UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the
Registrant x Filed by
a Party other than the Registrant ¨
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
Local Corporation
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
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Fee computed on the table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify
the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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Form, Schedule or Registration Statement No.:
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF LOCAL CORPORATION
to be held
June 23, 2015
and
PROXY STATEMENT
IMPORTANT
Please mark, sign and date your proxy
and promptly return it in the enclosed envelope
7555 Irvine Center Drive
Irvine, CA 92618
May 8, 2015
Dear Stockholder:
You are
cordially invited to attend the Annual Meeting of Stockholders of Local Corporation on June 23, 2015, at 9:00 a.m., local time, at our offices at 7555 Irvine Center Drive, Irvine, CA 92618. We look forward to greeting those stockholders who are
able to attend.
At the meeting, you are being asked to elect John E. Rehfeld and Frederick G. Thiel, as Class II members to
our Board of Directors; to ratify the selection of BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending 2015; to approve, in accordance with Nasdaq Marketplace Rules, the issuance of shares of our common stock
underlying convertible notes and warrants previously issued by us, in an amount equal to or in excess of 20% of our common stock outstanding before the issuance of our common stock underlying such convertible notes and warrants, to approve a
stockholder resolution to authorize the Board of Directors, in its sole and absolute discretion without further action of the stockholders, to amend the Companys Amended and Restated Certificate of Incorporation, as amended, to implement a
reverse stock split of the Companys common stock, $0.00001 par value per share, at a ratio of 1-for-6 at any time prior to December 31, 2016, to approve an amendment to the Companys Amended and Restated Certificate of Incorporation,
as amended, to increase its authorized shares of stock from 75,000,000 to 210,000,000 and the number of authorized shares of common stock, par value $0.00001 per share (the Common Stock) from 65,000,000 to 200,000,000, as described in
the attached proxy, and to approve our named executive officer compensation as disclosed in this proxy statement.
It is very
important that your shares are represented and voted at the meeting, whether or not you plan to attend. Accordingly, please sign, date, and return your proxy in the enclosed envelope at your earliest convenience.
As always, your interest and participation in the affairs of Local Corporation are greatly appreciated. Thank you for your continued
support.
Sincerely,
The Board of Directors
Local Corporation
7555 Irvine Center Drive
Irvine, CA 92618
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 23, 2015
May 7, 2015
To our Stockholders:
The 2015
Annual Meeting of Stockholders of Local Corporation (the Company) will be held at our offices at 7555 Irvine Center Drive, Irvine, CA 92618 on June 23, 2015, beginning at 9:00 a.m. PT for the following purposes, each as more fully
described in the proxy statement accompanying this Notice:
(1) To elect two directors as a Class II members of
the Companys Board of Directors for a three-year term expiring in 2018;
(2) To ratify the appointment of
BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2015;
(3) To approve, in accordance with Nasdaq Marketplace Rules, the issuance of shares of our common stock underlying convertible notes and warrants previously issued by us, in an amount equal to or in
excess of 20% of our common stock outstanding before the issuance of our common stock underlying such convertible notes and warrants;
(4) To approve a stockholder resolution to authorize the Board of Directors, in its sole and absolute discretion without further action of the stockholders, to amend the Companys Amended and
Restated Certificate of Incorporation, as amended (the Certificate of Incorporation), to implement a reverse stock split of the Companys common stock, $0.00001 par value per share (the Common Stock), at a ratio of 1-for-6 at any time prior to December 31, 2016;
(5) To approve an
amendment to the Companys Certificate of Incorporation to increase its authorized shares of stock from 75,000,000 to 210,000,000 and the number of authorized shares of Common Stock from 65,000,000 to 200,000,000, as described in the attached
proxy;
(6) To approve our named executive officer compensation as disclosed in this proxy statement; and
(7) To transact such other business as may properly come before the meeting or any adjournment or postponement
thereof.
The Board of Directors has fixed the close of business on May 7, 2015, as the record date for determining the
stockholders entitled to notice of and to vote at the annual meeting and any adjournment or postponement thereof.
All of
our stockholders are cordially invited to attend the annual meeting in person. It is important that your shares be represented; therefore, even if you presently plan to attend the Annual Meeting, PLEASE COMPLETE, SIGN AND DATE, AND PROMPTLY RETURN
THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED. If you do attend the Annual Meeting and wish to vote in person, you may withdraw your proxy at that time in accordance with the procedures set forth in the Proxy Statement.
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on June 23, 2015. The Notice
of Annual Meeting of Stockholders, Proxy Statement and 2014 Annual Report on Form 10-K are also available at http://ir.local.com/proxy
Your vote is very important regardless of the number of shares you own, please read
the attached proxy statement carefully, and complete, sign, date and return the enclosed proxy card or voting instruction form promptly.
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By Order of the Board of Directors, |
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FREDERICK G. THIEL |
Chairman of the Board of Directors |
7555 Irvine Center Drive
Irvine, CA 92618
PROXY
STATEMENT
This proxy statement is furnished to the stockholders of Local Corporation (the Company, Local, Local
Corporation, we, us or our), a Delaware corporation, in connection with the solicitation by the Board of Directors of Local (the Board) of proxies for use at the 2015 Annual Meeting of
Stockholders (the Annual Meeting) to be held on June 23, 2015, beginning at 9:00 a.m., PT, at the Companys offices located at 7555 Irvine Center Drive, Irvine, CA 92618, and at any postponements or adjournments thereof. This
Proxy Statement and the accompanying Proxy are first being mailed to our stockholders on or about May 28, 2015. When your proxy is properly executed and returned, the shares it represents will be voted in accordance with any directions noted
thereon.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
ON JUNE 23, 2015: The Notice of Annual Meeting of Stockholders, Proxy Statement and 2014 Annual Report on Form 10-K are also available at http://ir.local.com/proxy.
QUESTIONS AND ANSWERS ABOUT THE 2015 ANNUAL MEETING AND VOTING
What is the purpose of the Annual Meeting?
At our Annual Meeting, stockholders will act upon the matters outlined in the Notice of Annual Meeting on the cover page of this proxy statement, including:
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To elect two directors as a Class II members of the Companys Board of Directors for a three-year term expiring in 2018 (Proposal 1);
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To ratify the appointment of the Companys independent registered public accounting firm for the fiscal year ending December 31, 2015
(Proposal 2); |
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To approve, in accordance with Nasdaq Marketplace Rules, the issuance of shares of our common stock underlying convertible notes and warrants
previously issued by us, in an amount equal to or in excess of 20% of our common stock outstanding before the issuance of our common stock underlying such convertible notes and warrants (Proposal 3); |
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To approve a stockholder resolution to authorize the Board of Directors, in its sole and absolute discretion without further action of the
stockholders, to amend the Companys Amended and Restated Certificate of Incorporation, as amended (the Certificate of Incorporation), to implement a reverse stock split of the Companys common stock, $0.00001 par value per
share (the Common Stock), at a ratio of 1-for-6 at any time prior to December 31, 2016 (Proposal 4 or the Reverse Split Proposal); |
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To approve an amendment to the Companys Certificate of Incorporation to increase its authorized shares of stock from 75,000,000 to 210,000,000
and the number of authorized shares of Common Stock from 65,000,000 to 200,000,000 (Proposal 5 or the Authorized Shares Proposal); and |
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To approve our named executive officer compensation as disclosed in this proxy statement (Proposal 6); and |
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To transact such other business as may properly come before the meeting. |
Who is entitled to vote at the Annual Meeting?
Only stockholders of record at the close of business on May 7, 2015, the record date for the Annual Meeting, are entitled to receive notice of and to participate in the Annual Meeting. If you were a
stockholder of record on the close of business on May 7, 2015, you will be entitled to vote all of the shares that you held at that time at the Annual Meeting, or any postponements or adjournments of the Annual Meeting. A list of such
stockholders will be available for examination by any stockholder at the Annual Meeting and, for any purpose germane to the Annual Meeting, at our principal business office, 7555 Irvine Center Drive, Irvine, CA 92618, for a period of ten days prior
to the Annual Meeting.
How many shares of our Common Stock are outstanding and what are the voting rights of the
holders of those shares?
On May 7, 2015, the record date for the Annual Meeting, 24,314,051 shares of our Common
Stock were outstanding. Each of the holders of the outstanding shares of our Common Stock on the record date will be entitled to one vote on each matter for each share of Common Stock held.
Who can attend the Annual Meeting?
All stockholders as of the record date, or their duly appointed proxies, may attend the Annual Meeting, and guests may accompany each attendee. Registration will begin at 8:45 a.m., and seating will begin
immediately thereafter. If you attend, please note that you may be asked to present valid picture identification, such as a drivers license or passport. Please also note that if you hold your shares in street name (that is, through
a broker or other nominee), you will need to bring a copy of a brokerage statement reflecting your stock ownership as of the record date and check in at the registration desk at the Annual Meeting.
What constitutes a quorum?
The presence at the Annual Meeting, in person or by proxy, of the holders of a majority of the Common Stock issued and outstanding on the record date, will constitute a quorum, permitting the Annual
Meeting to conduct its business. Proxies marked withheld as to any director nominee or abstain as to a particular proposal are counted by us for purposes of determining the presence or absence of a quorum at the Annual
Meeting for the transaction of business. Broker non-votes (i.e., shares that are not voted by the broker who is the record holder of the shares because the broker is not instructed to vote by the actual owner of the shares and does not have
discretionary authority to vote such shares) will also be included in the calculation of the number of votes considered to be present at the meeting for purposes of a quorum. Brokers or other nominees who hold shares of our Common Stock in street
name for a beneficial owner of those shares generally have the authority to vote in their discretion on routine proposals when they have not received instructions from beneficial owners.
What if a quorum is not present at the Annual Meeting?
If a quorum is not present at the scheduled time of the Annual Meeting, we may adjourn the Annual Meeting, either with or without the vote
of the stockholders. If we propose to have the stockholders vote whether to adjourn the Annual Meeting, the proxy holders will exercise their discretion to vote all shares for which they have authority in favor of the adjournment.
How do I vote?
If you complete and properly sign the accompanying proxy card and return it to us, it will be voted as you direct. If you are a registered stockholder and attend the Annual Meeting, you may vote in
person. We encourage you, however, to submit the enclosed proxy card in advance of the Annual Meeting. In addition, ballots will be available for registered stockholders to vote in person at the Annual Meeting. Stockholders who hold their shares in
street name may vote in person at the Annual Meeting only by obtaining a proxy form from the broker or other nominee that holds their shares.
Can I vote by telephone or electronically?
If you are a registered stockholder (that is, if you hold your stock in certificate form) you may not vote by telephone or electronically
since we do not have that capability. Registered stockholders must follow the instructions included with that proxy card. If your shares are held in street name, please check the proxy card you received from your broker or nominee or
contact your broker or nominee to determine whether you will be able to vote by telephone or electronically and what deadlines may apply to your ability to vote your shares by telephone or electronically.
Can I change my vote after I return my proxy card?
Yes. As a registered stockholder, you may change your vote (also known as revoking your proxy) at any time before the proxy is voted at the Annual Meeting by filing with our Secretary either a notice of
revocation or a duly executed proxy bearing a later date. Written notice of revocation and other communications with respect to the revocation of proxies should be addressed to Local Corporation, 7555 Irvine Center Drive, Irvine, CA 92618, Attn:
Corporate Secretary. In addition, the powers of the proxy holders will be suspended if you attend the Annual Meeting in person and request that your proxy be suspended, although attendance at the Annual Meeting will not by itself revoke a previously
granted proxy. If your shares are held in street name, please check the proxy card you received from your broker or nominee or contact your broker or nominee to determine how to change your vote.
Who will bear the cost of soliciting votes for the Annual Meeting?
The solicitation of proxies will be conducted by mail, and we will bear the costs. These costs will include the expense of preparing and
mailing proxy solicitation materials for the Annual Meeting and reimbursements paid to brokerage firms and others for their expenses incurred in forwarding solicitation materials regarding the Annual Meeting to beneficial holders of Common Stock. We
may conduct further solicitation personally, telephonically, through the Internet or by facsimile through its officers, directors and employees, none of whom will receive additional compensation for assisting with the solicitation. We may generate
other expenses in connection with the solicitation of proxies for the Annual Meeting. To date the total expenses incurred by us in connection with the solicitation of proxies is approximately $10,000 and an additional $5,000 in expenses is
anticipated.
What are the Boards recommendations?
Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with
the recommendations of the Board. The Boards recommendation is set forth together with the description of each proposal in this proxy statement. In summary, the Board recommends a vote:
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FOR the election of two directors as Class II members of the Companys Board, as described under Proposal 1 herein;
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FOR the ratification of the Board of Directors appointment of the Companys independent registered public accounting firm for the
fiscal year ending December 31, 2015, as described under Proposal 2 herein; |
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FOR the approval, in accordance with Nasdaq Marketplace Rules, of the issuance of shares our Common Stock underlying convertible notes and
warrants previously issued by us, in an amount equal to or in excess of 20% of our Common Stock outstanding before the issuance of our Common Stock underlying such convertible notes and warrants, as described in Proposal 3 herein;
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FOR the approval of a stockholder resolution to authorize the Board of Directors, in its sole and absolute discretion without further action of
the stockholders, to amend the Companys Certificate of Incorporation to implement a reverse stock split of the Companys Common Stock, at a ratio of 1-for-6 at any time prior to December 31, 2016, as described in Proposal 4 herein;
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FOR the approval of an amendment to the Companys Certificate of Incorporation to increase its authorized shares of stock from 75,000,000
to 210,000,000 and the number of authorized shares of Common Stock from 65,000,000 to 200,000,000, as described in Proposal 5 herein; |
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FOR the approval of our named executive officer compensation as disclosed in this proxy statement, as described under Proposal 6 herein.
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With respect to other business that may properly come before the meeting, the proxy holders will vote as
recommended by the Board or, if no recommendation is given, in their own discretion.
What does it mean if I receive
more than one proxy card?
If your shares are registered differently and are in more than one account, you will receive
more than one proxy card. To ensure that all your shares are voted, sign and return all proxy cards.
What vote is
required to approve each of the proposals?
For Proposal 1: We have adopted, pursuant to our bylaws, a plurality voting
standard with respect to the election of directors. As such, the nominees for Class II directors with the highest number of affirmative votes of the outstanding shares present or represented by proxy and entitled to vote at the Annual Meeting (in
other words, a plurality), shall be elected as our Class II directors to serve until our annual meeting of stockholders in 2018 and/or until their successors are duly elected and qualified. As brokers will not have discretionary voting power on the
election of our Class II directors at the Annual Meeting, there will be broker non-votes for such matter. If you do not instruct your broker how to vote with respect to the election of our Class II directors, your broker may not
vote with respect to this proposal and those votes will be counted as broker non-votes. Broker non-votes will not count as votes For or to Withhold Authority.
For Proposal 2: The proposal to ratify the appointment of BDO USA, LLP as our independent registered public accounting firm requires the
affirmative FOR vote of a majority of those shares present in person or represented by proxy and entitled to vote on such proposal. A properly executed proxy marked ABSTAIN will not be voted, although it will be counted as
present and entitled to vote for purposes of a proposal. Accordingly, an abstention will have the effect of a vote Against that proposal. Additionally, brokers may have discretionary authority to vote on the ratification of our
independent registered public account firm and, as such, there would not be expected to be broker non-votes in connection with that proposal.
For Proposal 3: The proposal to approve, in accordance with Nasdaq Marketplace Rules, the issuance of shares of our Common Stock underlying convertible notes and warrants previously issued by us, in an
amount equal to or in excess of 20% of our Common Stock outstanding before the issuance of our Common Stock underlying such convertible notes and warrants requires the affirmative FOR vote of a majority of those shares present in person
or represented by proxy and entitled to vote on such proposal. A properly executed proxy marked ABSTAIN will not be voted, although it will be counted as present and entitled to vote for purposes of a proposal. Accordingly, an abstention
will have the effect of a vote Against that proposal. Brokers do not have discretionary authority to vote on Proposal 3, and therefore there may be broker non-votes on Proposal 3. Broker non-votes will not affect the outcome of the vote
on Proposal 3 and will not be counted in determining the number of shares necessary for approval of such proposal.
For
Proposal 4: The proposal to amend our Certificate of Incorporation to implement a reverse stock split of the Companys Common Stock, at a ratio of 1-for-6 at any time prior to December 31, 2016 requires the affirmative FOR vote
of a majority of the outstanding shares of the Company. A properly executed proxy marked ABSTAIN will not be voted, although it will be counted as present and entitled to vote for purposes of a proposal. Accordingly, an abstention will
have the effect of a vote Against that proposal. Additionally, brokers may have discretionary authority to vote on this amendment to our Certificate of Incorporation and as such, there would not be expected to be broker non-votes in
connection with this Proposal 4.
For Proposal 5: The proposal to amend our Certificate of Incorporation to increase our
authorized shares of stock from 75,000,000 to 210,000,000 and the number of authorized shares of Common Stock from 65,000,000 to 200,000,000 requires the affirmative FOR vote of a majority of the outstanding shares of the Company. A
properly executed proxy marked ABSTAIN will not be voted, although it will be counted as present and entitled to vote for purposes of a proposal. Accordingly, an abstention will have the effect of a vote Against that
proposal.
Additionally, brokers may have discretionary authority to vote on this amendment to our Certificate of Incorporation and as such, there would not be expected to be broker non-votes in connection
with this Proposal 5.
For Proposal 6: The advisory vote to approve our executive compensation, as described in this proxy
statement, requires the affirmative FOR vote of a majority of those shares present in person or represented by proxy and entitled to vote on such proposal. A properly executed proxy marked ABSTAIN will not be voted, although
it will be counted as present and entitled to vote for purposes of a proposal. Accordingly, an abstention will have the effect of a vote Against that proposal. Brokers do not have discretionary authority to vote on Proposal 6, and
therefore there may be broker non-votes on Proposal 6. Broker non-votes will not affect the outcome of the vote on Proposal 6 and will not be counted in determining the number of shares necessary for approval of such proposal.
What effect do abstentions and broker non-votes have on the proposals?
In all matters other than the election of directors, abstentions have the same effect as votes AGAINST a matter. A
broker non-vote occurs on an item when a broker identified as the record holder of shares is not permitted to vote on that item without instruction from the beneficial owner of the shares and no instruction has been received. A broker is
entitled to vote shares held for a beneficial holder on routine matters, such as the ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm, without instructions from the beneficial holder of those
shares. As such, your shares will count for purposes of determining whether a quorum exists for the Annual Meeting if your broker votes on the routine matter, with or without your proxy. However, brokers are no longer permitted to vote on the
election of directors without instruction from the beneficial owner of the shares.
Who will count the votes?
Members of the Companys management will tabulate the votes and act as Inspector of Elections.
Where can I find the voting results of the Annual Meeting?
We will announce preliminary voting results at the annual meeting and publish final results in a current report on Form 8-K.
How do I obtain a separate set of proxy materials if I share an address with other stockholders?
As permitted by applicable law, for stockholders who have requested a printed copy of the proxy materials, only one copy of the proxy
materials, which include the proxy statement and the 2014 Annual Report, is being delivered to stockholders with the same last name residing at the same address, unless such stockholders have notified us of their desire to receive multiple copies of
the proxy materials. We will promptly deliver within 30 days, upon oral or written request, a separate copy of the proxy materials to any stockholder residing at an address to which only one copy was mailed. If you are a stockholder at a shared
address to which we delivered a single copy of the proxy materials and you desire to receive a separate copy of this proxy statement and/or the 2014 Annual Report, or if you desire to receive a separate copy of this proxy statement and/or annual
report in the future, or if you are a stockholder at a shared address to which we delivered multiple copies of the proxy materials and you desire to receive one copy in the future, please submit your request by mail to Investor Relations, Local
Corporation, 7555 Irvine Center Drive, Irvine, CA 92618, or by telephone at (949) 784-0800.
If a broker, bank or other
nominee holds your Local shares, please contact your broker, bank or other nominee directly if you have questions, require additional copies of this proxy statement and/or the 2014 Annual Report, or wish to receive multiple copies of proxy materials
in the future if you reside at the same address as another stockholder and only one copy was delivered to you.
Are
proxy materials for the 2015 Annual meeting available electronically?
Yes. This proxy statement and the 2014 Annual
Report are available electronically at http://ir.local.com/proxy.
PROPOSAL 1 ELECTION OF DIRECTORS
Our Certificate of Incorporation provides for a Board comprised of not less than three nor more than seven directors and authorizes the
Board to set the number of directors within that range by a majority vote from time to time. Our Certificate of Incorporation also divides our Board into three classes with staggered terms. Our number of directors is currently set at five with one
director in Class I and two directors in each of Class II and III. At the 2015 Annual Meeting, only two Class II directors will be elected and the Board has nominated John E. Rehfeld and Frederick G. Thiel, for election as our Class II directors.
Unless you specifically withhold authority in the attached proxy for the election of Mr. Rehfeld and/or Mr. Thiel as a Class II director, the person named in the attached proxy will vote FOR the election Mr. Rehfeld and
Mr. Thiel. Mr. Rehfeld and Mr. Thiel will be elected to serve a three year term expiring at the annual meeting in 2018 and until his successor has been duly elected and qualified, or until his earlier resignation or removal.
Our nominees have consented to serve if elected. If our nominees become unavailable to serve as a director, the Board may
designate a substitute nominee. In that case, the proxy holders will vote for the substitute nominee or nominees designated by the Board. As of the date of this proxy statement, the Board has no reason to believe that the nominees will be unable or
unwilling to serve.
Our bylaws provide for the election of nominees to the Board based on a plurality of the votes received at
a meeting called for the purpose of electing directors. As such, the nominees with the highest number of affirmative votes of the outstanding shares present or represented by proxy and entitled to vote at the Annual Meeting, shall be elected as our
Class II directors.
The Board recommends a vote FOR the election of the nominees for director. If you fail to
vote your shares or instruct your broker on how to vote your shares, your broker will not be able to vote on your behalf with respect to the election of the nominees for director.
The following provides information regarding our nominees as the Class II members to the
Board, including their age, the year in which they first became our director, their principal occupation or employment during the past five years and any family relationship with any other director or our executive officers:
Class II Nominees:
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Name |
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Director Since |
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Age as of 5/7/15 |
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Business Experience, Directorships and Director
Qualifications |
John E. Rehfeld (A) (CC) (NC) |
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2005 |
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75 |
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Business Experience: Mr. Rehfeld is currently the adjunct professor of marketing and strategy for the Executive MBA Program at
Pepperdine University (since 1998) and the University of San Diego (since 2010). Directorships: Mr. Rehfeld was previously a Director of Lantronix, Inc. (from May 2010 to November 2012), ADC Telecommunication, Inc. (from September 2004 to December 2010) and Primal Solutions,
Inc. (from December 2008 to June 2009). Additionally, Mr. Rehfeld currently holds directorships with a number of private companies.
