Form PREM14A DETERMINE, INC. For: Feb 27

February 27, 2019 5:10 PM

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

(Amendment No.      )

 

Filed by the Registrant ☒

Filed by a Party other than the Registrant ☐

 

Check the appropriate box:

 

☒ Preliminary Proxy Statement

☐ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

☐ Definitive Proxy Statement

☐ Definitive Additional Materials

☐ Soliciting Material Pursuant to § 240.14a-12

 

Determine, Inc.

(Name of Registrant as Specified in Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box)

 

No fee required.

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

 

1.

Title of each class of securities to which transaction applies: Not applicable.

 

 

2.

Aggregate number of securities to which transaction applies: Not applicable.

 

 

3.

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): In accordance with Exchange Act Rule 0-11, the filing fee was determined by taking one-fiftieth of one percent of $32.0 million, the aggregate of the cash to be received by the registrant.  

 

 

4.

Proposed maximum aggregate value of transaction: $32.0 million

 

 

5.

Total fee paid: $6,400

 

Fee paid previously with preliminary materials:

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

1.

Amount previously paid:

 

 

2.

Form, Schedule or Registration Statement No.:

 

 

3.

Filing Party:

 

 

4.

Date Filed:

 

 

 

 

PRELIMINARY PROXY STATEMENT - SUBJECT TO COMPLETION, DATED FEBRUARY 27, 2019

 

DETERMINE, INC.

615 West Carmel Drive, Suite 100

Carmel, Indiana 46032

 

 

, 2019

 

TO THE STOCKHOLDERS OF DETERMINE, INC.


 

Dear Stockholder:

 

You are cordially invited to attend a special meeting of Stockholders of Determine, Inc. (the “Company”), which will be held at the Company’s corporate headquarters located at 615 West Carmel Drive, Suite 100, Carmel, Indiana 46032, on      , 2019, at     Eastern Time.

 

As previously announced, the Company entered into an Asset Purchase Agreement on February 10, 2019 (the “Asset Purchase Agreement”) providing for the sale of substantially all of the Company’s assets to Corcentric Acquisition, LLC (“Buyer”), a wholly owned subsidiary of Corcentric, Inc., on the terms and subject to the conditions set forth in the Asset Purchase Agreement. As consideration for the asset sale, Buyer has agreed to pay the Company $32.0 million, subject to certain adjustments and escrow arrangements set forth in the Asset Purchase Agreement.

 

At the special meeting of stockholders, you will be asked to consider and vote upon:

 

 

1.

A proposal to authorize and approve the Asset Purchase Agreement, the sale of substantially all of the Company’s assets as contemplated by the Asset Purchase Agreement and the other transactions contemplated by the Asset Purchase Agreement (the “Asset Sale Proposal”);

 

 

2.

A proposal to approve, on an advisory, non-binding basis, certain compensation that has, will or may be paid or become payable to the Company’s named executive officers in connection with the asset sale;

 

 

3.

A proposal to amend the Certificate of Incorporation of the Company to remove the restriction on stockholders of the Company acting by written consent (the “Amendment Proposal”), the approval of which would give the board of directors the authority but not the obligation to amend the Certificate of Incorporation in its discretion; and

 

 

4.

A proposal to adjourn or postpone the special meeting of stockholders, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Asset Sale Proposal if there are not sufficient votes at the time of the special meeting of stockholders to approve the Asset Sale Proposal Amendment Proposal.

 

After careful consideration, the Company’s board of directors has unanimously determined that the Asset Purchase Agreement and the transactions contemplated thereby are fair to and in the best interests of the Company’s stockholders and declares advisable the Asset Purchase Agreement and the transactions contemplated thereby, and unanimously recommends that you vote “FOR” the proposals noted above. 

 

The accompanying proxy statement contains important information concerning the special meeting, the transactions contemplated by the Asset Purchase Agreement and related matters, including information as to how to cast your vote. We encourage you to read the accompanying proxy statement and the Asset Purchase Agreement and other annexes to the proxy statement carefully and in their entirety.

 

Your vote is very important, regardless of the number of shares of the Company’s common stock that you own. Whether or not you plan to attend the special meeting of stockholders, please vote by proxy over the Internet, by telephone or by mailing the enclosed proxy card pursuant to the instructions provided in the proxy statement. If your shares of the Company’s common stock are held in “street name” by your broker, bank or other nominee, then in order to vote you will need to instruct your broker, bank or other nominee on how to vote your shares by using the instructions provided by your broker, bank or other nominee. Only stockholders who owned shares of the Company’s common stock at the close of business on       , 2019, the record date for the special meeting, will be entitled to vote at the special meeting. 

 

 

 

 

The Asset Sale Proposal must be approved by the holders of a majority of the outstanding shares of the Company’s common stock as of the close of business on the record date. Therefore, if you do not vote by proxy or attend the special meeting and vote in person or, if you hold your shares in “street name,” properly instruct your broker, bank or other nominee with respect to voting your shares, it will have the same effect as if you voted “AGAINST” the Asset Sale Proposal and the Amendment Proposal.

 

On behalf of your board of directors, thank you for your continued support.

 

 

 

 

Sincerely,

 

 

 

 

 

 

 

 

 

 

MICHAEL BRODSKY

 

 

Chairman of the Board

 

  

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved of the asset sale, passed upon the merits or fairness of the asset sale or passed upon the adequacy or accuracy of the accompanying proxy statement. Any representation to the contrary is a criminal offense.

 

The accompanying proxy statement and form of proxy are first being mailed to stockholders on or about           , 2019. 

 

 

 

 

PRELIMINARY PROXY STATEMENT - SUBJECT TO COMPLETION, DATED FEBRUARY 27, 2019

 

DETERMINE, INC.

615 West Carmel Drive, Suite 100

Carmel, Indiana 46032

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held on           , 2019

 

 TO THE STOCKHOLDERS OF DETERMINE, INC.

 

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Determine, Inc. (formerly known as Selectica, Inc.) (the “Company”) will be held on           , 2019, at       Eastern Time, at the Company’s corporate headquarters located at 615 West Carmel Drive, Suite 100, Carmel, Indiana, 46032 for the following purposes: 

 

 

(1)

To consider and vote on a proposal to authorize and approve the Asset Purchase Agreement, dated as of February 10, 2019 (the “Asset Purchase Agreement”), by and among Corcentric, Inc., Corcentric Acquisition, LLC and the Company, and the sale of substantially all of the Company’s assets as contemplated by the Asset Purchase Agreement and the other transactions contemplated by the Asset Purchase Agreement (the “Asset Sale Proposal”); 

 

 

 

 

(2)

To consider and vote on a proposal to approve, on an advisory, non-binding basis, certain compensation that has, will or may be paid or become payable to the Company’s named executive officers in connection with the asset sale;

 

 

(3)

To consider and vote on a proposal to amend the Certificate of Incorporation of the Company to remove the restriction on stockholders of the Company acting by written consent (the “Amendment Proposal”), the approval of which would give the board of directors the authority but not the obligation to amend the Certificate of Incorporation in its discretion;

 

 

(4)

To consider and vote on a proposal to adjourn or postpone the special meeting of stockholders, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Asset Sale Proposal if there are not sufficient votes at the time of the special meeting of stockholders to approve the Asset Sale Proposal; and

 

 

(5)

To transact such other business as may properly be brought before the meeting or any adjournment or postponement thereof.

 

The Company’s board of directors has designated           , 2019 as the record date for purposes of determining the stockholders who are entitled to receive notice of, and to vote at, the special meeting and any adjournment or postponement thereof, unless a new record date is fixed in connection with any such adjournment or postponement. Only holders of record of our common stock as of the close of business on the record date are entitled to notice of, and to vote at, the special meeting and at any adjournment or postponement of the special meeting, unless a new record date is fixed in connection with an such adjournment or postponement.  

 

After careful consideration, the Company’s board of directors has unanimously determined that the Asset Purchase Agreement and the transactions contemplated thereby are fair to and in the best interests of the Company’s stockholders and declares advisable the Asset Purchase Agreement and the transactions contemplated thereby, and unanimously recommends that you vote “FOR” the proposals noted above. 

 

The accompanying proxy statement contains important information concerning the special meeting, the transactions contemplated by the Asset Purchase Agreement and related matters, including information as to how to cast your vote. We encourage you to read the accompanying proxy statement and the Asset Purchase Agreement and other annexes to the proxy statement carefully and in their entirety.

 

Your vote is very important, regardless of the number of shares of the Company’s common stock that you own. Whether or not you plan to attend the special meeting of stockholders, please vote by proxy over the Internet, by telephone or by mailing the enclosed proxy card pursuant to the instructions provided in the proxy statement. If your shares of the Company’s common stock are held in “street name” by your broker, bank or other nominee, then in order to vote you will need to instruct your broker, bank or other nominee on how to vote your shares by using the instructions provided by your broker, bank or other nominee.

 

 

 

 

The Asset Sale Proposal must be approved by the holders of a majority of the outstanding shares of the Company’s common stock as of the close of business on the record date. Therefore, if you do not vote by proxy or attend the special meeting and vote in person or, if you hold your shares in “street name,” properly instruct your broker, bank or other nominee with respect to voting your shares, it will have the same effect as if you voted “AGAINST” the Asset Sale Proposal and the Amendment Proposal.

 

Only stockholders and persons holding proxies from stockholders may attend the special meeting. If your shares are registered in your name, you should bring a form of photo identification to the special meeting. If your shares are held in “street name” by your broker, bank or other nominee and you wish to attend the special meeting, you should bring a proxy or letter from that broker, bank or other nominee that confirms you are the beneficial owner of those shares, together with a form of photo identification. All stockholders are cordially invited to attend the special meeting.

 

 

 

 

BY ORDER OF THE BOARD OF DIRECTORS,

 

 

 

 

 

 

 

 

 

 

MICHAEL BRODSKY 

Chairman of the Board

 

Carmel, Indiana

, 2019

 

 

 

 

Table of Contents

 

SUMMARY TERM SHEET

1

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE ASSET SALE TRANSACTION

9

UNAUDITED PRO FORMA FINANCIAL INFORMATION

17

RISK FACTORS

23

Risks Related to the Asset Sale Transaction

23

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

27

THE SPECIAL MEETING

28

Time, Date and Place

28

Purpose of the Special Meeting

28

Recommendation of Our Board

28

Record Date and Voting Power

28

Quorum

28

Required Vote

29

Voting by Stockholders of Record

29

Voting by Stockholders Holding Shares in “Street Name”

30

Abstentions

30

Broker Non-Votes

30

Failure to Vote

30

Proxies; Revocation of Proxies

30

Solicitation of Proxies

31

Questions and Additional Information

31

PROPOSAL 1: ASSET SALE PROPOSAL

32

Information about the Parties

32

General Description of the Asset Sale Transaction

32

Consideration for the Asset Sale Transaction

32

Background of the Asset Sale Transaction

33

Reasons for the Asset Sale Transaction and Recommendation of our Board

52

Opinion of our Financial Advisor

55

Use of Proceeds and Future Operations

59

Potential Release of the Escrow Fund to the Company

60

Unaudited Prospective Financial Information

61

Interests of our Directors and Executive Officers in the Asset Sale Transaction

65

No Appraisal or Dissenters’ Rights

68

Material U.S. Federal Income Tax Consequences

68

Anticipated Accounting Treatment

69

Effects on our Company if the Asset Sale Transaction is Completed and the Nature of our Business following the Asset Sale Transaction

69

Executive Officers following Completion of the Asset Sale Transaction

69

Status of Regulatory Approvals

69

ASSET PURCHASE AGREEMENT

71

 

 

 

 

Transfer and Sale of Assets

71

Assumption and Transfer of Liabilities 72

Consideration

73

Representations and Warranties

73

Covenants

76

Closing Conditions

84

Termination

85

Termination Fees

86

Indemnification

87

Other Agreements and Instruments

88

PROPOSAL 2: ADVISORY COMPENSATION PROPOSAL

90

PROPOSAL 3: AMENDMENT PROPOSAL

91

General

91

Purpose

91

Potential Adverse Effects of the Amendment

91

No Appraisal Rights

91

PROPOSAL 4: ADJOURNMENT PROPOSAL

92

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

93

Stock Ownership of Certain Beneficial Owners and Management

93

Security Ownership of Certain Beneficial Owners

93

DELIVERY OF DOCUMENTS TO STOCKHOLDERS SHARING AN ADDRESS

96

STOCKHOLDER PROPOSALS FOR SPECIAL MEETING

97

Requirements for Stockholder Proposals to Be Brought Before the Special Meeting

97

WHERE YOU CAN FIND MORE INFORMATION

98

MISCELLANEOUS AND OTHER MATTERS

99

 

 

Annex A: Asset Purchase Agreement

A-1

Annex B: Opinion of the Financial Advisor

B-1

Annex C: Put Option Agreement

C-1

Annex D: Form of Support Agreement

D-1

Annex E: Form of Escrow Agreement

E-1

 

 

 

 

 

SUMMARY TERM SHEET

 

This summary highlights information contained elsewhere in this proxy statement and may not contain all the information that is important to you with respect to the Asset Purchase Agreement, the transactions contemplated by the Asset Purchase Agreement and the other matters being considered at the special meeting of the Company’s stockholders to which this proxy statement relates. We urge you to read carefully the remainder of this proxy statement, including the attached annexes, and the other documents to which we have referred you. For additional information on the Company included in documents incorporated by reference into this proxy statement, see the section entitled “Where You Can Find More Information” beginning on page 98. We have included page references in this summary to direct you to a more complete description of the topics presented below.

 

All references in this proxy statement to:

 

 

“Determine,” the “Company,” “we,” “us,” or “our” refer to Determine, Inc.,

 

 

“Buyer” refer to Corcentric Acquisition, LLC, in its capacity as Buyer under the Asset Purchase Agreement,

 

 

“Parent” or “Corcentric” refer to Corcentric, Inc., in its capacity as Parent under the Asset Purchase Agreement,

 

 

the “Asset Purchase Agreement” refer to the Asset Purchase Agreement, dated as of February 10, 2019, by and among the Company, Parent and Buyer, a copy of which is attached as Annex A, and

 

 

the “Asset Sale Transaction” refer to the sale of substantially all of the Company’s assets and the assumption of substantially all of the Company’s liabilities as contemplated by the Asset Purchase Agreement, together with the other transactions contemplated by the Asset Purchase Agreement.

 

Information about the Parties (see page 32) 

 

The Company

 

Determine, Inc. is a leading global provider of SaaS Source-to-Pay and Enterprise Contract Lifecycle Management (“ECLM”) solutions. The Determine Cloud Platform provides procurement, sourcing, finance and legal professionals with the flexibility, agility and scalability they need to optimize spend, supplier, contract and financial performance goals. We empower users across the full source-to-pay continuum, including sourcing, supplier management, spend analytics, contract management and procure-to-pay applications, to deliver efficiency and data insight for their operational business processes, third-party relationships and contractual obligations. On October 15, 2015, we amended our Certificate of Incorporation and amended and restated our Bylaws to change our name from Selectica, Inc. to Determine, Inc., which became effective immediately. Our common stock began trading under the ticker symbol “DTRM” on October 19, 2015.

 

Buyer

 

Buyer is a Delaware limited liability company, formed as a wholly owned subsidiary of Parent to acquire substantially all of the Company’s assets and facilitate the Asset Sale Transaction. Buyer has not carried on any activities or operations to date, except for those activities incidental to its formation and undertaken in connection with the Asset Sale Transaction.

 

Parent

 

Corcentric is a Delaware corporation and the direct parent entity of Buyer. Corcentric is a leading provider of procurement and finance solutions that transform how companies purchase, pay, and get paid. Corcentric’s procurement, accounts payable, and accounts receivable solutions empower companies to spend smarter, optimize cash flow, and drive profitability. Corcentric currently serves more than 6,000 customers representing multiple industries including manufacturing, transportation, wholesale/distribution, retail, healthcare, and financial services.

  

1

 

 

The Asset Purchase Agreement (see page 71 and Annex A) 

  

We have entered into the Asset Purchase Agreement with Buyer and Parent pursuant to which we have agreed, subject to certain conditions, including the authorization and approval of the Asset Purchase Agreement by our stockholders at the special meeting to which this proxy statement relates, to sell to Buyer substantially all of our assets, and Buyer and Parent have agreed to assume substantially all of our liabilities. Under the terms of the Asset Purchase Agreement, we will retain certain specified assets, including cash and cash equivalents, and certain specified liabilities, including liabilities arising from the operation and wind-down of the Company, indebtedness of the Company and its subsidiaries as of immediately prior to closing, stockholder litigation, expenses associated with the Asset Sale Transaction and certain employee payment obligations.

 

In addition, in connection with the Asset Purchase Agreement, on February 10, 2019, the Company and the Buyer entered into a Put Option Agreement (defined below) pursuant to which Buyer made an irrevocable, firm and binding offer to the Company to purchase the securities of Determine SAS (the “French Securities”) pursuant to a put option that is exercisable by the Company upon the satisfaction of certain regulatory requirements under French law (the “Put Option”). Pursuant to the Asset Purchase Agreement, the French Securities are initially excluded assets retained by the Company, but are automatically deemed transferred assets under the Asset Purchase Agreement upon the Company’s acceptance of such offer and exercise of the Put Option. As of the date of this proxy statement, such regulatory requirements have been satisfied and the Company has exercised the Put Option and, as a result, the French Securities are now deemed transferred assets under the Asset Purchase Agreement and will be transferred to Buyer at the closing. For additional information, see the section entitled “Proposal 1: Asset Sale Proposal—Status of Regulatory Approvals” beginning on page 69.

 

A copy of the Asset Purchase Agreement is attached as Annex A to this proxy statement. You are encouraged to read the Asset Purchase Agreement carefully and in its entirety.

 

Consideration for the Asset Sale Transaction (see page 73) 

  

As consideration for the Asset Sale Transaction, Buyer and Parent have agreed to:

 

 

pay us $32.0 million in cash, less $217,500 for the premium and other costs to obtain a representation and warranty insurance policy providing insurance coverage to Parent and Buyer in the event of losses that result to Parent and Buyer and certain of its affiliates after the closing from breaches or inaccuracies of the Company’s representations and warranties (the “R&W Insurance Policy”), and less the escrow fund (as described below);

 

 

deposit $2.0 million into an escrow account to serve as partial security for the Company’s indemnification obligations (the “escrow fund”); and

 

 

assume all of the Company’s liabilities, except for certain excluded liabilities, including, without limitation, liabilities or obligations arising from the operation and wind-down of the Company, indebtedness of the Company and its subsidiaries as of immediately prior to closing, stockholder litigation, expenses associated with the Asset Sale Transaction and certain employee payment obligations.

 

Shortly after the first anniversary of the closing of the Asset Sale Transaction (the “closing”), any funds remaining in the escrow fund will be delivered to the Company.

 

Special Meeting (see page 28) 

  

Date, Time and Place 

  

The special meeting will be held on      , 2019 at      Eastern Time, at the Company’s corporate headquarters located at 615 West Carmel Drive, Suite 100, Carmel, Indiana, 46032.

 

Purpose

 

The special meeting is being held to consider and vote on:

 

 

a proposal to authorize and approve the Asset Purchase Agreement and the Asset Sale Transaction (which we refer to as the “Asset Sale Proposal”);

 

 

a proposal to approve, on an advisory, non-binding basis, certain compensation that has, will or may be paid or become payable to our named executive officers in connection with the Asset Sale Transaction (which we refer to as the “Advisory Compensation Proposal”);

 

2

 

 

 

a proposal to amend the Certificate of Incorporation of the Company to remove the restriction on stockholders of the Company acting by written consent (the “Amendment Proposal”), the approval of which would give the board of directors the authority but not the obligation to amend the Certificate of Incorporation in its discretion; and

 

 

a proposal to adjourn or postpone the special meeting, if necessary or appropriate, for the purposes of soliciting additional votes for the approval of the Asset Sale Proposal if there are not sufficient votes at the time of the special meeting of stockholders to approve the Asset Sale Proposal (which we refer to as the “Adjournment Proposal”).

 

Our stockholders must vote to approve the Asset Sale Proposal as a condition for the Asset Sale Transaction to occur. If the Company’s stockholders fail to approve the Asset Sale Proposal, the Asset Sale Transaction will not occur.

 

Record Date, Stockholders Entitled to Vote and Voting Power

 

Only holders of our common stock as of the close of business on      , 2019, the record date for the special meeting, will be entitled to receive notice of, and vote at, the special meeting or any adjournments or postponements of the special meeting, unless a new record date is fixed in connection with any such adjournment or postponement. At the close of business on the record date, there were       shares of our common stock outstanding and entitled to vote at the special meeting. 

 

Each holder of our common stock will be entitled to one vote for each share of our common stock held by such holder as of the close of business on the record date.

 

Quorum

 

The presence at the special meeting, in person or by proxy, of at least a majority of the issued and outstanding shares of our common stock entitled to vote at the special meeting is necessary to constitute a quorum for transacting business at the special meeting. Failure of a quorum to be represented at the special meeting will necessitate an adjournment or postponement of the special meeting and will subject us to additional cost and expense.

 

Required Vote

 

The approval of the Asset Sale Proposal requires the affirmative vote of the holders of at least a majority of the outstanding shares of our common stock outstanding as of the close of business on the record date.

 

The approval of the Advisory Compensation Proposal requires the affirmative vote of the holders of at least a majority of the outstanding shares of our common stock present, in person or by proxy, at the special meeting and entitled to vote thereon.

 

The approval of the Amendment Proposal requires the affirmative vote of the holders of at least a majority of the outstanding shares of our common stock outstanding as of the close of business on the record date.

 

The approval of the Adjournment Proposal requires the affirmative vote of the holders of at least a majority of the outstanding shares of our common stock present, in person or by proxy, at the special meeting and entitled to vote thereon.

 

Voting

 

If your shares are registered directly in your name with our transfer agent, you are considered a “stockholder of record” and you may vote your shares in person at the special meeting through the use of the ballot given to you at the special meeting or you may vote your shares by proxy by mail, over the Internet or by telephone using the instructions provided elsewhere in this proxy statement and on the proxy card provided with this proxy statement.

 

If you hold shares in “street name” through your broker, bank or other nominee, you are considered the beneficial owner of these shares and, in order to vote, will need to instruct your broker, bank or other nominee on how to vote your shares using the instructions provided to you by your broker, bank or other nominee. If you are a beneficial owner of shares held by a broker, bank or other nominee and would like to vote in person at the special meeting, you must bring to the special meeting a proxy from the broker, bank or other nominee that holds your shares authorizing you to vote in person at the special meeting.

 

3

 

 

Your vote is very important, regardless of the number of shares of our common stock that you own. Accordingly, whether or not you plan to attend the special meeting, we encourage you to vote as soon as possible:

 

 

by proxy over the Internet or by telephone or by completing and mailing the proxy card provided with this proxy statement, if you are a stockholder of record; or

 

 

by providing proper instructions to your broker, bank or other nominee if you hold your shares in “street name.”

 

Solicitation of Proxies

 

We are soliciting proxies on behalf of our board of directors (the “board of directors” or the “board”). We will bear the costs of soliciting proxies. We have engaged The Proxy Advisory Group, LLC to assist in the solicitation of proxies and provide related advice and informational support, for a services fee and the reimbursement of customary disbursements, which are not expected to exceed $15,000 in total. The solicitation of proxies will initially be made by mail or e-mail, if applicable. Forms of proxies and proxy materials may also be distributed through brokers, banks and other nominees to the beneficial owners of our common stock, in which case such parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail or other electronic medium by The Proxy Advisory Group, LLC or by certain of our directors, officers or employees. Any of our directors, officers or employees participating in the solicitation will not receive additional compensation for their efforts.

 

Recommendation of our Board (see page 28) 

 

After careful consideration, our board of directors recommends that you vote

 

 

FOR” the Asset Sale Proposal;

 

 

FOR” the Advisory Compensation Proposal;

 

 

FOR” the Amendment Proposal; and

 

 

FOR” the Adjournment Proposal.

 

In reaching its decision to authorize and approve the Asset Purchase Agreement and the Asset Sale Transaction and to recommend that you vote in the manner noted above, our board considered a wide range of material factors relating to the Asset Purchase Agreement and the Asset Sale Transaction and consulted with management and outside financial and legal advisors. For more information on these factors, see “Proposal 1: Asset Sale Proposal – Reasons for the Asset Sale Transaction and Recommendation of our Board” beginning on page 52 below. 

 

Opinion of our Financial Advisor (see page 55 and Annex B) 

 

At a meeting held on February 8, 2019, our financial advisor, Needham & Company, LLC (“Needham & Company”), delivered to our board Needham & Company’s oral opinion, which was subsequently confirmed in writing, that, as of that date and based upon and subject to the assumptions, procedures, matters and limitations stated in such written opinion, the consideration to be received by the Company in the Asset Sale Transaction pursuant to the Asset Purchase Agreement was fair to the Company from a financial point of view. 

 

The full text of the written opinion dated February 8, 2019, which includes the assumptions, procedures, matters and limitations referred to above, is attached to this proxy statement as Annex B. You should carefully review the opinion in its entirety. The opinion was provided for the information and assistance of our board and does not address the merits of the underlying decision by us to enter into the Asset Purchase Agreement, the merits of the Asset Sale Transaction as compared to other alternatives potentially available to us or the relative effects of any alternative transaction in which we might engage, nor is the opinion intended to be a recommendation to any person as to how to vote or act on any matter relating to the Asset Sale Transaction. 

 

4

 

 

Interests of our Directors and Executive Officers in the Asset Sale Transaction (see page 65) 

 

In considering the recommendation of our board to vote “FOR” the Asset Sale Proposal, you should be aware that, aside from their interests as Company stockholders, our directors and executive officers have interests in the Asset Sale Transaction that are different from, or in addition to, the interests of our stockholders generally.

 

Members of our board were aware of and considered these interests, among other matters, in evaluating and negotiating the Asset Sale Transaction, and in recommending to our stockholders that the Asset Sale Proposal be approved. For more information, see the sections entitled “Proposal 1: Asset Sale Proposal—Background of the Asset Sale Transaction” and “Proposal 1: Asset Sale Proposal—Reasons for the Asset Sale Transaction and Recommendation of our Board.” These interests are described in more detail, and certain of them are quantified in the narrative, in the section entitled “Proposal 1: Asset Sale Proposal—Interests of our Directors and Executive Officers in the Asset Sale Transaction” beginning on page 65. 

 

Use of Proceeds and Future Operations (see page 59) 

 

The Company expects that all or a portion of the proceeds from the consummation of the Asset Sale Transaction will be used to pay-off the Company’s outstanding debt obligations, which is estimated to be approximately $21.5 million, to pay expenses relating to the Asset Sale Transaction, which is estimated to be approximately $2.6 million and certain other liabilities and obligations of the Company, including certain severance and other employee obligations.

 

It is expected that the board will consider alternatives regarding the use of any remaining proceeds from the consummation of the Asset Sale Transaction after the satisfaction of such obligations, expenses and liabilities and the future of the Company, including, without limitation, (i) potentially approving a plan of liquidation and ceasing to do business and not engaging in any further business activities except for dealing with post-closing matters and for the purpose of liquidating our remaining assets, paying any debts and obligations, facilitating the release of any of the amounts in the escrow fund, distributing the remaining assets to stockholders, and doing other acts required to liquidate and wind up our business and affairs, and/or (ii) approving, declaring and paying a dividend or distribution to the Company stockholders, or effecting a redemption, repurchase or other return of capital, in accordance with Delaware law after payment of the Company’s indebtedness and expenses relating to the Asset Sale Transaction, taking into account any other obligations of the Company that remain outstanding at such time or that are known or reasonably ascertainable at such time.

 

While the board has not approved any plan of liquidation as of this date, any dividend, distribution, redemption, repurchase, other return of capital or any other alternative relating to the use of proceeds from the consummation of the Asset Sale Transaction or the future of the Company, it is anticipated that the board will consider whether it is in the best interests of the Company and its stockholders to effect any such alternatives and consider the future operations of the Company. However, it is not anticipated that the Company would use the proceeds from the consummation of the Asset Sale Transaction for any strategic alternative transactions, such as an acquisition of another entity or business, or otherwise invest in another person or entity.

