sv1za
As filed with the Securities and Exchange Commission on
March 5, 2010
Registration No. 333-163476
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 3
to
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
SPS COMMERCE, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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7372
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41-2015127
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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333 South Seventh Street, Suite 1000
Minneapolis, MN 55402
(612) 435-9400
(Address, including zip code,
and telephone number, including area code, of registrant’s
principal executive offices)
Archie C. Black
President and Chief Executive Officer
SPS Commerce, Inc.
333 South Seventh Street, Suite 1000
Minneapolis, MN 55402
(612) 435-9400
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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Andrew G. Humphrey
Jonathan R. Zimmerman
Faegre & Benson
LLP
2200 Wells Fargo Center
90 South Seventh Street
Minneapolis, MN
55402-3901
(612) 766-7000
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Mark J. Macenka
Kenneth J. Gordon
Goodwin Procter LLP
Exchange Place
53 State Street
Boston, MA 02109
(617) 570-1000
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
effective date of this registration statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, as amended,
check the following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
number of the earlier effective registration statement for the
same
offering. o
If this Form is a post effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company x
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(Do not check if a smaller
reporting company)
CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Amount of
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Title of Each Class of
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Aggregate Offering
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Registration
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Securities to be Registered
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Price (1)
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Fee
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Common stock, par value $0.001 per share
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$46,000,000
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$2,566.80(2)
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(1)
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Estimated solely for the purpose of computing the registration
fee pursuant to Rule 457(o) under the Securities Act.
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(2)
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Previously paid.
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The registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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SUBJECT
TO COMPLETION, DATED MARCH 5, 2010
Shares
Common Stock
$ per share
SPS Commerce, Inc.
is
selling shares
of our common stock and the selling stockholders identified in
this prospectus are selling an
additional shares.
We will not receive any of the proceeds from the sale of the
shares sold by selling stockholders. We have granted the
underwriters a
30-day
option to purchase up to an
additional shares
from us to cover over-allotments, if any.
This is an initial
public offering of our common stock. We currently expect the
initial public offering price to be between
$ and
$ per share. We have applied for
approval for listing of our common stock on the Nasdaq Capital
Market under the symbol “SPSC.”
INVESTING
IN OUR COMMON STOCK INVOLVES RISKS.
SEE “RISK FACTORS” BEGINNING ON PAGE 8.
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Per Share
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Total
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Initial public offering price
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$
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$
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Underwriting discount
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$
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$
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Proceeds, before expenses, to us
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$
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$
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Proceeds, before expenses, to the selling stockholders
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$
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$
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Neither the
Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
Thomas
Weisel Partners LLC
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William
Blair & Company |
Needham & Company, LLC |
JMP
Securities
The
date of this prospectus
is ,
2010.
TABLE OF
CONTENTS
You should rely only on the information contained in this
prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with information
different from that contained in this prospectus. This
prospectus is not an offer to sell, nor is it seeking an offer
to buy, these securities in any state where the offer or sale is
not permitted. The information in this prospectus speaks only as
of the date of this prospectus unless the information
specifically indicates that another date applies, regardless of
the time of delivery of this prospectus or of any sale of our
common stock.
SPS
Commerce®,
SPSCommerce.net, the SPS Commerce logo and other trademarks or
service marks of SPS Commerce appearing in this prospectus are
the property of SPS Commerce. Trade names, trademarks and
service marks of other companies appearing in this prospectus
are the property of the respective owners.
In this prospectus, company, we, our, and us refer to SPS
Commerce, Inc., except where the context otherwise requires.
We obtained industry and market data used throughout this
prospectus through our research, surveys and studies conducted
by third parties and industry and general publications. We have
not independently verified market and industry data from
third-party sources.
The Gartner Report described herein represents data, research
opinion or viewpoints published, as part of a syndicated
subscription service, by Gartner, Inc., and is not a
representation of fact. The Gartner Report speaks as of its
original publication date (and not as of the date of this
prospectus) and the opinions expressed in the Gartner Report are
subject to change without notice.
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus. You should read this entire prospectus
carefully, including the sections titled “Risk
Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
and our financial statements and the notes thereto accompanying
this prospectus, before making an investment in our common
stock.
Our
Business
Overview
We are a leading provider of on-demand supply chain management
solutions, providing integration, collaboration, connectivity,
visibility and data analytics to thousands of customers
worldwide. We provide our solutions through SPSCommerce.net, a
hosted software suite that uses pre-built integrations to enable
our supplier customers to shorten supply cycle times, optimize
inventory levels, reduce costs and satisfy retailer
requirements. As of December 31, 2009, we had over 11,000
customers with contracts to pay us monthly fees, which we refer
to as recurring revenue customers. We have also generated
revenues by providing supply chain management solutions to an
additional 24,000 organizations that, together with our
recurring revenue customers, we refer to as our customers. Once
connected to our platform, our customers often require
integrations to new organizations that allow us to expand our
platform and generate additional revenues.
We deliver our solutions to our customers over the Internet
using a Software-as-a-Service model. Our delivery model enables
us to offer greater functionality, integration and reliability
with less cost and risk than traditional solutions. Our platform
features pre-built integrations with 2,700 order management
models and over 100 accounting, warehouse management, enterprise
resource planning, and packing and shipping applications. Our
delivery model leverages our existing integrations across
current and new customers. As a result, each integration that we
add to SPSCommerce.net makes our platform more appealing to
potential customers by increasing the number of pre-built
integrations we offer.
For 2007, 2008 and 2009, we generated revenues of
$25.2 million, $30.7 million and $37.7 million.
Our fiscal quarter ended December 31, 2009 represented our
36th consecutive quarter of increased revenues. Recurring
revenues from recurring revenue customers accounted for 83%, 84%
and 80% of our total revenues for 2007, 2008 and 2009. No
customer represented over 1% of our revenues for 2007, 2008 or
2009.
Our
Industry
The supply chain management industry serves thousands of
retailers around the world supplied with goods from tens of
thousands of suppliers. Additional participants in this market
include distributors, third-party logistics providers,
manufacturers, fulfillment and warehousing providers and
sourcing companies. Supply chain management involves
communicating data related to the exchange of goods among these
trading partners.
Our target market of supply chain integration solutions is
categorized by Gartner within the broader Integration Services
market, which Gartner estimates was $1.5 billion in 2008
(Magic Quadrant for Integration Service Providers, report by
Benoit Lheurueux, November 2009). As familiarity and acceptance
of on-demand solutions continues to accelerate, we believe
customers will continue to turn to on-demand delivery methods
like ours for their supply chain integration needs.
Retailers impose non-standardized, specific work-flow rules and
processes on their trading partners for electronically
communicating supply chain information through “rule
books”. The responsibility for creating information
“maps,” which are integration connections between the
retailer and the supplier that comply with the retailer’s
rule books, resides primarily with the supplier. Noncompliance
with rule books can lead to refusal of delivered goods, fines
and termination of the supplier’s relationship with the
retailer.
1
A number of key trends are impacting the supply chain management
industry and increasing demand for supply chain management
solutions. These include:
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increasing retailer service and performance demands;
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globalization of the supply chain ecosystem;
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increasing complexity of the supply chain ecosystem; and
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increasing use of outsourcing by small- and medium-sized
suppliers.
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Trading partners are demanding better supply chain management
solutions than traditional methods, which include
non-automated
paper or fax solutions and electronic solutions implemented
using
on-premise
licensed software. These software solutions primarily link
retailers and suppliers through the Electronic Data Interchange
protocol and typically have significant setup and maintenance
requirements. Software-as-a-Service solutions such as ours allow
organizations to connect across the supply chain ecosystem,
addressing increased retailer demands, globalization and
increased complexity affecting the supply chain. The enhanced
integration with trading partners and into organizations’
other business systems increases the reliance of customers on
the solutions provided by their Software-as-a-Service vendors.
SPSCommerce.net:
Our Platform
We operate one of the largest trading partner integration
centers through SPSCommerce.net. More than 35,000 customers
across more than 40 countries have used our platform to enhance
their trading relationships. A single integration to
SPSCommerce.net allows an organization to connect seamlessly to
the entire SPSCommerce.net network of trading partners. By
maintaining current integrations with retailers such as
Wal-Mart, Target, Macy’s and Safeway, SPSCommerce.net
eliminates the need for suppliers to continually stay up-to-date
with the rule book changes required by large retailers.
Suppliers, distributors, third-party logistics providers,
outsourced manufacturers, fulfillment and warehousing providers
and sourcing companies that use our platform realize benefits
through more reliable and faster integration with retailers as
well as reduced costs and improved efficiency in the order
fulfillment process. These participants also realize increased
sales through enhanced supply chain visibility into
retailers’ inventory and point-of-sale information. Buying
organizations, such as retailers, grocers and distributors, use
our solutions to establish more comprehensive and advanced
integrations with a broader set of suppliers. Our platform helps
buying organizations reduce expenses, enhance quality of
inventory and more effectively reconcile shipments, orders and
payments.
Our platform delivers suppliers and retailers the following
solutions:
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Trading Partner Integration. Our Trading Partner
Integration solution enables suppliers to comply with
retailers’ rule books and allows for the electronic
exchange of information among numerous trading partners through
various protocols.
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Trading Partner Enablement. Our Trading Partner
Enablement solution helps organizations, typically large
retailers, implement new integrations with trading partners,
typically suppliers, to drive automation and electronic
communication across their supply chains.
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Trading Partner Intelligence. In 2009, we introduced our
Trading Partner Intelligence solution, which consists of six
data analytics applications and allows our supplier customers to
improve their visibility across, and analysis of, their supply
chains. Retailers improve their visibility into supplier
performance and their understanding of product sell-through.
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Other Trading Partner Solutions. We provide a number of
peripheral solutions such as barcode labeling and our scan and
pack application, which helps trading partners process
information to streamline the picking and packaging process.
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2
Our
Go-to-Market Approach
We enable trading partner relationships among our retailer,
supplier and fulfillment customers that naturally lead to new
customer acquisition opportunities. The addition of each new
customer to our platform allows the customer to communicate with
our existing customers and allows our existing customers to
route orders to the new customer. This “network
effect” of adding customers to our platform creates
opportunities for existing customers to make incremental sales
by working with new trading partners and vice versa.
Our
Growth Strategy
We seek to be the leading global provider of supply chain
management solutions. Key elements of our strategy include:
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further penetrating our current market;
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increasing revenues from our customer base;
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expanding our distribution channels;
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expanding our international presence;
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enhancing and expanding our platform; and
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selectively pursuing strategic acquisitions.
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Corporate
Information
We were originally incorporated as St. Paul Software, Inc., a
Minnesota corporation, on January 28, 1987. On May 30,
2001, we reincorporated in Delaware under our current name, SPS
Commerce, Inc. Our principal executive offices are located at
333 South Seventh Street, Suite 1000, Minneapolis,
Minnesota 55402, and our telephone number is
(612) 435-9400.
Our website address is www.spscommerce.com. Information
contained on our website is not a part of this prospectus and
the inclusion of our website address in this prospectus is an
inactive textual reference only.
3
THE
OFFERING
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Common stock offered by us |
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Common stock offered by selling stockholders |
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Common stock to be outstanding after this offering |
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Over-allotment option |
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shares |
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Use of proceeds |
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We estimate that the net proceeds to us from this offering,
after deducting estimated underwriting discounts and offering
expenses, will be approximately
$ million, assuming the
shares are offered at $ per share,
which is the mid-point of the estimated offering price range set
forth on the cover page of this prospectus. We will not receive
any of the proceeds from the sale of shares by the selling
stockholders. See “Principal and Selling Stockholders.” |
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We intend to use $594,000 of our net proceeds from this offering
to repay indebtedness under our equipment term loans. We intend
to use any remaining proceeds for working capital and general
corporate purposes, including potential acquisitions. See
“Use of Proceeds.” |
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Proposed Nasdaq Capital Market symbol |
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SPSC |
The number of shares of our common stock outstanding after this
offering is based
on shares
outstanding as
of .
As
of ,
we
had shares
outstanding, excluding
(a) shares
of common stock issuable upon the exercise of outstanding
options to purchase our common stock at a weighted average
exercise price of $ per share,
(b) shares
of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of
$ per share and
(c) shares
of common stock reserved for issuance under our 2010 Equity
Incentive Plan, subject to increase on an annual basis and
subject to increase for shares subject to awards under our prior
equity plans that expire unexercised or otherwise do not result
in the issuance of shares.
Except as otherwise indicated, information in this prospectus
assumes no exercise of the underwriters’ overallotment
option to purchase up
to additional
shares of our common stock from us. Except as otherwise
indicated, all share and per share information referenced
throughout this prospectus have been adjusted to reflect the
conversion of all of our preferred stock into common stock
immediately prior to consummation of this offering and
a
for
reverse stock split of our common stock that will occur
immediately prior to consummation of this offering.
4
SUMMARY
FINANCIAL DATA
(In thousands, except per share and recurring revenue customer
data)
The following tables summarize the financial data for our
business. You should read this summary financial data in
conjunction with “Selected Financial Data,”
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our financial
statements and related notes, all included elsewhere in this
prospectus.
The summary financial data under the heading “Balance Sheet
Data” as of December 31, 2008 and 2009, under the
heading “Statement of Operations Data” for each of the
years ended December 31, 2007, 2008 and 2009 and under the
heading “Operating Data” relating to Adjusted EBITDA
for each of the three years ended December 31, 2007, 2008
and 2009 have been derived from our audited annual financial
statements, which are included elsewhere in this prospectus. The
unaudited summary financial data under the heading
“Operating Data” relating to recurring revenue
customers have been derived from our internal records of our
operations.
The pro forma balance sheet data as of December 31, 2009 is
unaudited and gives effect to the conversion of all of our
preferred stock into our common stock immediately prior to the
consummation of this offering. The pro forma as adjusted balance
sheet data as of December 31, 2009 is unaudited and gives
effect to (1) the pro forma adjustment above; (2) our
receipt of estimated net proceeds of
$ million from this offering,
based on an assumed initial public offering price of
$ per share, which is the
mid-point of our filing range, after deducting estimated
underwriting discounts and offering expenses payable by us and
(3) the application of $594,000 of our net proceeds
from this offering to repay indebtedness under our equipment
term loans, as if each had occurred as of December 31,
2009. The pro forma as adjusted summary financial data are not
necessarily indicative of what our financial position or results
of operations would have been if this offering had been
completed as of the date indicated, nor are these data
necessarily indicative of our financial position or results of
operations for any future date or period.
5
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Year Ended December 31,
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2007
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2008
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2009
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Statement of Operations Data:
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Revenues
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$
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25,198
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$
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30,697
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$
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37,746
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Cost of revenues (1)
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6,379
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9,258
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11,715
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Gross profit
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18,819
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21,439
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26,031
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Operating expenses
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Sales and marketing (1)
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11,636
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12,493
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13,506
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Research and development (1)
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3,546
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3,640
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4,305
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General and administrative (1)
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5,458
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6,716
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6,339
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Total operating expenses
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20,640
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22,849
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24,150
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Income (loss) from operations
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(1,821
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(1,410
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1,881
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Other income (expense)
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Interest expense
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(439
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(419
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(270
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Other income
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120
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28
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(358
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Total other expense
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(319
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(391
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(628
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Income tax expense
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(16
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(94
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(91
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Net income (loss)
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$
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(2,156
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$
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(1,895
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$
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1,162
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Net income (loss) per share
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Basic
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$
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(3.12
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$
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(1.72
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$
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0.94
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Fully diluted
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$
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(3.12
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$
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(1.72
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$
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0.03
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Weighted average shares outstanding
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Basic
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692
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1,101
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1,232
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Fully diluted
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692
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1,101
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34,711
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Pro forma net income (loss) per share (unaudited) (2)
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Basic
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Fully diluted
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Pro forma weighted average shares outstanding (unaudited) (2)
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Basic
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Fully diluted
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Year Ended December 31,
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2007
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2008
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2009
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(Unaudited)
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Operating Data:
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Adjusted EBITDA (3)
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$
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103
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$
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763
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3,206
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Recurring revenue customers (4)
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9,496
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10,076
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11,003
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
2008
|
|
|
2009
|
|
|
Pro Forma
|
|
|
As Adjusted
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
3,715
|
|
|
$
|
5,931
|
|
|
$
|
5,931
|
|
|
|
|
|
Working capital
|
|
|
3,995
|
|
|
|
4,973
|
|
|
|
4,973
|
|
|
|
|
|
Total debt (5)
|
|
|
4,471
|
|
|
|
2,694
|
|
|
|
2,694
|
|
|
|
|
|
Total redeemable convertible preferred stock
|
|
|
65,964
|
|
|
|
65,778
|
|
|
|
—
|
|
|
|
|
|
Total stockholders’ equity (deficit)
|
|
|
(61,844
|
)
|
|
|
(60,466
|
)
|
|
|
5,312
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes stock-based compensation
expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Cost of revenues
|
|
$
|
2
|
|
|
$
|
19
|
|
|
$
|
53
|
|
Sales and marketing
|
|
|
33
|
|
|
|
60
|
|
|
|
91
|
|
Research and development
|
|
|
2
|
|
|
|
4
|
|
|
|
4
|
|
General and administrative
|
|
|
9
|
|
|
|
74
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
46
|
|
|
$
|
157
|
|
|
$
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
(2)
|
|
Reflects the conversion of all of
our preferred stock into common stock and
a
for reverse stock split of our
common stock that will occur immediately prior to the
consummation of this offering.
|
|
(3)
|
|
EBITDA consists of net income
(loss) plus depreciation and amortization, interest expense and
income tax expense. Adjusted EBITDA consists of EBITDA plus our
non-cash, share-based compensation expense. We use Adjusted
EBITDA as a measure of operating performance because it assists
us in comparing performance on a consistent basis, as it removes
from our operating results the impact of our capital structure.
We believe Adjusted EBITDA is useful to an investor in
evaluating our operating performance because it is widely used
to measure a company’s operating performance without regard
to items such as depreciation and amortization, which can vary
depending upon accounting methods and the book value of assets,
and to present a meaningful measure of corporate performance
exclusive of our capital structure and the method by which
assets were acquired. The following table provides a
reconciliation of net income (loss) to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
Net income (loss)
|
|
$
|
(2,156
|
)
|
|
$
|
(1,895
|
)
|
|
$
|
1,162
|
|
Depreciation and amortization
|
|
|
1,758
|
|
|
|
1,988
|
|
|
|
1,455
|
|
Interest expense
|
|
|
439
|
|
|
|
419
|
|
|
|
270
|
|
Income tax expense
|
|
|
16
|
|
|
|
94
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
57
|
|
|
|
606
|
|
|
|
2,978
|
|
Non-cash, share-based compensation expense
|
|
|
46
|
|
|
|
157
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
103
|
|
|
$
|
763
|
|
|
$
|
3,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
|
This reflects the number of
recurring revenue customers at the end of the period. Recurring
revenue customers are customers with contracts to pay us monthly
fees. A minority portion of our recurring revenue customers
consists of separate units within a larger organization. We
treat each of these units, which may include divisions,
departments, affiliates and franchises, as distinct customers.
Our contracts with our recurring revenue customers typically
allow the customer to cancel the contract for any reason with
30 days prior notice.
|
|
(5)
|
|
Total debt consists of our current
and long-term capital lease obligations, current and long-term
equipment and term loans, line of credit and interest payable.
|
7
RISK
FACTORS
You should carefully consider the risks described below
before making an investment decision. Our business could be
harmed by any of these risks. The trading price of our common
stock could decline due to any of these risks, and you may lose
all or part of your investment. In assessing these risks, you
should also refer to the other information contained in this
prospectus, including our financial statements and related
notes.
Risks
Related to Our Business and Industry
The
market for on-demand supply chain management solutions is at an
early stage of development. If this market does not develop or
develops more slowly than we expect, our revenues may decline
or fail to grow and we may incur operating losses.
We derive, and expect to continue to derive, substantially all
of our revenues from providing on-demand supply chain management
solutions to suppliers. The market for on-demand supply chain
management solutions is in an early stage of development, and it
is uncertain whether these solutions will achieve and sustain
high levels of demand and market acceptance. Our success will
depend on the willingness of suppliers to accept our on-demand
supply chain management solutions as an alternative to
traditional licensed hardware and software solutions.
Some suppliers may be reluctant or unwilling to use our
on-demand supply chain management solutions for a number of
reasons, including existing investments in supply chain
management technology. Supply chain management functions
traditionally have been performed using purchased or licensed
hardware and software implemented by each supplier. Because this
traditional approach often requires significant initial
investments to purchase the necessary technology and to
establish systems that comply with retailers’ unique
requirements, suppliers may be unwilling to abandon their
current solutions for our on-demand supply chain management
solutions.
Other factors that may limit market acceptance of our on-demand
supply chain management solutions include:
|
|
|
|
•
|
our ability to maintain high levels of customer satisfaction;
|
|
|
•
|
our ability to maintain continuity of service for all users of
our platform;
|
|
|
•
|
the price, performance and availability of competing
solutions; and
|
|
|
•
|
our ability to assuage suppliers’ confidentiality concerns
about information stored outside of their controlled computing
environments.
|
If suppliers do not perceive the benefits of our on-demand
supply chain management solutions, or if suppliers are unwilling
to accept our platform as an alternative to the traditional
approach, the market for our solutions might not continue to
develop or might develop more slowly than we expect, either of
which would significantly adversely affect our revenues and
growth prospects.
We do not
have long-term contracts with our recurring revenue customers,
and our success therefore depends on our ability to maintain a
high level of customer satisfaction and a strong reputation in
the supply chain management industry.
Our contracts with our recurring revenue customers typically
allow the customer to cancel the contract for any reason with
30 days prior notice. Our continued success therefore
depends significantly on our ability to meet or exceed our
recurring revenue customers’ expectations because most
recurring revenue customers do not make long-term commitments to
use our solutions. In addition, if our reputation in the supply
chain management industry is harmed or diminished for any
reason, our recurring revenue customers have the ability to
terminate their relationship with us on short notice and seek
alternative supply chain management solutions. If a significant
number of recurring revenue customers seek to terminate their
relationship with us, our business, results of operations and
financial condition can be adversely affected in a short period
of time.