Qualifications: The Board of Directors has concluded that the following experience, qualifications and skills qualify Mr. Rehfeld to serve as a
Director of the Company: Over 30 years executive experience in high growth industries, including prior experience as a chief executive officer of a number of companies; prior and current experience serving as a director of a number of public and
private companies; and a distinguished educational background, including a Masters of Business Administration degree from Harvard University and a Bachelor of Science degree in Chemical Engineering from the University of Minnesota, as well as his
current positions as adjunct professor of marketing and strategy for the Executive MBA Programs at Pepperdine and the University of San Diego. |
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Name |
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Director Since |
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Age as of 5/7/15 |
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Business Experience, Directorships and Director
Qualifications |
Frederick G. Thiel, Chairman and Chief Executive Officer |
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2013 |
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54 |
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Business Experience: Mr. Thiel has served as our Chief Executive Officer since May 2014. Prior to that Mr. Thiel served as our
Chairman from January 2014 to May 2014. From January 2007 to December 2012, Mr. Thiel served as the Managing Partner of the Software IT Group at Triton Pacific Capital Partners. Mr. Thiel has been an Operating Partner with Graham Partners, a
mid-market private equity firm since 2008 Directorships: As part
of his role at Triton Pacific Capital Partners, Mr. Thiel served on the boards of four of its portfolio companies: Custom Credit Systems, LP, DB Technology, LOC, Asssetpoint, LLC, and Vayan Marketing Group, LLC. Mr. Thiel presently holds
directorships with three private companies. Qualifications: The
Board of Directors has concluded that the following experience, qualifications and skills qualify Mr. Thiel to serve as a Director of the Company: Over 20 years executive experience in high tech industries, including prior experience as a chief
executive officer of a public company and prior and current experience serving as a director of private companies. |
Directors Continuing in Office Until 2016 (Class III):
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Name |
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Director Since |
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Age as of 5/7/15 |
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Business Experience, Directorships and Director
Qualifications |
John Payne (A)(C) |
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2014 |
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59 |
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Business Experience: Mr. Payne has served as the Chairman and President of SimpleAir, Inc., a technology licensing
company which has licensed patents across the smartphone industry since April of 2004. Mr. Payne is the lead Inventor for such patents. Since June of 2013, he has also served as a Managing Director of Outset Ventures, a startup studio for the
development of early stage SaaS, mobile and financial services companies. Since June of 2013, he has served as the Executive Chairman of LOANZ, Inc., an Outset portfolio company which is an emerging leader in marketplace lending. Mr. Payne has
served as chief executive officer of a number of technology companies, including CircleUp, Inc., the leading group messaging platform for payments and messaging services, Preventsys, an enterprise regulatory compliance and Security Risk Management
Company, Day Software (SWX: DAYN) a publicly traded leading provider of global enterprise content management solutions, and Stamps.com (NASDQAQ: STMP), a leading provider of postage over the Internet from the US Postal Service.
Directorships: In the past five years, Mr. Payne has held no other public
company directorships. |
|
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|
Name |
|
Director Since |
|
Age as of 5/7/15 |
|
Business Experience, Directorships and Director
Qualifications |
|
|
|
|
|
|
Qualifications: The Board of Directors has concluded that the following experience, qualifications and skills qualify Mr.
Payne to serve as a Director of the Company: Over 15 years executive experience in high tech industries, including current experience as a chief executive officer and prior and current experience serving as a director of private and public
companies. |
David Hughes (AC)(N) |
|
2014 |
|
46 |
|
Business Experience: Since May 2004, Mr. Hughes has served as Chief Executive Officer of The Search Agency, a global
digital marketing company providing integrated multi-channel online marketing strategies, implementation and ongoing optimization to small and medium sized businesses. Prior to joining The Search Agency, Mr. Hughes served as Senior
Vice-President, Corporate Development for United Online, Inc., from 1999 to 2004. Mr. Hughes was a Management Consultant with the Boston Consulting Group from 1997-1999 and an Associate with Mercer Management Consulting from 1993 to
1995. Directorships: In the past five years, Mr. Hughes has held
one other public company directorship, with Spark Networks, Inc.
Qualifications: The Board of Directors has concluded that the following experience, qualifications and skills qualify Mr. Hughes to serve as a
Director of the Company: Over 15 years executive experience in high tech industries, including current experience as a chief executive officer and prior and current experience serving as a director of private companies and a public company; and
a strong educational background, including a Bachelor of Arts, with Honors, from the University of Western Ontario, and a Masters of Business Administration from Harvard Universitys Graduate School of Business
Administration. |
Director Continuing in Office until 2017 (Class I):
|
|
|
|
|
|
|
Name |
|
Director Since |
|
Age as of 5/7/15 |
|
Business Experience, Directorships and Director
Qualifications |
Norman K. Farra Jr. (LD) |
|
2005 |
|
46 |
|
Business Experience: In April 2015, Mr. Farra joined Rockport Global Advisors as Managing Director of Investment
Banking. Prior to Rockport, Mr. Farra had served as an Independent Banker and Advisor with Merriman Capital, FEP (Financial Entrepreneurs Program) since October 2012. From January 2012 to September 2012, Mr. Farra served as Managing Director,
Investment Banking for Aegis Capital, Inc. From December 2009 to December 2011, Mr. Farra served as Managing Director, Investment Banking for R.F. Lafferty & Co. Inc.. From May 2008 to December 2009, he served as Director, Investment Banking for
Cresta Capital Strategies, LLC. He was an independent financial consultant from September 2007 to May 2008, and served as Managing Director of Investment Banking for GunnAllen Financial Inc. from August 2006 to September 2007. From June 2001 to
August 2006, he was an independent contractor acting as Managing Director of Investment Banking for GunnAllen Financial Inc.
Directorships: In the past five years, Mr. Farra has held no other public company directorships.
Qualifications: The Board of Directors has concluded that the following
experience, qualifications and skills qualify Mr. Farra to serve as a Director of the Company: Over 22 years experience in the finance, capital markets and financial services industry; significant experience in the investment banking and financial
consulting industry; certification from the National Association of Corporate Directors; and a strong educational background, including a Bachelor of Science degree in Business Administration from Widener University. |
(A) |
Member of the Audit Committee |
(AC) |
Chairman of the Audit Committee |
(C) |
Member of the Compensation Committee |
(CC) |
Chairman of the Compensation Committee |
(N) |
Member of the Nominating and Corporate Governance Committee |
(NC) |
Chairman of the Nominating and Corporate Governance Committee |
Committee memberships noted above are as of May 7, 2015.
Director Compensation
The following table provides information regarding the compensation earned during the fiscal year ended December 31, 2014, by members of our Board, unless the director was also a named executive
officer in 2014:
2014 Director Compensation
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|
|
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|
|
|
Name |
|
Fees Earned or Paid in Cash ($) |
|
|
Option Awards ($) |
|
|
Total ($) |
|
Norman K. Farra Jr.(1) |
|
|
85,050 |
|
|
|
52,191 |
|
|
|
137,241 |
|
John E. Rehfeld(2) |
|
|
103,498 |
|
|
|
52,191 |
|
|
|
155,689 |
|
John Payne(3) |
|
|
29,800 |
|
|
|
22,035 |
|
|
|
51,835 |
|
David Hughes(4) |
|
|
29,800 |
|
|
|
22,035 |
|
|
|
51,835 |
|
(1) |
As of December 31, 2014, Mr. Farra held options to purchase an aggregate of 185,416 shares of our Common Stock. |
(2) |
As of December 31, 2014, Mr. Rehfeld held options to purchase an aggregate of 181,210 shares of our Common Stock. |
(3) |
As of December 31, 2014, Mr. Payne held options to purchase an aggregate of 16,666 shares of our Common Stock. |
(4) |
As of December 31, 2014, Mr. Hughes held options to purchase an aggregate of 16,666 shares of our Common Stock. |
Non-employee members of the Board receive an annual retainer of $30,000 plus $1,500 for each in-person or telephonic Board meeting
attended and $750 for each in-person meeting attended telephonically. The Lead Director, Mr. Farra, receives an annual fee of $15,000. The Chairman of the Audit Committee receives an annual fee of $15,000. The Chairman of the Compensation
Committee receives an annual fee of $7,000. The Chairman of the Nominating and Corporate Governance Committee receives an annual fee of $5,000. Members of committees of the Board receive $1,200 for each committee meeting attended. In addition, all
members of the Board receive an annual grant of an option to purchase 25,000 shares of our Common Stock. Non-employee members of the Board received their option grant for 2013 Board service in January 2014. Also, in light of additional service
required of all Board members during 2013 and continuing in 2014, members of the Board received a one-time supplemental grant of an option to purchase 15,000 shares of our Common Stock in January 2014. One-half of each of the options granted to the
member of the Board are vested at the time of the grant, and the remaining portions vest in equal monthly installments over the following twelve months. Stock option grants have a post-separation exercise period of two years.
Board Meeting Attendance
Our Board met 12 times during 2014. During the year, overall attendance by incumbent directors was 100% at Board meetings and 100% at
committee meetings to which they had been appointed. At last years annual meeting of stockholders, one member of our Board was in attendance.
Director Independence
|
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|
Director |
|
Independent(1) |
|
Audit Committee Member(2) |
|
|
Nominating and Corporate Governance Committee Member(2) |
|
|
Compensation Committee Member(2) |
|
Frederick G. Thiel |
|
No |
|
|
|
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|
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|
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|
|
Norman K. Farra Jr |
|
No |
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|
|
|
|
|
|
|
|
|
John E. Rehfeld |
|
Yes |
|
|
X |
|
|
|
X |
|
|
|
X |
|
John M. Payne |
|
Yes |
|
|
X |
|
|
|
|
|
|
|
X |
|
David M. Hughes |
|
Yes |
|
|
X |
|
|
|
X |
|
|
|
|
|
(1) |
The Board has determined that Messrs. Hughes, Payne and Rehfeld were independent for the year ended December 31, 2014, within the
meaning of the Nasdaq Capital Market (Nasdaq) director independence |
|
standards, as currently in effect. The Board further determined that Frederick G. Thiel and Norman K. Farra, Jr., were not independent as of December 31, 2014. Messrs. Hughes and Payne
joined the Board on June 9, 2014. |
(2) |
Committee membership and independence is as of May 7, 2015. |
Board Leadership Structure
The Board, in conjunction with the Nominating
and Corporate Governance Committee, has determined that it is in our best interests that our Chief Executive Officer also serve as Chairman in light of our size, the size of the overall Board, and the Chief Executive Officers overall
familiarity with our business, strategy and the industry in general. The Board believes that the dual role of Chairman and Chief Executive Officer allows the Chief Executive Officer, who is deeply involved in our day-to-day operations, to best
present to the independent directors his ideas for us, the challenges facing us, the opportunities available to us, and our operations. The independent directors can then utilize their collective experience, oversight and expertise in determining
the strategies and our priorities should focus its efforts on. Together, the Chairman and CEO and the independent directors make determinations about our strategic direction, and management is accountable for executing the strategy. The Board
believes that this manner of governance appropriately balances the need for an informed and involved Chairman with independent Board oversight. In furtherance of these objectives, the independent directors meet at least four times annually in
executive session without management or non-independent directors present. The Board has also historically appointed a lead director during periods in which the Chairman and CEO roles were held by the same individual. Presently, Fred Thiel serves as
our Chairman and Chief Executive Officer and Norman Farra serves as our lead director. In the event of an actual or potential conflict of interest involving any director, including the Chairman or lead director, both the Chairman and lead director
are both promptly informed.
The Boards Role in Risk Oversight
The entire Board is engaged in risk oversight, including reviewing managements operational and financial planning and associated
risks. The Boards role in our risk oversight process includes receiving regular reports from members of senior management on areas of material risk to us, including operational, financial, legal, regulatory and strategic. The full Board
receives these reports from the appropriate officer within the organization to enable it, pursuant to its Corporate Governance Guidelines, to assess the major risks facing us and to review the options to mitigate such risks. Furthermore, the Audit
Committee regularly considers policies with respect to risk assessment and risk management as they relate to our consolidated financial statements and financial reporting process. During meetings of the full Board, the Chairman or other members of
the Audit Committee report to the full Board on applicable issues related to risk.
Board Committees
As of May 7, 2015, our Board has three active standing committees, an Audit Committee, a Compensation Committee, and a Nominating and
Corporate Governance Committee. From time to time, the Board may also establish special purpose committees.
Audit
Committee
The Audit Committee is currently comprised of Mr. Hughes as Chairman and Messrs. Payne and Rehfeld,
each of whom satisfies the Nasdaq and SEC rules for Audit Committee membership (including rules regarding independence). The Audit Committee held seven meetings during 2014. The Board has determined that Mr. Hughes is an audit committee
financial expert within the meaning of the rules and regulations of the SEC and satisfies the financial sophistication requirements of the Nasdaq listing standards.
The Audit Committee operates pursuant to its written charter, which is available on our corporate web site at http://ir.local.com, under the Corporate Governance tab, as well as our
by-laws and applicable law. In accordance with its charter, the Audit Committees purpose is to assist the Board in fulfilling its oversight responsibilities to our stockholders with respect to the integrity of our financial statements and
reports and financial reporting process. Specific responsibilities include:
|
|
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reviewing and recommending to the Board approval of the Corporations interim and annual financial statements and managements discussion and
analysis of results of operation and financial condition related thereto; |
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being directly responsible for the appointment, compensation, retention and oversight of the work of the independent registered public accounting firm;
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pre-approving, or establishing procedures and policies for the pre-approval of, the engagement and compensation of the external auditor in respect of
the provision of (i) all audit, audit-related, review or attest engagements required by applicable law and (ii) all non-audit services permitted to be provided by the independent registered public accounting firm;
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reviewing the independence and quality control procedures of the independent registered public accounting firm; |
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preparing the Audit Committee report in the Companys proxy materials in accordance with applicable rules and regulations, when applicable and
required; |
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establishing procedures for (i) the receipt, retention and treatment of complaints received by us regarding accounting, internal controls, and
auditing matters, and (ii) the confidential, anonymous submission of complaints by our employees of concerns regarding questionable accounting or auditing matters; and |
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|
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annually reviewing its charter and recommending any amendments to the Board. |
The Audit Committee meets periodically with management to consider the adequacy of our internal controls and the financial reporting
process. It also discusses these matters with our independent registered public accounting firm and with appropriate company financial personnel. The Audit Committee reviews our financial statements and discusses them with management and our
independent registered public accounting firm before those financial statements are filed with the SEC.
The Audit Committee
regularly meets privately with the independent registered public accounting firm. The Audit Committee has the sole authority and direct responsibility for the appointment, compensation, retention, termination, evaluation and oversight of the work of
the independent registered public accounting firm engaged by us to perform the audit of our financial statement or related work or other audit, review or attestation services for us. The Audit Committee periodically reviews the independent
registered public accounting firms performance and independence from management. The independent registered public accounting firm has access to our records and personnel and reports directly to the Audit Committee.
The Audit Committee is empowered to retain outside legal counsel and other experts at our expense where reasonably required to assist and
advise the Audit Committee in carrying out its duties and responsibilities.
Compensation Committee
The Compensation Committee (the Compensation Committee) is currently comprised of Mr. Rehfeld as Chairman and
Mr. Payne, each of whom satisfies the Nasdaq and SEC rules for membership to the Compensation Committee (including rules regarding independence). The Compensation Committee held eight meetings during 2014.
The Compensation Committee operates pursuant to its written charter, which is available on our corporate web site at http://ir.local.com,
under the Corporate Governance tab, as well as our by-laws and applicable law. In accordance with its charter, the Compensation Committees purpose is to assist the Board in discharging the Boards responsibilities regarding:
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|
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reviewing, at least annually, and making recommendations to the Board with respect to executive compensation strategies, benefits,
incentive-compensation plans and equity-based plans to ensure management is properly rewarded for its contribution and that management is properly aligned with the interests of our shareholders; |
|
|
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reviewing the corporate goals and objectives with respect to the compensation of the Chief Executive Officer, including an evaluation of the Chief
Executive Officers performance in light of these goals and objectives and, based upon such evaluation, setting the salary, bonus, incentive and equity compensation for our Chief Executive Officer; |
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reviewing the evaluation process of and compensation structure for our other senior executive officers and reviewing the performance of our other
senior executive officers, as well as approving the compensation of such senior executive officers; |
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the periodic review of and the making of recommendations to the Board with respect to our long term incentive plans and grants thereunder to the Chief
Executive Officer and other senior executive officers, including with consideration to our performance, relative shareholder return, awards at comparable companies and other factors; |
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the review and approval of employment agreements, separation and severance agreements, and other appropriate management personnel;
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|
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the grant of discretionary awards under our equity incentive plans, and the exercise of authority of the Board with respect to the administration of
our incentive compensation plans; |
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|
|
consider the results of the most recent stockholder advisory vote on executive compensation (Say on Pay Vote) required by Section 14A
of the Securities Exchange Act of 1934, as amended; |
|
|
|
review and discuss with management the Compensation Discussion and Analysis section of our annual proxy statement or annual report on Form
10-K; |
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reviewing the adequacy of its charter at least annually; |
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reviewing the Compensation Committees own performance on at least an annual basis; and |
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reviewing whether a compensation consultant needs to be retained and, if so, to retain a compensation consultant free of any conflict of interest.
|
In addition to the powers and responsibilities expressly delegated to the Compensation Committee in its
charter, the Compensation Committee may exercise other powers and carry out other responsibilities that may be delegated to it by the Board from time to time, consistent with our bylaws.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee (the NCG Committee) is currently comprised of Mr. Rehfeld as Chairman and Mr. Hughes, each of whom satisfies the Nasdaq and SEC
rules for membership to the NCG Committee (including rules regarding independence). The NCG Committee held nine meetings during 2014 and there was no unanimous written consents.
The NCG Committee operates pursuant to its written charter, which is available on our corporate web site at http://ir.local.com, under
the Corporate Governance tab, as well as our by-laws and applicable law. In accordance with its charter, the NCG Committees purpose is to assist the Board in discharging the Boards responsibilities regarding:
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the identification, evaluation and recommendation to the board of qualified candidates to become Board members; |
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the selection of nominees for election as directors at the next annual meeting of stockholders (or special meeting of stockholders at which directors
are to be elected); |
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the selection of candidates to fill any vacancies on the Board; |
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|
the periodic review of the performance of the Board and its individual members; |
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the making of recommendations to the Board regarding the number, function and composition of the committees of the Board; |
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|
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the evaluation, on an at least annual basis, of the performance of the chief executive officer and other executive officers in light of corporate goals
and objectives; |
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the review and provision of assistance to the Board in developing succession plans for the executive officers and other appropriate management;
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the recommendation to the Board of compensation programs for non-employee directors, committee chairpersons, and committee members, consistent with any
applicable requirements for the listing standards for independent directors and including consideration of cash and equity components of this compensation; |
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the development and recommendation to the Board of a set of corporate governance guidelines and principles applicable to us (the Corporate
Governance Guidelines); and |
|
|
|
oversight of the evaluation of the Board. |
In addition to the powers and responsibilities expressly delegated to the NCG Committee in
its charter, the NCG Committee may exercise other powers and carry out other responsibilities that may be delegated to it by the Board from time to time, consistent with our bylaws.
Consideration and Determination of Executive and Director Compensation.
The Compensation Committee undertakes a review of executive and director compensation on at least an annual basis. The Compensation
Committee applies its established compensation principles to such considerations when determining when and if changes are warranted with respect to the compensation of our executives and directors. The Compensation Committee, as part of its
considerations, may review the compensation and compensation philosophies of companies within our peer group, as established by the Compensation Committee from time to time. The Compensation Committee utilizes a combination of salary, annual cash
incentives, long-term, equity based incentives and other benefits to structure executive compensation packages in conformity with its compensation principles, generally with the intent of rewarding performance in a manner that is aligned with
stockholder interests. While the Compensation Committee retains authority over all such compensation matters, it may delegate certain matters, such as the administration of certain of its benefits plans, to our human resources department.
The Compensation Committee periodically uses Frederic W. Cook & Co., Inc. (Cook & Co.) as its
independent compensation consultants. Cook & Co. previously advised the Compensation Committee with respect to trends in executive compensation, the selection of our peer companies, the determination of pay programs, an assessment of
competitive pay levels, and the setting of compensation levels. In 2014, Cook & Co. advised the Compensation Committee with respect to the executive compensation package for our new Chief Executive Officer, Fred Thiel.
Our chief executive officer does provide recommendations to the Compensation Committee as to the compensation of his direct reports,
including all of our other Named Executive Officers. These recommendations are not binding on the Compensation Committee, which reserves for itself the final determination of compensation packages for all Named Executive Officers, including the
chief executive officer. Our chief executive officer also has an opportunity to discuss with the Compensation Committee his compensation on at least an annual basis.
Director Nomination Process
In selecting director nominees, the Board,
through the NCG Committee, may consider suggestions from many sources, including our stockholders. Any such director nominations, together with appropriate biographical information and qualifications, should be submitted by the stockholder(s) to
Kenneth S. Cragun, Secretary, c/o Local Corporation, 7555 Irvine Center Drive, Irvine, CA 92618. Director nominees submitted by stockholders are subject to the same review process as director nominees submitted from other sources such as other Board
members or senior management.
The Board, through its NCG Committee, will consider a number of factors when reviewing
potential director nominees. The factors which are considered by the Board and its NCG Committee include, but are not limited to the following: the candidates ability and willingness to commit adequate time to Board and committee matters, the
fit of the candidates skills and personality with those of other directors and potential directors in building a Board that is effective, collegial and responsive to our needs, the candidates personal and professional integrity, ethics
and values, the candidates experience in corporate management, such as serving as an officer or former officer of a publicly held company, the candidates experience in our industry, the candidates experience as a board member of
another publicly held company, whether the candidate would be independent under applicable standards, whether the candidate has practical and mature business judgment, and the candidates academic expertise in an area of our
operations. However, our Board has not adopted a formal diversity policy.
In identifying, evaluating and selecting future
potential director nominees for election at each future annual meeting of stockholders and nominees for directors to be elected by the Board to fill vacancies and newly created directorships, the Board, through its NCG Committee, engages in a
selection process. The Board, through its NCG Committee, will consider as potential director nominees candidates recommended by various sources,
including any member of the Board, any of our stockholders or senior management. The Board may also hire a search firm if deemed appropriate. All potential new director nominees will be initially
reviewed by the NCG Committee. The members of the NCG Committee will make an initial determination in their own independent business judgment as to the qualifications and fit of such director candidates based on the criteria set forth above. If the
NCG Committee determines that it is appropriate to proceed, the Chief Executive Officer and at least one additional member of the Board will interview the prospective director candidate(s). The full Board may interview the candidates as well. The
NCG Committee provides informal progress updates to the Board, as appropriate, and meets to consider and recommend final director candidates to the entire Board as necessary. The Board ultimately determines which candidates are nominated or elected
to fill a vacancy.
There have been no changes to the procedure by which our stockholders may recommend nominees to our board
of directors.
Communications with the Board
Stockholders who wish to contact members of the Board may send written correspondence to the following address: Kenneth S. Cragun, Secretary, c/o Local Corporation, 7555 Irvine Center Drive, Irvine, CA
92618. Stockholders should provide proof of share ownership with their correspondence. It is suggested that stockholders also include contact information. All communications will be received and processed by the Secretary, and then directed to the
appropriate member(s) of the Board. In general, correspondence relating to accounting, internal accounting controls or auditing matters will be referred to the Chairperson of the Audit Committee. To the extent correspondence is addressed to a
specific director or requires a specific directors attention, it will be directed to that director.
Code of Business Conduct and
Ethics
We have adopted a code of business conduct and ethics that applies to our officers, directors and employees. Our
code of business conduct and ethics, as applied to our Chief Executive Officer, senior executive officers, principal accounting officer, controller and other senior financial officers complies with the requirements of Section 406 of the
Sarbanes-Oxley Act. Our code of business conduct and ethics is available on our web site at http://ir.local.com, under the Corporate Governance tab. In addition, a copy of the code of business conduct and ethics will be provided to any
person without charge upon request to Kenneth S. Cragun, Local Corporation, 7555 Irvine Center Drive, Irvine, CA 92618. We intend to timely disclose any amendments to or waivers of certain provisions of our code of business conduct and ethics that
apply to our Chief Executive Officer, senior executive officers, principal accounting officer, controller and other senior financial officers on our web site within four business days of such amendment or waiver or as otherwise required by the SEC
or Nasdaq.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board (the Audit Committee) consists of three non-employee directors as of the date of this report,
including David Hughes, as chairman, John Rehfeld and John Payne, each of whom the Board has determined to be an independent director under applicable SEC rules, the Nasdaq listing standards and the Companys own internal guidelines. The Audit
Committee is a standing committee of the Board and operates pursuant to a written charter adopted by the Board, which is available on our website, http://ir.local.com, under the Corporate Governance tab.
Among its functions, the Audit Committee has the authority and responsibility to retain and terminate the engagement of the Companys
independent registered public accounting firm (the independent auditors). The role of the Audit Committee is to oversee the Companys financial reporting process on behalf of the Board. Management of the Company has the primary
responsibility for the Companys consolidated financial statements as well as the Companys financial reporting process, principles and internal controls. The independent registered public accounting firm is responsible for performing an
audit of the Companys consolidated financial statements and expressing an opinion as to the conformity of such consolidated financial statements with accounting principles generally accepted in the United State of America.