 

If in its review of alternatives the board determines to approve a plan of liquidation (that is also approved by the stockholders of the Company holding at least a majority of the then outstanding shares of common stock of the Company) or a distribution, dividend, redemption, repurchase or other return of capital, our current estimate is that, in such scenario and without taking into account the escrow fund, there will be between $1.1 million and $3.3 million, or $0.04 to $0.13 per share of common stock of the Company, available for payment to our stockholders, with the final distribution, dividend or other payment amount to be determined and the final distribution, dividend, redemption, repurchase or other return of capital made in accordance with Delaware law after settlement and satisfaction of all or certain of our liabilities, including repayment of our outstanding indebtedness, the payment of expenses to be incurred relating to a dissolution process (if applicable), and the payment of expenses incurred in connection with the Asset Sale Transaction, severance and certain other employee obligations of the Company, any potential stockholder litigation, and other liabilities incurred by us through such potential distribution, dividend, redemption, repurchase or other return of capital. However, if our expenses relating to the Asset Sale Transaction or, if applicable, the dissolution process, or certain other liabilities, including any potential stockholder litigation or tax obligations, are not able to be settled within the currently estimated range, the amount available for any potential distribution or dividend could fall outside the estimated range.

 

However, the board may determine not to consider or approve a plan of liquidation and may determine not to consider or approve any dividend, distribution, redemption, repurchase or other return of capital to the Company’s stockholders. In addition, the board has not yet determined the future operations of the Company following the consummation of the Asset Sale Transaction. Accordingly, in considering how to vote on the Asset Sale Proposal, stockholders should not assume that they will receive any distributions, dividends or other payment from the Company and should not assume that any plan of liquidation or distribution, dividend, redemption, repurchase or other return of capital, or other alternative, will be considered or approved by the board or, if applicable, by stockholders of the Company holding at least a majority of the outstanding shares of common stock of the Company.

 

5

 

 

Potential Release of Escrow Fund to the Company (see page 60) 

 

If all or any portion of the escrow fund is released to the Company and the Company at such time has not been liquidated and dissolved, it is expected that the board will consider alternatives regarding the use of the escrow fund proceeds, including approving, declaring and paying a dividend or distribution to the Company stockholders, or effecting a redemption, repurchase or other return of capital, in accordance with Delaware law, taking into account any obligations of the Company that remain outstanding at such time or that are known or reasonably ascertainable at such time.

 

If all or any portion of the escrow fund is released to the Company and at such time the board and stockholders holding a majority of the outstanding shares of common stock of the Company had approved a plan of liquidation, it is expected that all or such portion of the escrow fund released to the Company would be distributed or paid in accordance with such plan of liquidation.

 

In considering how to vote on the Asset Sale Proposal, stockholders should not assume that they will receive any portion of the escrow fund.

 

No Solicitation of Alternative Transaction Proposals (see page 79) 

 

Under the terms of the Asset Purchase Agreement, we are generally not permitted to, and may not authorize or permit our representatives to, directly or indirectly, among other things, (i) solicit, initiate, seek, or knowingly facilitate any inquiry with respect to, or make any proposal that constitutes, or is reasonably expected to lead to, any Alternative Transaction Proposal (as defined below) or (ii) participate or otherwise engage in any discussions or negotiations regarding, or furnish to any person any non-public information with respect to, any Alternative Transaction Proposal.

 

Notwithstanding this restriction, if, prior to the approval of the Asset Sale Proposal by our stockholders, the Company receives an unsolicited, bona fide written Alternative Transaction Proposal from a third party that is determined to be, or which the board of directors has in good faith concluded (following the receipt of advice from and consultation with its outside legal counsel and its financial advisor, Needham & Company) would reasonably be likely to become, a Superior Proposal (as defined below), the Company may, subject to certain conditions, furnish non-public information and engage in discussions and negotiations with such third party with respect to the Alternative Transaction Proposal.

 

If the Asset Purchase Agreement were to be terminated in connection with or as a result of the board’s authorization of a Superior Proposal, entry into an Acquisition Transaction (as defined below), or upon a Change of Recommendation (as defined below), we would be required to pay a termination fee to Buyer of $1.2 million. See “Asset Purchase Agreement – No Solicitation and Change of Recommendation”, “Asset Purchase Agreement – Termination”, and “Asset Purchase Agreement – Termination Fees” beginning on pages 79, 85 and 86, respectively, for more information. 

 

Financing the Asset Sale Transaction (see page 78) 

 

The consideration payable in connection with the Asset Sale Transaction is being financed through cash on hand and debt financing pursuant to an existing debt facility of Parent. Under the Asset Purchase Agreement, Parent and Buyer represent that such debt financing, together with cash on hand, will be sufficient to enable Parent and Buyer to satisfy all of its obligations under the Asset Purchase Agreement and related agreements, and to consummate the Asset Sale Transaction.

 

Though the Asset Purchase Agreement does not contain a financing condition, Parent and Buyer must use their reasonable best efforts to obtain the proceeds of the debt financing on the terms and conditions set forth in the debt facility. In addition, prior to closing, the Company must use its commercially reasonable efforts to, and to cause its representatives to, cooperate with Parent with any reasonable requests that are necessary, proper or advisable in connection with the debt financing. See “Asset Purchase Agreement – Financing” beginning on page 78 for more information. 

 

Expected Timing of the Asset Sale Transaction

 

We expect to complete the Asset Sale Transaction in the second quarter of 2019, promptly following the special meeting, if the Asset Sale Proposal is approved by our stockholders and the various other conditions to closing are satisfied or waived. However, there can be no assurance that the Asset Sale Transaction will be completed as currently anticipated. Certain factors, including factors outside of our control and the control of Parent and Buyer, could result in the Asset Sale Transaction being delayed or not occurring at all.

 

6

 

 

Conditions to Closing (see page 84) 

 

The completion of the Asset Sale Transaction is dependent upon the satisfaction of a number of conditions, including, among other things:

 

 

the requisite Company stockholder approval of the Asset Sale Proposal;

 

 

the Company must have exercised its right to accept Buyer’s offer to purchase the French Securities in accordance with the Put Option Agreement (which condition, as of the date of this proxy statement, has been completed);

 

 

French Foreign Investment clearance or prior authorization pursuant to Article L. 151-3 and R. 153-1 and seq of the French Monetary and Financial Code;

 

 

the accuracy of the parties’ representations and warranties in the Asset Purchase Agreement as of closing, subject, in certain circumstances, to certain materiality thresholds;

 

 

the performance by the parties of their obligations and covenants under the Asset Purchase Agreement;

 

 

the delivery of certain certificates and other documentation in connection with the Asset Sale Transaction; and

 

 

the absence of a law or order that renders the Asset Sale Transaction illegal or otherwise restrains such transactions and the absence of an action pursuant to which an unfavorable order thereof would prevent the consummation of the Asset Sale Transaction or declare unlawful the Asset Sale Transaction, or adversely affect Buyer’s right to own any of the assets transferred to it in the Asset Sale Transaction.

 

For additional information on the parties’ conditions to closing, see “Asset Purchase Agreement – Closing Conditions” beginning on page 84.

 

Termination of the Asset Purchase Agreement (see page 85) 

 

The Asset Purchase Agreement may be terminated in certain specified circumstances. In particular, the Asset Purchase Agreement may be terminated prior to closing as follows:

 

 

by written mutual agreement of the Company and Buyer;

 

 

subject to certain conditions, by either Buyer or the Company:

 

 

if the closing has not occurred by June 8, 2019;

 

 

if a government entity enacts or issues a law that renders the Asset Sale Transaction illegal or issues a final and nonappealable order prohibiting the transactions;

 

 

if the Company fails to obtain the requisite vote of its stockholders to approve the Asset Sale Proposal;

 

 

subject to certain conditions, by the Company:

 

 

if there is a breach of any representation, warranty, covenant or agreement of Buyer such that, if not cured prior to closing, the relevant closing condition would not be satisfied at the closing

 

 

at any time prior to the Company’s approval of the Asset Sale Proposal, if the Company receives a Superior Proposal and the board of directors authorize the Company to consummate the transactions contemplated by the Superior Proposal;

 

7

 

 

 

subject to certain conditions, by the Buyer:

 

 

if there is a breach of any representation, warranty, covenant or agreement of the Company such that, if not cured prior to the closing, the relevant closing condition would not be satisfied; and

 

 

if the board (or a committee thereof) withdraws, amends, qualifies or modifies (in a manner adverse to Buyer) its recommendation in favor of adoption of the Asset Purchase Agreement and, in the case of a tender or exchange offer made by a third party directly to stockholders of the Company, a failure to recommend that such stockholders reject such tender or exchange offer.

 

If the Asset Purchase Agreement is terminated in certain specified circumstances, we may owe Buyer a termination fee of $1.2 million. See “Asset Purchase Agreement – Termination” and “Asset Purchase Agreement – Termination Fees” beginning on page 85 and 86, respectively, for more information. 

 

No Appraisal or Dissenters’ Rights (see page 68) 

 

No appraisal rights or dissenters’ rights are available to our stockholders under Delaware law or our certificate of incorporation or bylaws in connection with the Asset Sale Transaction.

 

Risk Factors (see page 23) 

 

In evaluating the Asset Sale Proposal, in addition to the other information provided elsewhere in this proxy statement and the annexes hereto, you should carefully consider the risk factors relating to the Asset Sale Transaction and our future operations that are discussed beginning on page 23 below.  

 

8

 

 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND
THE ASSET SALE TRANSACTION

 

The following questions and answers are intended to briefly address some commonly asked questions regarding the Asset Sale Transaction and matters to be addressed at the special meeting. These questions and answers may not address all questions that may be important to the Company’s stockholders. Please refer to the section entitled “Summary Term Sheet” beginning on page 1 of this proxy statement and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to in this proxy statement, which you should read carefully and in their entirety. You may obtain the information incorporated by reference into this proxy statement without charge by following the instructions under the section entitled “Where You Can Find More Information” beginning on page 98 of this proxy statement.

 

Q:

Why am I receiving these proxy materials?

 

A:

We have entered into the Asset Purchase Agreement, which provides for the Asset Sale Transaction. You are receiving these proxy materials in connection with the solicitation by our board of proxies from our stockholders in favor of the Asset Sale Proposal and the other matters to be voted on at the special meeting. 

 

Q:

When and where will the special meeting be held?

 

A:

The special meeting will be held on         , 2019 at         Eastern Time, at the Company’s corporate headquarters located at 615 West Carmel Drive, Suite 100, Carmel, Indiana, 46032. 

 

Q: 

What matters will the stockholders vote on at the special meeting?

 

A:

At the special meeting, you will be asked to consider and vote on the following:

 

 

the Asset Sale Proposal;

 

 

the Advisory Compensation Proposal; 

 

 

the Amendment Proposal;

 

 

the Adjournment Proposal; and

 

 

such other business as may properly come before the special meeting or any adjournments or postponements thereof.

 

Q:

What is the Asset Sale Proposal?

 

A:

The Asset Sale Proposal is a proposal to approve the sale of substantially all of our assets to, and the assumption of substantially all of our liabilities by, Buyer pursuant to the terms, and subject to the conditions of, the Asset Purchase Agreement.

 

Q:

What happens if the Asset Sale Proposal is not approved?

 

A:

If stockholders do not approve the Asset Sale Proposal, the Asset Sale Transaction will not occur.

 

Q:

If the Asset Sale Proposal is approved, when will the Asset Sale Transaction close?

 

A:

We currently anticipate that the Asset Sale Transaction will close promptly after the special meeting if the Asset Sale Proposal is approved, subject to the satisfaction or waiver of the various other closing conditions discussed elsewhere in this proxy statement.

 

Q: 

What is the Advisory Compensation Proposal?

 

A:

The Advisory Compensation Proposal is a proposal to approve, on an advisory, non-binding basis, certain compensation that has, will or may be paid or become payable to our named executive officers in connection with the Asset Sale Transaction.

 

9

 

 

Q:

What is the Amendment Proposal?

 

A:

The Amendment Proposal is a proposal to amend the Certificate of Incorporation of the Company to remove the restriction on stockholders of the Company acting by written consent (the “Amendment”), the approval of which would give the board of directors the authority but not the obligation to amend the Certificate of Incorporation in its discretion.

 

Q:

What is the Adjournment Proposal?

 

A:

The Adjournment Proposal is a proposal to adjourn or postpone the special meeting, if necessary or appropriate, to allow us to solicit additional votes for the approval of the Asset Sale Proposal if there are not sufficient votes at the time of the special meeting of stockholders to approve the Asset Sale Proposal.

 

Q:

What are the quorum requirements for the special meeting?

 

A:

The presence, in person or by proxy, of at least a majority of our issued and outstanding shares of common stock that are entitled to vote at the special meeting constitutes a quorum. There must be a quorum for business to be conducted at the special meeting. However, even if a quorum does not exist, a majority of the shares present at the special meeting, in person or by proxy, may act to postpone or adjourn the meeting to another place, date or time.

 

Q:

Who is entitled to vote at the special meeting?

 

A:

Only holders of our common stock at the close of business on        , 2019, the record date for the special meeting, are entitled to receive notice of, and vote at, the special meeting or any adjournments or postponements thereof. As of the close of business on the record date, there were       shares of our common stock outstanding and entitled to vote at the special meeting. Each holder of our common stock will be entitled to one vote for each share of our common stock held by such holder as of the close of business on the record date. 

 

Q:

What vote is required to approve the Asset Sale Proposal?

 

A:

The approval of the Asset Sale Proposal requires the affirmative vote of the holders of at least a majority of the outstanding shares of our common stock outstanding as of the close of business on the record date.

 

Q:

What vote is required to approve the Advisory Compensation Proposal?

 

A:

The approval of the Advisory Compensation Proposal requires the affirmative vote of the holders of at least a majority of the outstanding shares of our common stock present, in person or by proxy, at the special meeting and entitled to vote thereon.

 

Q:

What vote is required to approve the Amendment Proposal?

 

A:

The approval of the Amendment Proposal requires the affirmative vote of the holders of at least a majority of the outstanding shares of our common stock outstanding as of the close of business on the record date.

 

Q:

What vote is required to approve the Adjournment Proposal?

 

A:

The approval of the Adjournment Proposal requires the affirmative vote of the holders of at least a majority of the outstanding shares of our common stock present, in person or by proxy, at the special meeting and entitled to vote thereon.

 

Q.

How does our board recommend that I vote on the proposals?

 

A.

Our board unanimously recommends that you vote: 

 

 

FOR” the Asset Sale Proposal;

 

 

FOR” the Advisory Compensation Proposal;

 

 

FOR” the Amendment Proposal; and

 

 

FOR” for the Adjournment Proposal.

 

10

 

 

Q:

What is the difference between a stockholder of record and a stockholder who holds stock in “street name”?

 

A:

If your shares are registered directly in your name with our transfer agent, you are a stockholder of record. If your shares are held in an account with a broker, bank or other nominee, your shares are held in “street name” and you are considered the beneficial owner of those shares.

 

Q:

How do I vote if I am a stockholder of record?

 

A: 

If you are a stockholder of record, you may vote by proxy or in person at the special meeting.

 

 

 

Voting by Proxy. If you hold your shares as a stockholder of record, you may submit a proxy for your shares by mail, by telephone or on the Internet as follows:

 

 

Vote by Mail. You may submit a proxy for your shares by marking the proxy card accompanying this proxy statement, dating and signing it, and returning it in the business-reply envelope included in your package. Please allow sufficient time for mailing if you decide to submit a proxy for your shares by mail. To be valid, your proxy by mail must be received by 11:59 P.M., Eastern Time, on        , 2019.

 

 

Vote on the Internet. You may also submit a proxy for your shares on the Internet by following the instructions provided on the proxy card accompanying this proxy statement. If you choose to submit your proxy by Internet, then you do not need to return the proxy card. Internet voting facilities are available 24 hours a day. To be valid, your Internet proxy must be received by 11:59 P.M., Eastern Time, on        , 2019.

 

 

Vote by Telephone. You may also submit a proxy for your shares by telephone by calling the toll-free number on the enclosed proxy card.  If you choose to submit your proxy by telephone, then you do not need to return the proxy card. Telephone voting facilities are available 24 hours a day. To be valid, your telephone proxy must be received by 11:59 P.M., Eastern Time, on        , 2019. 

  

 

Voting in Person. If you hold your shares as a stockholder of record, you may also vote in person at the special meeting by using the ballot provided to you at the special meeting. Even if you plan to attend the special meeting in person, we encourage you to vote by proxy using one of the methods noted above to ensure that your vote is counted. Even if you vote by proxy, you may still attend the meeting and vote in person.

 

 

Q. 

How do I vote if I hold my shares in “street name”?

 

A.

If you hold your shares in “street name,” then you received this proxy statement from your broker, bank or other nominee, along with a form from your broker, bank or other nominee seeking instruction from you as to how to vote your shares of our common stock. In order to vote your shares, you will need to return the provided form instructing your broker, bank or other nominee as to how to vote your shares. Such form may also provide you with instructions on how to vote over the internet or by phone. If you hold your shares in “street name” and would like to vote in person at the special meeting, you must bring to the special meeting a proxy from the broker, bank or other nominee that holds your shares authorizing you to vote those shares at the special meeting.

 

Q: 

What happens if I fail to attend the special meeting or abstain from voting?

 

A:

If you are a stockholder of record and neither attend the special meeting nor deliver a proxy, it will have the same effect as a vote “AGAINST” the approval of the Asset Sale Proposal and the Amendment Proposal, but will have no effect on the outcome of the Advisory Compensation Proposal or the Adjournment Proposal. If you attend the special meeting or deliver a proxy but abstain from voting, your abstention will have the same effect as a vote “AGAINST” the approval of the Asset Sale Proposal, the Amendment Proposal, the Advisory Compensation Proposal and the Adjournment Proposal. Any abstentions will nevertheless be counted as present at the special meeting for purposes of determining the presence of a quorum.

 

Q:

If I hold my shares in “street name” through a broker, bank or other nominee, will they vote my shares for me? 

 

A:

No. If you hold your shares in street name, you must provide your broker, bank or other nominee with instructions in order for your shares to be voted. To do so, follow the instructions provided to you with this proxy statement by your broker, bank or other nominee.

 

11

 

 

Q:

What happens if I hold my shares in “street name” through a broker and I do not instruct them how to vote my shares?

 

A:

Brokers who hold shares in “street name” for their customers have authority to vote those shares on “routine” proposals when they have not received instructions from the beneficial owners of such shares. However, brokers do not have the authority to vote shares they hold for their customers on “non-routine” proposals when they have not received instructions from the beneficial owners of such shares. The Asset Sale Proposal, the Advisory Compensation Proposal, the Amendment and the Adjournment Proposal are all expected to be considered “non-routine” proposals. As a result, absent instructions from the beneficial owners of such shares, we do not expect brokers will vote those shares and those shares will not be considered present at the special meeting for purposes of determining a quorum. A failure to instruct the broker holding your shares will have no effect on the outcome of the Advisory Compensation Proposal or the Adjournment Proposal. However, since the Asset Sale Proposal and the Amendment Proposal must be approved by the holders of a majority of the outstanding shares of our common stock as of the close of business on the record date, a failure to instruct your broker, bank or other nominee with respect to voting your shares will have the same effect as a vote “AGAINST” the Asset Sale Proposal and the Amendment Proposal.

  

Q:

What is a broker non-vote?

 

A:

Broker non-votes are shares held in “street name” by brokers that are present or represented by proxy at the special meeting, but with respect to which the broker has not been instructed by the beneficial owner of such shares as to how to vote on a “non-routine” proposal for which the broker, bank or other nominee does not have discretionary voting power. As discussed above, the Asset Sale Proposal, the Advisory Compensation Proposal, the Amendment Proposal and the Adjournment Proposal are all expected to be considered “non-routine” proposals. As a result, it is expected that there will not be any broker non-votes in connection with the special meeting.

 

Q: 

Can I change my vote?

 

A:

Yes. If you are a stockholder of record, you may change or revoke your proxy at any time before the final vote at the special meeting by:

 

 

delivering to our Secretary a written notice, bearing a date later than your proxy, stating that you revoke the proxy;

 

 

submitting a later-dated proxy (either by mail, by telephone or on the Internet) relating to the same shares prior to the final vote at the special meeting; or

 

 

attending the special meeting and notifying the election officials at the meeting that you wish to revoke your proxy and vote in person (simply attending the special meeting in person will not, by itself, revoke your proxy).

 

 

If your shares are held in “street name,” you should contact the broker, bank or other nominee holding your shares for instructions as to how to change your vote.

 

Q:

What if I am a stockholder of record and do not specify a choice for a matter when returning a proxy?

 

A:

Proxies that are signed and returned by a stockholder of record without voting instructions will be voted in accordance with the recommendations of our board.

 

Q: 

What does it mean if I get more than one proxy card or voting instruction card?

 

A:

If your shares are registered differently or are held in more than one account, you may receive more than one proxy card or voting instruction card. Please complete, sign, date, and return all of the proxy cards or voting instruction cards you receive (or submit your proxies over the internet or by telephone, as applicable) regarding the special meeting to ensure that all of your shares are voted.

 

12

 

 

Q:

When will we announce the voting results for the special meeting?

 

A:

We intend to announce the preliminary voting results at the special meeting, and will report the final results of the special meeting in a Current Report on Form 8-K to be filed with the Securities and Exchange Commission. All reports that we file with the Securities and Exchange Commission (the “SEC”), including our Current Reports on Form 8-K, are publicly available when filed through the SEC’s website, www.sec.gov.

 

Q: 

What should I do if I have questions regarding the special meeting?

 

A:

If you have any questions about the special meeting, require assistance with submitting your proxy or otherwise voting your shares of common stock, or would like copies of any of the documents referred to in this proxy statement, please contact the Company’s Investor Relations department at (650) 532-1500 or our proxy solicitor, The Proxy Advisory Group, LLC, 18 East 41st Street, Suite 2000, New York, New York 10017, by calling one of the following phone numbers: 1-212-616-2180, or toll-free 1-888-55PROXY or 1-888-557-7699.

 

Q:

Am I entitled to appraisal or dissenters’ rights in connection with the Asset Sale Transaction?

 

A:

No. You are not entitled to appraisal or dissenters’ rights under Delaware law or under our certificate of incorporation or bylaws in connection with the Asset Sale Transaction.

 

Q:

Will the Company liquidate following the Asset Sale Transaction?

 

A:

The Company expects that all or a portion of the proceeds from the consummation of the Asset Sale Transaction will be used to pay-off the Company’s outstanding debt obligations, which is estimated to be approximately $21.5 million, to pay expenses relating to the Asset Sale Transaction, which is estimated to be approximately $2.6 million and certain other liabilities and obligations of the Company, including certain severance and other employee obligations.

 

It is expected that the board will consider alternatives regarding the use of any remaining proceeds from the consummation of the Asset Sale Transaction after the satisfaction of such obligations, expenses and liabilities and the future operations of the Company. One of such alternatives it is expected that the board will consider is potentially approving a plan of liquidation and ceasing to do business and not engaging in any further business activities except for dealing with post-closing matters and for the purpose of liquidating our remaining assets, paying any debts and obligations, facilitating the release of any of the amounts in the escrow fund, distributing the remaining assets to stockholders, and doing other acts required to liquidate and wind up our business and affairs.

 

While the board has not approved any plan of liquidation, or any other alternatives as of this date, it is anticipated the board will consider whether it is in the best interests of the Company and its stockholders to effect any such alternatives and consider the future operations of the Company. However, it is not anticipated that the Company would use the proceeds from the consummation of the Asset Sale Transaction for any strategic alternative transactions, such as an acquisition of another entity or business, or otherwise invest in another person or entity.

 

If the board determines that it is in the best interest of the Company and its stockholders to liquidate, dissolve and wind-up the Company’s business, any plan of liquidation relating thereto would be subject to approval by the board and approval by the stockholders of the Company holding at least a majority of the then outstanding shares of common stock of the Company. In such case, we would pay or make provision for payment of our known or reasonably ascertainable liabilities that have been incurred or are expected to be incurred prior to any such liquidation. After that, we would expect to distribute the remaining assets to our stockholders in proportion to their respective stockholder interest in the Company. Any such distribution would be paid in accordance with Delaware law.

 

If in its review of alternatives after the consummation of the Asset Sale Transaction the board determines to approve a plan of liquidation (that is also approved by the stockholders of the Company holding at least a majority of the then outstanding shares of common stock of the Company), our current estimate is that, in such scenario and without taking into account the escrow fund, there will be between $1.1 million and $3.3 million, or $0.04 to $0.13 per share of common stock of the Company, available for payment to our stockholders, with the final distribution amount to be determined and the final distribution made in accordance with Delaware law after settlement and satisfaction of all or certain of our liabilities, including repayment of our outstanding indebtedness, the payment of expenses to be incurred relating to such a dissolution process, and the payment of expenses incurred in connection with the Asset Sale Transaction, severance and certain other employee obligations of the Company, any potential stockholder litigation, and other liabilities incurred by us through such expected distribution. However, if our expenses relating to the Asset Sale Transaction or such a dissolution process, or certain other liabilities, including any potential stockholder litigation or tax obligations, are not able to be settled within the currently estimated range, the amount available for any potential liquidating distribution could fall outside the estimated range.

 

13

 

 

  In considering how to vote on the Asset Sale Proposal, stockholders should not assume that they will receive any liquidating distributions from the Company and should not assume that any plan of liquidation will be considered or approved by the board or by stockholders of the Company holding at least a majority of the outstanding shares of common stock of the Company. See “Proposal 1: Asset Sale Proposal – Use of Proceeds and Future Operations” on page 59 for more information.
   

Q:

What will happen to the Company after the Asset Sale Transaction and will the Company distribute or dividend, or make any other payment of, any of the proceeds from the Asset Sale Transaction to me?

 

A:

The Company expects that all or a portion of the proceeds from the consummation of the Asset Sale Transaction will be used to pay-off the Company’s outstanding debt obligations, which is estimated to be approximately $21.5 million, to pay expenses relating to the Asset Sale Transaction, which is estimated to be approximately $2.6 million and certain other liabilities and obligations of the Company, including certain severance and other employee obligations.

 

It is expected that the board will consider alternatives regarding the use of any remaining proceeds from the consummation of the Asset Sale Transaction after the satisfaction of such obligations, expenses and liabilities and the future operations of the Company. One of such alternatives it is expected that the board will consider is approving, declaring and paying a dividend or distribution to the Company stockholders, or effecting a redemption, repurchase or other return of capital, in accordance with Delaware law after payment of the Company’s indebtedness and expenses relating to the Asset Sale Transaction, taking into account any other obligations of the Company that remain outstanding at such time or that are known or reasonably ascertainable at such time.

 

While the board has not approved any dividend, distribution, redemption, repurchase, return of capital or any other alternative relating to the use of proceeds from the consummation of the Asset Sale Transaction or the future operations of the Company, it is anticipated that the board will consider whether it is in the best interests of the Company and its stockholders to effect any such alternatives and consider the future operations of the Company. However, it is not anticipated that the Company would use the proceeds from the consummation of the Asset Sale Transaction for any strategic alternative transactions, such as an acquisition of another entity or business, or otherwise invest in another person or entity.

 

If the board determines it is in the best interests of the Company and its stockholders to approve, declare and pay a distribution or dividend to the Company stockholders without approving a plan of liquidation, or to effect a redemption, repurchase or return of capital, it is expected that any such distribution, dividend or other payment would be paid after satisfaction of the Company’s outstanding indebtedness and expenses relating to the Asset Sale Transaction (including advisor expenses and severance and other employee related expenses) and the aggregate amount of such distribution, dividend or other payment would be subject to other known or reasonably ascertainable liabilities that have been incurred or are expected to be incurred by the Company, including, without limitation, any potential stockholder litigation or other liabilities relating to the operation of the Company. Any such distribution, dividend, redemption, repurchase or return of capital would be paid in accordance with Delaware law.

 

If in its review of alternatives after the consummation of the Asset Sale Transaction the board determines to approve a distribution or dividend, or effect a redemption, repurchase or other return of capital, our current estimate is that, in such scenario and without taking into account the escrow fund, there will be between $1.1 million and $3.3 million, or $0.04 to $0.13 per share of common stock of the Company, available for payment to our stockholders, with the final distribution, dividend or other payment amount to be determined and the final distribution, dividend or other payment made in accordance with Delaware law after settlement and satisfaction of all or certain of our liabilities, including repayment of our outstanding indebtedness, the payment of expenses incurred in connection with the Asset Sale Transaction, severance and certain other employee obligations of the Company, any potential stockholder litigation, and other liabilities incurred by us through such expected distribution, dividend or other payment. However, if our expenses relating to the Asset Sale Transaction or certain other liabilities, including any potential stockholder litigation or tax obligations, are not able to be settled within the currently estimated range, the amount available for any potential distribution, dividend, redemption, repurchase or other return of capital could fall outside the estimated range. The timing of many elements relating to any potential dividend, distribution, redemption, repurchase or other return of capital that may be approved by the board may not be entirely within the Company’s control and therefore the Company may incur additional expenses, which could further reduce the amounts available for a potential distribution, dividend or other payment to our stockholders.