8
Continued
economic weakness and uncertainty could adversely affect our
revenue, lengthen
our sales cycles and make it difficult for us to forecast
operating results accurately.
Our revenues depend significantly on general economic conditions
and the health of retailers. Economic weakness and constrained
retail spending adversely affected revenue growth rates in late
2008 and similar circumstances may result in slower growth, or
reductions, in revenues and gross profits in the future. We have
experienced, and may experience in the future, reduced spending
in our business due to the current financial turmoil affecting
the U.S. and global economy, and other macroeconomic
factors affecting spending behavior. Uncertainty about future
economic conditions makes it difficult for us to forecast
operating results and to make decisions about future
investments. In addition, economic conditions or uncertainty may
cause customers and potential customers to reduce or delay
technology purchases, including purchases of our solutions. Our
sales cycle may lengthen if purchasing decisions are delayed as
a result of uncertain information technology or development
budgets or contract negotiations become more protracted or
difficult as customers institute additional internal approvals
for information technology purchases. Delays or reductions in
information technology spending could have a material adverse
effect on demand for our solutions, and consequently our results
of operations, prospects and stock price.
If we are
unable to attract new customers, or sell additional solutions,
or if our customers do not increase their use of our solutions,
our revenue growth and profitability will be adversely
affected.
To increase our revenues and achieve and maintain profitability,
we must regularly add new customers, sell additional solutions
and our customers must increase their use of the solutions for
which they currently subscribe. We intend to grow our business
by hiring additional inside sales personnel, developing
strategic relationships with resellers, including resellers that
incorporate our applications in their offerings, and increasing
our marketing activities. In addition, we derived more than 90%
of our revenues from sales of our Trading Partner Integration
solution in 2007, 2008 and 2009 and have not yet received
significant revenues from solutions and applications that we
introduced in 2009. If we are unable to hire or retain quality
sales personnel, convert companies that have been referred to us
by our existing network into paying customers, ensure the
effectiveness of our marketing programs, or if our existing or
new customers do not perceive our solutions to be of
sufficiently high value and quality, we might not be able to
increase sales and our operating results will be adversely
affected. In addition, if we fail to sell our new solutions to
existing or new customers, we will not generate anticipated
revenues from these solutions, our operating results will suffer
and we might be unable to grow our revenues or achieve or
maintain profitability.
Our
quarterly results of operations may fluctuate in the future,
which could result in volatility in our stock price.
Our quarterly revenues and results of operations have varied in
the past and may fluctuate as a result of a variety of factors,
including the success of our new offerings such as our Trading
Partner Intelligence solution. If our quarterly revenues or
results of operations fluctuate, the price of our common stock
could decline substantially. Fluctuations in our results of
operations may be due to a number of factors, including, but not
limited to, those listed below and identified throughout this
“Risk Factors” section in this prospectus:
|
|
|
|
•
|
our ability to retain and increase sales to customers and
attract new customers, including our ability to maintain and
increase our number of recurring revenue customers;
|
|
|
•
|
the timing and success of introductions of new solutions or
upgrades by us or our competitors;
|
|
|
•
|
the strength of the economy, in particular as it affects the
retail sector;
|
|
|
•
|
changes in our pricing policies or those of our competitors;
|
|
|
•
|
competition, including entry into the industry by new
competitors and new offerings by existing competitors;
|
9
|
|
|
|
•
|
the amount and timing of expenditures related to expanding our
operations, research and development, or introducing new
solutions; and
|
|
|
•
|
changes in the payment terms for our solutions.
|
Due to the foregoing factors, and the other risks discussed in
this prospectus, you should not rely on quarter-to-quarter
comparisons of our results of operations as an indication of our
future performance.
We have
incurred operating losses in the past and may incur operating
losses in the future.
We began operating our supply chain management solution business
in 1997. Throughout most of our history, we have experienced net
losses and negative cash flows from operations. As of
December 31, 2009, we had an accumulated deficit of
$65.7 million. We expect our operating expenses to increase
in the future as we expand our operations. Furthermore, as a
public company, we will incur significant legal, accounting and
other expenses that we did not incur as a private company. If
our revenues do not grow to offset these increased expenses, we
may not be profitable. We cannot assure you that we will be able
to achieve or maintain profitability. You should not consider
recent revenue growth as indicative of our future performance.
In fact, in future periods, we may not have any revenue growth,
or our revenues could decline.
Our inability to adapt to rapid technological change could
impair our ability to remain competitive.
The industry in which we compete is characterized by rapid
technological change, frequent introductions of new products and
evolving industry standards. Our ability to attract new
customers and increase revenues from customers will depend in
significant part on our ability to anticipate industry standards
and to continue to enhance existing solutions or introduce or
acquire new solutions on a timely basis to keep pace with
technological developments. The success of any enhancement or
new solution depends on several factors, including the timely
completion, introduction and market acceptance of the
enhancement or solution. Any new solution we develop or acquire
might not be introduced in a timely or cost-effective manner and
might not achieve the broad market acceptance necessary to
generate significant revenues. For example, we introduced our
Trading Partner Intelligence solution during 2009, but we have
not yet received significant revenues from this solution. If any
of our competitors implements new technologies before we are
able to implement them, those competitors may be able to provide
more effective solutions than ours at lower prices. Any delay or
failure in the introduction of new or enhanced solutions could
adversely affect our business, results of operations and
financial condition.
We may experience service failures or interruptions due to
defects in the hardware, software, infrastructure, third party
components or processes that comprise our existing or new
solutions, any of which could adversely affect our business.
Technology solutions as complex as ours may contain undetected
defects in the hardware, software, infrastructure, third party
components or processes that are part of the solutions we
provide. If these defects lead to service failures after
introduction of a solution or an upgrade to the solution, we
could experience delays or lost revenues during the period
required to correct the cause of the defects. We cannot be
certain that defects will not be found in new solutions or
upgraded solutions, resulting in loss of, or delay in, market
acceptance, which could have an adverse effect on our business,
results of operations and financial condition.
Because customers use our on-demand supply chain management
solutions for critical business processes, any defect in our
solutions, any disruption to our solutions or any error in
execution could cause recurring revenue customers to cancel
their contracts with us, prevent potential customers from
joining our network and harm our reputation. Although most of
our contracts with our customers limit our liability to our
customers for these defects, disruptions or errors, we
nonetheless could be subject to litigation for actual or alleged
losses to our customers’ businesses, which may require us
to spend significant time and money in litigation or arbitration
or to pay significant settlements or damages. We do not
currently maintain any warranty reserves. Defending a lawsuit,
regardless of its merit, could be costly and divert
management’s attention and could cause our business to
suffer.
10
The insurers under our existing liability insurance policy could
deny coverage of a future claim that results from an error or
defect in our technology or a resulting disruption in our
solutions, or our existing liability insurance might not be
adequate to cover all of the damages and other costs of such a
claim. Moreover, we cannot assure you that our current liability
insurance coverage will continue to be available to us on
acceptable terms or at all. The successful assertion against us
of one or more large claims that exceeds our insurance coverage,
or the occurrence of changes in our liability insurance policy,
including an increase in premiums or imposition of large
deductible or co-insurance requirements, could have an adverse
effect on our business, financial condition and operating
results. Even if we succeed in litigation with respect to a
claim, we are likely to incur substantial costs and our
management’s attention will be diverted from our operations.
Interruptions or delays from third-party data centers could
impair the delivery of our solutions and our business could
suffer.
We use two third-party data centers, located in Minneapolis and
Saint Paul, Minnesota, to conduct our operations. All of our
solutions reside on hardware that we own or lease and operate in
these locations. Our operations depend on the protection of the
equipment and information we store in these third-party centers
against damage or service interruptions that may be caused by
fire, flood, severe storm, power loss, telecommunications
failures, unauthorized intrusion, computer viruses and disabling
devices, natural disasters, war, criminal act, military action,
terrorist attack and other similar events beyond our control. A
prolonged service disruption affecting our solutions for any of
the foregoing reasons could damage our reputation with current
and potential customers, expose us to liability, cause us to
lose recurring revenue customers or otherwise adversely affect
our business. We may also incur significant costs for using
alternative equipment or taking other actions in preparation
for, or in reaction to, events that damage the data centers we
use.
Our on-demand supply chain management solutions are accessed by
a large number of customers at the same time. As we continue to
expand the number of our customers and solutions available to
our customers, we may not be able to scale our technology to
accommodate the increased capacity requirements, which may
result in interruptions or delays in service. In addition, the
failure of our third-party data centers to meet our capacity
requirements could result in interruptions or delays in our
solutions or impede our ability to scale our operations. In the
event that our data center arrangements are terminated, or there
is a lapse of service or damage to such facilities, we could
experience interruptions in our solutions as well as delays and
additional expense in arranging new facilities and services.
A failure to protect the integrity and security of our
customers’ information could expose us to litigation,
materially damage our reputation and harm our business, and the
costs of preventing such a failure could adversely affect our
results of operations.
Our business involves the collection and use of confidential
information of our customers and their trading partners. We
cannot assure you that our efforts to protect this confidential
information will be successful. If any compromise of this
information security were to occur, we could be subject to legal
claims and government action, experience an adverse effect on
our reputation and need to incur significant additional costs to
protect against similar information security breaches in the
future, each of which could adversely affect our financial
condition, results of operations and growth prospects. In
addition, because of the critical nature of data security, any
perceived breach of our security measures could cause existing
or potential customers not to use our solutions and could harm
our reputation.
Evolving regulation of the Internet may increase our
expenditures related to compliance efforts, which may adversely
affect our financial condition.
As Internet commerce continues to evolve, increasing regulation
by federal, state or foreign agencies becomes more likely. We
are particularly sensitive to these risks because the Internet
is a critical component of our on-demand business model. For
example, we believe that increased regulation is likely in the
area of data privacy, and laws and regulations applying to the
solicitation, collection, processing or use of personal or
consumer information could affect our customers’ ability to
use and share data, potentially reducing demand for solutions
accessed via the Internet and restricting our ability to store,
process and share data with our clients via the Internet.
11
In addition, taxation of services provided over the Internet or
other charges imposed by government agencies or by private
organizations for accessing the Internet may be imposed. Any
regulation imposing greater fees for Internet use or restricting
information exchange over the Internet could result in a decline
in the use of the Internet and the viability of Internet-based
services, which could harm our business.
If we fail to protect our intellectual property and
proprietary rights adequately, our business could be adversely
affected.
We believe that proprietary technology is essential to
establishing and maintaining our leadership position. We seek to
protect our intellectual property through trade secrets,
copyrights, confidentiality, non-compete and nondisclosure
agreements, trademarks, domain names and other measures, some of
which afford only limited protection. We do not have any
patents, patent applications or registered copyrights. Despite
our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our technology or to
obtain and use information that we regard as proprietary. We
cannot assure you that our means of protecting our proprietary
rights will be adequate or that our competitors will not
independently develop similar or superior technology or design
around our intellectual property. In addition, the laws of some
foreign countries do not protect our proprietary rights to as
great an extent as the laws of the United States. Intellectual
property protections may also be unavailable, limited or
difficult to enforce in some countries, which could make it
easier for competitors to capture market share. Our failure to
protect adequately our intellectual property and proprietary
rights could adversely affect our business, financial condition
and results of operations.
An assertion by a third party that we are infringing its
intellectual property could subject us to costly and
time-consuming litigation or expensive licenses and our business
might be harmed.
The Internet supply chain management and technology industries
are characterized by the existence of a large number of patents,
copyrights, trademarks and trade secrets and by frequent
litigation based on allegations of infringement or other
violations of intellectual property rights. As we seek to extend
our solutions, we could be constrained by the intellectual
property rights of others.
We might not prevail in any intellectual property infringement
litigation given the complex technical issues and inherent
uncertainties in such litigation. Defending such claims,
regardless of their merit, could be time-consuming and
distracting to management, result in costly litigation or
settlement, cause development delays, or require us to enter
into royalty or licensing agreements. If our solutions violate
any third-party proprietary rights, we could be required to
withdraw those solutions from the market, re-develop those
solutions or seek to obtain licenses from third parties, which
might not be available on reasonable terms or at all. Any
efforts to re-develop our solutions, obtain licenses from third
parties on favorable terms or license a substitute technology
might not be successful and, in any case, might substantially
increase our costs and harm our business, financial condition
and operating results. Withdrawal of any of our solutions from
the market might harm our business, financial condition and
operating results.
In addition, we incorporate open source software into our
platform. Given the nature of open source software, third
parties might assert copyright and other intellectual property
infringement claims against us based on our use of certain open
source software programs. The terms of many open source licenses
to which we are subject have not been interpreted by
U.S. or foreign courts, and there is a risk that those
licenses could be construed in a manner that imposes
unanticipated conditions or restrictions on our ability to
commercialize our solutions. In that event, we could be required
to seek licenses from third parties in order to continue
offering our solutions, to re-develop our solutions or to
discontinue sales of our solutions, or to release our
proprietary software code under the terms of an open source
license, any of which could adversely affect our business.
We rely on third party hardware and software that could take
a significant time to replace or upgrade.
We rely on hardware and software licensed from third parties to
offer our on-demand supply chain management solutions. This
hardware and software, as well as maintenance rights for this
hardware and software, may not continue to be available to us on
commercially reasonable terms, or at all. If we lose the
12
right to use or upgrade any of these licenses, our customers
could experience delays or be unable to access our solutions
until we can obtain and integrate equivalent technology. There
might not always be commercially reasonable hardware or software
alternatives to the third-party hardware and software that we
currently license. Any such alternatives could be more difficult
or costly to replace than the third-party hardware and software
we currently license, and integration of the alternatives into
our platform could require significant work and substantial time
and resources. Any delays or failures associated with our
platform could injure our reputation with customers and
potential customers and result in an adverse effect on our
business, results of operations and financial condition.
Our strategy includes pursuing acquisitions and our potential
inability to successfully integrate newly-acquired companies or
businesses may adversely affect our financial results.
We believe part of our growth will be driven by acquisitions of
other companies or their businesses. If we complete
acquisitions, we face many risks commonly encountered with
growth through acquisitions. These risks include:
|
|
|
|
•
|
incurring significantly higher than anticipated capital
expenditures and operating expenses;
|
|
|
•
|
failing to assimilate the operations and personnel of the
acquired company or business;
|
|
|
•
|
disrupting our ongoing business;
|
|
|
•
|
dissipating our management resources;
|
|
|
•
|
failing to maintain uniform standards, controls and
policies; and
|
|
|
•
|
impairing relationships with employees and customers as a result
of changes in management.
|
Fully integrating an acquired company or business into our
operations may take a significant amount of time. We cannot
assure you that we will be successful in overcoming these risks
or any other problems encountered with acquisitions. To the
extent we do not successfully avoid or overcome the risks or
problems related to any acquisitions, our results of operations
and financial condition could be adversely affected. Future
acquisitions also could impact our financial position and
capital needs, and could cause substantial fluctuations in our
quarterly and yearly results of operations. Acquisitions could
include significant goodwill and intangible assets, which may
result in future impairment charges that would reduce our stated
earnings.
Our
ability to use U.S. net operating loss carryforwards might be
limited.
As of December 31, 2009, we had net operating loss
carryforwards of $53.4 million for U.S. federal tax
purposes. These loss carryforwards expire between 2010 and 2029.
To the extent these net operating loss carryforwards are
available, we intend to use them to reduce the corporate income
tax liability associated with our operations. Section 382
of the U.S. Internal Revenue Code generally imposes an
annual limitation on the amount of net operating loss
carryforwards that might be used to offset taxable income when a
corporation has undergone significant changes in stock
ownership. Due to changes in ownership, some of our net
operating loss carryforwards will be limited. In addition,
future changes in ownership could further limit the availability
of our net operating loss carryforwards. Our ability to utilize
the current net operating loss carryforwards also might be
limited by the issuance of common stock in this offering. To the
extent our use of net operating loss carryforwards is
significantly limited, our income could be subject to corporate
income tax earlier than it would if we were able to use net
operating loss carryforwards, which could result in lower
profits.
The markets in which we participate are highly competitive,
and our failure to compete successfully would make it difficult
for us to add and retain customers and would reduce or impede
the growth of our business.
The markets for supply chain management solutions are
increasingly competitive and global. We expect competition to
increase in the future both from existing competitors and new
companies that may enter our
13
markets. Increased competition could result in pricing pressure,
reduced sales, lower margins or the failure of our solutions to
achieve or maintain broad market acceptance. We face competition
from:
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Software-as-a-Service providers that deliver
business-to-business information systems using a multi-tenant
approach;
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traditional on-premise software providers; and
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managed service providers that combine traditional on-premise
software with professional information technology services.
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To remain competitive, we will need to invest continuously in
software development, marketing, customer service and support
and product delivery infrastructure. However, we cannot assure
you that new or established competitors will not offer solutions
that are superior to or lower in price than ours. We may not
have sufficient resources to continue the investments in all
areas of software development and marketing needed to maintain
our competitive position. In addition, some of our competitors
are better capitalized than us, which may provide them with an
advantage in developing, marketing or servicing new solutions.
Increased competition could reduce our market share, revenues
and operating margins, increase our costs of operations and
otherwise adversely affect our business.
Mergers or other strategic transactions involving our
competitors could weaken our competitive position, which could
harm our operating results.
Our industry is highly fragmented, and we believe it is likely
that some of our existing competitors will consolidate or will
be acquired. In addition, some of our competitors may enter into
new alliances with each other or may establish or strengthen
cooperative relationships with systems integrators, third-party
consulting firms or other parties. Any such consolidation,
acquisition, alliance or cooperative relationship could lead to
pricing pressure and our loss of market share and could result
in a competitor with greater financial, technical, marketing,
service and other resources, all of which could have a material
adverse effect on our business, operating results and financial
condition.
If we fail to retain our Chief Executive Officer and other
key personnel, our business would be harmed and we might not be
able to implement our business plan successfully.
Given the complex nature of the technology on which our business
is based and the speed with which such technology advances, our
future success is dependent, in large part, upon our ability to
attract and retain highly qualified managerial, technical and
sales personnel. In particular, Archie C. Black, our Chief
Executive Officer and President, Kimberly K. Nelson, our
Executive Vice President and Chief Financial Officer, James J.
Frome, our Executive Vice President and Chief Strategy Officer,
Michael J. Gray, our Executive Vice President of Operations, and
David J. Novak, Jr., our Executive Vice President of
Business Development, are critical to the management of our
business and operations. Competition for talented personnel is
intense, and we cannot be certain that we can retain our
managerial, technical and sales personnel or that we can
attract, assimilate or retain such personnel in the future. Our
inability to attract and retain such personnel could have an
adverse effect on our business, results of operations and
financial condition.
Our continued growth could strain our personnel resources and
infrastructure, and if we are unable to implement appropriate
controls and procedures to manage our growth, we will not be
able to implement our business plan successfully.
We have experienced a period of rapid growth in our headcount
and operations. To the extent that we are able to sustain such
growth, it will place a significant strain on our management,
administrative, operational and financial infrastructure. Our
success will depend in part upon the ability of our senior
management to manage this growth effectively. To do so, we must
continue to hire, train and manage new employees as needed. If
our new hires perform poorly, or if we are unsuccessful in
hiring, training, managing and integrating these new employees,
or if we are not successful in retaining our existing employees,
our business would be harmed. To manage the expected growth of
our operations and personnel, we will need to continue to
improve our operational, financial and management controls and
our reporting systems and
14
procedures. The additional headcount we are adding will increase
our cost base, which will make it more difficult for us to
offset any future revenue shortfalls by reducing expenses in the
short term. If we fail to successfully manage our growth, we
will be unable to execute our business plan.
Our failure to maintain adequate internal control over
financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002 or to prevent or detect material
misstatements in our annual or interim financial statements in
the future could result in inaccurate financial reporting, or
could otherwise harm our business.
We are required to comply with the internal control evaluation
and certification requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 by no later than the end of our 2010
fiscal year. We are in the process of determining whether our
existing internal controls over financial reporting systems are
compliant with Section 404. This process may divert
internal resources and will take a significant amount of time
and effort to complete. To the extent that we are not currently
in compliance with Section 404, we may be required to
implement new internal control procedures and re-evaluate our
financial reporting. We may experience higher than anticipated
operating expenses as well as increased independent auditor fees
during the implementation of these changes and thereafter.
Further, we may need to hire additional qualified personnel in
order for us to comply with Section 404. If we are unable
to implement these changes effectively or efficiently, it could
harm our operations, financial reporting or financial results
and could result in our being unable to obtain an unqualified
report on internal controls from our independent auditors, which
could have a negative impact on our stock price.
In connection with preparing the registration statement of which
this prospectus is a part, we identified an error in our prior
years’ financial statements. This error related to
accounting for the preferred stock warrants at fair value in
2006, 2007 and 2008. This error resulted in the restatement of
our previously issued 2006, 2007 and 2008 financial statements.
This error was determined to be a deficiency. Although we have
taken measures to remediate the deficiency, we cannot assure you
that we have identified all or that we will not in the future
have additional, material weaknesses, significant deficiencies
or control deficiencies. Any failure to maintain or implement
required new or improved controls, or any difficulties we
encounter in implementation, could cause us to fail to meet our
periodic reporting obligations or result in material
misstatements in our financial statements.
Our failure to raise additional capital or generate cash
flows necessary to expand our operations and invest in new
technologies could reduce our ability to compete successfully
and adversely affect our results of operations.
We may need to raise additional funds, and we may not be able to
obtain additional debt or equity financing on favorable terms,
if at all. If we raise additional equity financing, our security
holders may experience significant dilution of their ownership
interests and the value of shares of our common stock could
decline. If we engage in debt financing, we may be required to
accept terms that restrict our ability to incur additional
indebtedness, force us to maintain specified liquidity or other
ratios or restrict our ability to pay dividends or make
acquisitions. If we need additional capital and cannot raise it
on acceptable terms, we may not be able to, among other things:
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develop and enhance our solutions;
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continue to expand our technology development, sales and
marketing organizations;
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hire, train and retain employees; or
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respond to competitive pressures or unanticipated working
capital requirements.