The Audit Committee met seven times during fiscal 2014 to fulfill its responsibilities. The Audit Committees chairman and senior
members of the Companys financial management team establish the Audit committees agenda for all such meetings. During 2014, the Audit Committee also met with the Companys independent auditors and the senior members of the
Companys financial management team to discuss any matters that, in the opinion of the Audit Committee, should be discussed privately with the Audit Committee, the independent auditors or the senior members of the Companys financial
management team.
In this context, the Audit Committee has reviewed and discussed the audited financial statements of the
Company as of and for the year ended December 31, 2014, with management and the independent auditors. Management represented to the Audit Committee that the Companys consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America. The Audit Committee discussed with the independent auditors matters required to be discussed pursuant to Auditing Standard No. 16, (Communications with Audit
Committees) adopted by the Public Company Accounting Oversight Board.
In addition, the Audit Committee has received the
written disclosures and the letter from the independent auditors required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditors communications with the Audit Committee concerning
independence, and has discussed with the independent auditor their independence.
Based on the reports and discussions
described above, the Audit Committees review of the Companys audited consolidated financial statements, representations of management and the report of the independent auditors to the Audit Committee, the Audit Committee recommended to
the Board that the audited consolidated financial statements be included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2014, for filing with the Securities and Exchange Commission.
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|
AUDIT COMMITTEE |
|
|
|
|
David M. Hughes, Chairman |
|
|
John E. Rehfeld |
|
|
John Payne |
May 7, 2015 |
|
|
EXECUTIVE OFFICERS
Executive Officers
The following table sets forth, as of May 7, 2015,
certain information concerning our executive officers:
|
|
|
|
|
|
|
Name |
|
Age |
|
|
Position |
Frederick G. Thiel |
|
|
54 |
|
|
Chief Executive Officer and Chairman of the Board |
Kenneth S. Cragun |
|
|
54 |
|
|
Chief Financial Officer and Secretary |
Scott Reinke |
|
|
41 |
|
|
Chief Legal Officer |
Frederick G. Thiel was appointed to our board of directors on January 16, 2013.
Mr. Thiel was appointed Chairman of the Board on January 10, 2014 and Chief Executive Officer on May 7, 2014. From January 2007 to December 2012, Mr. Thiel served as the Managing Partner of the Software IT Group at Triton Pacific
Capital Partners, a private equity firm making equity investments on behalf of itself and its investors in lower middle market companies. As part of his role at Triton Pacific Capital Partners, Mr. Thiel served on the boards of four
of its portfolio companies: Custom Credit Systems, LP, an enterprise software company providing commercial lending automation solutions to major banks; DB Technology, LLC, an enterprise content management software company providing solutions to
healthcare providers; Assetpoint, LLC, an enterprise software company providing enterprise asset management solutions to major corporations; and Vayan Marketing Group, LLC, an internet media marketing company providing customer acquisition services
to major consumer brands. Mr. Thiel has been an Operating Partner with Graham Partners, a mid-market private equity firm since 2008. Mr. Thiel is presently a director of three private companies, including Predixion Software, Inc., B&B
Electronics, Inc., and OCTANe LLC. Mr. Thiel attended classes at the Stockholm School of Economics in Europe.
Kenneth
S. Cragun has served as our Chief Financial Officer since December 2010, as our Secretary since October 2010, as our interim Chief Financial Officer from October 2010 to December 2010, and our Vice President of Finance from April 2009 to October
2010. From June 2006 to March 2009, Mr. Cragun was the Chief Financial Officer of Modtech Holdings, Inc., a supplier of modular buildings. Mr. Cragun received a Bachelors of Science degree in Accounting from Colorado State
University-Pueblo. Mr. Craguns responsibilities prior to Local Corporation have included chief financial officer functions at a public company, including preparation of financials for SEC disclosures in accordance with GAAP, audit
experience at a nationally recognized certified public accounting firm, and day-to-day management of the financial affairs of both public and private companies.
Scott Reinke has served as our Chief Legal Officer since July 2014. Prior to that, he served as our General Counsel since April 2009. From October 2006 through April 2009, Mr. Reinke served as
Executive Vice President and General Counsel of Emerging Media Group, Inc., which operated Market Maker Interactive, a full service interactive agency, and TRAFFIQ, a digital media management and media buying platform. Prior to Emerging Media Group,
Mr. Reinke served as the vice president of legal and associate general counsel for MIVA, Inc., a provider of performance-based online marking and commerce services. Mr. Reinke received his Bachelor of Arts degree, cum laude, in
English and Political Science from Boston College, and his Juris Doctorate from the Georgetown University Law Center.
Involvement In
Certain Legal Proceedings
On October 20, 2008, Modtech Holdings, Inc., a Delaware Corporation, filed a voluntary
petition for reorganization under Chapter 11 of the US Bankruptcy Code. Mr. Cragun, our chief financial officer, was chief financial officer of Modtech Holdings, Inc. at the time of filing.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of shares of our Common Stock as of May 7, 2015:
|
|
|
each person (or group of affiliated persons) known by us to beneficially own more than 5% of our Common Stock; |
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|
|
each of our directors and nominees; |
|
|
|
each named executive officer; and |
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|
|
all of our directors and executive officers as a group. |
Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our Common Stock. Beneficial ownership is determined in accordance with
the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. In computing the number of shares beneficially owned by a person listed below and the percentage ownership of such person,
shares of Common Stock underlying options, restricted stock units, warrants or convertible securities held by each such person that are exercisable, vested or convertible within 60 days of May 7, 2015, are deemed outstanding, but are not deemed
outstanding for computing the percentage ownership of any other person.
The percentage of beneficial ownership is based on
24,314,051 shares of Common Stock outstanding as of May 7, 2015.
Except as otherwise noted below, and subject to
applicable community property laws, the persons named have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. Unless otherwise indicated, the address of the following stockholders is c/o
Local Corporation, 7555 Irvine Center Drive, Irvine, CA 92618.
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Name and Address of Beneficial Owner |
|
Number of Shares of Common Stock Beneficially Held |
|
|
Percentage |
|
5% Stockholders: |
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|
|
|
|
|
|
The Tail Wind Fund Ltd(1) |
|
|
2,586,699 |
|
|
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9.99 |
% |
Wolverine Flagship Fund Trading Limited(2) |
|
|
2,586,699 |
|
|
|
9.99 |
% |
Goldman Capital Management(3) |
|
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5,613,029 |
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20.85 |
% |
Executive Officer and Director: |
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|
|
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|
|
Frederick G. Thiel(4) |
|
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302,203 |
|
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1.23 |
% |
Norman K. Farra Jr.(5) |
|
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297,998 |
|
|
|
1.21 |
% |
John M. Payne(6) |
|
|
106,322 |
|
|
|
* |
% |
David M. Hughes(7) |
|
|
125,781 |
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|
|
* |
% |
John E. Rehfeld(8) |
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376,824 |
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|
1.53 |
% |
Kenneth S. Cragun(9) |
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300,350 |
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1.22 |
% |
Scott D. Reinke(10) |
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206,957 |
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|
* |
% |
All directors and executive officers as a group (7 persons)(11) |
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1,716,435 |
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|
|
6.99 |
% |
|
(1) |
The amount set forth as the beneficial ownership is after taking into account the Funds Ownership Limitation (as defined below). Without such
Ownership Limitation, the Funds beneficial ownership would be 10,466,380 shares of common stock, including 3,818,089 shares issuable upon the exercise of warrants that are exercisable within 60 days of May 7, 2015. Also includes 3,350,379
and 3,173,483 shares issuable upon the conversion of the Series A Notes and Series B Notes, respectively, and 124,429 shares related to interest payments, of which 61,809 have already been issued and 62,620 of which will be issuable within 60 days
of May 7, 2015. Under the terms of the Series A Notes and the |
|
Warrants, this stockholder may not convert the Series A Notes or exercise the Warrants to the extent (but only to the extent) such selling stockholder or any of its affiliates would beneficially
own a number of shares of our common stock which would exceed 9.99% of the outstanding shares of the Company (the Ownership Limitation). |
|
(2) |
The amount set forth as the beneficial ownership is after taking into account the Funds Ownership Limitation. Without such Ownership Limitation, the Funds
beneficial ownership would be 10,466,380 shares of common stock, including 3,818,089 shares issuable upon the exercise of warrants that are exercisable within 60 days of May 7, 2015. Also includes 3,350,379 and 3,173,483 shares issuable upon
the conversion of the Series A Notes and Series B Notes, respectively, and 124,429 shares related to interest payments, of which 61,809 have already been issued and 62,620 of which will be issuable within 60 days of May 7, 2015. Under the terms
of the Series A Notes and the Warrants, this stockholder is also subject to the Ownership Limitation. |
|
(3) |
Includes 869,702 shares issuable upon the exercise of warrants that are exercisable within 60 days of May 7, 2015. Also includes 1,369,417 and 352,609 shares
issuable upon the conversion of the Series A Notes and Series B Notes, respectively, and 13,825 shares related to interest payments, of which 6,868 have already been issued and 6,958 of which will be issuable within 60 days of May 7, 2015.
|
|
(4) |
Includes 166,666 shares issuable upon the exercise of the options that are exercisable within 60 days of May 7, 2015. Also includes 45,179 shares issuable upon
exercise of warrants, and 90,358 shares issuable upon the conversion of the Series A Notes. |
|
(5) |
Includes 182,708 shares issuable upon the exercise of the options that are exercisable within 60 days of May 7, 2015. Also includes 27,107 shares issuable upon
exercise of warrants, and 54,215 shares issuable upon the conversion of the Series A Notes. Also includes 4,500 shares with indirect beneficial ownership by Mr. Farra as custodian for his daughter, and an additional 5,000 shares with indirect
beneficial ownership by Mr. Farra as custodian for his wife. |
|
(6) |
Includes 25,000 shares issuable upon the exercise of the options that are exercisable within 60 days of May 7, 2015. Also includes 27,107 shares issuable upon
exercise of warrants, and 54,215 shares issuable upon the conversion of the Series A Notes. |
|
(7) |
Includes 25,000 shares issuable upon the exercise of the options that are exercisable within 60 days of May 7, 2015. Also includes 27,107 shares issuable upon
exercise of warrants, and 54,215 shares issuable upon the conversion of the Series A Notes. |
|
(8) |
Includes 188,502 shares issuable upon the exercise of the options that are exercisable within 60 days of May 7, 2015. Also includes 27,107 shares issuable upon
exercise of warrants, and 54,215 shares issuable upon the conversion of the Series A Notes. |
|
(9) |
Includes 230,775 shares issuable upon the exercise of the options that are exercisable within 60 days of May 7, 2015. Also includes 18,071 shares issuable upon
exercise of warrants, and 36,143 shares issuable upon the conversion of the Series A Notes. |
|
(10) |
Includes 137,711 shares issuable upon the exercise of the options that are exercisable within 60 days of May 7, 2015. Also includes 18,071 shares issuable upon
exercise of warrants, and 36,143 shares issuable upon the conversion of the Series A Notes. |
|
(11) |
Includes 956,362 shares issuable upon the exercise of options that are exercisable within 60 days of May 7, 2015, and 9,500 shares with indirect beneficial
ownership. |
EXECUTIVE COMPENSATION
Executive Compensation Program Objectives and Overview
The Compensation
Committee administers our executive compensation arrangements and meets in executive session with the Board of Directors to determine the compensation of our Chief Executive Officer. As discussed in more detail below, in determining the compensation
for our other Named Executive Officers (as defined below), the recommendations of our Chief Executive Officer, among other factors, may be considered by the Compensation Committee. Nevertheless, the Compensation Committee is solely responsible for
making the final decisions on compensation for our Named Executive Officers.
Our general compensation arrangements are guided
by the following principles and business objectives:
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It is our objective to hire and retain top talent in our industry in an exceptionally competitive marketplace, especially for key positions that
directly contribute to creating stockholder value; |
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We reward the performance of our top contributors in key positions within our company by focusing our resources on them and their continued
performance; and |
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We firmly believe that equity compensation is an important means of aligning the interests of our employees with those of our stockholders and focus
our equity compensation on the key positions within our Company that we believe have the greatest impact on performance. |
We are guided by the above principles in our compensation philosophy for our executive officers, which has been designed to achieve the following two objectives:
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Allow us to attract and retain the key executive talent it needs to achieve its business objectives by providing total compensation arrangements that
are competitive and attractive; and |
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Establishing a direct correlation between the total executive compensation paid to our overall performance and improvements in performance, including
the creation of shareholder value, and the individual performance and achievements. |
The executives listed in
the Summary Compensation Table in this Proxy are referred to as the Named Executive Officers.
Overview
We are dependent upon the experience and talents of our executives to successfully manage our highly technical,
complex and rapidly evolving business. We compete in a rapidly changing industry, one which regularly experiences paradigm shifting technological developments and shifting trends in the businesses and markets in which we compete. We rely on our
executives to successfully address these developments and to improve our business and its performance in order to increase shareholder value. We face a highly competitive executive labor market and face competitors for our executives skills of
our similar size and scale, as well as larger competitors with greater resources than we have and smaller competitors that seek to hire our executives to facilitate and expedite their own businesses that compete with us directly or in the same
industry.
Executive Compensation Programs
Our current executive compensation program is comprised of three key components, which collectively are intended to conform to our
compensation philosophy and to reward our executives based on individual and company performance. We use (1) base salary, (2) periodic incentive cash or cash and equity bonuses, and (3) long-term equity awards, in the form of stock
options and RSUs, as its primary compensation components. The Compensation Committee considers how each such component of executive compensation promotes retention and rewards performance by the individual and us generally when structuring its
executive compensation arrangements.
We seek to provide targeted compensation opportunities at the median of competitive
market practice in order to attract, retain, and motivate our executives. However, the Compensation Committee may target an individual executives compensation higher or lower than the median based on the individuals role, experience,
and/or performance, among other factors. The Compensation Committee uses certain peer companies (as identified below) to inform it of competitive pay levels and generally intends that base salary levels be consistent
with competitive market base salary levels. The Compensation Committee generally targets performance-based compensation, such as bonus and long-term incentive equity opportunities to make up a
substantial portion of each executives total direct compensation opportunity, as achievement of those are tied to our performance and individual performance and provide long-term incentives to our executives. The Compensation Committee
believes that the cash and long-term equity incentives provided to our executives have been designed to provide an effective mix of incentives to ensure our executive performance is focused on building long-term stockholder value.
We do not provide any pensions or other retirement benefits for our executives other than our 401(k) plan. Generally, except for the
payment of up to $1,500 a month in health insurance payments that would otherwise be paid by our executives and the cost of a life insurance policy of up to 5 times the executives annual salary, we also do not provide any perquisites. We provide our
executive officers with certain severance protections as a further means of attracting and retaining our key executives and to preserve the stability of our executive team. These severance protections are described below under Severance and
Change in Control Severance Benefits and Potential Payments Upon Termination or Change in Control.
Independent
Consultant and Peer Group
The Compensation Committee periodically uses Frederic W. Cook & Co., Inc.
(Cook & Co.) as its independent compensation consultants. Cook & Co. previously advised the Compensation Committee with respect to trends in executive compensation, the selection of our peer companies, the determination
of pay programs, an assessment of competitive pay levels, and the setting of compensation levels in 2010. In 2014, Cook & Co. advised the Compensation Committee with respect to the executive compensation package for our new Chief Executive
Officer, Frederick G. Thiel.
The Compensation Committee considers, from time to time, peer company data compiled by management
at the request of the Compensation Committee, in establishing compensation levels. The Compensation Committee utilizes this information when considering executive compensation arrangements, including the reasonableness of such arrangements from a
competitive vantage point. For 2014, the Compensation Committee considered compensation data for the following companies: RCM Technologies, Marchex, Actuate, TravelZoo, XO Group, ipass, Geeknet, Guidance Software, Callidus Software, TechTarget,
Tree, Innodata Isogen, Falconstar Software, Autobytel, and TheStreet. This group of companies is referred to by us hereafter as our peer group or our peer companies for 2014.
The peer group was selected in 2013 based on objective criteria, taking into account company size and industry. At the time of selection,
the peers revenue and market capitalizations generally fell within a range of 1x to 10x of ours, with our revenue and market capitalization in the middle range to avoid distortion from size. The peers are technology and/or media companies that
have businesses that are broadly similar to our business.
Shareholder Advisory Vote on Executive Compensation
At our 2014 Annual Meeting of Stockholders, 86.4% of our voting stockholders voted to approve a resolution approving, on an advisory
basis, the compensation of our executive officers, as disclosed in our proxy statement of the 2014 Annual Meeting of Stockholders. The Compensation Committee considered this approval in its consideration of future executive compensation matters and
has determined to generally maintain its practices and policies consistent with the prior year, subject to adjustments as are deemed appropriate in the view of the Compensation Committee in light of our present circumstances.
Current Executive Compensation Program Elements
Base Salaries
We provide the Named Executive Officers, along with
other employees, with base salary to compensate them for their services throughout the year. The Compensation Committee performs an annual review of the base salaries of our Named Executive Officers. These base salary levels are intended to be
generally consistent with competitive market base salary levels, but are not specifically targeted or bench-marked against any particular company or group of companies, including our peer group. The Compensation Committee sets base
salaries so that a substantial portion of the executives total direct compensation remains contingent on performance-based
bonuses and long-term incentive equity awards. The Compensation Committee considers and assesses, among other factors, the scope of an executives responsibility, prior experience, past
performance, advancement potential, impact on results, salary relative to our other executives and relevant competitive data in setting specific salary levels for each of our Named Executive Officers, as well as our other officers.
The annual base salary of each of our then-current Named Executive Officers, except Mr. Thiel, was increased effective July 1,
2014, to adjust for cost of living increases. The Compensation Committee did not undertake a formal review of relevant market compensation data, as only cost of living increases were contemplated for 2014. Effective July 1, 2014:
Mr. Craguns salary was increased from $300,000 to $309,000; and Mr. Reinkes salary was increased from $270,000 to $300,000.
Short Term Bonuses
For 2014, the Compensation Committee approved a
short term bonus plan (Bonus Plan) that was payable in cash, under which our Named Executive Officers were eligible to earn bonuses based on achievement against pre-determined annual performance goals. The bonus incentive opportunity was
intended to motivate and reward executives by tying a significant portion of their total compensation to the achievement of pre-established performance metrics that were generally short-term, but impact the creation of long-term stockholder value.
The Compensation Committee determined that use annual performance and payment periods for 2014 was appropriate.
Long-Term Incentive Equity Awards
We rely on long-term incentive equity awards as a key element of compensation for our executive officers so that a substantial portion of their total direct compensation is tied to increasing our market
value. We have historically made annual grants of stock options to align the interests of our executives with those of our shareholders, while promoting focus by our executives on our long-term financial performance, and, through staggered
grants with extended time-based vesting requirements, to enhance long-term retention of our executives.
The Compensation
Committee considers competitive grant data for comparable positions as well as various subjective factors primarily relating to the responsibilities of the individual executive, past performance, and the executives expected future
contributions and our value when determining the size of equity-based awards. Additionally, the Compensation Committee also considers the executives historic total compensation, including prior equity grants and value realized from those
grants, as well as the number and value of shares owned by the executive, the number and value of shares which continue to be subject to vesting under outstanding equity grants previously made to such executive, and each executives tenure,
responsibilities, experience and our value. No one fact is given any specific weighting and the Compensation Committee exercises its judgment to determine the appropriate size of awards.
Our 2014 long-term incentive grants to our Named Executive Officers were in the form of stock options with an exercise price that is equal
to the closing price of our Common Stock on the grant date. As a consequence, our Named Executive Officers will only realize actual, delivered compensation value if our shareholders realize value through stock price appreciation after the date of
grant of the options. The stock options also function as a retention incentive for our executives as they generally vest in installments over a period of three years after the date of grant.
Grant Practices. We do not have any plan, program, or practice to time the grant of equity-based awards to our executives or any of
our employees in coordination with the release of material non-public information. All equity grants are made under our stock plans, which have been approved by our stockholders. The per share exercise price of stock options cannot be less than the
closing sale price of our Common Stock on the grant date. The Compensation Committee typically makes annual equity grants in the months of December or January and when an officer begins employment or is promoted.
Severance and Change in Control Severance Benefits
We provide severance, including change-in-control severance, to our Named Executive Officers, as well as other members of our management team, as provided for in their respective employment agreements. It
is the
belief of the Compensation Committee that the severance offered by us helps to retain our management team, including our Named Executive Officers, by providing a stable work environment in which
these employees are provided certain economic benefits in the event their employment is actually or constructively terminated, including in connection with a change in control. It also helps to create a mutually beneficial separation as we are able
to secure a release from claims. We believe that the occurrence, or potential occurrence, of a change-in-control transaction may create uncertainty regarding continued employment of our executives and other key employees and the change-in-control
severance benefits offered by us will alleviate much of that uncertainty. The material terms of the change-in-control severance benefits offered to our Named Executive Officers are described below in the section entitled Employment Agreements
and Change in Control Arrangements with Our Named Executive Officers.
In providing severance agreements, the
Compensation Committee considers best practices. Severance benefits available following a change in control are provided only on a double-trigger basis which means that there must be both a change in control and a termination, either
actually or constructively, of the eligible employees employment in the circumstances described in the Employment Agreements and Change in Control Arrangements with Our Named Executive Officers section below. In addition, our
agreements with our Named Executive Officers do not contain excise tax gross-up provisions or single-trigger severance payment provisions. We do not maintain any severance plans beyond the severance benefits provided for in the
employment agreements with our Named Executive Officers and other members of our management team.
Under their employment
agreements, each of our Named Executive Officers, would be entitled to severance benefits in the event of his termination by us without cause or by the Named Executive Officer for good reason, or to due to his disability and, to a lesser extent, his
death. The Compensation Committee determined that it is appropriate to provide the above noted Named Executive Officers with these severance benefits under these circumstances in light of their positions with us, general competitive practices, and
as part of their overall compensation package.
The Named Executive Officers and certain other members of the management team
are also entitled to accelerated vesting of all of their respective stock option awards in the event of a change in control or a termination without cause by us or a termination for good reason by the Named Executive Officer within the 120 day
period preceding or following a change in control. Further, if accelerated vesting of all stock option awards is not available as described above, the Named Executive Officers and certain other members of the management team are entitled to
accelerated vesting of those stock option awards that would vest during the initial period of their employment agreements with us in the event of a termination without cause by us or a termination for good reason by the Named Executive Officer
outside of the 120 day period preceding or following a change in control. The Compensation Committee determined that this severance benefit was appropriate for each of its Named Executive Officers and certain of its management team based upon their
positions with us, general competitive practices, and as part of their overall package.
Recipients of long-term incentive
equity awards are also entitled to limited severance protections with respect to awards granted prior to the applicable severance event. The Compensation Committee determined that these protections help maximize the retention benefits to us of the
long-term incentive equity awards and are consistent with general competitive practices.
Risk Considerations
The Compensation Committee has reviewed our compensation programs for our Named Executive Officers and our employees generally and has
concluded that these programs do not create risks that are reasonably likely to have a material adverse effect on the company. The Compensation Committee believes that the design of our annual cash and long-term equity incentives provides an
effective and appropriate mix of incentives to help ensure that our performance is focused on long-term results. In general, bonus opportunities for our employees are capped, and we have discretion to reduce bonus payments or pay no bonus at all
based on the individual performance component and other factors that we determine are appropriate given the particular circumstances. Similar to our named executive officers, a substantial portion of the compensation for all of our employees
generally is delivered in the form of equity awards, that are intended to further align the interests of our employees with those of our stockholders.