 

14

 

 

  However, the board may determine not to consider or approve a dividend, distribution, redemption, repurchase or other return of capital. In addition, the board has not yet determined the future operations of the Company following the consummation of the Asset Sale Transaction. Accordingly, in considering how to vote on the Asset Sale Proposal, stockholders should not assume that they will receive any distributions, dividends or other payments from the Company and should not assume that any distribution, dividend, redemption, repurchase or other return of capital will be considered or approved by the board. See “Proposal 1: Asset Sale Proposal – Use of Proceeds and Future Operations” on page 59 for more information.
   

Q:

If all or any portion of the escrow fund is released to the Company in accordance with the Asset Purchase Agreement and Escrow Agreement (as defined below), what will the Company do with such released amount?

 

A:

If all or any portion of the escrow fund is released to the Company and the Company at such time has not been liquidated and dissolved, it is expected that the board will consider alternatives regarding the use of the escrow fund proceeds, including approving, declaring and paying a dividend or distribution to the Company stockholders, or effecting a redemption, repurchase or other return of capital, in accordance with Delaware law, taking into account any obligations of the Company that remain outstanding at such time or that are known or reasonably ascertainable at such time. If such a distribution, dividend, redemption, repurchase or other return of capital were approved by the board, we would expect all or that portion of the escrow fund released to the Company to be paid to our stockholders in proportion to their respective stockholder interest in the Company, subject to Delaware law and taking into account any obligations of the Company that remain outstanding at such time or that are known or reasonably ascertainable at such time.

 

If the Company receives all or any portion of the escrow fund, it is not anticipated that the Company would use the proceeds for any strategic alternative transactions, such as an acquisition of another entity or business, or otherwise invest in another person or entity.

 

If all or any portion of the escrow fund is released to the Company and at such time the board and stockholders holding a majority of the outstanding shares of capital stock of the Company had approved a plan of liquidation, it is expected that all or such portion of the escrow fund released to the Company would be distributed or paid in accordance with such plan of liquidation.

 

Assuming that a portion or all of the $2.0 million of the escrow fund is released to the Company approximately one year after the closing of the Asset Sale Transaction and if the board has previously approved a plan of liquidation (that was also approved by the stockholders of the Company holding at least a majority of the then outstanding shares of common stock of the Company) or the board determines to then approve a distribution, dividend, redemption, repurchase or other return of capital, our current estimate is that, in such scenario, there will be between $0.00 to $0.08 per share of the common stock of the Company, available for payment to our stockholders from the escrow fund, with the final distribution, dividend or other payment amount to be determined and the final distribution, dividend or other payment made in accordance with Delaware law after settlement and satisfaction of all or certain of our liabilities. However, if such liabilities are not able to be settled within the currently estimated range, the amount available for any potential distribution, dividend or other payment of the escrow fund could fall outside the estimated range.

 

However, the board may determine not to consider or approve any dividend, distribution or other payment to the Company’s stockholders in connection with the release of any escrow fund. In addition, the board has not yet determined the future operations of the Company following the consummation of the Asset Sale Transaction. Accordingly, in considering how to vote on the Asset Sale Proposal, stockholders should not assume that they will receive any portion of the escrow fund. See “Proposal 1: Asset Sale Proposal – Use of Proceeds and Future Operations” on page 59 for more information.

 

Q:

What are the U.S. federal income tax consequences of the Asset Sale Transaction to U.S. Stockholders?

 

A:

The Asset Sale Transaction is a corporate action. Our stockholders will not realize any gain or loss for U.S. federal income tax purposes as a result of the Asset Sale Transaction. See “Proposal 1: Asset Sale Proposal – Material U.S. Federal Income Tax Consequences” beginning on page 68. 

 

15

 

 

Q:

Why am I being asked to approve the Advisory Compensation Proposal?

 

A:

Under SEC rules, the Company is required to seek a non-binding, advisory vote with respect to certain compensation that may be paid or become payable to the Company’s named executive officers in connection with the Asset Sale Transaction and the agreements and understandings pursuant to which such compensation may be paid or become payable. Approval of the Advisory Compensation Proposal by the Company’s stockholders is not a condition to completion of the Asset Purchase Agreement. The vote is an advisory vote and will not be binding on the Company, Buyer or Parent. If the Asset Sale Transaction is completed, the related executive compensation may be paid to the Company’s named executive officers to the extent payable in accordance with the terms of their compensation agreements and arrangements even if the Company’s stockholders do not approve, by non-binding, advisory vote, the Advisory Compensation Proposal. See the sections entitled “Proposal 2: Advisory Compensation Proposal” beginning on page 90 for more information. 

 

Q:

Why am I being asked to approve the Amendment Proposal?

 

A:

We believe it is in the best interests of the Company and its stockholders to be able to efficiently obtain any stockholder approval following the consummation of the Asset Sale Transaction and allowing the Company’s stockholders to act by written consent would allow the Company to obtain stockholder approval in a more efficient manner than holding a meeting of the stockholders of the Company and we believe the board should have the authority but not the obligation to amend the Certificate of Incorporation in accord with the same. See “Proposal 3: Amendment Proposal beginning on page 91 for more information.

 

Q:

What will happen if the Amendment Proposal is approved?

 

A:

If the stockholders approve the Amendment Proposal, subject to the discretion of the board, the Company will file the Amendment with the Secretary of State of the State of Delaware as soon as practicable; the Amendment Proposal gives the board of directors the authority but not the obligation to amend the Certificate of Incorporation in its discretion. Upon the filing of the Amendment with the Secretary of State of the State of Delaware, the following paragraph will be deleted from the existing provision of Article VIII of our current Certificate of Incorporation and replaced with “[RESERVED].”

 

“Except as otherwise provided in this Amended and Restated Certificate, any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of the stockholders of the Corporation, and no action required to be taken or that may be taken at any annual or special meeting of the stockholders of the Corporation may be taken by written consent.”

 

16

 

 

UNAUDITED PRO FORMA FINANCIAL INFORMATION

 

The following unaudited pro forma consolidated financial information is based upon the historical financial statements of the Company, including certain pro forma adjustments, and has been prepared to illustrate the pro forma effect of the sale of substantially all assets of the Company in exchange for $32.0 million, subject certain adjustments as described in this proxy statement. The pro forma financial statements assume the cash consideration will be paid pursuant to the Asset Purchase Agreement. 

 

The unaudited pro forma consolidated statements of operations for the nine months ended December 31, 2018 and the years ended March 31, 2018 and 2017 are presented as if the sales transaction had occurred as of April 1, 2016. The unaudited pro forma condensed consolidated balance sheet as of December 31, 2018 is presented as if the sales transaction had occurred as of December 31, 2018.

 

The historical financial information on which the pro forma statements are based is included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2018 filed with the Securities and Exchange Commission on June 29, 2018 and the Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2018, filed with the Securities and Exchange Commission on February 19, 2019. The pro forma consolidated financial statements and the notes thereto should be read in conjunction with these historical consolidated financial statements.

 

The unaudited pro forma consolidated financial information has been prepared based upon available information and management estimates; actual amounts may differ from these estimated amounts. The unaudited pro forma consolidated financial information is not necessarily indicative of the financial position or results of operations that might have occurred had the sale occurred as of the dates stated above or for any period following the sale of the assets of the Company. The pro forma adjustments are described in the notes and the unaudited pro forma consolidated financial information should be read in conjunction with the related notes.

 

17

 

 

DETERMINE, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF DECEMBER 31, 2018

(IN THOUSANDS)

 

   

 

Historical

   

Pro Forma

Adjustment

     

 

Pro Forma

 

ASSETS

                         

Current assets

                         

Cash and cash equivalents

  $ 8,318     $ 2,255  

(A)(E)

  $ 10,573  

Accounts receivable, net of allowance for doubtful accounts of $129 and $215 as of December 31, 2018 and March 31, 2018, respectively

    6,574       (6,574 )

(B)

    -  

Restricted cash

    25       1,975  

(A)

    2,000  

Prepaid expenses and other current assets

    2,104       (2,104 )

(B)

    -  

Total current assets

    17,021       (4,448 )       12,573  
                           

Property and equipment, net

    105       (105 )

(B)

    -  

Capitalized software development costs, net

    3,375       (3,375 )

(B)

    -  

Goodwill

    14,931       (14,931 )

(C)

    -  

Other intangibles, net

    2,283       (2,283 )

(B)

    -  

Other assets

    1,325       (1,315 )

(B)

    10  

Total assets

  $ 39,040     $ (26,457 )     $ 12,583  
                           

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

                         

Current liabilities

                         

Credit facility

  $ 14,465     $ (14,465 )

(E)

  $ -  

Accounts payable

    2,634       (2,158 )

(B)(D)

    476  

Accrued payroll and related liabilities

    1,982       (1,099 )

(B)(D)

    883  

Other accrued liabilities

    2,898       (450 )

(B)(D)

    2,448  

Deferred revenue

    8,935       (8,935 )

(B)

    -  

Income tax payable

    53       (53 )

(B)

    -  

Total current liabilities

    30,967       (27,160 )       3,807  
                           

Long-term deferred revenue

    160       (160 )

(B)

    -  

Convertible note, net of debt discount

    8,154       (8,154 )

(E)

    -  

Long-term promissory notes

    2,071       (2,071 )

(E)

    -  

Other long-term liabilities

    2,837       (2,837 )

(E)

    -  

Total liabilities

    44,189       (40,382 )       3,807  
                           

Commitments and contingencies:

                         
                           

Stockholders' equity (deficit):

                         

Common stock, $0.0001 par value; Authorized: 35,000 shares at December 31, 2018 and March 31, 2018; Issued: 15,382 and 15,050 shares at December 31, 2018 and March 31, 2018, respectively; Outstanding: 15,237 and 14,905 shares at December 31, 2018 and March 31, 2018, respectively

    7       -         7  

Additional paid-in capital

    327,096       -         327,096  

Treasury stock at cost - 145 shares at December 31, 2018 and March 31, 2018

    (472 )     -         (472 )

Accumulated equity (deficit)

    (332,348 )     13,925  

(F)

    (318,423 )

Accumulated other comprehensive income

    568       -         568  

Total stockholders’ equity (deficit)

    (5,149 )     13,925         8,776  
                           

Total liabilities and stockholders’ equity (deficit)

  $ 39,040     $ (26,457 )     $ 12,583  

 

 

See accompanying notes to unaudited pro forma condensed consolidated financial information.

 

18

 

 

DETERMINE, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED DECEMBER 31, 2018

(IN THOUSANDS)

 

   

Historical

   

Pro Forma

Adjustments

     

Pro Forma

 
                           

Revenues:

                         

Recurring revenues

  $ 15,186     $ (15,186 )

(G)

  $ -  

Non-recurring revenues

    2,530       (2,530 )

(G)

    -  

Total revenues

    17,716       (17,716 )       -  
                           

Cost of revenues:

                         

Cost of recurring revenues

    5,973       (5,973 )

(G)

    -  

Cost of non-recurring revenues

    3,427       (3,427 )

(G)

    -  

Total cost of revenues

    9,400       (9,400 )       -  
                           

Gross profit :

                         

Recurring gross profit

    9,213       (9,213 )       -  

Non-recurring gross profit (loss)

    (897 )     897         -  

Total gross profit

    8,316       (8,316 )       -  
                           

Operating expenses:

                         

Research and development

    3,458       (3,458 )

(H)

    -  

Sales and marketing

    7,814       (7,814 )

(H)

    -  

General and administrative

    6,503       (6,337 )

(H)

    166  

Total operating expenses

    17,775       (17,609 )       166  
                           

Loss from operations

    (9,459 )     9,293         (166 )
                           

Other expense, net

    (1,073 )     1,073  

(G)

    -  

Net loss before income tax

    (10,532 )     10,366         (166 )
                           

Provision for income taxes

    (119 )     119  

(G)

    -  

Net loss

  $ (10,651 )   $ 10,485       $ (166 )
                           

Basic and diluted net loss per share

  $ (0.70 )             $ (0.01 )
                           

Weighted-average shares of common stock used in computing basic and diluted net loss per share attributable to common stockholders

    15,222                 15,222  

 

See accompanying notes to unaudited pro forma condensed consolidated financial information.

 

19

 

 

DETERMINE, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED MARCH 31, 2018

(IN THOUSANDS)

 

   

Historical

   

Pro Forma

Adjustments

     

Pro Forma

 
                           

Revenues:

                         

Recurring revenues

  $ 21,864     $ (21,864 )

(G)

  $ -  

Non-recurring revenues

    6,255       (6,255 )

(G)

    -  

Total revenues

    28,119       (28,119 )       -  
                           

Cost of revenues:

                         

Cost of recurring revenues

    7,952       (7,952 )

(G)

    -  

Cost of non-recurring revenues

    5,546       (5,546 )

(G)

    -  

Total cost of revenues

    13,498       (13,498 )       -  
                           

Gross profit :

                         

Recurring gross profit

    13,912       (13,912 )       -  

Non-recurring gross profit (loss)

    709       (709 )       -  

Total gross profit

    14,621       (14,621 )       -  
                           

Operating expenses:

                         

Research and development

    4,459       (4,459 )

(H)

    -  

Sales and marketing

    10,877       (10,877 )

(H)

    -  

General and administrative

    8,025       (7,729 )

(H)

    296  

Total operating expenses

    23,361       (23,065 )       296  
                           

Loss from operations

    (8,740 )     8,444         (296 )
                           

Other expense, net

    (1,763 )     1,763  

(G)

    -  

Net loss before income tax

    (10,503 )     10,207         (296 )
                           

Provision for income taxes

    555       (555 )

(G)

    -  

Net loss

  $ (9,948 )   $ 9,652       $ (296 )
                           

Basic and diluted net loss per share

  $ (0.69 )             $ (0.02 )
                           

Weighted-average shares of common stock used in computing basic and diluted net loss per share attributable to common stockholders

    14,408                 14,408  

 

See accompanying notes to unaudited pro forma condensed consolidated financial information.

 

20

 

 

DETERMINE, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED MARCH 31, 2017

(IN THOUSANDS)

 

   

Historical

   

Pro Forma

Adjustments

     

Pro Forma

 
                           

Revenues:

                         

Recurring revenues

  $ 20,895     $ (20,895 )

(G)

  $ -  

Non-recurring revenues

    6,568       (6,568 )

(G)

    -  

Total revenues

    27,463       (27,463 )       -  
                           

Cost of revenues:

                         

Cost of recurring revenues

    7,017       (7,017 )

(G)

    -  

Cost of non-recurring revenues

    6,608       (6,608 )

(G)

    -  

Total cost of revenues

    13,625       (13,625 )       -  
                           

Gross profit :

                         

Recurring gross profit

    13,878       (13,878 )       -  

Non-recurring gross profit (loss)

    (40 )     40         -  

Total gross profit

    13,838       (13,838 )       -  
                           

Operating expenses:

                         

Research and development

    3,771       (3,771 )

(H)

    -  

Sales and marketing

    10,352       (10,352 )

(H)

    -  

General and administrative

    7,495       (2,915 )

(H)

    4,580  

Total operating expenses

    21,618       (17,038 )       4,580  
                           

Loss from operations

    (7,780 )     3,200         (4,580 )
                           

Other expense, net

    (1,865 )     1,865  

(G)

    -  

Net loss before income tax

    (9,645 )     5,065         (4,580 )
                           

Provision for income taxes

    229       (229 )

(G)

    -  

Consolidated net loss

    (9,416 )     4,836         (4,580 )
                           

Net loss attributable to non-controlling interest

    (36 )     18  

(G)

    (18 )

Net loss attributable to Determine, Inc.

  $ (9,452 )   $ 4,854       $ (4,598 )
                           

Basic and diluted net loss per share

  $ (0.81 )             $ (0.39 )
                           

Weighted-average shares of common stock used in computing basic and diluted net loss per share attributable to common stockholders

    11,644                 11,644  

 

See accompanying notes to unaudited pro forma condensed consolidated financial information.

 

21

 

 

DETERMINE, INC.

 

NOTES AND MANAGEMENT’S ASSUMPTIONS TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

 

 

The following is a description of the unaudited pro forma adjustments to the Company’s historical condensed consolidated financial statements:

 

 

(A)

Reflects the net cash consideration received by the Company pursuant to the Asset Purchase Agreement had the transaction been consummated on December 31, 2018. 

 

 

(B)

Reflects the removal of assets and liabilities sold or disposed with the sale had the transaction been consummated on December 31, 2018.

 

 

(C)

Reflects the write-off of goodwill associated with the Company’s previous business combinations had the transaction been consummated on December 31, 2018.

 

 

(D)

Represents the accrual for transaction fees had the transaction been consummated on December 31, 2018.

 

 

(E)

Reflects the use of proceeds to pay down outstanding debt balances had the transaction been consummated on December 31, 2018.

 

 

(F)

Reflects the equity in the post-closing Company had the transaction been consummated on December 31, 2018 including transaction costs sale. 

 

 

(G)

Reflects the removal of the operations and related operational changes to the Company as a result of the sale had the transaction been consummated on April 1, 2016.

 

 

(H)

Reflects the removal of expenses specific to the current operations of the Company which will not be ongoing costs of the post-closing Company had the transaction been consummated on April 1, 2016. The ongoing costs reflect the estimated expenses to remain a public company and other administrative costs.

 

22

 

 

RISK FACTORS

 

In deciding how and whether to vote, you should carefully consider the following risk factors and all of the information contained in or incorporated by reference into this proxy statement, including but not limited to, the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 27 of this proxy statement and the matters discussed under “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2018, as updated from time to time in the Company’s subsequent filings with the SEC, which are incorporated by reference into this proxy statement. See the section entitled “Where You Can Find More Information” beginning on page 98 for more information.

 

Risks Related to the Asset Sale Transaction

 

The announcement and pendency of the Asset Sale Transaction, whether or not consummated, may adversely affect our business.

 

The announcement and pendency of the Asset Sale Transaction, whether or not consummated, may adversely affect the trading price of our common stock, our business or our relationships with customers, suppliers and employees. In addition, pending the completion of the Asset Sale Transaction, we may be unable to attract and retain key personnel and the focus and attention of our management and employee resources may be diverted from operational matters during the pendency of the Asset Sale Transaction. For example, due to lack of resources, we were unable to timely file our Report on Form 10-Q for the quarter ended December 31, 2018.

 

We cannot be sure if or when the Asset Sale Transaction will be completed.

 

The consummation of the Asset Sale Transaction is subject to the satisfaction or waiver of various conditions, including the approval of the Asset Sale Proposal by our stockholders. We cannot guarantee that the closing conditions set forth in the Asset Purchase Agreement will be satisfied. If we are unable to satisfy the closing conditions in Buyer’s favor or if other mutual closing conditions are not satisfied, Buyer will not be obligated to complete the Asset Sale Transaction. In the event that the Asset Sale Transaction is not completed, the announcement of the termination of the Asset Purchase Agreement may adversely affect the trading price of our common stock, our business and operations or our relationships with customers, suppliers and employees.

 

In addition, if the Asset Sale Transaction is not completed, our board, in discharging its fiduciary obligations to our stockholders, may evaluate other strategic alternatives that may be available, which alternatives may not be as favorable to us as the Asset Sale Transaction.

 

Buyer may not obtain the financing necessary to fulfill its obligations under the Asset Purchase Agreement. 

  

Buyer and Parent are financing the consideration payable at closing with a combination of cash on hand and debt financing under Parent’s existing debt facilities. However, Buyer and Parent’s ability obtain the debt financing is dependent upon a number of factors, some of which may be out of Buyer and Parent’s control. Though the Asset Purchase Agreement does not contain a financing condition, if Buyer and Parent are unable to obtain the debt financing or to obtain alternate debt financing, Buyer and Parent may not be able to fulfill their obligations under the Asset Purchase Agreement, including paying the consideration payable in connection with the Asset Sale Transaction, and complete the Asset Sale Transaction by June 8, 2019. In that event, we may terminate the Asset Purchase Agreement or seek specific performance.

 

Even if the Asset Sale Transaction is consummated, it should not be assumed that there will be sufficient proceeds from the consummation of the Asset Sale Transaction to make any distribution, dividend, redemption, repurchase or other return of capital to the holders of common stock of the Company.

 

The Company expects that all or a portion of the proceeds from the consummation of the Asset Sale Transaction will be used to pay-off the Company’s outstanding debt obligations, to pay expenses relating to the Asset Sale Transaction, and certain other liabilities and obligations of the Company, including certain severance and other employee obligations. If the aggregate amount of such obligations, expenses and liabilities, together with other currently unknown potential liabilities that may become known at a later date, such as potential stockholder litigation, exceeds the amount of the proceeds received by the Company in connection with the consummation of the Asset Sale Transaction, the Company may not make any distribution, dividend, redemption, repurchase or other return of capital to the holders of common stock of the Company.

 

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Even if the Asset Sale Transaction is consummated, it should not be assumed that the board will approve a plan of liquidation or a dividend, distribution, redemption, repurchase or other return of capital, or that if the board approves a plan of liquidation, that the stockholders of the Company holding a majority of the outstanding shares of common stock of the Company will approve such a plan of liquidation.

 

Once the Asset Sale Transaction has been consummated, it is expected that the board will consider alternatives regarding the use of any remaining proceeds from the consummation of the Asset Sale Transaction after the payment of such obligations, expenses and liabilities and the future of the Company, including, without limitation, (i) potentially approving a plan of liquidation and ceasing to do business and not engaging in any further business activities except for dealing with post-closing matters and for the purpose of liquidating our remaining assets, paying any debts and obligations, facilitating the release of any of the amounts in the escrow fund, distributing the remaining assets to stockholders, and doing other acts required to liquidate and wind up our business and affairs and/or (ii) approving, declaring and paying a dividend or distribution to the Company stockholders, or effecting a redemption, repurchase or other return of capital, in accordance with Delaware law after payment of the Company’s indebtedness and expenses relating to the Asset Sale Transaction, taking into account any other obligations of the Company that remain outstanding at such time or that are known or reasonably ascertainable at such time.

 

However, stockholders should not assume that the board will approve any plan of liquidation or any distribution, dividend, redemption, repurchase or other return of capital and should not assume that if the board does approve a plan of liquidation, that the stockholders of the Company holding a majority of the outstanding shares of common stock of the Company will approve such a plan of liquidation.

 

If approved by the board and the Company’s stockholders, any such liquidation, dissolution and winding up process of the Company may be subject to uncertainties. In addition, if the board seeks to pay a dividend, distribution or other payment to the Company stockholders, the amount of any such dividend, distribution or other payment may also be subject to uncertainties. We cannot assure that any liquidating distribution or other distribution, dividend or other payment will be made to our stockholders or, if made, the exact amount or timing of such distributions, dividend or other payment. The amount and timing of any liquidating distribution or other distribution, dividend or other payment to our stockholders may depend on the following factors, among others:

 

 

whether any potential claimants against us and currently unknown to us could present claims relating to our pre-dissolution operations that we may ultimately have to satisfy;

 

 

costs we may have to incur to defend new claims and claims existing as of the date of this proxy statement;

 

 

the payment of our outstanding indebtedness;

 

 

the payment of expenses to be incurred by the Company following the consummation of the Asset Sale Transaction;

 

 

the fact that Parent, Buyer or their affiliates may make certain indemnification claims and, as a result, there may be no amounts in the escrow fund to release to the Company (or its trustee) on or around the date that is one year after the closing;

 

 

the payment of expenses incurred in connection with the Asset Sale Transaction;

 

 

the amounts that we will need to pay for general administrative and overhead costs and expenses following the consummation of the Asset Sale Transaction;

 

 

the cost and expense that we may incur in connection with any stockholder litigation;

 

 

the cost and expense that we may incur in connection with certain severance and payment obligations to employees of the Company and its subsidiaries;

 

 

the costs attendant on us as a publicly held reporting company under SEC regulations, including legal and auditing fees, especially if we are unable to obtain relief from requirements to continue preparing and filing our annual, quarterly and current reports; and

 

 

how much of our funds we will be required to reserve to provide for contingent liabilities, and how long it may take to finally determine whether and how much of those liabilities may have to be paid.

 

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We will incur significant expenses in connection with the Asset Sale Transaction, regardless of whether the Asset Sale Transaction is completed and, in certain circumstances, may be required to pay a termination fee to Buyer.

 

We expect to incur significant expenses related to the Asset Sale Transaction. These expenses include, but are not limited to, financial advisory and opinion fees and expenses, legal fees, accounting fees and expenses, certain employee expenses, filing fees, printing expenses and other related fees and expenses. Many of these expenses will be payable by us regardless of whether the Asset Sale Transaction is completed. In addition, if the Asset Purchase Agreement is terminated in certain circumstances, we will be required to pay Buyer a $1.2 million termination fee.

 

The Asset Purchase Agreement limits our ability to pursue alternatives to the Asset Sale Transaction.

 

The Asset Purchase Agreement contains provisions that make it substantially more difficult for us to sell the Company’s assets or engage in another type of acquisition transaction with a party other than Parent or the Buyer. Specifically, the Company agreed not to solicit any acquisition proposals until the date of closing or the valid termination of the Asset Purchase Agreement except that, subject to our obligation to pay the Buyer a termination fee of $1.2 million, at any time prior to obtaining stockholder approval of the Asset Sale Proposal, in response to a Superior Proposal or an Intervening Event (as defined below), the board may, among other actions, make a Change of Recommendation, if the board concludes in good faith, after receipt of advice from and consultation with its outside legal counsel, that the failure to take such action would reasonably be expected to cause the board to breach its fiduciary obligations to the Company’s stockholders under Delaware law, subject to the satisfaction of certain other conditions. These provisions, among others contained in the Asset Purchase Agreement, could discourage a third party that might have an interest in acquiring all of or substantially all of our assets or our common stock from considering or proposing such an acquisition, even if that party were prepared to pay consideration with a higher value than the consideration to be paid by Buyer. 

 

Our executive officers and directors may have interests in the Asset Sale Transaction other than, or in addition to, the interests of our stockholders generally.

 

Members of the board and our executive officers may have interests in the Asset Sale Transaction that are different from, or are in addition to, the interests of our stockholders generally, including as discussed under the section entitled “Interests of our Directors and Executive Officers in the Asset Sale Transaction”, beginning on page 65. The board was aware of these interests and considered them, among other matters, in approving the Asset Purchase Agreement.

 

If a plan of liquidation is approved by the board and the stockholders of the Company holding a majority of the outstanding shares of common stock of the Company, we may no longer be an operating company following the closing of the Asset Sale Transaction.

 

If the stockholders approve the Asset Sale Proposal and we complete the Asset Sale Transaction, it is expected that the board will consider alternatives regarding the use of proceeds from the consummation of the Asset Sale Transaction and the future of the Company. One of such alternatives it is expected that the board will consider is potentially approving a plan of liquidation and ceasing to do business and not engaging in any further business activities except for dealing with post-closing matters and for the purpose of liquidating our remaining assets, paying any debts and obligations, facilitating the release of any of the amounts in the escrow fund, distributing the remaining assets to stockholders, and doing other acts required to liquidate and wind up our business and affairs.

 

While the board has not approved any plan of liquidation, or any other alternatives as of this date, it is anticipated that following the consummation of the Asset Sale Transaction, the board will consider whether it is in the best interests of the Company and its stockholders to effect such an alternative.

 

The tax treatment of any liquidating distributions or dividends, distributions or other payments may vary from stockholder to stockholder, and the discussions in this proxy statement regarding the tax treatment of the Asset Sale Transaction are general in nature.

 

You should consult your own tax advisor instead of relying on the discussions of tax treatment in this proxy statement for tax advice. 

 

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We have not requested a ruling from the Internal Revenue Service (“IRS”) with respect to the anticipated tax consequences of the Asset Sale Transaction, and we will not seek an opinion of counsel with respect to the anticipated tax consequences of the Asset Sale Transaction or any liquidating distributions, dividend, distributions or other payment. If any of the anticipated tax consequences described in this proxy statement proves to be incorrect, the result could be increased taxation at the corporate and/or stockholder level, thus reducing the benefit to our stockholders and us from the liquidation and distributions, dividends, redemption, repurchase or other return of capital. Tax considerations applicable to particular stockholders may vary with and be contingent upon the stockholder’s individual circumstances.

 

We may be subject to securities litigation, which is expensive and could divert our attention.