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Our inability to do any of the foregoing could reduce our
ability to compete successfully and adversely affect our results
of operations.
15
Because our long-term success depends, in part, on our
ability to expand the sales of our solutions to customers
located outside of the United States, our business will be
susceptible to risks associated with international
operations.
We have limited experience operating in foreign jurisdictions.
Customers in countries outside of North America accounted
for 2% of our revenues for 2008 and 2009, and, in February 2010,
we opened sales and support offices in the United Kingdom
and France. Our inexperience in operating our business outside
of North America increases the risk that our current and any
future international expansion efforts will not be successful.
Conducting international operations subjects us to new risks
that, generally, we have not faced in the United States,
including:
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fluctuations in currency exchange rates;
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unexpected changes in foreign regulatory requirements;
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longer accounts receivable payment cycles and difficulties in
collecting accounts receivable;
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difficulties in managing and staffing international operations;
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potentially adverse tax consequences, including the complexities
of foreign value added tax systems and restrictions on the
repatriation of earnings;
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localization of our solutions, including translation into
foreign languages and associated expenses;
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the burdens of complying with a wide variety of foreign laws and
different legal standards, including laws and regulations
related to privacy;
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increased financial accounting and reporting burdens and
complexities;
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political, social and economic instability abroad, terrorist
attacks and security concerns in general; and
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reduced or varied protection for intellectual property rights in
some countries.
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The occurrence of any one of these risks could negatively affect
our international business and, consequently, our results of
operations generally. Additionally, operating in international
markets also requires significant management attention and
financial resources. We cannot be certain that the investment
and additional resources required in establishing, acquiring or
integrating operations in other countries will produce desired
levels of revenues or profitability.
Risks
Relating to this Offering and Ownership of Our Common
Stock
Because there has not been a public market for our common
stock and our stock price may be volatile, you may not be able
to resell your shares at or above the initial public offering
price.
Prior to this offering, you could not buy or sell our common
stock publicly. We cannot predict the extent to which
investors’ interests will lead to an active trading market
for our common stock or whether the market price of our common
stock will be volatile following this offering. If an active
trading market does not develop, you may have difficulty selling
any of our common stock that you buy. The initial public
offering price for our common stock was determined by
negotiations between representatives of the underwriters and us
and may not be indicative of prices that will prevail in the
open market following this offering. Consequently, you may not
be able to sell our common stock at prices equal to or greater
than the price you paid in this offering. In addition to the
factors discussed elsewhere in this section, many factors, most
of which are outside of our control, could cause the market
price of our common stock to decrease significantly from the
price you pay in this offering, including:
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variations in our quarterly operating results;
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decreases in market valuations of similar companies;
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the failure of securities analysts to cover our common stock
after this offering or changes in financial estimates by
analysts who cover us, our competitors or our industry;
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16
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failure by us or our competitors to meet analysts’
projections or guidance that we or our competitors may give to
the market; and
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fluctuations in stock market prices and volumes.
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In addition, securities class action litigation often has often
been initiated when a company’s stock price has fallen
below the company’s initial public offering price soon
after the offering closes or following a period of volatility in
the market price of a company’s securities. If class action
litigation is initiated against us, we would incur substantial
costs and our management’s attention would be diverted from
our operations. All of these factors could cause the market
price of our stock to decline, and you may lose some or all of
your investment.
Future sales of our common stock by our existing stockholders
could cause our stock price to decline.
If our stockholders sell substantial amounts of our common stock
in the public market, the market price of our common stock could
decrease significantly. The perception in the public market that
our stockholders might sell shares of our common stock could
also depress the market price of our common stock. Upon the
closing of this offering, we intend to file registration
statements with the SEC covering any shares of our common stock
acquired upon option exercises prior to the closing of this
offering and all of
the shares
subject to options outstanding, but not exercised, as of the
closing of this
offering. shares
of our common stock that will be outstanding immediately after
completion of this offering will become eligible for sale in the
public markets from time to time, subject to restrictions under
the Securities Act of 1933 following the expiration of
lock-up
agreements entered into for the benefit of the underwriters by
the holders of the common stock, including our directors and
executive officers. Furthermore, immediately after completion of
this offering, the holders
of shares
of our common stock will have the right to demand that we file
registration statements with respect to the shares of our common
stock held by them, and will have the right to include those
shares in any registration statement that we file with the SEC,
subject to exceptions, which would enable those shares to be
sold in the public market, subject to the restrictions under the
lock-up
agreements referred to above.
The underwriters may, in their sole discretion and at any time
or from time to time, without notice, release all or any portion
of the shares of common stock subject to the
lock-up
agreements for sale in the public and private markets prior to
the expiration of the
lock-up. The
market price for shares of our common stock may drop
significantly when the restrictions on resale by our existing
stockholders lapse or if those restrictions on resale are
waived. A decline in the price of shares of our common stock
might impede our ability to raise capital through the issuance
of additional shares of our common stock or other equity
securities.
We have broad discretion in the use of the proceeds of this
offering and may apply the proceeds in ways with which you do
not agree.
We intend to use $594,000 of our net proceeds from this offering
to repay indebtedness under our equipment term loans. We intend
to use any remaining proceeds for working capital and general
corporate purposes. We have not determined the allocation of the
net proceeds in excess of the indebtedness we intend to repay
with the net proceeds we will receive in this offering. Our
management will have broad discretion over the use and
investment of these net proceeds, and, accordingly, you will
have to rely upon the judgment of our management with respect to
our use of these net proceeds, with only limited information
concerning management’s specific intentions. You will not
have the opportunity, as part of your investment decision, to
assess whether we use these net proceeds appropriately. We may
place the net proceeds in investments that do not produce income
or that lose value, which may cause our stock price to decline.
Our charter documents, Delaware law and our credit agreement
may inhibit a takeover that stockholders consider favorable.
Upon the closing of this offering, provisions of our amended and
restated certificate of incorporation and amended and restated
bylaws and applicable provisions of Delaware law may delay or
discourage transactions involving an actual or potential change
in our control or change in our management,
17
including transactions in which stockholders might otherwise
receive a premium for their shares, or transactions that our
stockholders might otherwise deem to be in their best interests.
These provisions:
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permit our board of directors to issue up
to shares
of preferred stock, with any rights, preferences and privileges
as our board may designate, including the right to approve an
acquisition or other change in our control;
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provide that the authorized number of directors may be changed
by resolution of the board of directors;
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divide our board of directors into three classes;
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provide that all vacancies, including newly created
directorships, may, except as otherwise required by law, be
filled by the affirmative vote of a majority of directors then
in office, even if less than a quorum;
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provide that stockholders seeking to present proposals before a
meeting of stockholders or to nominate candidates for election
as directors at a meeting of stockholders must provide notice in
writing in a timely manner, and also specify requirements as to
the form and content of a stockholder’s notice; and
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do not provide for cumulative voting rights.
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In addition, Section 203 of the Delaware General
Corporation Law generally limits our ability to engage in any
business combination with certain persons who own 15% or more of
our outstanding voting stock or any of our associates or
affiliates who at any time in the past three years have owned
15% or more of our outstanding voting stock. These provisions
may have the effect of entrenching our management team and may
deprive you of the opportunity to sell your shares to potential
acquirers at a premium over prevailing prices. This potential
inability to obtain a control premium could reduce the price of
our common stock.
Our credit agreement also prohibits us from entering into a
transaction whereby a person becomes the beneficial owner of
more than 30% of the total voting power of our capital stock or
a majority of the members of our board changes. These
restrictions may prevent us from entering into transactions in
which stockholders might otherwise receive a premium for their
shares, or transactions that our stockholders might otherwise
deem to be in their best interests.
We do not
intend to declare dividends on our stock after this
offering.
We currently intend to retain all future earnings for the
operation and expansion of our business and, therefore, do not
anticipate declaring or paying cash dividends on our common
stock in the foreseeable future. Our credit agreement also
restricts our ability to pay cash dividends. Any payment of cash
dividends on our common stock will be at the discretion of our
board of directors and will depend upon our results of
operations, earnings, capital requirements, financial condition,
future prospects, contractual restrictions and other factors
deemed relevant by our board of directors. Therefore, you should
not expect to receive dividend income from shares of our common
stock.
Our
directors, executive officers and principal stockholders will
continue to have substantial control over us after this offering
and could delay or prevent a change in corporate
control.
After this offering, our directors, executive officers and
holders of more than 5% of our common stock, together with their
affiliates, will beneficially own, in the aggregate,
approximately % of our outstanding
common stock, assuming no exercise of the underwriters’
option to purchase additional shares of our common stock in this
offering. As a result, these stockholders, acting together,
would have the ability to control the outcome of matters
submitted to our stockholders for approval, including the
election of directors and any merger, consolidation or sale of
all or substantially all of our assets. In addition, these
stockholders, acting together, would have the ability to control
the management and affairs of our company. Accordingly, this
concentration of ownership might harm the market price of our
common stock by:
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delaying, deferring or preventing a change in corporate control;
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impeding a merger, consolidation, takeover or other business
combination involving us; or
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discouraging a potential acquirer from making a tender offer or
otherwise attempting to obtain control of us.
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18
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. In some
cases, you can identify forward-looking statements by the
following words: “anticipate,” “believe,”
“continue,” “could,” “estimate,”
“expect,” “intend,” “may,”
“ongoing,” “plan,” “potential,”
“predict,” “project,” “should,”
“will,” “would,” or the negative of these
terms or other comparable terminology, although not all
forward-looking statements contain these words. Forward-looking
statements are not a guarantee of future performance or results,
and will not necessarily be accurate indications of the times
at, or by, which such performance or results will be achieved.
Forward-looking statements are based on information available at
the time the statements are made and involve known and unknown
risks, uncertainties and other factors that may cause our
results, levels of activity, performance or achievements to be
materially different from the information expressed or implied
by the forward-looking statements in this prospectus. These
factors include:
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less than expected growth in the supply chain management
industry, especially for Software-as-a-Service solutions within
this industry;
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lack of acceptance of new solutions we offer;
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an inability to continue increasing our number of customers or
the revenues we derive from our recurring revenue customers;
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continued economic weakness and constrained retail sales;
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an inability to effectively develop new solutions that compete
effectively with the solutions our current and future
competitors offer;
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risk of increased regulation of the Internet;
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an inability to identify attractive acquisition opportunities,
successfully negotiate acquisition terms or effectively
integrate acquired companies or businesses;
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unexpected changes in our anticipated capital expenditures
resulting from unforeseen required maintenance or repairs,
upgrades or capital asset additions;
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an inability to effectively manage our growth;
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lack of capital available on acceptable terms to finance our
continued growth;
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risks of conducting international commerce, including foreign
currency exchange rate fluctuations, changes in government
policies or regulations, longer payment cycles, trade
restrictions, economic or political instability in foreign
countries where we may increase our business and reduced
protection of our intellectual property;
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an inability to add sales and marketing, research and
development or other key personnel who are able to successfully
sell or develop our solutions; and
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other risk factors included under “Risk Factors” in
this prospectus.
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You should read the matters described in “Risk
Factors” and the other cautionary statements made in this
prospectus as being applicable to all related forward-looking
statements wherever they appear in this prospectus. We cannot
assure you that the forward-looking statements in this
prospectus will prove to be accurate and therefore prospective
investors are encouraged not to place undue reliance on
forward-looking statements. You should read this prospectus
completely. Other than as required by law, we undertake no
obligation to update or revise these forward-looking statements,
even though our situation may change in the future.
19
USE OF
PROCEEDS
We estimate that the net proceeds from our sale of shares of
common stock in this offering will be approximately
$ million, or approximately
$ million if the underwriters
exercise their over-allotment option in full. This estimate is
based upon an assumed initial public offering price of
$ per share, the
mid-point of
our filing range, less estimated underwriting discounts and
commissions and offering expenses payable by us.
Based on amounts we owed as of March 1, 2010, we intend to
use these net proceeds to:
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repay approximately $69,000 of indebtedness under equipment term
loans that bear interest at a rate of 12.0% per annum and mature
in the year ending December 31, 2010;
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repay approximately $346,000 of indebtedness under equipment
term loans that bear interest at rates between 11.9% and 12.5%
per annum and mature in the year ending December 31,
2011; and
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repay approximately $179,000 of indebtedness under equipment
term loans that bear interest at a rate of 11.8% per annum and
mature on January 1, 2012.
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We intend to use any remaining net proceeds for working capital
and general corporate purposes, including potential
acquisitions. We are not currently in negotiations for any
acquisitions for which we intend to use the net proceeds of this
offering. By establishing a public market for our common stock,
this offering is also intended to facilitate our future access
to public markets.
Pending the uses described above, we intend to invest the net
proceeds of this offering in short- to medium-term,
investment-grade, interest-bearing securities.
DIVIDEND
POLICY
We have not historically paid dividends on our common stock.
Following the completion of this offering, we intend to retain
our future earnings, if any, to finance the expansion and growth
of our business. We do not expect to pay cash dividends on our
common stock in the foreseeable future. Our credit agreement
also currently limits our ability to pay cash dividends. Payment
of future cash dividends, if any, will be at the discretion of
our board of directors after taking into account various
factors, including our financial condition, operating results,
current and anticipated cash needs, outstanding indebtedness and
plans for expansion and restrictions imposed by lenders, if any.
20
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of December 31, 2009:
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on an actual basis;
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on a pro forma basis to reflect the conversion of all
outstanding preferred stock into common stock immediately prior
to the completion of this offering, as if the conversion
occurred as of December 31, 2009; and
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on a pro forma as adjusted basis to reflect the conversion
described above, as well as our sale of shares in this offering
at an assumed initial public offering price of
$ per share, which is the
mid-point of our filing range, after deducting estimated
underwriting discounts and commissions and offering expenses
payable by us, and the application of the net proceeds from our
sale of common stock in this offering to repay $594,000 of
indebtedness under our equipment term loans, as if each had
occurred as of December 31, 2009.
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You should read this information in conjunction with
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our financial
statements and the related notes appearing elsewhere in this
prospectus.
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As of December 31, 2009
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Pro Forma
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Actual
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Pro Forma
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As Adjusted
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(In thousands, except share data)
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Cash and cash equivalents
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$
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5,931
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$
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5,931
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$
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Current liabilities
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11,290
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11,290
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Long-term liabilities
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5,317
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5,317
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Redeemable convertible preferred stock:
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Series A redeemable convertible preferred stock,
$0.001 par value, 4,427,782 shares authorized,
4,322,708 shares issued and outstanding, actual, and no
shares authorized, issued or outstanding, pro forma and pro
forma as adjusted
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37,676
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—
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Series B redeemable convertible preferred stock,
$0.001 par value, 23,499,362 shares authorized,
21,303,838 shares issued and outstanding, actual, and no
shares authorized, issued or outstanding, pro forma and pro
forma as adjusted
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20,658
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—
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Series C redeemable convertible preferred stock,
$0.001 par value, 6,000,000 shares authorized,
4,687,500 shares issued and outstanding, actual, and no
shares authorized, issued or outstanding, pro forma and pro
forma as adjusted
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7,444
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—
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Total redeemable convertible preferred stock
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65,778
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—
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Stockholders’ deficit:
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Common stock $0.001 par value, 50,345,706 shares
authorized, 1,225,459 shares issued and outstanding,
actual, authorized, shares
issued and outstanding pro forma,
and authorized, shares
issued and outstanding pro forma as adjusted
|
|
|
1
|
|
|
|
32
|
|
|
|
|
|
Undesignated preferred stock, $0.001 par value, no shares
authorized, issued or outstanding,
actual, shares authorized, no
shares issued or outstanding pro forma and pro forma as adjusted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Additional paid-in capital
|
|
|
5,185
|
|
|
|
70,932
|
|
|
|
|
|
Accumulated deficit
|
|
|
(65,652
|
)
|
|
|
(65,652)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity (deficit)
|
|
|
(60,466
|
)
|
|
|
5,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
21,919
|
|
|
$
|
21,919
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
The table and calculations above are based on the number of
shares of common stock outstanding as of December 31, 2009
and exclude:
|
|
|
|
•
|
an aggregate
of shares
issuable upon the exercise of then outstanding options at a
weighted average exercise price of
$ per share;
|
|
|
•
|
an aggregate
of shares
issuable upon the exercise of then outstanding warrants at a
weighted average exercise price of
$ per share;
|
|
|
•
|
an aggregate
of shares
reserved for issuance under our 2010 Equity Incentive Plan,
subject to increase on an annual basis and subject to increase
for shares subject to awards under our prior equity plans that
expire unexercised or otherwise do not result in the issuance of
shares; and
|
|
|
•
|
the shares
of common stock subject to the underwriters’ over-allotment
option.
|
22
DILUTION
If you invest in our common stock, your ownership interest will
be diluted to the extent of the difference between the initial
public offering price per share of our common stock and the
adjusted net tangible book value per share of our common stock
immediately after completion of this offering. Pro forma net
tangible book value per share represents total tangible assets
less total liabilities, divided by the number of shares of
common stock outstanding, after giving effect to the conversion
of all of our outstanding preferred stock into an aggregate
of shares
of our common stock. As of December 31, 2009, the pro forma
net tangible book value of our common stock as of was
approximately $(7.7 million), or approximately
$( ) per share.
After giving effect to our sale of shares at an assumed initial
public offering price of $ per
share, which is the mid-point of our filing range, deducting
estimated underwriting discounts and commissions and offering
expenses payable by us, and applying the net proceeds from this
sale, the pro forma as adjusted net tangible book value of our
common stock, as of December 31, 2009, would have been
approximately $ million, or
$ per share. This amount
represents an immediate increase in net tangible book value to
our existing stockholders of $ per
share and an immediate dilution to new investors of
$ per share. The following table
illustrates this per share dilution:
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share
|
|
|
|
|
|
$
|
|
|
Pro forma net tangible book value per share as of
December 31, 2009
|
|
$
|
|
|
|
|
|
|
Pro forma as adjusted increase per share attributable to new
investors
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma as adjusted net tangible book value per share after
this offering
|
|
|
|
|
|
$
|
|
|
Dilution per share to new investors
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
If the underwriters exercise their over-allotment option in
full, there will be an increase in pro forma as adjusted net
tangible book value to existing stockholders of
$ per share and an immediate
dilution in pro forma as adjusted net tangible book value to new
investors of $ per share based on
the assumed initial public offering price per share. A $1.00
increase or decrease in the assumed initial public offering
price per share would increase or decrease, respectively, the
pro forma as adjusted net tangible book value per share of
common stock after this offering by
$ per share and increase or
decrease, respectively, the pro forma as adjusted dilution per
share of common stock to new investors in this offering by
$ per share, in each case
calculated as described above and assuming that the number of
shares offered by us and the selling stockholders, as set forth
on the cover page of this prospectus, remains the same.
The following table summarizes, as of December 31, 2009, on
a pro forma as adjusted basis, the number of shares of common
stock purchased from us, the total consideration paid to us and
the average price per share paid by our existing stockholders
and by new investors, based upon an assumed initial public
offering price of $ per share and
before deducting estimated underwriting discounts and
commissions and offering expenses payable by us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Average Price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
per Share
|
|
|
Existing stockholders
|
|
|
|
|
|
|
%
|
|
|
$
|
|
|
|
|
%
|
|
|
$
|
|
|
New investors
|
|
|
|
|
|
|
%
|
|
|
$
|
|
|
|
|
%
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100%
|
|
|
$
|
|
|
|
|
100%
|
|
|
$
|
|
|
The discussion and tables above are based
on shares
of common stock outstanding as of December 31, 2009 and
exclude:
|
|
|
|
•
|
an aggregate
of shares
issuable upon the exercise of then outstanding options at a
weighted average exercise price of
$ per share;
|
|
|
•
|
an aggregate
of shares
issuable upon the exercise of then outstanding warrants at a
weighted average exercise price of
$ per share;
|
23
|
|
|
|
•
|
an aggregate
of shares
reserved for issuance under our 2010 Equity Incentive Plan,
subject to increase on an annual basis and subject to increase
for shares subject to awards under our prior equity plans that
expire unexercised or otherwise do not result in the issuance of
shares; and
|
|
|
•
|
the
shares of common stock subject to the underwriters’
over-allotment option.
|
Sales by the selling stockholders in this offering will cause
the number of shares held by existing stockholders to be reduced
to shares
or % of the total number of shares
of our common stock outstanding after this offering. If the
underwriters’ overallotment option is exercised in full,
the number of shares held by the existing stockholders after
this offering would be reduced to %
of the total number of shares of our common stock outstanding
after this offering, and the number of shares held by new
investors would increase to % of
the total number of shares of our common stock outstanding after
this offering.
Because the exercise prices of certain of our outstanding
options and warrants are below the assumed initial public
offering price of $ per share,
investors purchasing common stock in this offering will suffer
additional dilution when and if these options and warrants are
exercised.
24
SELECTED
FINANCIAL DATA
You should read the following selected financial data together
with our financial statements and the related notes appearing at
the end of this prospectus and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations,” which follows immediately after this section.
The selected financial data under the heading “Balance
Sheet Data” as of December 31, 2008 and 2009, under
the heading “Statement of Operations Data” for each of
the years ended December 31, 2007, 2008 and 2009 and under
the heading “Operating Data” relating to Adjusted
EBITDA for each of the years ended December 31, 2007, 2008
and 2009 have been derived from our audited annual financial
statements, which are included elsewhere in this prospectus. The
selected financial data under the heading “Balance Sheet
Data” as of December 31, 2005, 2006 and 2007, under
the heading “Statement of Operations Data” for each of
the years ended December 31, 2005 and 2006 and under the
heading “Operating Data” relating to Adjusted EBITDA
for each of the years ended December 31, 2005 and 2006 have
been derived from our audited annual financial statements, which
have not been included in this prospectus. The unaudited summary
financial data under the heading “Operating Data”
relating to recurring revenue customers have been derived from
our internal records of our operations.
