing $0.438 by the
Series A conversion price in effect on the date the certificate is surrendered for conversion.
Each share of Series B is convertible at the
option of the holder, into a number of fully paid and non-assessable shares of common stock determined by dividing $0.236 by the Series B conversion price in effect on the date the certificate is surrendered for conversion.
The conversion rate is subject to adjustment from time to time for the effect of a stock split, stock dividend, or other similar distribution.
Additionally, conversion is automatic upon the closing of a qualified public offering of common stock, with gross proceeds of at least $3.5 million in the aggregate or at the election of holders of at least 60% of the outstanding shares of Preferred
Stock, voting together.
B-2-20
Liquidation Preference
In the event of any liquidation, sale, dissolution, or winding up of the Company, whether voluntary or involuntary, the holders of Series A are entitled to receive, prior, and in preference, to any distribution of the assets of the
Company to the holders of common stock, by reason of their ownership:
|
|
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an amount equal to two times $0.438 for each share of Series A, plus any declared but unpaid dividends with respect to such shares
|
|
|
|
the holders of Series B are entitled to receive, prior and in preference to any distribution of the assets of the Company to the holders of common
stock, by reason of their ownership, an amount equal to $0.236 for each share of Series B, plus any declared by unpaid dividends with respect to such shares
|
After payment has been made to the holders of Preferred Stock of the full amounts to which they are entitled, the holders of Series B and Common Stock shall be entitled to receive the remaining assets of
the Company, pro rata, based on the number of shares of Common Stock held by each holder on an as-converted basis. However, the aggregate distributions made with respect to per share of Series B shall not exceed an amount equal to three times the
Series B price per share plus any declared but unpaid dividends.
Redemption Rights
To the extent that any shares of Preferred
Stock have not been converted into common stock prior to March 11, 2010, the Company shall, upon receiving at any time after March 11, 2010 a written request for the redemption of any holder or holders of then outstanding preferred shares,
redeem that number of preferred shares specified for redemption. The redemption price of such requests shall be an amount equal to the greater of the original issue price plus declared, but unpaid dividends, or the fair market value as determined by
independent appraisal. No redemption request has been made through March 31, 2010.
Voting
The holders of Preferred Stock
are entitled to the number of votes equal to the number of shares of Common Stock into which each share of Preferred Stock is convertible.
Share-Based Payments
In May 2005, the Companys Board of Directors approved
the adoption of a stock option plan (the Option Plan). As amended, the Option Plan permits the Company to grant options to purchase up to 13,732,913 shares of common stock. The 2005 Plan provides for the granting of incentive and non-statutory stock
options to employees, nonemployee directors and consultants of the Company. Option awards are generally granted with an exercise price equal to its fair value, which is based on the value of the Company on the date of issuance, as determined by the
Board of Directors. The term of the options granted under the 2005 Plan is generally 10 years, with a typical vesting requirement of 25% after one year of service and monthly thereafter, with options becoming fully vested upon completion of the
fourth year of service. At the discretion of the Companys Board of Directors, certain options may be exercisable immediately in the event of a change in control or terminated within one year of a change of control. All options are exercisable
only to the extent vested.
B-2-21
A summary of the Companys
stock option activity under the Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options available
for Grant
|
|
|
Number of
Options
|
|
|
Weighted-Average
Exercise Price per Share
|
|
Outstanding at September 30, 2007
|
|
|
7,405,631
|
|
|
|
5,407,546
|
|
|
$
|
0.10
|
|
Granted
|
|
|
(5,812,018
|
)
|
|
|
5,812,018
|
|
|
$
|
0.07
|
|
Exercised
|
|
|
|
|
|
|
(30,687
|
)
|
|
$
|
0.10
|
|
Canceled/forfeited
|
|
|
480,269
|
|
|
|
(562,447
|
)
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2008
|
|
|
2,073,882
|
|
|
|
10,626,430
|
|
|
$
|
0.08
|
|
Granted
|
|
|
(2,499,712
|
)
|
|
|
2,499,712
|
|
|
$
|
0.07
|
|
Exercised
|
|
|
|
|
|
|
(412,355
|
)
|
|
$
|
0.09
|
|
Canceled/forfeited
|
|
|
514,752
|
|
|
|
(514,752
|
)
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009
|
|
|
88,922
|
|
|
|
12,199,035
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled/forfeited
|
|
|
776,142
|
|
|
|
(776,142
|
)
|
|
$
|
0.07
|
|
Outstanding at March 31, 2010
(unaudited)
|
|
|
865,064
|
|
|
|
11,422,893
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2009
|
|
|
6,897,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2010
(unaudited)
|
|
|
7,351,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average fair value of options granted to employees during the years ended September 30, 2009 and
2008 was $0.05 and $0.04, respectively. There was approximately $66,000 and $40,000 of stock-based compensation expense for the year ended September 30, 2009 and 2008, respectively. Stock based compensation expense for the unaudited six month
periods ended March 31, 2010 and 2009 was $30,000 and $15,000, respectively, and $10,000 and $5,000 for the unaudited three month periods ended March 31, 2010 and 2009, respectively. As of September 30, 2009 and March 31, 2010
(unaudited), there was approximately $286,000 and $256,000 respectively, of total unrecognized compensation costs related to non-vested stock options. The cost is expected to be recognized over a weighted average period of 2.3 years.
At September 30, 2009, the aggregated intrinsic value of currently exercisable and vested options was zero. The total intrinsic value of options
exercised during the years ended September 30, 2009 and 2008 was zero. There were no options exercised during the unaudited six months ended March 31, 2010.
Stock options outstanding at September 30, 2009 consist of:
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Exercise Price
|
|
Number
Outstanding
|
|
|
Weighted Average
Remaining
Contractual Life
|
|
$ 0.07
|
|
|
7,703,177
|
|
|
|
8.76
|
|
0.10
|
|
|
4,495,858
|
|
|
|
6.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,199,035
|
|
|
|
7.95
|
|
|
|
|
|
|
|
|
|
|
B-2-22
Stock options outstanding at
March 31, 2010 consist of:
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding (unaudited)
|
|
Exercise Price
|
|
Number
Outstanding
|
|
|
Weighted Average
Remaining
Contractual Life
|
|
$ 0.07
|
|
|
6,927,035
|
|
|
|
8.26
|
|
0.10
|
|
|
4,495,858
|
|
|
|
6.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,422,893
|
|
|
|
7.45
|
|
|
|
|
|
|
|
|
|
|
The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards. All options are
amortized ratably over the requisite service periods of the awards, which are generally the vesting periods.
The fair value for options
granted was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
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|
|
|
|
Year
Ended
September 30,
|
|
|
2009
|
|
2008
|
Risk free interest rate
|
|
2.68%-2.89%
|
|
2.93%-3.66%
|
Dividend yield
|
|
0%
|
|
0%
|
Expected volatility
|
|
58%
|
|
61%
|
Expected life of the options
|
|
6.25
|
|
6.25
|
No options were issued during the
unaudited six month period ended March 31, 2010.
Expected Life
The expected term of options granted represents the period
of time that options granted are expected to be outstanding and was determined by calculating the midpoint between the date of full vesting and the contractual life. The Company has estimated the expected term using the simplified method provided in
SEC Staff Accounting Bulletin No. 107.
Expected Volatility
Volatility is based on the average historical volatility of a
peer group of six public companies over the past five to seven years of trading, which was selected on the basis of operational and economic similarities with the principal business operations of the Company.
Risk-Free Interest rate
The risk-free interest rate is derived from the United States Treasury yield curve in effect at the date of
the grant based on the expected life of the options.
Dividend Yield
The Company does not currently anticipate paying any cash
dividends on its common stock. Consequently, the Company used an expected dividend yield of zero in the Black-Scholes option pricing model.
Forfeitures
ASC 718 requires the Company to estimate forfeitures at the time of the grant and revise those estimates in subsequent periods
if actual forfeitures differ from those estimates. To determine an expected forfeiture rate, the Company examined the historical employee turnover rate for the past five years.
B-2-23
9. Income Taxes
As discussed in Note 1, the Company adopted provisions of ASC 740 as of October 1, 2009. There was no impact from this standard. The Company recorded
income tax provisions relating to minimum state taxes of $800 and $800 for the years ended September 30, 2009 and 2008. The Companys effective tax rate differed from the statutory rate for the years ended September 30, 2009 and 2008
due primarily to the valuation allowance established on the net operating losses.
The components of deferred tax assets and liabilities
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
|
September 30,
2009
|
|
|
March 31,
2010 (unaudited)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
2,525
|
|
|
|
2,581
|
|
|
|
2,611
|
|
Accumulated depreciation and amortization
|
|
|
(11,577
|
)
|
|
|
(5,473
|
)
|
|
|
(2,700
|
)
|
Net operating loss carry forwards
|
|
|
6,343,875
|
|
|
|
7,224,533
|
|
|
|
7,700,000
|
|
Tax credits, other
|
|
|
338,496
|
|
|
|
420,190
|
|
|
|
480,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
6,799,574
|
|
|
$
|
7,796,779
|
|
|
$
|
8,349,011
|
|
Valuation allowance
|
|
|
6,799,574
|
|
|
|
7,796,779
|
|
|
|
8,349,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realization of deferred tax assets is dependent upon future earnings, if any, and the timing and amount of which are
uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance was increased by $1,010,388 and $689,184 during 2009 and 2008 and by $553,132 in the first six months of fiscal 2010.
As of September 30, 2009, the Company had federal net operating loss carry forwards of approximately $21,079,000. As of March 31,
2010 (unaudited) the Company had net operating loss carry forwards of approximately $22,641,000. The net operating loss carry forwards begin to expire in 2025, if not utilized. As of September 30, 2009 and March 31, 2010 (unaudited) the
Company had federal research and development tax credits of approximately $420,000 and $480,000, respectively, which start to expire in the year 2025.
Utilization of the Companys net operating losses and credits may be subject to a substantial annual limitation due to the change in ownership provisions of the Internal Revenue Code of
1986, as amended and similar state provisions. The annual limitation may result in the expiration of net operating loss and tax credit carry forwards before utilization.
10. Benefit Plan
401(k) plan
The Company sponsors a 401(k) defined
contribution plan covering eligible employees who elect to participate. The Company is allowed to make discretionary 401(k) matching contributions as defined in the plan and as approved by the Board of Directors.
B-2-24
11. Subsequent Events
Annual financial statements
Subsequent events were evaluated through May 29, 2010 which is the date the annual
financial statements financial statements were available to be issued.
In the months of December 2009 and February 2010 (unaudited), the
Company obtained debt financing in the aggregate principal amount of $420,000. This debt must be repaid in an amount of three (3) times the principal amount upon an acquisition of the Company, and is convertible into Series C Preferred Stock in
the event the Company closes a Series C financing of not less than $4,500,000 on or before June 18, 2010. In the unaudited months of March and April of 2010, the Company increased the total principal amount authorized for issuance by $1,860,000
for a total principal amount available under the financing of $2,280,000. Promissory notes in the aggregate principal amount of $1,443,399 were issued subsequent to the initial $420,000 of debt. These promissory notes also pay no dividends and are
convertible into Series C Preferred Stock in the event the Company closes a Series C financing of not less than $4,500,000 on or before June 18, 2010, and are to be repaid in an amount of one (1) times the principal amount plus accrued but
unpaid interest upon an acquisition of the Company. All notes issued under this Bridge financing carry an annual interest rate of 8% (which is due and payable upon maturity of the promissory notes) and warrant coverage of fifty percent (50%). As of
May 29, 2010 (unaudited) the Company had borrowed an aggregate principal amount of $1,863,399.
On April 6, 2010, the Companys
Board of Directors authorized the Companys Chief Executive Officer to execute and deliver a Term Sheet Proposal For Tax-Deferred Merger received from a third party and to conduct negotiations with such third party regarding definitive
agreements for the sale of the Company. The sale is subject to the completion of customary closing conditions including completion of due diligence.
Interim financial statements
Additional unaudited subsequent events have been evaluated through July 20, 2010 which is the date the unaudited interim financial statements were available
to be issued.
