Form 10-Q Voltari Corp For: Jun 30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2015
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 333-186564
Voltari Corporation
(Exact name of registrant as specified in its charter)
Delaware | 90-0933943 | |
(State of incorporation) | (I.R.S. Employer Identification Number) |
601 W. 26th Street, Suite 415
New York, NY 10001
(212) 388-5500
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | o | Accelerated filer | o |
Non-accelerated filer | o (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
As of July 31, 2015, there were 9,068,339 shares of the registrant's common stock, par value of $0.001 per share, outstanding.
TABLE OF CONTENTS
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PART I
Item 1. Condensed Consolidated Financial Statements.
Voltari Corporation
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)
June 30, 2015 | December 31, 2014 | ||||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 7,431 | $ | 6,448 | |||
Accounts receivable, net of allowance for doubtful accounts of $58 and $109 at June 30, 2015 and December 31, 2014 respectively | 1,249 | 3,494 | |||||
Prepaid expenses and other current assets | 311 | 1,533 | |||||
Total current assets | 8,991 | 11,475 | |||||
Property and equipment, net | 332 | 667 | |||||
Other assets | 31 | 188 | |||||
Total assets | $ | 9,354 | $ | 12,330 | |||
Liabilities, redeemable preferred stock and stockholders’ (deficit) equity | |||||||
Current liabilities | |||||||
Accounts payable and accrued expenses | $ | 1,779 | $ | 3,386 | |||
Accrued compensation | 147 | 721 | |||||
Other current liabilities | 1,567 | 1,451 | |||||
Total current liabilities | 3,493 | 5,558 | |||||
Other non-current liabilities | 28 | 29 | |||||
Total liabilities | 3,521 | 5,587 | |||||
Commitments and contingencies | — | — | |||||
Redeemable preferred stock, $0.001 par value; 1,170,327 and 1,199,643 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively. Redemption value: $41,526 and $39,950 at June 30, 2015 and December 31, 2014, respectively. | 38,266 | 36,380 | |||||
Stockholders’ deficit | |||||||
Common stock, $0.001 par value; 625,000,000 shares authorized; 9,068,339 and 4,763,358 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively | 9 | 5 | |||||
Additional paid-in capital | 565,320 | 563,643 | |||||
Accumulated deficit | (597,818 | ) | (593,316 | ) | |||
Accumulated other comprehensive income | 56 | 31 | |||||
Total stockholders’ deficit | (32,433 | ) | (29,637 | ) | |||
Total liabilities, redeemable preferred stock and stockholders’ deficit | $ | 9,354 | $ | 12,330 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Voltari Corporation
Condensed Consolidated Statements of Operations
(in thousands, except share data and per share amounts)
(unaudited)
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Revenue | $ | 663 | $ | 2,641 | $ | 2,707 | $ | 4,960 | |||||||
Operating expenses | |||||||||||||||
Direct third-party expenses | 375 | 1,731 | 1,631 | 3,336 | |||||||||||
Network operations, excluding depreciation | 118 | 1,332 | 829 | 2,603 | |||||||||||
Product development, excluding depreciation | — | 574 | 206 | 1,093 | |||||||||||
Sales and marketing, excluding depreciation | 468 | 1,143 | 1,297 | 2,360 | |||||||||||
General and administrative, excluding depreciation | 1,316 | 1,909 | 2,537 | 3,492 | |||||||||||
Depreciation and amortization | 78 | 1,101 | 236 | 2,368 | |||||||||||
Restructuring | 25 | — | 530 | — | |||||||||||
Total operating expenses | 2,380 | 7,790 | 7,266 | 15,252 | |||||||||||
Operating loss | (1,717 | ) | (5,149 | ) | (4,559 | ) | (10,292 | ) | |||||||
Total other income, net | 115 | 7 | 120 | 7 | |||||||||||
Loss from continuing operations before income taxes | (1,602 | ) | (5,142 | ) | (4,439 | ) | (10,285 | ) | |||||||
Provision for income taxes | — | — | — | — | |||||||||||
Net loss from continuing operations | (1,602 | ) | (5,142 | ) | (4,439 | ) | (10,285 | ) | |||||||
Net (loss) income from discontinued operations | (18 | ) | 326 | (63 | ) | 424 | |||||||||
Net loss | (1,620 | ) | (4,816 | ) | (4,502 | ) | (9,861 | ) | |||||||
Accretion of redeemable preferred stock | (176 | ) | (150 | ) | (345 | ) | (293 | ) | |||||||
Series J redeemable preferred stock dividends | (1,309 | ) | (1,176 | ) | (2,589 | ) | (2,303 | ) | |||||||
Net loss attributable to common stockholders | $ | (3,105 | ) | $ | (6,142 | ) | $ | (7,436 | ) | $ | (12,457 | ) | |||
Net (loss) income per share attributable to common stockholders - basic and diluted | |||||||||||||||
Continuing operations | $ | (0.34 | ) | $ | (1.39 | ) | $ | (1.07 | ) | $ | (2.77 | ) | |||
Discontinued operations | (0.01 | ) | 0.07 | (0.01 | ) | 0.09 | |||||||||
Total net loss per share attributable to common stockholders | $ | (0.35 | ) | $ | (1.32 | ) | $ | (1.08 | ) | $ | (2.68 | ) | |||
Weighted-average common shares outstanding – basic and diluted | 8,992,475 | 4,655,593 | 6,900,554 | 4,655,593 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Voltari Corporation
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Net loss | $ | (1,620 | ) | $ | (4,816 | ) | $ | (4,502 | ) | $ | (9,861 | ) | |||
Other comprehensive income (loss): | |||||||||||||||
Foreign currency translation adjustment | 8 | 23 | 25 | (52 | ) | ||||||||||
Other comprehensive income (loss) | 8 | 23 | 25 | (52 | ) | ||||||||||
Comprehensive loss | $ | (1,612 | ) | $ | (4,793 | ) | $ | (4,477 | ) | $ | (9,913 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Voltari Corporation
Condensed Consolidated Statements of Changes in Stockholders’ Deficit
(in thousands, except share data)
(unaudited)
Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | |||||||||||||||||||
Shares | Amount | Total | ||||||||||||||||||||
Balance as of December 31, 2014 | 4,763,358 | $ | 5 | $ | 563,643 | $ | (593,316 | ) | $ | 31 | $ | (29,637 | ) | |||||||||
Net loss | — | — | — | (4,502 | ) | — | (4,502 | ) | ||||||||||||||
Sale of common stock | 4,300,000 | 4 | 4,551 | 4,555 | ||||||||||||||||||
Other comprehensive income | — | — | — | — | 25 | 25 | ||||||||||||||||
Redeemable preferred stock dividends | — | — | (2,589 | ) | — | — | (2,589 | ) | ||||||||||||||
Accretion of redeemable preferred stock | — | — | (345 | ) | — | — | (345 | ) | ||||||||||||||
Common stock options and warrants | 4,981 | — | 22 | — | — | 22 | ||||||||||||||||
Stock-based compensation expense | — | — | 38 | — | — | 38 | ||||||||||||||||
Balance as of June 30, 2015 | 9,068,339 | $ | 9 | $ | 565,320 | $ | (597,818 | ) | $ | 56 | $ | (32,433 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Voltari Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended | |||||||
June 30, | |||||||
2015 | 2014 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (4,502 | ) | $ | (9,861 | ) | |
Loss (income) from discontinued operations | 63 | (424 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Depreciation and amortization | 236 | 2,368 | |||||
Stock-based compensation expense | 38 | 201 | |||||
Other non-cash adjustments | (159 | ) | 98 | ||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | 2,283 | (329 | ) | ||||
Prepaid expenses and other current assets | 553 | (35 | ) | ||||
Other assets | 157 | — | |||||
Accounts payable and accrued expenses | (2,166 | ) | (871 | ) | |||
Net cash used in operating activities - continuing operations | (3,497 | ) | (8,853 | ) | |||
Net cash (used in) provided by operating activities - discontinued operations | (63 | ) | 775 | ||||
Net cash used in operating activities | (3,560 | ) | (8,078 | ) | |||
Cash flows from investing activities: | |||||||
Purchases of property and equipment | — | (4 | ) | ||||
Capitalized software development costs | — | (1,681 | ) | ||||
Proceeds from sale of fixed assets | 218 | — | |||||
Net cash provided by (used in) investing activities - continuing operations | 218 | (1,685 | ) | ||||
Net cash provided by investing activities - discontinued operations | — | 200 | |||||
Net cash provided by (used in) investing activities | 218 | (1,485 | ) | ||||
Cash flows from financing activities: | |||||||
Proceeds from sale of common stock | 5,755 | — | |||||
Rights offering costs | (465 | ) | — | ||||
Proceeds from exercise of common stock options and warrants | 22 | — | |||||
Redemption of Series J preferred stock | (1,012 | ) | — | ||||
Net cash provided by financing activities | 4,300 | — | |||||
Effect of exchange rate changes on cash and cash equivalents | 25 | (49 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 983 | (9,612 | ) | ||||
Cash and cash equivalents at beginning of period | 6,448 | 24,745 | |||||
Cash reclassified to assets held for sale at beginning of period | — | 856 | |||||
Cash reclassified to assets held for sale at end of period | — | (547 | ) | ||||
Cash and cash equivalents at end of period | $ | 7,431 | $ | 15,442 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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1. Business Description and Basis of Presentation
Business Description
Voltari Corporation (“Voltari” or the “Company”) has been engaged in the business of providing mobile advertising solutions to brands, marketers and advertising agencies. In August 2015, we began implementing a transformation plan pursuant to which, among other things, we intend to exit our mobile marketing and advertising business and enter into the business of acquiring, financing and leasing commercial real properties.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q for interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. The condensed consolidated balance sheet as of December 31, 2014 included herein was derived from the audited financial statements as of that date, but does not include all disclosures required by U.S. GAAP.
The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all normal recurring adjustments which are necessary for a fair statement of the results of the interim period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the fiscal year ended December 31, 2014 included in our Annual Report on Form 10-K (together with Amendment No. 1 to the 2014 Annual Report on Form 10-K/A, the "10-K"). The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of the results to be expected for the full year or for any other period.
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates include the allowance for doubtful accounts receivable, valuation of deferred tax assets, valuation of goodwill, long-lived and intangible assets, stock-based compensation, litigation and other loss contingencies. Actual results could differ from those estimates.
Reclassifications
On May 30, 2014, we completed the sale of our U.S. and Canadian messaging business. Further, on September 1, 2014, we completed the sale of our wireless carrier business in the United Kingdom ("UK"). As a result, these businesses are reported as discontinued operations in the condensed consolidated financial statements for the requisite periods presented in this Quarterly Report on Form 10-Q. See Note 3 - Discontinued Operations for further information.
2. Summary of Significant Accounting Policies
Our significant accounting policies are those that we believe are both important to the portrayal of our financial condition and results of operations. Management believes there have been no material changes to the significant accounting policies discussed in Note 2 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
Recently Adopted Accounting Pronouncements
In April 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-08, which amends FASB ASC Topic 205, Presentation of Financial Statements and FASB ASC Topic 360, Property, Plant, and Equipment. This standard amends the definition of a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. This guidance became effective on a prospective basis for annual periods beginning on or after December 15, 2014, and interim periods within those years. The Company adopted this standard beginning January 1, 2015. Adoption did not have an impact on our consolidated financial statements.
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Recently Issued Accounting Pronouncements
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. It is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of the adoption of ASU 2015-02 on our consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard requires management to evaluate for each reporting period whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern and provide related footnote disclosure in certain circumstances. The new standard is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early application is permitted. The Company expects to adopt this standard for our annual period ending December 31, 2016 and is currently evaluating the impact of the adoption of the new standard on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The guidance in this ASU supersedes nearly all existing revenue recognition guidance under U.S. GAAP and creates a single, principle-based revenue recognition framework that is codified in a new FASB ASC Topic 606. The core principle of this guidance is for the recognition of revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The new revenue standard is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those years. Early adoption is not permitted. The new standard allows for either full retrospective or modified retrospective adoption. The Company is currently evaluating the transition method that will be elected and the potential effects of the adoption of the new standard on our consolidated financial statements.
3. Discontinued Operations
In August, 2015 we began implementing a transformation plan pursuant to which, among other things, we intend to exit our mobile marketing and advertising business and enter into the business of acquiring, financing and leasing commercial real properties. Net loss from continuing operations in the condensed consolidated statements of operations includes the results of our mobile marketing and advertising business for the three and six months ended June 30, 2015. See Exhibit 99.1 included in this Quarterly Report on Form 10-Q, "Unaudited Pro Forma Consolidated Financial Information" for pro forma information related to the exit from our mobile marketing and advertising business and our entry into the business of acquiring, financing and leasing commercial real properties.
On May 30, 2014, we completed the sale of our U.S. and Canadian messaging business. On September 1, 2014, we completed the sale of our UK carrier business. The operations related to the U.S. and Canadian messaging business as well as our UK carrier business are reported as discontinued operations in the condensed consolidated financial statements for all periods presented. We discontinued U.S. carrier operations in 2013 and discontinued India, Asia Pacific and European carrier operations in 2012.
Discontinued operations on the condensed consolidated statements of operations for the three months ended June 30, 2015 and 2014 is as follows (in thousands):
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Three Months Ended June 30, | |||||||||||||||||||
2015 | 2014 | ||||||||||||||||||
Total | U.S. Messaging & Other | Canadian Messaging | UK Carrier | Total | |||||||||||||||
Revenue | $ | — | $ | 105 | $ | 119 | $ | 334 | $ | 558 | |||||||||
Operating (loss) income | (18 | ) | 18 | (26 | ) | 205 | 197 | ||||||||||||
Other income (expense) | — | 178 | (49 | ) | — | 129 | |||||||||||||
Pre-tax (loss) income | (18 | ) | 196 | (75 | ) | 205 | 326 | ||||||||||||
Provision for income taxes | — | — | — | — | — | ||||||||||||||
Net (loss) income from discontinued operations | $ | (18 | ) | $ | 196 | $ | (75 | ) | $ | 205 | $ | 326 |
Discontinued operations on the condensed consolidated statements of operations for the six months ended June 30, 2015 and 2014 is as follows (in thousands):
Six Months Ended June 30, | |||||||||||||||||||
2015 | 2014 | ||||||||||||||||||
Total | U.S. Messaging & Other | Canadian Messaging | UK Carrier | Total | |||||||||||||||
Revenue | $ | — | $ | 372 | $ | 451 | $ | 646 | $ | 1,469 | |||||||||
Operating (loss) income | (63 | ) | 228 | (114 | ) | 326 | 440 | ||||||||||||
Other income (expense) | — | 82 | (98 | ) | — | (16 | ) | ||||||||||||
Pre-tax (loss) income | (63 | ) | 310 | (212 | ) | 326 | 424 | ||||||||||||
Provision for income taxes | — | — | — | — | — | ||||||||||||||
Net (loss) income from discontinued operations | $ | (63 | ) | $ | 310 | $ | (212 | ) | $ | 326 | $ | 424 |
4. Goodwill and Long-Lived Assets Impairment
Based upon a combination of factors and developments, including continuing operating losses and a sustained decline in our stock price, we had strong indications that our goodwill was likely impaired as of December 2014. In addition, expected changes in use of certain of our capitalized software and other property and equipment required an impairment analysis and resulted in impairment charges which are described in greater detail below.
Long-Lived Assets
As a result of termination of our Seattle datacenter operations in the first quarter of 2015 and planned changes in the use of assets consistent with efforts to reduce operating costs, we determined our property and equipment, including capitalized software, as well as intangible assets, were impaired in the fourth quarter of 2014. Certain capitalized software and other long-lived assets classified as property and equipment, net, are no longer used in our operations and carrying value of those assets exceeds the expected net sales proceeds. We have consequently recognized impairment charges of $3.9 million in the fourth quarter of 2014, including $3.8 million related to capitalized software costs.
Goodwill
As a result of continuing operating losses, a sustained decline in our stock price, a discounted cash flow analysis and market value analysis, we determined there was not sufficient value to support the carrying value of the reporting unit's goodwill. Consequently, we recorded a $2.4 million goodwill impairment charge in the fourth quarter of 2014.
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5. Restructuring
In the first quarter of 2015, we significantly reduced the size of our engineering department and terminated operations at our Seattle Data Center as part of an effort to reduce our operating expenses, particularly the cost of research and development and advertising delivery. As a result of these restructuring plans, we incurred $0.5 million of restructuring charges during the six months ended June 30, 2015, primarily related to vendor contract termination costs, termination benefits associated with the elimination of redundant functions and positions and rental cost related to closed facilities. Other current liabilities at June 30, 2015 includes $0.1 million related to accrued restructuring costs, primarily vendor contract termination costs.
6. Redeemable Preferred Stock
Upon completion of our rights offering in October 2012, we issued 1,199,643 shares of 13% Redeemable Series J Preferred Stock (the "Series J preferred stock") and, after giving effect to the one-for-ten reverse stock split that took effect in April 2013, warrants to acquire 1,014,982 common shares. Net proceeds from the rights offering of approximately $27.8 million were allocated between Series J preferred stock and common stock warrants based on their estimated relative fair market values at the date of issuance. The portion of the net proceeds from the rights offering attributable to the Series J preferred stock was determined to be approximately $26.4 million. The difference between the carrying value of the Series J preferred stock and its liquidation value is being accreted over an anticipated redemption period of five years using the effective interest method. The shares of Series J preferred stock have limited voting rights and are not convertible into shares of our common stock or any other series or class of our capital stock.
Holders of the Series J preferred stock are entitled to an annual dividend of 13%, which is payable in cash or in-kind at our discretion, on a quarterly basis. To date, we have elected to pay all quarterly dividend payments on our Series J preferred stock, in the cumulative amount of $12.3 million, in-kind rather than in cash. Accordingly, we have increased the carrying value of our Series J preferred stock for the amount of the paid in-kind dividend payments. Dividends on the Series J preferred stock and the accretion increase the amount of net loss that is attributable to common stockholders and are presented as separate amounts on the condensed consolidated statements of operations.
Our Series J preferred stock has a preference upon dissolution, liquidation or winding up of the Company in respect of assets available for distribution to stockholders. The liquidation preference of the Series J preferred stock is initially $25 per share. If the quarterly cash dividends on the Series J preferred stock are not paid, which has been the case to date, the liquidation preference is adjusted and increased quarterly (i) until October 11, 2017, by an amount equal to 3.25% of the liquidation preference per share, as in effect at such time and (ii) thereafter by an amount equal to 3.5% of the liquidation preference per share, as in effect at such time. The quarterly accretion will continue until the shares are redeemed, or until the Company's affairs are liquidated, dissolved or wound-up.