The pro forma balance sheet data as of December 31, 2009 is
unaudited and gives effect to the conversion of all of our
preferred stock into our common stock immediately prior to the
consummation of this offering. The pro forma as adjusted balance
sheet data as of December 31, 2009 is unaudited and gives
effect to (1) the pro forma adjustment above; (2) our
receipt of estimated net proceeds of
$ million from this offering,
based on an assumed initial public offering price of
$ per share, which is the
mid-point of our filing range, after deducting estimated
underwriting discounts and offering expenses payable by us and
(3) the application of $594,000 of our net proceeds from
this offering to repay indebtedness under our equipment term
loans, as if each had occurred as of December 31, 2009. The
pro forma as adjusted summary financial data are not necessarily
indicative of what our financial position or results of
operations would have been if this offering had been completed
as of the date indicated, nor are these data necessarily
indicative of our financial position or results of operations
for any future date or period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
13,827
|
|
|
$
|
19,859
|
|
|
$
|
25,198
|
|
|
$
|
30,697
|
|
|
$
|
37,746
|
|
Cost of revenues (1)
|
|
|
3,823
|
|
|
|
5,219
|
|
|
|
6,379
|
|
|
|
9,258
|
|
|
|
11,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
10,004
|
|
|
|
14,640
|
|
|
|
18,819
|
|
|
|
21,439
|
|
|
|
26,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing (1)
|
|
|
5,034
|
|
|
|
8,098
|
|
|
|
11,636
|
|
|
|
12,493
|
|
|
|
13,506
|
|
Research and development (1)
|
|
|
2,129
|
|
|
|
3,190
|
|
|
|
3,546
|
|
|
|
3,640
|
|
|
|
4,305
|
|
General and administrative (1)
|
|
|
3,180
|
|
|
|
4,199
|
|
|
|
5,458
|
|
|
|
6,716
|
|
|
|
6,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
10,343
|
|
|
|
15,487
|
|
|
|
20,640
|
|
|
|
22,849
|
|
|
|
24,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(339
|
)
|
|
|
(847
|
)
|
|
|
(1,821
|
)
|
|
|
(1,410
|
)
|
|
|
1,881
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(299
|
)
|
|
|
(558
|
)
|
|
|
(439
|
)
|
|
|
(419
|
)
|
|
|
(270
|
)
|
Other income (expense)
|
|
|
(15
|
)
|
|
|
108
|
|
|
|
120
|
|
|
|
28
|
|
|
|
(358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(314
|
)
|
|
|
(450
|
)
|
|
|
(319
|
)
|
|
|
(391
|
)
|
|
|
(628
|
)
|
Income tax expense
|
|
|
(23
|
)
|
|
|
(4
|
)
|
|
|
(16
|
)
|
|
|
(94
|
)
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(676
|
)
|
|
$
|
(1,301
|
)
|
|
$
|
(2,156
|
)
|
|
$
|
(1,895
|
)
|
|
$
|
1,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.78
|
)
|
|
$
|
(2.93
|
)
|
|
$
|
(3.12
|
)
|
|
$
|
(1.72
|
)
|
|
$
|
0.94
|
|
Fully diluted
|
|
$
|
(1.78
|
)
|
|
$
|
(2.93
|
)
|
|
$
|
(3.12
|
)
|
|
$
|
(1.72
|
)
|
|
$
|
0.03
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
379
|
|
|
|
444
|
|
|
|
692
|
|
|
|
1,101
|
|
|
|
1,232
|
|
Fully diluted
|
|
|
379
|
|
|
|
444
|
|
|
|
692
|
|
|
|
1,101
|
|
|
|
34,711
|
|
Pro forma net income (loss) per share (unaudited) (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares outstanding (unaudited) (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
|
|
|
As of December 31,
|
|
|
Pro
|
|
|
Pro Forma
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Forma
|
|
|
As Adjusted
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
1,609
|
|
|
$
|
1,942
|
|
|
$
|
6,117
|
|
|
$
|
3,715
|
|
|
$
|
5,931
|
|
|
$
|
5,931
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
|
(234)
|
|
|
|
(647)
|
|
|
|
4,535
|
|
|
|
3,995
|
|
|
|
4,973
|
|
|
|
4,973
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
6,767
|
|
|
|
12,228
|
|
|
|
20,687
|
|
|
|
19,197
|
|
|
|
21,919
|
|
|
|
21,919
|
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
2,719
|
|
|
|
5,167
|
|
|
|
5,550
|
|
|
|
5,950
|
|
|
|
5,317
|
|
|
|
5,317
|
|
|
|
|
|
|
|
|
|
Total debt (3)
|
|
|
2,675
|
|
|
|
5,018
|
|
|
|
4,992
|
|
|
|
4,471
|
|
|
|
2,694
|
|
|
|
2,694
|
|
|
|
|
|
|
|
|
|
Total redeemable convertible preferred stock
|
|
|
56,072
|
|
|
|
58,520
|
|
|
|
65,964
|
|
|
|
65,964
|
|
|
|
65,778
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity (deficit)
|
|
$
|
(56,758)
|
|
|
$
|
(58,046)
|
|
|
$
|
(60,111)
|
|
|
$
|
(61,844)
|
|
|
$
|
(60,466)
|
|
|
$
|
5,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(Unaudited; Adjusted EBITDA in thousands)
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (4)
|
|
$
|
385
|
|
|
$
|
748
|
|
|
$
|
103
|
|
|
$
|
763
|
|
|
|
3,206
|
|
Recurring revenue customers (5)
|
|
|
6,056
|
|
|
|
7,940
|
|
|
|
9,496
|
|
|
|
10,076
|
|
|
|
11,003
|
|
|
|
|
(1) |
|
Includes stock-based compensation expense as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Cost of revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
19
|
|
|
$
|
53
|
|
Sales and marketing
|
|
|
—
|
|
|
|
—
|
|
|
|
33
|
|
|
|
60
|
|
|
|
91
|
|
Research and development
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
4
|
|
|
|
4
|
|
General and administrative
|
|
|
—
|
|
|
|
6
|
|
|
|
9
|
|
|
|
74
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
46
|
|
|
$
|
157
|
|
|
$
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
Reflects the conversion of all of our preferred stock into
common stock and a
for reverse stock split of our
common stock that will occur immediately prior to the
consummation of this offering. |
|
(3) |
|
Total debt consists of our current and long-term capital lease
obligations, current and long-term equipment and term loans,
line of credit, interest payable and, as of December 31,
2005 and 2006, mezzanine debt. |
|
(4) |
|
EBITDA consists of net income (loss) plus depreciation and
amortization, interest expense and income tax expense. Adjusted
EBITDA consists of EBITDA plus our non-cash, share-based
compensation expense. We use Adjusted EBITDA as a measure of
operating performance because it assists us in comparing
performance on a consistent basis, as it removes from our
operating results the impact of our capital structure. We
believe Adjusted EBITDA is useful to an investor in evaluating
our operating performance because it is widely used to measure a
company’s operating performance without regard to items
such as depreciation and amortization, which can vary depending
upon accounting methods and the book value of assets, and to
present a meaningful measure of corporate performance exclusive
of our |
26
|
|
|
|
|
capital structure and the method by which assets were acquired.
The following table provides a reconciliation of net income
(loss) to Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(Unaudited; in thousands)
|
|
|
Net income (loss)
|
|
$
|
(676
|
)
|
|
$
|
(1,301
|
)
|
|
$
|
(2,156
|
)
|
|
$
|
(1,895
|
)
|
|
$
|
1,162
|
|
Depreciation and amortization
|
|
|
739
|
|
|
|
1,481
|
|
|
|
1,758
|
|
|
|
1,988
|
|
|
|
1,455
|
|
Interest expense
|
|
|
299
|
|
|
|
558
|
|
|
|
439
|
|
|
|
419
|
|
|
|
270
|
|
Income tax expense
|
|
|
23
|
|
|
|
4
|
|
|
|
16
|
|
|
|
94
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
385
|
|
|
|
742
|
|
|
|
57
|
|
|
|
606
|
|
|
|
2,978
|
|
Non-cash, share-based compensation expense
|
|
|
—
|
|
|
|
6
|
|
|
|
46
|
|
|
|
157
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
385
|
|
|
$
|
748
|
|
|
$
|
103
|
|
|
$
|
763
|
|
|
$
|
3,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) |
|
This reflects the number of recurring revenue customers at the
end of the period. Recurring revenue customers are customers
with contracts to pay us monthly fees. A minority portion of our
recurring revenue customers consists of separate units within a
larger organization. We treat each of these units, which may
include divisions, departments, affiliates and franchises, as
distinct customers. Our contracts with our recurring revenue
customers typically allow the customer to cancel the contract
for any reason with 30 days prior notice. |
27
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of our financial
condition and results of operations should be read in
conjunction with the section titled “Selected Financial
Data” and our financial statements and related notes
appearing elsewhere in this prospectus. Our actual results could
differ materially from those anticipated in the forward-looking
statements included in this discussion as a result of certain
factors, including, but not limited to, those discussed in
“Risk Factors” and “Special Note Regarding
Forward-Looking Statements” included elsewhere in this
prospectus.
Overview
We are a leading provider of on-demand supply chain management
solutions, providing integration, collaboration, connectivity,
visibility and data analytics to thousands of trading partners
worldwide. We provide our solutions through SPSCommerce.net, a
hosted software suite that improves the way suppliers,
retailers, distributors and other trading partners manage and
fulfill orders. We deliver our solutions to our customers over
the Internet using a Software-as-a-Service model.
SPSCommerce.net fundamentally changes how organizations use
electronic communication to manage a supply chain by replacing
the collection of traditional, custom-built,
point-to-point
integrations with a
“hub-and-spoke”
model whereby a single integration to SPSCommerce.net allows an
organization to connect seamlessly to the entire SPSCommerce.net
network of trading partners. SPSCommerce.net combines
integrations with 2,700 order management models across 1,300
retailers, grocers and distributors through a multi-tenant
architecture and provides ancillary support applications that
deliver a comprehensive set of supply chain solutions.
The value SPSCommerce.net offers increases with the number of
trading partners connected to our platform. This “network
effect” creates a significant opportunity for our customers
to realize incremental sales by working with new trading
partners connected to our platform and vice versa. As a result
of this increased volume of activity amongst our customers, we
earn additional revenues. We also sell our solutions through
sales leads from retailers with whom we integrate our customers,
referrals from trading partners in our network and channel
partners, as well as our direct sales force.
We plan to grow our business by further penetrating the supply
chain management market, increasing revenues from our customers
as their businesses grow, expanding our distribution channels,
expanding our international presence and developing new
solutions and applications. We also intend to selectively pursue
acquisitions that will add customers, allow us to expand into
new regions or industries or allow us to offer new
functionalities.
For 2007, 2008 and 2009, we generated revenues of
$25.2 million, $30.7 million and $37.7 million.
Our fiscal quarter ended December 31, 2009 represented our
36th consecutive quarter of increased revenues. Recurring
revenues from recurring revenue customers accounted for 83%, 84%
and 80% of our total revenues for 2007, 2008 and 2009. No
customer represented over 1% of our revenues for 2007, 2008 or
2009. For 2008 and 2009, 2% of our revenues were generated
outside of North America.
Key
Financial Terms and Metrics
Sources
of Revenues
Trading Partner Integration. Our revenues primarily
consist of monthly revenues from our customers for our Trading
Partner Integration solution. Our revenues for this solution
consist of a monthly subscription fee and a transaction-based
fee. We also receive
set-up fees
for initial integration solutions we provide our customers. Most
of our customers have contracts with us that may be terminated
by the customer by providing 30 days prior notice. Over 90%
of our revenues for 2007, 2008 and 2009 were derived from
Trading Partner Integration.
28
Trading Partner Enablement. Our Trading Partner
Enablement solution helps organizations, typically large
retailers, to implement new integrations with trading partners.
This solution ranges from Electronic Data Interchange testing
and certification to more complex business workflow automation
and results in a one-time payment to us.
Trading Partner Intelligence. In 2009, we introduced our
Trading Partner Intelligence solution, which consists of six
data analytics applications. These applications allow our
supplier customers to improve their visibility across, and
analysis of, their supply chains. Through interactive data
analysis, our retailer customers improve their visibility into
supplier performance and their understanding of product
sell-through. Our revenues for this solution primarily consist
of a monthly subscription fee.
Other Trading Partner Solutions. The remainder of our
revenues are derived from solutions that allow our customers to
perform tasks such as barcode labeling or
picking-and-packaging
information tracking as well as purchases of miscellaneous
supplies. These revenues are primarily transaction-based.
Cost of
Revenues and Operating Expenses
Overhead Allocation. We allocate overhead expenses such
as rent, certain employee benefit costs, office supplies and
depreciation of general office assets to cost of revenues and
operating expenses categories based on headcount.
Cost of Revenues. Cost of revenues primarily consists of
personnel costs such as wages and benefits related to
implementation teams, customer support personnel and application
support personnel. Cost of revenues also includes our cost of
network services, which is primarily data center costs for the
locations where we keep the equipment that serves our customers,
and connectivity costs that facilitate electronic data
transmission between our customers and their trading partners.
We expect our cost of revenues to increase in absolute dollars.
Sales and Marketing Expenses. Sales and marketing
expenses consist primarily of personnel costs for our sales,
marketing and product management teams, commissions earned by
our sales personnel and marketing costs. In order to grow our
business, we will continue to add resources to our sales and
marketing efforts over time. We expect that sales and marketing
expenses will increase in absolute dollars.
Research and Development Expenses. Research and
development expenses consist primarily of personnel costs for
development and maintenance of existing solutions. This group
also is responsible for enhancing existing solutions and
applications as well as internal tools and developing new
information maps that integrate our customers to their trading
partners in compliance with those trading partners’
requirements. We expect research and development expenses will
increase in absolute dollars as we continue to enhance and
expand our solutions and applications.
General and Administrative Expenses. General and
administrative expenses consist primarily of personnel costs for
finance, human resources and internal information technology
support, as well as legal, accounting and other fees, such as
credit card processing fees. General and administrative expenses
also include amortization of intangible assets relating to our
acquisition of substantially all of the assets of Owens Direct
LLC in February 2006. We amortized these intangible assets over
a period of three years ending in February 2009. We expect to
incur additional general and administrative expenses associated
with being a public company, including higher legal, audit and
insurance fees.
Other Income (Expense). Other income (expense) primarily
consists of interest income, interest expense and the fair
market value adjustment of preferred stock warrants using the
Black-Scholes method. Interest income represents interest
received on our cash and cash equivalents. Interest expense is
associated with our debt, which includes equipment loan payments
and payments on our term loans.
Other
Metrics
Recurring Revenue Customers. As of December 31,
2009, we had over 11,000 customers with contracts to pay us
monthly fees, which we refer to as recurring revenue customers.
We report recurring revenue
29
customers at the end of a period. A minority portion of our
recurring revenue customers consists of separate units within a
larger organization. We treat each of these units, which may
include divisions, departments, affiliates and franchises, as
distinct customers.
Average Recurring Revenues Per Recurring Revenue
Customer. We calculate average recurring revenues per
recurring revenue customer for a period by dividing the
recurring revenues from recurring customers for the period by
the average of the beginning and ending number of recurring
revenue customers for the period. We anticipate that average
recurring revenues per recurring revenue customer will continue
to increase as we increase the number of solutions we offer,
such as the Trading Partner Intelligence solution we introduced
in 2009, and increase the penetration of those solutions across
our customer base.
Monthly Subscription and Transaction-Based Fees. For
2007, 2008 and 2009, revenues from fixed monthly subscription
and transaction-based fees accounted for 83%, 84% and 80% of our
revenues, which we refer to as recurring revenues. All of these
recurring revenues in 2007 and 2008 and more than 95% of the
recurring revenues for 2009 related to our Trading Partner
Integration solution. Our revenues are not concentrated with any
customer, as no customer represented over 1% of our revenues
for 2007, 2008 or 2009.
Adjusted EBITDA. EBITDA consists of net income (loss)
plus depreciation and amortization, interest expense, and income
tax expense. Adjusted EBITDA consists of EBITDA plus our
non-cash, share-based compensation expense. We use Adjusted
EBITDA as a measure of operating performance because it assists
us in comparing performance on a consistent basis, as it removes
from our operating results the impact of our capital structure.
We believe Adjusted EBITDA is useful to an investor in
evaluating our operating performance because it is widely used
to measure a company’s operating performance without regard
to items such as depreciation and amortization, which can vary
depending upon accounting methods and the book value of assets,
and to present a meaningful measure of performance exclusive of
our capital structure and the method by which assets were
acquired. The following table provides a reconciliation of net
income (loss) to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(Unaudited; in thousands)
|
|
|
Net income (loss)
|
|
$
|
(2,156)
|
|
|
$
|
(1,895)
|
|
|
$
|
1,162
|
|
Depreciation and amortization
|
|
|
1,758
|
|
|
|
1,988
|
|
|
|
1,455
|
|
Interest expense
|
|
|
439
|
|
|
|
419
|
|
|
|
270
|
|
Income tax expense
|
|
|
16
|
|
|
|
94
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
57
|
|
|
|
606
|
|
|
|
2,978
|
|
Non-cash, share-based compensation expense
|
|
|
46
|
|
|
|
157
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
103
|
|
|
$
|
763
|
|
|
$
|
3,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Critical
Accounting Policies and Estimates
The discussion of our financial condition and results of
operations is based upon our financial statements, which are
prepared in accordance with accounting principles generally
accepted in the United States, or GAAP. The preparation of these
financial statements requires us to make estimates, judgments
and assumptions that affect the reported amounts of assets,
liabilities, revenues, costs and expenses and related
disclosures. On an ongoing basis, we evaluate our estimates and
assumptions. We base our estimates of the carrying value of
certain assets and liabilities on historical experience and on
various other assumptions that we believe to be reasonable. Our
actual results may differ from these estimates under different
assumptions or conditions.
We believe that of our significant accounting policies, which
are described in the notes to our financial statements, the
following accounting policies involve a greater degree of
judgment, complexity and effect on materiality. A critical
accounting policy is one that is both material to the
presentation of our financial statements and requires us to make
difficult, subjective or complex judgments for uncertain matters
that could have a material effect on our financial condition and
results of operations. Accordingly, these are the policies we
believe are the most critical to aid in fully understanding and
evaluating our financial condition and results of operations.
30
Revenue
Recognition
We generate revenues by providing a number of solutions to our
customers. These solutions include Trading Partner Integration,
Trading Partner Enablement and Trading Partner Intelligence. All
of our solutions are hosted applications that allow customers to
meet their supply chain management requirements. Revenues from
our Trading Partner Integration and Trading Partner Intelligence
solutions are generated through set-up fees and a recurring
monthly hosting fee. Revenues from our Trading Partner
Enablement solutions are generally one-time service fees.
Fees related to recurring monthly hosting services and one-time
services are recognized when the services are provided. The
recurring monthly fee is comprised of both a fixed and
transaction based fee. Revenues are recorded in accordance with
Staff Accounting Bulletin (SAB) 104, Revenue Recognition in
Financial Statements, when all of the following criteria are
met: (1) persuasive evidence of an arrangement exists;
(2) delivery has occurred; (3) the fee is fixed and
determinable and (4) collectability is probable. If
collection is not considered probable, revenues are recognized
when the fees are collected.
Set-up fees
paid by customers in connection with our solutions, as well as
associated direct and incremental costs, such as labor and
commissions, are deferred and recognized ratably over the
expected life of the customer relationship, which is generally
two years. We continue to evaluate and adjust the length of
these amortization periods as more experience is gained with
customer renewals, contract cancellations and technology changes
requested by our customers. It is possible that, in the future,
the estimates of expected customer lives may change and, if so,
the periods over which such subscription
set-up fees
and costs are amortized will be adjusted. Any such change in
estimated expected customer lives will affect our future results
of operations.
Allowance
for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated
losses resulting from our customers’ inability to pay us.
The provision is based on our historical experience and for
specific customers that, in our opinion, are likely to default
on our receivables from them. In order to identify these
customers, we perform ongoing reviews of all customers that have
breached their payment terms, as well as those that have filed
for bankruptcy or for whom information has become available
indicating a significant risk of non-recoverability. In
addition, we have experienced significant growth in the number
of our customers, and we have less payment history to rely upon
with these customers. We rely on historical trends of bad debt
as a percentage of total revenues and apply these percentages to
the accounts receivable associated with new customers and
evaluate these customers over time. To the extent that our
future collections differ from our assumptions based on
historical experience, the amount of our bad debt and allowance
recorded may be different.
Income
Taxes
We account for income taxes in accordance with ASC 740,
Income Taxes, which requires that deferred tax assets and
liabilities be recognized using enacted tax rates for the effect
of temporary differences between the book and tax basis of
recorded assets and liabilities. ASC 740 also requires that
deferred tax assets be reduced by a valuation allowance if it is
more likely than not that some portion of all of the deferred
tax asset will not be realized. The realization of the deferred
tax assets is evaluated quarterly by assessing the valuation
allowance and by adjusting the amount of the allowance, if
necessary.
We recognize the financial statement benefit of a tax position
only after determining that the relevant tax authority would
more likely than not sustain the position following an audit.
For tax positions meeting the more-likely-than-not threshold,
the amount recognized in the financial statements is the largest
benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement with the relevant tax authority.
Stock-Based
Compensation
We follow ASC 718, Compensation – Stock
Compensation, in accounting for our stock-based awards to
employees. ASC 718 establishes accounting for stock-based awards
exchanged for employee services. Accordingly, stock-based
compensation cost is measured at the grant date, based on the
fair value of the
31
award, and is recognized as an expense over the vesting period
of the grant. Determining the appropriate fair value model and
calculating the fair value of stock-based payment awards require
the use of highly subjective assumptions, including the expected
life of the stock-based payment awards and stock price
volatility. We use the Black-Scholes method to value our option
grants and determine the related compensation expense. The
assumptions used in calculating the fair value of stock-based
payment awards represent management’s best estimates, but
the estimates involve inherent uncertainties and the application
of management judgment. As a result, if factors change and we
use different assumptions, our stock-based compensation expense
could be materially different in the future.