In June 2010, the Companys Board of Directors authorized the Company to work with promissory note holders to amend the
above agreements such that they are convertible into Series C Preferred Stock in the event the Company closes a Series C financing of not less than $4,500,000 on or before September 30, 2010 (previously June 18, 2010). All other terms
remain unchanged.
On June 24, 2010 the Company announced that a definitive merger agreement had been reached with an SEC public
registrant. The definitive merger agreement has been approved by the Boards of Directors of both companies and by the shareholders of UBmatrix. Closing of this agreement is contingent on certain shareholder approvals of the registrant as well as
other customary closing conditions. If the agreement is approved by shareholders, it is anticipated that the merger will be consummated in the third calendar quarter of 2010.
B-2-25
Annex C
AMENDMENT #3
TO
2005 STOCK AWARD AND INCENTIVE PLAN
WHEREAS
, EDGAR Online, Inc. (the Company), maintains the 2005 Stock Award and Incentive Plan (the Plan) in
order to aid the Company in attracting, retaining, motivating and rewarding employees and non-employee directors of the Company or its Subsidiaries or Affiliates (both as defined in the Plan), to provide for equitable and competitive compensation
opportunities, to recognize individual contributions and reward achievement of Company goals, and promote the creation of long-term value for stockholders by closely aligning the interests of Participants (as defined in the Plan) with those of
stockholders;
WHEREAS
, the Board of Directors and the stockholders of the Company have approved amendments to the Plan
(Amendment #3) (i) to increase the maximum number of shares of the Companys Common Stock, par value $0.01 per share (the Common Stock), that may be issued under the Plan by five million nine hundred fifty-five thousand
one hundred and nine (5,955,109) shares of Common Stock and (ii) to increase from three hundred thousand (300,000) to one million (1,000,000) the limitation on the amount of awards that may be granted to any one participant in a given year in order
to qualify awards as performance based compensation not subject to the limitations on deductibility under Section 162(m) of the Internal Revenue Code.
NOW THEREFORE
,
in accordance with the foregoing, the Plan shall be amended as follows:
1. Effective as of the date hereof, Section 4(a) of the Plan is hereby amended, in its entirety, to read as follows:
(a)
Overall Number of Shares Available for Delivery
. The total number of shares of Stock reserved and
available for delivery in connection with Awards under the Plan shall be (i) nine million forty-two thousand six hundred and nine (9,042,609) shares, plus (ii) the number of shares that, immediately prior to the Effective Date, remain available for
new awards under the Preexisting Plans plus (iii) the number of shares subject to awards under the Plan or Preexisting Plans which become available in accordance with Section 4(b) after the Effective Date; provided, however, that the total number of
shares with respect to which ISOs may be granted shall not exceed the number specified under clause (i) above. The total number of shares available is subject to adjustment as provided in Section 11(c). Any shares of Stock delivered under the Plan
shall consist of authorized and unissued shares or treasury shares.
2. Effective as of the date hereof,
Section 5(b) of the Plan is hereby amended, in its entirety, to read as follows:
(b)
Per-Person
Award Limitations
. In each calendar year during any part of which the Plan is in effect, an Eligible Person may be granted Awards intended to qualify as performance-based compensation under Code Section 162(m) up to his or her
Annual Limit. A Participants Annual Limit, in any year during any part of which the Participant is then eligible under the Plan, in the case of Options, SARs, Restricted Stock, Restricted Stock Units, bonus Stock or other Stock-based Awards,
shall equal 1,000,000 shares plus the amount of the Participants unused Annual Limit relating to Stock-denominated Awards as of the close of the previous year, subject to adjustment as provided in Section 11(c). In the case of an Award which
is not valued in a way in which the limitation set forth in the preceding sentence would operate as an effective limitation satisfying applicable law (including Treasury Regulation 1.162-27(e)(4)), an Eligible Person may not be granted Awards
authorizing the earning during any calendar year of an amount that exceeds the Eligible Persons Annual Limit, which for this purpose shall equal $1,000,000 plus the amount of the Eligible Persons unused cash Annual Limit as of the close
of the previous year (this limitation is separate and not affected by the number of Awards granted during such calendar year subject to the limitation in the preceding sentence). For this
C-1
purpose, (i) earning means satisfying performance conditions so that an amount becomes payable, without regard to whether it is to be paid currently or on a deferred basis or
continues to be subject to any service requirement or other non-performance condition, and (ii) a Participants Annual Limit is used to the extent an amount or number of shares may be potentially earned or paid under an Award, regardless of
whether such amount or shares are in fact earned or paid.
3. In all respects not amended by Amendment
#3, the Plan is hereby ratified and confirmed.
[Signature page follows]
C-2
IN WITNESS
WHEREOF
, and as evidence of the adoption of the amendment set forth herein, the appropriate officer of the Company has executed this Amendment #3, effective as of
, 2010.
|
|
|
EDGAR ONLINE, INC.
|
|
|
By:
|
|
|
|
|
David L. Price
|
|
|
Chief Financial Officer
|
C-3
Annex D
EDGAR ONLINE, INC.
2005 STOCK AWARD AND INCENTIVE PLAN
EDGAR ONLINE, INC.
2005 STOCK AWARD AND INCENTIVE PLAN
EDGAR ONLINE, INC.
2005 STOCK AWARD AND INCENTIVE PLAN
1.
Purpose
. The purpose of this 2005 Stock Award and Incentive Plan (the Plan) is to aid EDGAR Online, Inc., a Delaware corporation (together with its
successors and assigns, the Company), in attracting, retaining, motivating and rewarding employees and non-employee directors of the Company or its Subsidiaries or Affiliates, to provide for equitable and competitive compensation
opportunities, to recognize individual contributions and reward achievement of Company goals, and promote the creation of long-term value for stockholders by closely aligning the interests of Participants with those of stockholders. The Plan
authorizes stock-based and cash-based incentives for Participants.
2.
Definitions
. In
addition to the terms defined in Section 1 above and elsewhere in the Plan, the following capitalized terms used in the Plan have the respective meanings set forth in this Section:
(a) Affiliate shall mean any entity that directly or indirectly controls, or is under common control with, the
Company or any entity, including an entity which acquires such an interest in the future, which has a significant equity interest in the Company or any Subsidiary or is a partner or joint venture with the Company or an Subsidiary or a joint venture
in which the Company or a Subsidiary has a substantial direct or indirect equity investment, as determined by the Committee, in its sole discretion.
(b) Annual Incentive Award means a type of Performance Award granted to a Participant under Section 7(c) representing a conditional right to receive cash, Stock or other Awards or
payments, as determined by the Committee, based on performance in a performance period of one fiscal year or a portion thereof.
(c) Annual Limit shall have the meaning specified in Section 5(b).
(d) Award means any Option, SAR, Restricted Stock, Restricted Stock Unit, Stock granted as a bonus or in lieu of another award, Dividend Equivalent, Other Stock-Based Award, Performance Award
or Annual Incentive Award, together with any related right or interest, granted to a Participant under the Plan.
(e) Beneficiary means the legal representatives of the Participants estate entitled by will or the laws
of descent and distribution to receive the benefits under a Participants Award upon a Participants death, provided that, if and to the extent authorized by the Committee, a Participant may be permitted to designate a Beneficiary, in
which case the Beneficiary instead will be the person, persons, trust or trusts (if any are then surviving) which have been designated by the Participant in his or her most recent written and duly filed beneficiary designation to receive
the benefits specified under the Participants Award upon such Participants death. Unless otherwise determined by the Committee, any designation of a Beneficiary other than a Participants spouse shall be subject to the written
consent of such spouse.
(f) Board means the Companys Board of Directors.
(g) Cause shall have the meaning defined in any employment agreement or severance agreement between the
Participant and the Company or a Subsidiary or Affiliate then in effect or, if no such agreement is then in effect or no definition of Cause is contained therein, Cause shall mean (i) the Participants willful and
continued failure substantially to perform the duties of his or her position after notice and opportunity to cure; (ii) any willful act or omission by the Participant constituting dishonesty, fraud or other malfeasance, which in any such case
is demonstrably injurious to the financial condition or business reputation of the Company or any of its Subsidiaries or Affiliates; (iii) an act that constitutes misconduct resulting in a restatement of the Companys financial statements
due to material non-compliance with any financial reporting requirement within the meaning of Section 304 of The Sarbanes-Oxley Act of 2002; or (iv) a felony conviction in a court of law under the laws of the United States or any state
thereof or any other jurisdiction in which the Company or a Subsidiary or Affiliate conducts business which materially impairs the value of the Participants service to the Company or any of its Subsidiaries or Affiliates; provided, however,
that for purposes of this definition, no act or failure to act shall be deemed willful unless effected by the Participant not in good faith and without a reasonable belief that such action or failure to act
D-1
was in or not opposed to the Companys best interests, and no act or failure to act shall be deemed willful if it results from any incapacity of the Participant due to physical
or mental illness.
(h) Change in Control and related terms have the meanings specified in
Section 9.
(i) Code means the Internal Revenue Code of 1986, as amended. References to any
provision of the Code or regulation thereunder shall include any successor provisions and regulations, and reference to regulations includes any applicable guidance or pronouncement of the Department of the Treasury and Internal Revenue Service.
(j) Committee means the Compensation Committee of the Board, the composition and governance of
which is established in the Committees Charter as approved from time to time by the Board and subject to Securities and Exchange Commission listing requirements, and other corporate governance documents of the Company. No action of the
Committee shall be void or deemed to be without authority due to the failure of any member, at the time the action was taken, to meet any qualification standard set forth in the Committee Charter or this Plan. The full Board may perform any function
of the Committee hereunder except to the extent limited under SEC regulations , in which case the term Committee shall refer to the Board.
(k) Covered Employee means an Eligible Person who is a Covered Employee as specified in Section 11(j).
(j) Dividend Equivalent means a right, granted under this Plan, to receive cash, Stock, other Awards or other
property equal in value to all or a specified portion of the dividends paid with respect to a specified number of shares of Stock.
(m) Effective Date means the effective date specified in Section 11(q).
(n) Eligible Person has the meaning specified in Section 5.
(o) Exchange Act means the Securities Exchange Act of 1934, as amended. References to any provision of the Exchange Act or rule (including a proposed rule) thereunder shall include any
successor provisions and rules.
(p) Fair Market Value means the fair market value of Stock, Awards
or other property as determined in good faith by the Committee or under procedures established by the Committee. Unless otherwise determined by the Committee, the Fair Market Value of Stock shall be the closing sale price per share of Stock reported
on a consolidated basis for securities listed on the principal stock exchange or market on which Stock is traded on the day as of which such value is being determined or, if there is no sale on that day, then on the last previous day on which a sale
was reported. Fair Market Value relating to the exercise price or base price of any Non-409A Option or SAR shall conform to requirements under Code Section 409A.
(q) 409A Awards means Awards that constitute a deferral of compensation under Code Section 409A and
regulations thereunder. Non-409A Awards means Awards other than 409A Awards. Although the Committee retains authority under the Plan to grant Options, SARs and Restricted Stock on terms that will qualify those Awards as 409A Awards,
Options, SARs exercisable for Stock, and Restricted Stock are intended to be Non-409A Awards unless otherwise expressly specified by the Committee.
(r) Incentive Stock Option or ISO means any Option designated as an incentive stock option within the meaning of Code Section 422 and qualifying thereunder.
(s) Option means a right, granted under this Plan, to purchase Stock.
(t) Other Stock-Based Awards means Awards granted to a Participant under Section 6(h).
(u) Participant means a person who has been granted an Award under the Plan which remains outstanding,
including a person who is no longer an Eligible Person.
(v) Performance Award means a conditional
right, granted to a Participant under Sections 6(i) and 7, to receive cash, Stock or other Awards or payments.
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(w)
Preexisting Plans means each of the following Company plans: 1996 Stock Option Plan, FreeEDGAR Stock Option Plan, 1999 Stock Option Plan, and 1999 Outside Directors Stock Option Plan.