Our Series J preferred stock contains certain redemption features and is classified as mezzanine equity on our condensed consolidated balance sheets at June 30, 2015 and December 31, 2014 since the shares are (i) redeemable at the option of the holder upon the occurrence of certain events and (ii) have conditions for redemption which are not solely within our control. Our Series J preferred stock is redeemable at the option of the holder if the Company undergoes a change in control, which includes a person becoming a beneficial owner of securities representing at least 50% of the voting power of our company, a sale of substantially all of our assets, and certain business combinations and mergers which cause a change in 20% or more of the voting power of our company, and if we experience an ownership change (within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended), which results in a substantial limitation on our ability to use our net operating losses and related tax benefits.
As of June 30, 2015, our Series J preferred stock has an aggregate redemption value of approximately $41.5 million, including paid in-kind dividends of $11.0 million and accrued dividends of $1.3 million which are included within Other current liabilities on our condensed consolidated balance sheet. We recorded accretion associated with our Series J preferred stock of $0.2 million and $0.3 million for the three and six months ended June 30, 2015, respectively, and $0.2 million and $0.3 million for the three and six months ended June 30, 2014, respectively.
In connection with the closing of our rights offering on March 30, 2015 (See Note 7 - Rights Offering), entities affiliated with Mr. Carl C. Icahn, our largest shareholder, became the owner of approximately 52.3% of our common stock, which resulted in a change of control of the Company. This constituted a redemption event pursuant to the terms and conditions of the Series J preferred
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stock, and as a result each holder of shares of Series J preferred stock had the right to require the Company to redeem all or a portion of such holder’s shares of Series J preferred stock. Entities affiliated with Mr. Carl C. Icahn waived their option to redeem Series J preferred stock in connection with the change in control resulting from the completion of the rights offering that closed on March 30, 2015. On April 13, 2015 we redeemed 29,316 shares of Series J preferred stock for approximately $1.0 million in cash. Following the April 13, 2015 redemption of Series J preferred stock, entities affiliated with Mr. Carl C. Icahn became the owner of approximately 97.9% of our Series J preferred stock.
7. Rights Offering
On February 27, 2015, we commenced a rights offering of up to an aggregate of 4,300,000 shares of our common stock. Under the terms of the rights offering, we distributed to stockholders of record at the close of business on February 13, 2015 transferable subscription rights to purchase 0.9027 shares of common stock for every share of common stock owned on such date.
The rights offering was fully subscribed and closed on March 30, 2015. We received approximately $4.6 million in net proceeds from the rights offering, including approximately 96% from entities affiliated with Mr. Carl C. Icahn. Prepaid expenses and other current assets at December 31, 2014 included costs related to the rights offering of $0.7 million, which have been charged against the proceeds of the offering.
Following the completion of the rights offering on March 30, 2015, entities affiliated with Mr. Carl C. Icahn, the Company’s largest stockholder, became the owner of approximately 52.3% of our common stock. Entities affiliated with Mr. Icahn also own warrants to purchase an additional 9.7% of our common stock, which warrants are currently unexercisable by Mr. Icahn and such affiliated entities.
8. Net Loss Per Share Attributable to Common Stockholders
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders for the period indicated (dollars in thousands):
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Net loss attributable to common stockholders | $ | (3,105 | ) | $ | (6,142 | ) | $ | (7,436 | ) | $ | (12,457 | ) | |||
Weighted-average common shares outstanding - basic and diluted | 8,992,475 | 4,655,593 | 6,900,554 | 4,655,593 | |||||||||||
Net loss per share attributable to common stockholders - basic and diluted | $ | (0.35 | ) | $ | (1.32 | ) | $ | (1.08 | ) | $ | (2.68 | ) |
Basic net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the applicable period. Diluted net loss per share attributable to common stockholders includes the effects of any warrants, options and other potentially dilutive securities outstanding during the period. For the periods presented, there were no potentially dilutive securities outstanding, therefore basic and diluted net loss per share attributable to common stockholders are equal. The following table presents the outstanding antidilutive securities excluded from the calculation of net loss per share attributable to common stockholders:
June 30, | |||||
2015 | 2014 | ||||
Common stock issuable upon exercise of Warrants | 1,014,958 | 1,202,804 | |||
Options to purchase common stock | 57,811 | 261,194 | |||
Restricted stock | 73,525 | 42,919 | |||
Total securities excluded from net loss per share attributable to common stockholders | 1,146,294 | 1,506,917 |
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9. Commitments and Contingencies
Legal Proceedings
Putative Securities Class Action. We previously announced that Joe Callan filed a putative securities class action complaint in the U.S. District Court, Western District of Washington at Seattle on behalf of all persons who purchased or otherwise acquired common stock of Motricity between June 18, 2010 and August 9, 2011 or in Motricity’s initial public offering. Motricity, which was our predecessor registrant, is now our wholly-owned subsidiary and has changed its name to Voltari Operating Corp. The defendants in the case were Motricity, certain of our current and former directors and officers, including Ryan K. Wuerch, James R. Smith, Jr., Allyn P. Hebner, James N. Ryan, Jeffrey A. Bowden, Hunter C. Gary, Brett Icahn, Lady Barbara Judge CBE, Suzanne H. King, Brian V. Turner; and the underwriters in Motricity’s initial public offering, including J.P. Morgan Securities, Inc., Goldman, Sachs & Co., Deutsche Bank Securities Inc., RBC Capital Markets Corporation, Robert W. Baird & Co Incorporated, Needham & Company, LLC and Pacific Crest Securities LLC. The complaint alleged violations under Sections 11 and 15 of the Securities Act of 1933, as amended, (the “Securities Act”) and Section 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), by all defendants and under Section 10(b) of the Exchange Act by Motricity and those of our former and current officers who are named as defendants. The complaint sought, inter alia, damages, including interest and plaintiff’s costs and rescission. A second putative securities class action complaint was filed by Mark Couch in October 2011 in the same court, also related to alleged violations under Sections 11 and 15 of the Securities Act, and Sections 10(b) and 20(a) of the Exchange Act. On November 7, 2011, the class actions were consolidated, and lead plaintiffs were appointed pursuant to the Private Securities Litigation Reform Act. On December 16, 2011, plaintiffs filed a consolidated complaint which added a claim under Section 12 of the Securities Act to its allegations of violations of the securities laws and extended the putative class period from August 9, 2011 to November 14, 2011. The plaintiffs filed an amended complaint on May 11, 2012 and a second amended complaint on July 11, 2012. On August 1, 2012, we filed a motion to dismiss the second amended complaint, which was granted on January 17, 2013. A third amended complaint was filed on April 17, 2013. On May 30, 2013, we filed a motion to dismiss the third amended complaint, which was granted by the Court on October 1, 2013. On October 31, 2013, the plaintiffs filed a notice of appeal of the dismissal to the United States Court of Appeals for the Ninth Circuit. On April 25, 2014, the plaintiffs filed their opening appellate brief and on July 24, 2014 we filed our answering brief.
From time to time, we are subject to claims in legal proceedings arising in the normal course of business. We do not believe that we are currently party to any pending legal action that could reasonably be expected to have a material adverse effect on our business, financial condition, results of operations or cash flows.
10. Subsequent Events
On August 6, 2015, we committed to a transformation plan pursuant to which, among other things, we intend to exit the mobile marketing and advertising business and enter into the business of acquiring, financing and leasing commercial real estate properties.
In connection with the implementation of our transformation plan, we could incur total costs ranging from $0.6 million to $1.4 million. Included in this estimate are severance and other workforce reduction costs of approximately $0.3 million and costs associated with our exit from the mobile marketing and advertising business, consisting primarily of lease termination and other costs ranging from approximately $0.3 million to $1.1 million in connection with exiting our office space in New York, Chicago and Los Angeles. All costs of our transformation plan are expected to be incurred during 2015 and include non-cash impairment charges of $0.2 million, relating primarily to our leasehold improvements and furniture and fixtures in our New York office.
On August 7, 2015, we, through our wholly owned subsidiary, Voltari Real Estate Holding LLC, entered into a purchase and sale agreement (the “P&S Agreement”) with 160 Brighton Acquisition, LLC to acquire a real estate parcel in Long Branch, New Jersey. The property is subject to a triple net lease with JPMorgan Chase Bank, N.A. ("Chase"), the original term of which expires in June, 2020 (with two, five-year renewal options), pursuant to which Chase is responsible for the payment of basic rent as well as the payment of real estate taxes, maintenance costs, utilities, tenant's insurance and other property related costs. The purchase price is approximately $3.63 million and average annual rental income for the property over the remaining term of the original lease is expected to be approximately $203,000. The P&S Agreement contains customary representations, warranties and covenants by the parties and the closing of the purchase is subject to customary conditions precedent, including a due diligence period. We can make no assurances that the conditions will be satisfied or that the purchase will be consummated in a timely manner, if at all.
On August 7, 2015, we (as borrower) and Koala Holding LP (as lender), an affiliate of Carl C. Icahn, our controlling stockholder (“Koala”), entered into a revolving note (the “Note”). Pursuant to the Note, Koala made available to us a revolving loan facility of up
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to $10 million in aggregate principal amount. Borrowings under the Note will bear interest at a rate equal to the greater of the LIBOR rate plus 350 basis points, per annum, and 3.75%, per annum. The Note also includes a fee of 0.25%, per annum, on undrawn amounts and matures on the earliest of (i) December 31, 2017, (ii) the date on which any financing transaction, whether debt or equity, is consummated by us (or our successors and assigns) with net proceeds in an amount equal to or greater than $10 million, and (iii) at our option, a date selected by us that is earlier than December 31, 2017. Subject to the terms and conditions of the Note, we may repay all or any portion of the amounts outstanding under the Note at any time without premium or penalty, and any amounts so repaid will, until the maturity date, be available for re-borrowing. As collateral for the Note, we have pledged and granted to Koala a lien on our limited liability company interest in Voltari Real Estate Holding LLC.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our condensed consolidated financial statements included elsewhere herein.
Forward-Looking Statements
Some of the statements contained in this Quarterly Report on Form 10-Q, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, Part II, Item 1A—Risk Factors and Exhibit 99.1, Unaudited Pro Forma Consolidated Financial Information, attached hereto, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 12E of the Securities Exchange Act of 1934, as amended, regarding our plans, objectives, expectations and intentions. Such statements include, without limitation, any statements regarding our transformation plan, our exit from the mobile marketing and advertising business and our entry into the real estate investment business, any statements regarding our ability to generate profits, any statements regarding various estimates we have made in preparing our financial statements, statements that refer to projections of our future operating performance, statements regarding any pro forma financial information we present, the sufficiency of our capital resources to meet our cash needs, the exit from or disposition of certain of our businesses, and the anticipated growth and trends in our businesses. These forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those anticipated.
Risks and uncertainties that could adversely affect our business and prospects include without limitation:
• | any financial or other information included herein (including pro forma financial information) based upon or otherwise incorporating judgments or estimates based upon future performance or events; |
• | our ability to raise additional capital or generate the cash necessary to continue and expand our operations; |
• | our ability to raise additional capital or generate the cash necessary to fund the liquidation preference on, or redeem, our Series J preferred stock if required to do so; |
• | our ability to protect and make use of our substantial net operating loss carryforwards; |
• | our ability to implement our transformation plan; |
• | our ability to compete in the highly competitive real estate investment industry; |
• | the impact of government regulation, legal requirements or industry standards relating to commercial real estate; |
• | our limited experience acquiring and managing commercial real properties; |
• | our ability to close our pending real estate acquisition and execute additional acquisitions; |
• | risks generally associated with the commercial real estate investment business; |
• | our ability to meet the criteria required to remain listed on NASDAQ; |
• | the ongoing benefits and risks related to our relationship with Mr. Carl Icahn, our principal beneficial stockholder and principal lender, through certain of his affiliates; and |
• | the impact and costs and expenses of any litigation we may be subject to now or in the future. |
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions intended to identify forward-
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looking statements. Our actual results could be different from the results described in or anticipated by our forward-looking statements due to the inherent uncertainty of estimates, forecasts, projections and pro forma financial information, and may be materially better or worse than anticipated. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements represent our estimates and assumptions only as of the date of this report. We expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, after the date of this report, in order to reflect changes in circumstances or expectations or the occurrence of unanticipated events except to the extent required by applicable securities laws. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed above, as well as the risks and uncertainties discussed in Part II, Item 1A - Risk Factors in this Quarterly Report on Form 10-Q and in Part I, Item 1A - Risk Factors of our Annual Report on Form 10-K, as amended by Form 10-K/A, for the fiscal year ended December 31, 2014. We qualify all of our forward-looking statements by these cautionary statements. We caution you that these risks are not exhaustive. We operate in a continually changing business environment and new risks emerge from time to time.
Recent Developments & Transformation Plan
On August 6, 2015, the board of directors (the “Board”) of Voltari Corporation (“we, “us”, “Voltari” or the “Company”) committed the Company to a transformation plan pursuant to which, among other things, the Company intends to exit its mobile marketing and advertising business and enter into the business of acquiring, financing and leasing commercial real estate properties. The Company intends to lease such properties pursuant to so-called “double net” or “triple net” leases. As the Company executes its transformation plan, it intends to significantly reduce its workforce over the next several weeks, which process has begun.
The Board decided to implement the transformation plan following its review of the Company's efforts to realign its strategic path and management's analysis of the Company's mobile marketing and advertising business. As previously disclosed, we have undergone significant changes over the past two years. Prior to July 1, 2013, most of our revenue was derived from providing hosting services to wireless carriers. Starting in 2012, we began our exit from most of our international carrier business and, on June 30, 2013, concluded our U.S. carrier business. On October 31, 2013, we completed the sale of our Gen5 business. On May 30, 2014, we completed the sale of our U.S. and Canadian messaging business. Further, on September 1, 2014, we completed the sale of our wireless carrier business in the UK.
In connection with our efforts to realign our strategic path, we shifted our focus to the mobile marketing and advertising business and continued to reduce our cost structure. We implemented various cost reduction measures, including reductions in our workforce and a restructuring of our facilities and data centers. Further, in January of 2015, we significantly reduced the size of our engineering staff and terminated operations at our Seattle Data Center as part of our ongoing efforts to reduce our operating expenses, particularly the cost of research and development and the delivery of advertising.
Beginning in late May 2015, the Board undertook a review of the Company’s prospects, cost-cutting efforts and strategic alternatives. As part of its review, the Board considered alternative businesses the Company could enter into that would preserve the Company’s assets and maximize shareholder value. Based on its assessment of the Company’s prospects and cost structure including, among other factors, the Company’s performance during the three and six month periods ended June 30, 2015, recent forecasts provided by management, input from an independent consultant, and potential strategic alternatives available to the Company, the Board concluded that our cost-cutting efforts have not kept pace with our declining revenue, that our forecasted cash burn and revenue potential are unsatisfactory and that effecting the transformation plan by exiting the mobile marketing and advertising business and entering into the real estate investment business is in the best interests of the Company’s stockholders. The Board believes that, if successfully implemented, the Company can significantly decrease its operating costs and cash burn and, over time, generate profits from the transformation plan.
In addition to our entry into the real estate investment business as described above, the Company intends to explore additional strategic opportunities from time to time, which may include opportunities with respect to its intellectual property, investments in various industries or acquisitions.
Cost Reductions and Material Charges — In connection with the implementation of our transformation plan, we could incur total costs ranging from $0.6 million to $1.4 million. Included in this estimate are severance and other workforce reduction costs of approximately $0.3 million and costs associated with our exit from the mobile marketing and advertising business, consisting primarily of lease termination and other costs ranging from approximately $0.3 million to $1.1 million in connection with exiting our office space in New York, Chicago and Los Angeles.
All costs of our transformation plan are expected to be incurred during 2015 and include non-cash impairment charges of $0.2 million, relating primarily to our leasehold improvements and furniture and fixtures in our New York office.
Real Property Acquisition—As the first step in the execution of our transformation plan, on August 7, 2015, we caused our wholly-owned subsidiary, Voltari Real Estate Holding LLC, formed for this purpose, to enter into a purchase and sale agreement (the “P&S Agreement”) with 160 Brighton Acquisition, LLC to acquire a real estate parcel in Long Branch, New Jersey. The property is subject to a triple net
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lease with JPMorgan Chase Bank, N.A. ("Chase"), the original term of which expires in June, 2020 (with two, five-year renewal options), pursuant to which Chase is responsible for the payment of basic rent as well as the payment of real estate taxes, maintenance costs, utilities, tenant's insurance and other property related costs. Refer to http://investor.shareholder.com/jpmorganchase/sec.cfm for the financial statements of the tenant. The purchase price is approximately $3.63 million and average annual rental income for the property over the remaining term of the original lease is expected to be approximately $203,000. The P&S Agreement contains customary representations, warranties and covenants by the parties and the closing of the purchase is subject to customary conditions precedent, including a due diligence period. We can make no assurances that the conditions will be satisfied or that the purchase will be consummated in a timely manner, if at all.
Revolving Note—On August 7, 2015, we (as borrower) and Koala Holding LP (as lender), an affiliate of Carl C. Icahn, the Company’s controlling stockholder (“Koala”), entered into a revolving note (the “Note”). The Company sought and received the Note to, in part, allay potential concerns regarding the Company’s ability to invest in and execute its transformation plan while retaining cash levels sufficient to fund its ongoing operations. There are no limitations on the use of proceeds under the Note. The Company currently intends to use this funding to facilitate the acquisition of additional commercial real estate properties as it executes its transformation plan, as well as for operating expenses and working capital purposes.
Our Board formed a special committee of independent directors (the “Special Committee”) to negotiate the structure and terms of the Note. The Special Committee consisted of James L. Nelson and Jay A. Firestone. In connection with its negotiation of the structure and terms of the Note, the Special Committee retained and received advice from its own legal counsel as well as an independent financial advisor. The Special Committee received an opinion from its independent financial advisor that the financial terms of the Note are fair, from a financial point of view, to us. The Special Committee approved the terms and conditions of, and our entry into, the Note.