The fair value of each option is estimated on the date of grant
using the Black-Scholes method with the following assumptions
used for grants:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2007
|
|
2008
|
|
2009
|
|
|
|
|
|
Risk-free interest rate (1)
|
|
4.4%
|
|
4.0%
|
|
2.7% - 4.0%
|
|
|
|
|
Expected term (2)
|
|
8
|
|
7
|
|
4-7
|
|
|
|
|
Estimated volatility (3)
|
|
52%
|
|
53%
|
|
49%-53%
|
|
|
|
|
Expected dividend yield
|
|
0%
|
|
0%
|
|
0%
|
|
|
|
|
|
|
|
(1) |
|
Rates for options granted during these periods varied within the
ranges stated. |
|
(2) |
|
Expected term for options granted during these periods varied
within the ranges stated. |
|
(3) |
|
Estimated volatility for options granted during these periods
varied within the ranges stated. |
The risk-free interest rate is based on the implied yield
available on U.S. Treasury zero-coupon issues with a
remaining term approximately equal to the expected life of our
stock options. The estimated pre-vesting forfeiture rate is
based on our historical experience. We do not expect to declare
dividends in the foreseeable future.
The expected term of the options is based on evaluations of
historical and expected future employee exercise behavior.
As a non-public entity, historic volatility is not available for
our shares. As a result, we estimated volatility based on a peer
group of companies, which collectively provide a reasonable
basis for estimating volatility. We intend to continue to
consistently use the same group of publicly traded peer
companies to determine volatility in the future until sufficient
information regarding volatility of our share price becomes
available or the selected companies are no longer suitable for
this purpose.
We recorded non-cash, stock-based compensation expense under ASC
718 of $46,000 during 2007, $157,000 during 2008 and $228,000
during 2009. Based on stock options outstanding as of
December 31, 2009, we had unrecognized, stock-based
compensation of $459,000. We expect to continue to grant stock
options in the future, and to the extent that we do, our actual
stock-based compensation expense recognized in future periods
will likely increase.
As of December 31, 2009, we had outstanding vested options
to
purchase shares
of our common stock and unvested options to
purchase shares
of our common stock with an intrinsic value of approximately
$ and
$ ,
respectively, based on the assumed initial public offering price
of $ per share, which is the
mid-point of our filing range.
Significant
Factors Used in Determining Fair Value of Our Common
Stock
The fair value of the shares of common stock that underlie the
stock options we have granted has historically been determined
by our audit committee or board of directors based upon
information available to it at the time of grant. Because, prior
to this offering, there has been no public market for our common
stock, our audit committee or board of directors has determined
the fair value of our common stock by utilizing, among other
things, recent or contemporaneous valuation information
available as of December 31,
32
2007 and for each quarter end thereafter. The valuation
information included reviews of our business and general
economic, market and other conditions that could be reasonably
evaluated at that time, including our financial results,
business agreements, intellectual property and capital
structure. The valuation information also included a thorough
review of the conditions of the industry in which we operate and
the markets that we serve. Our audit committee or board of
directors conducted an analysis of the fair market value of our
company considering two widely accepted valuation approaches:
(1) market approach and (2) income approach. These
valuation approaches are based on a number of assumptions,
including our future revenues and industry, general economic,
market and other conditions that could reasonably be evaluated
at the time of the valuation.
Under the market approach, the guideline market multiple
methodology was applied, which involved the multiplication of
revenues by risk-adjusted multiples. Multiples were determined
through an analysis of certain publicly traded companies, which
were selected on the basis of operational and economic
similarity with our principal business operations. Revenue
multiples were calculated for the comparable companies based
upon daily trading prices. A comparative risk analysis between
our and the public companies formed the basis for the selection
of appropriate risk-adjusted multiples for our company. The risk
analysis incorporated factors that relate to, among other
things, the nature of the industry in which we and other
comparable companies are engaged. Under the income approach, we
applied the discounted cash flow methodology, which involved
estimating the present value of the projected cash flows to be
generated from the business and theoretically available to the
capital providers of our company. A discount rate was applied to
the projected future cash flows to reflect all risks of
ownership and the associated risks of realizing the stream of
projected cash flows. Since the cash flows were projected over a
limited number of years, a terminal value was computed as of the
end of the last period of projected cash flows. The terminal
value was an estimate of the value of the enterprise on a going
concern basis as of that future point in time. Discounting each
of the projected future cash flows and the terminal value back
to the present and summing the results yielded an indication of
value for the enterprise. Our board of directors and audit
committee took these two approaches into consideration when
establishing the fair value of our common stock.
Set forth below is a summary of our stock option grants from
January 1, 2009 through December 31, 2009 and our
contemporaneous valuations and Black-Scholes values for those
grants. The information below does not reflect the effect of
the
for
reverse split of our common stock that will occur immediately
prior to consummation of this offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Per Share
|
|
Fair Value(s)
|
|
|
|
Black-Scholes
|
|
|
Options
|
|
Exercise
|
|
Estimate
|
|
|
|
Value(s) per
|
Period of Grant
|
|
Granted
|
|
Price(s)
|
|
per Share
|
|
Valuation Date(s)
|
|
Share
|
|
First Quarter — 2009
|
|
|
309,000
|
|
|
$
|
0.92
|
|
|
$
|
0.92
|
|
|
|
February 10, 2009
|
|
|
$
|
0.49
|
|
Second Quarter — 2009
|
|
|
374,000
|
(1)
|
|
$
|
0.65-0.68
|
|
|
$
|
0.65-0.68
|
|
|
|
April 1, 2009
and April 22, 2009
|
|
|
$
|
0.35-0.38
|
|
Third Quarter — 2009
|
|
|
893,364
|
(2)
|
|
$
|
0.81
|
|
|
$
|
0.81
|
|
|
|
July 23, 2009
|
|
|
$
|
.04-.45
|
|
Fourth Quarter — 2009
|
|
|
3,000
|
|
|
$
|
0.99
|
|
|
$
|
0.99
|
|
|
|
October 22, 2009
|
|
|
$
|
2.00
|
|
|
|
|
(1) |
|
On April 1, 2009, we unilaterally amended the terms of the
309,000 stock options granted to three employees in the first
quarter of 2009 to reduce the exercise price for all of the
shares subject to each option to $0.65 per share, which was the
fair market value of our common stock on the date of the
amendments. The amendments did not affect the vesting provisions
or the number of shares subject to any of the option awards. For
financial statement reporting, we treat the previously granted
options as being forfeited and the amendments as new option
grants; however, none of the holders of these options made any
investment decisions in connection with the amendments. |
|
(2) |
|
On July 23, 2009, we unilaterally amended the terms of
890,364 stock options granted to 17 employees and one
director to reduce the exercise price for all of the shares
subject to options previously granted to the employees and
director. The amendments did not affect the vesting provisions
or the number of shares subject to any of the option awards. For
financial statement reporting, we treat the previously granted
options as being forfeited and the amendments as new option
grants; however, none of the |
33
|
|
|
|
|
holders of the previously granted options made any investment
decisions in connection with the amendments. |
Our audit committee and board of directors made their
determinations as to the fair value in connection with the grant
of stock options exercising their best reasonable judgment at
the time of grant. In the absence of a public market for our
common stock, numerous objective and subjective factors (the
“Key Valuation Considerations”) were analyzed to
determine the fair value at each grant date, including the
following:
Business
Conditions and Results:
|
|
|
|
•
|
Our actual financial condition and results of operations during
the relevant period;
|
|
|
•
|
The status of strategic initiatives to increase the market for
our services;
|
|
|
•
|
The competitive environment that existed at the time of the
valuation;
|
|
|
•
|
All important developments for our company, including the growth
of our customer base and the progress of our business model,
such as the introduction of new services; and
|
|
|
•
|
The status of our efforts to build our management team to retain
and recruit the talent and size organization required to support
our anticipated growth.
|
Market
Conditions:
|
|
|
|
•
|
The market conditions affecting the technology industry; and
|
|
|
•
|
The general economic outlook in the United States and on a
global basis, including the extreme market downturn and turmoil
that was triggered in part by the September 2008 Lehman Brothers
bankruptcy filing as well as the ensuing decrease in employment,
purchasing power and consumer confidence that significantly
affected the U.S. and global economy and future outlook for
both.
|
Liquidity
and Valuation:
|
|
|
|
•
|
The fact that the option grants involved illiquid securities in
a private company; and
|
|
|
•
|
The likelihood of achieving a liquidity event for the shares of
common stock underlying the options such as an initial public
offering or sale of our common stock, given prevailing market
conditions and our relative financial condition at the time of
grant.
|
As noted below, the significant factors contributing to the
differences between the valuation of our common stock as
determined by our audit committee or board of directors and the
assumed initial public offering price of
$ per share, which is the
mid-point of our filing range, include the following:
|
|
|
|
•
|
the assumed initial public offering price will not include the
discounts for lack of liquidity of our common stock that existed
prior to our initial public offering;
|
|
|
•
|
since our preferred stock will be converted to common stock
immediately prior to the initial public offering, the assumed
initial public offering price will not include the negative
impact of the liquidation preferences of the preferred stock;
|
|
|
•
|
the assumed initial public offering price will be based on our
current financial performance and outlook, which has changed
since the valuation dates described in this prospectus; and
|
|
|
•
|
the development of our business in the ordinary course, which
has continued since the valuation dates described in this
prospectus.
|
Specifics related to grants from January 1, 2009 to
December 31, 2009 are as follows:
First
Quarter — 2009
During the first quarter of 2009, we granted 309,000 stock
options with an exercise price of $0.92. In the absence of a
public trading market for our common stock, our board of
directors, with input from
34
management, considered the Key Valuation Considerations and
factors described below and determined the fair market value of
our common stock in good faith to be $0.92 per share.
|
|
|
|
•
|
Results of Operations: Our cash and cash
equivalents and short-term investment balances of
$3.7 million as of December 31, 2008 were not
sufficient to sustain long term growth and provide cash to
invest in operations. Our revenues grew from $6.9 million
for the three months ended December 31, 2007 to
$8.1 million for the three months ended December 31,
2008. At the same time, our losses for each of the last three
quarters of 2008 were ($555,000), ($134,000) and ($287,000).
|
|
|
•
|
Preferred Stock Preferences: During this
period our audit committee also considered the rights,
preferences and privileges of the preferred stock relative to
the common stock. As of December 31, 2008, our preferred
stock possessed an aggregate liquidation preference of
$38.6 million. The participation rights of our preferred
stock also provide that the preferred stock participates with
the common stock pro rata in our remaining assets. Our audit
committee did not believe at that time we were a candidate for a
liquidity event, such as an initial public offering or sale of
the company at a premium whereby our preferred stock would
convert to common thereby eliminating the liquidation
preferences of the preferred stock.
|
As indicated above, we performed a contemporaneous valuation of
the fair value of our common stock as of February 10, 2009.
In our valuation analysis, we utilized the market approach and
the income approach. The discounted cash flow used in the income
approach applied (i) the appropriate risk-adjusted discount
rate, which in this case was 19.5%, to estimated debt-free cash
flows, based on forecasted revenues and (ii) multiples to
revenues to determine a terminal value, which in this case was
1.5 times revenues. The projections used in connection with the
income approach were based on our expected operating performance
over the forecast period. There is inherent uncertainty in these
estimates; if different discount rates or assumptions had been
used, the valuation would have been different.
The values of our company calculated under each methodology were
given equal weight based upon our audit committee’s
estimate as of the valuation date, of the meaningfulness of each
methodology to our company’s valuation. Based on these
inputs, our marketable minority equity value was determined to
be $63.0 million. The Black-Scholes option pricing model
was then used to perform an equity allocation of the marketable
minority value of $63.0 million to each of the series and
classes of equity capital to derive a common stock value. The
resulting valuation determined a per share value of $0.92 after
considering a lack of marketability discount of 30%.
Second
Quarter — 2009
During the second quarter of 2009, we granted 65,000 stock
options with a per share exercise price of $0.68 on
April 22, 2009 and on April 1, 2009 amended the
exercise price of 309,000 stock options previously granted to
three employees to lower the exercise price to $0.65 per
share. We treat the amended options as newly granted options for
financial statement reporting purposes. In the absence of a
public trading market for our common stock, our audit committee,
with input from management, considered the Key Valuation
Considerations and factors described below and determined the
fair market value of our common stock in good faith to be $0.65
per share on April 1, 2009 and $0.68 per share on
April 22, 2009.
|
|
|
|
•
|
Results of Operations: Our cash and cash
equivalents and short-term investment balances of
$4.3 million as of March 31, 2009, which were not
sufficient to sustain long-term growth and provide cash to
invest in operations. Our revenues grew from $7.0 million
for the three months ended March 31, 2008 to
$8.5 million for the three months ended March 31,
2009. At the same time, our losses for each of the three most
recently completed quarters were ($134,000), ($287,000) and
($54,000).
|
|
|
•
|
Preferred Stock Preferences: During this
period our audit committee also considered the rights,
preferences and privileges of our preferred stock relative to
the common stock. As of March 31, 2009, our preferred stock
possessed an aggregate liquidation preference of
$38.6 million. The participation rights of our preferred
stock also provide that the preferred stock participates with
the common stock pro rata in our remaining assets. Our audit
committee did not believe at that time we
|
35
|
|
|
|
|
were a candidate for a liquidity event, such as an initial
public offering or sale of our company at a premium whereby our
preferred stock would convert to common thereby eliminating the
liquidation preferences of the preferred stock.
|
As indicated above, we performed a contemporaneous valuation of
the fair value of our common stock as of April 1, 2009 for
the amended options and as of April 22, 2009 for the
options granted on that date. In our valuation analysis, we
utilized the market approach and the income approach. The
discounted cash flow used in the income approach applied
(i) the appropriate risk-adjusted discount rate, which in
this case was 19.5%, to estimated debt-free cash flows, based on
forecasted revenues and (ii) multiples to revenues to
determine a terminal value, which in this case was 1.5 times
revenues. The projections used in connection with the income
approach were based on our expected operating performance over
the forecast period. There is inherent uncertainty in these
estimates; if different discount rates or assumptions had been
used, the valuation would have been different.
The values of our company calculated under each methodology were
given equal weight based upon our audit committee’s
estimate as of the valuation date, of the meaningfulness of each
methodology to our company’s valuation. Based on these
inputs, our marketable minority equity value was determined to
be $64.0 million as of April 1, 2009. The
Black-Scholes option pricing model was then used to perform an
equity allocation of the marketable minority value of
$64.0 million to each of the series and classes of equity
capital to derive a common stock value as of that date. The
resulting valuation determined a per share value of $0.65 on
April 1, 2009 after considering a lack of marketability
discount of 30%. Our marketable minority equity value was
determined to be $64.6 million as of April 22, 2009.
The Black-Scholes option pricing model was then used to perform
an equity allocation of the marketable minority value of
$64.6 million to each of the series and classes of equity
capital to derive a common stock value as of that date. The
resulting valuation determined a per share value of $0.68 after
considering a lack of marketability discount of 30%.
The decrease in the per share value of our common stock during
the first and second quarters of 2009 compared to
October 31, 2008 primarily was the result of a decrease in
the value of the publicly traded companies used in our market
analysis as well as revised company projections that reduced our
expected revenues and cash flows in light of the general
economic downturn that continued during that time.
Third
Quarter — 2009
During the third quarter of 2009, on July 23, 2009, we granted
3,000 stock options and amended 890,364 stock options such that
all options granted or amended during the period had a per share
exercise price of $0.81. We treat the amended options as newly
granted options for financial statement reporting purposes. In
the absence of a public trading market for our common stock, our
audit committee, with input from management, considered the Key
Valuation Considerations and factors described below and
determined the fair market value of our common stock in good
faith to be $0.81 per share.
|
|
|
|
•
|
Results of Operations: Our cash and cash
equivalents and short-term investments balances of
$5.4 million as of June 30, 2009 were not sufficient
to sustain long-term growth and provide cash to invest in
operations. Our revenues grew from $7.6 million for the
three months ended June 30, 2008 to $9.6 million for
the three months ended June 30, 2009. At the same time, our
income (loss) for each of the three most recently completed
quarters were ($287,000), ($54,000) and $657,000.
|
|
|
•
|
Preferred Stock Preferences: During this
period our audit committee also considered the rights,
preferences and privileges of our preferred stock relative to
the common stock. As of June 30, 2009, our preferred stock
possessed an aggregate liquidation preference of
$38.6 million. The participation rights of our preferred
stock also provide that the preferred stock participates with
the common stock pro rata in our remaining assets. At that time,
our audit committee believed we could become a candidate for a
liquidity event, such as an initial public offering or sale of
our company at a premium whereby our preferred stock would
convert to common thereby eliminating the liquidation
preferences of the preferred stock. However, the audit committee
was unsure if there was any interest by potential underwriters
for an initial public offering or by potential acquirers of the
Company, as neither the audit
|
36
|
|
|
|
|
committee nor the board of directors had held any substantive
discussions with potential underwriters or acquirers during the
preceding 12 months. If there was interest by a potential
underwriter or acquirer, the audit committee also was unsure of
when an offering or acquisition would occur and believed any
offering or acquisition could occur well in the future.
|
As indicated above, we performed a contemporaneous valuation of
the fair value of our common stock as of July 23, 2009. In
our valuation analysis, we utilized the market approach and the
income approach. The discounted cash flow used in the income
approach applied (i) the appropriate risk-adjusted discount
rate, which in this case was 19.5%, to estimated debt-free cash
flows, based on forecasted revenues and (ii) multiples to
revenues to determine a terminal value, which in this case was
1.5 times revenues. The projections used in connection with the
income approach were based on our expected operating performance
over the forecast period. There is inherent uncertainty in these
estimates; if different discount rates or assumptions had been
used, the valuation would have been different.
The values of our company calculated under each methodology were
given equal weight based upon our audit committee’s
estimate as of the valuation date, of the meaningfulness of each
methodology to our company’s valuation. Based on these
inputs, our marketable minority equity value was determined to
be $71.8 million. The Black-Scholes option pricing model
was then used to perform an equity allocation of the marketable
minority value of $71.8 million to each of the series and
classes of equity capital to derive a common stock value. The
resulting valuation determined a per share value of $0.81 after
considering a lack of marketability discount of 30%.
Fourth
Quarter — 2009
During the fourth quarter of 2009, we granted 3,000 stock
options on October 22, 2009 with a per share exercise price
of $0.99. In the absence of a public trading market for our
common stock, our audit committee, with input from management,
considered the Key Valuation Considerations and factors
described below and determined the fair market value of our
common stock in good faith to be $0.99 per share.
|
|
|
|
•
|
Results of Operations: Our cash and cash
equivalents and short-term investments balances of
$5.8 million as of September 30, 2009 were not
sufficient to sustain long-term growth and provide cash to
invest in operations. Our revenues grew from $8.1 million
for the three months ended September 30, 2008 to
$9.6 million for the three months ended September 30,
2009. At the same time, our income (loss) for each of the three
most recently completed quarters was ($54,000), $657,000 and
$346,000.
|
|
|
•
|
Preferred Stock Preferences: During this
period our audit committee also considered the rights,
preferences and privileges of our preferred stock relative to
the common stock. As of September 30, 2009, our preferred
stock possessed an aggregate liquidation preference of
$38.6 million. The participation rights of our preferred
stock also provide that the preferred stock participates with
the common stock pro rata in our remaining assets. At that time,
our audit committee believed we could become a candidate for a
liquidity event, such as an initial public offering or sale of
our company at a premium whereby our preferred stock would
convert to common thereby eliminating the liquidation
preferences of the preferred stock. In early October 2009, the
board of directors received feedback from potential underwriters
that we were a potentially viable candidate for an initial
public offering, but the board was unsure if it would proceed
with such an offering and therefore did not change any of the
Key Valuation Considerations at that time.
|
As indicated above, we performed a contemporaneous valuation of
the fair value of our common stock as of October 22, 2009.
In our valuation analysis, we utilized the market approach and
the income approach. The discounted cash flow used in the income
approach applied (i) the appropriate risk-adjusted discount
rate, which in this case was 19.5%, to estimated debt-free cash
flows, based on forecasted revenues and (ii) multiples to
revenues to determine a terminal value, which in this case was
1.5 times revenues. The projections used in connection with the
income approach were based on our expected operating
37
performance over the forecast period. There is inherent
uncertainty in these estimates; if different discount rates or
assumptions had been used, the valuation would have been
different.
The values of our company calculated under each methodology were
given equal weight based upon our audit committee’s
estimate as of the valuation date, of the meaningfulness of each
methodology to our company’s valuation. Based on these
inputs, our marketable minority equity value was determined to
be $82.2 million. The Black-Scholes option pricing model
was then used to perform an equity allocation of the marketable
minority value of $82.2 million to each of the series and
classes of equity capital to derive a common stock value. The
resulting valuation determined a per share value of $0.99 after
considering a lack of marketability discount of 30%.
Research
and Development
We account for the costs incurred to develop our software
solution in accordance with ASC
350-40,
Intangibles – Goodwill and Other. Capitalizable
costs consists of (a) certain external direct costs of
materials and services incurred in developing or obtaining
internal-use computer software and (b) payroll and
payroll-related costs for employees who are directly associated
with, and who devote time to, the project. These costs generally
consist of internal labor during configuration, coding and
testing activities. Research and development costs incurred
during the preliminary project stage or costs incurred for data
conversion activities, training, maintenance and general and
administrative or overhead costs are expensed as incurred. Costs
that cannot be separated between maintenance of, and relatively
minor upgrades and enhancements to, internal-use software are
also expensed as incurred. Capitalization begins when the
preliminary project stage is complete, management with the
relevant authority authorizes and commits to the funding of the
software project, it is probable the project will be completed,
the software will be used to perform the functions intended and
certain functional and quality standards have been met.
Our research and development expenses primarily consist of
personnel costs for development and maintenance of our existing
solutions. Historically, we therefore have expensed all research
and development expenditures as incurred.
Valuation
of Goodwill
Goodwill represents the excess of the purchase price over the
fair value of identifiable net assets acquired in business
combinations. We test goodwill for impairment annually at
December 31, or more frequently if events or changes in
circumstances indicate that the asset might be impaired. The
impairment test is conducted by comparing the fair value of the
net assets with their carrying value. Fair value is determined
using the future cash flows expected to be generated. If the
carrying value exceeds the fair value, goodwill may be impaired.