(x) Restricted Stock means Stock granted under this Plan which is subject to certain restrictions and to a
risk of forfeiture.
(y) Restricted Stock Unit or RSU means a right, granted under this
Plan, to receive Stock or other Awards or a combination thereof at the end of a specified deferral period.
(z)
Rule 16b-3 means Rule 16b-3, as from time to time in effect and applicable to Participants, promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act.
(aa) Stock means the Companys Common Stock, par value $.01 per share, and any other equity securities of
the Company that may be substituted or resubstituted for Stock pursuant to Section 11(c).
(bb)
Stock Appreciation Rights or SAR means a right granted to a Participant under Section 6(c).
(cc) Subsidiary shall mean any entity that is directly or indirectly controlled by the Company or any entity, including an acquired entity, in which the Company has a significant equity
interest, as determined by the Committee, in its sole discretion.
(dd) 10% Owner means an
individual who owns (or is treated a owning) stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or any parent or subsidiary, as such terms are defined in Sections 424(e) and (f) of
the Code.
3.
Administration.
(a)
Authority of the Committee
. The Plan shall be administered by the Committee, which shall have full and
final authority, in each case subject to and consistent with the provisions of the Plan, to select Eligible Persons to become Participants; to grant Awards; to determine the type and number of Awards, the dates on which Awards may be exercised and
on which the risk of forfeiture or deferral period relating to Awards shall lapse or terminate, the acceleration of any such dates, the expiration date of any Award, whether, to what extent, and under what circumstances an Award may be settled, or
the exercise price of an Award may be paid, in cash, Stock, other Awards, or other property, and other terms and conditions of, and all other matters relating to, Awards; to prescribe documents evidencing or setting terms of Awards (such Award
documents need not be identical for each Participant), amendments thereto, and rules and regulations for the administration of the Plan and amendments thereto; to construe and interpret the Plan and Award documents and correct defects, supply
omissions or reconcile inconsistencies therein; and to make all other decisions and determinations as the Committee may deem necessary or advisable for the administration of the Plan. Decisions of the Committee with respect to the administration and
interpretation of the Plan shall be final, conclusive, and binding upon all persons interested in the Plan, including Participants, Beneficiaries, transferees under Section 11(b) and other persons claiming rights from or through a Participant,
and stockholders.
(b)
Manner of Exercise of Committee Authority
. The express grant of any
specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. The Committee may act through subcommittees, including for purposes of perfecting exemptions
under Rule 16b-3 or qualifying Awards under Code Section 162(m) as performance-based compensation, in which case the subcommittee shall be subject to and have authority under the charter applicable to the Committee, and the acts of the
subcommittee shall be deemed to be acts of the Committee hereunder. The Committee may delegate to officers or managers of the Company or any Subsidiary or Affiliate, or committees thereof, the authority, subject to such terms as the Committee shall
determine, to perform such functions, including administrative functions, as the Committee may determine, to the extent (i) that such delegation will not result in the loss of an exemption under Rule 16b-3(d) for Awards granted to Participants
subject to Section 16 of the Exchange Act in respect of the Company and will not cause Awards intended to qualify as performance-based compensation under Code Section 162(m) to fail to so qualify, and (ii) permitted under
Section 157 and other applicable provisions of the Delaware General Corporation Law.
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(c)
Limitation of Liability
.
The Committee and each member thereof, and any person acting pursuant to authority delegated by the Committee, shall be entitled, in good faith, to rely or act upon any report or other information
furnished by any executive officer, other officer or employee of the Company or a Subsidiary or Affiliate, the Companys independent auditors, consultants or any other agents assisting in the administration of the Plan. Members of the
Committee, any person acting pursuant to authority delegated by the Committee, and any officer or employee of the Company or a Subsidiary or Affiliate acting at the direction or on behalf of the Committee or a delegee shall not be personally liable
for any action or determination taken or made in good faith with respect to the Plan, and shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action or determination.
4.
Stock Subject To Plan.
(a)
Overall Number of Shares Available for Delivery
. The total number of shares of Stock reserved and
available for delivery in connection with Awards under the Plan shall be (i) 1,087,500 million shares, plus (ii) the number of shares that, immediately prior to the Effective Date, remain available for new awards under the Preexisting
Plans plus (iii) the number of shares subject to awards under the Plan or Preexisting Plans which become available in accordance with Section 4(b) after the Effective Date; provided, however, that the total number of shares with respect to
which ISOs may be granted shall not exceed the number specified under clause (i) above. The total number of shares available is subject to adjustment as provided in Section 11(c). Any shares of Stock delivered under the Plan shall consist
of authorized and unissued shares or treasury shares.
(b)
Share Counting Rules
. The Committee
may adopt reasonable counting procedures to ensure appropriate counting, avoid double counting (as, for example, in the case of tandem or substitute awards) and make adjustments in accordance with this Section 4(b). For purposes of the Plan,
shares shall be counted against those reserved to the extent such shares have been delivered and are no longer subject to a risk of forfeiture. Accordingly, (i) to the extent that an award under the Plan or a Preexisting Plan is canceled,
expired, forfeited, settled in cash, settled by issuance of fewer shares than the number underlying the award, or otherwise terminated without delivery of shares to the Participant, the shares retained by or returned to the Company will be available
under the Plan; and (ii) shares that are withheld from such an award or separately surrendered by the Participant in payment of the exercise price or taxes relating to such an award shall be deemed to constitute shares not delivered to the
Participant and will be available under the Plan. The maximum number of shares that may be issued under the Plan as set forth in Section 4(a) shall not be affected by (i) the payment in cash of dividends or Dividend Equivalents in
connection with outstanding Awards or (ii) the granting or payment of Stock-denominated Awards that by their terms may be settled only in cash. In addition, in the case of any Award granted in assumption of or in substitution for an award of a
company or business acquired by the Company or a Subsidiary or Affiliate or with which the Company or a Subsidiary or Affiliate combines, shares issued or issuable in connection with such substitute Award shall not be counted against the number of
shares reserved under the Plan.
5.
Eligibility; Per-Person Award Limitations.
(a)
Eligibility
. Subject to Section 6(b)(iii), Awards may be granted under the Plan
only to Eligible Persons. For purposes of the Plan, an Eligible Person means an employee of the Company or any Subsidiary or Affiliate or an independent contractor employed by the Company or a Subsidiary or Affiliate, including any
executive officer or non-employee director of the Company or a Subsidiary or Affiliate, and any person who has been offered employment by the Company or a Subsidiary or Affiliate, provided that such prospective employee may not receive any payment
or exercise any right relating to an Award until such person has commenced employment with the Company or a Subsidiary or Affiliate. Subject to applicable Treasury Regulations with respect to ISOs, an employee on leave of absence may be considered
as still in the employ of the Company or a Subsidiary or Affiliate for purposes of eligibility for participation in the Plan. Holders of awards granted by a company or business acquired by the Company or a Subsidiary or Affiliate, or with which the
Company or a Subsidiary or Affiliate combines, are eligible for grants of
D-4
substitute awards granted in assumption of or in substitution for such outstanding awards previously granted under the Plan in connection with such acquisition or combination transaction.
(b)
Per-Person Award Limitations
. In each calendar year during any part of which the Plan is in
effect, an Eligible Person may be granted Awards intended to qualify as performance-based compensation under Code Section 162(m) up to his or her Annual Limit. A Participants Annual Limit, in any year during any part of which
the Participant is then eligible under the Plan, in the case of Options, SARs, Restricted Stock, Restricted Stock Units, bonus Stock or other Stock-based Awards, shall equal 300,000 shares plus the amount of the Participants unused Annual
Limit relating to Stock-denominated Awards as of the close of the previous year, subject to adjustment as provided in Section 11(c). In the case of an Award which is not valued in a way in which the limitation set forth in the preceding
sentence would operate as an effective limitation satisfying applicable law (including Treasury Regulation 1.162-27(e)(4)), an Eligible Person may not be granted Awards authorizing the earning during any calendar year of an amount that exceeds the
Eligible Persons Annual Limit, which for this purpose shall equal $1,000,000 plus the amount of the Eligible Persons unused cash Annual Limit as of the close of the previous year (this limitation is separate and not affected by the
number of Awards granted during such calendar year subject to the limitation in the preceding sentence). For this purpose, (i) earning means satisfying performance conditions so that an amount becomes payable, without regard to
whether it is to be paid currently or on a deferred basis or continues to be subject to any service requirement or other non-performance condition, and (ii) a Participants Annual Limit is used to the extent an amount or number of shares
may be potentially earned or paid under an Award, regardless of whether such amount or shares are in fact earned or paid.
6.
Specific Terms of Awards.
(a)
General
. Awards may be granted on the terms and
conditions set forth in this Section 6. In addition, the Committee may impose on any Award or the exercise thereof, at the date of grant or thereafter (subject to Sections 11(e) and 11(k)), such additional terms and conditions, not inconsistent
with the provisions of the Plan, as the Committee shall determine, including terms requiring forfeiture of Awards in the event of termination of employment or service by the Participant and terms permitting a Participant to make elections relating
to his or her Award. The Committee shall retain full power and discretion with respect to any term or condition of an Award that is not mandatory under the Plan, subject to Section 11(k). The Committee shall require the payment of lawful
consideration for an Award to the extent necessary to satisfy the requirements of the Delaware General Corporation Law, and may otherwise require payment of consideration for an Award except as limited by the Plan.
(b)
Option
.
The Committee is authorized to grant Options to Participants on the following
terms and conditions:
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(i)
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Exercise Price. The exercise price per share of Stock purchasable under an Option (including both ISOs and non-qualified Options) shall be determined by the Committee,
provided that such exercise price shall be not less than the Fair Market Value of a share of Stock on the date of grant of such Option, subject to Section 8(a). In the case of an ISO granted to a 10% Owner, the exercise price shall not be less
than 110% of the Fair Market Value of a share of Stock on the date of grant of such Option, subject to Section 8(a). Notwithstanding the foregoing, any substitute award granted in assumption of or in substitution for an outstanding award
granted by a company or business acquired by the Company or a Subsidiary or Affiliate, or with which the Company or a Subsidiary or Affiliate combines may be granted with an exercise price per share of Stock other than as required above.
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(ii)
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Option Term; Time and Method of Exercise. The Committee shall determine the term of each Option, provided that in no event shall the term of any Option
exceed a period of ten years from the date of grant; and provided further that in the case of an ISO granted to a 10% Owner, in no event shall the term of the ISO exceed a period of five years from the date of grant. The Committee shall determine
the time or times at which or the circumstances under which an Option may be exercised in whole or in part (including based on achievement of performance goals and/
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D-5
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or future service requirements), the methods by which such exercise price may be paid or deemed to be paid and the form of such payment (subject to Sections 11(k) and 11(l)), including, without
limitation, cash, Stock (including by withholding Stock deliverable upon exercise, if such withholding or withholding feature will not result in additional accounting expense to the Company), other Awards or awards granted under other plans of the
Company or any Subsidiary or Affiliate, or other property (including through broker-assisted cashless exercise arrangements, to the extent permitted by applicable law), and the methods by or forms in which Stock will be delivered or
deemed to be delivered in satisfaction of Options to Participants (including, in the case of 409A Awards, deferred delivery of shares subject to the Option, as mandated by the Committee, with such deferred shares subject to any vesting, forfeiture
or other terms as the Committee may specify).
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(iii)
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ISOs. The terms of any ISO granted under the Plan shall comply in all respects with the provisions of Code Section 422 and the specific terms of the Plan which
apply to ISOs. Only persons who are employees of the Company or a parent of subsidiary of the Company (as defined in Sections 424(e) and 424(f) of the Code, respectively) may be granted ISOs. To the extent that the aggregate fair market value of
Stock (determined at the time of grant) with respect to which an ISO is exercisable for the first time by any individual during any calendar year (under all plans of the Company and its parents or subsidiaries) exceeds $100,000, such Option is
treated as an Option which is not an ISO.