Pursuant to the Note, Koala made available to the Company a revolving loan facility of up to $10,000,000 in aggregate principal amount. Borrowings under the Note will bear interest at a rate equal to the greater of the LIBOR rate plus 350 basis points, per annum, and 3.75%, per annum. The Note also includes a fee of 0.25%, per annum, on undrawn amounts and matures on the earliest of (i) December 31, 2017, (ii) the date on which any financing transaction, whether debt or equity, is consummated by the Company (or its successors and assigns) with net proceeds in an amount equal to or greater than $10 million, and (iii) at the Company’s option, a date selected by the Company that is earlier than December 31, 2017.
If an event of default exists, the Note will bear interest at a default rate equal to the greater of the LIBOR Rate plus 450 basis points, per annum, and 4.75%, per annum. Subject to the terms and conditions of the Note, the Company may repay all or any portion of the amounts outstanding under the Note at any time without premium or penalty, and any amounts so repaid will, until the maturity date, be available for re-borrowing. As collateral for the Note, the Company has pledged and granted to Koala a lien on the Company’s limited liability company interest in Voltari Real Estate Holding LLC.
Incentive Award—On August 6, 2015 and in light of the transformation plan, the compensation committee of the Company’s Board (the “Compensation Committee”) approved a discretionary performance incentive award for Mr. John Breeman, the Company’s Chief Financial Officer and acting principal executive officer. The incentive award is intended to provide performance-based compensation to Mr. Breeman for his contribution to the achievement of the Company’s objectives, including without limitation, the successful implementation of the Company’s transformation plan. The Compensation Committee set a target for the award of 60% of Mr. Breeman’s base salary for 2015. Payment of any incentive award will be discretionary, in cash, and will be tied to the successful implementation of our transformation plan, as determined by the Board. Payment of any award will be made following the finalization of the Company’s audited financial statements for the fiscal year ended December 31, 2015.
Other Recent Developments
Rights offering—On February 27, 2015, we commenced a rights offering of up to an aggregate of 4,300,000 shares of our common stock. Under the terms of the rights offering, we distributed to stockholders of record at the close of business on February 13, 2015 transferable subscription rights to purchase 0.9027 shares of common stock for every share of common stock owned on the record date. The rights offering included an over-subscription privilege, which permitted each subscriber that exercised its basic subscription right in full the option to purchase additional shares of common stock that remained unsubscribed at the expiration of the offering. If a subscriber exercised its basic subscription right or over-subscription privilege to purchase less than 1,300,000 shares in the rights offering, the subscriber paid a price of $0.97 per whole share. If a subscriber exercised its basic subscription right or over-subscription privilege to purchase 1,300,000 shares or more in the rights offering and owned 33% or more of our issued and outstanding common stock following completion of the rights offering, the subscriber paid a price of $1.36 per whole share.
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The rights offering was fully subscribed and closed on March 30, 2015. We received approximately $4.6 million in net proceeds from the rights offering and we intend to use these proceeds for general corporate and working capital purposes. Following the completion of the rights offering on March 30, 2015, entities affiliated with Mr. Carl C. Icahn, the Company’s largest stockholder, became the owner of approximately 52.3% of our common stock. Entities affiliated with Mr. Icahn also own warrants to purchase an additional 9.7% of our common stock, which warrants are currently unexercisable by Mr. Icahn and such affiliated entities.
Series J Preferred Stock—The March 30, 2015 acquisition of common stock by entities affiliated with Mr. Carl C. Icahn in the rights offering resulted in a change of control of the Company, which triggered a redemption event pursuant to the terms of the Company's 13% Redeemable Series J Preferred Stock, par value $0.001 per share (the "Series J preferred stock"), and as a result each holder of shares of Series J preferred stock had the right to require the Company to redeem all or a portion of such holder’s shares of Series J preferred stock. Entities affiliated with Mr. Carl C. Icahn waived their option to redeem Series J preferred stock in connection with the change in control resulting from the completion of the rights offering on March 30, 2015. On April 13, 2015 we redeemed 29,316 shares of Series J preferred stock for approximately $1.0 million in cash. Following the April 13, 2015 redemption of Series J preferred stock, entities affiliated with Mr. Carl C. Icahn became the owner of approximately 97.9% of our Series J preferred stock.
Regained Compliance with NASDAQ Continued Listing Requirements—Our common stock is currently listed on the NASDAQ Capital Market. On May 22, 2014, we received a letter from the NASDAQ Stock Market LLC (“NASDAQ”) advising that we did not meet the minimum $2.5 million stockholders’ equity value requirement for continued listing on the NASDAQ Capital Market and we did not satisfy the alternative requirements for continued listing based on market value of listed securities or net income from continuing operations pursuant to applicable NASDAQ Marketplace Rules. The NASDAQ Listing Qualifications Panel granted us an extension of time until May 18, 2015 to regain compliance with the minimum stockholders' equity value requirements. On April 22, 2015 we received written notice from NASDAQ notifying us that we had regained compliance with the applicable NASDAQ Marketplace Rules based on the market value of listed securities greater than $35 million for 10 consecutive trading days.
On March 17, 2015, we received written notice from NASDAQ notifying us that for the preceding 30 consecutive business days, our common stock did not maintain a minimum closing bid price of $1.00 per share, as required by NASDAQ Listing Rule 5550(a)(2). NASDAQ stated in its letter that in accordance with the NASDAQ Listing Rules, we would be provided 180 calendar days, or until September 14, 2015, to regain compliance with the minimum bid price requirement. On April 15, 2015, we received written notice from NASDAQ notifying us that for the preceding 10 consecutive business days the closing bid price of the Company's common stock had been $1.00 per share or greater. Accordingly, NASDAQ determined that the Company had regained compliance with NASDAQ Listing Rule 5550(a)(2).
Having regained compliance with these rules, we are now in compliance with all applicable requirements for continued listing on the NASDAQ Capital Market. We cannot assure that we will remain in compliance with all applicable requirements for continued listing on the NASDAQ Capital Market.
Results of Operations
Our continuing operations for the three and six months ended June 30, 2015 consist of our mobile maketing and advertising business which has terminated in August 2015.
On May 30, 2014, we completed the sale of our messaging business in the U.S. and Canada. Further, on September 1, 2014, we completed the sale of our wireless carrier business in the UK. As a result, these businesses are reported as discontinued operations in the condensed consolidated financial statements for the requisite periods presented in this Quarterly Report on Form 10-Q. See discussion of net (loss) income from discontinued operations below and Note 3 - Discontinued Operations to our condensed consolidated financial statements for more information.
Total revenue
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
June 30, | June 30, | ||||||||||||||||||||||||||||
2015 | 2014 | $ Change | % Change | 2015 | 2014 | $ Change | % Change | ||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||||
Total revenue | $ | 663 | $ | 2,641 | $ | (1,978 | ) | (74.9 | )% | $ | 2,707 | $ | 4,960 | $ | (2,253 | ) | (45.4 | )% |
Total revenue for the three and six months ended June 30, 2015 decreased $2.0 million and $2.3 million, respectively, compared to corresponding periods in 2014 primarily due to the effects of competition, sales department staff turnover and curtailed product development in 2015.
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Operating expenses
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
June 30, | June 30, | ||||||||||||||||||||||||||||
2015 | 2014 | $ Change | % Change | 2015 | 2014 | $ Change | % Change | ||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||||
Direct third-party expenses | $ | 375 | $ | 1,731 | $ | (1,356 | ) | (78.3 | )% | $ | 1,631 | $ | 3,336 | $ | (1,705 | ) | (51.1 | )% | |||||||||||
Network operations* | 118 | 1,332 | (1,214 | ) | (91.1 | ) | 829 | 2,603 | (1,774 | ) | (68.2 | ) | |||||||||||||||||
Product development* | — | 574 | (574 | ) | (100.0 | ) | 206 | 1,093 | (887 | ) | (81.2 | ) | |||||||||||||||||
Sales and marketing* | 468 | 1,143 | (675 | ) | (59.1 | ) | 1,297 | 2,360 | (1,063 | ) | (45.0 | ) | |||||||||||||||||
General and administrative* | 1,316 | 1,909 | (593 | ) | (31.1 | ) | 2,537 | 3,492 | (955 | ) | (27.3 | ) | |||||||||||||||||
Depreciation and amortization | 78 | 1,101 | (1,023 | ) | (92.9 | ) | 236 | 2,368 | (2,132 | ) | (90.0 | ) | |||||||||||||||||
Restructuring | 25 | — | 25 | — | 530 | — | 530 | — | |||||||||||||||||||||
Total operating expenses | $ | 2,380 | $ | 7,790 | $ | (5,410 | ) | (69.4 | )% | $ | 7,266 | $ | 15,252 | $ | (7,986 | ) | (52.4 | )% |
* excluding depreciation
Direct third-party expenses
In connection with lower revenue for the three and six months ended June 30, 2015 compared to 2014, our costs, in the form of fees paid to publishers for displaying customer advertisements, ad data and serving fees, also decreased.
Network operations, excluding depreciation
We ceased operations in our Seattle datacenter in the first quarter of 2015 as part of an effort to reduce our operating expenses and subsequently increased use of third-party vendors in the placement of mobile advertising. As a result of ceasing datacenter operations in the first quarter of 2015, network operations expense, excluding depreciation for the three months ended June 30, 2015, decreased $1.2 million from the three months ended June 30, 2014. The decrease was primarily due to:
• | $0.8 million reduction in bandwidth and hosting costs; |
• | $0.2 million lower personnel related costs; and |
• | $0.2 million lower facilities and other costs. |
For the six months ended June 30, 2015 network operations expense, excluding depreciation, decreased $1.8 million from the six months ended June 30, 2014 also due primarily to closing the Seattle datacenter in the first quarter of 2015.
The cost of exiting the Seattle datacenter and related vendor contracts is reflected as Restructuring costs.
Product development, excluding depreciation
In the first quarter of 2015, we significantly reduced the size of our engineering department as part of an effort to reduce our operating expenses, particularly the cost of research and development and advertising delivery. We curtailed development related to our Voltari-Connect platform and Emporia product. We incurred no product development costs for the three months ended June 30, 2015, compared to product development costs of $0.6 million for the three months ended June 30, 2014. For the six months ended June 30, 2015, product development costs, excluding depreciation, decreased $0.9 million primarily due to the decreased second quarter 2015 product development costs as well as lower personnel and contractor costs in the first quarter of 2015 as compared to 2014. Costs related to vendor contract early termination and employee termination benefits are reflected in Restructuring costs.
Sales and marketing, excluding depreciation
For the three months ended June 30, 2015, sales and marketing expense, excluding depreciation, decreased $0.7 million, compared to the three months ended June 30, 2014. This decrease was primarily due to reduced personnel and related costs as well as $0.1 million lower marketing and advertising costs. For the six months ended June 30, 2015 , sales and marketing expense, excluding depreciation, decreased $1.1 million, compared to the six months ended June 30, 2014. This decrease was primarily due to a reduction in personnel and related costs as well as $0.2 million lower marketing and advertising costs.
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General and administrative, excluding depreciation
For the three months ended June 30, 2015, general and administrative expense, excluding depreciation, decreased $0.6 million, or 31.1%, compared to the three months ended June 30, 2014. This decrease was primarily due to:
• | $0.3 million decrease in salaries, benefits and contractor costs resulting from reductions in personnel and the use of contractors in 2015; |
• | $0.1 million reduction in bad debt expense; and |
• | $0.2 million reduction in business taxes, legal and other costs. |
For the six months ended June 30, 2015, general and administrative expense, excluding depreciation, decreased $1.0 million compared to the six months ended June 30, 2014. This decrease was primarily due to:
• | $0.6 million decrease in salaries, benefits and contractor costs resulting from reductions in personnel and the use of contractors in 2015; |
• | $0.1 million reduction in bad debt expense; and |
• | $0.3 million reduction in business taxes, legal and other costs. |
Depreciation and amortization
For the three months ended June 30, 2015, depreciation and amortization expense decreased $1.0 million compared to the three months ended June 30, 2014. For the six months ended June 30, 2015, depreciation and amortization expense decreased $2.1 million compared to the six months ended June 30, 2014. The decrease in depreciation and amortization expense for the three and six months ended June 30, 2015 compared to the comparable periods in 2014 is primarily the result of the reduced carrying value of property and equipment, capitalized software and intangible assets following impairment charges recognized in the fourth quarter of 2014, as well as disposition of fixed assets in connection with the termination of our Seattle datacenter operations in the first quarter of 2015. Depreciation and amortization expense for the six months ended June 30, 2015 relates primarily to general office computer equipment, furniture, computer software and leasehold improvements.
Restructuring
As part of an effort to reduce our operating expenses, we significantly reduced the size of our engineering department and terminated operations at our Seattle Data Center in the first quarter of 2015. As a result of this restructuring, we incurred $0.5 million of restructuring charges during the six months ended June 30, 2015, primarily related to vendor contract early termination costs, termination benefits associated with the elimination of redundant functions and positions and rental cost related to closed facilities.
Net (loss) income from discontinued operations
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
June 30, | June 30, | ||||||||||||||||||||||||||||
2015 | 2014 | $ Change | % Change | 2015 | 2014 | $ Change | % Change | ||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||||
Net (loss) income from discontinued operations | $ | (18 | ) | $ | 326 | $ | (344 | ) | (105.5 | )% | $ | (63 | ) | $ | 424 | $ | (487 | ) | (114.9 | )% |
Net loss from discontinued operations for the three and six months ended June 30, 2015 reflects residual charges related to operations discontinued in 2014 and prior years. Net income from discontinued operations for the three and six months ended June 30, 2014 reflects operating income generated by the UK carrier business, partially offset by operating loss related to the U.S. and Canadian messaging businesses. See Note 3 - Discontinued Operations to our condensed consolidated financial statements for more information.
Results of operations for our mobile marketing and advertising business, which has terminated in August 2015, are included in continuing operations for all periods presented. Direct third-party expenses, network operations, sales and marketing expenses relate to the mobile maketing and advertising business and no expenses related to the commercial rental real estate business were incurred during the six months ended June 30, 2015.
Net loss
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Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
June 30, | June 30, | ||||||||||||||||||||||||||||
2015 | 2014 | $ Change | % Change | 2015 | 2014 | $ Change | % Change | ||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||||
Net loss | $ | (1,620 | ) | $ | (4,816 | ) | $ | 3,196 | 66.4 | % | $ | (4,502 | ) | $ | (9,861 | ) | $ | 5,359 | 54.3 | % |
For the six months ended June 30, 2015, net loss was $4.5 million, compared to net loss of $9.9 million for the six months ended June 30, 2014. The $5.4 million improvement in net loss is primarily due to:
• | Lower operating costs of $8.5 million; partially offset by |
• | Decreased revenue of $2.3 million; |
• | Restructuring costs of $0.5 million; |
• | Increased Other Income, consisting of gain from sale of assets; and, |
• | Decreased income from discontinued operations of $0.5 million. |
For the three months ended June 30, 2015, net loss was $1.6 million, compared to net loss of $4.8 million for the three months ended June 30, 2014. The $3.2 million improvement in net loss is primarily due to:
• | Lower operating costs of $5.4 million; partially offset by |
• | Decreased revenue of $2.0 million; |
• | Increased Other Income, consisting of gain from sale of assets; and, |
• | Decreased income from discontinued operations of $0.3 million. |
Liquidity and Capital Resources
General
Our principal needs for liquidity have been to fund operating losses, working capital requirements, capital expenditures, debt service, restructuring expenses, international activity, acquisitions and integration. Our principal source of liquidity as of June 30, 2015 consisted of cash and cash equivalents of approximately $7.4 million.
On August 7, 2015, we (as borrower) and Koala Holding LP (as lender), an affiliate of Carl C. Icahn, our controlling stockholder (“Koala”), entered into a revolving note (the “Note”). Pursuant to the Note, Koala made available to us a revolving loan facility of up to$10 million in aggregate principal amount. Borrowings under the Note will bear interest at a rate equal to the greater of the LIBOR rate plus 350 basis points, per annum, and 3.75%, per annum. The Note also includes a fee of 0.25%, per annum, on undrawn amounts and matures on the earliest of (i) December 31, 2017, (ii) the date on which any financing transaction, whether debt or equity, is consummated by us (or our successors and assigns) with net proceeds in an amount equal to or greater than $10 million, and (iii) at our option, a date selected by us that is earlier than December 31, 2017. Subject to the terms and conditions of the Note, we may repay all or any portion of the amounts outstanding under the Note at any time without premium or penalty, and any amounts so repaid will, until the maturity date, be available for re-borrowing. As collateral for the Note, we have pledged and granted to Koala a lien on our limited liability company interest in Voltari Real Estate Holding LLC.
In August, 2015, we began implementing a transformation plan pursuant to which, among other things, we intend to exit our mobile marketing and advertising business and enter into the business of acquiring, financing and leasing commercial real properties. We expect that the acquisition of commercial real properties, the cost of operations and working capital requirements will be our principal need for liquidity in the future. Our cash flows may be affected by many factors including the economic environment, competitive conditions in the commercial real estate industry and the success of our transformation plan. We believe we will have adequate resources to fund our operations, capital expenditures and working capital needs for the next 12 months using borrowing under the Note and our cash and cash equivalents on hand. We currently intend to leverage real properties that we may acquire, but cannot assure that we will be able to do so on commercially reasonable terms, if at all. Our liquidity may be adversely affected if, and to the extent that, our remaining Series J preferred stock becomes redeemable.
Our ability to achieve our business and cash flow plans is based on a number of assumptions which involve significant judgments and estimates of future performance, borrowing capacity and credit and equity finance availability, which cannot at all times be assured. Accordingly, we cannot assure that cash flows from operations and other internal and external sources of liquidity will at all times be sufficient for our cash requirements. If necessary, we may need to consider actions and steps to improve our cash position and mitigate any potential liquidity shortfall, such as modifying our business plan, pursuing additional financing to the extent available,
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pursuing and evaluating other alternatives and opportunities to obtain additional sources of liquidity and other potential actions to reduce costs. We cannot assure that any of these actions would be successful, sufficient or available on favorable terms. Any inability to generate or obtain sufficient levels of liquidity to meet our cash requirements at the level and times needed could have a material adverse impact on our business and financial position.
Our ability to obtain any additional financing depends upon many factors, including our then existing level of indebtedness (if any) and restrictions in any debt facilities we may establish in the future, historical business performance, financial projections, prospects and creditworthiness and external economic conditions and general liquidity in the credit and capital markets. Any financing (or subsequent refinancing) could also be extended only at costs and require us to satisfy restrictive covenants, which could further limit or restrict our business and results of operations, or be dilutive to our stockholders.