With specific regard to our executives, including our named executive officers, the
Compensation Committee has determined that the following compensation design features and risk oversight features provide protection against excessive risk-taking:
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Our board of directors as a whole has responsibility for risk oversight and regularly reviews the areas of focus of our board committees. Our board
committees report their deliberations to the full board on a regular basis. Additionally, the board considers the strategic, financial and execution risks that are associated with the operations, financial and capital decisions that impact on
determinations of compensation under our compensation programs. |
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|
Our named executive officers are motivated to carefully assess risks as a majority of their compensation is performance-based, meaning unless they
guard against risks, their compensation could also be negatively impacted. |
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|
Our Compensation Committee regularly discusses the reasonable range of future company performance expectations with our CEO, which provides the
Compensation Committee with insight into the design and funding of our executive bonus plan. |
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In order to ensure a long-term focus by management, we have mitigated the incentives in our annual cash bonus program by capping annual bonus potential
to a percentage of base salary, which represents a relatively small percentage of our executives total compensation opportunities. |
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Given that a high percentage of our overall pay mix for named executive officers is equity-based: |
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We provide competitive base salaries to our named executive officers to provide a steady income while allowing them to focus on our long-term
performance rather than on short-term stock price fluctuations; |
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We design our bonus plan for named executive officers to be focused on financial performance metrics, which in combination with our use of equity
awards that are subject to long-term vesting conditions; focuses our executives on driving long-term stockholder value and incentivizes them to avoid decisions that only benefit short-term results that may not be consistent with our long-term
interests; |
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Our equity grants typically vest over a three-year vesting period to ensure our named executive officers have significant value tied to long-term stock
price performance; |
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We prohibit speculative and hedging transaction involving our securities, which prevents our executive officers from insulating themselves from the
effects of poor company stock price performance; and |
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|
We have internal controls over financial reporting, the measurement and calculation of compensation goals, and other financial, operational, and
compliance policies and practices that are designed to keep our compensation programs from being susceptible to manipulation by any employee, including our named executive officers. |
Summary Compensation
The following table provides information regarding the compensation earned during the fiscal years ended December 31, 2014 and 2013, by our Named Executive Officers (our Chief Executive Officer,
Chief Financial Officer and our one other most highly compensated executive officer in 2014, as well as for our former Chief Executive Officer and former President and Chief Operating Officer).
2014 Summary Compensation Table
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Name and Principal Position |
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Year |
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|
Salary ($) |
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|
Bonus ($) |
|
|
Stock Awards ($) |
|
|
Option Awards ($)(1) |
|
|
Non-Equity Incentive Plan Compensation ($) |
|
|
All Other Compensation ($) |
|
|
Total ($) |
|
Frederick G. Thiel |
|
|
2014 |
|
|
|
296,625 |
|
|
|
|
|
|
|
|
|
|
|
563,072 |
|
|
|
|
|
|
|
|
|
|
|
859,697 |
|
Chief Executive Officer and |
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Chairman of the Board |
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
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|
Kenneth S. Cragun |
|
|
2014 |
|
|
|
304,125 |
|
|
|
|
|
|
|
|
|
|
|
57,434 |
|
|
|
|
|
|
|
|
|
|
|
361,559 |
|
Chief Financial Officer |
|
|
2013 |
|
|
|
295,983 |
|
|
|
62,616 |
|
|
|
|
|
|
|
|
|
|
|
122,562 |
|
|
|
667 |
|
|
|
481,828 |
|
and Secretary |
|
|
|
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|
|
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|
|
|
|
|
|
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|
|
|
|
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|
Scott Reinke |
|
|
2014 |
|
|
|
283,750 |
|
|
|
|
|
|
|
|
|
|
|
43,612 |
|
|
|
|
|
|
|
|
|
|
|
327,362 |
|
Chief Legal Officer |
|
|
2013 |
|
|
|
261,504 |
|
|
|
46,805 |
|
|
|
|
|
|
|
|
|
|
|
75,157 |
|
|
|
|
|
|
|
383,465 |
|
Heath B. Clarke (2) |
|
|
2014 |
|
|
|
53,167 |
|
|
|
|
|
|
|
|
|
|
|
17,591 |
|
|
|
|
|
|
|
772,375 |
|
|
|
843,133 |
|
Former Chief Executive |
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|
2013 |
|
|
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450,309 |
|
|
|
211,419 |
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|
|
88,922 |
|
|
|
|
|
|
|
225,453 |
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|
|
721 |
|
|
|
976,824 |
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Officer and Former Chairman |
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of the Board |
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|
|
Michael A. Sawtell (3) |
|
|
2014 |
|
|
|
147,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,165 |
|
|
|
710,788 |
|
Former President and Former |
|
|
2013 |
|
|
|
313,818 |
|
|
|
83,775 |
|
|
|
45,694 |
|
|
|
|
|
|
|
133,543 |
|
|
|
87,649 |
|
|
|
664,480 |
|
Chief Operating Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The fair value of each performance and restricted stock unit award is calculated on the date of grant using the closing price of our Common Stock as reported by the
Nasdaq. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: |
|
|
|
|
|
|
|
|
|
Year Option
Granted |
|
Expected
Life |
|
Volatility |
|
Risk Free
interest rate |
|
Dividend
yield |
2014 |
|
3.5 years |
|
67.80% |
|
1.12% |
|
None |
2013 |
|
None |
|
None |
|
None |
|
None |
(2) |
During 2014, Mr. Clarke received a severance package totaling $772,375 in accordance with the terms of that certain Separation and General Release Agreement dated
January 10, 2014. |
(3) |
During 2014, Mr. Sawtell received a severance package totaling $563,165 in accordance with the terms of that certain Separation and General Release Agreement dated
May 7, 2014. |
Employment Agreements and Change in Control Arrangements with Our Named Executive Officers
Employment Agreements
We entered into amended and restated employment agreements with each of Mr. Cragun and Mr. Reinke on December 9, 2011. We entered into an employment agreement with Mr. Thiel on
May 7, 2014. The employment agreements of our Named Executive Officers had automatically renewing terms of one year terms unless either party terminates it with at least 30 days notice to the other party.
If we terminate the executive employment agreements of our Named Executive Officers without cause (the definition of which is summarized
below), or if the foregoing executive terminates his agreement with good reason (the definition of which is also summarized below), each as defined in the agreement, we are obligated to pay that executive: (i) his annual salary and other
benefits earned prior to termination, (ii) his annual salary payable over one year after termination, (iii) an amount equal to all bonuses earned during the four quarters immediately prior to the termination date, payable in accordance
with our standard bonus payment practices or
immediately if and to the extent such bonus will be used by the executive to exercise stock options, (iv) benefits for 12 months following the date of termination, (v) the vesting of
all options that would have vested had the executives employment agreement remained in force through the end of the initial one-year term of the amended and restated agreement will be fully vested immediately prior to such termination,
(vi) the right for 12 months from the date of termination to exercise all vested options granted to the executive. In the event of a termination without cause or for good reason by either Kenneth Cragun or Scott Reinke in connection with a
change of control, we are obligated to pay that executive: (i) his annual salary and other benefits earned prior to termination; (ii) 1.25 times his annual salary payable in a lump sum; (iii) an amount equal to 1.25 times all bonuses
earned during the four quarters immediately prior to the termination date or immediately prior the date of the change of control, whichever is greater, payable in a lump sum; and (iv) benefits for 15 months following the date of termination.
In the event of a change of control or a termination without cause or for good reason by any of our Named Executive Officers
within 120 days of a change of control, all options granted to such executive will be immediately vested and remain exercisable through the end of the option term as if the executive were still employed by us.
Under the terms of the agreements, a change of control is deemed to have occurred generally in the following circumstances:
|
|
|
The acquisition by any person of 35% or more of our securities, exclusive of securities acquired directly from us; |
|
|
|
The acquisition by any person of 50% or more of the combined voting power of our then outstanding voting securities; |
|
|
|
Certain changes in the composition of our Board of Directors; |
|
|
|
Certain of our mergers and consolidations where certain voting thresholds or ownership thresholds are not maintained; and |
|
|
|
The approval of our plan of liquidation or the consummation of the sale of all or substantially all of our assets where certain voting thresholds are
not maintained. |
Under the terms of the agreements, cause is generally defined as:
|
|
|
Conviction of a felony involving the crime of theft or a related or similar act of unlawful taking, or a felony involving the federal or California
securities or pension laws, or any felony, which results in material economic harm to us; |
|
|
|
Engagement in the performance of the executives duties or otherwise to the material and demonstrable detriment to us, in willful misconduct,
willful or gross neglect, fraud, misappropriation or embezzlement; |
|
|
|
Failure to adhere to lawful and reasonable directions of our Board of Directors or failure to devote substantially all of the business time and effort
to us, upon notice; and |
|
|
|
Material breaches of the agreement by executive. |
Under the terms of the agreements, good reason is generally defined as:
|
|
|
A reduction in salary or failure to pay salary when due; |
|
|
|
Material breach of the agreement by us; |
|
|
|
Failure to have any successor in interest to us assume the employment agreement; |
|
|
|
A relocation of the executive to offices a set distance away from the location set forth in the agreement; |
|
|
|
A material diminution in the executives title, authority, duties, reporting relationship or responsibilities; |
|
|
|
A change in executives reporting; and |
The assignment to executive of any duties or responsibilities which are inconsistent with her status, position or responsibilities
Separation Agreements
On January 10, 2014, we entered into a
separation and general release agreement (Separation Agreement) with Heath Clarke, our former Chief Executive Officer. Under the terms of the Separation Agreement, we paid
Mr. Clarke his unpaid, earned wages and unused paid time off pay and are obligated to pay him $ 456,000, representing one years base salary following his separation. We will also pay
Mr. Clarke additional severance of $ 316,375, representing 100% of the bonus earned over the previous four quarters immediately prior to the Separation Agreement, payable in accordance with the separation and general release agreement. In
addition, we have agreed to pay 100% of Mr. Clarkes health insurance premiums through January 2015 to the extent Mr. Clarke elected to continue his health care insurance coverage under COBRA. Mr. Clarke has the right to exercise
any vested stock options through August 2015.
On May 8, 2014, we entered into a separation and general release agreement
(Separation Agreement) with Michael Sawtell, our former President and Chief Operations Officer. Under the terms of the Separation Agreement, we paid Mr. Sawtell his unpaid, earned wages and unused paid time off pay and are obligated
to pay him $563,165, representing one years base salary and100% of the bonus earned over the previous four quarters immediately prior to the Separation Agreement, payable in accordance with the separation and general release agreement. In
addition, we have agreed to pay 100% of Mr. Sawtells health insurance premiums through April 2015 to the extent Mr. Sawtell elected to continue his health care insurance coverage under COBRA. Mr. Sawtell has the right to
exercise any vested stock options through May 7, 2015.
Termination and Change of Control Benefits
The table below sets forth estimated payments with respect to our Named Executive Officers upon the termination of employment with us
under various circumstances and upon a change in control (CIC), calculated as of December 31, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary For Cause or Without Good Reason |
|
|
Involuntary Without Cause or For Good Reason |
|
|
Death/ Disability |
|
|
Involuntary Without Cause or For Good Reason In Connection With
CIC |
|
Frederick G. Thiel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance |
|
$ |
|
|
|
$ |
455,000 |
|
|
$ |
455,000 |
|
|
$ |
568,750 |
|
Kenneth S. Cragun |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance |
|
$ |
|
|
|
$ |
309,000 |
|
|
$ |
309,000 |
|
|
$ |
386,250 |
|
Scott Reinke |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance |
|
$ |
|
|
|
$ |
300,000 |
|
|
$ |
300,000 |
|
|
$ |
375,000 |
|
Outstanding Equity Awards at Fiscal Year-End 2014
The following table sets forth the number of shares of Common Stock subject to exercisable and unexercisable stock options and number of
unvested restricted stock units held as of December 31, 2014, by each of our Named Executive Officers.
2014
Outstanding Equity Awards at Fiscal Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive Plan Awards |
|
|
Stock Awards |
|
Name |
|
Number of Securities Underlying Unexercised Options (#) Exercisable |
|
|
Number of Securities Underlying Unexercised Options (#) Unexercisable |
|
|
Option Exercise Price ($) |
|
|
Option Exercise Price Date
|
|
|
Number of Shares or Units of Stock That Have Not Vested
(#) |
|
|
Market Value of Shares
or Units of Stock That Have Not Vested ($) |
|
|
Equity Incentive Plan Awards: Number of Unearned Shares Units
or Other Rights That Have Not Vested (#) |
|
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares Units
or Other Rights That Have Not Vested ($) |
|
Frederick G. Thiel |
|
|
15,000 |
|
|
|
|
|
|
|
2.48 |
|
|
|
10/27/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
|
|
|
|
2.10 |
|
|
|
1/16/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,979 |
|
|
|
|
|
|
|
1.56 |
|
|
|
1/17/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,021 |
|
|
|
|
|
|
|
1.56 |
|
|
|
1/17/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000 |
(1) |
|
|
1.83 |
|
|
|
5/7/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000 |
(2) |
|
|
1.83 |
|
|
|
5/7/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181,000 |
(3) |
|
|
1.83 |
|
|
|
5/7/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth S. Cragun |
|
|
46,000 |
|
|
|
|
|
|
|
2.31 |
|
|
|
4/1/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,167 |
|
|
|
|
|
|
|
2.31 |
|
|
|
4/1/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,166 |
|
|
|
|
|
|
|
2.31 |
|
|
|
4/1/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
|
|
4.85 |
|
|
|
10/18/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,000 |
|
|
|
|
|
|
|
6.01 |
|
|
|
12/10/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,000 |
|
|
|
|
|
|
|
5.14 |
|
|
|
1/11/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,335 |
|
|
|
|
|
|
|
2.29 |
|
|
|
12/9/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,221 |
|
|
|
3,612 |
(4) |
|
|
2.29 |
|
|
|
12/9/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,733 |
(5) |
|
|
1,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,888 |
(6) |
|
|
3,004 |
|
|
|
|
|
|
|
|
|
|
|
|
7,221 |
|
|
|
3,612 |
(7) |
|
|
2.34 |
|
|
|
12/7/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,333 |
(8) |
|
|
1.56 |
|
|
|
1/17/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,333 |
(9) |
|
|
1.18 |
|
|
|
12/21/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott R. Reinke |
|
|
37,504 |
|
|
|
|
|
|
|
3.38 |
|
|
|
4/30/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
4.21 |
|
|
|
8/11/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
|
|
6.01 |
|
|
|
12/10/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,917 |
|
|
|
|
|
|
|
2.29 |
|
|
|
12/9/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,458 |
|
|
|
|
|
|
|
2.29 |
|
|
|
12/9/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,166 |
|
|
|
2,084 |
(4) |
|
|
2.29 |
|
|
|
12/9/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250 |
(5) |
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,666 |
(6) |
|
|
1,732 |
|
|
|
|
|
|
|
|
|
|
|
|
4,166 |
|
|
|
2,084 |
(7) |
|
|
2.34 |
|
|
|
12/7/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
(8) |
|
|
1.56 |
|
|
|
1/17/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,333 |
(9) |
|
|
1.18 |
|
|
|
12/21/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive Plan Awards |
|
|
Stock Awards |
|
Name |
|
Number of Securities Underlying Unexercised Options (#) Exercisable |
|
|
Number of Securities Underlying Unexercised Options (#) Unexercisable |
|
|
Option Exercise Price ($) |
|
|
Option Exercise Price Date
|
|
|
Number of Shares or Units of Stock That Have Not Vested
(#) |
|
|
Market Value of Shares
or Units of Stock That Have Not Vested ($) |
|
|
Equity Incentive Plan Awards: Number of Unearned Shares Units
or Other Rights That Have Not Vested (#) |
|
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares Units
or Other Rights That Have Not Vested ($) |
|
Heath B. Clarke |
|
|
29,676 |
|
|
|
|
|
|
|
16.59 |
|
|
|
1/4/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,331 |
|
|
|
|
|
|
|
5.53 |
|
|
|
5/8/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
|
|
|
|
9.90 |
|
|
|
6/3/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,512 |
|
|
|
|
|
|
|
6.79 |
|
|
|
11/15/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,642 |
|
|
|
|
|
|
|
4.21 |
|
|
|
3/9/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,500 |
|
|
|
|
|
|
|
4.74 |
|
|
|
12/13/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,500 |
|
|
|
|
|
|
|
4.74 |
|
|
|
12/13/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,500 |
|
|
|
|
|
|
|
4.70 |
|
|
|
6/3/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,419 |
|
|
|
|
|
|
|
1.57 |
|
|
|
3/12/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,000 |
|
|
|
|
|
|
|
6.01 |
|
|
|
12/10/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,000 |
|
|
|
|
|
|
|
2.29 |
|
|
|
12/9/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,332 |
|
|
|
9,167 |
(4) |
|
|
2.29 |
|
|
|
12/9/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,400 |
(5) |
|
|
4,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,333 |
(6) |
|
|
7,626 |
|
|
|
|
|
|
|
|
|
|
|
|
18,333 |
|
|
|
9,167 |
(7) |
|
|
2.34 |
|
|
|
12/7/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael A. Sawtell |
|
|
75,000 |
|
|
|
|
|
|
|
3.58 |
|
|
|
5/7/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,999 |
|
|
|
|
|
|
|
3.65 |
|
|
|
5/7/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,894 |
|
|
|
|
|
|
|
2.29 |
|
|
|
5/7/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,770 |
|
|
|
|
|
|
|
2.34 |
|
|
|
5/7/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
33.33% of total grant vest on May 7, 2015, and the remainder vests each quarter over the next eight quarters commencing after May 7, 2015.
|
(2) |
33.33% of total grant vest on May 7, 2016, and the remainder vests each quarter over the next eight quarters commencing after May 7, 2016.
|
(3) |
33.33% of total grant vest on May 7, 2017, and the remainder vests each quarter over the next eight quarters commencing after May 7, 2017.
|
(4) |
33.33% of total grant vested on December 9, 2013, and the remainder vests each quarter over the next eight quarters commencing after December 9, 2013.
|
(5) |
33.33% of total grant vested on January 1, 2013 and 33.33% vested on January 1, 2014, and the remainder vests on January 1, 2015.
|
(6) |
33.33% of total grant vested on January 1, 2014, and the remainder vests each year on January 1 over the next two years commencing after January 1, 2014.
|
(7) |
33.33% of total grant vested on December 7, 2013, and the remainder vests each quarter over the next eight quarters commencing after December 7, 2013.
|
(8) |
33.33% of total grant vest on January 17, 2015, and the remainder vests each quarter over the next eight quarters commencing after January 17, 2015.
|
(9) |
33.33% of total grant vest on December 12, 2015, and the remainder vests each quarter over the next eight quarters commencing after December 12, 2015.
|
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is an officer or employee of Local, and none of our executive officers serve as a member of a
Compensation Committee of any entity that has one or more executive officers serving as a member of our Compensation Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 2013, we engaged Merriman Capital, Inc. and Ladenburg Thalmann & Co. Inc., in order to assist us with certain
financing activities. A special committee of the Board of Directors was formed for purposes of evaluating the potential financial advisors and made the selection of Merriman Capital, Inc. and Ladenburg Thalmann & Co. Inc. The special
committee of the Board was comprised entirely of independent Board members. Mr. Norman K. Farra Jr., served as a FEP Advisor for Merriman Capital, Inc. at the time of engagement. For his services in connection with the transactions related
to the financing, Mr. Farra received an aggregate fee of approximately $127,500. In light of the engagement of Merriman Capital, Inc. and the potential for a conflict of interest, Mr. Farra resigned his positions on the Audit Committee,
Compensation Committee and Nominating and Corporate Governance Committee of our Board of Directors on January 16, 2013, as previously disclosed.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires our directors and officers, and persons who own more than 10% of a registered class of our equity securities, to file with the SEC reports of ownership and changes in ownership of our
equity securities. Copies of the reports filed with the SEC are required by SEC Regulation to be furnished to Local. Based solely on our review of the copies of such reports furnished to us and written representations from certain insiders that no
other reports were required, we believe each reporting person has complied with the disclosure requirements with respect to transactions made during 2014, except for Messrs. Cragun, Reinke, and Caponera who were each not timely with one Form 4
filing with respect to a grant of stock options made to each of them on December 12, 2014, as such filing was made on December 30, 2014, due to an administrative oversight.
PROPOSAL 2 RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
BDO USA, LLP was engaged as our independent registered public accounting firm in April 2015 for the fiscal year ending December 31,
2015.
Proposal to Ratify Independent Registered Public Accounting Firm for 2015
Although it is not required to do so, the Audit Committee is submitting the appointment of our independent registered public accounting
firm for ratification by the stockholders at the Annual Meeting in order to ascertain the view of the stockholders regarding such appointment. In the event ratification of this appointment of independent registered public accounting firm is not
approved by a majority of the shares of Common Stock voting thereon, the Audit Committee will consider this fact in connection with its future appointment of an independent registered public accounting firm.
A representative of BDO USA, LLP is expected to be present at the Annual Meeting where he or she will be given the opportunity to make a
statement if he or she desires and will be available to respond to appropriate questions.
The Board recommends a vote
FOR ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm for fiscal year ending December 31, 2015.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the
aggregate fees for professional audit services rendered by BDO USA, LLP for audit of our annual financial statements for the years ended December 31, 2014 and 2013, and fees billed for other services provided by BDO USA, LLP for the years ended
December 31, 2014 and 2013.
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
Audit Fees |
|
$ |
221,404 |
|
|
$ |
229,461 |
|
Audit-Related Fees |
|
|
|
|
|
|
|
|
Tax Fees |
|
|
47,072 |
|
|
|
50,484 |
|
All Other Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees Paid |
|
$ |
268,476 |
|
|
$ |
279,945 |
|
|
|
|
|
|
|
|
|
|
Audit Fees
Includes the fees for the annual audit of our consolidated financial statements, review of our quarterly financial statements, and review
and consent of documents filed with the SEC.
Audit-Related Fees
None
Tax
Fees
Includes the aggregate fees for tax return preparation, tax advice and tax planning.
All Other Fees
None
Our audit committee pre-approves all services provided by BDO USA, LLP.
PROPOSAL 3 APPROVAL IN ACCORDANCE WITH NASDAQ MARKETPLACE RULES, OF THE ISSUANCE OF SHARES OF OUR COMMON
STOCK UNDERLYING CONVERTIBLE NOTES AND WARRANTS PREVIOUSLY ISSUED BY US TO INVESTORS WHO PURCHASED CONVERTIBLE NOTES AND WARRANTS IN MARCH 2015, IN AN AMOUNT EQUAL TO OR IN EXCESS OF 20% OF OUR COMMON STOCK OUTSTANDING BEFORE THE ISSUANCE OF OUR
COMMON STOCK UNDERLYING SUCH CONVERTIBLE NOTES AND WARRANTS.
Background
On March 9, 2015, the Company entered into a Securities Purchase Agreement (Purchase Agreement) with the investors named
therein (the Investors) relating to the sale and issuance in (i) a direct offering, registered under the Securities Act of 1933, as amended (the Securities Act), of $4,750,000 aggregate principal amount of Series B
Senior Convertible Notes (each, a Series B Note, and collectively, Series B Notes) (including up to 6,699,575 shares of the Companys Common Stock, initially issuable upon conversion or otherwise under the Series B
Notes (subject to adjustment as described below)) in an offering (Series B Offering) pursuant to a prospectus supplement to the Companys effective shelf registration statement on Form S-3 (Registration No. 333-196429) and
(ii) a contemporaneous private offering (the Series A Offering and, collectively with the Series B Offering, the Notes Offering), of $4,568,056 aggregate principal amount of the Companys Series A Senior
Convertible Notes (collectively, Series A Notes and together with the Series B Notes, the Notes) (including up to 8,255,266 shares of the Companys Common Stock initially issuable upon conversion or otherwise under the
Series A Notes (subject to adjustment as described below)) and warrants (the Warrants) to purchase up to 7,708,091 shares of the Companys Common Stock (subject to adjustment as described below), for a term of five years after
the closing of the Notes Offering (collectively, the Financing). The Company received total gross proceeds under the Financing of approximately $9.32 million. The Financing closed on March 12, 2015 (the Closing Date).