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(c)
Stock Appreciation Rights
. The
Committee is authorized to grant SARs to Participants on the following terms and conditions:
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(i)
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Right to Payment. An SAR shall confer on the Participant to whom it is granted a right to receive, upon exercise thereof, the excess of (A) the Fair Market Value
of one share of Stock on the date of exercise (or, in the case of a Limited SAR, the Fair Market Value determined by reference to the Change in Control price) over (B) the grant price of the SAR, which shall be determined by the
Committee but which in any event shall be not less than the Fair Market Value of a share of Stock on the date of grant of the SAR, subject to Section 8(a).
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(ii)
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Other Terms. The Committee shall determine the term of each SAR, provided that in no event shall the term of an SAR exceed a period of ten years from the date of grant.
The Committee shall determine at the date of grant or thereafter, the time or times at which and the circumstances under which a SAR may be exercised in whole or in part (including based on achievement of performance goals and/or future service
requirements), the method of exercise, method of settlement, form of consideration payable in settlement, method by or forms in which Stock will be delivered or deemed to be delivered to Participants, whether or not a SAR shall be free-standing or
in tandem or combination with any other Award, and whether or not the SAR will be a 409A Award or Non-409A Award (cash SARs will in all cases be 409A Awards). The Committee may require that an outstanding Option be exchanged for an SAR exercisable
for Stock having vesting, expiration, and other terms substantially the same as the Option, so long as such exchange will not result in additional accounting expense to the Company.
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(d)
Restricted Stock
. The Committee is authorized to grant Restricted Stock to Participants on the following
terms and conditions:
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(i)
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Grant and Restrictions. Restricted Stock shall be subject to such restrictions on transferability, risk of forfeiture and other restrictions, if any,
as the Committee may impose, which restrictions may lapse separately or in combination at such times, under such circumstances (including based on achievement of performance goals and/or future service requirements), in such installments or
otherwise and under such other circumstances as the Committee may determine at the date of grant or thereafter. Except to the extent restricted under the terms of the Plan and any Award document relating to the Restricted Stock, a Participant
granted Restricted Stock shall have all of the rights of a stockholder, including the right to vote the Restricted Stock and the right to receive
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D-6
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dividends thereon (subject to any mandatory reinvestment or other requirement imposed by the Committee).
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(ii)
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Forfeiture. Except as otherwise determined by the Committee, upon termination of employment or service during the applicable restriction period, Restricted Stock that
is at that time subject to restrictions shall be forfeited and reacquired by the Company; provided that the Committee may provide, by rule or regulation or in any Award document, or may determine in any individual case, that restrictions or
forfeiture conditions relating to Restricted Stock will lapse in whole or in part, including in the event of terminations resulting from specified causes.
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(iii)
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Certificates for Stock. Restricted Stock granted under the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing
Restricted Stock are registered in the name of the Participant, the Committee may require that such certificates bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Stock, that the Company
retain physical possession of the certificates, and that the Participant deliver a stock power to the Company, endorsed in blank, relating to the Restricted Stock.
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(iv)
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Dividends and Splits. As a condition to the grant of an Award of Restricted Stock, the Committee may require that any dividends paid on a share of Restricted Stock
shall be either (A) paid with respect to such Restricted Stock at the dividend payment date in cash, in kind, or in a number of shares of unrestricted Stock having a Fair Market Value equal to the amount of such dividends, or
(B) automatically reinvested in additional Restricted Stock or held in kind, which shall be subject to the same terms as applied to the original Restricted Stock to which it relates, or (C) deferred as to payment, either as a cash deferral
or with the amount or value thereof automatically deemed reinvested in RSUs, other Awards or other investment vehicles, subject to such terms as the Committee shall determine or permit a Participant to elect. Unless otherwise determined by the
Committee, Stock distributed in connection with a Stock split or Stock dividend, and other property distributed as a dividend, shall be subject to restrictions and a risk of forfeiture to the same extent as the Restricted Stock with respect to which
such Stock or other property has been distributed.
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(e)
Restricted Stock Units
. The
Committee is authorized to grant RSUs to Participants, subject to the following terms and conditions:
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(i)
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Award and Restrictions. Issuance of Stock will occur upon expiration of the deferral period specified for an Award of RSUs by the Committee (or, if permitted by the
Committee, as elected by the Participant). In addition, RSUs shall be subject to such vesting schedules, restrictions on transferability, risk of forfeiture and other restrictions, if any, as the Committee may impose, which restrictions may lapse at
the expiration of the deferral period or at earlier specified times (including based on achievement of performance goals and/or future service requirements), separately or in combination, in installments or otherwise, and under such other
circumstances as the Committee may determine at the date of grant or thereafter. RSUs may be satisfied by delivery of Stock, other Awards, or a combination thereof (subject to Section 11(l)), as determined by the Committee at the date of grant
or thereafter.
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(ii)
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Forfeiture. Except as otherwise determined by the Committee, upon termination of employment or service during the applicable deferral period or portion thereof to which
forfeiture conditions apply (as provided in the Award document evidencing the RSU), all RSUs that are at that time subject to such forfeiture conditions shall be forfeited; provided that the Committee may provide, by rule or regulation or in any
Award document, or may determine in any individual case, that restrictions or forfeiture conditions relating to RSUs will lapse in whole or in part, including in the event of terminations resulting from specified causes.
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(iii)
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Dividend Equivalents. Unless otherwise determined by the Committee, Dividend Equivalents on the specified number of shares of Stock covered by an Award
of RSUs shall be either (A) paid with respect to such RSUs at the dividend payment date in cash or in shares of unrestricted Stock
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D-7
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having a Fair Market Value equal to the amount of such dividends, or (B) deferred with respect to such RSUs, either as a cash deferral or with the amount or value thereof automatically
deemed reinvested in additional RSUs, other Awards or other investment vehicles having a Fair Market Value equal to the amount of such dividends, as the Committee shall determine or permit a Participant to elect.
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(f)
Bonus Stock and Awards in Lieu of Obligation
.
The Committee is authorized to grant Stock
as a bonus, or to grant Stock or other Awards in lieu of obligations of the Company or a Subsidiary or Affiliate to pay cash or deliver other property under the Plan or under other plans or compensatory arrangements, subject to such terms as shall
be determined by the Committee.
(g)
Dividend Equivalents
. The Committee is authorized to grant
Dividend Equivalents to a Participant, which may be awarded on a free-standing basis or in connection with another Award. The Committee may provide that Dividend Equivalents shall be paid or distributed when accrued or shall be deemed to have been
reinvested in additional Stock, Awards, or other investment vehicles, and subject to restrictions on transferability, risks of forfeiture and such other terms as the Committee may specify.
(h)
Other Stock-Based Awards
. The Committee is authorized, subject to limitations under applicable law, to
grant to Participants such other Awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Stock or factors that may influence the value of Stock, including, without limitation,
convertible or exchangeable debt securities, other rights convertible or exchangeable into Stock, purchase rights for Stock, Awards with value and payment contingent upon performance of the Company or business units thereof or any other factors
designated by the Committee, and Awards valued by reference to the book value of Stock or the value of securities of or the performance of specified Subsidiaries or Affiliates or other business units. The Committee shall determine the terms and
conditions of such Awards. Stock delivered pursuant to an Award in the nature of a purchase right granted under this Section 6(h) shall be purchased for such consideration, paid for at such times, by such methods, and in such forms, including,
without limitation, cash, Stock, other Awards, notes, or other property, as the Committee shall determine. Cash awards, as an element of or supplement to any other Award under the Plan, may also be granted pursuant to this Section 6(h).
(i)
Performance Awards
. Performance Awards, denominated in cash or in Stock or other Awards, may
be granted by the Committee in accordance with Section 7.
7.
Performance Awards,
Including Annual Incentive Awards.
(a)
Performance Awards Generally
. Performance Awards may
be denominated as a cash amount, number of shares of Stock, or specified number of other Awards (or a combination) which may be earned upon achievement or satisfaction of performance conditions specified by the Committee. In addition, the Committee
may specify that any other Award shall constitute a Performance Award by conditioning the right of a Participant to exercise the Award or have it settled, and the timing thereof, upon achievement or satisfaction of such performance conditions as may
be specified by the Committee. The Committee may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions, and may exercise its discretion to reduce or increase the amounts
payable under any Award subject to performance conditions, except as limited under Sections 7(b) and 7(c) in the case of a Performance Award intended to qualify as performance-based compensation under Code Section 162(m).
(b)
Performance Awards Granted to Covered Employees
. If the Committee determines that a
Performance Award to be granted to an Eligible Person who is designated by the Committee as likely to be a Covered Employee should qualify as performance-based compensation for purposes of Code Section 162(m), the grant, exercise
and/or settlement of such Performance Award shall be contingent upon achievement of a preestablished performance goal and other terms set forth in this Section 7(b).
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(i)
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Performance Goal Generally. The performance goal for such Performance Awards shall consist of one or more business criteria and a targeted level or
levels of performance with respect to each of such criteria, as specified by the Committee consistent with this Section 7(b). The performance
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D-8
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goal shall be objective and shall otherwise meet the requirements of Code Section 162(m) and regulations thereunder, including the requirement that the level or levels of performance
targeted by the Committee result in the achievement of performance goals being substantially uncertain. The Committee may determine that such Performance Awards shall be granted, exercised and/or settled upon achievement of any one
performance goal or that two or more of the performance goals must be achieved as a condition to grant, exercise and/or settlement of such Performance Awards. Performance goals may differ for Performance Awards granted to any one Participant or to
different Participants.
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(ii)
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Business Criteria. One or more of the following business criteria may be used by the Committee in establishing performance goals for such Performance Awards for the
Company, including:
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(1)
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sales or sales growth;
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(2)
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expenses or expense ratios;
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(3)
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operating income, earnings from operations, earnings before or after taxes, earnings before or after interest, depreciation, amortization, or extraordinary or special
items;
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(4)
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net income or net income per common share (basic or diluted; including or excluding extraordinary items);
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(5)
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return on assets, return on investment, return on capital, or return on equity;
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(6)
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cash flow, free cash flow, cash flow return on investment, or net cash provided by operations;
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(7)
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economic profit or value created;
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(8)
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stock price or total stockholder return; and
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(9)
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specific strategic or operational business criteria, including market penetration, geographic expansion, new concept development goals, new projects, new products, or
new ventures; customer satisfaction; staffing, training and development, succession planning or employee satisfaction; goals relating to acquisitions, divestitures, affiliates or joint ventures, to the extent the Committee determines such criteria
are consistent with the requirements of Section 162(m).
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Business criteria may be measured on a consolidated
basis, by department, group or business unit, or for specified Subsidiaries or Affiliates of the Company. The targeted level or levels of performance with respect to such business criteria may be established at such levels and in such terms as the
Committee may determine, in its discretion, including in absolute terms, as a ratio, as a goal relative to performance in prior periods, or as a goal compared to the performance of one or more comparable companies or an index covering multiple
companies.
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(iii)
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Performance Period; Timing for Establishing Performance Goals. Achievement of performance goals in respect of such Performance Awards shall be measured over a
performance period of up to one year or more than one year, as specified by the Committee. A performance goal shall be established not later than the earlier of (A) 90 days after the beginning of any performance period applicable to such
Performance Award or (B) the time 25% of such performance period has elapsed.
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(iv)
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Performance Award Pool. The Committee may establish a Performance Award pool, which shall be an unfunded pool, for purposes of measuring performance of
the Company in connection with Performance Awards. The amount of such Performance Award pool shall be based upon the achievement of a performance goal or goals based on one or more of the business criteria set forth in Section 7(b)(ii) during
the given performance period, as specified by the Committee in accordance with Section 7(b)(iv). The Committee may specify the amount of the Performance Award pool as a percentage of any of such business criteria, a percentage thereof in excess
of a
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D-9
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threshold amount, or as another amount which need not bear a strictly mathematical relationship to such business criteria.