If this occurs, the fair value is then allocated to its assets
and liabilities in a manner similar to a purchase price
allocation in order to determine the implied fair value of
goodwill. This implied fair value is then compared to the
carrying amount of goodwill and, if it is less, we would
recognize an impairment loss. There has been no impairment of
these assets to date.
The valuation of goodwill requires the use of discounted cash
flow valuation models. Those models require estimates of future
revenue, profits, capital expenditures and working capital.
These estimates will be determined by evaluating historical
trends, current budgets, operating plans and industry data.
Determining the fair value of goodwill includes significant
judgment by management and different judgments could yield
different results.
We have reviewed our operations and determined that to date we
have had one reporting unit. We based our conclusion primarily
on the fact that we do not prepare separate financial
information for distinct units, we do not have segment or unit
managers that are responsible for specific solutions we provide
and our management and board of directors use only one set of
financial information to make decisions about resources to be
allocated among our company.
38
Results
of Operations
The following table sets forth, for the periods indicated, our
results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Revenues
|
|
$
|
25,198
|
|
|
$
|
30,697
|
|
|
$
|
37,746
|
|
Cost of revenues
|
|
|
6,379
|
|
|
|
9,258
|
|
|
|
11,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
18,819
|
|
|
|
21,439
|
|
|
|
26,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
11,636
|
|
|
|
12,493
|
|
|
|
13,506
|
|
Research and development
|
|
|
3,546
|
|
|
|
3,640
|
|
|
|
4,305
|
|
General and administrative
|
|
|
5,458
|
|
|
|
6,716
|
|
|
|
6,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
20,640
|
|
|
|
22,849
|
|
|
|
24,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(1,821
|
)
|
|
|
(1,410
|
)
|
|
|
1,881
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(439
|
)
|
|
|
(419
|
)
|
|
|
(270
|
)
|
Other income
|
|
|
120
|
|
|
|
28
|
|
|
|
(358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(319
|
)
|
|
|
(391
|
)
|
|
|
(628
|
)
|
Income tax expense
|
|
|
(16
|
)
|
|
|
(94
|
)
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,156
|
)
|
|
$
|
(1,895
|
)
|
|
$
|
1,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth, for the periods indicated, our
results of operations expressed as a percentage of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Revenues
|
|
|
100%
|
|
|
|
100%
|
|
|
|
100%
|
|
Cost of revenues
|
|
|
25
|
|
|
|
30
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
75
|
|
|
|
70
|
|
|
|
69
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
46
|
|
|
|
41
|
|
|
|
36
|
|
Research and development
|
|
|
14
|
|
|
|
12
|
|
|
|
11
|
|
General and administrative
|
|
|
22
|
|
|
|
22
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
82
|
|
|
|
75
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(7)
|
|
|
|
(5)
|
|
|
|
5
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(2)
|
|
|
|
(1)
|
|
|
|
(1)
|
|
Other income
|
|
|
–
|
|
|
|
–
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(2)
|
|
|
|
(1)
|
|
|
|
(2)
|
|
Income tax expense
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(9)%
|
|
|
|
(6)%
|
|
|
|
3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
Year
ended December 31, 2009 compared to year ended
December 31, 2008
Revenues. Revenues for 2009 increased $7.0 million,
or 23%, to $37.7 million from $30.7 million for 2008.
The increase in revenues resulted primarily from a 9% increase
in recurring revenue customers to 11,003 from 10,076 as well as
a 10% increase in average recurring revenues per recurring
revenue customer to $2,879 from $2,622. The increase in average
recurring revenues per recurring revenue customer was primarily
attributable to increased fees resulting from increased usage of
our solutions by our recurring revenue customers. In addition,
$1.2 million of the increase in revenues was due to higher
testing and certification revenues due to a greater number of
enablement campaigns for 2009. In 2009, we had our highest level
of revenues from Trading Partner Enablement due to significant
increased demand for enablement from our retailers in the year.
As a result, in 2010, we anticipate a smaller number of
enablement campaigns and a corresponding decrease in testing and
certification revenues, in absolute dollars and as a percentage
of revenues.
Cost of Revenues. Cost of revenues for 2009 increased
$2.4 million, or 27%, to $11.7 million from
$9.3 million for 2008. Of the increase in costs,
approximately $2.1 million resulted from an increase in
personnel costs, which was primarily attributable to the
additional employees we hired for our implementation groups and
customer support team. The remaining $300,000 increase was
primarily due to higher costs of network services and
depreciation. As a percentage of revenues, cost of revenues was
31% for 2009 compared to 30% for 2008.
Sales and Marketing Expenses. Sales and marketing
expenses for 2009 increased $1.0 million, or 8%, to
$13.5 million from $12.5 million for 2008. The
increase in the dollar amount is due to higher commissions
earned by sales personnel from new business. As a percentage of
revenues, sales and marketing expenses were 36% for 2009
compared to 41% for 2008. Increased revenues for 2009 compared
to 2008 allowed us to leverage our fixed sales and marketing
expenses and caused the decrease in sales and marketing expenses
as a percentage of revenues.
Research and Development Expenses. Research and
development expenses for 2009 increased $665,000, or 18%, to
$4.3 million from $3.6 million for 2008. The increase
in the dollar amount was primarily related to increased
personnel costs of $502,000 due to increased salaries and wages
for 2009 as well as costs for employees added during 2009. We
also had additional consulting fees of $147,000 during 2009
compared to 2008, as consultants supplemented development work
on new solutions. As a percentage of revenues, research and
development expenses were 11% for 2009 compared to 12% for 2008.
General and Administrative Expenses. General and
administrative expenses for 2009 decreased $377,000, or 6%, to
$6.3 million from $6.7 million for 2008. As a
percentage of revenues, general and administrative expenses were
17% for 2009 compared to 22% for 2008. In February 2009, the
subscriber relationships from our 2006 Owens Direct acquisition
became fully amortized, causing a decrease in amortization costs
included in general and administrative expenses for the
remainder of 2009 and driving the decrease in general and
administrative expenses in absolute dollars and as a percentage
of revenues.
Other Income (Expense). Interest expense for 2009
decreased $149,000, or 36%, to $270,000 from $419,000 for 2008.
The decrease in interest expense is principally due to reduced
equipment borrowings. Other expense for 2009 was $358,000
compared to other income of $28,000 for 2008. The other income
(expense) change was driven by updating the value of preferred
stock warrants we issued to fair market value using the
Black-Scholes method.
Year
ended December 31, 2008 compared to year ended
December 31, 2007
Revenues. Revenues for 2008 increased $5.5 million,
or 22%, to $30.7 million from $25.2 million for 2007.
The increase in revenues resulted primarily from a 6% increase
in recurring revenue customers to 10,076 from 9,496 as well as a
10% increase in average recurring revenues per recurring revenue
customer to $2,622 from $2,385. The increase in average
recurring revenues per recurring revenue customer was primarily
attributable to increased fees resulting from increased usage of
our solutions by our recurring revenue customers.
40
Cost of Revenues. Cost of revenues for 2008 increased
$2.9 million, or 45%, to $9.3 million from
$6.4 million for 2007. Of the increase in costs,
$2.3 million is related to personnel costs associated with
implementation and customer and applications support based on
business growth. The principal driver of these increased
personnel costs, which we amortize over 24 months, is the
additional employees we hired during 2007 to provide
implementation services to support our focus on integrating our
solutions into our recurring revenue customers’ business
systems. This resulted in a larger impact in 2008 than 2007.
Additionally, $500,000 of the increase in cost of revenues from
2007 to 2008 is attributable to direct cost, which includes cost
of resale and increased depreciation. As a percentage of
revenues, cost of revenues was 30% for 2008 compared to 25% for
2007. Cost of revenues increased as a percentage of revenues
because the increased personnel costs for 2008 did not
correspond with an increase in revenues for the period.
Sales and Marketing Expenses. Sales and marketing
expenses for 2008 increased $857,000, or 7%, to
$12.5 million from $11.6 million for 2007. The
increase in sales and marketing expenses is due to the increase
in personnel costs driven by an increase to the number of
employees in sales and marketing in 2008 compared to 2007. As a
percentage of revenues, sales and marketing expenses were 41%
for 2008 compared to 46% for 2007. Sales and marketing expenses
decreased as a percentage of revenues because we effectively
leveraged these costs across the revenues generated by the
recurring revenue customers added during 2008.
Research and Development Expenses. Research and
development expenses for 2008 increased $94,000, or 3%, to
$3.6 million from $3.5 million for 2007. As a
percentage of revenues, research and development expenses were
12% for 2008 compared to 14% for 2007. Research and development
expenses decreased as a percentage of revenues because we
effectively leveraged these expenses across the revenues
generated by recurring revenue customers during 2008.
General and Administrative Expenses. General and
administrative expenses for 2008 increased $1.2 million, or
23%, to $6.7 million from $5.5 million for 2007. The
increase in the dollar amount of general and administrative
expenses is primarily due to increased personnel costs for
internal information technology support. Also contributing to
the increase were a $102,000 increase in credit card fees from
increased usage of our solutions as well as an increase of
$245,000 resulting from a charge for bad debt, which we believe
was attributable to the general economic downturn that continued
throughout 2008. Auditing and legal fees increased by $169,000
in 2008 compared to 2007 due to additional activities such as
quarterly common stock valuation analyses and having quarterly
reviews completed by our auditors. As a percentage of revenues,
general and administrative expenses remained constant for 2008
compared to 2007.
Other Income (Expense). Interest expense for 2008
decreased $20,000, or 5%, to $419,000 from $439,000 for 2007.
The decrease in interest expense is due to reduced equipment
borrowings. Other income for 2008 decreased $92,000, or 77%, to
$28,000 from $120,000 for 2007. In 2007, other income included
$54,000 for a sales tax refund, and higher interest income on
certificates of deposits.
41
Quarterly
Results of Operations
The following tables set forth our unaudited operating results
and Adjusted EBITDA for each of the eight quarters preceding and
including the period ended December 31, 2009 and the
percentage of revenues for each line item shown. The information
is derived from our unaudited financial statements. In the
opinion of management, our unaudited financial statements
include all adjustments, consisting only of normal recurring
items, except as noted in the notes to the financial statements,
necessary for a fair statement of interim periods. The financial
information presented for the interim periods has been prepared
in a manner consistent with our accounting policies described
elsewhere in this prospectus and should be read in conjunction
therewith. Operating results for interim periods are not
necessarily indicative of the results that may be expected for a
full-year period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
(Unaudited; in thousands)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
6,957
|
|
|
$
|
7,586
|
|
|
$
|
8,074
|
|
|
$
|
8,080
|
|
|
$
|
8,531
|
|
|
$
|
9,600
|
|
|
$
|
9,634
|
|
|
$
|
9,981
|
|
Cost of revenues (1)
|
|
|
1,986
|
|
|
|
2,199
|
|
|
|
2,435
|
|
|
|
2,638
|
|
|
|
2,837
|
|
|
|
2,896
|
|
|
|
3,009
|
|
|
|
2,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
4,971
|
|
|
|
5,387
|
|
|
|
5,639
|
|
|
|
5,442
|
|
|
|
5,694
|
|
|
|
6,704
|
|
|
|
6,625
|
|
|
|
7,008
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and
marketing (1)
|
|
|
3,162
|
|
|
|
3,240
|
|
|
|
3,101
|
|
|
|
2,990
|
|
|
|
3,075
|
|
|
|
3,397
|
|
|
|
3,533
|
|
|
|
3,501
|
|
Research and development (1)
|
|
|
949
|
|
|
|
954
|
|
|
|
875
|
|
|
|
862
|
|
|
|
1,044
|
|
|
|
1,059
|
|
|
|
1,123
|
|
|
|
1,079
|
|
General and administrative (1)
|
|
|
1,639
|
|
|
|
1,669
|
|
|
|
1,684
|
|
|
|
1,724
|
|
|
|
1,652
|
|
|
|
1,514
|
|
|
|
1,505
|
|
|
|
1,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,750
|
|
|
|
5,863
|
|
|
|
5,660
|
|
|
|
5,576
|
|
|
|
5,771
|
|
|
|
5,970
|
|
|
|
6,161
|
|
|
|
6,248
|
|
Income (loss) from operations
|
|
|
(779
|
)
|
|
|
(476
|
)
|
|
|
(21
|
)
|
|
|
(134
|
)
|
|
|
(77
|
)
|
|
|
734
|
|
|
|
464
|
|
|
|
760
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(112
|
)
|
|
|
(106
|
)
|
|
|
(104
|
)
|
|
|
(97
|
)
|
|
|
(89
|
)
|
|
|
(75
|
)
|
|
|
(61
|
)
|
|
|
(45
|
)
|
Other income (expense)
|
|
|
(21
|
)
|
|
|
29
|
|
|
|
(6
|
)
|
|
|
26
|
|
|
|
123
|
|
|
|
(2
|
)
|
|
|
(8
|
)
|
|
|
(471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(133
|
)
|
|
|
(77
|
)
|
|
|
(110
|
)
|
|
|
(71
|
)
|
|
|
34
|
|
|
|
(77
|
)
|
|
|
(69
|
)
|
|
|
(516
|
)
|
Income tax expense
|
|
|
(7
|
)
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(82
|
)
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
(49
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(919
|
)
|
|
$
|
(555
|
)
|
|
$
|
(134
|
)
|
|
$
|
(287
|
)
|
|
$
|
(54
|
)
|
|
$
|
657
|
|
|
$
|
346
|
|
|
$
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (2)
|
|
$
|
(259
|
)
|
|
$
|
76
|
|
|
$
|
504
|
|
|
$
|
442
|
|
|
$
|
536
|
|
|
$
|
1,103
|
|
|
$
|
861
|
|
|
$
|
706
|
|
42
|
|
|
(1)
|
|
Includes stock-based compensation
expense, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
(Unaudited; in thousands)
|
|
|
Cost of revenues
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
7
|
|
|
$
|
12
|
|
|
$
|
11
|
|
|
$
|
20
|
|
|
$
|
10
|
|
Sales and marketing
|
|
|
14
|
|
|
|
15
|
|
|
|
15
|
|
|
|
16
|
|
|
|
15
|
|
|
|
17
|
|
|
|
42
|
|
|
|
17
|
|
Research and development
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
General and administrative
|
|
|
17
|
|
|
|
17
|
|
|
|
17
|
|
|
|
23
|
|
|
|
20
|
|
|
|
21
|
|
|
|
16
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36
|
|
|
$
|
37
|
|
|
$
|
37
|
|
|
$
|
47
|
|
|
$
|
48
|
|
|
$
|
50
|
|
|
$
|
79
|
|
|
$
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
EBITDA consists of net income
(loss) plus depreciation and amortization, interest expense and
income tax expense. Adjusted EBITDA consists of EBITDA plus our
non-cash, share-based compensation expense. We use Adjusted
EBITDA as a measure of operating performance because it assists
us in comparing performance on a consistent basis, as it removes
from our operating results the impact of our capital structure.
We believe Adjusted EBITDA is useful to an investor in
evaluating our operating performance because it is widely used
to measure a company’s operating performance without regard
to items such as depreciation and amortization, which can vary
depending upon accounting methods and the book value of assets,
and to present a meaningful measure of corporate performance
exclusive of our capital structure and the method by which
assets were acquired. The following table provides a
reconciliation of net income (loss) to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
(Unaudited; in thousands)
|
|
|
Net income (loss)
|
|
$
|
(919
|
)
|
|
$
|
(555
|
)
|
|
$
|
(134
|
)
|
|
$
|
(287)
|
|
|
$
|
(54
|
)
|
|
$
|
657
|
|
|
$
|
346
|
|
|
$
|
213
|
|
Depreciation and amortization
|
|
|
505
|
|
|
|
486
|
|
|
|
494
|
|
|
|
503
|
|
|
|
442
|
|
|
|
321
|
|
|
|
326
|
|
|
|
366
|
|
Interest expense
|
|
|
112
|
|
|
|
106
|
|
|
|
104
|
|
|
|
97
|
|
|
|
89
|
|
|
|
75
|
|
|
|
61
|
|
|
|
45
|
|
Income tax expense (benefit)
|
|
|
7
|
|
|
|
2
|
|
|
|
3
|
|
|
|
82
|
|
|
|
11
|
|
|
|
–
|
|
|
|
49
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
(295
|
)
|
|
|
39
|
|
|
|
467
|
|
|
|
395
|
|
|
|
488
|
|
|
|
1,053
|
|
|
|
782
|
|
|
|
655
|
|
Non-cash, share-based compensation expense
|
|
|
36
|
|
|
|
37
|
|
|
|
37
|
|
|
|
47
|
|
|
|
48
|
|
|
|
50
|
|
|
|
79
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
(259
|
)
|
|
$
|
76
|
|
|
$
|
504
|
|
|
$
|
442
|
|
|
$
|
536
|
|
|
$
|
1,103
|
|
|
$
|
861
|
|
|
$
|
706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
As a percentage of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
|
2008
|
|
2008
|
|
2008
|
|
2008
|
|
2009
|
|
2009
|
|
2009
|
|
2009
|
|
|
(Unaudited)
|
|
Revenues
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Cost of revenues
|
|
|
29
|
|
|
|
29
|
|
|
|
30
|
|
|
|
33
|
|
|
|
33
|
|
|
|
30
|
|
|
|
31
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
71
|
|
|
|
71
|
|
|
|
70
|
|
|
|
67
|
|
|
|
67
|
|
|
|
70
|
|
|
|
69
|
|
|
|
70
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
45
|
|
|
|
43
|
|
|
|
38
|
|
|
|
37
|
|
|
|
36
|
|
|
|
35
|
|
|
|
37
|
|
|
|
35
|
|
Research and development
|
|
|
14
|
|
|
|
13
|
|
|
|
11
|
|
|
|
11
|
|
|
|
12
|
|
|
|
11
|
|
|
|
12
|
|
|
|
11
|
|
General and administrative
|
|
|
24
|
|
|
|
22
|
|
|
|
21
|
|
|
|
21
|
|
|
|
19
|
|
|
|
16
|
|
|
|
16
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
83
|
|
|
|
77
|
|
|
|
70
|
|
|
|
69
|
|
|
|
68
|
|
|
|
62
|
|
|
|
64
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(11
|
)
|
|
|
(6
|
)
|
|
|
–
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
8
|
|
|
|
5
|
|
|
|
7
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
–
|
|
Other income (expense)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
–
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(1
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(1
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(13
|
)%
|
|
|
(7
|
)%
|
|
|
(2
|
)%
|
|
|
(4
|
)%
|
|
|
(1
|
)%
|
|
|
7
|
%
|
|
|
4
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues increased sequentially for all quarters presented
primarily due to increases in our recurring revenue customers
and increases in recurring revenue per recurring revenue
customer.
Gross profits have generally increased each quarter as we
continue to grow our business. Gross profit margins generally
have decreased as we have added personnel across all areas of
our business to support our growth and expected future business.
Going forward we would anticipate gross profit margins will
approximate their current level as revenue growth begins to
match the personnel costs we have added to build our business.
Operating expenses generally have been increasing because we
have added personnel across all areas of our business to support
our growth and expected future business.
44
Liquidity
and Capital Resources
Since inception, we have financed our operations primarily
through the sale of preferred stock, borrowings under credit
facilities and, prior to 2004, issuances of notes payable to
stockholders. At December 31, 2009, our principal sources
of liquidity were cash and cash equivalents totaling
$5.9 million and accounts receivable, net of allowance for
doubtful accounts, of $4.8 million compared to cash and
cash equivalents of $3.7 million and accounts receivable,
net of allowance for doubtful accounts, of $4.6 million at
December 31, 2008. Our working capital as of
December 31, 2009 was $5.0 million compared to working
capital of $4.0 million as of December 31, 2008.
During 2009, we borrowed against our revolving credit facility
and, as of December 31, 2009, we had an outstanding balance
of $1.5 million. We bill our recurring revenue customers in
arrears for monthly service fees and initial integration
set-up fees.
As a result, the amount of our accounts receivable at the end of
a period is driven significantly by our revenues from recurring
revenue customers for the last month of the period, and our cash
flows from operations are affected by our collection of amounts
due from customers for services that resulted in the recognition
of revenues in a prior period.
Net Cash
Flows from Operating Activities
Net cash provided by (used in) operating activities was
$5.2 million for 2009, $(807,000) for 2008 and $(803,000)
for 2007. For 2009, net cash provided by operating activities
was primarily a result of $1.2 million of net income, non-cash
depreciation and amortization of $1.5 million, a
$1.1 million increase in accrued compensation for bonuses
in 2009 compared to 2008 due to our improved performance in
2009, and an $844,000 increase in deferred revenue. Increases in
deferred revenue are due to continued growth in new business,
offset by the recognition of setup revenue recognized ratably
over time.
For 2008, net cash used in operating activities was primarily a
result of a $1.9 million net loss, offset by
$2.0 million in non-cash depreciation and amortization
expense, an increase in accounts receivable of $811,000 due to
business growth and an increase in deferred costs of
$1.7 million primarily related to increased personnel costs
associated with our increased implementations in the period,
offset by increased deferred revenue from growth in new business
of $1.5 million.
For 2007, net cash used in operating activities was primarily a
result of a $2.2 million net loss, offset by
$1.8 million in non-cash depreciation and amortization
expense, and an increase in deferred costs of $2.9 million
primarily related to increased personnel costs associated with
our increased implementations in the period, offset by increased
deferred revenue from growth in new business of
$1.8 million and an increase in accrued compensation of
$658,000 due to increased bonus compensation.
Net Cash
Flows from Investing Activities
For 2009, cash used in investing activities was
$1.0 million for the purchase of various capital
expenditures. In general, our various capital expenditures are
for supporting our existing customer base, growth in new
business, and internal use such as equipment for our employees.
Cash provided by investing for 2008 was $379,000, consisting of
the sale of short-term investments of $1.3 million,
partially offset by $884,000 in capital expenditures. Cash used
in investing was $2.4 million for 2007, consisting of
$1.1 million of capital expenditures and $1.3 million for
the purchase of short-term investments.