 

We may be subject to securities class action litigation in connection with the Asset Sale Transaction. Securities litigation against us could result in substantial costs and divert our management's attention from closing the Asset Sale Transaction, which could harm our business and increase our expenses, which could decrease the amount available for distribution to our stockholders.

 

Following consummation of the Asset Sale Transaction, we may no longer be required to file reports with the SEC.

 

We may file a notice terminating our reporting obligations under the Exchange Act of 1934, as amended (the “Exchange Act”), following completion of the Asset Sale Transaction. Once effective, we may no longer be required to file any annual, quarterly or other current reports with the SEC. If we are no longer required to file reports with the SEC, stockholders will have very little public information available about us and our operations which will further affect the trading and liquidity of our common stock.

 

Following the consummation of the Asset Sale Transaction, if we continue to be required to file reports with the SEC, we will incur costs and expenses relating to such reporting obligations.

 

If we continue to have obligations to file annual, quarterly and other current reports with the SEC following the consummation of the Asset Sale Transaction, we will have to incur costs and expenses to make such filings and to comply with the Exchange Act and the rules and regulations promulgated thereunder.

 

After the closing of the Asset Sale Transaction, the board or the stockholders of the Company holding a majority of the outstanding shares of common stock of the Company may not approve a plan of liquidation or the board may not approve a distribution, dividend, redemption, repurchase or other return of capital.

 

While it is expected that the board will consider alternatives regarding the use of proceeds from the consummation of the Asset Sale Transaction and the future of the Company, after the closing of the Asset Sale Transaction, the board or the stockholders of the Company holding a majority of the outstanding shares of common stock of the Company may not approve a plan of liquidation or the board may not approve a distribution, dividend, redemption, repurchase, return of capital or other alternative transaction. Stockholders should not assume that they will receive any distributions (including any liquidating distributions), dividends or other payments from the Company and should not assume that any plan of liquidation will be considered or approved by the board or by stockholders of the Company holding at least a majority of the outstanding shares of common stock of the Company or that the board will approve any distribution, dividend, redemption, repurchase or other return of capital.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This proxy statement and the attached annexes contain “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements include statements concerning our outlook for the future, as well as other statements of beliefs, future plans and strategies or anticipated events, and similar expressions concerning matters that are not historical facts. These statements can be identified by the use of forward-looking terminology such as “believes,” “estimates,” “expects,” “may,” “will,” “should,” “could,” or “anticipates,” or the negative thereof or other variations thereon or other comparable terminology. The forward-looking statements included in this proxy statement or the attached annexes are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict and could cause actual results to differ materially from those expressed in, or implied by, the forward-looking statement. These risks and uncertainties include, but are not limited to:

 

 

our stockholders failing to approve the Asset Sale Proposal;

 

 

the failure of one or more conditions to the closing of the Asset Sale Transaction to be satisfied or waived by the applicable party;

 

 

Buyer and Parent failing to obtain the necessary debt financing (though the Asset Purchase Agreement does not contain a financing condition);

 

 

an increase in the amount of costs, fees, expenses and other charges related to the Asset Purchase Agreement or Asset Sale Transaction;

 

 

the occurrence of any event, change or other circumstances that could give rise to the termination of the Asset Purchase Agreement;

 

 

risks arising from the diversion of management’s attention from our ongoing business operations;

 

 

risks associated with our ability to identify and realize business opportunities following the Asset Sale Transaction;

 

 

fluctuations in demand for products and services of the Company and its subsidiaries;

 

 

risks of losing key personnel or customers;

 

 

protection of the Company’s intellectual property and government policies and regulations, including, but not limited to those affecting the Company’s industry; and

 

 

the other factors discussed under the heading “Risk Factors” in this proxy statement. 

 

 

Readers are cautioned not to place undue reliance on forward-looking statements. Any forward-looking statement speaks only as of the date that it was made and we undertake no obligation to update any forward-looking statement, whether as a result of new information or otherwise.

 

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THE SPECIAL MEETING

 

The Company is providing this proxy statement to its stockholders in connection with the solicitation of proxies to be voted at the special meeting (or any adjournment or postponement thereof) that the Company has called to consider and vote on (i) the Asset Sale Proposal, (ii) the Advisory Compensation Proposal, (iii) the Amendment Proposal, and the (iv) Adjournment Proposal.

 

Time, Date and Place

 

The special meeting is scheduled to be held on      , 2019 at       Eastern Time, at the Company’s corporate headquarters located at 615 West Carmel Drive, Suite 100, Carmel, Indiana, 46032. 

 

Purpose of the Special Meeting 

 

The special meeting is being held for the following purposes:

 

 

to consider and vote on the Asset Sale Proposal;

 

 

to consider and vote on the Advisory Compensation Proposal;

 

 

to consider and vote on the Amendment Proposal;

 

 

to consider and vote on the Adjournment Proposal; and

 

 

to transact such other business as may properly be brought before the meeting or any adjournment or postponement of the meeting.

 

Other than the proposals noted above, we do not expect a vote to be taken on any other matters at the special meeting or any adjournment or postponement thereof. However, if any other matters are properly presented at the special meeting or any adjournment or postponement thereof for consideration, the holders of the proxies solicited by this proxy statement will have discretion to vote on such matters in accordance with their best judgment.

 

Recommendation of Our Board

 

Our board unanimously recommends that stockholders vote “FOR” the Asset Sale Proposal, “FOR” the Advisory Compensation Proposal, “FOR” the Amendment Proposal and “FOR” the Adjournment Proposal. See “Proposal 1: Asset Sale Proposal – Reasons for the Asset Sale Transaction and Recommendation of our Board” beginning on page 52 for a discussion of the factors considered by the board in reaching its decision to make the above recommendations. 

 

Record Date and Voting Power

 

Holders of our common stock as of the close of business on           , 2019, the record date for the special meeting, are entitled to notice of, and to vote at, the special meeting and any postponements or adjournments of the special meeting. At the close of business on the record date, there were       shares of our common stock outstanding and entitled to vote at the special meeting. No other shares of common stock were outstanding on the record date. 

 

Each share of our common stock issued and outstanding as of the close of business on the record date is entitled to one vote.

 

Quorum 

 

The presence in person or by proxy at the special meeting of at least a majority of the issued and outstanding shares of our common stock entitled to vote at the special meeting is necessary to constitute a quorum for the transaction of business at the special meeting. There must be a quorum for business to be conducted at the special meeting. However, even if a quorum does not exist, a majority of the shares present, in person or by proxy, at the special meeting may act to postpone or adjourn the special meeting to another place, date and time.

 

Once a share is represented in person or by proxy at the special meeting, it will be counted for purposes of determining whether a quorum exists at the special meeting and any adjournment or postponement of the special meeting. However, if a new record date is set for the adjourned or postponed special meeting, a new quorum will have to be established. For purposes of determining the presence of a quorum, abstentions will be counted as present at the special meeting.

 

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Required Vote

 

Proposal 1: Asset Sale Proposal

 

The approval of the Asset Sale Proposal requires the affirmative vote of the holders of at least a majority of the outstanding shares of our common stock outstanding as of the close of business on the record date.

 

Holders of our common stock may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to the Asset Sale Proposal.

 

Proposal 2: Advisory Compensation Proposal

 

The approval of the Advisory Compensation Proposal requires the affirmative vote of the holders of at least a majority of the outstanding shares of our common stock present, in person or by proxy, at the special meeting and entitled to vote thereon.

 

Holders of our common stock may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to the Advisory Compensation Proposal.

 

Proposal 3: Amendment Proposal

 

The approval of the Amendment Proposal requires the affirmative vote of the holders of at least a majority of the outstanding shares of our common stock outstanding as of the close of business on the record date.

 

Holders of our common stock may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to the Amendment Proposal.

 

Proposal 4: Adjournment Proposal

 

The approval of the Adjournment Proposal requires the affirmative vote of the holders of at least a majority of the outstanding shares of our common stock present, in person or by proxy, at the special meeting and entitled to vote thereon.

 

Holders of our common stock may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to the Adjournment Proposal.

 

Voting by Stockholders of Record

 

Voting by Proxy

 

If you hold your shares as a stockholder of record, you may submit a proxy for your shares by mail, by telephone or on the internet as follows:

 

 

Vote by Mail. You may submit a proxy for your shares by marking the proxy card accompanying this proxy statement, dating and signing it, and returning it in the business-reply envelope included in your package. Please allow sufficient time for mailing if you decide to submit a proxy for your shares by mail. To be valid, your proxy by mail must be received by 11:59 P.M., Eastern Time, on        , 2019.

 

 

Vote on the Internet. You may also submit a proxy for your shares on the Internet by following the instructions provided on the proxy card accompanying this proxy statement. If you choose to submit your proxy by Internet, then you do not need to return the proxy card. Internet voting facilities are available 24 hours a day. To be valid, your Internet proxy must be received by 11:59 P.M., Eastern Time, on        , 2019.

 

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Vote by Telephone. You may also submit a proxy for your shares by telephone by calling the toll-free number on the enclosed proxy card. Have your proxy card available when you call. Telephone voting facilities are available 24 hours a day. If you choose to submit your proxy by telephone, then you do not need to return the proxy card. To be valid, your telephone proxy must be received by 11:59 P.M., Eastern Time, on        , 2019.

 

Voting in Person

 

If you hold your shares as a stockholder of record, you may also vote in person at the special meeting by using the ballot provided to you at the special meeting. Even if you plan to attend the special meeting in person, we encourage you to vote by proxy using one of the methods noted above to ensure that your vote is counted. Even if you vote by proxy, you may still attend the meeting and vote in person.

 

Voting by Stockholders Holding Shares in “Street Name”

 

If you hold your shares in “street name,” you must instruct the broker, bank or other nominee through which you hold your shares as to how to vote your shares by returning to such broker, bank or other nominee the instruction form provided to you with this proxy statement. If you hold your shares in “street name” and would like to vote in person at the special meeting, you must bring to the special meeting a proxy from the broker, bank or other nominee through which you hold your shares authorizing you to vote those shares at the special meeting.

 

Abstentions

 

Abstentions will have the same effect as a vote “AGAINST” the Asset Sale Proposal, the Amendment Proposal, the Advisory Compensation Proposal and the Adjournment Proposal.

 

For purposes of determining the presence of a quorum, abstentions will be counted as present at the special meeting.

 

Broker Non-Votes

 

Brokers who hold shares in “street name” for their customers have authority to vote those shares on “routine” proposals when they have not received instructions from the beneficial owners of such shares. However, brokers do not have the authority to vote shares they hold for their customers on “non-routine” proposals when they have not received instructions from the beneficial owners of such shares.

 

Broker non-votes are shares held in “street name” by brokers that are present or represented by proxy at the special meeting, but with respect to which the broker has not been instructed by the beneficial owner of such shares as to how to vote on a “non-routine” proposal for which the broker does not have discretionary voting power. Because each proposal being considered at the special meeting is expected to be considered a “non-routine” proposal, we do not expect brokers will vote such shares absent instructions from the beneficial owners of such shares, and such shares will not be considered present at the special meeting for purposes of determining a quorum. As a result, it is expected that there will not be any broker non-votes in connection with the special meeting.

 

Failure to Vote

 

If you are a stockholder of record and you do not vote at the special meeting in person or properly return your proxy card or vote over the internet or by phone, your shares will not be voted at the special meeting, will not be counted as present in person or by proxy at the special meeting and will not be counted for purposes of determining whether a quorum exists.

 

If you are the beneficial owner of shares held in “street name” and you do not issue voting instructions to your broker, bank or other nominee, your shares will not be voted at the special meeting and will not be deemed present for any purpose at the special meeting, including for purposes of determining whether a quorum exists.

 

A failure to vote will have the same effect as a vote “AGAINST” the Asset Sale Proposal and the Amendment Proposal but will have no impact on the outcome of the Advisory Compensation Proposal or the Adjournment Proposal.

 

Proxies; Revocation of Proxies

 

Proxies that are signed and returned by a stockholder of record without voting instructions will be voted “FOR” the Asset Sale Proposal, the Amendment Proposal and the Adjournment Proposal in accordance with the recommendation of our board.

 

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If you are a stockholder of record, you may change or revoke your proxy at any time before the final vote at the special meeting by:

 

 

delivering to our Secretary a written notice, bearing a date later than your proxy, stating that you revoke the proxy;

 

 

submitting a later-dated proxy (either by mail, by telephone or on the Internet) relating to the same shares prior to the final vote at the special meeting; or

 

 

attending the special meeting and notifying the election officials at the meeting that you wish to revoke your proxy and vote in person (simply attending the special meeting in person will not, by itself, revoke your proxy).

 

If you hold your shares in “street name,” you should contact the broker, bank or other nominee through which you hold your shares for instructions as to how to change your vote.

 

Solicitation of Proxies

 

This proxy solicitation is being made by us on behalf of our board of directors. We will bear the costs of soliciting proxies. We have engaged The Proxy Advisory Group, LLC to assist in the solicitation of proxies and provide related advice and informational support, for a services fee and the reimbursement of customary disbursements, which are not expected to exceed $15,000 in total.

 

The solicitation of proxies will initially be made by mail. Forms of proxies and proxy materials may also be distributed through brokers, banks and other nominees to the beneficial owners of our common stock, in which case such parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail or other electronic medium by The Proxy Advisory Group, LLC or by certain of our directors, officers or employees. Any of our directors, officers or employees participating in the solicitation will not receive additional compensation for their efforts. 

 

Questions and Additional Information

 

If you have any questions about the special meeting, require assistance with submitting your proxy or otherwise voting your shares of our common stock, or would like copies of any of the documents referred to in this proxy statement, please contact the Company’s proxy solicitor at:

 

The Proxy Advisory Group, LLC

18 East 41st Street, Suite 2000,

New York, New York 10017

Telephone: (212) 616-2180

Toll-Free: 1-888-55PROXY or 1-888-557-7699

 

You may also contact the Company’s Investor Relations department at:

 

Investor Relations

Determine, Inc.

615 West Carmel Drive, Suite 100

Carmel, IN 46032

Telephone: (650) 532-1500.

 

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PROPOSAL 1: ASSET SALE PROPOSAL

 

Information about the Parties

 

The Company

 

Determine, Inc. is a leading global provider of SaaS Source-to-Pay and Enterprise Contract Lifecycle Management (“ECLM”) solutions. The Determine Cloud Platform provides procurement, sourcing, finance and legal professionals with the flexibility, agility and scalability they need to optimize spend, supplier, contract and financial performance goals. We empower users across the full source-to-pay continuum, including sourcing, supplier management, spend analytics, contract management and procure-to-pay applications, to deliver efficiency and data insight for their operational business processes, third-party relationships and contractual obligations. On October 15, 2015, we amended our Certificate of Incorporation and amended and restated our Bylaws to change our name from Selectica, Inc. to Determine, Inc., which became effective immediately. Our common stock began trading under the ticker symbol “DTRM” on October 19, 2015.

 

Buyer

 

Buyer is a Delaware limited liability company, formed as a wholly owned subsidiary of Parent to acquire substantially all of the Company’s assets and facilitate the Asset Sale Transaction. Buyer has not carried on any activities or operations to date, except for those activities incidental to its formation and undertaken in connection with the Asset Sale Transaction.

 

Parent

 

Corcentric is a Delaware corporation and the direct parent entity of Buyer. Corcentric is a leading provider of procurement and finance solutions that transform how companies purchase, pay, and get paid. Corcentric’s procurement, accounts payable, and accounts receivable solutions empower companies to spend smarter, optimize cash flow, and drive profitability. Corcentric currently serves more than 6,000 customers representing multiple industries including manufacturing, transportation, wholesale/distribution, retail, healthcare, and financial services.

 

General Description of the Asset Sale Transaction 

  

Subject to the terms and conditions of the Asset Purchase Agreement, including the approval of the Asset Sale Proposal by our stockholders, we have agreed to sell to Buyer substantially all of our assets and Buyer has agreed to assume substantially all of our liabilities. 

 

For more information on the above, please see “Asset Purchase Agreement – Transfer and Sale of Assets” beginning on page 71. 

 

A copy of the Asset Purchase Agreement is attached as Annex A to this proxy statement. You are encouraged to read the Asset Purchase Agreement carefully and in its entirety.

 

Consideration for the Asset Sale Transaction

 

As consideration for the Asset Sale Transaction, Buyer has agreed to pay us cash consideration of $32.0 million in cash, less $217,500 for the premium and other costs to obtain the R&W Insurance Policy, and less the escrow fund (as described below).

 

In accordance with the Asset Purchase Agreement, Buyer will deliver at closing $2.0 million into escrow to serve as partial security for the Company’s indemnification obligations. Any amounts left in the escrow fund after the first anniversary of the closing will be delivered to the Company.

 

Buyer intends to fund the cash consideration through cash on hand and debt financing, though the Asset Purchase Agreement does not contain a financing condition.

 

For more information on the above, please see “Asset Purchase Agreement – Consideration” and “Asset Purchase Agreement – Financing” beginning on page 73 and 78, respectively.

 

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Background of the Asset Sale Transaction 

 

The board of directors and the Company’s management team (which we refer to in this section as “the Company management”), together regularly review and assess the Company’s performance, future growth prospects, business strategies and opportunities and challenges as part of its evaluation of the Company’s prospects and strategies for enhancing long-term stockholder value. As part of that review process, the board of directors and the Company management have regularly reviewed and considered the Company’s strategic direction and business objectives, including strategic opportunities that might be available to the Company, such as possible acquisitions, divestitures and business combination transactions.

 

The Asset Sale Transaction and the terms of the Asset Purchase Agreement are the result of arm’s length negotiations conducted between representatives of Parent and Buyer, the Company and their respective legal and financial advisors. The following is a summary of the principal events, meetings, negotiations and actions among the parties leading to the execution and public announcement of the Asset Purchase Agreement.

 

During Summer, 2017, Mr. Patrick Stakenas, the President and Chief Executive Officer of the Company, had telephone conversations with Mr. Michael Rowbotham, Vice President of Strategy and Innovation of Parent, to discuss preliminarily a potential strategic partnership between the Company and Parent.

 

On July 19, 2017, Mr. Stakenas, Mr. Michael Brodsky, Chairman of the board of directors, and Mr. Rowbotham had a meeting to have additional preliminarily discussions regarding a potential strategic partnership between the Company and Parent.

 

On September 27, 2017, Mr. Stakenas, Mr. Brodsky, Mr. Rowbotham and Mr. Doug Clark of Parent had a meeting to discuss preliminarily a potential strategic partnership between the Company and Parent. At that time, the participants in such meeting determined that neither the Company nor Parent were then in a position to engage in further discussion regarding a potential strategic partnership between the Company and Parent.

 

On February 6, 2018, the board of directors held an in-person regular meeting. Also present were members of the Company management. Mr. Brodsky informed the board of directors that Mr. Lloyd Miller III, the Company’s largest stockholder, had recently passed away. Mr. Brodsky then informed the board of directors he was travelling to meet Mr. Neil Subin, who took over as manager of Mr. Miller’s holdings in the Company. The board also discussed the projections of the Company for the fiscal year ending March 31, 2019. Given the financial condition of the Company, the board was supportive of the Company management updating the projections as appropriate throughout the year.

 

On February 7, 2018, Mr. Brodsky and Mr. Subin met in person to discuss the Company. Mr. Subin conveyed to Mr. Brodsky that Mr. Subin believed that it was in the best interest of the Company’s stockholders that the Company explore strategic alternative transactions and requested that the Company explore strategic alternatives.

 

On February 12, 2018, the board of directors held a telephonic special meeting. The Company management was present. Mr. Brodsky discussed his meeting with Mr. Subin and informed the board of directors of Mr. Subin’s request that the Company explore a strategic alternative transaction. Discussion ensued by the board of directors. Following such discussion, the board of directors determined to form a strategic committee comprised of Mr. Brodsky, Mr. Alan Howe, Mr. Steven Sovik and Mr. William Angeloni, all members of the board of directors, to assist the board of directors in considering, evaluating and negotiating the terms of a potential strategic transaction (the “Strategic Committee”). The board of directors discussed the reason for forming the Strategic Committee would be to help the board of directors more efficiently consider, evaluate and negotiate potential strategic transactions.

 

On February 13, 2018, the Strategic Committee held a telephonic meeting. Also present was Mr. Kevin Grande, General Counsel of the Company. The Strategic Committee discussed the process of engaging a financial advisor and prepared a list of potential financial advisors.

 

Between February 13 and February 22, 2018, at the direction of the Strategic Committee, representatives of the Company approached three potential financial advisors regarding assisting the Company with its consideration, evaluation and negotiation of strategic transactions.

 

On February 22, 2018, the Strategic Committee met with three potential financial advisors, including Needham & Company, during which such potential financial advisors presented to the Strategic Committee on, among other things, their respective credentials, experience in the industry and other aspects relating to potential strategic transactions that would involve the Company.

 

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Later on February 22, 2018, the Strategic Committee held a telephonic special meeting. Also present were members of the Company management. The Strategic Committee discussed the merits of each potential financial advisor, and each member of the Strategic Committee recommended Needham & Company based on industry experience and recent success, professionalism of presentation, and displayed understanding of the Company. The Strategic Committee authorized Mr. Brodsky to negotiate an engagement letter with Needham & Company.

 

Between February 22, 2018 and March 5, 2018, the Strategic Committee continued to review and discuss strategic transactions and the process relating thereto, including holding certain of such discussions with Needham & Company regarding such process. In addition, Mr. Brodsky also negotiated the terms of an engagement letter with Needham & Company and worked with Mr. Grande to submit proposed revisions.

 

On March 5, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management. The board of directors discussed the purpose and composition of the Strategic Committee and the experience and qualifications of each member of the Strategic Committee. The board of directors discussed potential interests of the Strategic Committee members with respect to a potential strategic transaction as disclosed to and known by the board of directors previously and during this meeting. The board of directors then confirmed and ratified the members of the Strategic Committee. The board of directors then discussed the appropriate power and authority of the Strategic Committee. The board of directors then approved that the Strategic Committee will have the power and authority of the board of directors to (i) establish, approve, modify, monitor and direct the process and procedures related to the review and evaluation of a potential strategic transaction, including the authority to determine not to proceed with any such process, procedures, review or evaluation and to reject a potential strategic transaction; (ii) respond on behalf of the Company to any communications, inquiries or proposals regarding a potential strategic transaction; (iii) review, evaluate, investigate, pursue and negotiate the terms and conditions of a potential strategic transaction; (iv) solicit expressions of interest or other proposals for a potential strategic transaction, to the extent the Strategic Committee deems appropriate; (v) negotiate the terms of and documentation for any potential strategic transaction; (vi) determine whether a potential strategic transaction is advisable and in the best interests of the stockholders of the Company; and (vii) recommend to the board of directors the effectuation of a potential strategic transaction. Furthermore, the board of directors authorized the Strategic Committee to engage and retain the services of professional advisors on behalf of the Company.

 

Later on March 5, 2018, the Strategic Committee, by unanimous written consent, approved the engagement letter attached to such unanimous written consent and authorized Mr. Brodsky to execute the engagement letter on behalf of the Company.

 

On March 7, 2018, representatives of the Company and representatives of Needham & Company had an introduction dinner in Washington, D.C. preceding a meeting set for the following day.

 

On March 8, 2018, Mr. Brodsky and members of the Company management met with representatives of Needham & Company in Washington D.C. to review the Company’s business and financial prospects, discuss updated views on various potential strategic and financial partners and discuss next steps. During the meeting, the Company and Needham & Company executed the Needham & Company engagement letter. The Company management also provided Needham & Company with the March 2018 Forecasts (as defined below) for its fiscal year ending March 31, 2019.

 

From March 8, 2018 through April 15, 2018, representatives of the Company and Needham & Company worked to compile and review the Company information to develop a presentation deck for potential investors, acquirers, and other parties interested in a strategic transaction with the Company.

 

On April 6, 2018, Mr. Brodsky returned a previous telephone call from representatives of a potential strategic acquirer (“Party A”) expressing interest in pursuing a strategic transaction with the Company. Mr. Brodsky then introduced Party A to representatives of Needham & Company.

 

On or about April 10, 2018, Mr. Stakenas met with representatives of a potential strategic acquirer (“Party B”) in person and discussed potential strategic opportunities between the Company and Party B. Mr. Stakenas indicated Needham & Company was available to discuss such opportunities and is awaiting word from Party B on whether to connect the parties.

 

On April 14, 2018, representatives of the Company and representatives of Needham & Company agreed on a final presentation, outreach list, preliminary script, and form confidentiality agreement for presentation to the board of directors.

 

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On April 15, 2018, Mr. Grande delivered to each of the board of directors and the Strategic Committee substantially finalized drafts of the (a) preliminary script, (b) outreach list, (c) a form confidentiality agreement, and (d) presentations incorporating projections of the Company. Mr. Grande communicated with the board of directors who all supported distributing the materials to the potential acquirers.

 

On April 16, 2018, Needham & Company commenced reaching out to potentially interested parties as supported by the Strategic Committee.

 

Over the course of the next six months, Needham & Company contacted 85 potential acquirers, of which 38 were potential strategic acquirers and 47 were potential financial acquirers, 49 parties executed a confidentiality agreement with the Company and 25 participated in management meetings with the Company management, certain of which were conducted via webinar, and/or were provided access to an electronic data room. Of the 85 parties contacted, more than 70 parties were contacted within two months of April 16, 2018. All of the confidentiality agreements entered into by the Company in this process either contained a standstill provision that automatically terminated upon the Company’s entry into the Asset Purchase Agreement or did not contain a standstill provision.

 

On April 20, 2018, representatives of Needham & Company and the Company management had a call to discuss current status of outreach efforts.

 

On April 23, 2018, the Company management provided representatives of Needham & Company with the April 2018 Forecasts (as defined below), an updated fiscal year 2019 forecast, and informed Needham & Company that it should no longer rely on the March 2018 Forecasts. The April 2018 Forecasts showed lower revenues and higher losses due to lower than expected bookings and higher than expected churn. The April 2018 Forecasts was distributed to the initial parties interested in potentially pursuing discussions regarding a potential acquisition of the Company.

 

On April 27, 2018, the Strategic Committee held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny & Myers LLP (“O’Melveny”), counsel to the Company. Representatives of Needham & Company, together with Mr. Grande and the representative of O’Melveny, provided an update to the Strategic Committee summarizing the outreach efforts and confidentiality agreement negotiations to date. Discussion ensued by the Strategic Committee.

 

On May 4, 2018, the Strategic Committee held a telephonic special meeting. Also present were certain members of the Company management and representatives of Needham & Company. Representatives of Needham & Company provided an update to the Strategic Committee summarizing the outreach efforts and confidentiality agreement negotiations. Discussion ensued by the Strategic Committee. The Strategic Committee also discussed the potential timing for delivery of bid process letters to the prospective bidders.

 

By late in May 2018, 58 parties had indicated to representatives of Needham & Company that such parties were not interested in pursuing a strategic transaction with the Company. Certain of such parties gave various reasons for such decisions, including, without limitation, concerns regarding the financial profile of the Company and other aspects relating to the Company’s technology.

 

On May 22, 2018, representatives of Needham & Company delivered a draft bid instruction letter to Mr. Grande. Thereafter, Mr. Grande and a representative of O’Melveny provided comments to such bid instruction letter to representatives of Needham & Company.

 

On May 23, 2018, representatives of Needham & Company and Party A scheduled a management presentation for June 1, 2018.

 

On May 29, 2018, representatives of Needham & Company sent initial bid instructions letters to 11 potential acquirers, including Party E (as defined below), establishing an initial bid deadline of June 15, 2018.

 

Between May 29, 2018 and June 19, 2018, seven of the 11 potential acquirers sent the initial bid instructions on May 29, 2018 indicated that such potential acquirers were no longer interested in pursuing an acquisition of the Company and would not be submitting a proposal.

 

On June 1, 2018, the Company management gave a presentation to representatives of Party A.

 

On June 4, 2018, Needham & Company sent an initial bid instruction letter to Party C (as defined below).

 

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On June 7, 2018, the board of directors held a regular in-person meeting. Also present were certain members of the Company management and representatives of Needham & Company (who joined telephonically). Representatives of Needham & Company and the Strategic Committee provided an update to the board of directors summarizing the outreach efforts and confidentiality agreement negotiations to date and next steps. Discussion by the board of directors ensued. The board of directors also reviewed and was supportive of the most up to date projections of the Company and further contemplated updates to the projections.