Ranking
Each series of Notes are the senior subordinated unsecured obligations of the Company and not the obligations of the Companys
subsidiaries. Each series of the Notes are subordinated in right of payment to the Companys principal credit facility and any successor facility, equal in right of payment with one another, effectively subordinated to the Companys
existing and future secured debt, to the extent of the value of the collateral securing such debt, and to any debt of the Companys subsidiaries, and senior to all other indebtedness of the Company. So long as any Notes remain outstanding,
neither the Company nor any of its current or future subsidiaries will grant a security interest in their respective assets, nor will the Company or such subsidiaries incur any new debt except for (i) trade payables in the ordinary course of
its business and (ii) certain permitted indebtedness, including its principal credit facility and any successor facility, which will be permitted senior indebtedness under the Notes and the Indenture (entered into in connection with the
Financing).
Maturity Date
Unless earlier converted or redeemed, the Series A Notes will mature on April 11, 2018 and the Series B Notes will mature on August 1, 2016, subject, in each case, to the right of the Investors
to extend the date (i) if an event of default under the applicable series of Notes has occurred and is continuing or any event shall have occurred and be continuing that with the passage of time and the failure to cure would result in an event
of default under the applicable series of Notes or (ii) for a period of twenty business days after the consummation of a fundamental transaction if certain events occur (such date with respect to each series of Notes, as may be extended, the
Maturity Date).
Interest
The Series A Notes bear interest at a rate of 8.00% per annum on the outstanding principal amount, computed on the basis a 360-day year and twelve 30-day months. Interest is payable on the Series A
Notes commencing July 1, 2015 and quarterly thereafter on January 1, April 1, July 1 and October 1 (each a Series A Interest Date).
The Company may pay the applicable interest amounts due on a Series A Interest Date in shares of its Common Stock, subject to the
satisfaction of certain Equity Conditions (as defined in herein), or elect to pay in cash (or a combination of both cash and shares of its Common Stock). If the Company is not permitted to deliver shares of Common Stock with respect to a Series A
Interest Date due to a failure to satisfy any of the conditions, it must pay the applicable interest in cash, unless the conditions are waived by the holder of the Series A Note.
If the Company makes a payment due on any Series A Interest Date in shares of its Common Stock, the amount due on the Series A Interest
Date (less any cash interest paid on such date) will be converted into shares of its Common Stock at a price per share equal to the Series A Interest Conversion Price (as defined herein). The Series A Interest Conversion Price is the
lesser of (i) the Series A Conversion Price (as defined herein) then in effect and (ii) 80% of the quotient of (x) the sum of the volume weighted average price of the Common Stock for each of the five consecutive trading days
immediately preceding such Series A Interest Date, divided by (y) five (as adjusted for stock splits, stock dividends, recapitalizations and similar events). The Series A Conversion Price is initially $0.5534 per share, subject to
adjustment as described below under Conversion.
Interest on the Series B Notes will accrue at
10.00% per annum on the outstanding principal amount, computed on the basis of a 360-day year and twelve 30-day months, and compounded monthly. Interest on the Series B Notes is payable (i) on each Series B Interest Date (as defined
herein) occurring on an Installment Date (as defined herein) as part of the applicable Installment Amount (as defined herein) and (ii) with respect to each other Series B Interest Date, on such Series B Interest Date, in cash. With respect to
any given calendar month, the Series B Interest Date means (x) if prior to the Maturity Date, such Installment Date, if any, in such calendar month or (y) if on or after the Maturity Date, the first trading day of such calendar
month.
If a holder elects to convert or redeem all or any portion of either series of Notes prior to the applicable Maturity
Date, all accrued and unpaid interest on the amount being converted or redeemed will also be payable.
The interest rate
payable on each series of Notes will increase to 18.00% per annum (i) upon the occurrence of and during the continuance of any Event of Default pursuant to such series of Notes or (ii) at any time that the Companys Common Stock
is not listed on The New York Stock Exchange, the NYSE MKT, the Nasdaq Global Select Market, the Nasdaq Global Market or the NASDAQ Capital Market. The Company will also be required to pay a late charge of 18.00% on any amount of principal or other
amounts due on each series of Notes which are not paid when due. Late charges on the Series A Notes are payable in arrears on each Series A Interest Date. Late charges on the Series B Notes are payable in arrears on each Installment Date.
Conversion
All amounts due under the Series A Notes and the Series B Notes (principal, interest, and late charges, if any) are convertible at any
time, in whole or in part, at the option of the holders into shares of the Company Common Stock at either the Series A Conversion Price or the Series B Conversion Price (as defined herein), respectively, which prices are subject to adjustment as
described below. If a holder elects to convert all or any portion of either series of Notes prior to the applicable Maturity Date, all accrued and unpaid interest and accrued and unpaid late charges on the principal amount being converted at the
applicable Conversion Price (as defined
herein). In the event of a partial conversion of the Series B Notes, the principal amount converted shall be deducted from the Installment Amount(s) relating to the Installment Date(s) as
set forth in the applicable conversion notice. The Series B Conversion Price will initially be $0.7090 per share, subject to adjustment as described below. The Series A Conversion Price and the Series B Conversion Price are referred to
collectively herein as the Conversion Prices.
Each Conversion Price is subject to adjustment for stock splits,
combinations or similar events. While any of either series of Notes are outstanding, if the Company issues Common Stock or is deemed to issue Common Stock for a consideration per share (the New Issuance Price) less than a price equal to
the Conversion Price in effect for each series of Notes immediately prior to such issue or sale or deemed issuance or sale (the foregoing a Dilutive Issuance), then, immediately after such Dilutive Issuance, the Conversion Price then in
effect for each series of Notes shall be reduced to the New Issuance Price, subject to certain exclusions. As such, we could potentially be required to issue an increasing amount of shares of Common Stock at an increasingly lower Conversion Price.
In the event of a stock dividend, split or combination, the number of shares of Common Stock acquirable pursuant to the
conversion and exercise of such 2015 Notes and Warrants would be adjusted in accordance with the following formula:
a x (b/c)
Where:
a= Current total number of
shares of Common Stock issuable pursuant to the 2015 Notes and Warrants
b= Number of shares of Common Stock outstanding after the event
c= Number of shares of Common Stock outstanding before the event
Simultaneously, the exercise price of such 2015 Notes and Warrants would be adjusted in accordance with the following formula:
(a x b)/c
Where:
a= Current 2015 Notes and Warrants price
b= Number of shares of Common Stock issuable pursuant to
the 2015 Notes and Warrants prior to the adjustment above
c= Number of shares of Common Stock issuable pursuant to the 2015 Notes and Warrants
after such adjustment
In the event of a Dilutive Issuance by us, the number of shares of Common Stock acquirable pursuant to
the Series A Notes, Series B Notes and Warrants would be adjusted to the new issuance price:
By way of illustration, the
following table sets forth the impact of a Dilutive Issuance by us at $0.50, $0.40, $0.30 and $0.20 per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Recap |
|
Current |
|
|
Issuance at $0.50 per share |
|
|
Issuance at $0.40 per share |
|
|
Issuance at $0.30 per share |
|
|
Issuance at $0.20 per share |
|
Series A Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
|
8,255,266 |
|
|
|
9,136,112 |
|
|
|
11,420,140 |
|
|
|
15,226,853 |
|
|
|
22,840,280 |
|
Warrants |
|
|
3,675,835 |
|
|
|
4,705,882 |
|
|
|
5,982,421 |
|
|
|
7,843,133 |
|
|
|
11,764,703 |
|
Interest |
|
|
1,981,263 |
|
|
|
2,192,666 |
|
|
|
2,740,833 |
|
|
|
3,654,444 |
|
|
|
5,481,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
13,912,364 |
|
|
|
16,034,660 |
|
|
|
20,143,394 |
|
|
|
26,724,431 |
|
|
|
40,086,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
|
6,699,575 |
|
|
|
9,500,000 |
|
|
|
11,875,000 |
|
|
|
15,833,333 |
|
|
|
23,750,000 |
|
Warrants |
|
|
4,032,256 |
|
|
|
5,250,000 |
|
|
|
6,562,497 |
|
|
|
8,750,000 |
|
|
|
13,125,000 |
|
Interest |
|
|
650,731 |
|
|
|
922,736 |
|
|
|
1,153,421 |
|
|
|
1,537,894 |
|
|
|
2,306,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
11,382,562 |
|
|
|
15,672,736 |
|
|
|
19,590,918 |
|
|
|
26,121,227 |
|
|
|
39,181,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
25,294,926 |
|
|
|
31,707,396 |
|
|
|
39,734,312 |
|
|
|
52,845,658 |
|
|
|
79,268,492 |
|
In addition, the Company has agreed that, if immediately following the close of business on a specified
date in March 2016 (the Adjustment Date), the Series A Conversion Price then in effect exceeds the price equal to
the quotient of (x) the sum of the volume weighted average price of the Common Stock for each of the five consecutive trading days immediately preceding the Adjustment Date, divided by
(y) five (the Adjusted Conversion Price), the Series A Conversion Price will be reset to the Adjusted Conversion Price as of such Adjustment Date.
If the Company fails to timely deliver Common Stock upon conversion of either series of the Notes, the Company has agreed to pay buy-in damages of the converting holder and certain other
amounts.
Redemption of Series A Notes at the Companys Option.
If certain conditions are satisfied, the Company may redeem all (but not less than all) of the outstanding principal amount of the Series
A Notes, together with interest to the redemption date and late charges, if any, at a redemption price equal to the amount to be redeemed plus, if the redemption date occurs prior to the first anniversary of the Closing Date, a make-whole amount
equal to the amount of interest that would accrue under the Series A Notes at the interest rate then in effect assuming (for calculation purposes only) that the amount of the Series A Notes being redeemed as of the redemption date remains
outstanding through the first anniversary of the Closing Date. Holders of the Series A Notes may convert their Series A Notes, in whole or in part, as described above, at the Series A Conversion Price then in effect.
Payment of Principal and Interest on Series B Notes
The Company has agreed to make amortization payments with respect to the principal amount of the Series B Note on each of the following dates, collectively, the Installment Dates:
|
|
|
Initially, on April 12, 2015, or thirty days after the Closing Date; and |
|
|
|
Thereafter, the first trading day of each calendar month immediately following the previous Installment Date until the Maturity Date.
|
On each Installment Date, the Company will pay an Installment Amount on each Series B Note that
is equal to the sum of (A) (I) with respect to any Installment Date other than the Maturity Date, the lesser of (X) each holders pro rata share of $200,000, and (Y) the principal amount then outstanding under the Series B
Note as of such Installment Date, and (II) with respect to the Installment Date that is the Maturity Date, the principal amount then outstanding under the Series B Note as of such Installment Date (in each case, as any such Installment Amount may be
reduced pursuant to the terms of the Series B Note, whether upon conversion, redemption or otherwise), (B) any deferred amounts (as discussed below) included in such Installment Amount, (C) any Designated Specified Amount (as defined
herein) included in the Installment Amount and (D) in each case of clauses (A) through (C) above, the sum of any accrued and unpaid interest as of such Installment Date under the Series B Note and accrued and unpaid late charges, if
any, under the Series B Note as of such Installment Date.
The Company is required to pay the applicable Installment Amount on
an Installment Date in shares of Common Stock, subject to the satisfaction of the Equity Conditions. If the Company is not permitted to deliver shares of Common Stock with respect to an Installment Date due to a failure to satisfy any of the Equity
Conditions, unless such failure is waived by holders of the Series B Notes, the applicable Installment Conversion Amount will be deferred to the last Installment Date (or such other Installment Date as a holder may specify in writing).
If the Company satisfies the conditions to deliver payment of shares of Common Stock on an Installment Date, the Installment Amount due on
the Installment Date will be converted into shares of Common Stock at a per share price equal to the Installment Conversion Price. The Installment Conversion Price is the lowest of (i) the Series B Conversion Price then in effect
and (ii) 80% of the quotient of (A) the sum of the volume weighted average price of the Common Stock for each trading day during the five consecutive trading day period ending and including the trading day immediately prior to the such
Installment Date, divided by (B) five. All such determinations to be appropriately adjusted for any stock split, stock dividend, stock combination or other similar transaction during any such measuring period.
Acceleration and Deferral of Amortization Amounts for Series B Notes
The holder of a Series B Note may, at the holders election by giving notice to the Company, defer the payment of the Installment Amount due on any Installment Date to another Installment Date, in
which case the amount deferred will become part of such subsequent Installment Date and will continue to accrue interest.
On any day during the period commencing on an Installment Date (a Current Installment
Date), and ending on the trading day prior to prior to the next Installment Date (Installment Period), the holder of a Series B Note may, at its election, convert other Installment Amounts (each, an Acceleration), in
whole or in part, at the Installment Conversion Price in effect on the Current Installment Date. Notwithstanding the foregoing, with respect to any given Installment Period, a holder may not elect to effect any Acceleration during such Installment
Period if the sum of (x) the Installment Conversion with respect to such Installment Date and (y) the sum of all Accelerations of the Holder during such Installment Period exceeds the applicable Maximum Acceleration Amount.
With respect to any applicable Installment Date, the Maximum Acceleration Amount is the amount set forth in the table below
opposite the applicable average volume (the 5-Day Volume) calculated as the quotient of (x) the aggregate daily trading volume (as reported on Bloomberg) of the Common Stock on NASDAQ Capital Market on each trading day during the
five trading day period ending on the trading day immediately preceding such Installment Date, divided by (y) five:
|
|
|
|
|
5-Day Volume |
|
Maximum Acceleration Amount |
|
Less than or equal to 100,000 |
|
$ |
200,000 |
|
Greater than 100,000, but less than or equal to 150,000 |
|
$ |
233,000 |
|
Greater than 150,000, but less than or equal to 200,000 |
|
$ |
266,000 |
|
Greater than 200,000 |
|
$ |
300,000 |
|
Monthly Amortization Payment Procedures for Series B Notes
Installment Notices
Promptly following the close of the NASDAQ Capital Market (or other principal market in which the Common Stock is trading) on the trading
day prior to each Installment Date, the Company is required to deliver a written notice (each an Installment Notice, and such date, the Installment Notice Due Date) to each holder of the Series B Notes, which Installment
Notice shall (i) specify the applicable Installment Amount of such holders Series B Note to be converted pursuant to an Installment Conversion, (ii) specify the applicable Installment Conversion Price, (iii) specify the number
of shares of Common Stock to be issued to the holder in such Installment Conversion and (iv) certify that either (A) there is not then an Equity Conditions Failure (as defined herein) as of the applicable Installment Notice Date or
(B) if there is an Equity Conditions Failure as of the applicable Installment Notice Date, unless the holder waives such Equity Conditions Failure, no Installment Conversion shall occur on such Installment Date and the applicable Installment
Conversion Amount shall be deferred to the last Installment Date (or such other Installment Date as the holder may elect in writing to the Company). An Equity Conditions Failure means that on any day during the period commencing twenty
trading days prior to the applicable Installment Notice Date through the later of the applicable Installment Date and the date on which the applicable shares of Common Stock are actually delivered to a holder of the Series B Notes, the Equity
Conditions have not been satisfied (or waived in writing by the holder). Each Installment Notice shall be irrevocable. If the Company does not timely deliver an Installment Notice with respect to a particular Installment Date, then the Company shall
be deemed to have delivered an Installment Notice on the applicable Installment Notice Date with a certification that there is not then an Equity Conditions Failure in connection with such Installment Conversion.
Blocker Deferral Rights
If any holder of Series B Notes is unable to receive shares of Common Stock due to the Note Blocker (as defined herein) with respect to
all or the portion of the applicable Installment Amount (the Designated Specified Amount), the Installment Amount of the holder for such Current Installment Date shall be automatically reduced by such Designated Specified Amount and the
Installment Amount of the holder for the last Installment Date (or such other Installment Date as specified in writing by the holder) (the Designated Specified Deferral Installment Date) shall be automatically increased by such
Designated Specified Amount and, at the holders option, at any time prior to the next Installment Date, (A) the holder may reduce the Designated Specified Amount of shares of Common Stock covered by the applicable Blocker Notice (as
defined in the Series B Notes), in whole or in part, by delivery of one or more written notices to the Company (each, a Withdrawal Notice) and elect to convert the Designated Specified Amount (or such lesser amount as set forth in such
Withdrawal Notice) at the Installment Conversion Price with respect to the applicable Installment Date (each, a Withdrawn
Designated Specified Amount), (B) the Company shall convert each Withdrawn Designated Specified Amount and (C) the applicable Designated Specified Deferral Installment Date shall
be decreased by the applicable Withdrawn Designated Specified Amount.
Equity Conditions
The Company may pay interest on the Series A Notes in shares of Common Stock, and is required to pay an Installment Amount on the
Series B Notes in shares of Common Stock, only if all of the following equity conditions are satisfied (or waived by the holders of the applicable series of Notes), which are referred to in this report as the Equity Conditions:
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on each day during the period beginning thirty calendar days prior to such applicable date of determination and ending on and including such applicable
date of determination (the Equity Conditions Measuring Period) either (x) one or more registration statements shall be effective and the prospectus contained therein shall be available on such applicable date of determination (with,
for the avoidance of doubt, any shares of Common Stock previously sold pursuant to such prospectus deemed unavailable) for the issuance to the holder or resale by the holder, as applicable, of all shares of Common Stock to be issued in connection
with the event requiring this determination (each, a Required Minimum Securities Amount) without any restrictive legend, or the applicable Required Minimum Securities Amount of shares of Common Stock shall be eligible for either
(A) issuance to the holder without any restrictive legend or (B) resale by the holder pursuant to Rule 144, in either case, without the need for registration under any applicable federal or state securities laws and no current information
failure exists or is continuing; |
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the applicable Required Minimum Securities Amount of shares of Common Stock may be issued to the holder in full without violating the Note Blocker or
the Exchange Blocker (as defined herein); |
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the Company shall have no knowledge of any fact that would reasonably be expected to cause (x) any registration statement required to be filed
pursuant to the Registration Rights Agreement (as defined herein) to not be effective or the prospectus contained therein to not be available for the issuance to the holder or resale by the holder, as applicable, of the applicable Required Minimum
Securities Amount of shares of Common Stock or (y) the applicable Required Minimum Securities Amount of shares of Common Stock to not be eligible for either (A) issuance to the holder without any restrictive legend or (B) resale by
the holder pursuant to Rule 144, in either case, without the need for registration under any applicable federal or state securities and no current information failure exists or is continuing; |
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the holder shall not be in (and no other holder of the Notes shall be in) possession of any material , non-public information provided to any of them
by the Company, any of its subsidiaries or any of their respective affiliates, employees, officers, representatives, agents or the like; |
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on each day during the Equity Conditions Measuring Period, the Company otherwise shall have been in compliance with each, and shall not have breached
any representation or warranty in any material respect (other than representations or warranties subject to material adverse effect or materiality, which may not be breached in any respect) or any covenant or other term or condition of any other
transaction document, including, without limitation, the Company shall not have failed to timely make any payment pursuant to any transaction document; |
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on the applicable date of determination (A) no Authorized Share Failure (as defined in the Notes) shall exist or be continuing and the applicable
Required Minimum Securities Amount of shares of Common Stock are available under our Certificate of Incorporation and reserved by the Company to be issued pursuant to the Notes and (B) the applicable Required Minimum Securities Amount of shares
of Common Stock may be issued in full without resulting in an Authorized Share Failure; |
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on each day during the Equity Conditions Measuring Period, there shall not have occurred and there shall not exist an event of default or an event that
with the passage of time or giving of notice would constitute an event of default; and |
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no Material Adverse Change (as defined in the Notes) then exists. |
Redemption of Series B Notes at Holders Option
At any time the
Company sells any Restricted Assets, each holder of a Series B Note shall have the right, in their sole discretion, to require the Company to redeem up to an aggregate Conversion Amount of the Series B
Note equal to 83 1/3% of the Available Holder Optional Redemption Amount by delivering a Holder Optional Redemption Notice stating (i) the portion of the Conversion Amount that is being
redeemed (the Holder Optional Redemption Amount) and (ii) the date on which the Holder Optional Redemption shall occur which date shall be not less than five business days from the date of delivery of the Holder Optional Redemption
Notice. The portion of the Series B Note subject to redemption will be redeemed by the Company in cash at a price equal to 120% of the Holder Optional Redemption Amount. The Available Holder Optional Redemption Amount means, with respect
to sales of Restricted Assets, the difference of (x) the holders pro rata amount of the aggregate net proceeds of all such sales of Restricted Assets, less (y) the aggregate Holder Optional Redemption Amount previously redeemed by
the Company; provided, that the foregoing shall not apply to the initial $0.75 million of the aggregate gross proceeds of any sales of Restricted Assets to the extent the Company uses such proceeds for certain working capital purposes. The
Companys ability to pay interest and other amounts in cash with respect to each series of Notes is limited. See Limits on Cash Payments, below.
For the purposes of the Series B Notes, Restricted Assets mean all assets of the Company and its subsidiaries, other than (i) advertising inventory on the website of the Company or any of
its Subsidiaries sold in the ordinary course of business (consistent with past practices), (ii) licenses of software products by the Company or any of its Subsidiaries in the ordinary course of business (consistent with past practices) and
(iii) inventory of the Company or any of its Subsidiaries sold in the ordinary course of business (consistent with past practices). Conversion Amount means the sum of (x) portion of the principal to be converted, redeemed or
otherwise with respect to which this determination is being made, (y) all accrued and unpaid interest with respect to such portion of the principal amount and accrued and unpaid late charges with respect to such portion of such principal and
such interest, if any, and (z) if elected by the holder in a writing to the Company, subordinated payment amounts.