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(v)
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Settlement of Performance Awards; Other Terms. Settlement of Performance Awards shall be in cash, Stock, other Awards or other property, in the discretion of the
Committee. The Committee may, in its discretion, increase or reduce the amount of a settlement otherwise to be made in connection with such Performance Awards, but may not exercise discretion to increase any such amount payable to a Covered Employee
in respect of a Performance Award subject to this Section 7(b). Any settlement which changes the form of payment from that originally specified shall be implemented in a manner such that the Performance Award and other related Awards do not,
solely for that reason, fail to qualify as performance-based compensation for purposes of Code Section 162(m). The Committee shall specify the circumstances in which such Performance Awards shall be paid or forfeited in the event of
termination of employment by the Participant or other event (including a Change in Control) prior to the end of a performance period or settlement of such Performance Awards.
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(c)
Annual Incentive Awards Granted to Designated Covered Employees
. The Committee may grant an Annual
Incentive Award to an Eligible Person who is designated by the Committee as likely to be a Covered Employee. Such Annual Incentive Award will be intended to qualify as performance-based compensation for purposes of Code
Section 162(m), and its grant, exercise and/or settlement shall be contingent upon achievement of pre-established performance goals and other terms set forth in this Section 7(c).
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(i)
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Grant of Annual Incentive Awards. Not later than the earlier of 90 days after the beginning of any performance period applicable to such Annual Incentive Award or the
time 25% of such performance period has elapsed, the Committee shall determine the Covered Employees who will potentially receive Annual Incentive Awards, and the amount(s) potentially payable thereunder, for that performance period. The amount(s)
potentially payable shall be based upon the achievement of a performance goal or goals based on one or more of the business criteria set forth in Section 7(b)(ii) in the given performance period, as specified by the Committee. The Committee may
designate an annual incentive award pool as the means by which Annual Incentive Awards will be measured, which pool shall conform to the provisions of Section 7(b)(iv). In such case, the portion of the Annual Incentive Award pool potentially
payable to each Covered Employee shall be preestablished by the Committee. In all cases, the maximum Annual Incentive Award of any Participant shall be subject to the limitation set forth in Section 5.
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(ii)
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Payout of Annual Incentive Awards. After the end of each performance period, the Committee shall determine the amount, if any, of the Annual Incentive Award for that
performance period payable to each Participant. The Committee may, in its discretion, determine that the amount payable to any Participant as a final Annual Incentive Award shall be reduced from the amount of his or her potential Annual Incentive
Award, including a determination to make no final Award whatsoever, but may not exercise discretion to increase any such amount. The Committee shall specify the circumstances in which an Annual Incentive Award shall be paid or forfeited in the event
of termination of employment by the Participant or other event prior to the end of a performance period or settlement of such Annual Incentive Award.
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(d)
Written Determinations
. Determinations by the Committee as to the establishment of performance goals,
the amount potentially payable in respect of Performance Awards and Annual Incentive Awards, the level of actual achievement of the specified performance goals relating to Performance Awards and Annual Incentive Awards, and the amount of any final
Performance Award and Annual Incentive Award shall be recorded in writing in the case of Performance Awards intended to qualify under Section 162(m). Specifically, the Committee shall certify in writing, in a manner conforming to applicable
regulations under Section 162(m), prior to settlement of each such Award granted to a Covered Employee, that the performance objective relating to the Performance Award and other material terms of the Award upon which settlement of the Award
was conditioned have been satisfied.
D-10
8.
Certain Provisions Applicable To Awards.
(a)
Stand-Alone, Additional, Tandem, and Substitute Awards
. Awards granted under the Plan may, in the
discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution or exchange for, any other Award or any award granted under another plan of the Company, any Subsidiary or Affiliate, or any business entity
to be acquired by the Company or a Subsidiary or Affiliate, or any other right of a Participant to receive payment from the Company or any Subsidiary or Affiliate; provided, however, that a 409A Award may not be granted in tandem with a Non-409A
Award. Awards granted in addition to or in tandem with other Awards or awards may be granted either as of the same time as or a different time from the grant of such other Awards or awards. Subject to Sections 11(k) and (l), the Committee may
determine that, in granting a new Award, the in-the-money value or fair value of any surrendered Award or award or the value of any other right to payment surrendered by the Participant may be applied to reduce the exercise price of any Option,
grant price of any SAR, or purchase price of any other Award.
(b)
Term of Awards
. The term of
each Award shall be for such period as may be determined by the Committee, subject to the express limitations set forth in Sections 6(b)(ii), 6(c)(ii) and 8 or elsewhere in the Plan.
(c)
Form and Timing of Payment under Awards; Deferrals
. Subject to the terms of the Plan (including Sections
11(k) and (l)) and any applicable Award document, payments to be made by the Company or a Subsidiary or Affiliate upon the exercise of an Option or other Award or settlement of an Award may be made in such forms as the Committee shall determine,
including, without limitation, cash, Stock, other Awards or other property, and may be made in a single payment or transfer, in installments, or on a deferred basis. The settlement of any Award may be accelerated, and cash paid in lieu of Stock in
connection with such settlement, in the discretion of the Committee or upon occurrence of one or more specified events, subject to Sections 11(k) and (l). Subject to Section 11(k), installment or deferred payments may be required by the
Committee (subject to Section 11(e)) or permitted at the election of the Participant on terms and conditions established by the Committee. Payments may include, without limitation, provisions for the payment or crediting of reasonable interest
on installment or deferred payments or the grant or crediting of Dividend Equivalents or other amounts in respect of installment or deferred payments denominated in Stock. In the case of any 409A Award that is vested and no longer subject to a risk
of forfeiture (within the meaning of Code Section 83), such Award will be distributed to the Participant, upon application of the Participant, if the Participant has had an unforeseeable emergency within the meaning of Code Sections
409A(a)(2)(A)(vi) and 409A(a)(2)(B)(ii), in accordance with Section 409A(a)(2)(B)(ii).
9.
Change in Control.
(a) Other provisions of the Plan notwithstanding but subject to the limitations set forth in this Section 9, the
Committee may provide, in an Award agreement or in such other manner as the Committee may specify, that in the event of a Change in Control or a termination of employment or service following a Change in Control, any or all of the following terms
will apply:
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(i)
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That an outstanding Award will vest in whole or in part, thereby becoming non-forfeitable and entitling the Participant to exercise specified rights under the Award,
and that the Award will remain outstanding for specified periods thereafter (but not beyond the maximum term of the Award permitted under the Plan);
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(ii)
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That any period in which settlement of an outstanding Award is to be deferred beyond the date of vesting will immediately end, except as limited under Code
Section 409A;
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(iii)
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That, with respect to an outstanding Award subject to the achievement of performance goals and conditions, such performance goals and conditions will be deemed to be
met at a specified level (for example, at target level or maximum level), or that such level of performance will be determined in some other manner;
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D-11
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(iv)
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That an outstanding Award will be immediately settled by payment of cash, or the Participant will be permitted during a specified period to elect such a cash
settlement, with the amount of cash payable equal to the amount that would have been obtained upon the exercise, payment or distribution of such Award had such Award been currently exercisable, or if no such cash would be payable upon the exercise,
payment or distribution of such Award had such Award been currently exercisable, that such Award be immediately terminated, or a value determined in another specified manner, at a specified date or during a specified period, except as limited under
Code Section 409A; and/or
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(v)
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Cause the Award to be assumed, or new rights substituted therefore, by the surviving corporation in such change.
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(b) For purposes of the Plan, a Change of Control shall be deemed to occur if and when
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(i)
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any person, including a person as such term is used in Section 14(d)(2) of the Exchange Act (a Person), is or becomes a beneficial owner
(as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 25 percent (25%) or more of the combined voting power of the Companys then outstanding securities;
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(ii)
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any plan or proposal for the dissolution or liquidation of the Company is adopted by the stockholders of the Company;
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(iii)
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individuals who, as of June 24, 2005, constitute the Board (the Incumbent Board) cease for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director subsequent to June 24, 2005 whose election, or nomination for election by the Companys stockholders, was approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened
election contest or solicitation of proxies or consents by or on behalf of a Person other than the Board;
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(iv)
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all or substantially all of the assets of the Company are sold, transferred or distributed; or
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(v)
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there occurs a reorganization, merger, consolidation or other corporate transaction involving the Company (a Transaction), in each case, with respect to
which the stockholders of the Company immediately prior to such Transaction do not, immediately after the Transaction, own more than 50 percent (50%) of the combined voting power of the Company or other corporation resulting from such
Transaction in substantially the same respective proportions as such stockholders ownership of the voting power of the Company immediately before such Transaction.
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Any of the terms of Awards relating to a Change in Control shall apply to a Non-409A Award only to the extent permitted without causing
the Award to become subject to Code Section 409A, and shall apply to a 409A Award only to the extent permitted under Code Section 409A. For this purpose, Code Section 409A may permit some of the terms specified above to apply only if
the Change in Control constitutes a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company, within the meaning of Code Section 409A(a)(2)(A)(v).
10.
Additional Award Forfeiture Provisions.
(a)
Forfeiture of Options and Other Awards and Gains Realized Upon Prior Option Exercises or Award
Settlements
.
Unless otherwise determined by the Committee, each Award granted hereunder, other than Awards granted to non-employee directors, shall be subject to the following additional forfeiture conditions, to which the
Participant, by accepting an Award hereunder, agrees. If any of the events specified in Section 10(b)(i), (ii), or (iii) occurs (a Forfeiture Event), all of the following forfeitures will result:
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(i)
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The unexercised portion of the Option, whether or not vested, and any other Award not then settled (except for an Award that has not been settled
solely due to an elective deferral by the Participant and otherwise is not forfeitable in the event of any termination of service of the
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D-12
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Participant) will be immediately forfeited and canceled upon the occurrence of the Forfeiture Event (but not earlier than termination of employment in the case of an equity award accounted for
under APB 25); and
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(ii)
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The Participant will be obligated to repay to the Company, in cash, within five business days after demand is made therefore by the Company (but not earlier than
termination of employment in the case of an equity award accounted for under APB 25), the total amount of Award Gain (as defined herein) realized by the Participant upon each exercise of an Option or settlement of an Award (regardless of any
elective deferral) that occurred on or after (A) the date that is six months prior to the occurrence of the Forfeiture Event, if the Forfeiture Event occurred while the Participant was employed by the Company or a Subsidiary or Affiliate, or
(B) the date that is six months prior to the date the Participants employment by the Company or a Subsidiary or Affiliate terminated, if the Forfeiture Event occurred after the Participant ceased to be so employed. For purposes of this
Section, the term Award Gain shall mean (i), in respect of a given Option exercise, the product of (X) the Fair Market Value per share of Stock at the date of such exercise (without regard to any subsequent change in the market
price of shares) minus the exercise price times (Y) the number of shares as to which the Option was exercised at that date, and (ii), in respect of any other settlement of an Award granted to the Participant, the Fair Market Value of the cash
or Stock paid or payable to Participant (regardless of any elective deferral) less any cash or the Fair Market Value of any Stock or property (other than an Award or award which would have itself then been forfeitable hereunder and excluding any
payment of tax withholding) paid by the Participant to the Company as a condition of or in connection such settlement.