 

On June 15, 2018, representatives of Needham & Company, on behalf of the Company, received preliminary indications of interest to acquire the Company from (i) Party B, which provided for, among other things, a purchase price range based on the equity value of 1.0x to 1.2x the trailing twelve months revenue, (ii) a potential strategic acquirer (“Party C”), which provided for, among other things, a purchase price range of 25% to 50% premium over the average closing mid-market price of the Company’s common stock for the three months prior thereto and assumed that the Company would have $17 million of net debt at the closing of such a transaction, (iii) a potential financial acquirer (“Party D”), which provided for, among other things, an enterprise valuation of the Company of $46.2 million, which would imply a per share price of approximately $2.04, and (iv) a potential strategic acquirer (“Party E”), which provided for, among other things, an enterprise valuation range of the Company of $50 million to $54 million, which would imply a per share price range of $2.05 to $2.30. All such indications of interests provided that the form of consideration would be cash.

 

Also on June 15, 2018, representatives of Party A informed representatives of Needham & Company that Party A would not be submitting an offer to acquire the Company as a result of other strategic priorities for Party A.

 

On June 18, 2018, representatives of Needham & Company, on behalf of the Company, received an indication of interest from a potential financial acquirer (“Party F”), which provided for, among other things, a per share purchase range equal to $1.90 to $2.15. The form of consideration would be cash.

 

On June 19, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. Needham & Company provided an overview of the indications of interest received from Parties B, C, D, E and F. Discussion by the board of directors ensued. The board of directors determined to move forward in the process with all the potential acquirers who submitted indications of interest, with one exception. The board of directors decided not to move forward with Party F because of the value of the consideration it was offering.

 

Later on June 19, 2018, representatives of Needham & Company informed representatives of Party F that Party F would not proceed to the next phase of the process.

 

Also later on June 19, 2018, representatives of Needham & Company informed each of Parties, B, C, D and E that each such potential acquirer was invited to participate in a second round of bidding with further instructions to come regarding the bid process.

 

On June 25, 2018, representatives of Needham & Company and the Company management had a call to review the current status of discussions with the potential acquirers and to discuss upcoming meetings of the Company management with the potential acquirers- Parties B, C, D and E.

 

Between June 28, 2018 and August 4, 2018, Parties B, C, D and E participated separately in management meetings and financial review diligence calls with the Company management and conducted due diligence. Representatives of Needham & Company participated in certain of such management meetings.

 

On June 28, 2018, representatives of a party which previously entered into a settlement agreement with the Company (“Party I”) contacted a financial advisor with a prior relationship with the Company regarding the Company. Such financial advisor contacted representatives of the Company.

 

On July 2, 2018, Mr. Brodsky, the Company management, representatives of Needham & Company and a representative of O’Melveny discussed the outreach from Party I, including the standstill obligation of Party I with respect to the Company (the “Standstill Obligations”), the fiduciary duties of the board of directors, the history between the Company and Party I and the potential consequences of including Party I in the Company’s process, including that Party I may disrupt the process to date, including with respect to the four potential acquirers then engaged.

 

On July 3, 2018, the Company management and representatives of Needham & Company discussed updated materials for upcoming management meeting presentations, as requested by certain potential acquirers.

 

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On July 6, 2018 and July 20, 2018 Needham & Company reached out to two additional potential strategic acquirers, which were included in the 85 potential acquirers contacted by representatives of Needham & Company throughout this process. One party executed a confidentiality agreement while the other potential acquirer did not, though both parties expressed they were not interested in pursuing discussions regarding a potential transaction to acquire the Company.

 

On July 9, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and representatives of O’Melveny. Representatives of Needham & Company provided an update to the board of directors regarding the strategic alternative review process. Then, the board of directors, together with representatives of O’Melveny, discussed the outreach by Party I, the Standstill Obligations, the fiduciary duties of the board of directors, the history between the Company and Party I and the potential risks and benefits of including Party I in the Company’s process, including that Party I may disrupt the process to date, including with respect to the four potential acquirers then engaged. The board of directors then determined to wait to see if Party I tried to engage a second time to indicate real interest in acquiring the Company.

 

On July 12, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. The Company management and Needham & Company provided an update regarding management meetings with Parties C, D and E. Discussion ensued by the board of directors. The board of directors then reviewed the proposed bid procedure letter with representatives of Needham & Company and O’Melveny. The board of directors then determined to move forward with the proposed bid procedure letter to Parties C, D and E, as well as Party B, who did not meet with Company management prior to this July 12 meeting of the board of directors.

 

On July 13, 2018, representatives of Needham & Company sent to Parties B, C, D, and E the final bid instruction letter, establishing a final bid deadline of July 27, 2018.

 

On July 18, 2018, the Company management provided to representatives of Needham & Company the July 2018 Forecasts, an updated fiscal year 2019 forecast, and stated that representatives of Needham & Company should no longer rely on the April 2018 Forecasts. The July 2018 Forecasts showed a further reduction in the projections than as compared to the reduction from the March 2018 Forecasts to the April 2018 Forecasts. Representatives of Needham & Company shared the July 2018 Forecasts with all remaining active parties, including Parties B, C, D and E.

 

Prior to the final bid deadline date of July 27, 2018, each of Parties B, D and E notified representatives of Needham & Company that each such party would not be submitting final a bid due to, among other things, the financial profile of the Company, other aspects relating to the Company’s technology and each party’s focus on other strategic priorities.

 

On July 30, 2018, Party C delivered to representatives of Needham & Company, on behalf of the Company, a letter of intent, which included, among other things, an all cash offer of $1.77 per share of the common stock of the Company, subject to additional due diligence. Such letter of intent also included a statement that Party C would need four to six weeks to complete diligence on the Company.

 

On July 31, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. Representatives of Needham & Company and the Strategic Committee provided the board of directors with an update regarding the current status of discussions with Parties B, C, D and E. Discussion by the board of directors ensued, including the letter of intent delivered to representatives of Needham & Company by Party C on July 30, 2018. The board of directors instructed representatives of Needham & Company to inform Party C that Party C’s bid would need to be improved.

 

Between July 31, 2018 and August 2, 2018, representatives of Needham & Company had several telephonic calls with Party C to discuss Party C improving its offer to acquire the Company.

 

On August 2, 2018, Party C submitted to representatives of Needham & Company a revised letter of intent for $2.00 per share of the Company common stock, subject to additional due diligence for up to eight weeks and a request for exclusivity through September 30, 2018 with rolling one-week renewals until terminated by either side thereafter.

 

On August 3, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. Representatives of Needham & Company discussed the letter of intent delivered by Party C. Discussion by the board of directors ensued, including discussion regarding exclusivity. After receiving input from representatives of Needham & Company, the board of directors instructed Needham & Company to propose four weeks of exclusivity, with a potential two-week extension of such exclusivity. The board of directors also approved entry into the letter of intent if Party C agreed to the board of directors revised exclusivity proposal.

 

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On August 3, 2018, representatives of Needham & Company spoke with representatives of Party C and offered the revised exclusivity proposal.

 

On August 4, 2018, the Company and Party C entered into the letter of intent, which included, among other things, an all cash offer of $2.00 per share of the Company common stock and four weeks of exclusivity, with a potential two-week extension thereof.

 

From August 4, 2018 through August 30, 2018, Party C conducted due diligence on the Company.

 

On August 6, 2018, the board of directors held a telephonic regular meeting. Also present were certain members of the Company management and a representative of Needham & Company and a representative from the Company’s historic corporate counsel. A representative of Needham & Company provided an update to the board of directors regarding its discussions and negotiations with Party C. Extensive discussion ensued by the board of directors. The board of directors also reviewed and was supportive of the most up to date projections of the Company and further contemplated updates to the projections.

 

On August 7, 2018, the Company management and representatives of Needham & Company had a call to prepare for meetings with Party C.

 

On August 9, 2018, the Company reported earnings for the first fiscal quarter of 2019.

 

On or around August 14, 2018, representatives of O’Melveny distributed an initial draft of a merger agreement to the legal counsel of Party C.

 

On August 16, 2018, the Company management held onsite meetings regarding diligence matters with representatives of Party C and its advisors.

 

On August 20, 2018, the Company management and representatives of Needham & Company had a meeting to discuss the outcome of the August 16, 2018 meeting with Party C and to prepare for next steps.

 

On August 24, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. The board of directors, together with representatives of Needham & Company, discussed next steps with respect to the potential transaction with Party C.

 

On August 28, 2018, the Company management held in-person meetings regarding diligence matters with representatives of Party C.

 

On August 30 2018, representatives of Party C informed representatives of Needham & Company that Party C was no longer interested in pursuing discussions with the Company regarding a potential acquisition of the Company because of the financial profile of the Company and a lack of a fit between the Company’s technology and Party C.

 

On August 31, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. The board of directors, together with representatives of Needham & Company, discussed the decision by Party C to no longer pursue a potential acquisition of the Company. The board of directors determined not to extend exclusivity under the letter of intent with Party C. The board of directors then instructed Needham & Company to reach out to 14 potential acquirers, including Parties A, B, D, E and F.

 

On September 3, 2018, exclusivity with Party C terminated pursuant to a Notice of Termination letter delivered by the Company to Party C.

 

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Between September 3, 2018 and November 2, 2018, representatives of Needham & Company contacted the 14 potential acquirers identified in August 2018 with regards to a potential acquisition of the Company, all of which are inclusive of the 85 potential acquirers contacted by representatives of Needham & Company with regards to a potential acquisition of the Company. Of the 14 potential acquirers, nine were potential acquirers previously contacted, including Parties A, B, D, E and F, and five additional potential acquirers were introduced to the process. Of the five additional parties, all executed confidentiality agreements with the Company, all of which contained a standstill provision that automatically terminated upon the Company’s entry into the Asset Purchase Agreement. Other than Party E, none of such 14 potential acquirers indicated that such potential acquirer was interested in pursuing an acquisition of the Company.

 

On or about September 7, 2018, representatives of a potential financing source (“Financing Source A”) contacted Mr. Stakenas regarding potential funding for the Company.

 

During September 2018 and October 2018, representatives of Needham & Company had multiple conversations with representatives of Party C regarding whether Party C would be interested in continuing to pursue a potential acquisition of the Company.

 

On September 12, 2018, the Company management and representatives of Needham & Company discussed the Company’s financials, products and technology in preparation for presentations to new potential acquirers.

 

On September 14, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management and representatives of Needham & Company. Representatives of Needham & Company provided an update regarding its further discussions with Party C. Representatives of Needham & Company then discussed their outreach to other potential acquirers and the response that no such potential acquirers indicated an interest in pursuing discussions with the Company regarding a potential acquisition of the Company. Discussion ensued by the board of directors. The board of directors then discussed other potential strategic alternative transactions, including seeking new capital partners, as well as discussed other potential acquirers.

 

Thereafter, the Company management had multiple communications with potential new capital partners, none of which resulted in a term sheet except as provided below with Financing Source A.

 

On or about September 17, Financing Source A delivered a term sheet for a private placement raise for a purchase of $10.0 million of common stock of the Company.

 

On September 19, 2018, the Company management discussed such preliminary term sheet from Financing Source A, but ultimately the Company management decided not to pursue this potential financing transaction given that the Company management believed the terms of such offer to be onerous and not in the best interests of the Company and its stockholders.

 

On September 21, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management and representatives of Needham & Company. Mr. John Nolan, Chief Financial Officer of the Company, presented to the board of directors a financial overview of the Company, including a forecast summary, potential reduction plans, profit and loss trends, cash usage and pro forma balance sheets. The board of directors discussed potential impacts on operations of the business relating to the potential reduction plans. The board of directors then discussed potential capital financing partners and approved pursuing discussions with such capital partners regarding a potential financing. The board of directors then discussed approaching Party C with a proposal of an “at-market” acquisition of the Company with a 30-day “Go-Shop” period. The board of directors instructed representatives of Needham & Company to make such proposal to Party C.

 

Between September 22, 2018 and September 27, 2018, representatives of Needham & Company had multiple conversations with representatives of Party C regarding an “at-market” acquisition of the Company with a 30-day “Go-Shop” period. Representatives of Party C informed representatives of Needham & Company that Party C was not interested in pursuing such a potential acquisition of the Company. Despite representatives of Party C informing representatives of Needham & Company that Party C was not interested in pursuing such a transaction, representatives of Needham & Company continued to reach out to Party C regarding a potential acquisition of the Company by Party C.

 

Following the meeting of the board of directors on September 21, 2018, representatives of Needham & Company reached out to several potential strategic partners, including a potential strategic acquirer or investor (“Party G”). During this period, the Company management held management meetings with potential strategic partners, including Party G on October 5, 2018.

 

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On September 28, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. Representatives of Needham & Company provided an update to the board of directors regarding Party C not being interested in an “at-market” acquisition of the Company with a 30-day “Go-Shop” period. Two members of the board of directors disclosed actual or potential conflicts of interest relating to Party G. The representative of O’Melveny then reviewed with the board of directors fiduciary duties.

 

On October 3, 2018, the Company management provided representatives of Needham & Company the October 2018 Forecasts (as defined below), an updated fiscal year 2019 forecast, and stated that representatives of Needham & Company should no longer rely on the July 2018 Forecasts. The October 2018 Forecasts showed, among other things, a reduction in revenue growth. Representatives of Needham & Company shared the October 2018 Forecasts with remaining active potential acquirers.

 

On October 9, 2018, a potential strategic acquirer (“Party H”) was introduced by Mr. Howe to the Company and representatives of Needham & Company, and entered into a confidentiality agreement with the Company.

 

On October 10, 2018, representatives of Party G informed representatives of the Company that Party G had decided to not pursue a potential strategic transaction with the Company. Party G stated that although it saw value in the intellectual property of the Company, Party G viewed a material reorganization of the Company necessary to attain acceptable sales growth and profits.

 

On October 12, 2018, representatives of Needham & Company received from representatives of Party E a letter of intent, subject to due diligence, which provided for the acquisition of all of the shares of common stock of the Company by Party E for $0.05 per share in an all cash transaction. The letter of intent included a 60-day exclusivity period. The letter of intent provided that the purchase price assumed $20 million in net debt at the closing of the proposed transaction and $1 million in anticipated severance expenses.

 

Also on October 12, 2018, representatives of Party C informed representatives of Needham & Company that Party C was not interested in further pursuing discussions regarding a potential acquisition of the Company.

 

On October 13, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. Representatives of Needham & Company discussed the letter of intent received from Party E. Discussion ensued by the board of directors. Representatives of Needham & Company and O’Melveny discussed points in the letter of intent that should be clarified, including relating to the payoff of indebtedness, the treatment of severance obligations and the timing for diligence. Discussion by the board of directors ensued. The board of directors instructed Needham & Company to communicate to Party E that the offer price of $0.05 per share of common stock of the Company was not acceptable and to seek a shorter exclusivity period and to obtain clarity on the points discussed.

 

On October 14, 2018, representatives of Needham & Company spoke with representatives of Party E to inform Party E that the offer price of $0.05 per share of common stock of the Company was not acceptable to the board of directors and to clarify certain points in the letter of intent from Party E regarding the payoff of indebtedness, the treatment of severance obligations and the timing for diligence. Representatives of Party E clarified the points regarding the payoff of indebtedness, the treatment of severance obligations and the timing for diligence, and informed Needham & Company that Party E’s offer price was a firm offer.

 

On October 15, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. Representatives of Needham & Company discussed the clarifications to the October 12, 2018 letter of intent from Party E and that Party E stated the offer was a firm offer. A representative of O’Melveny discussed below market deals and fiduciary duties. Discussion ensued by the board of directors.

 

On October 16, 2018, the Company management presented a management presentation to Party H.

 

On October 16, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. Representatives of Needham & Company provided an update regarding Party H, including that Party H was still considering whether it would submit an offer with respect to a potential business combination with the Company. Representatives of Needham & Company further discussed Party E’s letter of intent. A representative of O’Melveny provided the board of directors with legal advice relating to the possibility and mechanics of a distressed acquisition transaction. Discussion ensued by the board of directors.

 

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On October 17, 2018, Parent, a party not previously contacted during Needham & Company’s outreach to potential acquirers, reached out to Messrs. Brodsky and Stakenas to see if the Company would be interested in discussing a strategic partnership. Parent was not contacted in the initial outreach to potential strategic acquirers as a result of the primary outreach focus being on larger technology and software companies. Mr. Stakenas put representatives of Parent in contact with representatives of Needham & Company. Shortly thereafter, representatives of Needham & Company disclosed to Mr. Brodsky that Needham & Company had never been engaged by, or received fees from, Parent to provide any services to Parent.

 

Later on October 17, 2018, representatives of Needham & Company reached out to representatives of Parent to discuss a potential acquisition of the Company by Parent and delivered to Parent a draft confidentiality agreement.

 

On October 18, 2018, the Company entered into a confidentiality agreement with Parent, which contained a standstill provision that automatically terminated upon the Company’s entry into a definitive acquisition agreement with a third party.

 

Later on October 18, 2018, representatives of Needham & Company spoke with representatives of Parent regarding a potential acquisition of the Company by Parent and Parent indicated its desire to be part of the sale process. Representatives of Needham & Company informed Parent that the Company would need an indication of interest by October 29, 2018. Thereafter, representatives of Parent were promptly granted access to the Company’s electronic data room.

 

On October 22, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and representatives of Olshan Frome Wolosky (“Olshan”), who the Company was considering as potential counsel relating to a distressed transaction pursuant to Section 363 of the bankruptcy code. Representatives of Needham & Company provided an update on their most recent conversation with representatives of Party E and Party E’s reluctance to improve its offer without additional information regarding a purchase price of the Company acceptable to the board of directors. Mr. Grande invited representatives of Olshan to discuss a general overview of the parameters of a distressed transaction under Section 363 of the bankruptcy code and to discuss whether a special committee should be formed in order to negotiate with creditors.

 

Also on October 22. 2018, the Company management held a meeting with representatives of Party H. Between October 22, 2018 and October 26, 2018, the Company management responded to follow up due diligence requests from representatives of Party H.

 

On October 23, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and representatives of O’Melveny. Representatives of O’Melveny discussed a potential distressed transaction, the process relating thereto and how a distressed transaction could potentially impact the terms of a sale transaction. Mr. Grande and representatives of O’Melveny discussed the potential timing of forming any potential special committee to negotiate with certain creditors. The board of directors instructed Needham & Company to propose to Party E a $24 million purchase price in the context of a distressed transaction structure. The board of directors also reviewed and was supportive of the most up to date projections of the Company and further contemplated updates to the projections.

 

Also on October 23, 2018, representatives of Needham & Company spoke with representatives of Party E and proposed a $24 million purchase price in the context of a distressed transaction structure.

 

On October 24, 2018, Mr. Howe had an in-person meeting with representatives of Party H and one of Party H’s potential investors to discuss Party H’s business and discuss a potential business combination between the Company and Party H.

 

On October 25, 2018, the Company management gave a management presentation to Parent. Following such presentation, representatives of Parent indicated to representatives of Needham & Company that Parent may be in a position to submit an indication of interest to the Company by October 29, 2018, but that Parent would have additional due diligence questions and would need to discuss any proposal with its management team and its board of directors after having had a chance to review the information provided to date by the Company. Over the next several days, representatives of Needham & Company had discussions with representatives of Parent regarding due diligence matters and a potential indication of interest from Parent to acquire the Company.

 

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Also on October 25, 2018, representatives of Party E delivered to representatives of Needham & Company an updated letter of intent, which provided for a distressed transaction pursuant to Sections 363 and 365 of the Bankruptcy Code and a cash purchase price of $24 million.

 

Notwithstanding Parent’s statement to representatives of Needham & Company on October 25, 2018, on October 26, 2018, representatives of Parent communicated to representatives of Needham & Company a verbal offer of approximately $0.60 per share of common stock of the Company, but without coverage of the Company transaction expenses. Around this time, representatives of Needham & Company disclosed to Mr. Howe that Needham & Company had never been engaged by, or received fees from, Parent to provide any services to Parent.

 

Later on October 26, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and representatives of O’Melveny. Representatives of Needham & Company discussed the revised offer from Party E and the verbal offer received from Parent. Representatives of Needham & Company then discussed that it expected to receive a written offer from Party H, which was expected to include a reverse merger structure with the Company continuing as a public company, the conversion of the convertible debt of the Company, and a requirement of new financing from certain the Company stockholders. Discussion ensued by the board of directors, including with respect to Party E’s updated offer and the proposed transaction structure, the treatment of transaction expenses relating thereto and whether Party E would increase its offer, as well as the timing of such a transaction. The board of directors also discussed requesting that Parent provide a written offer. The board of directors instructed Needham & Company to (i) obtain clarification from Party E on the treatment of transaction expenses, that Party E’s offer would need to be at a premium to market, that Party E would need to agree to go back to a tender offer structure and further information regarding Party E’s timing and (ii) to request a written offer from Parent.

 

On or around October 26, 2018, the Company management communicated with representatives of Party H regarding a potential business combination between Party H and the Company and due diligence matters. Thereafter, Party H continued to conduct due diligence on the Company. Mr. Howe requested that Party H promptly deliver any term sheet regarding a potential business combination between Party H and the Company.

 

On October 27, 2018, representatives of Needham & Company spoke with representatives of Parent and Parent informed representatives of Needham & Company that Parent planned to submit an offer to acquire the Company by means of a tender offer by the close of business on October 29, 2018.

 

On October 28, 2018, representatives of Needham & Company spoke with representatives of Party E and informed Party E that, due to another potential acquirer of the Company, Party E’s offer to acquire certain assets and liabilities through a bankruptcy proceeding under Sections 363 and 365 of the Bankruptcy Code for $24 million was not an acceptable offer to the board of directors. Representatives of Needham & Company informed Party E that it would need to change the structure of its offer to a tender offer and that the price of such tender offer would need to be at a premium to market. Party E informed representatives of Needham & Company that it was unwilling to submit a new proposal unless representatives of Needham & Company gave specific guidance on what the board of directors considered potentially acceptable.

 

On October 29, 2018, representatives of Parent submitted to representatives of Needham & Company an indication of interest for the acquisition of all of equity securities of the Company at a price of $0.63 per share of common stock of the Company. Later on October 29, 2018, representatives of Needham & Company spoke with representatives of Parent to better understand the indication of interest. In such discussion, representatives of Parent indicated Parent was not willing to pay the transaction expenses of the Company.

 

Also on October 29, 2018, Messrs. Howe and Subin had an in-person meeting with representatives of Party H and one of Party H’s potential investors to discuss a potential business combination between the Company and Party H.

 

On October 30, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and representatives of O’Melveny. Representatives of Needham & Company reviewed their conversations with Party E and Parent, including relating to the availability of financing with respect to Parent and that Parent was not willing to pay the transaction expenses of the Company. Discussion ensued by the board of directors, including that the Company then estimated its transaction expenses to be approximately $0.10 per share of common stock of the Company and as a result, when evaluating Parent’s offer of October 29, 2018, the board of directors considered the Parent offer to be approximately $0.53 per share of common stock of the Company. Representatives of Needham & Company then provided an update on Party H, including that Party H was continuing to conduct diligence and that Party H was not prepared to submit an offer with respect to a potential business combination between the Company and Party H. The board of directors, together with representatives of Needham & Company, discussed the status of Party E’s and Parent’s respective diligence efforts as of such date, each such party’s familiarity with the Company, the transaction history of each such party, access to capital of each such party, and other relevant factors relating to each such party for completing a transaction with the Company. Then, the board of directors, together with representatives of Needham & Company, discussed seeking an increased purchase price of $0.55 per share of common stock of the Company from Party E. The board of directors then instructed Needham & Company to request that Parent improve its offer by removing the provision providing that the transaction expenses of the Company would be borne by the Company (not Parent) and, if Parent was unwilling to do so, representatives of Needham & Company should approach Party E and inform Party E that the board of directors required a premium to market (a per share price above the then current trading price of the Company’s common stock) transaction pursuant to a “regular way” tender offer structure in order to move forward in the process with Party E.

 

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Later on October 30, 2018, representatives of Needham & Company spoke with representatives of Parent regarding improving Parent’s offer by not excluding the Company’s transaction expenses from its offer and that Parent needed to provide details regarding anticipated timing for due diligence and Parent’s financing requirements. Representatives of Parent informed representatives of Needham & Company that Parent was not willing to bear the cost of the Company’s transaction expenses. Further, Parent stated it would not provide more detail on the timing of diligence and more information regarding financing requirements in a detailed writing as requested and it maintained its offer to the Company was as set forth in the October 29, 2018 writing.

 

Also on October 30, 2018, Mr. Gérard Dahan, Global Chief Revenue and Marketing Officer of the Company, had dinner with the Chief Executive Officer of Party H regarding a potential business combination between Party H and the Company.

 

On October 31, 2018, representatives of Needham & Company spoke with representatives of Party E and informed representatives of Party E that the board of directors would require a “regular way” tender offer structure with a premium to market deal. Following the initial call, Party E responded favorably, but requested a specific number citing its progress in diligence.

 

Later on October 31, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. Representatives of Needham & Company provided an update regarding its conversations with Party E and Parent. The board of directors instructed representatives of Needham & Company to propose a purchase price of $0.55 per share of common stock of the Company to Party E and with a tender offer transaction structure. Further, the board of directors instructed representatives of Needham & Company to push Party E for an expedited timeline and to refrain from further responding to Parent until a response was received from Party E.

 

Later on October 31, 2018, representatives of Needham & Company spoke with representatives of Party E and informed representatives of Party E that the board of directors would require a purchase price of $0.55 per share of common stock of the Company in a tender offer transaction.

 

On November 1, 2018, representatives of Party E submitted to representatives of Needham & Company an offer to acquire the Company pursuant to a “regular way” tender offer structure at a price of $0.55 per share of common stock of the Company, subject to additional due diligence and 60 days of exclusivity.

 

On November 1, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. Representatives of Needham & Company updated the board of directors regarding its conversations with Parent and Party E, and discussed the offer submitted by representatives of Party E earlier on November 1, 2018. Discussion ensued by the board of directors, including regarding the risk that taking additional time to ask Parent and Party H for further offers put on the potential transaction with Party E. The board of directors instructed representatives of Needham & Company to respond to Party E that while $0.55 per share of common stock of the Company was acceptable (subject to negotiation of definitive documents), 60 days of exclusivity was not and that the Company expected Party E to commit to announcing the acquisition of the Company by Party E in conjunction with the Company’s earnings release on November 13, 2018. Further, the board of directors instructed representatives of Needham & Company to inform Parent and Party H that the Company would not pursue another cycle of offers from Parent and Party H, as such an action was viewed by the board of directors as risking the then current potential transaction with Party E.

 

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On November 2, 2018, representatives of Needham & Company informed Parent and Party H in accordance with the board of directors’ instructions. Also on that date, representatives of Needham & Company spoke with representatives of Party E and informed Party E that the board of directors requested that Party E commit to announcing the acquisition of the Company by the Company’s earnings release on November 13, 2018 and that the exclusivity period would expire on November 13, 2018. Representatives of Party E informed representatives of Needham & Company that Party E would commit to a November 13, 2018 announcement date and agree to a period of exclusivity through November 13, 2018, except that if the acquisition of the Company by Party E was not announced by November 13, 2018 and both parties continued to progress towards such a transaction, that the exclusivity period would be extended for one additional week.

 

Later on November 2, 2018, representatives of Party E submitted to representatives of Needham & Company an updated offer to acquire the Company, which included a commitment to announce the transaction by November 13, 2018 and that exclusivity would terminate on November 13, 2018 unless both parties continued to progress towards such a transaction, in which case that exclusivity period would be extended for one additional week. The other material terms of the offer remained the same as those set forth in the November 1, 2018 offer.

 

Also later on November 2, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. The board of directors, together with representatives of Needham & Company and a representative of O’Melveny, reviewed and discussed the updated offer from Party E received earlier on November 2, 2018. The board of directors determined that Party E’s offer was acceptable (with the inclusion of certain non-material clarifying revisions as proposed by representatives of O’Melveny, including that exclusivity would not automatically be extended if Party E sought to reduce the proposed purchase price). The board of directors then approved the execution of the letter of intent delivered by representatives of Party E to representatives of Needham & Company earlier on November 2, 2018, as revised by representatives of O’Melveny pursuant to instruction during such meeting.

 

Also on November 2, 2018 and November 3, 2018, representatives of the Company and representatives of Party E, together with their respective advisors, finalized the letter of intent.

 

On November 3, 2018, the Company and Party E entered into the letter of intent.

 

Between November 3, 2018 and November 16, 2018, Party E engaged in due diligence on the Company, including due diligence conference calls between representatives of Party E and representatives of the Company.

 

On November 6, 2018, representatives of O’Melveny spoke with legal counsel to Party E (“Party E Counsel”) regarding the transaction timing, due diligence and the merger agreement.

 

On November 11, 2018, representatives of Party E’s legal counsel distributed an initial draft of a merger agreement to representatives of O’Melveny.