Cash Flows
As of June 30, 2015 and December 31, 2014, we had cash and cash equivalents of $7.4 million and $6.4 million, respectively. The increase reflects cash from financing activities of $4.3 million, primarily net proceeds from our rights offering, partially offset by cash used in operating activities of $3.6 million.
Net Cash Used in Operating Activities
For the six months ended June 30, 2015, net cash of $3.6 million was used in operating activities. Operating activities from continuing operations used $3.5 million of cash consisting largely of our net loss of $4.5 million. The change in our operating assets and liabilities was mainly driven by a $2.3 million decrease in accounts receivable, a $0.6 million decrease in prepaid and other current assets, partially offset by a $2.2 million decrease in accounts payable and accrued expenses. The decrease in accounts receivable resulted primarily from the decrease in advertising billings in 2015 as compared to 2014 billings. Prepaid expenses and other current assets at December 31, 2104 included prepaid costs related to our 2015 rights offering, which have been applied against the rights offering proceeds. Accounts payable and accrued expenses declined in 2015, reflecting the decline in our ongoing operating costs.
Net Cash from Investing Activities
For the six months ended June 30, 2015, net cash from investing activities consisted of proceeds from sale of fixed assets which had been used in our Seattle datacenter operations, terminated in the first quarter of 2015.
Net Cash From Financing Activities
Net cash from financing activities for the six months ended June 30, 2015 of $4.3 million consisted primarily of $5.3 million net proceeds from our rights offering which was completed on March 30, 2015, partially offset by the $1.0 million redemption of Series J preferred stock.
The March 30, 2015 acquisition of common stock by entities affiliated with Mr. Carl C. Icahn resulted in a change of control of the Company and as a result each holder of shares of Series J preferred stock had the right to require the Company to redeem all or a portion of such holder’s shares of Series J preferred stock. On April 13, 2015 we redeemed 29,316 shares of Series J preferred stock for $1.0 million in cash. See Note 7 - Rights Offering to our condensed consolidated financial statements for more information.
Off-Balance Sheet Arrangements
As of December 31, 2014 and June 30, 2015, we do not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions and in certain cases the difference may be material. Our critical accounting policies and estimates include those involved in recognition of revenue, the allowance for doubtful accounts receivable, software development costs, valuation of goodwill, long-lived and intangible assets, provision for income taxes, stock-based compensation and accounting for our redeemable preferred stock.
A detailed discussion of our critical accounting policies and estimates is available in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. There have been no material changes with respect to those policies or estimates during the period covered by this Quarterly Report on Form 10-Q.
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Recent Accounting Pronouncements
See discussion of recent accounting pronouncements in Note 2 - Summary of Significant Accounting Policies to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are not required to provide qualitative and quantitative disclosures about market risk because we are a smaller reporting company.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management evaluated, with the participation of our Chief Financial Officer, who is currently also our acting principal executive officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Financial Officer has concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
Item 1. Legal Proceedings.
There have been no material changes to the legal proceedings previously disclosed in Part 1, Item 3 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
Item 1A. Risk Factors.
The following risk factors should be considered carefully in addition to the other information contained in this report and in our other filings with the Securities and Exchange Commission, including the risks and risk factors identified in our Annual Report on Form 10-K for the year ended December 31, 2014, as amended by our Annual Report on Form 10-K/A for the year ended December 31, 2014 (collectively, the "Annual Report"). This report contains forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements,” above. Our actual results could differ materially from those contained in the forward-looking statements. Factors that may cause such differences include, but are not limited to, those discussed below, as well as those discussed elsewhere in this report and in our Annual Report. Additional risks and uncertainties that management is not aware of or that are currently deemed immaterial may also adversely affect our business operations. If any of the following risks materialize, our business, financial condition and results of operations could be materially adversely affected. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
We are implementing a transformation plan, which may not be successful.
We are implementing a transformation plan pursuant to which, among other things, we intend to exit our mobile marketing and advertising business and enter into the business of acquiring, leasing and financing commercial real properties. In connection with this transformation plan, we have entered into a purchase and sale agreement to acquire our first commercial real property, located in Long Branch, New Jersey. Our ability to generate revenues and become profitable will be dependent in large part on our ability to consummate that acquisition and to acquire, lease and finance additional commercial real properties. There can be no assurance that we will be able to do so or that we will ever achieve profitability. Our failure to successfully execute our transformation plan would adversely affect our financial condition, results of operations and stockholders’ equity. In addition, we could incur costs or become subject to liabilities to a greater degree than anticipated in connection with our exit from the mobile marketing and advertising business and our entry into the business of acquiring, leasing and financing commercial real properties. For example, we may incur unanticipated costs and/or become subject to litigation from customers, vendors or other third parties in connection with our exit from the mobile marketing and advertising business, which could materially adversely affect our financial condition, results of operations and stockholders’ equity.
We have limited operating experience in the commercial real estate business, which makes it difficult to predict the long-term success of our new business model. In addition, because of our new business plan, our historical performance is not a meaningful indicator of future results.
We may fail to complete the acquisition of the Long Branch property on a timely basis or at all.
The completion of our purchase of the Long Branch property is subject to the satisfactory completion of due diligence and other customary closing conditions. We cannot assure you that we will complete the purchase of the Long Branch property in a timely manner, or at all.
If our purchase of the Long Branch property is delayed or not completed, our business, financial condition, results of operations and stockholders equity’ will be adversely affected. In addition, the failure to complete the purchase of the Long Branch property may delay or prevent the completion of our transformation plan.
Even if we do complete the purchase of the Long Branch property, until and unless we acquire additional properties, the rental payments by the lessee of the Long Branch property will represent the sole source of our revenues. The termination of the Long Branch lease or our failure to maintain the lease on favorable terms could have a material adverse effect on our business and financial condition.
We have limited experience acquiring commercial real properties.
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Our experience in acquiring, leasing and financing commercial real properties is limited. As a result, we may encounter unforeseen difficulties in our efforts to identify essential assets, assess and underwrite the risk levels associated with such assets, negotiate favorable terms with property owners, negotiate favorable terms with lessees, and comply with applicable laws and regulations.
If we are unable to correctly predict rental rates, cancellation rates, demand, consolidation trends and growth trends, a material adverse impact on our results of operations could result. If we are unable to effectively expand, our growth rate may be adversely impacted.
We intend to pursue acquisitions of additional properties and may be unsuccessful in this pursuit, and any acquisitions that we do consummate may fail to meet our expectations.
We intend to pursue acquisitions of additional properties to grow our business in connection with our transformation plan. Accordingly, from time to time, we may engage in discussions that may result in one or more transactions. Although there is uncertainty that any of these discussions will result in definitive agreements or the completion of any transaction, we may devote a significant amount of management and other resources to such a transaction, which could negatively impact our operations. We may incur significant costs in connection with seeking acquisitions regardless of whether any transaction is completed.
The industry is highly competitive, and we will face competition from many other entities engaged in real estate investment activities, including individuals, corporations, REITs, investment companies, private equity and hedge fund investors, and other investors, some of whom are significantly larger and have greater resources and lower costs of capital. This competition will make it more challenging to identify and successfully capitalize on acquisition opportunities that meet our investment objectives. If we cannot identify and purchase a sufficient quantity of properties at favorable prices or if we are unable to finance acquisition opportunities on commercially favorable terms, our business, financial condition or results of operations could be materially adversely affected.
Investments in, and acquisitions of, properties we might seek to acquire entail risks associated with real estate investments generally, including but not limited to the following risks and as noted elsewhere in this report:
• | we may be unable to acquire a desired property because of competition; |
• | even if we are able to acquire a desired property, competition from other potential acquirers may significantly increase the purchase price; |
• | even if we enter into agreements for the acquisition of properties, these agreements are subject to customary conditions to closing, including completion of due diligence investigations to our satisfaction; |
• | we may incur significant costs and divert management attention in connection with evaluation and negotiation of potential acquisitions, including ones that we are subsequently unable to complete; |
• | we may acquire properties that are not initially accretive to our results upon acquisition, and we may not successfully lease those properties to meet our expectations; |
• | we may be unable to finance the acquisition on favorable terms in the time period we desire, or at all; even if we are able to finance the acquisition, our cash flow may be insufficient to meet our required principal and interest payments; |
• | we may spend more than budgeted to make necessary improvements or renovations to acquired properties; |
• | we may be unable to quickly and efficiently integrate new acquisitions, particularly the acquisition of portfolios of properties, into our existing operations; |
• | market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and |
• | we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. |
In the event that we consummate an acquisition in the future, there is no assurance that we would fully realize the potential benefits of such a transaction. Further, acquisitions of properties we might seek to acquire entail risks associated with real estate investments generally, including that the investment's performance will fail to meet expectations.
Our ongoing leadership transition could have a material adverse impact on our business, operating results or financial condition.
On March 26, 2013, Nathan Fong notified us that he would resign from his positions as our Chief Financial Officer and Chief Operating Officer, effective April 12, 2013. On August 14, 2013, John Breeman commenced serving as our Chief Financial Officer. On December 20, 2013, Richard Stalzer resigned as our Chief Executive Officer. Following the receipt of Mr. Stalzer's resignation, Richard Sadowsky, who had, since November 15, 2012 been serving as our Chief Administrative Officer as well as our General Counsel, was appointed as our Acting Chief Executive Officer. In connection with his appointment, Mr. Sadowsky relinquished his titles as our Chief Administrative Officer and General Counsel. On May 11, 2015, Richard Sadowsky resigned from his position as our Acting Chief Executive Officer and from all other positions he held, effective immediately. In addition, effective May 11, 2015, Aaron Epstein was appointed as our President. John Breeman, in addition to his role as our Chief Financial Officer, now serves as our acting
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principal executive officer and principal financial and accounting officer. Our ongoing leadership transition could have a material adverse impact on our business, operating results or financial condition.
The uncertainty inherent in our ongoing leadership transition can be difficult to manage, may cause concerns from third parties with whom we do business, and may increase the likelihood of turnover of other key officers and employees. In addition, our current management team lacks experience in the commercial real estate business, and we may need to hire personnel with relevant experience to help us execute our transformation plan. We cannot assure that we will be able to do so, and our failure to do so could materially harm our results of operations.
We will be dependent on our tenants to make payments to us under our leases, and an event that materially and adversely affects our tenants’ business, financial position or results of operations could materially and adversely affect our business, financial position or results of operations.
Pursuant to our transformation plan, to the extent we generate revenues, we will generate substantially all of our revenues from payments made by our tenants. Additionally, to the extent we are able to enter into triple net leases, we will depend on our tenants to pay all insurance, taxes, utilities, and maintenance and repair expenses related to the applicable property, subject to limited carveouts, and to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities arising in connection with its business. There can be no assurance that our tenants will have sufficient assets, income and access to financing to enable them to satisfy their payment obligations under the applicable leases. The failure of a tenant to satisfy its other obligations under the lease, such as the payment of insurance, taxes and utilities, could materially and adversely affect the condition of our properties. For these reasons, if a tenant were to experience a material and adverse effect on its business, financial position or results of operations, our business, financial position or results of operations could also be materially and adversely affected.
Due to our dependence on rental payments from our tenants as our primary source of revenues, we may be limited in our ability to enforce our rights under, or to terminate, the applicable leases. Failure by a tenant to comply with the terms of a lease could require us to find another lessee for the property. There is no assurance that we would be able to lease a property to another lessee on substantially equivalent or better terms, or at all, successfully reposition the property for other uses or sell the property on terms that are favorable to us.
The historical and pro forma financial information included in this Quarterly Report on Form 10-Q may not be a reliable indicator of future results.
Our historical financial data and our pro forma financial data included in this Quarterly Report on Form 10-Q may not reflect what our business, financial position or results of operations will be in the future. The historical financial statements included in this Quarterly Report on Form 10-Q are not indicative of how we will conduct our business following the consummation of our transformation plan. Significant changes have and will continue to occur in our cost structure, financing and business operations as a result of our transformation plan.
The pro forma financial data included in this Quarterly Report on Form 10-Q includes adjustments based upon SEC Regulation SX and available information to reflect those requirements. However, the assumptions may change or may be incorrect, and actual results may differ, perhaps significantly. Our cost structure may be higher and our future financial costs and performance may be worse than the performance implied by the pro forma financial data presented herein. For additional information about the basis of presentation of our pro forma financial information included in this Quarterly Report on Form 10-Q, see Exhibit 99.1, "Unaudited Pro Forma Consolidated Financial Information."
Our operating results may be affected by economic and regulatory changes that have an adverse impact on the commercial real estate market in general, and we can provide no assurance that we will be profitable or that we will realize growth in the value of our commercial real estate properties.
Our operating results are subject to risks generally incident to the ownership of real estate, including:
• | changes in general economic or local conditions; |
• | changes in supply of or demand for competing properties in an area; |
• | changes in interest rates and availability of permanent mortgage funds that may render the sale of a property difficult or unattractive; |
• | changes in tax, real estate, environmental and zoning laws; and |
• | periods of high interest rates and tight money supply. |
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These and other risks may prevent us from realizing growth or maintaining the value of our real estate properties or from becoming profitable.
Our operations may face adverse effects from tenant bankruptcies or insolvencies.
The bankruptcy or insolvency of any of our tenants may adversely affect the income produced by our properties. If a tenant defaults, we may experience delays and incur substantial costs in enforcing our rights as landlord. If a tenant files for bankruptcy, we cannot evict the tenant solely because of such bankruptcy. A court, however, may authorize a tenant to reject or terminate its lease with us. We may also incur additional vacancy and other re-tenanting expense.
Mr. Carl C. Icahn indirectly owns a majority of our common stock and Series J preferred stock, our certificate of incorporation waives the corporate opportunity doctrine as it relates to funds affiliated with him and he may have interests that diverge from those of other stockholders, and one of his affiliates is our principal lender.
Following the completion, and as a result of, the rights offering on March 30, 2015, entities affiliated with Mr. Carl C. Icahn, our largest stockholder, became the beneficial owner, and has voting control over, of approximately 52.3% of our common stock. Entities affiliated with Mr. Icahn also own warrants to purchase an additional 9.7% of our common stock, which warrants are currently unexercisable by Mr. Icahn and such entities. Further, he holds 97.7% of our Series J preferred stock, which has limited voting rights. Mr. Icahn is able to control and exert substantial influence over us, including the election of our directors and controlling most matters requiring board or stockholder approval, including business strategies, mergers, business combinations, acquisitions or dispositions of significant assets, issuances of common stock, incurrence of debt or other financing and the payment of dividends. The existence of a controlling stockholder may have the effect of making it difficult for, or may discourage or delay, a third party from seeking to acquire a majority of our outstanding common stock, which could adversely affect the market price of our stock. Mr. Carl Icahn owns, controls and has an interest in many companies, some of which may compete directly or indirectly with us. As a result, his interests may not always be consistent with our interests or the interests of our other stockholders.
In our certificate of incorporation, we renounce and provide for a waiver of the corporate opportunity doctrine as it relates to the funds affiliated with Koala Holding LP, an affiliate of Mr. Carl C. Icahn, Technology Crossover Ventures, and any person or entity affiliated with these investors. As a result, Mr. Carl C. Icahn and entities controlled by him will have no fiduciary duty to present corporate opportunities to us. These exempted persons are in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. They may also pursue, for their own accounts, acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations or prospects if attractive corporate opportunities are directed by the exempted persons to themselves or their other affiliates instead of to us. As a result, corporate opportunities that may benefit us may not be available to us. To the extent that conflicts of interest may arise between us, Mr. Carl Icahn and his affiliates, those conflicts may be resolved in a manner adverse to us or our other shareholders.
On August 7, 2015, we (as borrower) and Koala Holding LP (as lender), an affiliate of Carl C. Icahn, our controlling stockholder (“Koala”), entered into a revolving note (the “Note”). Pursuant to the Note, Koala made available to us a revolving loan facility of up to $10,000,000 in aggregate principal amount. Borrowings under the Note will bear interest at a rate equal to the greater of the LIBOR rate plus 350 basis points, per annum, and 3.75%, per annum. The Note also includes a fee of 0.25%, per annum, on undrawn amounts and matures on the earliest of (i) December 31, 2017, (ii) the date on which any financing transaction, whether debt or equity, is consummated by us (or our successors and assigns) with net proceeds in an amount equal to or greater than $10 million, and (iii) at our option, a date selected by us that is earlier than December 31, 2017. Subject to the terms and conditions of the Note, we may repay all or any portion of the amounts outstanding under the Note at any time without premium or penalty, and any amounts so repaid will, until the maturity date, be available for re-borrowing. As collateral for the Note, we have pledged and granted to Koala a lien on our limited liability company interest in Voltari Real Estate Holding LLC.
We may have future capital needs and may not be able to obtain additional financing on acceptable terms.
We may incur indebtedness in the future to refinance our existing indebtedness or to finance newly acquired properties. Demands on our cash resources from debt service will reduce funds available to us to make capital expenditures and acquisitions or carry out other aspects of our business strategy. Our indebtedness may also limit our ability to adjust rapidly to changing market conditions, make us more vulnerable to general adverse economic and industry conditions and create competitive disadvantages for us compared to other companies with relatively lower debt levels. Increased future debt service obligations may limit our operational flexibility, including our ability to acquire properties, finance or refinance our properties or sell properties as needed.
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Moreover, our ability to obtain additional financing and satisfy our financial obligations under indebtedness outstanding from time to time will depend upon our future operating performance, which is subject to then- prevailing general economic, real estate and credit market conditions, including interest rate levels and the availability of credit generally, and financial, business and other factors, many of which are beyond our control. A prolonged worsening of credit market conditions would have a material adverse effect on our ability to obtain financing on favorable terms, if at all.
We may be unable to obtain additional financing or financing on favorable terms or our operating cash flow may be insufficient to satisfy our financial obligations under any indebtedness outstanding from time to time. If financing is not available when needed, or is available only on unfavorable terms, we may be unable to enhance our properties or develop new properties, complete acquisitions or otherwise take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations.
We may be unable to secure funds for future tenant improvements or capital needs, which could adversely impact the returns we generate on our properties.