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(b)
Events Triggering Forfeiture
. The forfeitures specified in Section 10(a) will be triggered upon the occurrence of any one of the following Forfeiture Events at any time during the
Participants employment by the Company or a Subsidiary or Affiliate and resulting in his or her termination of employment, or during the one-year period following termination of such employment:
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(i)
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The Participant, acting alone or with others, directly or indirectly, (A) engages, either as employee, employer, consultant, ad-visor, or director, or as an owner,
investor, partner, or stockholder unless the Participants interest is insubstantial, in any business in an area or region in which the Company conducts business at the date the event occurs, which is directly in competition with a business
then conducted by the Company or a Subsidiary or Affiliate; (B) induces any customer or supplier of the Company or a Subsidiary or Affiliate, or a company with which the Company or a Subsidiary or Affiliate has a business relationship, to
curtail, cancel, not renew, or not continue his or her or its business with the Company or any Subsidiary or Affiliate; or (C) induces, or attempts to influence, any employee of or service provider to the Company or a Subsidiary or Affiliate to
terminate such employment or service. The Committee shall, in its discretion, determine which lines of business the Company conducts on any particular date and which third parties may reasonably be deemed to be in competition with the Company. For
purposes of this Section 10(b)(i), a Participants interest as a stockholder is insubstantial if it represents beneficial ownership of less than five percent of the outstanding class of stock, and a Participants interest as an owner,
investor, or partner is insubstantial if it represents ownership, as determined by the Committee in its discretion, of less than five percent of the outstanding equity of the entity;
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(ii)
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The Participant discloses, uses, sells, or otherwise transfers, except in the course of employment with or other service to the Company or any
Subsidiary or Affiliate, any confidential or proprietary information of the Company or any Subsidiary or Affiliate, including but not limited to information regarding the Companys current and potential customers, organization, employees,
finances, and methods of operations and investments, so long as such information has not otherwise been disclosed to the public or is not otherwise in the public domain, except as required by law or pursuant to legal process, or the Participant
makes statements or representations, or otherwise communicates, directly or indirectly, in writing, orally, or otherwise, or takes any other
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D-13
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action which may, directly or indirectly, disparage or be damaging to the Company or any of its Subsidiaries or Affiliates or their respective officers, directors, employees, advisors, businesses
or reputations, except as required by law or pursuant to legal process; or
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(iii)
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The Participant fails to cooperate with the Company or any Subsidiary or Affiliate in any way, including, without limitation, by making himself or herself available to
testify on behalf of the Company or such Subsidiary or Affiliate in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, or other-wise fails to assist the Company or any Subsidiary or Affiliate in any way,
including, without limitation, in connection with any such action, suit, or proceeding by providing information and meeting and consulting with members of management of, other representatives of, or counsel to, the Company or such Subsidiary or
Affiliate, as reasonably requested.
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(c)
Agreement Does Not Prohibit Competition or Other
Participant Activities
. Although the conditions set forth in this Section 10 shall be deemed to be incorporated into an Award, a Participant is not thereby prohibited from engaging in any activity, including but not limited to
competition with the Company and its Subsidiaries and Affiliates. Rather, the non-occurrence of the Forfeiture Events set forth in Section 10(b) is a condition to the Participants right to realize and retain value from his or her
compensatory Options and Awards, and the consequence under the Plan if the Participant engages in an activity giving rise to any such Forfeiture Event are the forfeitures specified herein. The Company and the Participant shall not be precluded by
this provision or otherwise from entering into other agreements concerning the subject matter of Sections 10(a) and 10(b).
(d)
Committee Discretion
.
The Committee may, in its discretion, waive in whole or in part the Companys right to forfeiture under this Section, but no such waiver shall be
effective unless evidenced by a writing signed by a duly authorized officer of the Company. In addition, the Committee may impose additional conditions on Awards, by inclusion of appropriate provisions in the document evidencing or governing any
such Award.
11.
General Provisions.
(a)
Compliance with Legal and Other Requirements
. The Company may, to the extent deemed necessary or
advisable by the Committee and subject to Section 11(k), postpone the issuance or delivery of Stock or payment of other benefits under any Award until completion of such registration or qualification of such Stock or other required action under
any federal or state law, rule or regulation, listing or other required action with respect to any stock exchange or automated quotation system upon which the Stock or other securities of the Company are listed or quoted, or compliance with any
other obligation of the Company, as the Committee may consider appropriate, and may require any Participant to make such representations, furnish such information and comply with or be subject to such other conditions as it may consider appropriate
in connection with the issuance or delivery of Stock or payment of other benefits in compliance with applicable laws, rules, and regulations, listing requirements, or other obligations.
(b)
Limits on Transferability; Beneficiaries
. No Award or other right or interest of a Participant under the
Plan shall be pledged, hypothecated or otherwise encumbered or subject to any lien, obligation or liability of such Participant to any party (other than the Company or a Subsidiary or Affiliate thereof), or assigned or transferred by such
Participant otherwise than by will or the laws of descent and distribution or to a Beneficiary upon the death of a Participant, and such Awards or rights that may be exercisable shall be exercised during the lifetime of the Participant only by the
Participant or his or her guardian or legal representative, except that Awards and other rights (other than ISOs and SARs in tandem therewith) may be transferred to one or more transferees during the lifetime of the Participant, and may be exercised
by such transferees in accordance with the terms of such Award, but only if and to the extent such transfers are permitted by the Committee, subject to any terms and conditions which the Committee may impose thereon (which may include limitations
the Committee may deem appropriate in order that offers and sales under the Plan will meet applicable requirements of registration forms under the Securities Act of 1933 specified by the Securities and Exchange Commission). A Beneficiary,
transferee, or other person claiming any rights
D-14
under the Plan from or through any Participant shall be subject to all terms and conditions of the Plan and any Award document applicable to such Participant, except as otherwise determined by
the Committee, and to any additional terms and conditions deemed necessary or appropriate by the Committee.
(c)
Adjustments
. In the event that any large, special and non-recurring dividend or other distribution
(whether in the form of cash or property other than Stock), recapitalization, forward or reverse split, Stock dividend, reorganization, merger, consolidation, spin-off, combination, repurchase, share exchange, liquidation, dissolution or other
similar corporate transaction or event affects the Stock such that an adjustment is determined by the Committee to be appropriate and, in the case of any outstanding Award, necessary in order to prevent dilution or enlargement of the rights of the
Participant, then the Committee shall, in an equitable manner as determined by the Committee, adjust any or all of (i) the number and kind of shares of Stock which may be delivered in connection with Awards granted thereafter, (ii) the
number and kind of shares of Stock by which annual per-person Award limitations are measured under Section 5, (iii) the number and kind of shares of Stock subject to or deliverable in respect of outstanding Awards and (iv) the
exercise price, grant price or purchase price relating to any Award or, if deemed appropriate, the Committee may make provision for a payment of cash or property to the holder of an outstanding Option (subject to Section 11(l)). In addition,
the Committee is authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards (including Performance Awards and performance goals and any hypothetical funding pool relating thereto) in recognition of unusual or
nonrecurring events (including, without limitation, events described in the preceding sentence, as well as acquisitions and dispositions of businesses and assets) affecting the Company, any Subsidiary or Affiliate or other business unit, or the
financial statements of the Company or any Subsidiary or Affiliate, or in response to changes in applicable laws, regulations, accounting principles, tax rates and regulations or business conditions or in view of the Committees assessment of
the business strategy of the Company, any Subsidiary or Affiliate or business unit thereof, performance of comparable organizations, economic and business conditions, personal performance of a Participant, and any other circumstances deemed
relevant; provided that no such adjustment shall be authorized or made if and to the extent that the existence of such authority (i) would cause Options, SARs, or Performance Awards granted under the Plan to Participants designated by the
Committee as Covered Employees and intended to qualify as performance-based compensation under Code Section 162(m) and regulations thereunder to otherwise fail to qualify as performance-based compensation under Code
Section 162(m) and regulations thereunder, (ii) would cause the Committee to be deemed to have authority to change the targets, within the meaning of Treasury Regulation 1.162-27(e)(4)(vi), under the performance goals relating to Options
or SARs granted to Covered Employees and intended to qualify as performance-based compensation under Code Section 162(m) and regulations thereunder or (iii) would cause 409A Awards to fail to meet the requirements of
Section 409A of the Code. Any adjustment to an ISO under this Section 11(c) shall be made only to the extent not constituting a modification within the meaning of Section 424(h)(3) of the Code, and any adjustments under
this Section 11(c) shall be made in a manner that does not adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act. The Company shall give each Participant notice of an adjustment or substitution hereunder and,
upon notice, such adjustment or substitution shall be conclusive and binding for all purposes.
(d)
Tax
Provisions
.
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(i)
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Withholding. The Company and any Subsidiary or Affiliate is authorized to withhold from any Award granted, any payment relating to an Award under the
Plan, including from a distribution of Stock, or any payroll or other payment to a Participant, amounts of withholding and other taxes due or potentially payable in connection with any transaction involving an Award, and to take such other action as
the Committee may deem advisable to enable the Company and Participants to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Award. This authority shall include authority to withhold or receive Stock
or other property and to make cash payments in respect thereof in satisfaction of a Participants withholding obligations, either on a mandatory or elective basis in the discretion of the Committee, or in
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D-15
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satisfaction of other tax obligations. Other provisions of the Plan notwithstanding, only the minimum amount of Stock deliverable in connection with an Award necessary to satisfy statutory
withholding requirements will be withheld, unless withholding of any additional amount of Stock will not result in additional accounting expense to the Company. It shall be a condition to the obligation of the Company to issue Stock upon the
exercise of an Option or an SAR that the Participant pay to the Company, on demand, such amount as may be requested by the Company for the purpose of satisfying any tax withholding liability. If the amount is not paid, the Company may refuse to
issue shares.
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(ii)
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Required Consent to and Notification of Code Section 83(b) Election. No election under Section 83(b) of the Code (to include in gross income in the year of
transfer the amounts specified in Code Section 83(b)) or under a similar provision of the laws of a jurisdiction outside the United States may be made unless expressly permitted by the terms of the Award document or by action of the Committee
in writing prior to the making of such election. In any case in which a Participant is permitted to make such an election in connection with an Award, the Participant shall notify the Company of such election within ten days of filing notice of the
election with the Internal Revenue Service or other governmental authority, in addition to any filing and notification required pursuant to regulations issued under Code Section 83(b) or other applicable provision.
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(iii)
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Requirement of Notification Upon Disqualifying Disposition Under Code Section 421(b). If any Participant shall make any disposition of shares of Stock delivered
pursuant to the exercise of an ISO under the circumstances described in Code Section 421(b) (i.e., a disqualifying disposition), such Participant shall notify the Company of such disposition within ten days thereof.
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(e)
Changes to the Plan
. The Board may amend, suspend or terminate the Plan or the Committees
authority to grant Awards under the Plan without the consent of stockholders or Participants; provided, however, that any amendment to the Plan shall be submitted to the Companys stockholders for approval not later than the earliest annual
meeting for which the record date is at or after the date of such Board action if such stockholder approval is required by any federal or state law or regulation or the rules of the Nasdaq National Market or any other stock exchange or automated
quotation system on which the Stock may then be listed or quoted, or if such amendment would materially increase the number of shares reserved for issuance and delivery under the Plan, and the Board may otherwise, in its discretion, determine to
submit other amendments to the Plan to stockholders for approval; and provided further, that, without the consent of an affected Participant, no such Board action may materially and adversely affect the rights of such Participant under any
outstanding Award (for this purpose, actions that alter the timing of federal income taxation of a Participant will not be deemed material unless such action results in an income tax penalty on the Participant). Without the approval of stockholders,
the Committee will not amend or replace previously granted Options or SARs in a transaction that constitutes a repricing. For this purpose, a repricing means: (1) amending the terms of an Option or SAR after it is
granted to lower its exercise price; (2) any other action that is treated as a repricing under generally accepted accounting principles; and (3) canceling an Option at a time when its strike price is equal to or greater than the fair
market value of the underlying Stock, in exchange for another Option, SAR, Restricted Stock, or other equity, unless the cancellation and exchange occurs in connection with a merger, acquisition, spin-off or other similar corporate transaction. A
cancellation and exchange described in clause (3) of the preceding sentence will be considered a repricing regardless of whether the Option, Restricted Stock or other equity is delivered simultaneously with the cancellation, regardless of
whether it is treated as a repricing under generally accepted accounting principles, and regardless of whether it is voluntary on the part of the Option holder. Adjustments to awards under Section 11(c) will not be deemed
repricings, however. With regard to other terms of Awards, the Committee shall have no authority to waive or modify any such Award term after the Award has been granted to the extent the waived or modified term would be mandatory under
the Plan for any Award newly granted at the date of the waiver or modification. With respect to Awards subject to Section 409A of the Code, unless the Committee determines otherwise, any amendment, suspension or termination of the Plan shall
conform to the requirements of Section 409A of the Code.