Net Cash
Flows from Financing Activities
Cash used in financing activities was $1.9 million for
2009. We used these funds to pay $1.3 million in equipment
loans and capital lease obligations and to pay $679,000 toward
the term loan from our Owens Direct acquisition. For 2008, cash
used in financing activities was $711,000. We used these funds
primarily to pay capital lease obligations as well as to pay a
portion of the term loan from our Owens Direct acquisition. For
2007, cash flows provided by financing was $6.1 million,
primarily from the issuance of Series C redeemable
convertible preferred stock in April 2007.
45
Credit
Facility
We maintain a credit facility with BlueCrest Venture Finance
Master Fund Limited. Pursuant to this facility, BlueCrest
has provided us a series of equipment term loans that are
payable in 36 equal monthly installments. In 2007, BlueCrest
agreed to make equipment loans to us from time to time until
December 31, 2007. Before its commitment expired, BlueCrest
made loans in the aggregate principal amount of
$1.2 million, of which $212,000 was outstanding as of
December 31, 2009. Each loan bears interest at a per annum
rate equal to the sum of (i) 7.20% plus (ii) the
greater of 4.84% or the yield on three-year U.S. Treasury
notes on the date the loan was made. In 2008, BlueCrest agreed
to make additional equipment loans to us from time to time until
December 31, 2008. Before its commitment expired, BlueCrest
made loans in the aggregate principal amount of $756,000, of
which $520,000 was outstanding as of December 31, 2009.
Each loan bears interest at a per annum rate equal to the sum of
(i) 9.25% plus (ii) the greater of 2.55% or the yield
on three-year U.S. Treasury notes on the date the loan was
made.
In 2009, BlueCrest established a revolving credit facility that
allows us to borrow an amount that does not exceed the lesser of
the revolving loan commitment and the borrowing base. The amount
of the revolving loan commitment is $3.5 million. The
borrowing base is determined monthly and calculated based on
specified percentages of our domestic and Canadian accounts
receivable, less certain reserves established by BlueCrest. As
of December 31, 2009, the maximum amount we could borrow
under the revolving facility was $1.5 million, all of which
we had borrowed. The revolving facility terminates on
March 31, 2010 and outstanding amounts bear interest at the
rate of 9.00% per annum. We are required to pay to BlueCrest an
annual commitment fee equal to 0.75% per annum on the total
amount of the revolving loan commitment. We do not anticipate
that we will extend or refinance this facility when it expires.
The BlueCrest revolving loans and equipment loans are secured by
a first lien on substantially all of our personal property. The
BlueCrest credit facility permits BlueCrest to accelerate the
loans upon the occurrence of various events of default,
including a change in control or a material adverse change in
our assets, business, operations or condition.
Adequacy
of Capital Resources
Our future capital requirements may vary materially from those
now planned and will depend on many factors, including the costs
to develop and implement new solutions and applications, the
sales and marketing resources needed to further penetrate our
market and gain acceptance of new solutions and applications we
develop, the expansion of our operations in the United States
and internationally and the response of competitors to our
solutions and applications. Historically, we have experienced
increases in our expenditures consistent with the growth in our
operations and personnel, and we anticipate that our
expenditures will continue to increase as we grow our business.
We believe our cash and cash equivalents, the proceeds from this
offering, funds available under our equipment term loan and
revolving credit facilities and cash flows from our operations
will be sufficient to meet our working capital and capital
expenditure requirements for at least the next twelve months.
During the last three years, inflation and changing prices have
not had a material effect on our business and we do not expect
that inflation or changing prices will materially affect our
business in the foreseeable future.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements, investments
in special purpose entities or undisclosed borrowings or debt.
Additionally, we are not a party to any derivative contracts or
synthetic leases.
46
Contractual
and Commercial Commitment Summary
Our contractual obligations and commercial commitments as of
December 31, 2009 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Long-term debt obligations (1)
|
|
$
|
732
|
|
|
$
|
499
|
|
|
$
|
233
|
|
|
$
|
—
|
|
|
$
|
–
|
|
Capital lease obligations
|
|
$
|
460
|
|
|
|
338
|
|
|
|
122
|
|
|
|
–
|
|
|
|
–
|
|
Operating lease obligations
|
|
$
|
2,229
|
|
|
|
776
|
|
|
|
1,453
|
|
|
|
–
|
|
|
|
–
|
|
Other long-term liabilities (2)
|
|
$
|
4,135
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,556
|
|
|
$
|
1,613
|
|
|
$
|
1,808
|
|
|
$
|
—
|
|
|
$
|
–
|
|
|
|
|
(1) |
|
Consists of equipment loans from BlueCrest Venture Finance
Master Fund Limited. |
|
(2) |
|
Consists of the long-term portion of deferred revenues and
deferred tax liability. |
Quantitative
and Qualitative Disclosures about Market Risk
Interest Rate Sensitivity Risk. For fixed rate debt,
interest rate changes affect the fair value of financial
instruments but do not impact earnings or cash flows.
Conversely, for floating rate debt, interest rate changes
generally do not affect the fair market value but do impact
future earnings and cash flows, assuming other factors are held
constant. The principal objectives of our investment activities
are to preserve principal, provide liquidity and maximize income
consistent with minimizing risk of material loss. The recorded
carrying amounts of cash and cash equivalents approximate fair
value due to their short maturities. Due to the nature of our
short-term investments, we have concluded that we do not have
material market risk exposure. All of our outstanding debt as of
December 31, 2008 and 2009 had a fixed rate. We therefore
do not have any material risk to interest rate fluctuations.
Foreign Currency Exchange Risk. Our results of operations
and cash flows are not materially affected by fluctuations in
foreign currency exchange rates.
Seasonality
The size and breadth of our customer base mitigates the
seasonality of any particular retailer. As a result, our results
of operations are not materially affected by seasonality.
New
Accounting Pronouncements
In February 2008, the Financial Accounting Standards Board, or
FASB, issued guidance that delayed the effective date of
ASC 820, Fair Value Measurements and Disclosures,
for non-financial assets and non-financial liabilities,
except those that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least
annually). We adopted ASC 820 for non-financial assets and
non-financial liabilities on January 1, 2009, and such
adoption did not have a material impact on our financial
condition or results of operations.
In April 2009, the FASB issued guidance that requires interim
reporting period disclosure about the fair value of certain
financial instruments, effective for interim reporting periods
ending after June 15, 2009. We have adopted these
disclosure requirements. Due to their nature, the carrying value
of our cash, receivables, payables and debt obligations
approximates fair value.
In May 2009, the FASB issued ASC 855, Subsequent Events.
ASC 855 incorporates guidance into accounting literature that
was previously addressed only in auditing standards. The
statement refers to subsequent events that provide additional
evidence about conditions that existed at the balance-sheet date
as “recognized subsequent events.” Subsequent events
which provide evidence about conditions that arose after the
balance sheet date but prior to the issuance of the financial
statements are referred to as “non-recognized subsequent
47
events.” It also requires companies to disclose the date
through which subsequent events have been evaluated and whether
this date is the date the financial statements were issued or
the date the financial statements were available to be issued.
The disclosure requirements of ASC 855 are effective for interim
and annual periods ending after June 15, 2009. We have
adopted this new standard.
In June 2009, the FASB issued guidance that establishes the FASB
Accounting Standards Codification as the source of authoritative
accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial
statements in conformity with generally accepted accounting
principles, or GAAP. Use of the new codification is effective
for interim and annual periods ending after September 15,
2009. We have used the new codification in reference to GAAP in
this prospectus and such use has not impacted our results.
In October 2009, the FASB issued the following ASUs:
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ASU
No. 2009-13,
Revenue Recognition (ASC Topic 605), Multiple-Deliverable
Revenue Arrangements, a consensus of the FASB Emerging Issues
Task Force; and
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ASU
No. 2009-14,
Software (ASC Topic 985), Certain Revenue Arrangements That
Include Software Elements, a consensus of the FASB Emerging
Issues Task Force.
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ASU
No. 2009-13:
This guidance modifies the fair value requirements of ASC
subtopic
605-25,
Revenue Recognition-Multiple Element Arrangements, by
allowing the use of the “best estimate of selling
price” in addition to VSOE and Vendor Objective Evidence
(now referred to as third-party evidence, or TPE) for
determining the selling price of a deliverable. A vendor is now
required to use its best estimate of the selling price when VSOE
or TPE of the selling price cannot be determined. In addition,
the residual method of allocating arrangement consideration is
no longer permitted.
ASU
No. 2009-14:
This guidance modifies the scope of ASC subtopic
965-605,
Software-Revenue Recognition, to exclude from its
requirements (a) non-software components of tangible
products and (b) software components of tangible products
that are sold, licensed or leased with tangible products when
the software components and non-software components of the
tangible product function together to deliver the tangible
product’s essential functionality.
These updates require expanded qualitative and quantitative
disclosures and are effective for fiscal years beginning on or
after June 15, 2010. However, companies may elect to adopt
as early as interim periods ended September 30, 2009. These
updates may be applied either prospectively from the beginning
of the fiscal year for new or materially modified arrangements
or retrospectively. We currently are evaluating the impact of
adopting these updates on our financial statements.
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BUSINESS
Overview
We are a leading provider of on-demand supply chain management
solutions, providing integration, collaboration, connectivity,
visibility and data analytics to thousands of customers
worldwide. We provide our solutions through SPSCommerce.net, a
hosted software suite that improves the way suppliers,
retailers, distributors and other customers manage and fulfill
orders. Implementing and maintaining supply chain management
software is resource intensive and not a core competency for
most businesses. SPSCommerce.net uses pre-built integrations to
eliminate the need for on-premise software and support staff,
which enables our supplier customers to shorten supply cycle
times, optimize inventory levels, reduce costs and satisfy
retailer requirements. As of December 31, 2009, we had over
11,000 customers with contracts to pay us monthly fees,
which we refer to as recurring revenue customers. We have also
generated revenues by providing supply chain management
solutions to an additional 24,000 organizations that, together
with our recurring revenue customers, we refer to as our
customers. Once connected to our platform, our customers often
require integrations to new organizations that represent an
expansion of our platform and new sources of revenues for us.
We deliver our solutions to our customers over the Internet
using a Software-as-a-Service model. This model enables our
customers to easily interact with their trading partners around
the world without the local implementation and servicing of
software that traditional on-premise solutions require. Our
delivery model also enables us to offer greater functionality,
integration and reliability with less cost and risk than
traditional solutions. Our platform features pre-built
integrations with 2,700 order management models across 1,300
retailers, grocers and distributors, as well as integrations to
over 100 accounting, warehouse management, enterprise resource
planning and packing and shipping applications. Our delivery
model leverages our existing integrations across current and new
customers. As a result, each integration that we add to
SPSCommerce.net makes our platform more appealing to potential
customers by increasing the number of pre-built integrations we
offer. Furthermore, integrating trading partners to
SPSCommerce.net can generate new sales leads from the
organizations with which we integrate our customers because
those organizations typically have other trading partners who
can benefit from our solutions. We systematically pursue these
sales leads to convert them into new customers.
For 2007, 2008 and 2009, we generated revenues of
$25.2 million, $30.7 million and $37.7 million.
Our fiscal quarter ended December 31, 2009 represented our
36th consecutive quarter of increased revenues. Recurring
revenues from recurring revenue customers accounted for 83%, 84%
and 80% of our total revenues for 2007, 2008 and 2009. No
customer represented over 1% of our revenues for 2007, 2008 or
2009.
Our
Industry
Supply
Chain Management Industry Background
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The supply chain management industry serves thousands of
retailers around the world supplied with goods from tens of
thousands of suppliers. Additional participants in this market
include distributors, third-party logistics providers,
manufacturers, fulfillment and warehousing providers and
sourcing companies. Supply chain management involves
communicating data related to the exchange of goods among these
trading partners. At every stage of the supply chain there are
inefficient, labor-intensive processes between trading partners
with significant documentation requirements, such as the
counting, sorting and verifying of goods before shipment, while
in transit and upon delivery. Supply chain management solutions
must address trading partners’ needs for integration,
collaboration, connectivity, visibility and data analytics to
improve the speed, accuracy and efficiency with which goods are
ordered and supplied.
Our target market of supply chain integration solutions is
categorized by Gartner within the broader Integration Services
market, which Gartner estimates was $1.5 billion in 2008
(Magic Quadrant for Integration Service Providers, report by
Benoit Lheurueux, November 2009). The pervasiveness of the
Internet, along with the dramatic declines in the pricing of
computing technology and network bandwidth, have enabled
companies to adopt on-demand applications at an increasing rate.
As familiarity and acceptance of on-demand solutions continues
to accelerate, we believe customers, both large and small, will
continue to turn to on-demand delivery methods similar to ours
for their supply chain integration needs, as opposed to
traditional on-premise software deployment. International Data
Corporation, or IDC, estimates that the global on-demand
software market reached $8.8 billion in 2008 and expects it
to increase to $19.8 billion in 2012, a compounded annual
growth rate of 18%.
The
Rule Books – Integration Between Retailers and
Suppliers
Retailers impose specific work-flow rules and standards on their
trading partners for electronically communicating supply chain
information. These “rule books” include specific
business processes for suppliers to exchange data and
documentation requirements such as invoices, purchase orders and
advance shipping notices. Rule books can be hundreds of pages,
and retailers frequently have multiple rule books for
international requirements or specific fulfillment models.
Suppliers working with multiple retailers need to accommodate
different rule books for each retailer. These rule books are not
standardized between retailers, but vary based on a
retailer’s size, industry and technological capabilities.
The responsibility for creating information “maps,”
which are integration connections between the retailer and the
supplier that comply with the retailer’s rule books,
resides primarily with the supplier. The cost of noncompliance
can be refusal of delivered goods, fines and ultimately a
termination of the supplier’s relationship with the
retailer. The complexity of retailers’ requirements and
consequences of noncompliance create growing demand for
specialized supply chain management solutions.
Traditional
Supply Chain Management Solutions
Traditional supply chain management solutions range from
non-automated paper or fax solutions to electronic solutions
implemented using on-premise licensed software. On-premise
licensed software provides connectivity between only one
organization and its trading partners and typically requires
significant time and technical expertise to configure, deploy
and maintain. These software providers primarily link retailers
and suppliers through the Electronic Data Interchange protocol
that enables the structured electronic transmission of data
between organizations. Because of
set-up and
maintenance costs, technical complexity and a growing volume of
requirements from retailers, the traditional software model is
not well suited for many suppliers, especially those small and
medium in size.
Key
Trends in Supply Chain Management
A number of key trends are impacting the supply chain management
industry and increasing demand for supply chain management
solutions. These include:
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Increasing Retailer Service and Performance Demands.
Within the supply chain ecosystem, retailers hold a significant
strategic position relative to their trading partners,
particularly small- and medium-sized suppliers. Retailers
maintain the direct relationship with the consumer and collect
the retail price, within which the cost of manufacture and
distribution must be covered. Given this power dynamic,
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retailers continuously demand enhanced levels of performance
from suppliers, including more frequent on-time delivery of
goods, increased availability of goods to manage inventory and
lower prices. We believe the recent economic downturn has
exacerbated these trends.
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Globalization of the Supply Chain Ecosystem.
Globalization creates the need for participants in the supply
chain ecosystem to connect across time zones with different
languages and regulatory environments. Retailers typically
demand a
10-day
turnaround upon submitting a purchase order. However, growing
physical distances between the sources of materials,
manufacturers and retailers, as well as the complexities of
connecting with trading partners worldwide, increase the time a
supplier typically needs to obtain goods to 60 days from
receipt of a purchase order. This increased time pressure to
deliver goods requires that the various trading partners in the
supply chain communicate more efficiently than current solutions
typically offer.
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Increasing Complexity of the Supply Chain Ecosystem.
Increasing cost pressures force many suppliers, especially those
of a small and medium size, to focus on product development and
business management. This specialization drives organizations to
outsource non-core business functions, including fabrication,
distribution and transportation. Outsourcing these functions
increases the number of participants in the supply chain
ecosystem. The increasing complexity from these additional
participants drives demand for a more integrated approach
allowing suppliers to communicate and track a larger volume of
information among a larger number of trading partners than
traditional solutions have supported.
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Increasing Use of Outsourcing by Small- and Medium-Sized
Suppliers. The outsourcing of non-core business functions,
including by small- and medium-sized suppliers, has helped
participants in the supply chain ecosystem become more
comfortable utilizing outsourced service providers, including
for information technology services. Limited internal expertise
and constrained budgets also drive the need for suppliers to
rely on third-party service providers to manage the complexity
of their supply chain at an affordable cost.
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Need for
Effective Analysis of Data for Intelligent Decision
Making
Integrating retailers and suppliers is a first step in
addressing the complexities in the supply chain ecosystem. As
the number and geographic dispersion of trading partners has
grown, so too has the volume of data produced by the supply
chain. As a result, trading partners want a solution to
effectively consolidate, distill and channel information to
managers and decision-makers who can use the information to
drive efficiency, revenue growth and profitability. The
abundance of data produced by these processes, including data
for fulfillment, sales and inventory levels, is often
inaccessible to trading partners for analysis. The data and
related analytics are essential for optimizing the inventory and
fulfillment process and will continue to drive demand for supply
chain management solutions.
Organizations are continuing to increase their demand for
gathering and analyzing data. For example, IDC estimates the
worldwide business analytics software market will grow from
$24.1 billion in 2008 to $34.2 billion in 2013 at a
compound annual growth rate of 7%. This broader market is
subcategorized by IDC into four segments: spatial information
analytics tools, data warehousing platform software, business
intelligence tools and analytics applications. The analytics
applications segment includes the supply chain analytics
application market. We believe our target market of analytical
applications falls within both the business intelligence
sub-segment,
which is expected to grow from $7.8 billion in 2008 to
$10.9 billion in 2013, at a compound annual growth rate of
7%, as well as the supply chain analytics application market,
which is expected to grow from $1.6 billion to
$2.0 billion at a compound annual growth rate of 5%.
Software-as-a-Service
Solutions Provide Flexibility and Effective Management Across
the Supply Chain
A Software-as-a-Service model is well suited for providing
supply chain management solutions. On-demand solutions are able
to continue utilizing standard connectivity protocols, such as
Electronic Data Interchange, but also are able to support other
protocols, such as XML, as retailers require. These on-demand
51
solutions connect suppliers and retailers more efficiently than
traditional on-premise software solutions by leveraging the
integrations created for a single supplier across all
participating suppliers.
Trading partners are demanding better supply chain management
solutions than traditional on-premise software, which does not
efficiently integrate an organization to all of its trading
partners. Software-as-a-Service solutions allow an organization
to connect across the supply chain ecosystem, addressing
increased retailer demands, globalization and increased
complexity affecting the supply chain. Also,
Software-as-a-Service solutions can integrate supply chain
management applications with organizations’ existing
enterprise resource planning systems. The increased integration
with trading partners and into organizations’ business
systems increases the reliance of customers on the solutions
their Software-as-a-Service vendors provide. We believe
suppliers will increasingly turn to Software-as-a-Service
solutions for a simple, cost-effective solution to supply chain
management problems.
SPSCommerce.net:
Our Platform
We operate one of the largest trading partner integration
centers through SPSCommerce.net, a hosted software suite that
improves the way suppliers, retailers, distributors and other
trading partners manage and fulfill orders. More than 35,000
customers across more than 40 countries have used our platform
to enhance their trading relationships. SPSCommerce.net
fundamentally changes how organizations use electronic
communication to manage their supply chains by replacing the
collection of traditional, custom-built,
point-to-point
integrations with a
“hub-and-spoke”
model whereby a single integration to SPSCommerce.net allows an
organization to connect seamlessly to the entire SPSCommerce.net
network of trading partners.
SPSCommerce.net combines integrations that comply with 2,700
rule books for 1,300 retailers, grocers and distributors,
through a multi-tenant architecture and provides ancillary
support services that deliver a comprehensive set of supply
chain management solutions to customers. By maintaining current
integrations with retailers such as Wal-Mart, Target,
Macy’s and Safeway, SPSCommerce.net obviates the need for
suppliers to continually stay
up-to-date
with the rule book changes required by these large retailers.
Moreover, by leveraging an on-demand delivery model, we
eliminate or greatly reduce the burden on suppliers to support
and maintain an on-premise software application, thereby
reducing ongoing operating costs. As the communication hub for
trading partners, we provide seamless, cost-effective
integration and connectivity as well as increased visibility and
data analytics capabilities for retailers and suppliers across
their supply chains, each of which is difficult to gain from
traditional,
point-to-point
integration solutions.
Our platform places us at the center of the supply chain
ecosystem and benefits every member of the chain.
Supplier Benefits. SPSCommerce.net provides suppliers,
distributors, third-party logistics providers, outsourced
manufacturers, fulfillment and warehousing providers and
sourcing companies the following benefits:
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More reliable and faster integration with retailers by
leveraging our expertise to comply with retailers’ rule
book requirements;
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Reduced costs through improved efficiency and accuracy in the
order fulfillment process through on-demand communications with
trading partners around the world, reduced manual data entry and
access to support services such as our translation application;
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Reduced deployment risk, simplified ongoing operations and lower
maintenance costs, each of which results from the ability of
SPSCommerce.net to provide a supplier with connectivity to its
trading partners without a significant upfront investment in
specialized software or ongoing investments in personnel to
maintain the software; and
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Increased sales from enhanced supply chain visibility into
retailers’ inventory and
point-of-sale
information, which reduces
out-of-stock
situations and improves the effectiveness of promotional
activities.
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Retailer Benefits. We enable buying organizations, such
as retailers, grocers and distributors, to establish more
comprehensive and advanced integrations with a broader set of
suppliers. Our platform also provides these buying organizations
the following benefits:
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Reduced expenses through automation of the receipt of goods at
distribution centers, more effective reconciliation of
shipments, orders and payments, and reduced manual effort and
data entry;
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Improved reliability of suppliers who are more likely to comply
with rule book requirements by leveraging our expertise
integrating trading partners;
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Decreased cost and enhanced quality of inventory by more
efficiently tracking sales and inventory information and
communicating with suppliers; and
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Growth of revenue by reducing the risk of failing to keep
products in stock and the associated reputational impact with
consumers.