 

On November 13, 2018, the Company reported earnings for its second quarter in fiscal 2019.

 

On November 14, 2018, representatives of O’Melveny submitted to representatives of Party E Counsel a markup of the draft merger agreement.

 

On November 16, 2018, representatives of Party E informed representatives of Needham & Company that Party E had decided not to further pursue a potential acquisition of the Company because of, among other things, concerns with the Company’s technology as it relates to Party E’s core business.

 

Later on November 16, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. The board of directors, together with representatives of Needham & Company, discussed Party E’s decision to cease pursuing a potential acquisition of the Company and discussed Needham & Company reaching out to other potential acquirers, including Parent, to inform such potential acquirers that the Company was no longer subject to exclusivity. The board of directors instructed representatives of Needham & Company to request that Party E release the Company from its exclusivity obligations. Mr. Howe also informed the board of directors that Mr. D. Clark of Parent had attempted to connect with Mr. Subin during the time that the Company was subject to exclusivity with Party E and the board of directors discussed and supported leveraging this communication channel to pursue a transaction with Parent. After discussion, the board of directors instructed representatives of Needham & Company to obtain confirmation from Party E that exclusivity was released and then to approach Parent and other potential acquirers regarding a potential acquisition of the Company by Parent.

 

Also later on November 16, 2018, representatives of Needham & Company requested that representatives of Party E release the Company from its obligation of exclusivity to Party E. Representatives of Party E granted such request.

 

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Also later on November 16, 2018, representatives of Needham & Company spoke with representatives of Parent regarding pursuing a potential acquisition of the Company.

 

On November 19, 2018, representatives of Parent expressed a desire to representatives of Needham & Company to meet with the Company management on November 27, 2018 and November 28, 2018 before determining whether to re-engage in discussions with the Company regarding a potential acquisition of the Company.

 

On November 27 and 28, 2018, the Company management and representatives of Parent held in-person meetings regarding financial, business, product and technology diligence.

 

On or around November 27, 2018, representatives of Needham & Company disclosed to Mr. Stakenas, Mr. Jeff Grosman, Chief Operating Officer of the Company, and Mr. Nolan that Needham & Company had never been engaged by, or received fees from, Parent to provide any services to Parent.

 

On November 28, 2018, Party H submitted a letter of intent in connection with a potential business combination between the Company and Party H. Party H proposed that Party H would merge with and into the Company, with the Company surviving the merger. In such letter of intent, Party H valued the Company at an equity value of $9 million and valued Party H at $25 million. The letter of intent provided for exclusivity through January 30, 2019. The letter of intent did not address the treatment of the Company transaction expenses. In addition, the letter of intent stated such potential business combination would need to be completed concurrently with a minimum capital raise of $8 million by the Company.

 

On November 30, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. The board of directors, together with representatives of Needham & Company, discussed recent meetings with Parent, the receipt of the letter of intent from Party H and next steps. The board of directors determined that given the complexities and structure of the business combination proposed by Party H, the board of directors was not willing to move forward pursuing such a transaction with Party H at such time. However, the board of directors instructed representatives of Needham & Company to stay engaged with Party H in the event Parent or any other potential acquirer did not submit a letter of intent. The board of directors then discussed the imminent need for additional financing and the practical constraints in obtaining such financing. The board of directors discussed pursuing a financing officer from Mr. Subin as the then current junior creditor of the Company.

 

On December 3, 2018, representatives of Needham & Company spoke with representatives of Party H regarding initial financial diligence requests and the most important diligence items as it related to a potential business combination.

 

On December 4, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. Representatives of Needham & Company provided an update on its conversations with Party H, including Party H’s request for detailed financial information of the Company, timing, the unique deal structure of the proposed business combination with Party H and next steps. Discussion ensued by the board of directors. The board of directors instructed representatives of O’Melveny to speak with legal counsel to Party H regarding the proposed transaction structure and to continue to push Party H that more detailed information related to Party H would be required by the board of directors in order to evaluate Party H’s proposal, including in connection with the relative equity values assigned to each of Party H and the Company by Party H in its offer letter.

 

Later on December 4, 2018, representatives of Needham & Company contacted representatives of Party H to request certain financial information of Party H and to organize a call between representatives of O’Melveny and Party H’s legal counsel. Representatives of Party H informed representatives of Needham & Company that Party H was not willing to hold such call until a letter of intent was signed between Party H and the Company. Representatives of Party H also requested an in-person meeting with the Company management and indicated that Party H would provide the requested financial information by December 6, 2018.

 

On December 5, 2018, representatives of Parent submitted a letter of intent to representatives of Needham & Company to acquire the Company for an amount equal to $0.63 per share of common stock of the Company with the intention to close such a transaction in early January. The letter of intent again provided that the Company transaction expenses were excluded from the purchase price.

 

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On December 5, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. Representatives of Needham & Company provided an update on its conversations with Party H, including that Party H was unwilling to hold a call between O’Melveny and Party H’s legal counsel. Representatives of Needham & Company also reported that Party H requested an in-person meeting with the Company management. Discussion ensued by the board of directors. The board of directors, together with representatives of Needham & Company, discussed the letter of intent delivered by Parent to representatives of Needham & Company earlier in the day and the Parent request to meet with Mr. Grosman, on December 7, 2018 to discuss financial planning for the Company operations and related diligence matters. The board of directors then discussed that Parent had issued a press release regarding the consummation of a recent financing providing for a $200 million senior credit facility to fund future acquisitions and other strategic growth initiatives.

 

On December 7, 2018, representatives of Parent, including Mr. M. Clark, and the Company management, including Mr. Grosman, held an in-person meeting regarding diligence matters.

 

Also, on December 7, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. Mr. Grosman provided the board of directors with an update regarding his meeting with Mr. M. Clark. Representatives of Needham & Company provided an update regarding its discussions with Parent, including that Needham & Company had requested that Parent commit to announcing the transaction by December 21, 2018, but that Parent would not commit to such a time frame. Representatives of Needham & Company then provided an update regarding Party H, including the expectation that Party H would require exclusivity to continue discussions and that Party H had only delivered a high-level presentation regarding the business of Party H and had not delivered the requested financial information to evaluate Party H’s offer.

 

On or about December 7, 2018, Messrs. Brodsky and Subin, together with representatives of Needham & Company, discussed, among other things, financing the Company’s operations through the consummation of a potential acquisition of the Company by Parent and discussed Mr. Subin speaking directly with Mr. D. Clark regarding a potential acquisition of the Company by Parent.

 

On December 9, 2018, Party H submitted to representatives of Needham & Company a revised offer letter. The material changes from Party H’s prior offer letter was a target closing date of March 15, 2019 and a minimum capital raise by the Company of $4 million prior to the consummation of the potential business combination.

 

On December 10, 2018, representatives of Parent submitted to representatives of Needham & Company a revised letter of intent valuing the Company’s enterprise at $32.0 million. Such letter of intent did not clearly state the proposed structure of such an acquisition.

 

On or around December 11, 2018, representatives of Parent spoke with representatives of Needham & Company to request a meeting between Mr. D. Clark and Mr. Subin to discuss Mr. Subin’s viewpoints regarding the potential acquisition of the Company by Parent. Representatives of Needham & Company relayed that request to Mr. Brodsky. In response to such request, Mr. Subin stated that he was willing to take such a meeting and also requested confirmation that Mr. Subin’s financing proposal delivered to the Company verbally on or around the same time would be considered by the board of directors (or an appropriate committee thereof). Mr. Subin’s financing proposal provided, among other things, that Mr. Subin, together with his affiliated entities, would provide the Company with $2,473,477 in cash pursuant to junior secured promissory notes that accrue interest at an annual rate of 10% and that the Company would issue to the holders of such junior secured promissory notes warrants exercisable for up to 10,500,000 shares of common stock of the Company at an exercise price of $0.01 per share.

 

On December 12, 2018, Mr. Subin met with Mr. D. Clark to discuss a potential acquisition of the Company by Parent.

 

On December 12, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company (for the portions of the meeting relating to the potential acquisition by Parent) and a representative of O’Melveny. The board of directors discussed an updated financing proposal provided by Mr. Subin, updates regarding a potential acquisition of the Company by Parent, including the revised proposal received on December 10, 2018 from Parent, and updates regarding a potential business combination with Party H. The board of directors proposed to constitute a disinterested committee to further review Mr. Subin’s financing proposal and instructed the Company management and Needham & Company to obtain further clarity from Parent regarding its December 10, 2018 offer and contemplated structure of the transaction. The board of directors then formed a special committee (the “Financing Committee”) of Mr. Lloyd Sems, Mr. Michael Casey, Mr. Stakenas, Mr. Angeloni, and Mr. Sovik to evaluate, review, consider and, if such committee so decides, approve the financing proposal provided by Mr. Subin.

 

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On December 13, 2018, representatives of Party H held a telephonic discussion with representatives of Needham & Company regarding the Company’s recent delisting notification from Nasdaq, the board of directors’ unwillingness to enter into exclusivity with Party H and Party H’s need to further discuss with Party H’s potential financial partner the potential business combination with the Company.

 

On December 13, 2018, the Financing Committee had a telephonic special meeting to discuss organizing issues and ways in which to review the financial proposal from Mr. Subin.

 

On December 14, 2018, the Financing Committee had a telephonic meeting with its separate legal counsel to discuss terms of the financing proposal from Mr. Subin, the fiduciary duties of the committee members and next steps in the financing process.

 

On December 14, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. Representatives of Needham & Company provided an update regarding a potential acquisition of the Company by Parent and a potential business combination with Party H. The board of directors, together with representatives of Needham & Company and a representative of O’Melveny, discussed the offers received from Parent and Party H, including that the offer from Party H was more complex than Parent’s offer, offered less cash than Parent’s offer and required exclusivity.

 

On December 15, 2018, the Company management provided representatives of Needham & Company with the December 2018 Forecasts (as defined below), an updated forecast for fiscal year 2019, and stated that representatives of Needham & Company should no longer rely on the October 2018 Forecasts. The December 2018 Forecasts showed a reduction in the projected revenue and wider losses. Representatives of Needham & Company delivered the December 2018 Forecasts to Parent and Party H.

 

On December 17, 2018, the Company management met with representatives of Parent to discuss financial diligence.

 

Between December 17, 2018 and December 21, 2018 Parent began discussing with representatives of Needham & Company changing the contemplated transaction structure from an equity tender offer structure to an asset purchase structure.

 

On December 18, 2018, representatives of Party H informed representatives of Needham & Company that Party H was not willing to continue pursuing a potential business combination with the Company unless the Company granted exclusivity to Party H.

 

On December 20, 2018 and December 21, 2018, members of the Company management and the board of directors met with the Company tax advisors to consider an asset sale structure and any resulting impact to ultimate stockholder proceeds and otherwise including a review of 382(g) limitations and non-operating losses.

 

On December 21, 2018, the Financing Committee held a telephonic special meeting to discuss whether to approve, reject, or revise Mr. Subin’s financing proposal. The Financing Committee discussed that Mr. Subin indicated that he was not willing to alter the terms of his proposal, that the Financing Committee did not believe there to be a better viable financing alternative under the circumstances and that the Financing Committee believed that the Company needed financing in order to continue operations towards a potential transaction with Parent. The Financing Committee then approved the financing transaction with Mr. Subin and his affiliated entities and the definitive agreements relating thereto. Thereafter on December 21, 2018, the definitive documents relating to such financing were executed.

 

On December 21, 2018, representatives of Parent provided representatives of Needham & Company with further clarity on Parent’s offer to acquire the Company and informed representatives of Needham & Company that Parent would continue to pursue an acquisition of the Company if the transaction was structured as an asset purchase and that Parent continued to offer an enterprise value of $32.0 million, subject to due diligence and subject to certain liabilities relating to transaction expenses of the Company and stockholder litigation expenses and costs not being assumed by Parent.

 

Later on December 21, 2018, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. Representatives of Needham & Company updated the board of directors on its earlier discussion with Parent regarding an asset sale structure. Extensive discussion ensued by the board of directors. The board of directors, taking into account, among other things, the process conducted to date and the Company’s current financial position, instructed representatives of Needham & Company to inquire whether an equity sale structure could be accomplished with Parent and if it could not, inform Parent that the board of directors was willing to move forward with an asset purchase structure valuing the Company at $32.0 million enterprise value, subject to negotiation of a definitive agreement and other ancillary matters.

 

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Later on December 21, 2018, representatives of Needham & Company and O’Melveny had a conference call with representatives of Parent and Wilson Sonsini Goodrich and Rosati, Professional Corporation (“WSGR”), counsel to Parent, regarding an equity sale structure as compared to an asset purchase structure during which, among other things, Parent detailed its reasoning for an asset transaction structure.

 

Between December 21, 2018 and February 9, 2019, Parent and its advisors continued to conduct due diligence review on the Company, including participating in due diligence calls with representatives of the Company.

 

On December 22, 2018, a representative of O’Melveny spoke with a representative of WSGR regarding timing for a potential acquisition of the Company by Parent.

 

Also on December 22, 2018, Mr. Subin spoke with Mr. D. Clark and discussed the asset purchase transaction structure during which Mr. D. Clark conveyed that an equity sale structure was not acceptable to Parent.

 

On December 24, 2018, representatives of Needham & Company communicated to representatives of Parent that the Company would move forward with an asset purchase structure valuing the Company at $32.0 million enterprise value, subject to approval by the board of directors and negotiation of a definitive agreement and other ancillary matters.

 

On December 26, 2018, representatives of Party I’s legal counsel delivered to the board of directors a request that the Company waive the standstill obligation of Party I with respect to the Company and that Party I was interested in engaging with the board of directors to discuss possible financial and strategic alternatives.

 

On December 28, 2018, representatives of Needham & Company and O’Melveny had a conference call with representatives of Parent and WSGR regarding the potential acquisition of the Company by Parent, including that Parent expected the definitive transaction agreement to include obligations of the Company to indemnify Parent for customary matters.

 

On December 29, 2018, representatives of Parent delivered to representatives of Needham & Company two indemnification proposals, the first of which included a $3.2 million escrow with general representations and warranties surviving for 15 months, fundamental representations and warranties surviving for five years and certain other indemnification rights surviving indefinitely, and the second of which provided for a representation and warranty insurance policy, the cost of which would be borne by the Company, an escrow of $320,000 and a cap on liability for general representation and warranty indemnification claims of $3.2 million. Each proposal also provided that certain unspecified stockholders would agree to be liable for indemnification obligations in excess of the escrows up to the amount of the transaction consideration.

 

On December 29, 2018 and December 30, 2018, representatives of Needham & Company discussed the indemnification proposals with Mr. Brodsky and with representatives of O’Melveny.

 

On December 30, 2018, a representative of Needham & Company spoke with a representative of Parent regarding the indemnification proposals provided by Parent to the Company on December 29, 2018, including that such indemnification proposals were not acceptable and the major concerns with such indemnification proposals.

 

On December 31, 2018, representatives of Parent spoke with a representative of Needham & Company regarding the indemnification proposals and requested that the Company provide a counterproposal.

 

Later on December 31, 2018, Mr. Brodsky, representatives of Needham & Company and a representative of O’Melveny communicated regarding a counterproposal to Parent on the indemnification and agreed to offer, among other things, that a $2.0 million escrow would be the sole and exclusive remedy for all claims by Parent against the Company from and after the closing of the acquisition of the Company by Parent and that the escrow would survive for a period of nine months thereafter.

 

Later on December 31, 2018, a representative of Needham & Company communicated such indemnification counterproposal to representatives of Parent.

 

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On January 2, 2019, representatives of WSGR spoke with a representative of O’Melveny regarding the indemnification counterproposal conveyed to representatives of Parent on December 31, 2018.

 

On January 3, 2019, representatives of Parent delivered to representatives of Needham & Company two revised indemnification proposals. The first revised proposal provided, among other things, that a $2.0 million escrow would be the sole and exclusivity remedy for all claims by Parent against the Company after the closing of a potential acquisition of the Company by Parent (other than in the event of fraud or willful breach by the Company) and that the escrow would survive for a period of one year after such closing. Such revised proposal also provided that Parent would obtain a representation and warranty insurance policy at the cost of the Company. The second revised proposal provided, among other things, that Parent would obtain a representation and warranty insurance policy at the cost of the Company, that the escrow amount would be the amount equal to the retention under such representation and warranty insurance policy and that certain to be identified stockholders would agree to be liable for certain indemnification obligations up to $2.0 million in the aggregate.

 

Later on January 3, 2019, representatives of O’Melveny, Needham & Company and the Company management discussed the revised indemnification proposals delivered by Parent and agreed that Needham & Company convey to Parent that such first revised indemnification proposal was acceptable, subject to the board of directors’ approval.

 

On January 4, 2019, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. The board of directors, together with representatives of Needham & Company and a representative of O’Melveny, discussed the revised indemnification proposals provided by Parent. The board of directors instructed representatives of Needham & Company to inform Parent that, subject to finalizing documentation, the board of directors approved the first revised indemnification proposal delivered by Parent. The representatives of Needham & Company were then excused from the meeting. The board of directors then discussed the letter received from Party I’s legal counsel on December 26, 2018, including the Standstill Obligations, the fiduciary duties of the board of directors, the history between Party I and the Company and the potential consequences of including Party I in the Company’s process and waiving the Standstill Obligations, including that Party I may disrupt the contemplated transaction with Parent. The board of directors instructed the representative of O’Melveny to respond to the December 26, 2018 letter by reminding Party I’s legal counsel of the Standstill Obligations.

 

Later on January 5, 2019, representatives of Needham & Company informed representatives of Parent that the board of directors had, subject to finalizing documentation, approved Parent’s first revised indemnification proposal.

 

Between January 8, 2019 and January 16, 2019, Mr. Brodsky and Mr. M. Clark had multiple discussions regarding timing for the transaction and the timing of the initial draft of the asset purchase agreement.

 

On January 9, 2019, a representative of O’Melveny delivered to the legal counsel of Party I a letter reminding Party I of the Standstill Obligations.

 

On January 17, 2019, representatives of WSGR distributed an initial draft of an asset purchase agreement to representatives of O’Melveny.

 

On January 18, 2019, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. The board of directors, together with a representative of O’Melveny, discussed certain issues in the draft asset purchase agreement, in particular relating to price certainty, deal certainty, the operation and wind down of the Company business after the closing of the potential acquisition of the Company by Parent and the size of the termination fee. The board of directors then instructed Mr. Brodsky and the representative of O’Melveny to discuss the issues with representatives of Parent and WSGR.

 

Also on January 18, 2019, Mr. Brodsky discussed with Mr. M. Clark certain issues in the draft asset purchase agreement, in particular relating to price certainty, deal certainty, the operation and wind down of the Company business after the closing of the potential acquisition of the Company by Parent and the size of the termination fee.

 

Also on January 18, 2019, a representative of O’Melveny discussed with representatives of WSGR certain issues in the draft asset purchase agreement, in particular relating to price certainty, deal certainty, the operation and wind down of the Company business after the closing of the potential acquisition of the Company by Parent and the size of the termination fee.

 

On January 22, 2019, representatives of the Company and Parent held an in-person meeting to discuss the asset purchase agreement, in particular as it relates to price certainty, deal certainty, the operation and wind down of the Company business after the closing of the potential acquisition of the Company by Parent, the size of the termination fee and due diligence matters. Also present in-person were representatives of WSGR. A representative of O’Melveny participated by telephone.

 

49

 

 

Later on January 22, 2019, representatives of WSGR and a representative of O’Melveny discussed other issues and changes proposed to be made in the draft asset purchase agreement.

 

Also later on January 22, 2019, Mr. Grande delivered to representatives of WSGR a list of issues covering certain high level issues in the draft asset purchase agreement discussed at the meeting earlier in the day, in particular as it relates to price certainty, deal certainty, the operation, wind down of the Company business after the closing of the potential acquisition of the Company by Parent and the size of the termination fee.

 

On January 23, 2019, representatives of WSGR delivered to representatives of O’Melveny responses to the list of issues in the draft asset purchase agreement delivered by Mr. Grande to representatives of WSGR on January 22, 2019.

 

On January 24, 2019, a representative of O’Melveny discussed with a representative of WSGR the responses provided by WSGR to the list of issues in the draft asset purchase agreement.

 

On January 24, 2019, representatives of O’Melveny delivered a revised draft of the asset purchase agreement to representatives of WSGR. Such revised draft did not include revisions to the sections in the draft asset purchase agreement relating to price certainty, deal certainty, the operation and wind down of the Company business after the closing of the potential acquisition of the Company by Parent and the size of the termination fee.

 

On January 25, 2019, Messrs. Brodsky and M. Clark discussed the timing of Parent delivering a revised draft of the asset purchase agreement, including revisions to the provisions relating to price certainty, deal certainty, the operation and wind down of the Company business after the closing of the potential acquisition of the Company by Parent and the size of the termination fee. After discussion, Messrs. Brodsky and M. Clark agreed that representatives of O’Melveny would further revise the draft asset purchase agreement.

 

Also on January 25, 2019, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. Messrs. Brodsky and Grande provided an update to the board of directors regarding the status of the contemplated acquisition of the Company by Parent and the open points in the draft asset purchase agreement.

 

Later on January 25, 2019, representatives of O’Melveny delivered to representatives of WSGR the further revised asset purchase agreement including revisions to the provisions relating to price certainty, deal certainty, the operation and wind down of the Company business after the closing of the potential acquisition of the Company by Parent and the size of the termination fee.

 

Also on January 25, 2019, legal counsel to Party I sent a letter to a representative of O’Melveny regarding the Standstill Obligations and again requested that the board of directors waive the Standstill Obligations.

 

On January 29, 2019, Messrs. Brodsky and M. Clark discussed the timing of Parent delivering a revised draft of the asset purchase agreement.

 

Also on January 29, 2019, representatives of O’Melveny delivered to representatives of WSGR the initial draft of the Company Disclosure Letter.

 

On January 31, 2019, representatives of the Company, Parent, Needham & Company, O’Melveny and WSGR discussed due diligence matters.

 

On February 1, 2019, Mr. Grande, representatives of WSGR and a representative of O’Melveny discussed the asset purchase agreement.

 

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On February 1, 2019, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. Messrs. Brodsky and Grande provided an update to the board of directors regarding the status of the contemplated transaction with Parent and the open points in the asset purchase agreement. Discussion by the board of directors ensued. The representatives of Needham & Company then were excused from the meeting. The board of directors, together with Mr. Grande and a representative of O’Melveny, discussed the letter received from legal counsel to Party I on January 25, 2019, including the Standstill Obligations, the fiduciary duties of the board of directors and the potential consequences of including Party I in the Company’s process and waiving the Standstill Obligations, including that Party I may disrupt the contemplated transaction with Parent. The board of directors, together with a representative of O’Melveny, discussed potentially providing Party I with a limited waiver of certain of the Standstill Obligations, including a limited waiver to allow Party I to submit an Alternative Transaction Proposal to the Company, promptly following the execution of the Asset Purchase Agreement with Parent. The board of directors discussed whether the potential threat of disruption to the contemplated transaction with Parent would be lowered once the definitive asset purchase agreement was entered into with Parent. The board of directors instructed the representative of O’Melveny to respond to the January 25, 2019 letter by stating that the board of directors was considering the request from Party I.

 

On February 2, 2019, the Company management provided to representatives of Needham & Company the Final Forecasts (as defined below), an updated fiscal year 2019 forecast, and stated that representatives of Needham & Company should no longer rely on the December 2018 Forecasts. The Final Forecasts were prepared due to the Company having updated run rate calculations and cost-saving measures for a portion of the second quarter of the fiscal year ending March 31, 2019, and the Company’s desire to further refine line items. Representatives of Needham & Company shared the Final 2018 Forecasts with Parent.

 

On February 4, 2019, representatives of WSGR delivered to representatives of O’Melveny a revised draft of the asset purchase agreement along with initial drafts of certain ancillary agreements.

 

On February 5, 2019, representatives of WSGR delivered to representatives of O’Melveny revisions to the Company Disclosure Letter.

 

Also on February 5, 2019, a representative of O’Melveny responded to the legal counsel of Party I that the board of directors was considering the request from Party I.

 

Between February 5, 2019 and February 8, 2019, representatives of WSGR and O’Melveny exchanged revisions to certain of the ancillary agreements and the disclosure letter to the asset purchase agreement, and held multiple conversations regarding the asset purchase agreement and the disclosure letter.

 

On February 6, 2019, representatives of O’Melveny delivered to representatives of WSGR a revised draft of the asset purchase agreement.

 

Later on February 6, 2019, representatives of WSGR delivered to representatives of O’Melveny a revised draft of the asset purchase agreement.

 

On February 7, 2019, representatives of O’Melveny delivered to representatives of WSGR a revised draft of the asset purchase agreement.

 

Also on February 7, 2019, Mr. Brodsky and Mr. M. Clark discussed, among other things, the size of the termination fee and agreed, subject to a satisfactory resolution on any other open points in the asset purchase agreement, on $1.2 million as the size of the termination fee.

 

Later on February 7, 2019, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. Messrs. Brodsky and Grande provided an update to the board of directors regarding timing for finalizing the Asset Purchase Agreement and executing the Asset Purchase Agreement. Discussion by the board of directors ensued.

 

Later on February 7, 2019, representatives of WSGR delivered to representatives of O’Melveny a revised draft of the asset purchase agreement.

 

On February 8, 2019, representatives of O’Melveny and representatives of WSGR had multiple conversations and finalized the form of the asset purchase agreement and the ancillary agreements.

 

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Also on February 8, 2019, the board of directors held a telephonic special meeting. Also present were certain members of the Company management, representatives of Needham & Company and a representative of O’Melveny. Representatives of Needham & Company informed the board of directors, consistent with prior discussions with certain members of the board of directors and certain members of the Company management, that Needham & Company had never been engaged by, or received fees from, Parent to provide any services to Parent. Representatives of Needham & Company reviewed with the board of directors a history of discussions with Parent, Parties A, B, C, D, E, F, G and H and provided a general summary of the history of the entire outreach to prospective acquirers conducted to date. Representatives of Needham & Company then presented to the board of directors their financial analyses with respect to the purchase price to be received by the Company in the Asset Sale Transaction pursuant to the draft asset purchase agreement. At the request of the board of directors, a representative of Needham & Company then delivered Needham & Company’s oral opinion to the board of directors, which was subsequently confirmed by delivery of a written opinion dated February 8, 2019, to the effect that, as of that date and based upon and subject to the assumptions, qualifications, limitations and other matters described in the written opinion, the consideration to be received by the Company in the Asset Sale Transaction pursuant to the Asset Purchase Agreement was fair to the Company from a financial point of view. Representatives of Needham & Company were then excused from the meeting. Representatives of O’Melveny then reviewed with the board of directors its fiduciary duties with respect to the Asset Sale Transaction, the material terms of the draft Asset Purchase Agreement, the proposed amendment to the Company’s amended and restated bylaws to provide for Delaware as its exclusive forum for certain litigation involving the Company and the proposed amendment to the Company’s Certificate of Incorporation to remove the prohibition on stockholders acting by written consent. After discussion among the directors, the board of directors unanimously voted to, among other things (i) determine that the Asset Purchase Agreement and the transactions contemplated thereby are fair to and in the best interests of the Company’s stockholders, (ii) approve and declare advisable the Asset Purchase Agreement, in the form presented to the board, and the transactions contemplated thereby, and (iii) resolve, subject to Section 5.7 of the Asset Purchase Agreement, to recommend that the Company’s stockholders vote in favor of the adoption of the Asset Purchase Agreement at the special meeting, and instructed the Company management to sign and deliver the Asset Purchase Agreement on behalf of the Company. The board of directors then discussed and approved providing Party I with a limited waiver of certain of the Standstill Obligations, including a limited waiver to allow Party I to submit an Alternative Transaction Proposal to the Company, promptly following the execution of the Asset Purchase Agreement with Parent. The board of directors discussed that it believed that the potential threat of disruption by Party I to the contemplated transaction with Parent would be lowered once the Asset Purchase Agreement was executed because each of the Company and Parent would be subject to binding contractual obligations at such time.

 

On February 9 and February 10, 2019, representatives of Parent and WSGR finalized the R&W Insurance Policy.

 

On February 10, 2019, the Company and Parent entered into the Asset Purchase Agreement and on February 11, 2019 issued a press release announcing the proposed Asset Sale Transaction.

 

On February 11, 2019, the Company delivered to legal counsel to Party I and to Party I a limited waiver of certain of the Standstill Obligations, including a limited waiver to allow Party I to submit an Alternative Transaction Proposal to the Company.