D-16
(f)
Right of Setoff
. The Company or any Subsidiary or Affiliate may, to the extent permitted by applicable law, deduct from and set off against any amounts the Company or a Subsidiary or Affiliate may owe to the Participant from time to
time, including amounts payable in connection with any Award, owed as wages, fringe benefits, or other compensation owed to the Participant, such amounts as may be owed by the Participant to the Company, including but not limited to amounts owed
under Section 10(a), although the Participant shall remain liable for any part of the Participants payment obligation not satisfied through such deduction and set off. By accepting any Award granted hereunder, the Participant agrees to
any deduction or setoff under this Section 11(f).
(g)
Unfunded Status of Awards; Creation of
Trusts
. The Plan is intended to constitute an unfunded plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant or obligation to deliver Stock pursuant to an Award, nothing
contained in the Plan or any Award shall give any such Participant any rights that are greater than those of a general creditor of the Company; provided that the Committee may authorize the creation of trusts and deposit therein cash, Stock, other
Awards or other property, or make other arrangements to meet the Companys obligations under the Plan. Such trusts or other arrangements shall be consistent with the unfunded status of the Plan unless the Committee otherwise
determines with the consent of each affected Participant.
(h)
Nonexclusivity of the
Plan
.
Neither the adoption of the Plan by the Board nor its submission to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board or a committee thereof to adopt
such other incentive arrangements, apart from the Plan, as it may deem desirable, including incentive arrangements and awards which do not qualify under Code Section 162(m), and such other arrangements may be either applicable generally or only
in specific cases.
(i)
Payments in the Event of Forfeitures; Fractional Shares
.
Unless otherwise determined by the Committee, in the event of a forfeiture of an Award with respect to which a Participant paid cash consideration, the Participant shall be repaid the amount of such cash consideration. No fractional shares of Stock
shall be issued or delivered pursuant to the Plan or any Award. The Committee shall determine whether cash, other Awards or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
(j)
Compliance with Code
Section 162(m)
.
It is the intent of the Company that Options and SARs granted to Covered Employees and other Awards designated as Awards to Covered Employees subject to Section 7 shall constitute qualified
performance-based compensation within the meaning of Code Section 162(m) and regulations thereunder, unless otherwise determined by the Committee at the time of allocation of an Award. Accordingly, the terms of Sections 7(b), (c),
and (d), including the definitions of Covered Employee and other terms used therein, shall be interpreted in a manner consistent with Code Section 162(m) and regulations thereunder. The foregoing notwithstanding, because the Committee cannot
determine with certainty whether a given Participant will be a Covered Employee with respect to a fiscal year that has not yet been completed, the term Covered Employee as used herein shall mean only a person designated by the Committee as likely to
be a Covered Employee with respect to a specified fiscal year. If any provision of the Plan or any Award document relating to a Performance Award that is designated as intended to comply with Code Section 162(m) does not comply or is
inconsistent with the requirements of Code Section 162(m) or regulations thereunder, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements, and no provision shall be deemed to confer upon
the Committee or any other person discretion to increase the amount of compensation otherwise payable in connection with any such Award upon attainment of the applicable performance objectives.
(k)
Certain Limitations on Awards to Ensure Compliance with Section 409A
.
For purposes of
this Plan, references to an Award term or event (including any authority or right of the Company or a Participant) being permitted under Section 409A mean, for a 409A Award, that the term or event will not cause the Participant to
be liable for payment of interest or a tax penalty under Section 409A and, for a Non-409A Award, that the term or event will not cause the Award to be treated as subject to Section 409A. Other provisions of the Plan notwithstanding, the
terms of any 409A Award and any Non-409A Award, including any authority of the Company and rights of the Participant with respect to the Award, shall be
D-17
limited to those terms permitted under Section 409A, and any terms not permitted under Section 409A shall be automatically modified and limited to the extent necessary to conform with
Section 409A. For this purpose, other provisions of the Plan notwithstanding, the Company shall have no authority to accelerate distributions relating to 409A Awards in excess of the authority permitted under Section 409A, any distribution
subject to Section 409A(a)(2)(A)(i) (separation from service) to a key employee as defined under Section 409A(a)(2)(B)(i), shall not occur earlier than the earliest time permitted under Section 409A(a)(2)(B)(i), and any
authorization of payment of cash to settle a Non-409A Award shall apply only to the extent permitted under Section 409A for such Award.
(l)
Certain Limitations Relating to Accounting Treatment of Awards
. Other provisions of the Plan notwithstanding, the Committees authority under the Plan (including under Sections
8(c), 11(c) and 11(d)) is limited to the extent necessary to ensure that any Option or other Award of a type that the Committee has intended to be subject to fixed accounting with a measurement date at the date of grant or the date performance
conditions are satisfied under APB 25 shall not become subject to variable accounting solely due to the existence of such authority, unless the Committee specifically determines that the Award shall remain outstanding despite such
variable accounting. This provision shall cease to be effective if and at such time as the Company elects to no longer account for equity compensation under APB 25.
(m)
Governing Law
. The validity, construction, and effect of the Plan, any rules and regulations relating to
the Plan and any Award document shall be determined in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of laws, and applicable provisions of federal law.
(n)
Awards to Participants Outside the United States
. The Committee may modify the terms of any Award under
the Plan made to or held by a Participant who is then resident or primarily employed outside of the United States in any manner deemed by the Committee to be necessary or appropriate in order that such Award shall conform to laws, regulations, and
customs of the country in which the Participant is then resident or primarily employed, or so that the value and other benefits of the Award to the Participant, as affected by foreign tax laws and other restrictions applicable as a result of the
Participants residence or employment abroad shall be comparable to the value of such an Award to a Participant who is resident or primarily employed in the United States. An Award may be modified under this Section 11(n) in a manner that
is inconsistent with the express terms of the Plan, so long as such modifications will not contravene any applicable law or regulation or result in actual liability under Section 16(b) for the Participant whose Award is modified.
(o)
Limitation on Rights Conferred under Plan.
Neither the Plan nor any action taken hereunder shall be
construed as (i) giving any Eligible Person or Participant the right to continue as an Eligible Person or Participant or in the employ or service of the Company or a Subsidiary or Affiliate, (ii) interfering in any way with the right of
the Company or a Subsidiary or Affiliate to terminate any Eligible Persons or Participants employment or service at any time (subject to the terms and provisions of any separate written agreements), (iii) giving an Eligible Person
or Participant any claim to be granted any Award under the Plan or to be treated uniformly with other Participants and employees, or (iv)conferring on a Participant any of the rights of a stockholder of the Company unless and until the Participant
is duly issued or transferred shares of Stock in accordance with the terms of an Award or an Option is duly exercised. Except as expressly provided in the Plan and an Award document, neither the Plan nor any Award document shall confer on any person
other than the Company and the Participant any rights or remedies thereunder.
(p)
Severability; Entire
Agreement.
If any of the provisions of this Plan or any Award document is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such provision shall be deemed modified to the extent, but only to the extent, of
such invalidity, illegality or unenforceability, and the remaining provisions shall not be affected thereby; provided, that, if any of such provisions is finally held to be invalid, illegal, or unenforceable because it exceeds the maximum scope
determined to be acceptable to permit such provision to be enforceable, such provision shall be deemed to be modified to the minimum extent necessary to modify such scope in order to make such provision enforceable hereunder. The Plan and any Award
documents contain the entire agreement of the parties with respect to the subject matter thereof and
D-18
supersede all prior agreements, promises, covenants, arrangements, communications, representations and warranties between them, whether written or oral with respect to the subject matter thereof.
(q)
Voting
. The Committee shall determine whether a Participant shall have the right to direct
the vote of shares of Stock allocated to a Stock Award. If the Committee determines that an Award shall carry voting rights, the shares allocated to such Award shall be voted by such person as the Committee may designate (the Plan
Administrator) in accordance with instructions received from Participants (unless to do so would constitute a violation of fiduciary duties or any applicable rules of the principal stock exchange or market on which the Stock is traded). Shares
subject to Awards as to which no instructions are received shall be voted by the Plan Administrator proportionately in accordance with instructions received from Participants (unless to do so would constitute a violation of fiduciary duties or any
applicable rules of the principal stock exchange or market on which the Stock is traded).
(r)
Successors
and Assigns
. The Plan and any applicable Award Agreement entered into under the Plan shall be binding on all successors and assigns of a Participant, including, without limitation, the estate of such Participant and the executor,
administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Participants creditors.
(s)
Plan Effective Date and Termination
. The Plan shall become effective if, and at such time as, the stockholders of the Company have approved it by the affirmative votes of the holders of
a majority of the voting securities of the Company present, or represented, and entitled to vote on the subject matter at a duly held meeting of stockholders. Upon such approval of the Plan by the stockholders of the Company, no further awards shall
be granted under the Preexisting Plans, but any outstanding awards under the Preexisting Plans shall continue in accordance with their terms (this includes authority to modify any such award to the full extent permitted under the Preexisting Plan).
Unless earlier terminated by action of the Board of Directors, the authority of the Committee to make grants under the Plan shall terminate on the date that is ten years after the latest date upon which stockholders of the Company have approved the
Plan, and the Plan will remain in effect until such time as no Stock remains available for delivery under the Plan and the Company has no further rights or obligations under the Plan with respect to outstanding Awards under the Plan.
D-19
AMENDMENT #1
TO
2005 STOCK AWARD AND INCENTIVE PLAN
WHEREAS
, EDGAR Online, Inc.
(the Company), maintains the 2005 Stock Award and Incentive Plan (the Plan) in order to aid the Company in attracting, retaining, motivating and rewarding employees and non-employee directors of the Company or its
Subsidiaries or Affiliates (both as defined in the Plan), to provide for equitable and competitive compensation opportunities, to recognize individual contributions and reward achievement of Company goals, and promote the creation of long-term value
for stockholders by closely aligning the interests of Participants (as defined in the Plan) with those of stockholders;
WHEREAS
, the Board of Directors and the stockholders of the Company have approved an amendment to the Plan (Amendment
#1) to increase the maximum number of shares of the Companys Common Stock, par value $0.01 per share (the Common Stock), that may be issued under the Plan by one million (1,000,000) shares of Common Stock.
NOW THEREFORE,
in accordance with the foregoing, the Plan shall be amended as follows:
1. Effective as of the date hereof, Section 4(a) of the Plan is hereby amended, in its entirety, to read as follows:
(a) The total number of shares of Stock reserved and available for delivery in connection with Awards under the Plan shall be
(i) two million eighty-seven thousand five hundred (2,087,500) shares, plus (ii) the number of shares that, immediately prior to the Effective Date, remain available for new awards under the Preexisting Plans plus (iii) the
number of shares subject to awards under the Plan or Preexisting Plans which become available in accordance with Section 4(b) after the Effective Date; provided, however, that the total number of shares with respect to which ISOs may be granted
shall not exceed the number specified under clause (i) above. The total number of shares available is subject to adjustment as provided in Section 11(c). Any shares of Stock delivered under the Plan shall consist of authorized and unissued
shares or treasury shares.
2. In all respects not amended by Amendment #1, the Plan is hereby ratified and confirmed.
Signature page follows
D-20
IN WITNESS
WHEREOF
, and as evidence of the adoption of the amendment set forth herein, the appropriate officer of the Company has executed this Amendment #1, effective as of June 23, 2008.
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EDGAR ONLINE, INC.
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By:
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/s/ Philip D. Moyer
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Philip D. Moyer
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President and Chief Executive Officer
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D-21
AMENDMENT #2
TO
2005 STOCK AWARD AND INCENTIVE PLAN
WHEREAS
, EDGAR Online, Inc.
(the Company), maintains the 2005 Stock Award and Incentive Plan (the Plan) in order to aid the Company in attracting, retaining, motivating and rewarding employees and non-employee directors of the Company or its
Subsidiaries or Affiliates (both as defined in the Plan), to provide for equitable and competitive compensation opportunities, to recognize individual contributions and reward achievement of Company goals, and promote the creation of long-term value
for stockholders by closely aligning the interests of Participants (as defined in the Plan) with those of stockholders;
WHEREAS
, the Board of Directors and the stockholders of the Company have approved an amendment to the Plan (Amendment
#2) to increase the maximum number of shares of the Companys Common Stock, par value $0.01 per share (the Common Stock), that may be issued under the Plan by one million (1,000,000) shares of Common Stock and to make
clear that, under the Plan, the Company may not reprice stock options or stock appreciation rights without stockholder approval.