Events of Default
Each of the following events contained in the respective series of Notes will constitute an under the respective series of
Notes:
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the failure of the applicable registration statement (as defined in the Registration Rights Agreement) to be filed with the Securities and Exchange
Commission (the SEC) on or prior to the date that is five days after the applicable Filing Deadline (as defined in the Registration Rights Agreement) or the failure of the applicable registration statement to be declared effective by the
SEC on or prior to the date that is ten trading days after the applicable Effectiveness Deadline (as defined in the Registration Rights Agreement); provided that to the extent such failure of the applicable registration statement to be declared
effective by the SEC was caused by the Companys failure to satisfy the SEC on the relevant registration statement or any document incorporated by reference therein and the Company and its counsel have timely and in good faith responded to
comments by the SEC as required by the Registration Rights Agreement, no Event of Default shall be deemed to occur for an additional five trading day period; |
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while the applicable registration statement is required to be maintained effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the applicable registration statement lapses for any reason (including, without limitation, the issuance of a stop order) or such registration statement (or the prospectus contained therein) is unavailable to any holder of
Registrable Securities (as defined in the Registration Rights Agreement) for sale of all of such holders Registrable Securities in accordance with the terms of the Registration Rights Agreement, and such lapse or unavailability continues for a
period of five consecutive trading days or for more than an aggregate of ten trading days in any 365-day period (excluding days during an Allowable Grace Period (as defined in the Registration Rights Agreement)); |
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the suspension from trading or the failure of the Common Stock to be trading or listed (as applicable) on one of several eligible market for a period
of five consecutive trading days; |
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the Companys (A) failure to cure a Conversion Failure (other than a Conversion Failure with respect to which a Conversion Notice has been
withdrawn by the holder) or a Delivery Failure (as defined in the Warrants) by delivery of the required number of shares of Common Stock within five trading days after the applicable conversion date or exercise date (as the case may be) or
(B) notice, written or oral, to any holder of the Notes or Warrants, including, without limitation, by way of public announcement or through any of its agents, at any time, of its intention not to comply, as required, with a request for
conversion of any Notes into shares of Common Stock that is requested in accordance with the provisions of the Notes, |
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other than pursuant to the Note Blocker or the Exchange Blocker, or a request for exercise of any Warrants for shares of Common Stock in accordance with the provisions of the Warrants;
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subject to certain exceptions, at any time following the tenth consecutive day that the holders Authorized Share Allocation (as defined in the
Notes) is less than the number of shares of Common Stock that the holder would be entitled to receive upon a conversion of the full Conversion Amount of the Notes; |
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the Companys failure to pay to the holder any amount of principal, interest, late charges or other amounts when and as due under the Notes
(including, without limitation, its failure to pay any redemption payments or amounts hereunder) or any other Transaction Document (as defined in the Purchase Agreement) or any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated hereby and thereby, except, in the case of a failure to pay interest and late charges when and as due, in which case only if such failure remains uncured for a period of at least five trading days;
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the Company fails to remove any restrictive legend on any certificate or any shares of Common Stock issued to the holder upon conversion or exercise
(as the case may be) of any securities acquired by the holder under the Purchase Agreement as and when required by such securities or the Purchase Agreement, unless otherwise then prohibited by applicable federal securities laws, and any such
failure remains uncured for at least five trading days; |
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the occurrence of any default under, redemption of or acceleration prior to maturity of at least an aggregate of $0.25 million of Indebtedness (as
defined in the Purchase Agreement) of the Company or any of its Subsidiaries (as defined in the Purchase Agreement), other than with respect to any Other Notes (as defined in the Notes); |
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bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted by or against the
Company or any subsidiary and, if instituted against the Company or any subsidiary by a third party, shall not be dismissed within forty-five days of their initiation; |
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the commencement by the Company or any subsidiary of a voluntary case or proceeding under any applicable federal, state or foreign bankruptcy,
insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree, order, judgment or other similar document in respect of the Company or any
subsidiary in an involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal, state or foreign law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the execution of a
composition of debts, or the occurrence of any other similar federal, state or foreign proceeding, or the admission by it in writing of its inability to pay its debts generally as they become due, the taking of corporate action by the Company or any
subsidiary in furtherance of any such action or the taking of any action by any Person to commence a Uniform Commercial Code foreclosure sale or any other similar action under federal, state or foreign law, except, solely with respect to any
involuntary case or proceeding, that is not dismissed within forty-five days of their initiation; |
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the entry by a court of (i) a decree, order, judgment or other similar document in respect of the Company or any subsidiary of a voluntary or
involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law, (ii) a decree, order, judgment or other similar document adjudging the Company or any Subsidiary as
bankrupt or insolvent, or approving as properly filed a petition seeking liquidation, reorganization, arrangement, adjustment or composition of or in respect of the Company or any subsidiary under any applicable federal, state or foreign law or
(iii) a decree, order, judgment or other similar document appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any subsidiary or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance of any such decree, order, judgment or other similar document or any such other decree, order, judgment or other similar document unstayed and in effect for a period of
forty-five consecutive days; |
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a final judgment, judgments, any arbitration or mediation award or any settlement of any litigation or any other satisfaction of any claim made by any
person pursuant to any litigation, as applicable, (each a Judgment, and collectively, the Judgments) with respect to the payment of cash, securities and/or other assets with an aggregate fair value in excess of $0.25 million
are rendered against, agreed to or otherwise accepted by, the Company and/or any of its subsidiaries and which Judgments are not, within thirty days after the entry thereof, bonded, discharged, settled or stayed pending appeal, or are not discharged
within thirty days after the expiration of such stay; provided, however, any Judgment which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the $0.25 million amount set forth above so long as
the Company provides evidence, reasonably satisfactory to the holder, that such Judgment is covered by insurance or an indemnity and the Company or such subsidiary (as the case may be) will receive the proceeds of such insurance or indemnity within
thirty days of the issuance of such Judgment; |
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the Company and/or any subsidiary, individually or in the aggregate, either (i) fails to pay, when due, or within any applicable grace period, any
payment with respect to any Indebtedness in excess of $0.25 million due to any third party (other than, with respect to unsecured Indebtedness only, payments contested by the Company and/or such subsidiary (as the case may be) in good faith by
proper proceedings and with respect to which adequate reserves have been set aside for the payment thereof in accordance with GAAP) or is otherwise in breach or violation of any agreement for monies owed or owing in an amount in excess of $0.25
million, which breach or violation permits the other party thereto to declare a default or otherwise accelerate amounts due thereunder, or (ii) suffer to exist any other circumstance or event that would, with or without the passage of time or
the giving of notice, result in a default or event of default under any agreement binding the Company or any Subsidiary, which default or event of default would or is likely to have a material adverse effect on the business, assets, operations
(including results thereof), liabilities, properties, condition (including financial condition) or prospects of the Company or any of its Subsidiaries, individually or in the aggregate; |
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other than as specifically set forth in this list of events of default, the Company or any subsidiary breaches any representation or warranty in any
material respect (other than representations or warranties subject to material adverse effect or materiality limitations, which may not be breached in any respect) or any covenant or other term or condition of any Transaction Document, except, in
the case of a breach of a covenant or other term or condition that is curable, only if such breach remains uncured for a period of five consecutive trading days; |
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an intentionally false or inaccurate certification by the Company that either (A) the Equity Conditions are satisfied, (B) the Optional
Redemption Equity Conditions (as defined in the Series A Notes) are satisfied, (C) there has been no Equity Conditions Failure, (D) there has been no Optional Redemption Equity Conditions Failure (as defined in the Series A Notes) or
(E) as to whether any Event of Default has occurred; |
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any breach or failure in any respect by the Company of any Subsidiary to comply with any covenant contained in the Notes or the Indenture (to the
extent applicable to the Notes), and only in the case of a breach of a covenant or other term or condition that is curable, only if such breach remains uncured for a period of five consecutive trading days; |
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any provision of any Transaction Document shall at any time for any reason (other than pursuant to the express terms thereof) cease to be valid and
binding on or enforceable against the parties thereto, or the validity or enforceability thereof shall be contested by any party thereto, or a proceeding shall be commenced by the Company or any subsidiary or any governmental authority having
jurisdiction over any of them, seeking to establish the invalidity or unenforceability thereof, or the Company or any subsidiary shall deny in writing that it has any liability or obligation purported to be created under any Transaction Document to
which it is a party; |
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any Material Adverse Change occurs; or |
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any Event of Default (as defined in the Other Notes) occurs with respect to any Other Notes. |
If an Event of Default occurs, any holder of Notes may force the Company to redeem all or any portion of such Notes (including all accrued
and unpaid interest thereon), in cash, at a price equal to the greater of (i) 125% of the Conversion Amount being redeemed and (ii) the product of (a) the Conversion Rate (as defined below) multiplied (b) 125% of the Conversion
Amount being redeemed, depending on the nature of the default,
multiplied by the highest closing sale price of the Company Common Stock during the period beginning on the date immediately before the event of default and ending on the date of redemption. The
Conversion Rate is determined by dividing the amount being converted or redeemed by the applicable Conversion Price. If the Company fails to make the cash redemption payment, at the holders option upon delivery of a notice voiding
the redemption notice, the Conversion Price of the Notes shall be automatically adjusted with respect to each conversion effected thereafter to the lowest of (A) the Conversion Price as in effect on the date on which the applicable redemption
notice is voided, (B) 70% of the lowest closing bid price of the Common Stock during the period beginning on and including the date on which the applicable redemption notice is delivered to the Company and ending on and including the date on
which the applicable redemption notice is voided and (C) 70% of the quotient of (I) the sum of the five lowest volume weighted average prices of the Common Stock during the twenty consecutive trading day period ending and including the
trading day immediately preceding the applicable conversion date divided by (II) five.
Fundamental Transactions
Each series of Notes prohibit the Company from entering into specified transactions involving a change of control, unless the successor
entity is a publicly traded company whose Common Stock is quoted on or listed for trading on an eligible market and the successor entity assumes in writing all of the Companys obligations under each series of Notes under a written agreement
acceptable to the holders of each series of Notes. In the event of transactions involving a change of control, the holders of each series of Notes will have the right to force the Company to redeem all or any portion of the Notes (including all
accrued and unpaid interest thereon).
Covenants
Each series of Notes contain a variety of obligations of the Company not to engage in specified activities, which are typical for transactions of this type, as well as the following covenants:
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the Company will initially reserve from its authorized and unissued Common Stock such number of shares equal to 125% of the maximum number of shares of
its Common Stock issuable upon conversion of all Notes as of the Closing Date, which reservation amount will be increased to 150% of the maximum number of shares of its Common Stock issuable upon conversion of all of the Notes following the date
specified in the Purchase Agreement; |
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the Company shall not, and it shall cause each of its subsidiaries to not, directly or indirectly, incur or guarantee, assume or suffer to exist any
other indebtedness, except for permitted indebtedness; |
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the Company shall not, and it shall cause each of its subsidiaries to not, directly or indirectly, incur any liens, except for permitted liens;
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the Company shall not, and it shall cause each of its subsidiaries to not, directly or indirectly, make any payments in respect of any indebtedness
while an event of default under either series of Notes has occurred and is continuing, except with respect to permitted senior indebtedness (including its bank credit facility, limited to $12.0 million aggregate principal amount) and the other
series of Notes; |
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the Company shall not, and it shall cause each of its subsidiaries to not, directly or indirectly, redeem, repurchase or declare or pay any cash
dividend or distribution on its capital stock or its subsidiaries capital stock; |
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the Company and its subsidiaries will not sell, lease, assign, transfer or otherwise dispose of any of its assets or any assets of any subsidiaries,
except for certain permitted dispositions (including sales in the ordinary course of business) and the sale of the assets of its Krillion local shopping platform and certain intellectual property assets at a fair market price;
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the Company shall sell (x) the assets of its Krillion local shopping platform by no later than June 30, 2015 and (y) certain
intellectual property assets by no later than December 31, 2015; |
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commencing prior to a specified date, so long as the Note remains outstanding, the Company shall engage an investment bank, reasonably satisfactory to
the holders of the Notes, to explore strategic alternatives with the Company; and |
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if the Company receives any written notice by NASDAQ Capital Market that it has failed to satisfy the minimum trading price requirements of NASDAQ
Capital Market and, as of the compliance deadline required by NASDAQ Capital Market in such written notice (each, a Principal Market Deadline), the |
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Company still fails to satisfy such minimum trading price requirement, it will be required to, no later than such Principal Market Deadline, consummate a reverse stock split such that, after
giving effect to such reverse stock split, it shall then be in compliance with the minimum trading price requirements of NASDAQ Capital Market. |
Limitations on Conversion and Issuance
Subject to certain waiver rights, a
Note may not be converted and shares of Common Stock may not be issued under the Notes if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 9.99% of the Companys
outstanding shares of Common Stock ( the Note Blocker).
A Note may not be converted and shares of Common Stock may
not be issued under the Notes if the sum of the number of shares of Common Stock to be issued plus the number of shares of Common Stock issued under all of the Notes and the Warrants would exceed the number of shares of Common Stock that the Company
may issue without breaching NASDAQ Listing Rule 5635(d), unless the Company has obtained either (i) stockholder approval pursuant to NASDAQ Listing Rule 5635(d) for the issuance of more than 4,658,906 shares of its Common Stock under the Notes
and the Warrants, as is being sought pursuant to this Proposal 4, or (ii) an opinion from legal counsel that more than 4,658,906 shares of its Common Stock may be issued under the Notes and the Warrants under Rule 5635(d) (the Exchange
Blocker).
Limits on Cash Payments
Companys ability to pay interest and other amounts in cash with respect to each series of Notes is limited. The Company is prohibited from paying any holder of any Notes in cash, and each holder of
Notes is prohibited from accepting any cash amount from the Company in satisfaction of any amount owed under the Notes, provided, that the foregoing restriction does not apply at any time that there is a holder of the Companys permitted senior
indebtedness, provided that after giving effect to the applicable cash payment, the Company and its subsidiaries, on a consolidated basis, have at least $0.50 million in cash and cash equivalents (excluding cash held in a collection account for
the permitted senior indebtedness or another account subject to daily cash sweep) and no event of default under the permitted senior indebtedness has occurred and is continuing. If at any time a payment under the Notes is due at a time that the
Company is unable to satisfy the Equity Conditions precedent to making such payment in Common Stock but the Indenture (entered into in connection with Financing) prevents the Company from making such payment in cash, an event of default under the
Notes would likely occur.
Warrants
The Warrants will entitle holders of the Warrants to purchase, in the aggregate, up to 7,708,091 shares of the Companys Common Stock. The Warrants will expire on the fifth anniversary of the Closing
Date. The Warrants will initially be exercisable at an exercise price equal to $0.6510. The exercise price is subject to certain adjustments, including the same anti-dilution adjustments for issuance of Common Stock as described above under
Conversion above. The exercise price of the Warrants is also subject to adjustment for stock splits, combinations or similar events, and, in this event, the number of shares issuable upon the exercise of the Warrant, will also be
adjusted so that the aggregate exercise price shall be the same immediately before and immediately after the adjustment. The exercise price of the Warrants is also subject to reset in the same manner as the Series A Conversion Price in March 2016.
Limitations on Exercise
The Warrants are also subject to the same limitations on conversions and issuance of Common Stock as the Notes. See Limitations on Conversion and Issuance.
Fundamental Transactions
The Warrants prohibit the Company from entering into specified transactions involving a change of control, unless the successor entity
assumes all of the Companys obligations under the Warrants under a written agreement before the transaction is completed. When there is a transaction involving a permitted change of
control, a holder of a Warrant will have the right to require the Company to repurchase the holders Warrant for a purchase price in cash equal to the Black Scholes value (as calculated
under the Warrants) of the then unexercised portion of the Warrant.
Registration Rights Agreement
In connection with the Securities Purchase Agreement, we entered into a Registration Rights Agreement with each of the Investors that is a
party to the Securities Purchase Agreement (the Registration Rights Agreement), which provides for the registration of the Common Stock issuable upon conversion of the Series A Notes and upon exercise of the Warrants. The Company has an
obligation to file a Form S-3 Registration Statement within 30 days of the Closing, to have such registration statement declared effective within 120 days of the closing (140 days if the Registration Statement is subject to review by the SEC), and
to maintain the effectiveness of such registration statement for so long as the Series A Notes, Warrants or shares of Common Stock issued pursuant to the Series A Notes or Warrants are held by the Investors or their permitted assignees. The
Registration Rights Agreement also provides that if there is not an effective registration statement for all of the Registrable Securities (as defined in the Registration Rights Agreement) covered by the agreement, the investors will also have
piggyback rights to include their shares in any registration statements filed by the Company with the SEC, other than registration statements covering Common Stock issuable under stock-based compensation plans, registration statements relating to
Common Stock issuable in business combination transactions, and certain other registrations. The Company may become responsible for certain specified damages, including buy-in payments, if it fails to meet its obligations under the
Registration Rights Agreement.
Summary
As noted above (see Limitations on Conversion and Issuance), the Notes and Warrants contain an Exchange Blocker which limits the total amount of shares of Common Stock issuable to all Investors to
4,658,906 (19.99% of the shares of Common Stock outstanding immediately prior to the Financing) (the Exchange Cap) in accordance with Nasdaq Marketplace Rule 5635(d), unless the Company has obtained either (i) stockholder approval
pursuant to NASDAQ Listing Rule 5635(d) for the issuance of more than 4,658,906 shares of its Common Stock under the Notes and the Warrants, as is being sought pursuant to this Proposal 4, or (ii) an opinion from legal counsel that more than
4,658,906 shares of its Common Stock may be issued under the Notes and the Warrants under Rule 5635(d). In the event that, but for the foregoing Exchange Cap, the Investors would be entitled to convert their Notes and exercise their Warrants into
shares of Common Stock, then the Company has agreed to pay buy-in damages of the converting holder and certain other amounts. Specifically, the Company shall pay cash in exchange for the cancellation of such shares of Common Stock that
were otherwise issuable but for the Exchange Cap (as defined herein) (the Exchange Cap Shares) at a price equal to the sum of (i) the product of (x) such number of Exchange Cap Shares and (y) the greatest Closing Sale
Price (as defined in the Notes) of the Common Stock on any trading day during the period commencing on the date the holder delivers the applicable Conversion Notice (as defined in the Notes and Warrants) with respect to such Exchange Cap Shares to
the Company and ending on the date of the Company makes the foregoing payment, and (ii) to the extent the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of
Exchange Cap Shares, any Buy-In Payment Amount, any brokerage commissions and other out-of- pocket expenses, if any, incurred in connection therewith.
In addition, if we do not obtain stockholder approval for us to issue Common Stock equal to 20% of more of the Common Stock outstanding before the transactions contemplated by the Purchase Agreement at
this annual meeting of stockholders, then 19.99% Exchange Blocker remains in place and we are obligated to seek stockholder approval at subsequent meetings of stockholders until approval is obtained or all our obligations under the Notes and
Warrants have been fulfilled.
Nasdaq Listing Requirements and the Necessity of Stockholder Approval
As a Nasdaq listed company, we are required to follow all applicable Nasdaq rules, including the Nasdaq Marketplace Rules. One such rule
is rule 5635(d)(2) which requires stockholder approval when, in connection with a transaction other than a public offering, a transaction involves the potential issuance by us of Common Stock equal to 20% or more of the Common Stock outstanding
before such potential issuance. Stockholder approval was not required at the closing the Financing because the terms of the Financing would not result in
issuances equal to or more than 20%. However, we agreed in the Financing documents to seek stockholder approval which would allow us to exceed the 19.99% aggregate cap (the Exchange Cap) on the
total shares of Common Stock that are issuable pursuant to the Notes and the Warrants.
In order to satisfy all applicable
Nasdaq Marketplace Rules, including without limitation Nasdaq Marketplace Rule 5635(d), which will have the effect of removing the 19.99% aggregate cap on the total shares of Common Stock that are issuable pursuant to the Notes and the Warrants, the
Board of Directors is seeking shareholder approval for the issuance of shares of our Common Stock underlying the Notes and Warrants in an amount equal to or in excess of 20% of our Common Stock outstanding before the issuance of the Common Stock
underlying the Notes and Warrants.
Our stockholders are being asked to approve the potential issuance by us of Common Stock
equal to 20% or more of Common Stock outstanding before the Financing. If the 19.99% aggregate cap on the total shares of Common Stock that are issuable pursuant to the Notes and the Warrants is removed, there is no way to reasonably calculate the
total number of our shares of Common Stock into which the Notes and the Warrants may ultimately be convertible, as it would be dependent upon factors that are not yet determined or known. The number of issuable shares can increase without limit if
we undertake subsequent Dilutive Issuances of Common Stock at prices lower than the then-current conversion or exercise price of such Note and Warrants (see Conversion).
Required Vote
The affirmative vote of a majority of the issued and
outstanding shares of the Common Stock present in person or represented by proxy and entitled to vote at this meeting is necessary for approval of the issuance of shares of our Common Stock underlying the conversion of the Notes and exercise of the
Warrants in an amount equal to or in excess of 20% of our common Stock outstanding before the Financing. If you own shares through a bank, broker, or other holder of record, you must instruct your bank, broker, or other holder of record how to vote
in order for them to vote your shares so that your vote can be counted on this Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR THE APPROVAL, IN ACCORDANCE WITH NASDAQ MARKETPLACE RULES, OF THE ISSUANCE OF SHARES OF OUR COMMON STOCK UNDERLYING CONVERTIBLE NOTES AND WARRANTS PREVIOUSLY ISSUED BY US, IN AN AMOUNT EQUAL TO OR IN EXCESS OF 20%
OF OUR COMMON STOCK OUTSTANDING BEFORE THE ISSUANCE OF OUR COMMON STOCK UNDERLYING SUCH CONVERTIBLE NOTES AND WARRANTS.
PROPOSAL 4RESOLUTION AUTHORIZING THE BOARD OF DIRECTORS TO AMEND THE COMPANYS CERTIFICATE OF INCORPORATION TO IMPLEMENT A
REVERSE SPLIT OF THE COMPANYS COMMON STOCK AT A RATIO OF 1-FOR-6 AT ANY TIME PRIOR TO
DECEMBER 31, 2016
General
Our Board of Directors has approved and is seeking stockholder approval of a resolution to authorize the Board of Directors, in its sole
and absolute discretion without further action of the stockholders, to amend the Companys Certificate of Incorporation to implement a reverse stock split of the Companys Common Stock at a ratio of 1-for-6 at any time prior to
December 31, 2016 (the Reverse Split). The form of the proposed Amendment to our Certificate of Incorporation (the Amendment) to effect the Reverse Split is attached to this proxy statement as Appendix A; provided,
however, that the text set forth in Appendix A is subject to amendment to include such changes as may be required by the office of the Secretary of State of the State of Delaware and as our Board deems necessary and advisable to effect the Reverse
Split. If the Reverse Split is authorized by the stockholders and following such authorization our Board determines that the Reverse Split is in the best interest of the Company and its stockholders, our Certificate of Incorporation would be amended
accordingly.
If our stockholders approve this proposal, our Board of Directors will have the authority, but not the
obligation, in their sole and absolute discretion, and without further action on the part of the stockholders, to effect the approved Reverse Split by filing the Amendment with the Delaware Secretary of State. If the
Amendment has not been filed with the Delaware Secretary of State by the close of business on December 31, 2016, our Board of Directors will abandon the Amendment constituting the Reverse
Split.
The reason we want to effect the Reverse Split is to increase the market price per share of our Common Stock in order
to maintain the listing of our Common Stock on the NASDAQ Capital Market. See Reasons for the Reverse Split. We believe that maintaining the listing of our Common Stock on the NASDAQ Capital Market is in the best interests of our
stockholders.
If the Reverse Split is implemented, the Amendment would not reduce the authorized number of shares of our
Common Stock. As such, regardless of whether or not Proposal 5 (which seeks approval for an increase in the number of authorized shares of Common Stock of the Company) is approved by our stockholders, if the Reverse Split is effected, the Reverse
Split will reduce the number of issued and outstanding shares of our Common Stock and, therefore, make available more authorized shares of our Common Stock for future issuances. Such increase in the number of authorized shares of our Common Stock
available for future issuances, would, among other things:
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Allow the Company to fulfill its obligations pursuant to the terms of the Series A and Series B Convertible Notes and Warrants issued on
March 12, 2015. On March 9, 2015, the Company entered into a Securities Purchase Agreement relating to the sale and issuance of Senior Convertible Notes, comprising $4.57 million aggregate principal amount of 8% Senior Convertible
Notes (Series A Notes) maturing in April 2018 and initially convertible at $0.5534 per share, and $4.75 million aggregate principal amount of 10% Partially Liquidating Debentures (Series B Notes) maturing August 2016,
initially convertible at $0.7090 per share. Note that conversion prices are subject to adjustment. Both transactions included issuance of five-year warrants with 50% coverage with an exercise price at market price, defined as the preceding 5 day
volume weighted average price. In connection with the foregoing transactions, we agreed to reserve for issuance 150% of the total shares of Common Stock that the Series A Notes, Series B Notes and warrants are convertible into, along with the
interest payable pursuant to the Series A Notes and Series B Notes. If we undertake the Reverse Split, we would increase the number of available shares for issuance, which will allow us to fulfill our obligations to our Series A and Series B Note
holders, regardless of whether or not Proposal 5 (which seeks approval for an increase in the number of authorized shares of Common Stock of the Company) is approved by our stockholders. |
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Allow the Company the flexibility of using Common Stock to raise capital and/or as consideration in acquiring other businesses or establishing
strategic relationships with other companies. The Company is continuously seeking opportunities to add more expertise and proprietary products and services to further enhance its core capabilities through additional acquisitions of
businesses or establishing strategic relationships with other companies. Such acquisitions or strategic relationships may be effected using shares of Common Stock or other securities convertible into Common Stock and/or by using capital that may
need to be raised by selling such securities. The reservation of shares in accordance with the Series A Notes, Series B Notes, and warrants, leaves a very small number of available authorized shares of Common Stock for issuance and severely
constrains the Companys ability to effect acquisitions of businesses using shares of its Common Stock or issuing shares to raise capital to fund such acquisitions or for other purposes. The Company does not have any agreement, arrangement or
understanding at this time with respect to any specific acquisition for which the authorized shares would be issued or for any other purpose. |
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Allow the Company to provide equity incentive compensation to its employees, including those of newly acquired businesses. The Board believes
that it is critical to incentivize its officers and employees to increase the Companys revenues and profitability, and as a result, the Companys market value, through equity incentive awards. The Companys growth strategy requires
that these incentives be provided to new employees of acquired businesses, to new hires to upgrade key areas of the Companys operations, and to existing employees that are being asked to increase their and the Companys level of
performance. If we undertake the Reverse Split, we would have additional shares of authorized Common Stock that could be used to provide such equity incentives, which the Board believes is important to the Companys ability to achieve its
growth strategy, regardless of whether or not Proposal 5 is approved. |
Except for any changes as a result of
the treatment of fractional shares, each stockholder will hold the same percentage of Common Stock outstanding immediately after the Reverse Split as such stockholder held immediately prior to the Reverse Split.