When tenants do not renew their leases or otherwise vacate their space, in order to attract replacement tenants, we may be required to expend substantial funds for tenant improvements and tenant refurbishments to the vacated space. In addition, we will likely be responsible for any major structural repairs, such as repairs to the foundation, exterior walls and rooftops, even if our leases with tenants may require tenants to pay routine property maintenance costs. We may use cash flow from operations, borrowings, property sales or future debt or equity offerings in order to improve or maintain our properties or for any other reason. These sources of funding may not be available on attractive terms or at all. If we cannot procure additional funding for capital improvements, our investments may generate lower cash flows or decline in value, or both, all of which could have a material adverse effect on the value of our investments.
Rising expenses could reduce cash flow and funds available for future acquisitions.
Any properties that we may buy will be subject to operating risks common to real estate in general, any or all of which may negatively affect us. If any property is not fully occupied or if rents are being paid in an amount that is insufficient to cover operating expenses, we could be required to expend funds with respect to that property for operating expenses. Any of our properties could be subject to increases in tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance and administrative expenses. Leases may not be negotiated on a triple-net basis or on a basis requiring the tenants to pay all or some of such expenses, in which event we may have to pay those costs. If we are unable to lease properties on a triple-net-lease basis or on a basis requiring the tenants to pay all or some of such expenses, or if tenants fail to pay required tax, utility and other impositions, we could be required to pay those costs which could adversely affect our cash flows and funds available for future acquisitions.
Costs of complying with governmental laws and regulations, including those relating to environmental matters, may adversely affect our operations and cash position.
All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater and storm water discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated in soils or groundwater. Environmental laws and regulations may impose joint and several liability on tenants, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. This liability could be substantial. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such property as collateral for future borrowings.
Some of these laws and regulations are amended from time to time and may require compliance with new or more stringent standards in the future. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require material expenditures by us. Future laws, ordinances or regulations may impose material environmental liability. Additionally, our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our properties, such as the presence of underground storage tanks, contamination from others in the soils or groundwater on adjoining properties, or activities of unrelated third parties may affect our properties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply, and that may subject us to liability in the form of fines or damages for noncompliance. Any material expenditures, fines, or damages we must pay could materially adversely affect our results from operations and may reduce the value of an investment in our shares. The cost of defending against claims of liability, of compliance with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims may materially adversely affect our business, assets or results of operations.
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Environmental compliance costs and liabilities associated with real estate properties owned by us may materially and adversely affect us.
Our properties may be subject to known and unknown environmental liabilities under various federal, state and local laws and regulations relating to human health and the environment. Certain of these laws and regulations may impose joint and several liability on certain statutory classes of persons, including owners or operators, and past owners and operators for the costs of investigation or remediation of contaminated properties. These laws and regulations apply to past and present business operations on the properties, and the use, storage, handling and recycling or disposal of hazardous substances or wastes. We may face liability regardless of our knowledge of the contamination, the timing of the contamination, the cause of the contamination or the party responsible for the contamination of the property.
We may be held primarily or jointly and severally liable for costs relating to the investigation and clean-up of any of our properties on which there is contamination, or from which there has been a release or threatened release of a regulated material as well as other affected properties, regardless of whether we knew of or caused the release.
As the owner or operator of real property, we may also incur liability based on various building conditions. The presence of significant asbestos, mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation to contain or remove the asbestos, mold or other airborne contaminants or increase ventilation and/or expose us to liability from our tenants, employees of our tenants, or others if property damage or personal injury occurs.
In addition to these costs, which could exceed the property’s value, we could be liable for certain other costs, including governmental fines, and injuries to persons, property or natural resources. Further, some environmental laws create a lien on the contaminated site in favor of the government for damages and the costs the government incurs in connection with such contamination. Any such costs or liens could have a material adverse effect on our business or financial condition.
Although we intend to require our tenants to undertake to indemnify us for certain environmental liabilities, including environmental liabilities they cause, the amount of such liabilities could exceed the financial ability of the tenant to indemnify us. The presence of contamination or the failure to remediate contamination may adversely affect our ability to sell or lease the real estate or to borrow using the real estate as collateral.
We may obtain only limited warranties when we purchase a property and would have only limited recourse if our due diligence did not identify any issues that lower the value of our property, which could adversely affect our financial condition.
The seller of a property often sells such property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. The purchase of properties with limited warranties increases the risk that we may lose some or all our invested capital in the property as well as the loss of rental income from that property.
Our costs associated with complying with the Americans with Disabilities Act may affect our operating results.
Our properties are and will be subject to the Americans with Disabilities Act of 1990 (the “Disabilities Act”). Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services, including restaurants and retail stores, be made accessible and available to people with disabilities. The Disabilities Act’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties, or, in some cases, an award of damages. There is no assurance that we will be able to acquire properties or allocate the burden on the seller or other third party, such as a tenant, to ensure compliance with the Disabilities Act. If we cannot, our funds used for Disabilities Act compliance may affect our results from operations. The fluctuation in market conditions makes judging the future performance of these assets difficult. There is a risk that we may not purchase real estate assets at absolute discounted rates and that these assets may continue to decline in value.
Properties that we may own and may acquire face competition that may decrease the amount of rent that we may charge our tenants.
Properties that we may own and may acquire face competition for tenants. The number of competitive properties could have a material effect on our ability to rent space at our properties and the amount of rents charged. We could be adversely affected if additional competitive properties are built in locations competitive with our properties, causing increased competition for customer traffic and
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creditworthy tenants. This could result in decreased cash flow from tenants and may require us to make capital improvements to properties that we would not have otherwise made, thus affecting our income, financial condition and results of operations.
We may be unable to renew leases or re-lease space as leases expire.
If tenants do not renew their leases upon expiration, we may be unable to re-lease the vacated space. Even if the tenants do re-lease the lease or we are able to re-lease to a new tenant, the terms and conditions of the new lease may not be as favorable as the terms and conditions of the expired lease. One or more of our properties may incur a vacancy either by the continued default of a tenant under its lease or the expiration of one of our leases. In addition, the resale value of a property could be diminished because the market value of a particular property will depend principally upon the value of the cash flow generated from the property which in the case of vacancies, will be reduced.
Changes in building and/or zoning laws may require us to renovate or reconstruct a property in connection with the continued use of the property or the commencement of a new use of the property or prevent us from fully restoring a property in the event of a substantial casualty loss and/or require us to meet additional or more stringent construction requirements.
Due to changes, among other things, in applicable building and zoning laws, ordinances and codes that may affect certain of our properties that have come into effect after the initial construction of the properties, certain properties may not comply fully with current building and/or zoning laws, including electrical, fire, health and safety codes and regulations, use, lot coverage, parking and setback requirements, but may qualify as permitted non-conforming uses. Such changes may require updating various existing physical conditions of buildings in connection with our recapture, renovation, and/or redevelopment of properties. In addition, such changes may limit our or our tenant’s ability to restore the premises of a property to its previous condition in the event of a substantial casualty loss with respect to the property or the ability to refurbish, expand or renovate such property to remain compliant, or increase the cost of construction in order to comply with changes in building or zoning codes and regulations. If we are unable to restore a property to its prior use after a substantial casualty loss or are required to comply with more stringent building or zoning codes and regulations, we may be unable to re-lease the space at a comparable effective rent or sell the property at an acceptable price, which may materially and adversely affect us.
We may be subject to unanticipated liabilities as a result of our real properties.
We may be involved in disputes and other matters with property owners, tenants, their respective employees and agents, and other unrelated parties, such as tort claims related to hazardous conditions, foreclosure actions and access disputes. We cannot assure you that we will not become subject to material litigation or other liabilities. If these liabilities are not adequately covered by insurance, they could have a material adverse impact on our results from operations.
We intend to enter into leases that will generally make our tenants contractually responsible for payment of taxes, maintenance, insurance and other similar expenditures associated with our tenants' use of a property. If our tenants fail to pay these expenses as required, it could result in a material adverse impact on our results of operations.
Under triple net lease arrangements, tenant lease agreements typically make tenants contractually responsible for payment of taxes, maintenance, insurance and other similar expenditures associated with tenants' infrastructure assets. If our tenants fail to pay these expenses as required, it could result in a diminution in the value of the infrastructure asset associated with our real property interest and have a material adverse impact on our results of operations. Further, if a tenant fails to pay real property taxes, any lien resulting from such unpaid taxes would be senior to our real property interest in the applicable site. Failure to pay such real property taxes could result in our real property interest being impaired or extinguished, or we may be forced to incur costs and pay the real property tax liability to avoid impairment of our assets.
We or our tenants may experience uninsured or underinsured losses, which could result in a significant loss of the capital we have invested in a property, decrease anticipated future revenues or cause us to incur unanticipated expenses.
Leases that we enter into are expected to require that the tenant maintain comprehensive insurance and hazard insurance or self-insure its insurance obligations. However, there are certain types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes and floods, that may be uninsurable or not economically insurable. Insurance coverage may not be sufficient to pay the full current market value or current replacement cost of a loss. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it infeasible to use insurance proceeds to replace the property after such property has been damaged or destroyed. Under such circumstances, the insurance proceeds received might not be adequate to restore the economic position with respect to such property.
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If the Long Branch property or any other property we acquire experiences a loss that is uninsured or that exceeds policy coverage limits, we could lose the capital invested in the damaged property as well as the anticipated future cash flows from the property. In addition, even if damage to our properties is covered by insurance, a disruption of business caused by a casualty event may result in loss of revenue for our tenants or us. Any business interruption insurance may not fully compensate them or us for such loss of revenue. If one of our tenants experiences such a loss, it may be unable to satisfy its payment obligations to us under its lease with us.
Our ability to fully control the maintenance of our net-leased properties may be limited.
The tenants or managers of net-leased properties are responsible for maintenance and other day-to-day management of the properties. If a property is not adequately maintained in accordance with the terms of the applicable lease, we may incur expenses for deferred maintenance expenditures or other liabilities once the property becomes free of the lease. While we expect our leases will generally provide for recourse against the tenant in these instances, a bankrupt or financially-troubled tenant may be more likely to defer maintenance and it may be more difficult to enforce remedies against such a tenant. In addition, to the extent tenants are unable to conduct their operation of the property on a financially-successful basis, their ability to pay rent may be adversely affected. Although we endeavor to monitor, on an ongoing basis, compliance by tenants with their lease obligations and other factors that could affect the financial performance of our properties, such monitoring may not in all circumstances ascertain or forestall deterioration either in the condition of a property or the financial circumstances of a tenant.
Real estate investments are relatively illiquid, and therefore we may not be able to dispose of properties when appropriate or on favorable terms.
Investments in real properties are relatively illiquid. We may not be able to quickly alter our portfolio or generate capital by selling properties. The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. If we need or desire to sell a property or properties, we cannot predict whether we will be able to do so at a price or on the terms and conditions acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. Further, we may be required to invest monies to correct defects or to make improvements before a property can be sold. We can make no assurance that we will have funds available to correct these defects or to make these improvements. Moreover, in acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These provisions would restrict our ability to sell a property.
Any material weaknesses in our internal controls over financial reporting or failure to maintain proper and effective internal controls could impair our ability to produce accurate and timely financial statements and investors' views of us could be harmed. The execution of our transformation plan may make it more challenging for us to maintain effective controls.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can manage our business and produce accurate financial statements on a timely basis is a costly and time-consuming effort. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. We are required to comply with Section 404(a) of the Sarbanes-Oxley Act of 2002, which requires annual management assessment of the effectiveness of our internal control over financial reporting. Our compliance with Section 404 has required and will continue to require that we incur additional expense and expend management time on compliance-related issues. We expect to reduce staffing in connection with the execution of our transformation plan. As a result, our maintenance of sufficient controls will be dependent on a smaller group of individuals than in the past. If we fail to maintain proper controls, our business could be adversely affected, our ability to predict our cash needs, and the market's confidence in our financial statements could decline, and the market price of our common stock could be adversely affected.
Item 5. Other Information.
Recent Developments & Transformation Plan
On August 6, 2015, the board of directors (the “Board”) of Voltari Corporation (“we, “us”, “Voltari” or the “Company”) committed the Company to a transformation plan pursuant to which, among other things, the Company intends to exit its mobile marketing and advertising business and enter into the business of acquiring, financing and leasing commercial real estate properties. The Company intends to lease such properties pursuant to so-called “double net” or “triple net” leases. As the Company executes its transformation plan, it intends to significantly reduce its workforce over the next several weeks, which process has begun.
The Board decided to implement the transformation plan following its review of the Company's efforts to realign its strategic path and management's analysis of the Company's mobile marketing and advertising business. As previously disclosed, we have undergone
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significant changes over the past two years. Prior to July 1, 2013, most of our revenue was derived from providing hosting services to wireless carriers. Starting in 2012, we began our exit from most of our international carrier business and, on June 30, 2013, concluded our U.S. carrier business. On October 31, 2013, we completed the sale of our Gen5 business. On May 30, 2014, we completed the sale of our U.S. and Canadian messaging business. Further, on September 1, 2014, we completed the sale of our wireless carrier business in the UK.
In connection with our efforts to realign our strategic path, we shifted our focus to the mobile marketing and advertising business and continued to reduce our cost structure. We implemented various cost reduction measures, including reductions in our workforce and a restructuring of our facilities and data centers. Further, in January of 2015, we significantly reduced the size of our engineering staff and terminated operations at our Seattle Data Center as part of our ongoing efforts to reduce our operating expenses, particularly the cost of research and development and the delivery of advertising.
Beginning in late May 2015, the Board undertook a review of the Company’s prospects, cost-cutting efforts and strategic alternatives. As part of its review, the Board considered alternative businesses the Company could enter into that would preserve the Company’s assets and maximize shareholder value. Based on its assessment of the Company’s prospects and cost structure including, among other factors, the Company’s performance during the three and six month periods ended June 30, 2015, recent forecasts provided by management, input from an independent consultant, and potential strategic alternatives available to the Company, the Board concluded that our cost-cutting efforts have not kept pace with our declining revenue, that our forecasted cash burn and revenue potential are unsatisfactory and that effecting the transformation plan by exiting the mobile marketing and advertising business and entering into the real estate investment business is in the best interests of the Company’s stockholders. The Board believes that, if successfully implemented, the Company can significantly decrease its operating costs and cash burn and, over time, generate profits from the transformation plan.
In addition to our entry into the real estate investment business as described above, the Company intends to explore additional strategic opportunities from time to time, which may include opportunities with respect to its intellectual property, investments in various industries or acquisitions.
Cost Reductions and Material Charges
In connection with the implementation of our transformation plan, we could incur total costs ranging from $0.6 million to $1.4 million. Included in this estimate are severance and other workforce reduction costs of approximately $0.3 million and costs associated with our exit from the mobile marketing and advertising business, consisting primarily of lease termination and other costs ranging from approximately $0.3 million to $1.1 million in connection with exiting our office space in New York, Chicago and Los Angeles.
All costs of our transformation plan are expected to be incurred during 2015 and include non-cash impairment charges of $0.2 million, relating primarily to our leasehold improvements and furniture and fixtures in our New York office.
Real Property Acquisition
As the first step in the execution of our transformation plan, on August 7, 2015, we caused our wholly-owned subsidiary, Voltari Real Estate Holding LLC, formed for this purpose, to enter into a purchase and sale agreement (the “P&S Agreement”) with 160 Brighton Acquisition, LLC to acquire a real estate parcel in Long Branch, New Jersey. The property is subject to a triple net lease with JPMorgan Chase Bank, N.A. ("Chase"), the original term of which expires in June, 2020 (with two, five-year renewal options), pursuant to which Chase is responsible for the payment of basic rent as well as the payment of real estate taxes, maintenance costs, utilities, tenant's insurance and other property related costs. Refer to http://investor.shareholder.com/jpmorganchase/sec.cfm for the financial statements of the tenant. The purchase price is approximately $3.63 million and average annual rental income for the property over the remaining term of the original lease is expected to be approximately $203,000. The P&S Agreement contains customary representations, warranties and covenants by the parties and the closing of the purchase is subject to customary conditions precedent, including a due diligence period. We can make no assurances that the conditions will be satisfied or that the purchase will be consummated in a timely manner, if at all.
Revolving Note
On August 7, 2015, we (as borrower) and Koala Holding LP (as lender), an affiliate of Carl C. Icahn, the Company’s controlling stockholder (“Koala”), entered into a revolving note (the “Note”). The Company sought and received the Note to, in part, allay potential concerns regarding the Company’s ability to invest in and execute its transformation plan while retaining cash levels sufficient to fund its ongoing operations. There are no limitations on the use of proceeds under the Note. The Company currently intends to use this funding to facilitate the acquisition of additional commercial real estate properties as it executes its transformation plan, as well as for operating expenses and working capital purposes.
Our Board formed a special committee of independent directors (the “Special Committee”) to negotiate the structure and terms of the Note. The Special Committee consisted of James L. Nelson and Jay A. Firestone. In connection with its negotiation of the structure and terms of the Note, the Special Committee retained and received advice from its own legal counsel as well as an independent
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financial advisor. The Special Committee received an opinion from its independent financial advisor that the financial terms of the Note are fair, from a financial point of view, to us. The Special Committee approved the terms and conditions of, and our entry into, the Note.
Pursuant to the Note, Koala made available to the Company a revolving loan facility of up to $10,000,000 in aggregate principal amount. Borrowings under the Note will bear interest at a rate equal to the greater of the LIBOR rate plus 350 basis points, per annum, and 3.75%, per annum. The Note also includes a fee of 0.25%, per annum, on undrawn amounts and matures on the earliest of (i) December 31, 2017, (ii) the date on which any financing transaction, whether debt or equity, is consummated by the Company (or its successors and assigns) with net proceeds in an amount equal to or greater than $10 million, and (iii) at the Company’s option, a date selected by the Company that is earlier than December 31, 2017.
If an event of default exists, the Note will bear interest at a default rate equal to the greater of the LIBOR Rate plus 450 basis points, per annum, and 4.75%, per annum. Subject to the terms and conditions of the Note, the Company may repay all or any portion of the amounts outstanding under the Note at any time without premium or penalty, and any amounts so repaid will, until the maturity date, be available for re-borrowing. As collateral for the Note, the Company has pledged and granted to Koala a lien on the Company’s limited liability company interest in Voltari Real Estate Holding LLC.
Incentive Award
On August 6, 2015 and in light of the transformation plan, the compensation committee of the Company’s Board (the “Compensation Committee”) approved a discretionary performance incentive award for Mr. John Breeman, the Company’s Chief Financial Officer and acting principal executive officer. The incentive award is intended to provide performance-based compensation to Mr. Breeman for his contribution to the achievement of the Company’s objectives, including without limitation, the successful implementation of the Company’s transformation plan. The Compensation Committee set a target for the award of 60% of Mr. Breeman’s base salary for 2015. Payment of any incentive award will be discretionary, in cash, and will be tied to the successful implementation of our transformation plan, as determined by the Board. Payment of any award will be made following the finalization of the Company’s audited financial statements for the fiscal year ended December 31, 2015.