NOW THEREFORE,
in accordance with the foregoing, the Plan shall be amended as follows:
1.
Effective as of the date hereof, Section 4(a) of the Plan is hereby amended, in its entirety, to read as follows:
(a) The total number of shares of Stock reserved and available for delivery in connection with Awards under the Plan shall be
(i) three million eighty-seven thousand five hundred (3,087,500) shares, plus (ii) the number of shares that, immediately prior to the Effective Date, remain available for new awards under the Preexisting Plans plus (iii) the
number of shares subject to awards under the Plan or Preexisting Plans which become available in accordance with Section 4(b) after the Effective Date; provided, however, that the total number of shares with respect to which ISOs may be granted
shall not exceed the number specified under clause (i) above. The total number of shares available is subject to adjustment as provided in Section 11(c). Any shares of Stock delivered under the Plan shall consist of authorized and unissued
shares or treasury shares.
2. The following language shall be inserted after the last sentence in Section 8(a) entitled
Certain
Provisions Applicable to AwardsStand-Alone, Additional, Tandem and Substitution Awards:
Anything else in this
Section 8(a) notwithstanding, no grant of an Award that would constitute a repricing as defined by Section 11(e) shall be made without the approval of stockholders.
3. In all respects not amended by Amendment #2, the Plan is hereby ratified and confirmed.
D-22
IN WITNESS
WHEREOF
, and as evidence of the adoption of the amendment set forth herein, the appropriate officer of the Company has executed this Amendment #2, effective as of June 10, 2009.
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EDGAR ONLINE, INC.
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By:
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/s/ Philip D. Moyer
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Philip D. Moyer
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President and Chief Executive Officer
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D-23
EDGAR ONLINE, INC.
PROXY
2010 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 18,
2010
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF EDGAR ONLINE, INC.
The undersigned holder of shares of the common stock, par value $0.01 per share (the Common Stock), of EDGAR Online, Inc.
(the Company) revokes all previous proxies, acknowledges receipt of the Notice of the Annual Meeting of Stockholders of the Company to be held on November 18, 2010 and the Proxy Statement relating thereto, and appoints John Connolly,
Interim Chief Executive Officer and David Price, Chief Financial Officer, and each of them, the proxy of the undersigned, with full power of substitution, to vote all shares of the Common Stock that the undersigned is entitled to vote, either on his
or her own behalf or on behalf of any entity or entities, at the Annual Meeting of Stockholders of the Company to be held at the Companys offices, 122 East 42nd Street, Suite 2400, New York, New York 10168, on November 18, 2010 at 10:00 a.m.
local time (the Annual Meeting), and at any adjournment or postponement thereof, with the same force and effect as the undersigned might or could do if personally present thereat. The shares represented by this proxy, if it is properly
executed, will be voted in the manner directed herein by the undersigned stockholder(s).
If no direction is made, the shares represented by this proxy will be voted FOR Proposals 1, 2 and 3, FOR all nominees for election
by the holders of shares of the Common Stock as director and FOR Proposals 5, 6 and 7. To the extent permissible under applicable law, this proxy also delegates discretionary authority to vote on any matter that may properly come before
the Annual Meeting, or any adjournment or postponement thereof.
(Continued and to be signed on the reverse side)
ANNUAL MEETING OF
STOCKHOLDERS OF
EDGAR ONLINE, INC.
November 18, 2010
Important Notice Regarding the Availability of
Proxy Materials for
the Annual Meeting of Stockholders to be Held on November 18, 2010
This proxy statement and our 2009 annual report to stockholders, as well as other
proxy materials distributed with this proxy statement, are available at
http://www.edgar-online.com/About/InvestorRelations/ProxyMaterials.aspx.
Please sign, date and mail your proxy card in the envelope provided as soon as possible.
i
Please detach along perforated line and mail in the envelope
provided.
i
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¢
20430030303003030000 7
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111810
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF EDGAR ONLINE, INC.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN
BLUE OR BLACK INK AS SHOWN HERE
x
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4. To elect four directors to serve on the Board of Directors of the Company until the
Companys 2011 Annual Meeting of Stockholders and until their successors are duly elected and qualified or until their earlier resignation or removal;
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FOR
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AGAINST
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ABSTAIN
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1.
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To consider and act upon a proposal to approve the issuance of shares of the Companys common stock and Series C Convertible Preferred Stock pursuant to the
Agreement and Plan of Merger, dated as of June 23, 2010, by and among the Company, UBM Acquisition Corp., UBmatrix, Inc. and a representative of the stockholders of UBmatrix, Inc.;
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¨
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¨
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¨
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NOMINEES:
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¨
FOR ALL NOMINEES
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O Alfred R. Berkeley, III
O Richard L. Feinstein
O Mark Maged
O William J. ONeill, Jr.
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¨
WITHHOLD AUTHORITY
FOR ALL NOMINEES
¨
FOR ALL EXCEPT
(See instructions below)
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2.
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To consider and act upon a proposal to approve the issuance of
shares of the Companys Series C Convertible Preferred Stock pursuant to the Series C Preferred Stock Purchase Agreement, dated June 23, 2010;
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¨
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3.
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To consider and act upon a proposal to consider and vote upon an
adjournment of the Annual Meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal No. 1, Proposal No. 2, Proposal No. 5 or Proposal No. 6;
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INSTRUCTIONS:
To withhold authority to vote for any individual
nominee(s), mark
FOR
ALL EXCEPT
and fill
in the circle next to each nominee you wish to
withhold, as shown here:
l
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5.
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To consider and act upon a proposal to authorize, approve and adopt
amendments to the Companys 2005 Stock Award and Incentive Plan (i) to increase the number of shares of Common Stock available for award under such Plan and (ii) to increase the limitation on the amount of awards that may be granted to any one
participant in a given year in order to qualify awards as performance-based compensation not subject to the limitation on deductibility under Section 162(m) of the Internal Revenue Code;
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6.
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To consider and act upon a proposal to amend the Companys
Amended and Restated Certificate of Incorporation to increase the number of shares of authorized shares of Common Stock thereunder; and
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¨
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7.
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To approve and ratify the appointment of BDO USA, LLP as the
independent registered public accounting firm of the Company for the fiscal year ending December 31, 2010.
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To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be
submitted via this method.
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¨
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In their discretion, the proxies are authorized to act upon all matters incident to the conduct of
the Annual Meeting or any adjournments or postponements thereof
and upon other matters as
may properly come before the Annual Meeting or any adjournments or postponements thereof.
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Signature of Stockholder
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Date:
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Signature of Stockholder
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Date:
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Note:
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Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or
guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized
person.
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n
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PROXY CARD FOR
HOLDERS OF SERIES B PREFERRED STOCK
EDGAR ONLINE, INC.
PROXY
2010 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 18, 2010
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF EDGAR ONLINE, INC.
The undersigned holder of shares of the Series B Convertible Preferred Stock, par value $0.01 per share (the Series B Preferred
Stock), of EDGAR Online, Inc. (the Company) revokes all previous proxies, acknowledges receipt of the Notice of the Annual Meeting of Stockholders of the Company to be held on
November 18, 2010 and the Proxy Statement
relating thereto, and appoints John Connolly, Interim Chief Executive Officer and David Price, Chief Financial Officer, and each of them, the proxy of the undersigned, with full power of substitution, to vote all shares of the Series B Preferred
Stock that the undersigned is entitled to vote, either on his or her own behalf or on behalf of any entity or entities, at the Annual Meeting of Stockholders of the Company to be held at the Companys offices, 122 East 42
nd
Street, Suite 2400, New York, New York 10168, on
November 18,
2010 at 10:00 a.m. local time (the Annual Meeting), and at any adjournment or postponement thereof, with the same force and effect as the undersigned might or could do if personally present thereat. On all matters except for the election
of two directors designated below as the Series B Nominees, as to which holders of the Series B Preferred Stock shall be the only stockholders entitled to vote, holders of the Series B Preferred Stock are entitled to vote together with
the holders of the Companys common stock, $0.01 par value, on an as-converted basis each share of Series B Preferred Stock held by them. The shares represented by this proxy, if it is properly executed, will be voted in the manner directed
herein by the undersigned stockholder(s).
If no direction is made, the shares represented by this proxy will be voted FOR Proposals 1, 2 and 3, FOR all nominees for election by the holders of shares of the common stock and
Series B Preferred Stock as director and FOR Proposals 5, 6 and 7. To the extent permissible under applicable law, this proxy also delegates discretionary authority to vote on any matter that may properly come before the Annual Meeting,
or any adjournment or postponement thereof.
1.
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To consider and act upon a proposal to approve the issuance of shares of the Companys common stock and Series C Convertible Preferred Stock pursuant to the
Agreement and Plan of Merger, dated as of June 23, 2010, by and among the Company, UBM Acquisition Corp., UBmatrix, Inc. and a representative of the stockholders of UBmatrix, Inc.;
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FOR
¨
AGAINST
¨
ABSTAIN
2.
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To consider and act upon a proposal to approve the issuance of shares of the Companys Series C Convertible Preferred Stock pursuant to the Series C Preferred
Stock Purchase Agreement, dated June 23, 2010;
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FOR
¨
AGAINST
¨
ABSTAIN
3.
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To consider and act upon a proposal to consider and vote upon an adjournment of the Annual Meeting, if necessary, if a quorum is present, to solicit additional proxies
if there are not sufficient votes in favor of Proposal No. 1, Proposal No. 2, Proposal No. 5 or Proposal No. 6;
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FOR
¨
AGAINST
¨
ABSTAIN
4.
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To elect six directors (of which two are elected by the holders of the Series B Preferred Stock, voting separately as a class) to serve on the Board of Directors of the
Company until the Companys 2011 Annual Meeting of Stockholders and until their successors are duly elected and qualified or until their earlier resignation or removal;
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Alfred R. Berkeley, III
John
M. Connolly *
Richard L. Feinstein
Mark Maged
William J. ONeill,
Jr.
Jeffrey Schwartz *
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¨
FOR all nominees listed at left
(except as written below to the
contrary)
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¨
WITHHOLD AUTHORITY TO
VOTE for all nominees listed at left
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Instructions: To withhold
authority to vote for an individual nominee, write the nominees name in the space provided above.
5.
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To consider and act upon a proposal to authorize, approve and adopt amendments to the Companys 2005 Stock Award and Incentive Plan (i) to increase the number
of shares of Common Stock available for award under such Plan and (ii) to increase the limitation on the amount of awards that may be granted to any one participant in a given year in order to qualify awards as performance-based
compensation not subject to the limitation on deductibility under Section 162(m) of the Internal Revenue Code;
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FOR
¨
AGAINST
¨
ABSTAIN
6.
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To consider and act upon a proposal to amend the Companys Amended and Restated Certificate of Incorporation to increase the number of shares of authorized shares
of Common Stock thereunder; and
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FOR
¨
AGAINST
¨
ABSTAIN
7.
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To approve and ratify the appointment of BDO USA, LLP as the independent registered public accounting firm of the Company for the fiscal year ending December 31,
2010.
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FOR
¨
AGAINST
¨
ABSTAIN
In their discretion, the proxies are authorized to act upon all matters incident to the conduct of the Annual Meeting or any adjournments or postponements thereof and upon other matters as may properly
come before the Annual Meeting or any adjournments or postponements thereof.
PLEASE MARK, DATE, SIGN AND MAIL THIS PROXY IN
THE ENVELOPE PROVIDED FOR THIS PURPOSE.
Please print the name(s) appearing on each share certificate(s) over which you
have voting authority:
Date:
, 2010
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Signature if held
jointly:
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Note: When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please
sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held
on November 18, 2010
This proxy statement and our 2009 annual report to
stockholders, as well as other proxy materials distributed with this proxy statement, are available at
http://www.edgar-online.com/About/InvestorRelations/ProxyMaterials.aspx
.
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