Reasons for the Reverse Split
The reason we want to effect the Reverse Split is to increase the market price per share of our Common Stock. Our Common Stock has been
traded on what is now known as the NASDAQ Capital Market since 2006. One of the requirements for continued listing on the NASDAQ Capital Market is that shares retain a $1.00 minimum closing bid price. The price of our Common Stock has not been above
$1.00 per share since January 9, 2015. On February 25, 2015, we received a deficiency letter from The NASDAQ Stock Market LLC (NASDAQ) indicating that, based on the closing bid price for our Common Stock for the last 30
consecutive business days, we do not comply with the minimum bid price requirement of $1.00 per share, as set forth in NASDAQ Listing Rule 5550(a)(2). The notification has no immediate effect on the listing of our Common Stock on The NASDAQ Capital
Market. In accordance with NASDAQ Listing Rule 5810(c)(3)(A), we have a grace period of 180 calendar days, or until August 24, 2015, to regain compliance with the minimum closing bid price requirement for continued listing. In order to regain
compliance, the minimum closing bid price per share of our Common Stock must be at least $1.00 for a minimum of ten consecutive business days. In the event we do not regain compliance by August 24, 2015, the Company may be afforded an
additional 180-day compliance period, provided it demonstrates that it meets all other applicable standards for initial listing on The NASDAQ Capital Market (except the bid price requirement), and provides written notice of its intention to cure the
minimum bid price deficiency during the second grace period, by effecting a reverse stock split, if necessary.
If we fail to
regain compliance after the second grace period, our stock will be subject to delisting by NASDAQ. Notwithstanding the grace periods provided by the rules of the Nasdaq Capital Market, the Securities Purchase Agreement with the purchasers of
the Notes requires that we call and hold a meeting of our stockholders to obtain stockholder approval for a reverse split of our Common Stock at a ratio up to 6 for 1 by June 30, 2015, as we are doing pursuant to this Proposal 4. Under the
Notes, our failure to list our Common Stock on a major stock exchange would increase the interest rate on the Notes to 18.00%.
We believe that maintaining the listing of our Common Stock on the NASDAQ Capital Market is in the best interests of the Company and our
stockholders. Listing on the NASDAQ Capital Market increases the liquidity of the Company Common Stock and may minimize the spread between the bid and ask prices quoted by market makers. Further, maintaining our NASDAQ
Capital Market listing may enhance our access to capital that is necessary to fund our operations. A delisting from the NASDAQ Capital Market will also make us ineligible to use Securities and Exchange Commission (SEC) Form S-3 to
register the sale of shares of our Common Stock in a limited primary offering or to register the resale of our securities held by certain of our security holders in a secondary offering with the SEC, thereby making it more difficult and expensive
for us to register our Common Stock or other securities and raise additional capital. Finally, a delisting from the NASDAQ Capital Market could potentially place us in default under our Notes.
Form S-3 generally allows the registration statement to be continuously updated through the incorporation by reference of our
periodic SEC filings. If we are ineligible to use Form S-3, we will need to file future registration statements on some other permitted Form, which may not permit incorporation by reference of the information in our periodic SEC filings.
Maintaining the effectiveness of such registration statements and keeping the information contained therein current and up to date will become difficult, time-consuming and expensive. We would also incur additional costs under state blue-sky laws to
sell equity if we are de-listed.
We also believe that the increased market price of our Common Stock expected as a result of
implementing the Reverse Split will improve the marketability and liquidity of our Common Stock and will encourage interest and trading in our Common Stock. Because of the trading volatility often associated with low-priced stocks, many brokerage
houses and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. Some of those
policies and practices may function to make the processing of trades in low-priced stocks economically unattractive to brokers. Additionally, because brokers commissions on low-priced stocks generally represent a higher percentage of the stock
price than commissions on higher-priced stocks, the current average price per share of our Common Stock can result in individual stockholders paying transaction costs representing a higher percentage of their total stock value than would be the case
if the stock price were substantially higher. It should be noted, however, that the liquidity of our Common Stock may in fact be adversely affected by the proposed Reverse Split given the reduced number of shares that would be outstanding after the
Reverse Split.
For the above reasons, we believe that having the ability to effect the Reverse Split will
help us regain and maintain compliance with the NASDAQ listing requirements, could improve the marketability and liquidity of our Common Stock, would allow us to remain in compliance with the terms of our Notes, and may allow us to continue to use
Form S-3 for the registration of the sale of our stock (provided that all other eligibility requirements are met), and is therefore in the best interests of the Company and our stockholders.
However, we cannot assure you that the Reverse Split, if implemented, will have the desired effect of proportionately raising our Common
Stock price over the long term, or at all. The effect of a reverse split upon the market price of our Common Stock cannot be predicted with any certainty, and the history of similar stock splits for companies in similar circumstances to the Company
is varied. Accordingly, we cannot assure you that we will be able to maintain our NASDAQ listing after the Reverse Split is effected or that the market price per share after the Reverse Split will exceed or remain in excess of the $1.00 minimum bid
price for a sustained period of time. The market price of our Common Stock may vary based on other factors that are unrelated to the number of shares outstanding, including our future performance. We also cannot assure you that our Common Stock will
not be de-listed due to a failure to meet other continued listing requirements even if after the Reverse Split the market price per share of our Common Stock remains in excess of $1.00.
Board Discretion to Implement the Reverse Split
If the Reverse Split is
approved by our stockholders, it will be effected, if at all, only upon a determination by our Board of Directors that a Reverse Split is in the best interests of our stockholders. Notwithstanding approval of the Reverse Split by our stockholders,
our Board of Directors may, in its sole discretion, abandon the proposed amendment related to the Reverse Split and determine prior to the effectiveness of any filing with the Secretary of State of the State of Delaware not to effect the Reverse
Split prior to December 31, 2016, as permitted under Section 242(c) of the Delaware General Corporation Law. If the Board fails to implement any of the amendments prior to December 31, 2016, stockholder approval again would be
required prior to implementing any subsequent reverse stock split.
Effects of the Reverse Split
Except for adjustments that may result from the treatment of fractional shares as described below, each stockholder
will hold the same percentage of our outstanding Common Stock immediately following the Reverse Split as that stockholder held immediately prior to the Reverse Split. On March 31, 2015, we had 23,306,184 shares of our Common Stock outstanding.
As of March 31, 2015, our Board of Directors has reserved for possible future issuance approximately 27,893,026 shares of Common Stock for issuance upon the conversion of the Series A and Series B Notes, exercise of outstanding options,
warrants, and rights, and 1,152,091 shares of Common Stock for issuance for future grants under our 2011 Omnibus Incentive Plan, as amended. All of these share numbers will be adjusted in the ratio of the Reverse Split. Additionally, the conversion
price of the Series A Notes and Series B Notes and the exercise price of the 7,758,091 Warrants outstanding from the 2015 Notes transaction will be further reduced following the Reverse Split to the price on the 20th trading day immediately following such Reverse Split if such price
is lower than the price to which it is adjusted effective upon the effectiveness of the Reverse Split.
After the effective
date of the proposed Reverse Split, each stockholder will own a reduced number of shares of our Common Stock. For example, every 6 shares of our Common Stock that a stockholder owns will be combined and converted into a single share of our Common
Stock. We estimate that following the Reverse Split we would have approximately the same number of stockholders. Except for any changes as a result of the treatment of fractional shares, the completion of the Reverse Split alone would not affect any
stockholders proportionate equity interest in the Company. By way of example, a stockholder who owns a number of shares that, prior to the Reverse Split, represented 1% of our outstanding Common Stock would continue to own 1% of our
outstanding Common Stock after the Reverse Split. The Reverse Split will not reduce your ownership interest except as a result of the treatment of fractional shares, as specified below. The Reverse Split may, however, increase the number of
stockholders of the Company who own odd lots of less than 100 shares of our Common Stock. Brokerage commissions and other costs of transactions in odd lots are generally higher than the costs of transactions of more than 100 shares of
Common Stock.
Because the Reverse Split will result in a reduction in the number of outstanding shares of our Common Stock,
the Reverse Split will be accompanied by a corresponding decrease in the total number of issued shares of our Common Stock.
The Amendment will not affect the number of shares of authorized shares of Common Stock or
preferred stock which the Company may issue, which shall remain at 65,000,000 shares and 10,000,000 shares, respectively. There are no shares of preferred stock outstanding.
As of March 31, 2015, we had a total of 23,306,184 shares of Common Stock outstanding. The Reverse Split would reduce the number of shares of Common Stock outstanding to 3,884,364, an 83 percent
decrease. The approximate number of shares of Common Stock that would remain authorized but unissued following the Reverse Split, excluding the Authorized Shares Increase Proposal (Proposal 5), would be 61,115,636.
The potential consequences to the Company and stockholders in the event that the Reverse Split is not approved include:
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We will not be able to effect the Reverse Split to increase the market price per share of our Common Stock and thereby seek to maintain a $1.00 minimum
closing bid price for a minimum of ten consecutive business days, which we hope would in turn allow us to regain compliance with NASADAQ Listing Rule 5550(a)(2). If we fail to regain compliance, our Common Stock will be subject to delisting by
NASDAQ. Notwithstanding the grace periods provided by the rules of the Nasdaq Capital Market, the Securities Purchase Agreement with the purchasers of the Notes requires that we call and hold a meeting of our stockholders to obtain stockholder
approval for a reverse split of our Common Stock at a ratio up to 6 for 1 by June 30, 2015, as we are doing pursuant to this Proposal 4. Under the Notes, our failure to list our Common Stock on a major stock exchange would constitute an Event
of Default. In an Event of Default, the holders of the Notes could require the Notes to be redeemed. Additionally, during an Event of Default, the interest rate on the Notes would increase to 18.00%. Furthermore, due to the cross-default provisions
of our senior lending facility with FastPay Partners, LLC, an Event of Default under the Notes would also cause an Event of Default under the FastPay agreement, allowing FastPay to similarly terminate their Agreement with us and require us to
repurchase all of our accounts receivable previously sold to them; |
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In the event that Proposal 5 is also not approved, we will not be able to fulfill our obligations pursuant to the terms of the Series A Notes and
Series B Notes and related warrants, pursuant to which we agreed to reserve for issuance 150% of the total shares of Common Stock that the Series A Notes, Series B Notes and warrants are convertible into, along with the interest payable pursuant to
the Series A Notes and Series B Notes. As a result, we will be required to call a meeting of our stockholders seeking approval of such an increase every sixty days that the Notes are outstanding. Additionally, if there are not a sufficient number of
authorized shares available for issuance upon conversion of the Notes and exercise of the Warrants upon receipt of a conversion or exercise notice, then, in certain circumstances, the Company will be required to pay an amount in cash to such Note
holder or Warrant holder in lieu of issuing shares; |
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In the event that Proposal 5 is also not approved and the number of shares of Common Stock into which the Notes and Warrants is significantly increased
in accordance the terms of the Notes and Warrants, if we are unable to fulfill our obligations with respect to the conversion of the Notes into shares of Common Stock then that would constitute an Event of Default under the Notes. In an Event of
Default, the holders of the Notes could require the Notes to be redeemed. Additionally, during an Event of Default, the interest rate on the Notes would increase to 18.00%. Furthermore, due to the cross-default provisions of our senior lending
facility with FastPay Partners, LLC, an Event of Default under the Notes would also cause an Event of Default under the FastPay agreement, allowing FastPay to similarly terminate their Agreement with us and require us to repurchase all of our
accounts receivable previously sold to them; and |
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Any of the foregoing events could materially and negatively impact the value of our Common Stock and cause our stockholders to lose some or all of
their investment. |
Treatment of Fractional Shares
No fractional shares of Common Stock will be issued as a result of the Reverse Split. Instead, stockholders who otherwise would be
entitled to receive a fractional share of Common Stock as a consequence of the Reverse Split, upon surrender to the exchange agent of the certificates representing such fractional shares, will be entitled to receive cash in an amount equal to the
product obtained by multiplying (i) the closing sale price of our Common Stock on the business day immediately preceding the effective date of the Reverse Split as reported on
the NASDAQ Capital Market by (ii) the number of shares of our Common Stock held by the stockholder that would otherwise have been exchanged for the fractional share interest.
Effect of the Reverse Stock Split on Convertible Notes, Warrants, Options and Restricted Stock Units
The number of shares of Common Stock subject to our outstanding Series A Notes, Series B Notes, Warrants, options and
restricted stock units will automatically be reduced in the same ratio as the Reverse Split. The per share conversion price of those Series A Notes and Series B Notes and the exercise price of such Warrants and options, will also be increased in
direct proportion to the Reverse Split ratio, so that the aggregate dollar amount payable for the purchase of the stock subject to the options and warrants will remain unchanged. For example, assume that an option holder has options to purchase 600
shares at an exercise price of $0.60 per share. When the Reverse Split is effected, the number of shares subject to that option would be reduced to 100 shares and the exercise price would be proportionately increased to $3.60 per share. In
connection with the Reverse Split, the number of shares of Common Stock issuable upon exercise or conversion of outstanding stock options, restricted stock units and warrants will be rounded to the nearest whole share and no cash payment will be
made in respect of such rounding. In addition, the proposed Reverse Split will reduce the number of shares of Common Stock available for future issuances under our 2011 Omnibus Incentive Plan, as amended, in proportion to the 1-for-6 Reverse Split
ratio. In connection with the Reverse Split, in addition to the adjustments noted above, the conversion price of the Series A Notes and Series B Notes and the exercise price of the 7,758,091 Warrants outstanding from the 2015 Notes transaction will
be further reduced following the Reverse Split to the price on the 20th trading day immediately following such Reverse Split if such price is lower than the price to which it is adjusted effective upon the effectiveness of the Reverse Split. For example, if the exercise
price of a warrant from the 2015 Notes transaction was adjusted to $3.60 per share upon the effectiveness of the Reverse Split, but on the 20th trading day immediately following such Reverse Split the closing market price of our Common Stock was $3.00, then the
exercise price of such Warrant would be adjusted to $3.00.
Exchange of Stock Certificates
The combination of, and reduction in, the number of shares of our outstanding Common Stock as a result of the Reverse Split will occur
automatically on the date that the selected amendments to our Certificate of Incorporation effectuating the Reverse Split are filed with the Secretary of State of the State of Delaware (referred to as the effective date), without any action on the
part of our stockholders and without regard to the date that stock certificates representing the stock prior to the Reverse Split are physically surrendered for new stock certificates.
As soon as practicable after the effective date, transmittal forms will be mailed to each holder of record of certificates for our Common
Stock to be used in forwarding such certificates for surrender and exchange for certificates representing the number of shares of our Common Stock such stockholder is entitled to receive as a result of the Reverse Split. Our transfer agent will act
as exchange agent for purposes of implementing the exchange of the stock certificates. The transmittal forms will be accompanied by instructions specifying other details of the exchange. Upon receipt of the transmittal form, each stockholder should
surrender the certificates representing our Common Stock prior to the Reverse Split in accordance with the applicable instructions. Each holder who surrenders certificates will receive new certificates representing the whole number of shares of our
Common Stock that he or she holds as a result of the Reverse Split. No new certificates will be issued to a stockholder until the stockholder has surrendered such stockholders outstanding certificate(s) together with the properly completed and
executed transmittal form to the exchange agent. Stockholders should not destroy any stock certificates and should not submit their stock certificates until they receive a transmittal form from our transfer agent.
Accounting Consequences
The proposed amendments to our Certificate of Incorporation will not affect the par value of our Common Stock per share, which will remain
at $0.00001. As a result, as of the effective time of the Reverse Split, the stated capital attributable to Common Stock on our balance sheet will be reduced proportionately based on the reverse stock split ratio (including a retroactive adjustment
of prior periods), and the additional paid-in capital account will be credited with the amount by which the stated capital is reduced. Reported per share net income or loss will be higher because there will be fewer shares of Common Stock
outstanding.
No Appraisal Rights
Under the Delaware General Corporation Law, our stockholders are not entitled to appraisal rights with respect to our proposed amendments to Certificate of Incorporation to effect the Reverse Split, and
we will not independently provide our stockholders with any such rights.
No Going Private Transaction
Notwithstanding the decrease in the number of outstanding shares following the proposed Reverse Split, the Board of Directors does not
intend for this transaction to be the first step in a going private transaction within the meaning of Rule 13e-3 of the Securities Exchange Act of 1934, and the proposed Reverse Split will not cause the Company to go private.
Certain Material U.S. Federal Income Tax Consequences of the Reverse Split
The following is a summary of certain material U.S. federal income tax consequences of the Reverse Split to holders of our Common Stock.
It addresses only stockholders who hold the pre-reverse split Common Stock and post-reverse split Common Stock as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
Code). This discussion does not purport to be a complete discussion of all of the possible federal income tax consequences of the Reverse Split and does not account for or consider the federal income tax consequences to stockholders in
light of their individual investment circumstances or to stockholders subject to special treatment under the federal income tax laws, including but not limited to:
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banks, financial institutions, thrifts, mutual funds or trusts; |
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tax-exempt organizations; |
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dealers in securities or foreign currency; |
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real estate investment trusts, personal holding companies or regulated investment companies; |
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foreign or United States expatriate stockholders; |
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stockholders who are not United States persons, as defined in Section 7701 of the Code; |
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controlled foreign corporations; |
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stockholders with a functional currency other than the U.S. dollar; |
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stockholders who hold the pre-reverse split Common Stock as part of a straddle, hedge, constructive sale, conversion transaction, or other integrated
investment; |
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stockholders who hold the pre-reverse split Common Stock as qualified small business stock within the meaning of Section 1202 of the
Code; |
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traders, brokers, or dealers in securities who elect to apply a mark-to-market method of accounting; |
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partnerships or other pass-through entities or investors in such entities; |
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stockholders who are subject to the alternative minimum tax provisions of the Code; |
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stockholders who acquired their pre-reverse split Common Stock pursuant to the exercise of employee stock options, through a tax-qualified retirement
plan, or otherwise as compensation; or |
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holders of warrants or stock options. |
This summary is based upon the Code, existing and proposed U.S. Treasury regulations promulgated thereunder, legislative history, judicial decisions, and current administrative rulings and practices, all
as in effect on the date hereof and all of which are subject to differing interpretations. Any of these authorities could be repealed, overruled, or modified at any time. Any such change could be retroactive and, accordingly, could cause the tax
consequences of the Reverse Split to vary substantially from the consequences described herein. Further, no ruling from the Internal Revenue Service (the IRS) or opinion of legal or tax counsel will be obtained with respect to the
matters discussed herein, and there is no assurance or guarantee that the IRS would agree with the conclusions set forth in this summary. This information is not intended as tax advice to any person and may not be relied upon to avoid penalties.
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF
THE REVERSE SPLIT, INCLUDING THE APPLICABILITY OF ANY STATE, LOCAL, GIFT, OR FOREIGN TAX LAWS, CHANGES IN APPLICABLE TAX LAWS, AND ANY PENDING OR PROPOSED LEGISLATION OR AUTHORITY.
The Reverse Split is intended to constitute a recapitalization within the meaning of Section 368(a)(1)(E) of the Code.
Certain filings with the IRS must be made by the Company and certain significant holders of our Common Stock in order for the Reverse Split to qualify as a recapitalization.
Assuming the Reverse Split qualifies as a recapitalization, a holder of our Common Stock generally will not recognize gain or loss on the
Reverse Split, except to the extent of cash, if any, received in lieu of a fractional share interest in the post-reverse split Common Stock. A stockholder who receives cash in lieu of a fractional share interest in the post-reverse split Common
Stock generally will recognize gain or loss equal to the difference, if any, between the cash received and the portion of the tax basis of the pre-reverse split Common Stock allocated to the fractional share interest. Subject to the limitations
above and assuming the holder of our Common Stock holds such stock as a capital asset within the meaning of Section 1221 of the Code, such gain or loss will be long-term capital gain or loss if the pre-reverse split Common Stock
were held for more than one year by the stockholder at the time of the Reverse Split. The aggregate tax basis of the post-reverse split Common Stock received in the Reverse Split will be equal to the aggregate tax basis of the pre-reverse split
Common Stock exchanged therefore (excluding any portion of the stockholders tax basis allocated to fractional share interests). The holding period of the post-reverse split Common Stock received in the Reverse Split will include the holding
period of the pre-reverse split Common Stock exchanged.
Assuming the Reverse Split qualifies as a recapitalization, no gain or
loss will be recognized by the Company as a result of the Reverse Split.
The foregoing discussion is intended only as a
summary of certain U.S. federal income tax consequences of the Reverse Split and does not purport to be a complete analysis or listing of all potential U.S. federal income tax consequences of the Reverse Split.
REQUIRED VOTE
Under
Delaware law and our Certificate of Incorporation, the affirmative written consent of holders of a majority of the shares of Common Stock outstanding as of the Record Date is required to approve the Reverse Stock Split.
THE COMPANYS BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE AMENDMENT OF THE COMPANYS CERTIFICATE
OF INCORPORATION TO IMPLEMENT A REVERSE SPLIT OF THE COMPANYS COMMON STOCK AT A RATIO OF 1-FOR-6 AT ANY TIME PRIOR TO DECEMBER 31, 2016.
PROPOSAL 5APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE THE TOTAL NUMBER OF NUMBER OF AUTHORIZED SHARES AND
TOTAL NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
General
Our Board has adopted, subject to stockholder approval, an amendment to our Certificate of Incorporation, attached as Appendix B, to increase the authorized number of shares of capital stock of the
Company from 75,000,000 shares to 210,000,000 shares, consisting of an additional 135,000,000 shares of authorized Common Stock for a total of 200,000,000 shares of Common Stock and 10,000,0000 shares of Preferred Stock, $0.00001 par value per
share, authorized for issuance (the Authorized Shares Amendment).
As of May 7, 2015, the Company had
24,314,051 shares of Common Stock issued and outstanding, and convertible notes, options and warrants to acquire an aggregate of 27,614,021 shares of Common Stock. This represents an aggregate of 40,685,949 shares of Common Stock issued and reserved
for issuance under outstanding convertible notes, option awards and warrants, which represents approximately 63% of the total 65,000,000 shares of currently authorized Common Stock. Upon approval of proposal 5, the amount reserved and outstanding
will equal 44,045,569 as of May 7, 2015.
The Board believes the Amendment is necessary and prudent in order to allow the Company to
issue additional shares of Common Stock for the purposes described below, and for any other lawful purpose.