 

Reasons for the Asset Sale Transaction and Recommendation of our Board

 

In reaching its decision to approve the Asset Purchase Agreement and the Asset Sale Transaction, and to recommend that our stockholders vote to approve the Asset Sale Proposal, our board of directors consulted with management and outside financial and legal advisors. Our board considered a number of factors relating to the Asset Purchase Agreement and the proposed Asset Sale Transaction, including, without limitation, the following factors (many of which were discussed in detail at numerous prior board meetings) but without assigning specific numerical weight, emphasis, or relative priority among those factors:

 

 

historical information regarding (i) the Company’s business, financial performance and results of operations, (ii) market prices, volatility and trading activity with respect to the Company’s common stock, and (iii) market prices with respect to other industry participants and general market indices;

 

 

current information regarding (i) the Company’s business, prospects, financial condition, operations, technology, products, services, management, competitive position and strategic business goals and objectives, (ii) general economic, industry and financial market conditions, (iii) opportunities and competitive factors within the Company’s industry and (iv) the Company’s current financial and cash positions;

 

 

the potential for other third parties to enter into strategic relationships with or to seek to acquire the Company or substantially all assets of the Company, including a review of management’s dealings with other possible buyers in the past, the exhaustive efforts by the Company and its financial advisor, Needham & Company, to reach out to other potential acquirers of the Company regarding a strategic transaction, and assessment of the likelihood that a third party would offer a higher price than the Purchase Price (as defined below);

 

52

 

 

 

the board’s belief that the Asset Sale Transaction was more favorable to the Company’s stockholders than any other alternative reasonably available to the Company and its stockholders, including the alternative of retaining the Company’s current business based upon: (i) the board’s knowledge of the current and prospective environment in which the Company operates, the competitive environment, the Company’s overall strategic position, and the challenges attendant to improving the Company’s financial performance in order to maximize stockholder value and the likely effect of these factors on the Company’s sustainability as a public company and strategic options, (ii) the board’s understanding of the Company’s business, operations, management, financial condition, earnings and prospects and (iii) the Company’s current financial and cash positions;

 

 

the timing of the Asset Sale Transaction and the risk that if the Company does not accept Parent and Buyer’s offer (as provided for in the Asset Purchase Agreement), it may not have another opportunity to do so or a comparable opportunity;

 

 

the fact that, pursuant to the Asset Purchase Agreement, Parent and Buyer will assume the assumed liabilities and will pay, perform and discharge the assumed liabilities;

 

 

the fact that, pursuant to the Asset Purchase Agreement, the Company will retain the excluded liabilities;

 

 

the fact that the Asset Sale Transaction will be taxable and the Company has certain net operating losses;

 

 

(i) the belief of the board that continuing with the strategic process was unlikely to result in a transaction at a more attractive price than the Purchase Price and (ii) the fact that the Company would be permitted, under circumstances described in the Asset Purchase Agreement, to terminate the Asset Purchase Agreement in order to enter into an agreement with respect to a Superior Proposal after giving Buyer the opportunity to match the Superior Proposal and upon payment of a termination fee of $1.2 million;

 

 

the fact that, under the terms of the Asset Purchase Agreement, Parent and Buyer have agreed to use their reasonable best efforts to take, or cause to be taken, all things necessary, proper or advisable under applicable law to consummate the Asset Sale Transaction as promptly as practicable;

 

 

the belief of the board that the Asset Sale Transaction has a reasonable likelihood of closing without material potential issues under applicable antitrust laws or material potential issues from any governmental authorities;

 

 

(i) the financial analyses presented by Needham & Company to the board and (ii) the opinion of Needham & Company that, as of February 8, 2019, the date of the board meeting approving the Asset Sale Transaction, and subject to the assumptions, qualifications, limitations and other matters set forth in Needham & Company’s written opinion, as described below under “—Opinion of our Financial Advisor,” the consideration to be received by the Company in the Asset Sale Transaction pursuant to the Asset Purchase Agreement was fair to the Company from a financial point of view;

 

 

the possible negative effect of the Asset Sale Transaction and public announcement of the Asset Sale Transaction on the Company’s financial performance, operating results and stock price and the Company’s relationships with customers, suppliers, other business partners, management and employees;

 

 

the fact that the Asset Purchase Agreement (i) precludes the Company from actively soliciting competing acquisition proposals and (ii) obligates the Company to pay Buyer (or its designee) a termination fee $1.2 million under specified circumstances;

 

 

the fact that the Asset Purchase Agreement imposes restrictions on the conduct of the Company’s business in the pre-closing period, which may adversely affect the Company’s business in the event the Asset Sale Transaction is not completed (including by delaying or preventing the Company from pursuing business opportunities that may arise or precluding actions that would be advisable if the Company were to remain an independent company), and which may significantly restrict the operation of the Company’s business;

 

 

the fact that (i) Parent and Buyer are financing the Purchase Price in part through debt financing and Parent is party to that certain executed Amended and Restated Loan and Security Agreement by and among Parent, the lenders thereto and Bank of America, N.A., dated as of November 15, 2018, and that certain executed Loan and Security Agreement by and among Parent, the lenders thereto and TCW Asset Management Company LLC, dated as of November 15, 2018 (together, the “Debt Facilities”) and (ii) Parent and Buyer have agreed to use their reasonable best efforts to obtain the proceeds of the debt financing on the terms and conditions set forth in the Debt Facilities, including using their reasonable best efforts to: (a) maintain in effect the Debt Facilities until the consummation of the Asset Sale Transaction, (b) satisfy on a timely basis all conditions within its control applicable to funding of the debt financing, and (c) enforce its rights under the Debt Facilities;

 

53

 

 

 

the fact that, under the terms of the Purchase Agreement:

 

 

o

the Company will be subject to certain indemnification, compensation and reimbursement obligations with respect loses suffered or incurred by the Buyer Indemnified Parties (as defined below) which arise directly or indirectly from or as a result of, or are directly or indirectly connected with, among others, (i) any excluded liabilities in the Asset Purchase Agreement, (ii) any breach or inaccuracy in any of the Company’s representations and warranties in the Asset Purchase Agreement, any related agreement or any certificate delivered pursuant to the Asset Purchase Agreement, (iii) any breach of any covenant or other agreement of the Company under the Asset Purchase Agreement, and (iv) any liens (other than certain permitted liens) that arise from the Company indebtedness on the assets, properties, titles or interests of that are not removed or released;

 

 

o

$2.0 million of the Purchase Price otherwise payable to the Company at the closing will be deposited by Buyer into an escrow account as security for such indemnification, compensation and reimbursement obligations of the Company and, unless earlier used to satisfy claims by the Buyer Indemnified Parties, such amount will remain in the escrow account and will be delivered to the Company shortly after the twelve (12) month anniversary of the closing; and

 

 

o

Buyer will obtain, at the expense of the Company, the R&W Insurance Policy, and such R&W Insurance Policy will be Buyer’s sole recourse for losses pursuant to Section 8.2(a) of the Asset Purchase Agreement once the amount of losses in connection therewith paid by the Company equals or exceeds the escrow fund;

 

 

the risks involved with the Asset Sale Transaction and the likelihood that the Company, Buyer and Parent will be able to complete the Asset Sale Transaction, the possibility that the Asset Sale Transaction might not be consummated and the Company’s prospects going forward;

 

 

the substantial transaction expenses to be incurred in connection with the Asset Sale Transaction and the negative impact of such expenses on the Company’s cash reserves and operating results should the Asset Sale Transaction not be completed;

 

 

the prospects of the Company should the Asset Sale Transaction not be completed;

 

 

all known interests of directors and executive officers of the Company in the Asset Sale Transaction that may be different from, or in addition to, their interests as stockholders of the Company or the interests of the Company’s other stockholders generally;

 

 

the non-availability of appraisal rights to stockholders of the Company in connection with the Asset Sale Transaction; and

 

 

all other factors the board deemed relevant.

 

The foregoing discussion of the factors considered by our board is not intended to be exhaustive. Our board collectively reached the conclusion to approve the Asset Purchase Agreement and the Asset Sale Transaction in light of the various factors described above, as well as other factors that our board felt were appropriate. In view of the wide variety of factors considered by our board in connection with its evaluation of the Asset Sale Transaction and the complexity of these matters, our board did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. Rather, our board made its recommendation based on the totality of the information presented to, and the investigation conducted by, the board. In considering the factors discussed above, individual directors may have given different weights to different factors.

 

After evaluating these factors and consulting with its outside legal counsel and financial advisor, our board unanimously approved and declared advisable the Asset Purchase Agreement and the Asset Sale Transaction and determined that the Asset Purchase Agreement and the transactions contemplated thereby are fair to and in the best interests of the Company’s stockholders.

 

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Accordingly, our board unanimously recommends that stockholders vote “FOR” the Asset Sale Proposal. 

 

Opinion of our Financial Advisor

 

We retained Needham & Company to act as our financial advisor in connection with the Asset Sale Transaction and to render an opinion as to the fairness, from a financial point of view, to the Company of the consideration to be received by the Company pursuant to the Asset Purchase Agreement.

 

On February 8, 2019, Needham & Company delivered its oral opinion, which it subsequently confirmed in writing, to our board of directors that, as of that date and based upon and subject to the various assumptions and other matters set forth in the written opinion, the consideration to be received by the Company in the Asset Sale Transaction pursuant to the Asset Purchase Agreement was fair to the Company from a financial point of view. Needham & Company provided its opinion for the information and assistance of our board of directors in connection with and for the purpose of the board’s evaluation of the transactions contemplated by the Asset Purchase Agreement. Needham & Company’s opinion relates only to the fairness, from a financial point of view, of the consideration to be received by the Company pursuant to the Asset Purchase Agreement, which was determined through arm’s-length negotiations between the Company and Parent. While Needham & Company provided independent financial advice to our board of directors during the course of the negotiations between the Company and Parent, the decision to approve and recommend the Asset Sale Transaction and the Asset Purchase Agreement was made independently by the board. Needham & Company’s opinion does not address any other aspect of the Asset Sale Transaction, or any related transaction, and does not constitute a recommendation to any stockholder of the Company as to how that stockholder should vote or act on any matter relating to the Asset Sale Transaction. Needham & Company’s opinion does not express any opinion as to the value of our common stock or the prices at which our common stock will actually trade at any time.

 

The complete text of Needham & Company’s opinion, dated February 8, 2019, which sets forth the assumptions made, procedures followed, matters considered, and qualifications and limitations on and scope of the review undertaken by Needham & Company, is attached as Annex B to this proxy statement. The summary of Needham & Company’s opinion set forth below is qualified in its entirety by reference to the full text of the opinion.

 

In arriving at its opinion, Needham & Company, among other things:

 

 

reviewed a draft of the Asset Purchase Agreement dated February 8, 2019;

 

 

reviewed certain publicly available information concerning the Company and certain other relevant financial and operating data of the Company furnished to Needham & Company by the Company;

 

 

held discussions with members of our management concerning the current operations of and future business prospects for the Company;

 

 

reviewed certain financial forecasts with respect to the Company prepared by our management, and held discussions with members of our management concerning those forecasts;

 

 

compared certain publicly available financial data of companies whose securities are traded in the public markets and that Needham & Company deemed generally relevant to similar data for the Company;

 

 

reviewed the financial terms of certain business combinations that Needham & Company deemed generally relevant; and

 

 

reviewed such other financial studies and analyses and considered such other matters as Needham & Company deemed appropriate.

 

In addition, Needham & Company held discussions with our board of directors and members of our management concerning the Company’s views as to:

 

 

the liquidity position of the Company;

 

55

 

 

 

the Company’s potential needs to raise additional financing in the future and its ability to raise additional financing on terms acceptable to it; and

 

 

the potential adverse effects on the Company’s business, assets, liabilities, operations and prospects and to the Company’s stockholders that the Company believes would occur if the Company were not to enter into the Asset Purchase Agreement.

 

In connection with its review and in arriving at its opinion, Needham & Company assumed and relied on the accuracy and completeness of all of the financial, accounting, legal, tax and other information discussed with or reviewed by it for purposes of its opinion and neither attempted to verify independently nor assumed responsibility for verifying any of such information. Needham & Company assumed the accuracy of the representations and warranties contained in the Asset Purchase Agreement and all agreements related thereto. In addition, Needham & Company assumed that the Asset Sale Transaction will be consummated upon the terms and subject to the conditions set forth in the draft Asset Purchase Agreement dated February 8, 2019 without waiver, modification or amendment of any material term, condition or agreement thereof and that, in the course of obtaining the necessary regulatory or third party approvals, consents and releases for the Asset Sale Transaction, no delay, limitation, restriction or condition will be imposed that would have an adverse effect on the Company, Parent, Buyer or the contemplated benefits of the Asset Sale Transaction. With respect to the financial forecasts for the Company provided to Needham & Company by our management, Needham & Company assumed, based upon discussions with our management, that those forecasts were reasonably prepared on bases reflecting the best currently available estimates and judgments of our management, at the time of preparation, of the future operating and financial performance of the Company. Needham & Company expressed no opinion with respect to any of those forecasts or estimates or the assumptions on which they were based. Needham & Company assumed that the portion of the consideration which under the terms of the Asset Purchase Agreement will be held in escrow and held back will be fully payable to the Company.

 

Needham & Company did not assume any responsibility for or make or obtain any independent evaluation, appraisal or physical inspection of the assets or liabilities of any of the Company, Parent, Buyer or any of their respective subsidiaries nor did Needham & Company evaluate the solvency or fair value of any of the Company, Parent, Buyer or any of their respective subsidiaries under any state or federal laws relating to bankruptcy, insolvency or similar matters. Further, Needham & Company’s opinion states that it was based on economic, monetary and market conditions as they existed and could be evaluated as of its date, and Needham & Company assumed no responsibility to update or revise its opinion based upon circumstances and events occurring after its date. Needham & Company’s opinion is limited to the fairness, from a financial point of view, to the Company of the consideration to be received by the Company pursuant to the Asset Purchase Agreement and Needham & Company expressed no opinion as to the fairness of the Asset Sale Transaction to, or any consideration received in connection therewith by, the holders of any class of securities, creditors or other constituencies of the Company, or as to the Company’s underlying business decision to engage in the Asset Sale Transaction or the relative merits of the Asset Sale Transaction as compared to other business strategies that might be available to the Company. In addition, Needham & Company expressed no opinion with respect to the amount or nature or any other aspect of any compensation paid or payable to or received or to be received by any officers, directors or employees of any party to the Asset Sale Transaction, or any class of those persons, relative to the consideration to be received by the Company pursuant to the Asset Purchase Agreement or with respect to the fairness of any such compensation.

 

We imposed no limitations on Needham & Company with respect to the investigations made or procedures followed by Needham & Company in rendering its opinion.

 

In preparing its opinion, Needham & Company performed a variety of financial and comparative analyses. The following paragraphs summarize the material financial analyses performed by Needham & Company in arriving at its opinion. The order of analyses described does not represent relative importance or weight given to those analyses by Needham & Company. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone, and in order to more fully understand the financial analyses used by Needham & Company, the tables must be read together with the full text of each summary. The following quantitative information, to the extent it is based on market data, is, except as otherwise indicated, based on market data as they existed on or prior to February 7, 2019, and is not necessarily indicative of current or future market conditions.

 

Selected Public Companies Analysis

 

Using publicly available information, Needham & Company compared selected historical and projected financial and market data and ratios for the Company to the corresponding data and ratios of selected publicly traded companies that Needham & Company deemed relevant because they have lines of business that may be considered similar to those of the Company and have enterprise values of less than $150 million. The selected publicly traded companies, referred to as the selected companies, consisted of the following:

 

MAM Software Group, Inc.

Marin Software Incorporated

ServiceSource International, Inc.

 

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The following table sets forth information concerning the following multiples for the selected companies and for the Company implied by the Asset Sale Transaction:

 

 

enterprise value as a multiple of last 12 months, or LTM, revenues;

 

enterprise value as a multiple of projected calendar year 2018 revenues; and

 

enterprise value as a multiple of projected calendar year 2019 revenues.

 

Needham & Company calculated multiples for the selected companies using historical reported information and consensus research analyst projections and the closing stock prices of those companies on February 7, 2019. Needham & Company calculated multiples for the Company implied by the Asset Sale Transaction using historical reported information and our management’s forecasts and based on the purchase price in the Asset Sale Transaction of $32.0 million. All financial information excluded the impact of one-time expenses. Needham & Company noted that no equity research analyst currently covers Marin Software and, accordingly no research analyst projections for calendar years 2018 or 2019 are available. The estimated enterprise value to projected calendar year 2018 revenues multiple for Marin Software shown in the table below is based on Marin Software’s LTM revenues as of September 30, 2018.

 

   

Selected Companies

   

Company

Implied by

 
   

MAM Software

   

Marin Software

   

ServiceSource

   

Asset Sale

Transaction

 

Enterprise value to LTM revenues

    2.8x       0.4x       0.3x       1.3x  
                         

Enterprise value to projected calendar year 2018 revenues

 

2.7x

   

0.4x

   

0.3x

   

1.3x

 
                         

Enterprise value to projected calendar year 2019 revenues

 

2.5x

   

NA

   

0.3x

   

1.4x

 

 

 

Selected Transactions Analysis

 

Needham & Company reviewed publicly available financial information for the following selected acquisition transactions, which represent selected transactions announced and completed since January 1, 2017 that involved target companies that were publicly-traded software companies with enterprise values less than $150 million:

 

Acquirer

Target

NICE Systems, Inc.

Mattersight Corporation

Deltek, Inc.

Onvia, Inc.

True Wind Capital, L.P..

ARI Network Services, Inc.

Open Text Corporation

Covisint Corporation

 

In reviewing the selected transactions, Needham & Company calculated, for the selected transactions and for the Company implied by the Asset Sale Transaction based on the purchase price in the Asset Sale Transaction of $32.0 million:

 

 

enterprise value as a multiple of LTM revenues; and

 

enterprise value as a multiple of next twelve months, or NTM, estimated revenues.

 

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The following table sets forth information concerning the multiples described above for the selected transactions and the same multiples for the Company implied by the Asset Sale Transaction:

 

 

   

Selected Transactions

   

Company

Implied by

 
   

High

   

75th Percentile

   

Mean

   

Median

   

25th Percentile

   

Low

   

 Asset Sale

Transaction

 
                                                         

Enterprise value to LTM revenues

    2.8x       2.7x       2.2x       2.5x       1.9x       1.0x       1.3x  
                                                         

Enterprise value to NTM revenues

 

2.8x

   

2.5x

   

2.1x

   

2.3x

   

1.8x

   

0.9x

   

1.4x

 

 

 

No company, transaction or business used in the “Selected Public Companies Analysis” or “Selected Transactions Analysis” as a comparison is identical to the Company or the Asset Sale Transaction. Accordingly, an evaluation of the results of these analyses is not entirely mathematical; rather, it involves complex considerations and judgments concerning differences in the financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the selected companies or selected transactions or the business segment, company or transaction to which they are being compared.

 

The summary set forth above does not purport to be a complete description of the analyses performed by Needham & Company in connection with the rendering of its opinion. The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant quantitative and qualitative methods of financial analyses and the application of those methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to summary description. Accordingly, Needham & Company believes that its analyses must be considered as a whole and that selecting portions of its analyses or the factors that it considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying its analyses and opinion. Needham & Company did not attribute any specific weight to any factor or analysis considered by it. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that such analysis was given greater weight than any other analysis.

 

In performing its analyses, Needham & Company made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of the Company, Parent or Buyer. Any estimates contained in or underlying these analyses, including estimates of the future performance of the Company, are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those estimates. Additionally, analyses relating to the values of businesses or assets do not purport to be appraisals or necessarily reflect the prices at which businesses or assets may actually be sold or the prices at which any securities have traded or may trade at any time in the future. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. Needham & Company’s opinion and its related analyses were only one of many factors considered by the members of our board of directors in their evaluation of the Asset Sale Transaction and should not be viewed as determinative of the views of our board of directors or our management with respect to the consideration to be received by the Company pursuant to the Asset Purchase Agreement or the Asset Sale Transaction.

 

Under the terms of its engagement letter with Needham & Company, the Company has paid or agreed to pay Needham & Company a nonrefundable fee of $200,000 that became payable upon Needham & Company’s delivery of its opinion on February 8, 2019. If the Asset Sale Transaction is consummated, the Company has agreed to pay Needham & Company a fee estimated to be approximately $560,000, against which the $200,000 opinion fee would be credited. Whether or not the Asset Sale Transaction is consummated, the Company has agreed to reimburse Needham & Company for certain of its out-of-pocket expenses and to indemnify Needham & Company and related persons against various liabilities, including certain liabilities under the federal securities laws.

 

Needham & Company is a nationally recognized investment banking firm. As part of its investment banking services, Needham & Company is regularly engaged in the valuation of businesses and their securities in connection with transactions and acquisitions, negotiated underwritings, secondary distributions of securities, private placements and other purposes. Needham & Company believes that it was retained by our board of directors as the Company’s financial advisor in connection with the Asset Sale Transaction based on Needham & Company’s experience as a financial advisor in mergers and acquisitions as well as Needham & Company’s familiarity with the Company and its industry generally. Needham & Company has not in the past two years provided investment banking or financial advisory services to the Company unrelated to its current engagement that covers the proposed Asset Sale Transaction for which it has received or is entitled to receive compensation. The Company agreed to pay Needham & Company $200,000 for financial advisory services provided to the Company in connection with the Company’s acquisition of b-pack SAS in July 2015, which fee remains unpaid but is expected to be paid following closing of the Asset Sale Transaction. Needham & Company has not in the past two years provided investment banking or financial advisory services to Parent or Buyer for which it has received or is entitled to receive compensation. Needham & Company may in the future provide investment banking and financial advisory services to the Company, Parent and their respective affiliates unrelated to its engagement that covers the Asset Sale Transaction, for which services Needham & Company would expect to receive compensation. In the normal course of its business, Needham & Company may actively trade equity securities of the Company for its own account or for the accounts of its customers or affiliates and, therefore, may at any time hold a long or short position in those securities.

 

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Use of Proceeds and Future Operations

 

The Company expects that all or a portion of the proceeds from the consummation of the Asset Sale Transaction will be used to pay-off the Company’s outstanding debt obligations, which is estimated to be approximately $21.5 million, to pay expenses relating to the Asset Sale Transaction, which is estimated to be approximately $2.6 million and certain other liabilities and obligations of the Company, including certain severance and other employee obligations.

 

It is expected that the board will consider alternatives regarding the use of any remaining proceeds from the consummation of the Asset Sale Transaction after the satisfaction of such obligations, expenses and liabilities and the future of the Company, including, without limitation, (i) potentially approving a plan of liquidation and ceasing to do business and not engaging in any further business activities except for dealing with post-closing matters and for the purpose of liquidating our remaining assets, paying any debts and obligations, facilitating the release of any of the amounts in the escrow fund, distributing the remaining assets to stockholders, and doing other acts required to liquidate and wind up our business and affairs and/or (ii) approving, declaring and paying a dividend or distribution, or effecting a redemption, repurchase or other return of capital, to the Company stockholders in accordance with Delaware law after payment of the Company’s indebtedness and expenses relating to the Asset Sale Transaction, taking into account any other obligations of the Company that remain outstanding at such time or that are known or reasonably ascertainable at such time.

 

While the board has not approved any plan of liquidation as of this date, any dividend, distribution, redemption, repurchase, return of capital or any other alternative relating to the use of proceeds from the consummation of the Asset Sale Transaction or the future of the Company, it is anticipated that the board will consider whether it is in the best interests of the Company and its stockholders to effect any such alternatives and consider the future operations of the Company. However, it is not anticipated that the Company would use the proceeds from the consummation of the Asset Sale Transaction for any strategic alternative transactions, such as an acquisition of another entity or business, or otherwise invest in another person or entity.

 

If the board determines that it is in the best interest of the Company and its stockholders to liquidate, dissolve and wind-up the Company’s business, any plan of liquidation relating thereto would be subject to approval by the board and approval by the stockholders of the Company holding at least a majority of the then outstanding shares of common stock of the Company. In such case, we would pay or make provision for payment of our known or reasonably ascertainable liabilities that have been incurred or are expected to be incurred prior to any such liquidation. After that, we would expect to distribute the remaining assets to our stockholders in proportion to their respective stockholder interest in the Company. Alternatively, if the board determines it is in the best interests of the Company and its stockholders to approve, declare and pay a distribution or dividend to the Company stockholders without approving a plan of liquidation or effect a redemption, repurchase or other return of capital, it is expected that any such distribution, dividend or other payment would be paid after satisfaction of the Company’s outstanding indebtedness and expenses relating to the Asset Sale Transaction (including advisor expenses and severance and other employee related expenses) and the aggregate amount of such distribution, dividend or other payment would be subject to other known or reasonably ascertainable liabilities that have been incurred or are expected to be incurred by the Company, including, without limitation, any potential stockholder litigation, tax obligations or other liabilities relating to the operation of the Company. Any such distribution, dividend or other payment, including pursuant to a plan of liquidation, would be paid in accordance with Delaware law.

 

If in its review of alternatives after the consummation of the Asset Sale Transaction the board determines to approve a plan of liquidation (that is also approved by the stockholders of the Company holding at least a majority of the then outstanding shares of common stock of the Company) or a distribution, dividend, redemption, repurchase or other return of capital, our current estimate is that, in such scenario and without taking into account the escrow fund, there will be between $1.1 million and $3.3 million, or $0.04 to $0.13 per share of the common stock of the Company, available for payment to our stockholders, with the final distribution, dividend or other payment amount to be determined and the final distribution, dividend or other payment made in accordance with Delaware law after settlement and satisfaction of all or certain of our liabilities, including repayment of our outstanding indebtedness, the payment of expenses to be incurred relating to a dissolution process (if applicable), and the payment of expenses incurred in connection with the Asset Sale Transaction, severance and certain other employee obligations of the Company, any potential stockholder litigation, and other liabilities incurred by us through such potential distribution, dividend or other payment. However, if our expenses relating to the Asset Sale Transaction or, if applicable, the dissolution process, or certain other liabilities, including any potential stockholder litigation or tax obligations, are not able to be settled within the currently estimated range, the amount available for any potential distribution, dividend or other payment could fall outside the estimated range. The timing of many elements relating to any potential plan of liquidation or any potential dividend, distribution, redemption, repurchase or return of capital that may be approved by the board and, in the case of a potential plan of liquidation, approved by the stockholders of the Company holding a majority of the outstanding shares of common stock of the Company may not be entirely within the Company’s control and therefore the Company may incur additional expenses, which could further reduce the amounts available for a potential distribution, dividend or other payment to our stockholders.

 

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However, the board may determine not to consider or approve a plan of liquidation and may determine not to consider or approve any dividend, distribution, redemption, repurchase or other return of capital to the Company’s stockholders. In addition, the board has not yet determined the future operations of the Company following the consummation of the Asset Sale Transaction. Accordingly, in considering how to vote on the Asset Sale Proposal, stockholders should not assume that they will receive any distributions (including any liquidating distributions), dividends or other payments from the Company and should not assume that any plan of liquidation or distribution, dividend, redemption, repurchase, return of capital, or any other alternative, will be considered or approved by the board or, if applicable, by stockholders of the Company holding at least a majority of the outstanding shares of common stock of the Company. 

 

Potential Release of the Escrow Fund to the Company

 

If all or any portion of the escrow fund is released to the Company and the Company at such time has not been liquidated and dissolved, it is expected that the board will consider alternatives regarding the use of the escrow fund proceeds, including approving, declaring and paying a dividend or distribution to the Company stockholders, or effecting a redemption, repurchase or other return of capital, in accordance with Delaware law, taking into account any obligations of the Company that remain outstanding at such time or that are known or reasonably ascertainable at such time. If such a distribution, dividend, redemption, repurchase or other return of capital were approved by the board, we would expect all or that portion of the escrow fund released to the Company to be paid to our stockholders in proportion to their respective stockholder interest in the Company, subject to Delaware law and taking into account any obligations of the Company that remain outstanding at such time or that are known or reasonably ascertainable at such time.

 

If the Company receives all or any portion of the escrow fund, it is not anticipated that the Company would use the proceeds for any strategic alternative transactions, such as an acquisition of another entity or business, or otherwise invest in another person or entity.

 

If all or any portion of the escrow fund is released to the Company and at such time the board and stockholders holding a majority of the outstanding shares of common stock of the Company had approved a plan of liquidation, it is expected that all or such portion of the escrow fund released to the Company would be distributed or paid in accordance with such plan of liquidation.