Item 6. Exhibits.
Exhibit Number | Exhibit Description | |
10.1 | Revolving Note with Koala LP (as lender) dated August 7, 2015 | |
10.2 | Agreement for Sale and Purchase with 160 Brighton Acquisition LLC dated August 7, 2015 | |
10.3 | Ground Lease with JPMorgan Chase Bank, N.A., together with Bill of Sale and General Assignment to 160 Brighton Acquisition LLC, dated March 2, 2006 | |
31 | Certification pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer, Acting Principal Executive Officer and Principal Financial and Accounting Officer.* | |
32 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer, Acting Principal Executive Officer and Principal Financial and Accounting Officer.** | |
99.1 | Unaudited Pro Forma Consolidated Financial Information | |
101.INS | XBRL Instance Document.* | |
101.SCH | XBRL Taxonomy Extension Schema Document.* | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document.* | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document.* | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document.* | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document.* |
* | Filed herewith. | |
** | Furnished herewith. | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
VOLTARI CORPORATION | |||
Date: | August 7, 2015 | By: | /s/ John Breeman |
John Breeman | |||
Chief Financial Officer (Acting Principal Executive Officer and Principal Financial and Accounting Officer) |
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Exhibit 10.1
REVOLVING NOTE
New York, New York | |
US$10,000,00.00 | August 7, 2015 |
FOR VALUE RECEIVED, Voltari Corporation (together with its successors and assigns, the “Borrower”), HEREBY UNCONDITIONALLY PROMISES TO PAY to, or to the order of, Koala Holding LP (together with its successors and assigns, the “Lender”), on the terms hereinafter set forth, the principal sum of TEN MILLION DOLLARS ($10,000,000.00), or such lesser amount as is outstanding from time to time as set forth on Schedule 1 hereto, together with interest thereon for such periods, on such dates and at such rates as set forth in Section 1 of this Revolving Note (this “Note”).
The Borrower further promises to pay the Undrawn Amount Fee (as defined below in Section 2), and any other amounts owed hereunder as such Undrawn Amount Fee and other amounts shall become due and payable pursuant to the terms hereof.
1.Interest. The principal amount of each borrowing under this Note outstanding from time to time as set forth on Schedule 1 hereto (each, a “Borrowing”) shall bear interest at a rate equal to the greater of (x) the LIBOR Rate (defined below) plus 350 basis points, per annum and (y) 3.75%, per annum, which simple interest shall accrue daily and be computed on the basis of the actual number of days elapsed over a 360-day year. Such interest shall commence to accrue on the date each Borrowing is made and shall be due and paid in arrears on the Maturity Date (as defined below) or such earlier date as principal, interest, the Undrawn Amount Fee and/or other amounts shall become due and payable pursuant to the terms hereof (provided that if any such day is not a Business Day (as hereinafter defined), such payment shall be made on the immediately following Business Day with no additional interest accruing thereon, if so made). To the extent any payment of interest is made prior to 12:00 noon (New York City time) on the date of such payment, no interest shall accrue on such date with respect to such payment. To the extent any payment of interest is made after 12:00 noon (New York City time) on the date of such payment, interest shall accrue and be payable on such date with respect to such payment.
Notwithstanding the foregoing, during any period in which an Event of Default (as defined below in Section 8) exists, the principal amount of each Borrowing outstanding under this Note shall bear interest at a rate equal to the greater of (x) the LIBOR Rate plus 450 basis points, per annum and (y) 4.75%, per annum (such rate, the “Default Rate”), which simple interest shall be computed on the basis of the actual number of days elapsed over a 360-day year. Any amounts payable hereunder that are not paid when due (whether principal, interest, Undrawn Amount Fees or other amounts) shall, to the fullest extent permitted by applicable law, also bear interest at the Default Rate. Anything contained in this Note or any other related document to the contrary notwithstanding, the Lender does not intend to charge, and the Borrower shall not be required to pay, whether under this Note or any other related document, any amount of interest that would be deemed usurious, or is otherwise in excess of the maximum amount permitted under applicable law, and the Lender shall, at the Lender’s discretion, either return any such excess amount or same shall be credited against the principal or other amounts due hereunder.
As used in this Note, the term “Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in New York City, New York are authorized or required by law to close.
As used in this Note, the term “LIBOR Rate” means, with respect to any Borrowing under this Note, the rate appearing on Bloomberg’s British Banker’s Association rate page (or on any successor or substitute page) at approximately 11:00 a.m., London time, one Business Day prior to the disbursement of funds in respect of such Borrowing, as the rate for U.S. dollar deposits for a period equal to six (6) months. In the event that such rate is not available on such page at such time for any reason, then the “LIBOR Rate” with respect to such Borrowing under this Note shall be determined by reference to any analogous page of another quotation service providing quotations comparable to those currently provided on such page for interest rates applicable to U.S. dollar deposits in the London interbank market, as reasonably determined by the Lender.
2.Undrawn Amount Fee. The Borrower shall pay to the Lender a fee on the Commitment (defined below) (the “Undrawn Amount Fee”) for the period from and including the date hereof to but excluding the Maturity Date equal to 0.25%, per annum, calculated on the average daily amount of the Commitment, which fee shall accrue daily and be computed on the basis of the actual number of days elapsed over a 360-day year and shall be paid in a lump sum on the Maturity Date.
As used in this Note, the term “Commitment” means, as of any date, the Maximum Amount (as defined below in Section 4) less the aggregate principal amount of all Borrowings outstanding hereunder.
Exhibit 10.1
The Commitment shall increase and decrease directly in proportion to repayments and reborrowings of Borrowings, respectively, from time to time.
3.Maturity Date. The outstanding principal amount under this Note, together with all then accrued but unpaid interest thereon, any unpaid Undrawn Amount Fees and any other amounts then due and payable hereunder, shall be due and paid by the Borrower on the earliest of (i) December 31, 2017, (ii) the date on which any financing transaction, whether for debt or equity, is consummated by the Borrower with net proceeds in an amount equal to or greater than $10,000,000 and (iii) a date selected by the Borrower that is prior to December 31, 2017, provided such date is contained in a written notice delivered to the Lender at least two Business Days prior to such earlier date (the earliest of such dates, the “Maturity Date”). No further Borrowings shall be permitted after the Maturity Date.
4.Requests for Borrowing. From time to time following the date hereof through the Maturity Date, the Borrower may make one or more written requests to borrow from the Lender principal amounts under this Note up to a maximum amount not to exceed, together with the aggregate principal amount then outstanding under this Note, TEN MILLION DOLLARS ($10,000,000.00) in the aggregate (the “Maximum Amount”). Such Borrowings shall be in increments of $1,000,000 each, or whole multiples of $1,000,000 in excess thereof, (or if the then aggregate amount available for borrowing under this Note is less than $1,000,000, such aggregate lesser amount). Within two (2) Business Days following the Lender’s receipt of any such borrowing request, the Lender shall arrange to lend and disburse such monies to the Borrower so long as, and to the extent, the aggregate principal amount of all Borrowings outstanding under this Note, after giving effect to such Borrowing, does not exceed the Maximum Amount.
Simultaneously with the making of any Borrowing or the repayment of any Borrowing (as provided below in Section 5) hereunder, the Lender shall update Schedule 1 hereto accurately to reflect any amounts so borrowed or repaid and the aggregate principal amount of all Borrowings outstanding under this Note after giving effect thereto and, upon approval thereof by the Borrower, the Lender and the Borrower shall each affix the initials of their respective authorized representatives to such updated Schedule 1, which shall thereafter constitute prima facie evidence of the aggregate principal amount of all Borrowings outstanding hereunder.
Disbursement of any monies by the Lender in connection with the making of a Borrowing hereunder shall be made to the Borrower by wire transfer of immediately available funds in accordance with the instructions that the Borrower specifies to the Lender in the applicable written request.
5.Repayments and Reborrowings. The Borrower may repay all or any portion of the amounts outstanding under this Note at any time without premium or penalty; provided that any partial repayment hereunder shall be in increments of $1,000,000 each, or whole multiples of $1,000,000 in excess thereof (or if the then aggregate amount outstanding under this Note is less than $1,000,000, such lesser aggregate amount). All payments made on this Note shall be made to the Lender by wire transfer of immediately available funds in accordance with the instructions that the Lender may specify to the Borrower in writing from time to time. All payments to the Lender received from the Borrower hereunder shall be applied first, to the payment of any Expenses (defined below in Section 11) owed to the Lender that are then due and payable pursuant to the terms of this Note, second, to the payment of any accrued Undrawn Amount Fees that are then due and payable pursuant to the terms of this Note, third, to the payment of accrued interest that is then due and payable pursuant to the terms of this Note, and fourth, to reduce the principal balance of all then-outstanding Borrowings hereunder. Any payments of Expenses, Undrawn Amount Fees, principal or interest shall be made in U.S. dollars and in immediately available funds and without deduction or reduction of any kind (whether for set-off, recoupment or otherwise).
Any repayments of Borrowings under this Note shall increase the Commitment correspondingly, and, until the Maturity Date, be available for reborrowing.
Simultaneously with any repayment and/or reborrowing hereunder, the Lender shall update Schedule 1 hereto accurately to reflect any amounts to be so repaid and/or reborrowed and the aggregate principal amount of Borrowings outstanding under this Note after giving effect thereto and, upon approval thereof by the Borrower, the Lender and the Borrower shall each affix the initials of their respective authorized representatives to such updated Schedule 1, which shall thereafter constitute prima facie evidence of the aggregate principal amount of all Borrowings outstanding hereunder.
6.Security Interest. As collateral security for the payment and performance in full of any and all amounts owing from time to time by the Borrower to the Lender under or in connection with this Note (the “Secured Obligations”), the Borrower hereby pledges, assigns and grants to the Lender, a Lien on and security interest in and to all of the right, title and interest of the Borrower in, to and under the following property, wherever located, and whether now existing or hereafter arising or acquired from time to time (collectively, the “Pledged Collateral”): (a) the Borrower’s limited liability company interest (the “Interest”) in Voltari Real Estate Holding LLC (the “LLC”); and (b) all proceeds and products of the foregoing, all books and records at any time evidencing or relating to the foregoing, all supporting obligations related thereto, and all accessions to, substitutions and replacements for, and profits and products of, the foregoing, and any and all proceeds of
Exhibit 10.1
any insurance, indemnity, warranty or guaranty payable to the Borrower from time to time with respect to any of the foregoing. The Borrower hereby irrevocably authorizes the Lender at any time and from time to time to file in any relevant jurisdiction any financing statements and amendments thereto that contain the information required by Article 9 of the Uniform Commercial Code (“UCC”) of each applicable jurisdiction for the filing of any financing statement or amendment relating to the Pledged Collateral without the signature of the Borrower where permitted by law. The Borrower agrees to provide all necessary information related to such filings to the Lender promptly upon request by the Lender. The Borrower shall take such further actions, and execute and/or deliver to the Lender such additional financing statements, amendments, assignments, agreements, supplements, powers and instruments, as the Lender may in its judgment deem necessary or appropriate in order to perfect, preserve and protect the security interest in the Pledged Collateral as provided herein and the rights and interests granted to the Lender hereunder, and enable the Lender to exercise and enforce its rights, powers and remedies hereunder with respect to any Pledged Collateral, including the filing of any financing statements, continuation statements and other documents under the UCC (or other similar laws) in effect in any jurisdiction with respect to the security interest created hereby, all in form satisfactory to the Lender and in such offices wherever required by law to perfect, continue and maintain a valid, enforceable, first priority security interest in the Pledged Collateral as provided herein and to preserve the other rights and interests granted to the Lender hereunder, as against third parties, with respect to the Pledged Collateral. Without limiting the generality of the foregoing, but subject to applicable law, the Borrower shall make, execute, endorse, acknowledge, file or refile and/or deliver to the Lender from time to time upon request by the Lender such lists, schedules, descriptions and designations of the Pledged Collateral, statements, confirmatory assignments, supplements, additional security agreements, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments as the Lender shall reasonably request. If an Event of Default has occurred and is continuing, the Lender may institute and maintain, in its own name or in the name of the Borrower, such suits and proceedings as the Lender may deem necessary or expedient to prevent any impairment of the security interest in or the perfection thereof in the Pledged Collateral. All of the foregoing shall be at the sole cost and expense of the Borrower.
7.Representations, Warranties and Covenants. The Borrower hereby represents, warrants and covenants to the Lender that: (a) this Note when executed and delivered by the Borrower shall constitute a valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject only to laws of general application relating to bankruptcy, insolvency and the relief of debtors; (b) the Borrower is not in violation or default of any mortgage, indenture, agreement, instrument or contract to which it is a party or by which it is bound, except where such violation or default would not reasonably be expected to have a material adverse effect on (x) the ability of the Borrower to perform its obligations hereunder or (y) the validity or enforceability of this Note; (c) the execution, delivery and performance by the Borrower of this Note and the consummation of the transactions contemplated hereby, will not result in any such violation or default or an event that results in the creation of any Lien upon any assets of the Borrower (other than the Liens in favor of the Lender created under this Note); (d) there are no issued or outstanding equity interests of the LLC other than the Interest and the Borrower shall not cause or permit the LLC to issue or sell any equity interests other than the Interest; and (e) the Interest is free of all Liens (other than the Liens in favor of the Lender created under this Note) and the Borrower shall not cause or permit the incurrence of any Liens on or with respect to the Interest (other than the Liens in favor the Lender created under this Note). The term “Lien”, as used in this Note, means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).
8.Events of Default. This Note shall become immediately due and payable and the Commitment shall terminate immediately upon the occurrence of any Event of Default, whereupon the unpaid principal of all Borrowings under this Note and all accrued and unpaid interest, accrued Undrawn Amount Fees, Expenses and any other amounts owed hereunder shall become and be immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower. For purposes of this Note, the occurrence of any of the following shall constitute an “Event of Default” under this Note:
(a)any failure by the Borrower to pay to the Lender on the Maturity Date an amount equal to the then outstanding aggregate principal amount of this Note together with all accrued but unpaid interest thereon (and any other amounts owed hereunder);
(b)any failure by the Borrower to pay to the Lender on or before the applicable due date thereof (as provided by this Note), any interest payment, Undrawn Amount Fees, Expenses, or any other payment as and when due hereunder, which failure remains uncured for a period of ten (10) Business Days following the applicable due date thereof; or any material breach by the Borrower of any other terms or provisions of this Note, which breach remains uncured for a period of ten (10) Business Days following (x) the date on which the Lender apprises the Borrower in writing of the existence of such breach or (y) the date on which the Borrower otherwise becomes aware of the existence of such breach.
9.Assignment; Transfers; Successors. This Note may not be transferred, assigned, pledged or encumbered, in whole or in part, by the Borrower and the Borrower may not assign any rights or delegate any of its obligations under this Note, in each case without the prior written consent of the Lender. This Note, together with all Borrowings, and any
Exhibit 10.1
other amounts in respect of interest Undrawn Amount Fees, and Expenses may, with reasonable prior written notice to the Borrower, be transferred, assigned, pledged or encumbered, in whole or in part, by the Lender without the prior written consent of the Borrower. Subject to the foregoing, this Note shall inure to the benefit of and be binding upon the successors and permitted assigns of the Borrower and the Lender. There are no third party beneficiaries of this Note.
10.Amendment; Waiver. Any amendment hereto or waiver of any provision hereof may be made only with the written consent of each of the Borrower and the Lender. No failure or delay by the Lender to insist upon the strict performance of any term or condition of this Note, or to exercise any right or remedy consequent upon a breach thereof, shall constitute, or be deemed to constitute, a waiver of any such term or condition or of any such breach, or preclude the Lender from exercising any such right or remedy at any later time or times. By accepting payment after the due date of any amount payable under the terms of this Note, the Lender shall not be deemed to have waived the right either to require prompt payment when due of all other amounts payable under the terms of this Note or to declare an Event of Default for the failure to effect such prompt payment of any such other amount. No course of dealing or conduct shall be effective to modify, waive or release any provision of this Note.
11.Costs and Expenses; Indemnity. The Borrower hereby agrees to pay all of the Lender’s costs of collection or attempting to collect the same and any other enforcement of this Note, including without limitation, reasonable attorneys’ fees and disbursements and court costs (including those incurred in connection with any appeal) (the foregoing costs and expenses being referred to herein as “Expenses”). The Borrower shall protect, defend, indemnify and save harmless the Lender and any of its affiliates and their respective officers, directors, members, partners, stockholders, controlling persons and employees (each an “Indemnitee”), from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including without limitation reasonable attorneys' fees and expenses), imposed upon or incurred by or asserted against any Indemnitee by reason of or in connection with the extension of credit by the Lender pursuant to this Note or any of the terms thereof. The obligations and liabilities of the Borrower under the foregoing sentence shall survive any termination, satisfaction, or assignment of this Note or the indebtedness covered hereunder.
12.Certain Waivers. The Borrower hereby waives presentment, demand, protest, notice of acceptance, notice of dishonor, notice of protest and all other notices of any kind should any indebtedness represented by this Note be collected at law or in equity or in the case of the Lender bankruptcy or other proceedings after demand therefore has been made, or should this Note be placed in the hands of attorneys for collection after default.
13.WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE LENDER, BY ITS ACCEPTANCE OF THIS NOTE, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS NOTE OR ANY CLAIM RELATING THERETO.
14.Notices. All notices hereunder shall be given in writing and shall be deemed delivered when received by the party to whom such notice is addressed at the address set forth below such party’s signature or at such other address as may be specified by such party from time to time.Governing Law; Jurisdiction. This Note and the legality, validity and performance of the terms hereof is made in accordance with and shall be construed under the laws of the State of New York, without regard to the conflicts of law principles thereof that would result in the application of any law other than the law of the State of New York. Each of the Lender and the Borrower hereby (a) submits to the exclusive jurisdiction of any state or federal court sitting in New York, New York in any action or proceeding arising out of or relating to this Note, (b) irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding, and (c) agrees that venue therein is proper and convenient.
Exhibit 10.1
15.