Purpose and Effect of the
Amendment
The proposed increase in the number of authorized shares of the Common Stock is deemed advisable by the Board in
order to, among other purposes:
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Allow the Company to fulfill its obligations pursuant to the terms of the Series A and Series B Convertible Notes and Warrants issued on
March 12, 2015. On March 9, 2015, the Company entered into a Securities Purchase Agreement relating to the sale and issuance of Senior Convertible Notes, comprising $4.57 million aggregate principal amount of 8% Senior Convertible
Notes (Series A Notes) maturing in April 2018 and initially convertible at $0.5534 per share, and $4.75 million aggregate principal amount of 10% Partially Liquidating Debentures (Series B Notes) maturing August 2016,
initially convertible at $0.7090 per share. Note that conversion prices are subject to adjustment. Both transactions included issuance of five-year warrants with 50% coverage with an exercise price at market price, defined as the preceding 5 day
volume weighted average price. In connection with the foregoing transactions, we agreed to reserve for issuance 150% of the total shares of Common Stock that the Series A Notes, Series B Notes and warrants are convertible into, along with the
interest payable pursuant to the Series A Notes and Series B Notes. Increasing the number of available shares will allow us to fulfill our obligations to our Series A and Series B Note holders. |
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Allow the Company the flexibility of using Common Stock to raise capital and/or as consideration in acquiring other businesses or establishing
strategic relationships with other companies. The Company is continuously seeking opportunities to add more expertise and proprietary products and services to further enhance its core capabilities through additional acquisitions of
businesses or establishing strategic relationships with other companies. Such acquisitions or strategic relationships may be effected using shares of Common Stock or other securities convertible into Common Stock and/or by using capital that may
need to be raised by selling such securities. The reservation of shares in accordance with the Series A Notes, Series B Notes, and warrants, leaves a very small number of available authorized shares of Common Stock for issuance and severely
constrains the Companys ability to effect acquisitions of businesses using shares of its Common Stock or issuing shares to raise capital to fund such acquisitions or for other purposes. The Company does not have any agreement, arrangement or
understanding at this time with respect to any specific acquisition for which the authorized shares would be issued or for any other purpose. |
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Allow the Company to provide equity incentive compensation to its employees, including those of newly acquired businesses. The Board believes
that it is critical to incentivize its officers and employees to increase the Companys revenues and profitability, and as a result, the Companys market value, through equity incentive awards. The Companys growth strategy requires
that these incentives be provided to new employees of acquired businesses, to new hires to upgrade key areas of the Companys operations, and to existing employees that are being asked to increase their and the Companys level of
performance. The Board believes that the Companys ability to achieve its growth strategy will be impaired without additional shares of authorized Common Stock that could be used to provide such equity incentives. |
If the Amendment is approved, the additional authorized but unissued shares of the Common Stock may generally be issued from time to time
for such proper corporate purposes as may be determined by the Board, without further action or authorization by the stockholders, except for some limited circumstances where stockholder approval is required by law or the listing standards of the
Nasdaq Capital Market. If the Amendment is approved, the Board will initially establish a total reserve of at least 37,942,389 shares of Common Stock in order to fulfill its obligation with respect to the reservation for issuance of at least 150% of
the total shares of Common Stock issuable upon conversion and/or exercise of the Series A Notes, Series B Notes and interest payable thereunder and the Warrants. The reservation of 34,582,769 shares of Common Stock will be undertaken regardless of
whether or not Proposal 5 is approved by our stockholders.
The possible future issuance of shares of equity securities consisting of Common Stock or
securities convertible into Common Stock, such as the issuance of any convertible notes, warrants, stock options or stock appreciation rights, could affect the current stockholders of the Company in a number of ways, including the following:
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diluting the voting power of the current holders of Common Stock; |
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diluting the market price of the Common Stock, to the extent that the shares of Common Stock are issued and sold at prices below current trading prices
of the Common Stock, or if the issuance consists of equity securities convertible into Common Stock, to the extent that the securities provide for the conversion into Common Stock at prices that could be below current trading prices of the Common
Stock, such as in the case of the Series A Notes and Series B Notes; |
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diluting the earnings per share and book value per share of the outstanding shares of Common Stock; and |
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making the payment of dividends on Common Stock potentially more expensive. |
The increase in authorized shares of Common Stock may have an incidental anti-takeover effect, although that is not the intention of this
proposal. Additional shares could be used to dilute the stock ownership of parties seeking to obtain control of the Company, and the increase in authorized shares discourages the possibility of, or renders more difficult, certain mergers, tender
offers or proxy contests. For example, without further stockholder approval, the Board could sell shares of the Common Stock in a private transaction to purchasers who would oppose a takeover, thereby potentially preventing a transaction favored by
a majority of independent stockholders under which stockholders would have received a premium for their shares over then-current market prices. This proposal to increase the authorized number of shares of Common Stock has been prompted by business
and financial considerations, and not by the threat of any hostile takeover attempt (nor are we currently aware of any such attempts directed at us). However, you should be aware that approval of this proposal could facilitate future efforts to
prevent changes in control of the Board, including transactions in which you might otherwise receive a premium for your shares over then current market prices.
The potential consequences to the Company and stockholders in the event that the increase is authorized shares is not approved include:
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In the event that Proposal 4 is also not approved, we will not be able to fulfill our obligations pursuant to the terms of the Series A Notes and
Series B Notes and related warrants, pursuant to which we agreed to reserve for issuance 150% of the total shares of Common Stock that the Series A Notes, Series B Notes and warrants are convertible into, along with the interest payable pursuant to
the Series A Notes and Series B Notes. As a result, we will be required to call a meeting of our stockholders seeking approval of such an increase every sixty days that the Notes are outstanding. Additionally, if there are not a sufficient number of
authorized shares available for issuance upon conversion of the Notes and exercise of the Warrants upon receipt of a conversion or exercise notice, then, in some circumstances, the Company will be required to pay an amount in cash to such Note
holder or Warrant holder in lieu of issuing shares; |
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In the event that Proposal 4 is also not approved and the number of shares of Common Stock into which the Notes and Warrants is significantly increased
in accordance the terms of the Notes, if we are unable to fulfill our obligations with respect to the conversion of the Notes into shares of Common Stock then that would constitute an Event of Default under the Notes. In an Event of Default, the
holders of the Notes could require the Notes to be redeemed. Additionally, during an Event of Default, the interest rate on the Notes would increase to 18.00%. Furthermore, due to the cross-default provisions of our senior lending facility with
FastPay Partners, LLC, an Event of Default under the Notes would also cause an Event of Default under the FastPay agreement, allowing FastPay to similarly terminate their Agreement with us and require us to repurchase all of our accounts receivable
previously sold to them; and |
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Any of the foregoing events could materially and negatively impact the value of our Common Stock and cause our stockholders to lose some or all of
their investment. |
If the Amendment is approved by the stockholders at the Meeting, the Amendment will become
effective upon the filing of the Authorized Shares Amendment with the Secretary of State of the State of Delaware.
The
affirmative vote of the holders of a majority of the shares of Common Stock will be required to approve this Authorized Shares Amendment. As a result, abstentions and broker non-votes will have the same effect as negative votes.
The Companys Board recommends that stockholders vote FOR approval of
the Authorized Shares amendment of the Companys Certificate of Incorporation, to increase the total number of authorized shares and the total number of authorized shares of Common Stock.
PROPOSAL 6ADVISORY VOTE TO APPROVE OUR EXECUTIVE COMPENSATION, AS DESCRIBED IN THIS PROXY STATEMENT.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) enables our stockholders to vote to
approve, on an advisory (non-binding) basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with rules promulgated by the SEC.
As we discuss above under the caption Executive Compensation, the general compensation arrangements of the Company are guided
by the following principles and business objectives:
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It is our objective to hire and retain top talent in our industry in an exceptionally competitive marketplace, especially for key positions that
directly contribute to creating stockholder value; |
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We reward the performance of our top contributors in key positions within our company by focusing our resources on them and their continued
performance, while providing compensation at levels within our organization that rewards performance; and |
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We firmly believe that equity compensation is an important means of aligning the interests of our employees with those of our stockholders and focus
our equity compensation on the key positions within our Company that we believe have the greatest impact on performance. |
We are guided by the above principles in its compensation philosophy for our executive officers, which has been designed to achieve the following two objectives:
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Allow us to attract and retain the key executive talent it needs to achieve its business objectives by providing total compensation arrangements that
are competitive and attractive; and |
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Establishing a direct correlation between the total executive compensation paid to our overall performance and improvements in performance, including
the creation of shareholder value, and the individual performance and achievements. |
In accordance with
recently adopted Section 14A of the Securities Exchange Act of 1934, as amended, and as a matter of good corporate governance, we are asking our stockholders to indicate their support for the compensation of our executive officers, as described
in this proxy statement. This proposal, commonly known as a say-on-pay proposal, is not intended to address any specific item of compensation, but rather the overall compensation of our executive officers and the philosophy, policies and
practices described in this proxy statement. Accordingly, we ask our stockholders to vote FOR the following resolution at the Annual Meeting:
RESOLVED, that the stockholders of Local Corporation (the Company) approve, on an advisory basis, the compensation of the executive officers, as disclosed in the Companys proxy
statement for the 2014 Annual Meeting of Stockholders pursuant to Item 402 of Regulation S-K, including the Summary Compensation Table and the other related tables and disclosure.
The say-on-pay vote is advisory and therefore, not binding; however, the Compensation Committee will consider the outcome of the vote when
considering future executive compensation arrangements.
The Board of Directors recommends a vote FOR the
approval of our executive compensation, as described in this proxy statement.
OTHER MATTERS
The Board knows of no other business to be acted upon at the Annual Meeting. However, if any other business properly comes before the
Annual Meeting, the persons named in the enclosed proxy will have the discretion to vote on such matters in accordance with their best judgment.
This proxy statement and the accompanying proxy card, together with a copy of our 2014 Annual Report, is being mailed to our stockholders on or about May 28, 2015. You may also obtain a complete
copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, with all Exhibits
filed therewith, from the SECs web site at www.sec.gov under EDGAR filings. We will provide to you a copy of our Form 10-K if you write requesting one at 7555 Irvine Center Drive,
Irvine, CA 92618. Exhibits filed with our Form 10-K will be provided upon written request, in the same manner noted above, at a nominal per page charge.
ADDITIONAL INFORMATION
Stockholder Proposals for the 2016 Annual Meeting
Under Rule 14a-8 of the Exchange Act, any stockholder desiring to include a proposal in our proxy statement with respect to the 2015 Annual Meeting should arrange for such proposal to be delivered to us
at our principal place of business no later than 120 calendar days in advance of the one-year anniversary of the date of this proxy statement, in order to be considered for inclusion in our proxy statement relating to such Annual Meeting or
January 9, 2016. Matters pertaining to such proposals, including the number and length thereof, and the eligibility of persons entitled to have such proposals included, are regulated by the Exchange Act, the Rules and Regulations of the SEC and
other laws and regulations to which interested persons should refer.
In addition, pursuant to our Bylaws, in order for
business to be properly brought before the 2016 Annual Meeting by stockholders, including the nomination of a director, stockholders must submit a notice of the proposal to us between February 25, 2016 and March 26, 2016, or else it will
be considered untimely and ineligible to be properly brought before the meeting. However, if our 2015 Annual Meeting of Stockholders is not held between July 6, 2015, and October 14, 2015, under our Bylaws, this notice must be provided not
earlier than the one hundred twentieth day prior to the 2015 Annual Meeting of Stockholders and not later than the close of business on the later of (a) the nineteenth day prior to the 2016 Annual Meeting or (b) the tenth day following the
date on which public announcement of the date of such 2016 Annual Meeting is first made by us.
All such proposals and notices
should be directed to Kenneth S. Cragun, Secretary, c/o Local Corporation, 7555 Irvine Center Drive, Irvine, CA 92618.
Proxy Solicitation
The proxies being solicited hereby are being solicited by us, the Board of Directors. The cost of soliciting proxies in the enclosed form will be borne by the Company. In addition to the solicitation of
proxies by mail, we will request that brokers, banks and other nominees that hold shares of our Common Stock, which are beneficially owned by our stockholders, send proxies and proxy materials to those beneficial owners and secure those beneficial
owners voting instructions. We will, upon request, reimburse those record holders for their reasonable expenses. Our officers and regular employees may, without compensation other than their regular compensation, solicit proxies by further
mailing or personal conversations, or by telephone, telex, facsimile or electronic means.
The form of proxy and this proxy
statement have been approved by the Board of Directors and are being made available to stockholders by its authority.
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By Order of the Board of Directors |
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Frederick G. Thiel |
May 7, 2015 |
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Chairman and Chief Executive Officer |
Annex A
AMENDMENT TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
Local Corporation
Local Corporation, a corporation organized and existing under the laws of the State of Delaware (the Corporation), certifies that:
A. The current name of the Corporation is Local Corporation. The Corporations original Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on March 10, 1999 under the name eWorld Commerce Corporation. On August 12, 1999, the Corporation filed a restated certificate of incorporation with the Secretary of State of the
State of Delaware changing its name to eLiberation.com Corporation (the Restated Certificate of Incorporation). On February 25, 2003, the Corporation filed a certificate of amendment changing its name to
Interchange Corporation. On October 26, 2006, the Corporation filed a Certificate of Ownership and Merger with the Secretary of State of the State of Delaware by which the Corporations wholly-owned subsidiary merged with and
into the Corporation and pursuant to Section 253 of the General Corporation Law, on November 2, 2006, the effective date of such filing, the Corporation further amended its Restated Certificate of Incorporation to change its name to
Local.com Corporation. On October 15, 2008, the Corporation filed with the Secretary of State of the State of Delaware a Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock, by
which the Corporation designated the rights, preferences and privileges of the Corporations Series A Participating Preferred Stock. On August 17, 2009, the Corporation filed a certificate of amendment pursuant to which it amended Article
IV to increase its authorized shares. On September 14, 2012, the Corporation filed a Certificate of Ownership and Merger with the Secretary of State of the State of Delaware by which the Corporations wholly-owned subsidiary merged with
and into the Corporation and pursuant to Section 253 of the General Corporation Law, on September 17, 2012, the effective date of such filing, the Corporation further amended its Amended and Restated Certificate of Incorporation to change
its name to Local Corporation. On 2015, the Corporation filed a certificate of amendment pursuant to which it amended
Article IV to increase its authorized shares.
B. This Amendment to the Amended and Restated Certificate of Incorporation, as
previously amended, was duly adopted in accordance with Sections 242 of the General Corporation Law of the State of Delaware, and amends the provisions of the Corporations Amended and Restated Certificate of Incorporation, as previously
amended.
C. The text of the Amended and Restated Certificate of Incorporation is amended by changing the Article thereof
numbered IV so that, as amended, said Article shall be and read as follows:
IV
A. Classes of Stock. The Corporation is authorized to issue two classes of stock to be designated, respectively, Common
Stock and Preferred Stock. The total number of shares of stock that the Corporation shall have authority to issue shall be Two Hundred Ten Million (210,000,000), of which (i) Two Hundred Million (200,000,000) shares shall be
Common Stock, $0.00001 par value per share (the Common Stock) and (ii) Ten Million (10,000,000) shares shall be shares of Preferred Stock, $0.00001 par value per share (the Preferred Stock). Upon the filing and
effectiveness (the Effective Time) pursuant to the Delaware General Corporation Law of this Certificate of Amendment to the Restated Certificate of Incorporation of the Corporation, each six (6) shares of Common Stock issued
and outstanding immediately prior to the Effective Time shall, automatically and without any action on the part of the respective holders thereof, be combined and converted into one (1) share of Common Stock (the Reverse
A-1
Stock Split). No fractional shares shall be issued in connection with the reverse stock split, and any stockholder who beneficially owns a fractional share of the Corporations common
stock after the reverse stock split will receive a cash payment in lieu of such fractional share.
B. Preferred Stock.
Subject to the limitations and in the manner provided by law, the Board of Directors of the Corporation (the Board of Directors) or a duly-authorized committee of the Board of Directors, in accordance with the laws of the State of
Delaware, is hereby authorized to, from time to time, provide by resolution for the issuance of shares of Preferred Stock in one or more series and, by filing a certificate pursuant to the applicable law of the State of Delaware (hereinafter
referred to as Preferred Stock Designation), setting forth such resolution, to establish the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations and restrictions thereof. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following: (i) the designation of the
series, which may be by distinguishing number, letter or title; (ii) the number of shares of the series, which number the Board of Directors may thereafter (except where otherwise provided in the Preferred Stock Designation) increase or
decrease (but not below the number of shares thereof then outstanding); provided that, in case the number of shares of any series shall be so decreased, the shares constituting such decrease shall upon the taking of any action required by applicable
law resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series as well as the number of shares authorized for issuance in each series; (iii) the amounts or rates at which
dividends will be payable on, and the preferences, if any, of shares of the series in respect of dividends, and whether such dividends, if any, shall be cumulative or noncumulative; (iv) dates at which dividends, if any, shall be payable;
(v) the redemption rights and price or prices, if any, for shares of the series; (vi) the terms and amount of any sinking fund, if any, provided for the purchase or redemption of shares of the series; (vii) the amounts payable on, and
the preferences, if any, of shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation; (viii) whether the shares of the series shall be convertible into, or
exchangeable, or redeemable for, shares of any other class or series, or any other security, of the Corporation or any other Corporation, and, if so, the specification of such other class or series or such other security, the conversion or exchange
price or prices or rate or rates, any adjustments thereof, the date or dates at which such shares shall be convertible or exchangeable and all other terms and conditions upon which such conversion or exchange may be made; (ix) the voting
rights, if any, of the Holders of shares of the series generally or upon specified events; (x) any other rights, powers, preferences of such shares as are permitted by law.
IN WITNESS WHEREOF, Local Corporation, has caused this Amendment to the Amended and Restated Certificate of Incorporation to be signed by
Frederick Thiel, a duly authorized officer of the Corporation, on .
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Frederick
Thiel, |
Chairman and Chief Executive Officer |
Local Corporation |
A-2
Annex B
AMENDMENT TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
Local Corporation
Local Corporation, a corporation organized and existing under the laws of the State of Delaware (the Corporation), certifies that:
A. The current name of the Corporation is Local Corporation. The Corporations original Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on March 10, 1999 under the name eWorld Commerce Corporation. On August 12, 1999, the Corporation filed a restated certificate of incorporation with the Secretary of State of the
State of Delaware changing its name to eLiberation.com Corporation (the Restated Certificate of Incorporation). On February 25, 2003, the Corporation filed a certificate of amendment changing its name to
Interchange Corporation. On October 26, 2006, the Corporation filed a Certificate of Ownership and Merger with the Secretary of State of the State of Delaware by which the Corporations wholly-owned subsidiary merged with and
into the Corporation and pursuant to Section 253 of the General Corporation Law, on November 2, 2006, the effective date of such filing, the Corporation further amended its Restated Certificate of Incorporation to change its name to
Local.com Corporation. On October 15, 2008, the Corporation filed with the Secretary of State of the State of Delaware a Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock, by
which the Corporation designated the rights, preferences and privileges of the Corporations Series A Participating Preferred Stock. On August 17, 2009, the Corporation filed a certificate of amendment pursuant to which it amended Article
IV to increase its authorized shares. On September 14, 2012, the Corporation filed a Certificate of Ownership and Merger with the Secretary of State of the State of Delaware by which the Corporations wholly-owned subsidiary merged with
and into the Corporation and pursuant to Section 253 of the General Corporation Law, on September 17, 2012, the effective date of such filing, the Corporation further amended its Amended and Restated Certificate of Incorporation to change
its name to Local Corporation.
B. This Amendment to the Amended and Restated Certificate of Incorporation, as
previously amended, was duly adopted in accordance with Sections 242 of the General Corporation Law of the State of Delaware, and amends the provisions of the Corporations Amended and Restated Certificate of Incorporation, as previously
amended.
C. The text of the Amended and Restated Certificate of Incorporation is amended by changing the Article thereof
numbered IV so that, as amended, said Article shall be and read as follows:
IV
A. Classes of Stock. The Corporation is authorized to issue two classes of stock to be designated, respectively, Common
Stock and Preferred Stock. The total number of shares of stock that the Corporation shall have authority to issue is Two Hundred Ten Million (210,000,000), of which (i) Two Hundred Million (200,000,000) shares shall be
Common Stock, $0.00001 par value per share (the Common Stock) and (ii) Ten Million (10,000,000) shares shall be shares of Preferred Stock, $0.00001 par value per share (the Preferred Stock).
B. Preferred Stock. Subject to the limitations and in the manner provided by law, the Board of Directors of the
Corporation (the Board of Directors) or a duly-authorized committee of the Board of Directors, in accordance with the laws of the State of Delaware, is hereby authorized to, from time to time, provide by resolution for the
issuance of shares of Preferred Stock in one or more series and, by filing a certificate pursuant to the applicable law of the State of Delaware (hereinafter referred to as Preferred Stock Designation), setting forth such
resolution, to establish the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations and restrictions thereof. The
authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following: (i) the designation of the
B-1
series, which may be by distinguishing number, letter or title; (ii) the number of shares of the series, which number the Board of Directors may thereafter (except where otherwise provided in the
Preferred Stock Designation) increase or decrease (but not below the number of shares thereof then outstanding); provided that, in case the number of shares of any series shall be so decreased, the shares constituting such decrease shall upon the
taking of any action required by applicable law resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series as well as the number of shares authorized for issuance in each series;
(iii) the amounts or rates at which dividends will be payable on, and the preferences, if any, of shares of the series in respect of dividends, and whether such dividends, if any, shall be cumulative or noncumulative; (iv) dates at which dividends,
if any, shall be payable; (v) the redemption rights and price or prices, if any, for shares of the series; (vi) the terms and amount of any sinking fund, if any, provided for the purchase or redemption of shares of the series; (vii) the amounts
payable on, and the preferences, if any, of shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation; (viii) whether the shares of the series shall be convertible
into, or exchangeable, or redeemable for, shares of any other class or series, or any other security, of the Corporation or any other Corporation, and, if so, the specification of such other class or series or such other security, the conversion or
exchange price or prices or rate or rates, any adjustments thereof, the date or dates at which such shares shall be convertible or exchangeable and all other terms and conditions upon which such conversion or exchange may be made; (ix) the
voting rights, if any, of the Holders of shares of the series generally or upon specified events; (x) any other rights, powers, preferences of such shares as are permitted by law.
IN WITNESS WHEREOF, Local Corporation, has caused this Amendment to the Amended and Restated Certificate of Incorporation to be signed by
Frederick Thiel, a duly authorized officer of the Corporation, on , 2015.
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Frederick Thiel, Chairman and Chief Executive
Officer Local Corporation |
B-2
PROXY
LOCAL CORPORATION
7555
Irvine Center Drive
Irvine, California 92618
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
LOCAL CORPORATION
The
undersigned hereby appoints Frederick Thiel and Kenneth Cragun and each of them individually, the attorney, agent and proxy of the undersigned, with full power of substitution, to vote all the shares of LOCAL CORPORATION which the undersigned is
entitled to vote at the 2015 Annual Meeting of Stockholders to be held at the Companys offices located at 7555 Irvine Center Drive, Irvine, CA 92618, on June 23, 2015, at 9:00 a.m. PT, and at any and all adjournments or postponements
thereof, as follows:
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Election of Class II Directors: |
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FOR the nominees listed below (except as indicated to the contrary below) |
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WITHHOLD AUTHORITY to vote for the nominees listed below |
John E. Rehfeld
Frederick G. Thiel
2. |
Proposal to ratify appointment of independent registered public accounting firm. |
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3. |
Proposal to approve, in accordance with Nasdaq Marketplace Rules, the issuance of shares our Common Stock underlying convertible notes and
warrants previously issued by us, in an amount equal to or in excess of 20% of our Common Stock outstanding before the issuance of our Common Stock underlying such convertible notes and warrants . |
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4. |
Proposal to approve a stockholder resolution to authorize the Board of Directors, in its sole and absolute discretion without further action of
the stockholders, to amend the Companys Certificate of Incorporation to implement a reverse stock split of the Companys Common Stock, at a ratio of 1-for-6 at any time prior to December 31, 2016. |
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5. |
Proposal to approve an amendment to the Companys Certificate of Incorporation to increase its authorized shares of stock from 75,000,000
to 210,000,000 and the number of authorized shares of Common Stock from 65,000,000 to 200,000,000. |
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6. |
Advisory vote to approve named executive officer compensation. |
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This Proxy when properly executed will be voted in the manner directed above. If no direction is given, this proxy will be voted FOR proposals 3, 4 and
5 above.
IMPORTANTPLEASE SIGN AND DATE ON OTHER SIDE AND RETURN PROMPTLY
q DETACH PROXY CARD HERE q
Please Detach Here
You Must Detach This Portion of the Proxy Card
q Before Returning it in the Enclosed
Envelope q
This Proxy confers discretionary authority to vote on any other matters as may properly come before the meeting. The undersigned acknowledges receipt
of the Notice of Annual Meeting of Stockholders and the Proxy Statement (with all enclosures and attachments) dated May 7, 2015.
Dated:
, 2015
Signature
Signature if held jointly
Please date this Proxy
and sign it exactly as your name or names appear hereon. When shares are held by two or more persons, both should sign. When signing as an attorney, executor, administrator, trustee or guardian, please give full title as such. If shares are held by
a corporation, please sign in full corporate name by the President or other authorized officer. If shares are held by a partnership, please sign in partnership name by an authorized person.
Please mark, sign, date and return this Proxy promptly using the enclosed envelope. If your address is incorrectly shown, please print changes.
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