 

Assuming a portion or all of the $2.0 million of the escrow fund is released to the Company approximately one year after the closing of the Asset Sale Transaction and if the board has previously approved a plan of liquidation (that was also approved by the stockholders of the Company holding at least a majority of the then outstanding shares of common stock of the Company) or the board determines to then approve a distribution, dividend, redemption, repurchase or other return of capital, our current estimate is that, in such scenario, there will be between $0.00 to $0.08 per share of the common stock of the Company, available for payment to our stockholders from the escrow fund, with the final distribution, dividend or other payment amount to be determined and the final distribution, dividend or other payment made in accordance with Delaware law after settlement and satisfaction of all or certain of our liabilities. However, such liabilities are not able to be settled within the currently estimated range, the amount available for any potential distribution, dividend or other payment of the escrow fund could fall outside the estimated range.

 

In considering how to vote on the Asset Sale Proposal, stockholders should not assume that they will receive any portion of the escrow fund.

 

60

 

 

Unaudited Prospective Financial Information

 

The Company does not, as a matter of course, make public disclosure of detailed forecasts or projections of its expected financial performance for extended periods due to, among other things, the uncertainty, unpredictability and subjectivity of the underlying assumptions and estimates. However, in connection with the Company’s evaluation of strategic alternatives and a possible business combination transaction involving the Company, on or about March 8, 2018, the Company prepared certain projections and estimates of future financial and operating performance with respect to the Company’s fiscal year ending March 31, 2019 (which we refer to as the “March 2018 Forecasts”), which it made available to the parties that had expressed interest in a business combination with the Company at that time as well as the board and Needham & Company. In April 2018, due to lower than expected bookings and higher than expected churn, the Company prepared updated financial projections and estimates of future financial and operating performance for the fiscal year ending March 31, 2019 (which we refer to as the “April 2018 Forecasts”), which it made available to the parties that had continued to express interest in a business combination with the Company at that time, the board and Needham & Company. In July 2018, due to the Company’s actual results for the first quarter of its fiscal year ending March 31, 2019, the Company prepared updated financial projections and estimates of future financial and operating performance for the fiscal year ending March 31, 2019 (which we refer to as the “July 2018 Forecasts”), which it made available to the parties that had continued to express interest in a business combination with the Company at that time, the board and Needham & Company. In October 2018, due to the Company’s actual results for the second quarter of its fiscal year ending March 31, 2019, the Company prepared updated financial projections and estimates of future financial and operating performance for the fiscal year ending March 31, 2019 (which we refer to as the “October 2018 Forecasts”), which it made available to the parties that had continued to express interest in a business combination with the Company at that time, the board of directors and Needham & Company. In December 2018, due to the Company not implementing a planned work force reduction it had previously anticipated as being effective, the Company prepared updated financial projections and estimates of future financial and operating performance for the fiscal year ending March 31, 2019 (which we refer to as the “December 2018 Forecasts”), which it made available to the parties that had continued to express interest in a business combination with the Company at that time, the board of directors and Needham & Company. In January and February 2019, due to the Company having updated run rate calculations and cost-saving measures for a portion of the second quarter of the fiscal year ending March 31, 2019, and the Company’s desire to further refine line items, the Company prepared updated financial projections and estimates of future financial and operating performance for the fiscal year ending March 31, 2019 (which we refer to as the “Final Forecasts”), which it made available to Corcentric, the board of directors and Needham & Company.

 

A summary of the March 2018 Forecasts, April 2018 Forecasts, July 2018 Forecasts, October 2018 Forecasts, December 2018 Forecasts and the Final Forecasts (which, together, we refer to as the “Forecasts”), is being included in this proxy statement because certain of the Forecasts, depending on whether a potential acquirer participated in the process at such time, were made available to Corcentric, Party C, Party E and the other potential acquirers of the Company. Corcentric received the October 2018 Forecasts, the December 2018 Forecasts and the Final Forecasts. This information is not intended to influence your decision whether to vote for or against the Asset Sale Proposal. The inclusion of this information should not be regarded as an indication that the board of directors, its advisors or any other person considered, or now considers, the Forecasts to be material or to be a reliable prediction of actual future results, and the Forecasts should not be relied upon as such. The Forecasts are subjective in many respects. There can be no assurance that the Forecasts will be realized or that actual results will not be significantly higher or lower than forecasted. As a result, the inclusion of the Forecasts in this proxy statement should not be relied on as necessarily predictive of actual future events.

 

The Forecasts were prepared on a stand-alone basis and do not take into account any of the transactions contemplated by the Asset Purchase Agreement, including the associated expenses, or the Company’s compliance with its covenants under the Asset Purchase Agreement. For these reasons and for the reasons described above, actual results likely will differ, and may differ materially, from those contained in the Forecasts.

 

The Forecasts have been prepared by, and are the responsibility of, the Company’s management for internal use by the Company and Needham & Company, and approved by the board of directors, and were (i) provided to Needham & Company for use in the financial analyses undertaken by Needham & Company in connection with rendering its opinion to the board of directors, (ii) not prepared for purposes of public disclosure, and (iii) not prepared on a basis designed to comply with published guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial data, published guidelines of the SEC (including those regarding forward-looking statements and the use of non-GAAP measures) or GAAP. Armanino LLP, the Company’s independent registered public accounting firm, has not audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the Forecasts contained in this proxy statement and, accordingly, Armanino LLP does not express an opinion or any other form of assurance with respect thereto. The Armanino LLP report incorporated by reference in this proxy statement relates to the Company’s previously issued financial statements. It does not extend to the Forecasts and should not be read to do so. Further, the Forecasts include non-GAAP financial measures. Non-GAAP financial measures are not prepared in accordance with GAAP and should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.

 

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Although the Forecasts presented below are presented with numerical specificity, they are estimates of future performance and not historical facts. The Forecasts were based on numerous variables and assumptions that were deemed to be reasonable as of the respective dates when such forecasts were finalized. Realization of such assumptions is inherently uncertain and may be beyond the control of the Company. Important factors that may affect actual results and cause the Forecasts not to be achieved include, but are not limited to, risks and uncertainties relating to the Company’s business (including, without limitation, its ability to achieve strategic goals, objectives and targets), the Company’s cash position, industry performance, the legal and regulatory environment, general business and economic conditions and other factors described or referenced under “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 27. In the view of the Company’s management, the Forecasts were prepared on a reasonable basis based on the best information available to the Company’s management during the timeframe around their preparation. In addition, the assumptions underlying the Forecasts are subject to change and have not been revised since their respective preparation to reflect any changes in the Company’s business, industry performance, the legal or regulatory environment, general business or economic conditions, or any other transaction or event that has occurred or that may occur and that was not anticipated as the management projections were prepared. Neither the Company nor Corcentric undertakes any obligation, except as required by law, to update or otherwise revise the Forecasts to reflect circumstances existing since their respective preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error or to not be appropriate, or to reflect changes in the Company’s business, industry performance, the legal or regulatory environment, or general business or economic conditions. There can be no assurance that the Forecasts will be realized or that the Company’s future financial results will not materially vary from the Forecasts. None of the Company or any of the Company’s advisors or representatives has made or makes any representation regarding the information contained in the Forecasts or assumes any responsibility for the validity, reasonableness, accuracy or completeness of the Forecasts included in this proxy statement or that the results reflected in the Final Forecasts will be achieved. Stockholders are cautioned not to place undue, if any, reliance on the Final Forecasts included below.

 

In the forecasts below, all references to FY2019 are to the fiscal year ending March 31, 2019.

 

March 2018 Forecasts

 

The following is a summary of the March 2018 Forecasts prepared by the Company’s management and provided to the board of directors and Needham & Company.

 

(in millions)

 

FY2019

 

Revenue

  $ 30.0  

Non-GAAP EBITDA(1)

  $ (2.0 )

Non-GAAP EBITDA Capitalized R&D(2)

  $ (4.5 )

Annualized ARR Bookings Forecast(3)

  $ 5.4  

Annualized ARR Churn Forecast(4)

  $ 2.0  

 

(1)

Non-GAAP EBITDA” is a non-GAAP financial measure calculated by eliminating the amortization of acquisition related intangibles, stock based compensation, severance expense and acquisition related costs from GAAP loss to arrive at Non-GAAP net loss, and then adding back interest, depreciation, and income tax expense (benefit).

 

(2)

Non-GAAP EBITDA Capitalized R&D” is “Non-GAAP EBITDA” as defined above, excluding the estimated amount to be spent on software that will be capitalized as an addition to the Company’s assets as opposed to flowing through operating expenses.

 

(3)

Annualized ARR Bookings Forecast” is a non-GAAP financial measure which estimates the new additions of recurring-revenue the Company will have. It is stated in terms of the average amount the Company is expected to receive for each year of the new contract with the customer.

 

(4)

Annualized ARR Churn Forecast” is a non-GAAP financial measure which estimates the loss of recurring-revenue from current customers in future periods. It is stated in terms of the amount received from the customer the year prior to the date of the anticipated loss of their contract.

 

62

 

 

April 2018 Forecasts

 

The following is a summary of the April 2018 Forecasts prepared by the Company’s management and provided to Party A, Party B, Party C, Party D, Party E and Party F as well as the board of directors and Needham & Company.

 

(in millions)

 

FY2019

 

Revenue

  $ 28.3  

Non-GAAP EBITDA(1)

  $ (2.8 )

Non-GAAP EBITDA Capitalized R&D(2)

  $ (5.3 )

Annualized ARR Bookings Forecast(3)

  $ 4.0  

Annualized ARR Churn Forecast(4)

  $ 2.8  

 

(1)

Non-GAAP EBITDA” is a non-GAAP financial measure calculated by eliminating the amortization of acquisition related intangibles, stock based compensation, severance expense and acquisition related costs from GAAP loss to arrive at Non-GAAP net loss, and then adding back interest, depreciation, and income tax expense (benefit).

 

(2)

Non-GAAP EBITDA Capitalized R&D” is “Non-GAAP EBITDA” as defined above, excluding the estimated amount to be spent on software that will be capitalized as an addition to the Company’s assets as opposed to flowing through operating expenses.

 

(3)

Annualized ARR Bookings Forecast” is a non-GAAP financial measure which estimates the new additions of recurring-revenue the Company will have. It is stated in terms of the average amount the Company is expected to receive for each year of the new contract with the customer.

 

(4)

Annualized ARR Churn Forecast” is a non-GAAP financial measure which estimates the loss of recurring-revenue from current customers in future periods. It is stated in terms of the amount received from the customer the year prior to the date of the anticipated loss of their contract.

 

July 2018 Forecasts

 

The following is a summary of the July 2018 Forecasts prepared by the Company’s management and provided to Party A, Party B, Party C, Party D, Party E and Party F as well as the board of directors and Needham & Company.

 

(in millions)

 

FY2019

 

Revenue

  $ 24.3  

Non-GAAP EBITDA(1)

  $ (4.9 )

Non-GAAP EBITDA Capitalized R&D(2)

  $ (7.6 )

Annualized ARR Bookings Forecast(3)

  $ 3.7  

Annualized ARR Churn Forecast(4)

  $ 3.6  

 

 

(1)

Non-GAAP EBITDA” is a non-GAAP financial measure calculated by eliminating the amortization of acquisition related intangibles, stock based compensation, severance expense and acquisition related costs from GAAP loss to arrive at Non-GAAP net loss, and then adding back interest, depreciation, and income tax expense (benefit).

 

(2)

Non-GAAP EBITDA Capitalized R&D” is “Non-GAAP EBITDA” as defined above, excluding the estimated amount to be spent on software that will be capitalized as an addition to the Company’s assets as opposed to flowing through operating expenses.

 

(3)

Annualized ARR Bookings Forecast” is a non-GAAP financial measure which estimates the new additions of recurring-revenue the Company will have. It is stated in terms of the average amount the Company is expected to receive for each year of the new contract with the customer.

 

(4)

Annualized ARR Churn Forecast” is a non-GAAP financial measure which estimates the loss of recurring-revenue from current customers in future periods. It is stated in terms of the amount received from the customer the year prior to the date of the anticipated loss of their contract.

 

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October 2018 Forecasts

 

The following is a summary of the October 2018 Forecasts prepared by the Company’s management and provided to Party A, Party E, Party G, Party H and Corcentric as well as the board of directors and Needham & Company.

 

(in millions)

 

FY2019

 

Revenue

  $ 23.3  

Non-GAAP EBITDA(1)

  $ (3.6 )

Non-GAAP EBITDA Capitalized R&D(2)

  $ (6.0 )

Annualized ARR Bookings Forecast(3)

  $ 2.7  

Annualized ARR Churn Forecast(4)

  $ 3.6  

 

(1)

Non-GAAP EBITDA” is a non-GAAP financial measure calculated by eliminating the amortization of acquisition related intangibles, stock based compensation, severance expense and acquisition related costs from GAAP loss to arrive at Non-GAAP net loss, and then adding back interest, depreciation, and income tax expense (benefit).

 

(2)

Non-GAAP EBITDA Capitalized R&D” is “Non-GAAP EBITDA” as defined above, excluding the estimated amount to be spent on software that will be capitalized as an addition to the Company’s assets as opposed to flowing through operating expenses.

 

(3)

Annualized ARR Bookings Forecast” is a non-GAAP financial measure which estimates the new additions of recurring-revenue the Company will have. It is stated in terms of the average amount the Company is expected to receive for each year of the new contract with the customer.

 

(4)

Annualized ARR Churn Forecast” is a non-GAAP financial measure which estimates the loss of recurring-revenue from current customers in future periods. It is stated in terms of the amount received from the customer the year prior to the date of the anticipated loss of their contract.

 

December 2018 Forecasts

 

The following is a summary of the December 2018 Forecasts prepared by the Company’s management and provided to Party H and Corcentric as well as the board of directors and Needham & Company.

 

(in millions)

 

FY2019

 

Revenue

  $ 23.0  

Non-GAAP EBITDA(1)

  $ (4.2 )

Non-GAAP EBITDA Capitalized R&D(2)

  $ (6.6 )

Annualized ARR Bookings Forecast(3)

  $ 2.4  

Annualized ARR Churn Forecast(4)

  $ 3.6  

 

(1)

Non-GAAP EBITDA” is a non-GAAP financial measure calculated by eliminating the amortization of acquisition related intangibles, stock based compensation, severance expense and acquisition related costs from GAAP loss to arrive at Non-GAAP net loss, and then adding back interest, depreciation, and income tax expense (benefit).

 

(2)

Non-GAAP EBITDA Capitalized R&D” is “Non-GAAP EBITDA” as defined above, excluding the estimated amount to be spent on software that will be capitalized as an addition to the Company’s assets as opposed to flowing through operating expenses.

 

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(3)

Annualized ARR Bookings Forecast” is a non-GAAP financial measure which estimates the new additions of recurring-revenue the Company will have. It is stated in terms of the average amount the Company is expected to receive for each year of the new contract with the customer.

 

(4)

Annualized ARR Churn Forecast” is a non-GAAP financial measure which estimates the loss of recurring-revenue from current customers in future periods. It is stated in terms of the amount received from the customer the year prior to the date of the anticipated loss of their contract.

 

Final Forecasts

 

The following is a summary of the Final Forecasts prepared by the Company’s management and provided to Corcentric as well as the board of directors and Needham & Company.

 

(in millions)

 

FY2019

 

Revenue

  $ 23.2  

Non-GAAP EBITDA(1)

  $ (4.6 )

Non-GAAP EBITDA Capitalized R&D(2)

  $ (7.1 )

Annualized ARR Bookings Forecast(3)

  $ 2.4  

Annualized ARR Churn Forecast(4)

  $ 3.7  

 

(1)

Non-GAAP EBITDA” is a non-GAAP financial measure calculated by eliminating the amortization of acquisition related intangibles, stock based compensation, severance expense and acquisition related costs from GAAP loss to arrive at Non-GAAP net loss, and then adding back interest, depreciation, and income tax expense (benefit).

 

(2)

Non-GAAP EBITDA Capitalized R&D” is “Non-GAAP EBITDA” as defined above, excluding the estimated amount to be spent on software that will be capitalized as an addition to the Company’s assets as opposed to flowing through operating expenses.

 

(3)

Annualized ARR Bookings Forecast” is a non-GAAP financial measure which estimates the new additions of recurring-revenue the Company will have. It is stated in terms of the average amount the Company is expected to receive for each year of the new contract with the customer.

 

(4)

Annualized ARR Churn Forecast” is a non-GAAP financial measure which estimates the loss of recurring-revenue from current customers in future periods. It is stated in terms of the amount received from the customer the year prior to the date of the anticipated loss of their contract.

 

Interests of our Directors and Executive Officers in the Asset Sale Transaction

 

In considering the recommendation of our board to vote “FOR” the Asset Sale Proposal, you should be aware that, aside from their interests as Company stockholders, our directors and executive officers have interests in the Asset Sale Transaction that are different from, or in addition to, the interests of our stockholders generally.

 

Members of our board were aware of and considered these interests, among other matters, in evaluating and negotiating the Asset Sale Transaction, and in recommending to our stockholders that the Asset Sale Proposal be approved. For more information see the sections entitled “Proposal 1: Asset Sale Proposal—Background of the Asset Sale Transaction” and “Proposal 1: Asset Sale Proposal—Reasons for the Asset Sale Transaction and Recommendation of our Board” above. These interests are described in more detail below, and certain of them are quantified in the narrative below.

 

Additional information concerning these potential payments and the vesting of outstanding equity awards held by our directors and executive officers is provided in the discussion and table below.

 

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Treatment of Outstanding Equity Awards

 

Upon the consummation of the Asset Sale Transaction, all outstanding stock options and restricted stock units granted under the Company’s equity compensation plans held by the Company’s non-employee directors and executive officers (i.e., Messrs. Stakenas and Nolan) will be accelerated pursuant to their terms. Following the consummation of the Asset Sale Transaction, the board will consider alternatives regarding the use of proceeds from the consummation of the Asset Sale Transaction and the future of the Company, including, without limitation, a liquidation of the Company or approving, declaring and paying a dividend or distribution to the Company’s stockholders in accordance with Delaware law. For more information, see the section entitled “Proposal 1: Asset Sale Proposal—Use of Proceeds and Future Operations” above. If any amount is distributed to the Company’s stockholders following the consummation of the Asset Sale Transaction, it is expected that corresponding payments would be made with respect to outstanding and unexercised stock options and outstanding restricted stock units. The amount that would be payable in respect of each option would be calculated as follows: (i) the excess, if any, of the amount to be distributed on a share of common stock to stockholders over the exercise price per share of such stock option, multiplied by (ii) the number of shares of common stock subject to such stock option. If any amount is distributed to the Company’s stockholders following the consummation of the Asset Sale Transaction, the amount that would be payable in respect of each outstanding restricted stock unit award would be calculated as the amount to be distributed on a share of common stock to stockholders, multiplied by the number of shares of common stock subject to such restricted stock unit award. All payments, if any, in respect of such stock options or restricted stock units will be subject to applicable withholding taxes. Each such stock option and restricted stock unit that was outstanding immediately prior to such payments would be cancelled and terminated without any present or future right to any other payment thereafter.

 

If distributions are made to the Company’s stockholders following the consummation of the Asset Sale Transaction as described above and all outstanding stock options and restricted stock units granted under the Company’s equity compensation plans are treated as described above, the estimated aggregate amount that would be payable to the Company’s two executive officers for their outstanding equity awards (assuming all stock options have not previously been exercised and all restricted stock unit awards have not previously been settled) is as follows: (a) with respect to a total of 1,100,979 stock options, $0 in cash, less applicable withholding taxes, and (b) with respect to a total of 10,729 restricted stock units, $2,574.96 in cash, less applicable withholding taxes. These amounts assume (i) a price per share of the Company’s common stock of $0.24 (which is the average of the closing prices for a share of the Company’s common stock for the first five trading days following the public announcement of the Asset Sale Transaction) and (ii) the Asset Sale Transaction was consummated on February 22, 2019, which is the last practicable date prior to the filing of this proxy statement. The amounts payable, if any, in respect of such stock options or restricted stock units may be more or less based on the amounts distributable to the Company’s stockholders following the consummation of the Asset Sale Transaction. For an estimate of the amounts that would be payable to each of the Company’s executive officers in connection with any acceleration of Company equity awards, see the “Golden Parachute Compensation” table below.

 

If distributions are made to the Company’s stockholders following the consummation of the Asset Sale Transaction as described above and all outstanding stock options and restricted stock units granted under the Company’s equity compensation plans are treated as described above, the estimated aggregate amount that would be payable to non-employee members of the Company’s board of directors as a group for their outstanding equity awards (assuming all stock options have not previously been exercised and all restricted stock unit awards have not previously been settled) is as follows: (a) with respect to a total of 63,333 stock options, $0 in cash, and (b) with respect to a total of 36,832 restricted stock units, $8,839.68 in cash. These amounts assume (i) a price per share of the Company’s common stock of $0.24 (which is the average of the closing prices for a share of the Company’s common stock for the first five trading days following the public announcement of the Asset Sale Transaction) and (ii) the Asset Sale Transaction was consummated on February 22, 2019, which is the last practicable date prior to the filing of this proxy statement. The amounts payable, if any, in respect of such stock options or restricted stock units may be more or less based on the amounts distributable to the Company’s stockholders following the consummation of the Asset Sale Transaction.

 

Company ESPP

 

At or shortly following the consummation of the Asset Sale Transaction, the Company will (i) cause any offering period (or similar period during which shares of common stock may be purchased) underway at the closing of the Asset Sale Transaction under the Company’s 1999 Employee Stock Purchase Plan, as amended from time to time (the “Company ESPP”) to be the final offering period under the Company ESPP, and (ii) cause each participant’s outstanding purchase right under the Company ESPP to be exercised no later than the business day immediately preceding the anticipated closing date of the Asset Sale Transaction. No new offering periods will occur under the Company ESPP thereafter.

 

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Executive Severance Agreements

 

The Company’s executive officers are parties to severance agreements with the Company (collectively, the “Severance Agreements”). The Severance Agreements provide that if, on or within 12 months after a change in control, the executive’s employment is terminated by the Company without “cause” or by the executive for “good reason” (as the terms “cause” and “good reason” are each defined in the Severance Agreements), then the executive would be entitled to receive as severance: (a) continued payment of the executive’s then current base salary for 12 months; and (b) continued payment of the employer portion of COBRA premiums for the executive and his dependents for 12 months. The Severance Agreements also provide that if the executive’s employment is terminated by the Company without “cause” prior to a change in control, then the executive would be entitled to receive as severance: (a) continued payment of the executive’s then current base salary for 12 months in the case of Mr. Stakenas or 6 months in the case of Mr. Nolan, as applicable; and (b) continued payment of the employer portion of COBRA premiums for the executive and his dependents for the applicable number of months for that executive. The executive’s right to receive severance benefits under the Severance Agreements is subject to the executive’s providing a general release of claims. Under the Severance Agreements, if there is a change in control before the executive terminates employment for any reason, all of the executive’s outstanding equity awards at such time will be fully vested.

 

The Severance Agreements also provide that if any payments or benefits to the executive would trigger parachute payment excise taxes, such payments or benefits will either be paid in full and subject to such taxes or reduced to the extent necessary to avoid triggering such taxes, whichever results in a greater after-tax benefits to the executive. Executive officers are not entitled to any gross-up payment under the Severance Agreements for such excise taxes.

 

Golden Parachute Compensation

 

The table below sets forth the information required by Item 402(t) of Regulation S-K regarding certain compensation that is based on or that otherwise relates to the Asset Sale Transaction to which the following individuals, each one of our named executive officers, are entitled under existing agreements.

 

The table below assumes that:

 

 

the Asset Sale Transaction was consummated on February 22, 2019, which is the last practicable date prior to the filing of this proxy statement;

 

 

the employment of Patrick Stakenas and John Nolan is involuntarily terminated immediately following the effective time of the Asset Sale Transaction if it were consummated on February 22, 2019, which is the last practicable date prior to the filing of this proxy statement;

 

 

there is a distribution to the Company’s stockholders following the consummation of the Asset Sale Transaction;

 

 

the price per share of the Company’s common stock is $0.24 (which, in accordance with the SEC rules, is the average of the closing prices for a share of the Company’s common stock for the first five trading days following the public announcement of the Asset Sale Transaction); and

 

 

the compensation levels and outstanding and unvested equity awards for the named executive officers at the relevant time are the levels in effect and the equity awards outstanding and unvested.

 

 

GOLDEN PARACHUTE COMPENSATION (1)

 

Name 

 

Cash

($) (2)  

 

 

Equity

($) (3)  

 

 

Perquisites/Benefits

($)(4) 

 

 

Total ($) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patrick Stakenas

   

300,000

     

2,575

     

11,371

     

313,946

 

John Nolan

   

250,000

     

0

     

16,015

     

266,015

 

 


(1)

There are no tax reimbursement, pension benefits or other payments to the named executive officers that need to be disclosed in this table pursuant to Item 402(t) of Regulation S-K.

 

 

(2)

The amounts reported in this column represent the potential cash severance payment each named executive officer would be entitled to receive under his Severance Agreement with the Company upon a “double trigger” qualifying termination, where the executive’s employment is terminated by the Company without “cause” or by the executive for “good reason” (as such terms are defined in their respective Severance Agreement), in each case, on or within 12 months following a change in control of the Company. See the section entitled “Executive Severance Agreements” above for additional details.

 

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(3)

Pursuant to the terms of the Severance Agreement with each named executive officer, all outstanding equity awards (including outstanding stock options and restricted stock units) held by the executives shall become fully vested in connection with a change in control of the Company. As described above in the section entitled “Treatment of Outstanding Equity Awards,” the board will consider alternatives regarding the use of proceeds from the consummation of the Asset Sale Transaction, which may result in a distribution to stockholders of the Company and a corresponding payment to holders of outstanding and unexercised stock options and outstanding restricted stock units.

 

For purposes of this note and the table above, the value of the unvested equity awards that would accelerate in connection with the Asset Sale Transaction is calculated as follows: (i) in the case of a Company stock option, the product of (a) the excess, if any, of $0.24 (the assumed value of a share of the Company’s common stock) over the exercise price per share of such stock option, multiplied by (b) the number of shares of common stock subject to such stock option; and (ii) in the case of Company restricted stock unit awards, the assumed value of a share of the Company’s common stock ($0.24), multiplied by the number of shares of common stock subject to the award.

 

The following table presents the allocation of the value associated with the stock options and restricted stock units for each named executive officer that would accelerate in connection with the Asset Sale Transaction and reported in the “Equity” column of the table above:

 

Name

Aggregate

Value of

Accelerated

Stock

Options

($)

Aggregate

Value of

Accelerated

Restricted

Stock Units

($)

Patrick Stakenas

0

2,575

John Nolan

0

0

 

(4)

The amounts reported in this column represent the estimated cost of the employer portion of COBRA premiums payable by the Company under the Severance Agreements assuming a “double-trigger” qualifying termination of the named executive officer’s employment as described in note (1) above.

 

No Appraisal or Dissenters’ Rights

 

No appraisal or dissenters’ rights are available to our stockholders under Delaware law or under our certificate of incorporation or bylaws in connection with the Asset Sale Transaction.

 

Material U.S. Federal Income Tax Consequences

 

The following discussion is a general summary of the anticipated material U.S. federal income tax consequences of the Asset Sale Transaction. The following discussion is based upon the Internal Revenue Code of 1986, as amended (which we refer to as the “Code”), its legislative history, currently applicable and proposed Treasury Regulations under the Code and published rulings and decisions, all as currently in effect as of the date of this proxy statement, and all of which are subject to change, possibly with retroactive effect. Tax consequences under state, local and non-U.S. laws, or federal laws other than those pertaining to income tax, are not addressed in this proxy statement. No rulings have been requested or received from the IRS as to the tax consequences of the Asset Sale Transaction and there is no intent to seek any such ruling. Accordingly, no assurance can be given that the IRS will not challenge the tax treatment of the Asset Sale Transaction discussed below or, if it does challenge the tax treatment, that it will not be successful. 

 

The Asset Sale Transaction will be treated for U.S. federal income tax purposes as a taxable transaction upon which we will recognize gain or loss. The amount of gain or loss we recognize with respect to the sale of a particular asset (including any deemed sale of a particular asset) will be measured by the difference between the amount realized by us on the sale of that asset and our tax basis in that asset. The amount realized by us on the Asset Sale Transaction will include the amount of cash received, the fair market value of any other property received, and total liabilities assumed or taken by Buyer. For purposes of determining the amount realized by us with respect to specific assets, the total amount realized by us will generally be allocated among the assets according to the rules set forth in Section 1060(a) of the Code. Our bas