BORROWER: | |||
Voltari Corporation | |||
/s/ John Breeman | |||
Name: | John Breeman | ||
Title: | Chief Financial Officer |
Address: | |||||
Voltari Corporation | |||||
601 W. 26th St. #415 | |||||
New York, NY 10001 |
ACCEPTED AND AGREED
AS OF THE DATE FIRST
WRITTEN ABOVE:
LENDER: | ||||
Koala Holding LP | ||||
By: Koala Holding GP Corp., its general partner | ||||
By: /s/ Keith Cozza | ||||
Name: | Keith Cozza | |||
Title: | Secretary; Treasurer |
Address: | |||
767 Fifth Avenue, Suite 4700 | |||
New York, New York 10153 | |||
Exhibit 10.1
[REVOLVING NOTE, DATED AUGUST 7, 2015, EVIDENCING A REVOLVING LOAN FACILITY OF $10,000,000.00 FROM KOALA HOLDING LP TO VOLTARI CORPORATION DUE DECEMBER 31, 2017]
Schedule 1
Date of Borrowing/ Repayment | Amount of Borrowing/ Repayment | Aggregate Amount of Borrowings Outstanding after Borrowing/ Repayment | Current Commitment Available | Lender’s Initials | Borrower’s Initials |
Exhibit 10.2
AGREEMENT FOR SALE AND PURCHASE
THIS AGREEMENT, made as of the Effective Date (as hereinafter defined), by and between 160 BRIGHTON ACQUISITION, LLC, a Delaware limited liability company (“Seller”), and VOLTARI REAL ESTATE HOLDING LLC, a Delaware limited liability company (“Buyer”),
W I T N E S S E T H:
WHEREAS, Seller is the owner of all those certain tracts or parcels described in Exhibit A attached hereto (the “Land”), together with a retail bank branch building situated thereon and commonly known as 160 Brighton Avenue, Block 119, Lots 1.01 and 2, City of Long Branch, Monmouth County, New Jersey (together with the Land, the “Project”); and
WHEREAS, Seller desires to sell and Buyer desires to buy, inter alia, the Project at the price and on the other terms and conditions hereinafter set forth; and
NOW, THEREFORE, in consideration of the foregoing premises and the mutual agreements and covenants herein contained, and intending to be legally bound hereby, the parties covenant and agree as follows:
1. Agreement to Sell and Purchase
Seller shall sell and convey, and Buyer shall purchase, the Project; together with the easements, rights, privileges and appurtenances belonging thereto, and any abutting strips or gores; together with Seller’s right, title and interest, if any, in and to any land lying in the bed of any street, road or avenue, open or proposed, in front of or adjoining the Land to the center line thereof; together with all appurtenant easements for ingress and egress and utilities; all water and mineral rights owned by Seller respecting the Land; and together with all Seller’s interest in and to the fixtures now located in, upon, attached or appurtenant to the Project, personal property and supplies owned by Seller and used at the Project (the “Personalty”); and together with Seller’s interest as landlord under the Ground Lease, dated May 23, 2005, originally between Dwek Branches, LLC, as Landlord, and JP Morgan Chase Bank, N.A. (“Chase”), as Tenant (the “Lease”) (all of the foregoing property, real, personal and mixed, being collectively called the “Property”).
2. Purchase Price
Buyer shall pay Seller for the Property the sum of THREE MILLION SIX HUNDRED TWENTY-NINE THOUSAND SIXTY-TWO AND 50/100 DOLLARS ($3,629,062.50) (the “Purchase Price”), subject to prorations and adjustments as hereinafter set forth, payable as follows:
(a) THREE HUNDRED SIXTY-TWO THOUSAND NINE HUNDRED AND 00/100 DOLLARS ($362,900.00) by wire transfer of immediately available Federal funds not later than three (3) days following the date the later of Seller or Buyer executes this Agreement, as indicated on the signature page hereof (the “Effective Date”) (such monies, together with any interest which shall accrue thereon, being collectively called the “Deposit”), all to be held in escrow by a reputable national title insurance company licensed in New Jersey selected by Buyer (“Title Company”), as escrow agent, and disbursed in accordance herewith. Buyer designates Commonwealth Land Title Insurance Company, att: Liane Carpenter, 685 Third Avenue, 20th Floor, New York, NY 10017 (212) 973-4802 to be the Title Company.
Exhibit 10.2
(b) The balance of the Purchase Price at closing by wire transfer of immediately available Federal funds, to Seller’s order, subject to the prorations set forth herein.
3. Representations, Warranties and Covenants. In order to induce Buyer to enter into this Agreement, and in addition to any other representations, warranties or covenants contained herein, Seller makes the following representations, warranties and covenants, each of which is effective as of the date of this Agreement and, unless Seller notifies Buyer to the contrary as contemplated in Paragraph 3(h) below, will be effective as of the date of closing. Whenever in this Paragraph 3 the phrase “to Seller’s actual knowledge” or words of similar import appear, it shall be deemed to mean the actual knowledge of Isaac D. Massry. Seller represents that Isaac D. Massry is the most knowledgeable principal of Seller with respect to the Property.
(a) Litigation. There are no pending or, to Seller’s actual knowledge, threatened matters of litigation, administrative action or examination, claim or demand whatsoever relating to the Property (other than any personal injury claims which are covered by Seller’s insurance) nor are there any such matters which would otherwise affect Seller’s ability to comply with the terms and provisions of this Agreement. To Seller’s actual knowledge, and except as disclosed in Seller’s most recent environmental reports, which are included in the Due Diligence Documents (as hereinafter defined), there are no violations of any governmental requirements (including environmental laws) on the Property which have not been remedied.
(b) Condemnation. Seller has not received any written notice, and has no actual knowledge, of any pending or contemplated eminent domain, condemnation or other governmental taking of the Property or any part thereof.
(c) Information Delivered. To Seller’s actual knowledge, all Due Diligence Documents (as hereinafter defined) being delivered or made available to Buyer by Seller pursuant to this Agreement are true and accurate in all material respects.
(d) Authority of Signatories; No Breach of Other Agreements. The execution, delivery of and performance by Seller of this Agreement is pursuant to sufficient authority validly and duly conferred upon Seller and the signatories of Seller hereto. Execution and delivery of this Agreement and the consummation by Seller of the transactions herein contemplated and the compliance by Seller with the terms of this Agreement do not conflict with or result in breach of any of the terms or provisions of, or constitute default under, the constituent documents of Seller or any indenture, note, mortgage, agreement, arrangement, understanding, accord, document or instrument by which Seller or the Property is bound, and will not and do not constitute a violation of any applicable law, rule, regulation, judgment, order or decree of any governmental instrumentality or court, domestic or foreign, to which Seller or the Property is subject.
(e) Section 1445(a) Non‑foreign Person. Seller is not a foreign person for purposes of, and is not subject to withholding under, Internal Revenue Code Section 1445(a).
(f) Tenant Leases. Attached hereto as Exhibit B is a true, correct and complete copy of the Lease which Lease is the only lease related to the Property. Seller has received no written notice of any default, failure or breach by Seller under the Lease, which remains uncured, and to Seller’s actual knowledge, no such default, failure or breach now exists.
(g) Neither Seller, nor any member or principal of any member of Seller, is related to Solomon Dwek by blood, marriage or by business relationship, which representation will survive the closing.
Exhibit 10.2
(h) Breach of Representation or Warranty. If Seller becomes aware that any of the foregoing representations and warranties become untrue or inaccurate as a result of a change in any material respect on or before the Closing Date, Seller shall promptly notify Buyer. If so notified by Seller, or if Buyer otherwise becomes aware that any of the foregoing representations and warranties has become untrue or inaccurate as a result of a change in any material respect on or before the Closing Date, Buyer shall thereupon have the right and option, as Buyer’s sole remedy, at any time within five (5) days after receipt of Seller’s notice, or otherwise becoming so aware, as the case may be, to cancel and terminate this Agreement, whereupon the Deposit shall immediately be paid to Buyer. If Buyer does not so elect to terminate this Agreement, Seller’s representations and warranties herein shall be deemed revised to include such change. Notwithstanding the foregoing, if Buyer so terminates this Agreement as in this Paragraph 3(h) provided because any such representation or warranty became untrue as a result of Seller's default hereunder, Seller shall reimburse Buyer for Buyer's reasonable, documented, out-of-pocket costs incurred in seeking to acquire the Property, up to an aggregate amount of $10,000.00.
(i) Buyer acknowledges and agrees that Seller is selling the Property in its “AS IS” CONDITION WITH ALL FAULTS, WITHOUT REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, except as herein expressly provided. Pursuant to this Agreement, Buyer will be given a reasonable opportunity to inspect and investigate the Property, either independently or through agents of Buyer’s choosing. Except for the representations, covenants and warranties of Seller contained herein, Buyer shall not be entitled to, and should not, rely on Seller or its affiliates or its agents as to (A) the quality, nature, adequacy and physical condition of the Property, including, but not limited to, the structural elements, foundation, roof, appurtenances, access, landscaping, parking facilities and the electrical, HVAC, plumbing, sewage, and utility systems, facilities and appliances, (B) the quality, nature, adequacy, and physical condition of soils, ground water, and geology, (C) the existence, quality, nature, adequacy and physical condition of utilities serving the Property, (D) the development potential of the Property, its habitability, merchantability, or fitness, suitability, or adequacy of the Property for any particular purpose, (E) the zoning or the legal status of the Property, (F) the Property’s or its operation’s compliance with applicable codes, laws, regulations, statutes, ordinances, covenants, conditions, and restrictions of any governmental, quasi-governmental entity or any other person or entity, (G) the quality of any labor and materials furnished at or to the Property, (H) the compliance of the Property with any environmental protection, pollution, or land use laws, rules, regulations orders or requirements including, but not limited to, those pertaining to the handling, generating, storing, or disposing of any hazardous and/or regulated materials, or the Americans with Disabilities Act, (I) the condition of title and the nature, status and extent of any right-of-way, lease, right of retention, possession, lien, encumbrance, license, reservation, covenant, condition, restriction, and any other matter affecting the title, (J) any item of income or expense which may be generated by the Property and the operation thereof or (K) the accuracy or completeness of the Due Diligence Documents or any information contained in the Due Diligence Documents. Although Seller and Seller’s predecessors may have performed work, or contracted for work performed by third parties in connection with the Property, Seller and its agents shall not be responsible to Buyer or any successor on account of any errors or omissions or construction defects of such predecessors and/or third parties. Without limiting the foregoing provisions, and except as relates to fraud, willful misconduct or breaches or defaults of any of the representations, covenants and warranties of Seller contained herein, Buyer, for itself and any successors and assigns of Buyer, waives its right to recover from, and forever releases and discharges, and covenants not to sue, Seller and its principals, agents, representatives and affiliates and their respective heirs, successors, personal representatives and assigns with respect to any and all claims and causes of action, whether direct or indirect, known or unknown, foreseen or unforeseen, in contract, tort, or under statute, that may arise on account of or in any way be connected with the Property including, without limitation, the physical, environmental and structural condition of the Property or any law or regulation applicable thereto, including, without limitation, any claim or cause of action relating to the use, presence, discharge or release of hazardous or regulated materials on, under, in,
Exhibit 10.2
above or about the Property (including, without limitation, any and all claims under the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act, or any other federal, state or local statute or regulation, or any federal or state common law, whether now existing or applicable or hereafter enacted or applicable, providing for or permitting any right of recovery for any environmental matter or condition). Notwithstanding the foregoing, Buyer does not waive its rights, if any, to recover from, and does not release or discharge or covenant not to sue Seller for any breach of Seller’s obligations, representations, covenants and warranties set forth in this Agreement.
Buyer represents to Seller that the execution, delivery and performance by Buyer of this Agreement is pursuant to authority validly and duly conferred upon Buyer and the signatories of Buyer hereto, and there is no claim, action, suit or proceeding pending or, to the knowledge of Buyer, threatened against, by or otherwise affecting Buyer, which could materially impact on Buyer’s ability to perform its obligations under this Agreement.
(j) Seller recognizes that Voltari Corporation, which is Buyer’s parent company (“Parent”), is a public company with shares of common stock registered under U.S. securities laws. Accordingly, Seller acknowledges and agrees that Parent may publicly disclose in filings with governmental authorities and/or financial statements such information regarding the transaction contemplated hereby as it may deem necessary or advisable under securities laws, rules or regulations, or accounting rules.
(k) There are no attachments, executions or assignments for the benefit of creditors or voluntary proceedings in bankruptcy or under any other debtor relief laws contemplated by or pending or threatened by or against Seller or otherwise affecting the Property.
(l) There is no Personalty to be delivered to Buyer in conjunction with this transaction.
(m) There are no operating, management, service or similar type agreements or contracts to which Seller is a party affecting the Property which will survive beyond the Closing Date and any existing operating, management, service or similar type agreements or contracts to which Seller is a party affecting the Property will be paid off in full on or prior to the Closing Date.
(n) There is no contract, option, right of first refusal, lease or other agreement or instrument of any kind which grants to any person or legal entity other than Buyer the present or future right to purchase, occupy, lease or otherwise acquire any interest in, or any right to occupy or use, the Property or any part thereof, other than the Lease.
(o) As of the date hereof, Seller or Tenant maintains property insurance for the Property equal to 100% of the replacement value of the Property and Seller has not received any written notice of cancellation under any such insurance policy.
(p) To Seller’s actual knowledge, nothing catastrophic has occurred at the Property since the Property was acquired by Seller. Catistrophic shall mean any condition that would prevent the entire Property from being used for its current use.
(q) To Seller’s actual knowledge, and except as disclosed in Seller’s most recent environmental reports, which are included in the Due Diligence Documents (as hereinafter defined), there are no environmental issues or hazardous materials at the Property.
(r) All of the representations of Seller contained in this Agreement (except the representation contained in Paragraph 3(g) above, which shall survive closing without limitation) shall survive closing for a period of one (1) year.
Exhibit 10.2
4. Conditions Precedent to Closing
(a) Buyer’s obligation to close hereunder shall be expressly conditioned upon the occurrence or fulfillment of each of the following conditions on or prior to the Closing Date or such earlier date as may be provided in this Paragraph 4(a):
(i) All of the representations and warranties by Seller set forth in this Agreement shall be true and correct at and as of the Closing Date in all material respects, subject to Paragraph 3(h).
(ii) Seller shall have performed, in all material respects, all covenants, agreements and conditions required by this Agreement to be performed by Seller prior to the Closing Date. For the purpose of this paragraph, Seller’s material performance shall be defined as a) delivery or execution of all documents reasonably necessary or contemplated by this Agreement to effectuate the Closing; b) delivery to the Title Company of all documents reasonably requested in order to issue the Title Policy required under this Agreement; and c) delivery of the balance of the purchase price, including adjustments, as required under this Agreement.
(iii) Seller shall obtain, as a condition of closing, an executed estoppel letter (the “Estoppel Certificate”) from Chase, in the form specified in the Lease.
If any of the conditions set forth above in this Paragraph 4(a) is not satisfied by the applicable date set forth herein, Buyer shall notify Seller within five (5) business days after such date, and if such non-satisfaction continues for five (5) business days after such notice from Buyer thereof, this Agreement may, at Buyer’s option, be terminated upon notice to Seller within three (3) business days after the end of such 5-day period, whereupon Buyer shall be entitled to receive back the Deposit, and if the failure of such condition is not the result of Buyer's default hereunder, Seller shall reimburse Buyer for Buyer's reasonable, documented, out-of-pocket costs incurred in seeking to acquire the Property, up to an aggregate amount of $10,000.00.
(b) Seller’s obligation to close hereunder shall be expressly conditioned upon the occurrence or fulfillment of each of the following conditions on or prior to the Closing Date:
(i) All of the representations by Buyer set forth in this Agreement shall be true at and as of the Closing Date in all material respects.
(ii) Buyer shall have performed, in all material respects, all covenants, agreements and conditions required by this Agreement to be performed by Buyer prior to the Closing Date, including delivery of the balance of the Purchase Price due at closing.
If any of the conditions set forth above in this Paragraph 4(b) is not satisfied by the applicable date set forth herein and such non-satisfaction continues for fifteen (15) days after written notice from Seller thereof, this Agreement may, at Seller’s option, be terminated by notice to Buyer, given within three (3) days after the end of such 5-day period, whereupon Seller shall be entitled to receive the Deposit from Title Company, as liquidated damages and not as a penalty, and such receipt shall be Seller’s sole remedy.
5. Inspection; Seller’s Operations Prior to Closing
(a) From and after the date hereof, Seller shall provide Buyer and Buyer’s agents and representatives with access to the Project for the purpose of inspecting the physical condition and operation thereof. In addition, if not previously delivered, not later than three (3) days after the Effective Date, Seller shall make various documents respecting the Property available to Buyer for Buyer’s review, including
Exhibit 10.2
(without limitation) copies of all Leases, service contracts (“Service Contracts”), environmental reports, including any Phase 1 and Phase 2 reports, assessments and inspections (Environmental Reports) and various other financial and other documents in Seller’s possession regarding the operation of the Property (the “Due Diligence Documents”). Buyer shall proceed diligently and in good faith in inspecting the Property and reviewing the Due Diligence Documents and shall indemnify, defend and hold Seller harmless from and against any and all loss, cost, claims, liability or expense arising from Buyer’s exercise of its rights pursuant to this Paragraph 5(a), except for any such loss, cost, claim, liability or expense caused by or arising from the gross negligence, fraud or willful misconduct of Seller, which obligation of Buyer shall survive closing or the termination of this Agreement prior to closing. Prior to entering upon the Project for any reason, Buyer shall provide Seller with reasonable prior notice and a description of Buyer’s intended activities and also shall provide to Seller reasonable evidence that Buyer maintains general liability insurance coverage, including Buyer’s contractual liability, covering its obligations to Seller pursuant to this Paragraph 5(a), in an amount not less than $2,000,000.00 combined single limit. Such insurance policies shall name Seller as an additional insured. If Buyer (in Buyer’s sole discretion) chooses not to proceed with the acquisition of the Property for any reason or no reason, Buyer shall, by notice to Seller on or prior to September 4, 2015 (the “Inspection Termination Date”), terminate this Agreement, whereupon Buyer shall be entitled to receive back the Deposit, and this Agreement shall terminate. All reports and tests in connection with Buyer’s inspections shall be prepared and conducted at Buyer’s sole cost and expense.
(b) During the term of this Agreement, Seller shall operate the Property in the normal course of business consistent with Buyer’s prior operations, and Seller shall not modify, amend or seek or grant any waiver under the Lease without Buyer’s prior consent.
6. Closing; Time.
(a) Closing shall take place by way of an escrow closing at the offices of the Title Company on a date (the “Closing Date”) occurring not later than September 17, 2015.
(b) All times specified in this Agreement are of the essence of this Agreement.
7. Evidence and Condition of Title
(a) At closing, title to the Property (other than the Personalty) shall be fee simple and shall be: (i) good and marketable; (ii) insurable as such, at regular rates, by Title Company, and (iii) subject to only the Lease, the lien of any real estate taxes or assessments which are not yet due and payable, and those matters approved by Buyer in the manner set forth below in this Paragraph 7 (collectively, the “Permitted Exceptions”). Title to the Personalty shall be free and clear of all liens, security interests and other encumbrances.
(b) Promptly after the execution of this Agreement, Buyer shall apply for a commitment for title insurance from Title Company (the “Title Commitment”). Seller agrees, at no cost to Seller, to cooperate with Buyer and Title Company in connection therewith. Prior to September 4, 2015, Buyer shall deliver a copy of the Title Commitment to Seller, together with a notice to Seller identifying the existence of any exceptions in the Title Commitment, other than the Permitted Exceptions, which are unsatisfactory to Buyer (such exceptions so identified by Buyer being called “Title Defects”). All other matters affecting title to the Property shall be deemed approved by Buyer.
(c) (i) If Buyer notifies Seller of the existence of any Title Defects, Seller shall have ten (10) days within which to notify Buyer whether Seller intends to cure such Title Defects, and the failure
Exhibit 10.2
to notify Buyer within such 10-day period shall be conclusively deemed to be Seller’s notice to Buyer of Seller’s decision not to cure the Title Defects.
(ii) If Seller notifies, or is deemed to have notified, Buyer of its intention not to cure any Title Defects, Buyer shall have five (5) business days thereafter to notify Seller of its decision whether to take such title as Seller may give, without abatement of the Purchase Price, or of terminating this Agreement, and in the latter event, the Deposit shall be returned to Buyer and this Agreement shall terminate.
(d) If Seller agrees to cure any Title Defects and such Title Defects remain uncured at closing, or if additional Title Defects created after the issuance of the Title Commitment exist at the time of closing, then Buyer shall either (i) take such title as Seller may give, with a credit against the Purchase Price in an amount necessary to cure or correct any Title Defects which constitute monetary liens in an ascertainable amount (as reasonably determined by Title Company), or (ii) be entitled to a return of the Deposit, whereupon this Agreement shall terminate.
(e) Seller shall not voluntarily transfer or encumber the Property or any part thereof during the term of this Agreement.
(f) Notwithstanding the foregoing, Seller agrees to cure any monetary lien or encumbrance in an ascertainable amount affecting the Property that can be cured by the payment of money.
8. Delivery of Documents
At closing, Seller shall deliver to Buyer:
(a) A bargain and sale deed with covenant against grantor’s acts (the “Deed”), conveying fee simple title to the Property to Buyer in accordance with the requirements of subparagraph 7(a) above.
(b) A Bill of Sale to the Personalty duly executed by Seller.
(c) A valid assignment of the Lease, containing an assumption by Buyer, assigning to Buyer all of Seller’s right, title and interest in and to the Lease.
(d) A valid assignment of Seller’s interest under any service contracts respecting the operation and maintenance of the Property, to the extent assignable, containing an assumption by Buyer, assigning to Buyer all of Seller’s interest under such contracts.
(e) Such affidavits, state and local tax forms and other documentation as is customary in New Jersey or as the Title Company shall reasonably require, to be signed by Buyer also, as appropriate.
(f) An original letter in the form of Exhibit C, executed by Seller, advising Chase of the sale of the Property and directing that rents and other payments thereafter be sent to Buyer or as Buyer may direct.
(g) A certificate in the form of Exhibit D, executed and acknowledged by Seller, in accordance with Section 1445 of the Internal Revenue Code, as amended.
(h) An original of the Lease to the extent in Seller’s possession.
(i) An original Estoppel Certificate..
Exhibit 10.2
(j) An assignment of Seller’s rights and interest in and to the names, signs and logotypes under which the Property have been managed, operated and advertised.
(k) Possession of the Property subject only to the Lease.
(l) An original or certified copy of the Assignment of the Lease from Seller’s predecessor to Seller.
9. Apportionments and Adjustments
The following items are to be computed and apportioned between Buyer and Seller as of the Closing Date on a per diem and on a 365 day year basis:
(a) Any water and sewer rents not paid directly by Chase.
(b) Any real estate taxes not paid directly by Chase.
(c) Any amounts payable under assignable service contracts.
(d) The rents and charges due under the Lease (“Rents”).
(e) Any Rents which are due and payable under the Lease on or prior to the Closing Date, but which have not been collected by Seller, shall promptly be remitted to Seller by Buyer in accordance with this subparagraph 10(e), if collected by Buyer. The first of any of Rents received by Buyer from Chase subsequent to the Closing Date shall be retained by Buyer on account of Rents then currently due and payable, and any excess Rents received by Buyer shall be promptly remitted to Seller on account of any delinquencies existing for periods prior to closing. Buyer assumes no obligation to collect delinquent Rents on behalf of Seller, other than to use commercially reasonable collection efforts, which efforts shall not require Buyer to commence litigation, evict Chase or terminate the Lease.
(f) If Chase or any subtenant is obligated to pay expense reimbursements, escalation rent, percentage rent or any other item set forth in subparagraph 10(d), and if the total amount received by Seller or by Buyer on account thereof exceeds the portion of such rent or other items (when ascertained) allocable to the portion of the billing period falling during the receiving party’s period of ownership, the receiving party shall promptly pay the excess to the other. Each of Seller and Buyer shall provide the other with copies of all reports relating to the aforementioned which Seller or Buyer has received from or sent to Chase and/or subtenants, from time-to-time, so that Seller and Buyer may have the full billing period information necessary to ascertain and confirm that amount to which each party is entitled.
(g) Any utility company charges, up to and including the Closing Date (including electricity, water and sewer) accrued and payable by Seller (other than those payable directly by Chase to the utility suppliers) based upon the last bill therefor. If any such bill has not been received by the Closing Date, then such adjustment shall be based upon the next such bill received and such adjustment shall occur after the Closing Date. Seller shall retain the right to the refund of all utility deposits. With respect to any utility adjustment, Seller shall endeavor to obtain meter (or other measuring device) readings of the utility consumption as of the Closing Date and, wherever possible, Seller shall pay directly to the utility company the amount determined to be due as of the Closing Date.
This Paragraph 9 shall survive closing.
Exhibit 10.2
10. Transfer Taxes; Other Expenses.
Any and all state and local transfer taxes and documentary stamp charges arising from the sale of the Property and the recordation of the Deed to the extent imposed by applicable law shall be paid by Seller at closing, except that Buyer and Seller shall each pay 50% of the applicable New Jersey Mansion Tax. Buyer also shall pay the cost of recording the Deed and all title insurance premiums and charges and any survey costs, and each party shall pay the fees and expenses of its respective legal and other advisors. Each party shall pay one‑half (1/2) of the reasonable and customary escrow or closing fees charged by the Title Company, but not more than $250.00 per party.
11. Defaults and Remedies; Title Company as Holder of Deposit
(a) Default by Seller. In the event that any of Seller’s representations or warranties contained herein are untrue (either when made or at closing), but subject to Paragraph 3(g), or if Seller shall have failed to have timely performed any of its obligations, covenants and/or agreements contained herein in all material respects which are to be performed by Seller and Seller shall not have cured said default within ten (10) days after written notice thereof, then Buyer, at its option may (i) elect to close the purchase of the Property pursuant to the provisions hereof and such closing shall be deemed a waiver of any claims against Seller for damages as a result of Seller’s default, (ii) Buyer may specifically enforce the provisions of this Agreement, or (iii) Buyer may cancel and terminate this Agreement and in such event the Deposit shall immediately be paid to Buyer; provided, that in no event may Buyer proceed against Seller for damages arising out of Seller’s default.
(b) Default by Buyer. If, following the Inspection Termination Date, Buyer shall fail to close the purchase of the Property as contemplated hereby due to the default of Buyer hereunder, and Buyer shall not have cured said default within ten (10) days after written notice thereof, the Deposit shall be paid to Seller as liquidated damages as Seller’s sole and exclusive remedy for such default, Seller hereby specifically waiving any and all rights which it may have to any additional damages or specific performance as a result of Buyer’s default under this Agreement.
(c) Title Company, in its sole discretion, may at any time deposit the Deposit with a court of competent jurisdiction selected by it and, in such event, Title Company shall be fully released and discharged from all obligations as escrow holder hereunder.
(d) The duties of Title Company hereunder are only as herein specifically provided and are purely ministerial in nature. Title Company shall incur no liability whatever as escrow holder, as long as Title Company acts in good faith.
12. Insurance
Seller shall maintain in effect until the Closing Date its existing property insurance policies with respect to the Property. In the event of damage to the Property by fire or any other casualty, Seller shall promptly notify Buyer and this Agreement shall not be affected thereby, provided the cost of repairing such damage shall not exceed the sum of $500,000.00, and provided all such costs are covered by such policies, or Seller agrees to pay Buyer the cost of any uncovered damage. If, however, damage caused by fire or other casualty insured under such policies shall exceed $500,000.00, or if the damage is not fully covered by such policies and Seller does not agree to pay Buyer at closing the cost of repairing the uncovered damage, Buyer shall have the right and option to terminate this Agreement by giving notice to Seller within ten (10) days after Seller’s notifying Buyer of such damage, whereupon Buyer shall be entitled to receive back the Deposit. If, in the event of a casualty, this Agreement shall not be terminated as in this Paragraph 12 provided, Seller
Exhibit 10.2
shall pay or assign to Buyer at closing all monies received or receivable from the insurance companies which wrote such policies and all claims against such insurance companies as a result of the losses covered by such policies, less costs previously expended by Seller on account of the damage.
13. Condemnation
In the event that all or part of the Property is taken by condemnation or eminent domain proceeding between the date of this Agreement and the Closing Date, Buyer may (a) cancel this Agree-ment, if the part of the Property so taken is material to the current use of the Property, or (b) take title subject to such condemnation or taking and receive the proceeds thereof, Seller assigning all its rights to unpaid proceeds to Buyer at closing. Buyer shall notify Seller of its election not more than ten (10) days after notice from Seller of the occurrence of the condemnation or taking. If Buyer shall elect to cancel this Agreement, then Buyer shall be entitled to receive back the Deposit.
14. Brokers
Seller and Buyer each represents and warrants to the other that it has engaged no broker or finder in connection with the Property, other than Stan Johnson Company (“Broker”). Seller shall pay Broker a commission if and when required by a separate agreement. Seller and Buyer each agrees to indemnify, save harmless and defend the other from and against all claims, losses, liabili-ties and expenses, including reasonable attorneys’ fees, through any and all appeals, arising out of any claim made by any other broker, finder or other intermediary who claims to have been engaged by such party in connection with the transactions contem-plated by this Agreement. The provisions of this Paragraph 14 shall survive closing.
15. Notices
All notices and other communications hereunder to be effective shall be in writing and be sent by overnight delivery with an overnight courier such as Federal Express, Airborne, United Postal Service or other nationally-recognized overnight courier service:
IF TO SELLER: 160 Brighton Acquisition, LLC
8 Industrial Way East
Second Floor
Eatontown, NJ 07724 Attn: Isaac D. Massry
WITH A COPY TO: Alan N. Escott, Esquire
McCausland, Keen & Buckman
Radnor Court, Suite 160
259 N. Radnor-Chester Road
Radnor, PA 19087-5240
IF TO BUYER: Voltari Real Estate Holding LLC
Att: Chief Principal Officer
601 West 26th Street, Suite 415
New York, NY 10001
WITH A COPY TO: Marshall Schiff, Esquire
Marshall S. Schiff, P.C.
One North Broadway, Suite 701
White Plains, New York 10601
Exhibit 10.2
Notices shall be deemed given one (1) delivery date after the date when duly deposited with the courier as provided above. Notices may be given by a party’s attorney on such party’s behalf.
16. Assignment
Buyer may not assign its rights under this Agreement without Seller’s prior consent, other than to a newly formed or existing entity related to or affiliated with Voltari Real Estate Holding LLC or its principals. Subject to the foregoing, this Agreement shall inure to the benefit of and be binding upon the parties and their respective legal representatives, successors and assignees.
17. Binding Effect; Amendments
This Agreement contains the final and entire agreement between the parties with respect to the subject matter hereof. The parties shall not be bound by any terms, conditions, statements, warranties or representations, oral or written, not herein contained. This Agreement may not be changed orally but only by an instrument in writing and signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. Neither this Agreement nor any assignment hereof shall be filed of record or in any office or place of public record.
18. Counterparts
This Agreement may be executed in one or more counter-parts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Electronically transmitted copies of this Agreement and/or signature pages hereof shall have the same force and effect as originals.
.
19. Governing Law
This Agreement shall be construed and interpreted in accordance with the laws of the State of New Jersey.
20. Captions
The captions in this Agreement are inserted for convenience of reference only and in no way define, describe or limit the scope or intent of this Agreement or any of the provisions hereof, and shall not constitute a part of this Agreement.
21. Agreement Separable
If any provision hereof is for any reason unenforceable or inapplicable, the other provisions hereof will remain in full force and effect in the same manner as if such unenforceable or inapplicable provision had never been contained herein.
Exhibit 10.2
22. Tax-Deferred Exchange
Buyer or Seller may desire to exchange, for other property of like kind and qualifying use within the meaning of Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”), and the Treasury Regulations promulgated thereunder, fee title in the Project. Each of Buyer and Seller expressly reserves the right to assign its rights, but not its obligations, hereunder to a Qualified Intermediary as provided in Treasury Reg. §1.1031(k)-1(g)(4) on or before closing and each party hereby agrees to fully cooperate with the other party, at no cost to such party, in the furtherance of any such like-kind exchange pursuant to Code §1031 contemplated by either party hereto.
23. Time Periods
If any date, time period or deadline hereunder falls on a weekend or a holiday generally observed in the State of New Jersey, then such date shall be extended to the next occurring business day.
(Remainder of page intentionally left blank)
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written.
SELLER:
160 BRIGHTON ACQUISITION, LLC
By: | Linden Exchange Group, LLC, a Delaware limited liability company and its Sole |
Member
By: Linden Plaza Management, Inc., a
Delaware corporation and its Managing Member
By:/s/Isaac Massry
Isaac Massry, Vice President
Date of Execution: August 7, 2015
BUYER:
VOLTARI REAL ESTATE HOLDING LLC
By:_/s/ John Breeman____________
Title: Chief Financial Officer
Date of Execution: August 7, 2015
Exhibit 10.2
LIST OF EXHIBITS
ITEM PARAGRAPH No. DOCUMENT DESCRIPTION
A Recitals Legal Description
B 1 Lease
C 8(f) Tenant Notice
D 8(g) FIRPTA Certificate
Exhibit 10.2
EXHIBIT B
Chase Lease
(see attached)
Exhibit 10.2
EXHIBIT C
160 Brighton Acquisition, LLC
8 Industrial Way East
Second Floor
Eatontown, NJ 07724
To: | JP Morgan Chase Bank, N.A. JP Morgan Chase Legal Department |
575 Washington Boulevard - 4th Floor 270 Park Avenue - 39th Floor
Jersey City, New Jersey 07310-1680 New York, New York 10017
Attn: Retail Real Estate - Northeast Region Attn: Retail Real Estate Counsel
Re: 160 Brighton Avenue, Long Branch, New Jersey (the “Premises”)
_____________, 2015
Dear Ladies and Gentlemen:
In that the Premises today have been sold to Voltari Real Estate Holding LLC, please be advised that all future payments of rent and other charges in connection with your respective leases at the Premises should be paid to the new owner at the following address:
Voltari Real Estate Holding LLC
601 West 26th Street, Suite 415
New York, New York 10001
Furthermore, any security deposits made by you and held by us as of today’s date have been transferred to Voltari Real Estate Holding LLC, to whom you should look for the return of such deposits upon your fulfillment of all your respective obligations under your leases.
Very truly yours,
160 BRIGHTON ACQUISITION, LLC
By: | Linden Exchange Group, LLC, a Delaware limited liability company and its Sole |
Member
By: Linden Plaza Management, Inc., a
Delaware corporation and its Managing Member
By:___________________________
Isaac Massry, Vice President
Exhibit 10.2
EXHIBIT D
FIRPTA CERTIFICATE FOR ENTITIES
Section 1445 of the Internal Revenue Code provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. For U.S. tax purposes (including Section 1445), the owner of a disregarded entity (which has legal title to a U.S. real property interest under local law) will be the transferor of the property and not the disregarded entity. To inform the transferee that withholding of tax is not required upon the transfer of a U.S. real property interest by 160 Brighton Acquisition, LLC to the transferee, the undersigned hereby certifies the following:
1) 160 Brighton Acquisition, LLC is not a foreign corporation, foreign partnership, foreign trust, or foreign estate (as those terms are defined in the Internal Revenue Code and Income Tax Regulations);
2) 160 Brighton Acquisition, LLC is not a disregarded entity as defined in Reg. §1.1445-2(b)(2)(iii);
3) The U.S. employer identification number of 160 Brighton Acquisition, LLC is _______________; and
4) The office address of 160 Brighton Acquisition, LLC is 8 Industrial Way East, Second Floor, Eatontown, NJ 07724.
The undersigned understands that this certification may be disclosed to the Internal Revenue Service by the transferee and that any false statement contained herein could be punished by fine, imprisonment, or both.
Under penalties of perjury I declare that I have examined this certification and to the best of my knowledge and belief, it is true, correct and complete, and I further declare that I have authority to sign this document on behalf of 160 Brighton Acquisition, LLC.
160 BRIGHTON ACQUISITION, LLC
By: | Linden Exchange Group, LLC, a Delaware limited liability company and its Sole |
Member
By: Linden Plaza Management, Inc., a
Delaware corporation and its Managing Member
By: /s/ Isaac Massry
Isaac Massry, Vice President
Exhibit 10.3
GROUND LEASE
THIS GROUND LEASE (“Lease”) is entered into by and between DWEK BRANCHES, LLC, a New Jersey limited liability company (“Landlord”), and JPMORGAN CHASE BANK, N.A., a national banking association (“Tenant”).
R E C I T A L S