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Our platform delivers suppliers and retailers the following
solutions:
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Trading Partner Integration. Our Trading Partner
Integration solution replaces or augments an organization’s
existing trading partner electronic communication
infrastructure, enabling suppliers to comply with
retailers’ rule books and allowing for the electronic
exchange of information among numerous trading partners through
various protocols.
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Trading Partner Enablement. Our Trading Partner
Enablement solution helps organizations, typically large
retailers, implement new integrations with trading partners to
drive automation and electronic communication across their
supply chains.
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Trading Partner Intelligence. In 2009, we introduced our
Trading Partner Intelligence solution, which consists of six
data analytics applications and allows our supplier customers to
improve their visibility across, and analysis of, their supply
chains. Retailers improve their visibility into supplier
performance and their understanding of product sell-through.
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Other Trading Partner Solutions. We provide a number of
peripheral solutions such as barcode labeling and our scan and
pack application, which helps trading partners process
information to streamline the picking and packaging process.
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Our
Go-to-Market
Approach
As one of the largest on-demand supply chain management
solutions providers, the trading partner relationships that we
enable among our retailer, supplier and fulfillment customers
naturally lead to new customer acquisition opportunities.
“Network
Effect” of SPSCommerce.net
Once connected to our network, trading partners can exchange
electronic supply chain information with each other. Through our
platform, we helped over 35,000 customers to communicate
electronically with their trading partners. The value of our
platform increases with the number of trading partners connected
to the
53
platform. The addition of each new customer to our platform
allows that new customer to communicate with our existing
customers and allows our existing customers to route orders to
the new customer. This “network effect” of adding an
additional customer to our platform creates a significant
opportunity for existing customers to realize incremental sales
by working with our new trading partners and vice versa. As a
result of this increased volume of activity amongst our network
participants, we earn additional revenues from these
participants.
Customer
Acquisition Sources
Trading Partner Enablement. When a retailer decides to
change the workflow or protocol by which it interacts with its
suppliers, the retailer may engage us to work with its supplier
base to communicate and test the change in procedure. Performing
these programs on behalf of retailers often generates supplier
sales leads for us, many of which may become recurring revenue
customers.
Referrals from Trading Partners. We also receive sales
leads from customers of SPSCommerce.net seeking to communicate
electronically with their trading partners. For example, a
supplier may refer to us its third-party logistics provider or
manufacturer which is not in our network. This viral referral
effect has helped us to add thousands of customers to our
platform every year and has proven to be a significant source of
sales lead generation. This viral sales lead generation allows
us to acquire new customers at a lower cost than traditional
marketing programs. Typically, these new customers become
recurring revenue customers.
Channel Partners. In addition to the customer acquisition
sources identified above, we market our solutions through
channel partners. For example, we have contractual relationships
with a leading global logistics provider and NetSuite, through
whom we gain additional sales. In the case of the leading global
logistics provider, we private label our applications, which are
in turn sold as this company’s branded services. This
company sells our applications through their sales force at no
cost to us. In our relationship with NetSuite, we refer
customers to one another to gain additional revenue sources.
Our Sales
Force
We also sell our solutions through a direct sales force of over
60 people. Our sales force is organized as follows:
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Retailer Sales. We employ a team of sales professionals
who focus on selling our Trading Partner Enablement solution to
retailers, grocers and distributors. These sales professionals
seek to establish relationships with executive managers at
existing and new retailers, through whom we generate supplier
sales leads. In addition to supplier sales leads, a portion of
these retailers purchase our solutions as well, resulting in
increased revenue generation.
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Supplier Sales. We employ a team of supplier sales
representatives based in North America. We also maintain an
office in China with sales representatives and opened direct
sales offices in the United Kingdom and France in
February 2010. Our sales professionals primarily work over
the phone to convert sales leads into customers and then
actively sell additional solutions to those customers over time.
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Business Development Efforts. Our business development
organization focuses on indirect sales channels. This group
establishes relationships with resellers, system integrators,
software providers and other partners. In the future, we expect
to forge additional indirect channel partnerships to continue to
grow this part of our business.
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Other
Marketing Initiatives
We actively engage in sales lead generation and nurturing
programs through direct mail, email and telemarketing campaigns.
Our marketing programs include public relations, web seminars,
trade shows and industry conferences and an annual user
conference. We publish white papers relating to supply chain
issues and develop customer reference programs, such as customer
case studies. We also provide marketing support and referral
programs for channel partners.
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Our
Growth Strategy
Our objective is to be the leading global provider of supply
chain management solutions. Key elements of our strategy include:
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Further Penetrate Our Current Market. We believe the
global supply chain management market is under-penetrated and,
as the supply chain ecosystem becomes more complex and
geographically dispersed, the demand for supply chain management
solutions will increase, especially among small- and
medium-sized businesses. We intend to continue leveraging our
relationships with customers and their trading partners to
obtain new sales leads. We believe our leadership in providing
supply chain management solutions favorably positions us to
convert these sales leads into customers.
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Increase Revenues from Our Customer Base. We believe our
overall customer satisfaction is strong and will lead our
customers to further utilize our current solutions as their
businesses grow, generating additional revenues for us. We also
expect to introduce new solutions to sell to our customers. We
believe our position as the incumbent supply chain management
solution provider to our customers, our integration into our
recurring revenue customers’ business systems and the
modular nature of our platform are conducive to deploying
additional solutions with customers.
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Expand Our Distribution Channels. We intend to grow our
business by expanding our network of direct sales
representatives to gain new customers. We also believe there are
valuable opportunities to promote and sell our solutions through
collaboration with other providers. For example, we currently
provide tracking, visibility and data analysis applications to a
leading global logistics provider. We believe there are
opportunities for us to leverage our relationship with this
company to identify sales leads that will continue to lead to
new customers. We integrated our applications with
NetSuite’s business software, which is another relationship
we expect will continue to provide us new sales leads.
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Expand Our International Presence. We believe our
presence in China represents a significant competitive
advantage. We plan to increase our international sales efforts
to obtain new supplier customers around the world. As part of
this plan, we opened direct sales and support offices in the
United Kingdom and France in February 2010. We intend to
leverage our current international presence to increase the
number of integrations we have with retailers in foreign markets
to make our platform more valuable to suppliers based overseas.
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Enhance and Expand Our Platform. We intend to further
improve and develop the functionality and features of our
platform, including developing new solutions and applications.
For example, in 2009, we launched our Trading Partner
Intelligence solution, which delivers data analytics
applications to suppliers and retailers to improve performance.
We also introduced a scan and pack application in 2009 that
helps trading partners process information to streamline the
picking and packaging process.
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Selectively Pursue Strategic Acquisitions. The fragmented
nature of our market provides opportunity for selective
acquisitions. To complement and accelerate our internal growth,
we may pursue acquisitions of other supply chain management
companies to add customers. We also may pursue acquisitions that
allow us to expand into regions or industries where we do not
have a significant presence or to offer new functionalities we
do not currently provide. We plan to evaluate potential
acquisitions of other supply chain management companies
primarily based on the number of customers the acquisition would
provide relative to the purchase price. We plan to evaluate
potential acquisitions to expand into new regions or industries
or offer additional functionalities primarily based on the
anticipated growth the acquisition would provide, the purchase
price and our ability to integrate and operate the acquired
business. We are not currently in negotiations for any
acquisitions.
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Technology,
Development and Operations
Technology
We were an early provider of Software-as-a-Service solutions to
the supply chain management industry, launching the first
version of our platform in 1997. We use commercially available
hardware and a
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combination of proprietary and commercially available software,
including software from Oracle, Microsoft, Sun and EMC, as well
as open source software including Linux and Apache.
The software we license from third parties is typically licensed
to us pursuant to a multi-year or perpetual license that
includes a multi-year support services agreement with the third
party. Our ability to access upgrades to certain software is
conditioned upon our continual maintenance of a support services
agreement with the third party between the date of the initial
license and the date on which we seek or are required to upgrade
the software. Although we believe we could replace the software
we currently license from third parties with alternative
software, doing so could take time, could result in the
temporary unavailability of our platform and increase our costs
of operations.
Our scalable, on-demand platform treats all customers as
logically separate tenants in central applications and
databases. As a result, we spread the cost of delivering our
solutions across our customer base. Because we do not manage
thousands of distinct applications with their own business logic
and database schemes, we believe that we can scale our business
faster than traditional software vendors, even those that
modified their products to be accessible over the Internet.
Development
Our research and development efforts focus on improving and
enhancing our existing solutions, as well as developing new
solutions and applications. Because of our multi-tenant
architecture, we provide our customers with a single version of
our platform, which we believe allows us to maintain relatively
low research and development expenses compared to traditional
on-premise licensed software solutions that support multiple
versions.
Operations
We serve our customers from two third-party data centers located
in Minneapolis and Saint Paul, Minnesota. These facilities
provide security measures, environmental controls and
sophisticated fire systems. Additionally, redundant electrical
generators and environmental control devices are required to
keep servers running. We operate all of the hardware on which
our applications run in the data centers.
We continuously monitor the performance of our platform. We have
a site operations team that provides system management,
maintenance, monitoring and
back-up. We
have monitoring software that continually checks our platform
and key underlying components at regular intervals for
availability and performance, ensuring our platform is available
and providing adequate response.
To facilitate loss recovery, we operate a multi-tiered system
configuration with load-balanced web server pools, replicated
database servers and fault-tolerant storage devices. Databases
leverage third-party features for real-time replication across
sites. This is designed to ensure near real-time data recovery
in the event of a malfunction with a primary database or server.
Our
Customers
As of December 31, 2009, we had over 11,000 recurring
revenue customers and over 35,000 total customers. Our primary
source of revenue is from small- to mid-sized suppliers in the
consumer packaged goods industry. We also generate revenues from
other members of the supply chain ecosystem, including
retailers, grocers, distributors, third-party logistics
providers and other trading partners. No customer represented
over 1% of our revenues in 2007, 2008 or 2009.
Competition
Vendors in the supply chain management industry offer solutions
through three delivery methods: on-demand, traditional
on-premise software and managed services.
The market for on-demand supply chain management solutions is
fragmented and rapidly evolving. Software-as-a-Service vendors
compete directly with each other based on the following:
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•
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breadth of pre-built connections to retailers, third-party
logistics providers and other trading partners;
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56
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•
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history of establishing and maintaining reliable integration
connections with trading partners;
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•
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reputation of the Software-as-a-Service vendor in the supply
chain management industry;
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•
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price;
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•
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specialization in a customer market segment;
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•
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speed and quality with which the Software-as-a-Service vendor
can integrate its customers to their trading partners;
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•
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functionality of the Software-as-a-Service solution, such as the
ability to integrate the solution with a customer’s
business systems;
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•
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breadth of complementary supply chain management solutions the
Software-as-a-Service vendor offers; and
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•
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training and customer support services provided during and after
a customer’s initial integration.
|
We expect to encounter new and increased competition as this
market segment consolidates and matures. Consolidation among
Software-as-a-Service vendors could create a direct competitor
that is able to compete with us more effectively than the
numerous, smaller vendors currently offering
Software-as-a-Service supply chain management solutions.
Increased competition from Software-as-a-Service vendors could
reduce our market share, revenues and operating margins or
otherwise adversely affect our business.
Software-as-a-Service vendors also compete with traditional
on-premise software companies and managed service providers.
Traditional on-premise software companies focused on supply
chain integration management include Sterling Commerce, a
subsidiary of AT&T, GXS Corporation, Inovis, Extol
International and Seeburger. These companies offer a
“do-it-yourself” approach in which customers purchase,
install and manage specialized software, hardware and
value-added networks for their supply chain integration needs.
This approach requires customers to invest in staff to operate
and maintain the software. Traditional on-premise software
companies use a single-tenant approach in which information maps
to retailers are built for and used by one supplier, as compared
to Software-as-a-Service solutions that allow multiple customers
to share information maps with a retailer.
Managed service providers focused on the supply chain management
market include Sterling Commerce, GXS and Inovis. These
companies combine traditional on-premise software, hardware and
value-added networks with professional information technology
services to manage these resources. Like traditional on-premise
software companies, managed service providers use a
single-tenant approach.
Customers of traditional on-premise software companies and
managed service providers typically make significant upfront
investments in the supply chain management solutions these
competitors provide, which can decrease the customers’
willingness to abandon their investments in favor of a
Software-as-a-Service solution. Software-as-a-Service supply
chain management solutions also are at a relatively early stage
of development compared to traditional
on-premise
software and managed service providers. Software-as-a-Service
vendors compete with these better established solutions based on
total cost of ownership and flexibility. If suppliers do not
perceive the benefits of Software-as-a-Service solutions, or if
suppliers are unwilling to abandon their investments in other
supply chain management solutions, our business and growth may
suffer. In addition, many traditional on-premise software
companies and managed service providers have larger customer
bases and may be better capitalized than we are, which may
provide them with an advantage in developing, marketing or
servicing solutions that compete with ours.
Intellectual
Property and Proprietary Content
We rely on a combination of copyright, trademark and trade
secret laws in the United States as well as confidentiality
procedures and contractual provisions to protect our proprietary
technology and our brand. We enter into confidentiality and
proprietary rights agreements with our employees, consultants
and other third parties and control access to software,
documentation and other proprietary information. We registered
57
the marks SPSCommerce.net and SPS Commerce in the United States.
We do not have any patents or applications for patents. Our
trade secrets consist primarily of the software we have
developed for our SPSCommerce.net integration center. Our
software is also protected under copyright law, but we do not
have any registered copyrights.
Legal
Proceedings
We are not currently subject to any material legal proceedings.
From time to time, we have been named as a defendant in legal
actions arising from our normal business activities, none of
which has had a material effect on our business, results of
operations or financial condition. We believe that we have
obtained adequate insurance coverage or rights to
indemnification in connection with potential legal proceedings
that may arise.
Facilities
Our corporate headquarters, including our principal
administrative, marketing, sales, technical support and research
and development facilities, are located in Minneapolis, where we
lease approximately 47,300 square feet under an agreement
that expires on October 31, 2012.
We believe that our current facilities are suitable and adequate
to meet our current needs, and that suitable additional or
substitute space will be available as needed to accommodate
expansion of our operations.
Employees
As of December 31, 2009, we had 292 employees. We also
employ independent contractors to support our operations. We
believe that our continued success will depend on our ability to
continue to attract and retain skilled technical and sales
personnel. We have never had a work stoppage, and none of our
employees are represented by a labor union. We believe our
relationship with our employees is good.
58
MANAGEMENT
Executive
Officers and Directors
The following table sets forth information concerning our
directors and executive officers:
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Name
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Age
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Position
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Archie C. Black
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47
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Chief Executive Officer, President and Director
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Kimberly K. Nelson
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42
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Executive Vice President and Chief Financial Officer
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James J. Frome
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45
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Executive Vice President and Chief Strategy Officer
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Michael J. Gray
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50
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Executive Vice President of Operations
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David J. Novak, Jr.
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41
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Executive Vice President of Business Development
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Steve A. Cobb
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38
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Chairman of the Board of Directors
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Michael B. Gorman
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44
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Director
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Martin J. Leestma
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|
52
|
|
|
Director
|
George H. Spencer, III
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46
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Director
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Sven A. Wehrwein
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59
|
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Director
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Murray R. Wilson
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48
|
|
|
Director
|
Executive
Officers
Archie C. Black joined us in 1998 as our Senior Vice
President and Chief Financial Officer and served in those
capacities until becoming our President and Chief Executive
Officer and a director in 2001. Prior to joining us,
Mr. Black was a Senior Vice President and Chief Financial
Officer at Investment Advisors, Inc. in Minneapolis, Minnesota.
Prior to Investment Advisors, he spent three years at Price
Waterhouse.
Kimberly K. Nelson has served as our Executive Vice
President and Chief Financial Officer since November 2007. Prior
to joining us, Ms. Nelson served as the Finance Director,
Investor Relations for Amazon.com from June 2005 through
November 2007. From April 2003 until June 2005, she served as
the Finance Director, Worldwide Application for
Amazon.com’s Technology group. Ms. Nelson also served as
Amazon.com’s Finance Director, Financial Planning and
Analysis from December 2000 until April 2003.
James J. Frome has served as our Executive Vice President
and Chief Strategy Officer since March 2001. Mr. Frome
served as our Vice President of Marketing from July 2000 to
March 2001. Prior to joining us, he served as a Divisional Vice
President of marketing at Sterling Software, Inc. from 1999 to
2000. Prior to joining Sterling Software, he served as a Senior
Product Manager and Director of Product Management at
Information Advantage, Inc. from 1993 to 1999.
Michael J. Gray has served as our Executive Vice
President of Operations since November 2008. Prior to joining
us, Mr. Gray served as Chief Technology Officer at IDeaS
Revenue Optimization from October 2007 to November 2008. From
2001 to October 2007, Mr. Gray served as Senior Director of
Technology at Thomson Corporation (formerly West Publishing).
Mr. Gray also served in various leadership and technical
position at Thomson Corporation prior to his promotion to Senior
Director of Technology.
David J. Novak, Jr. has served as our Executive Vice
President of Business Development since 2007. Prior to joining
us, he served as Vice President of Sales, North America-Business
Intelligence for Oracle Corporation from January 2006 to June
2007. Prior to Oracle’s acquisition of Siebel Systems, Inc.
in 2006, he served as Regional Vice President of
Sales – Western U.S. and Asia Pacific for Siebel
Systems’ business intelligence division starting in 2001.
59
Board of
Directors
Steve A. Cobb was elected to our board of directors in
December 2006. He is currently a Managing Director of CID
Capital where he has served since 2001. Prior to joining CID
Capital, he was a finance manager with Procter &
Gamble.
Michael B. Gorman has served as a member of our board of
directors since March 1998. Mr. Gorman is a Managing
Director of Split Rock Partners, a venture capital firm which he
co-founded in June 2004. From 1995 until June 2004,
Mr. Gorman was a General Partner at St. Paul Venture
Capital, a venture capital firm, where he focused on early-stage
investing in software and Internet services companies.
Mr. Gorman’s prior work experience includes serving as
a management consultant with Bain & Company, where he
assisted clients in the development and execution of corporate
strategies.
Martin J. Leestma has served on our board of directors
since March 2006. He served as the President, Chief Executive
Officer, and was a member of the board of directors for Retek
Information Systems from 2003 to 2005, during which time Retek
was a publicly-traded company. Prior to joining Retek, he was
Global Managing Partner of Retail Technology at Accenture from
1996 to 1999 and Managing Partner of North American Consumer
Goods & Services from 1999 to 2002. He became Global
Industry Managing Partner – Retail &
CG&S industries in 2002 and served in this role until his
departure in 2003. Since 2005, he has served as an independent
business consultant.
George H. Spencer, III has served on our board of
directors since February 2000. He is Senior Managing Director at
Seyen Capital, which he co-founded in October 2006, and serves
as a Senior Consultant to Adams Street Partners, LLC, which he
co-founded and where he served as a Partner from 1999 to October
2006.
Sven A. Wehrwein has served on our board of directors
since July 2008. He has been an independent financial consultant
to emerging companies since 1999. He has more than 30 years
of experience as an investment banker, chief financial officer
and certified public accountant. He currently serves on the
board of directors of Compellent Technologies, Inc., Image
Sensing Systems, Inc., Synovis Life Technologies, Inc.,
Uroplasty, Inc. and Vital Images, Inc., all of which are
publicly-traded companies, and he served on the board of
directors of Zamba Corporation between 1999 and 2004 when Zamba
was a publicly-traded company.
Murray R. Wilson has served on our board of directors
since April 2007. He is currently a Special Consultant to
Mayfield & Robinson, Inc., the investment management
company for River Cities Capital Funds, a family of venture
capital funds. He served as a Managing Director of
Mayfield & Robinson from 2004 until January 2010, and
as a Principal from 1995 to 2004. Prior to Mayfield &
Robinson, Mr. Wilson was an Associate with Blue Chip
Venture Company from 1992 to 1995. From 1985 through 1990, he
served as Assistant Investment Officer for Neworld Savings Bank.
Messrs. Cobb, Gorman, Wilson, Spencer and Black were
elected to our board of directors pursuant to a voting agreement
entered into in connection with the sale of our series C
convertible preferred stock in 2007. The voting agreement
provides that the parties thereto will vote for nominees of the
venture capital funds with which Messrs. Cobb, Gorman,
Spencer and Wilson are affiliated for so long as the applicable
fund and its affiliates own a specified percentage of our
capital stock. The voting agreement also provides that our Chief
Executive Officer will be elected to serve as a director. This
voting agreement will terminate upon the closing of this
offering.
Board
Composition
Our board of directors currently consists of seven directors.
Our board of directors has determined that six of our seven
directors are independent directors, as defined under the
applicable rules of the Nasdaq stock market. The independent
directors are Messrs. Cobb, Gorman, Leestma, Spencer,
Wehrwein and Wilson.
In accordance with our amended and restated certificate of
incorporation, immediately after this offering, our board of
directors will be divided into three classes with staggered
three-year terms. At each annual general meeting of
stockholders, the successors to directors whose terms then
expire will be elected to serve
60
from the time of election and qualification until the third
annual meeting following election. Our directors will be divided
among the three classes as follows:
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•
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The Class I directors will be Messrs. Gorman and
Wilson and their terms will expire at the annual meeting of
stockholders to be held in 2011;
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•
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The Class II directors will be Messrs. Black and
Spencer and their terms will expire at the annual meeting of
stockholders to be held in 2012; and
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•
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The Class III directors will be Messrs. Cobb, Leestma
and Wehrwein and their terms will expire at the annual meeting
of stockholders to be held in 2013.
|
Any additional directorships resulting from an increase in the
number of directors will be distributed among the three classes
so that, as nearly as possible, each class will consist of
one-third of the directors.
The division of our board of directors into three classes with
staggered three-year terms may delay or prevent a change of our
management or a change in control.
There is no family relationship between any director, executive
officer or person nominated to become a director or executive
officer.
Board
Committees
The board of directors has established an audit committee and a
compensation committee and, immediately prior to this offering
will establish a nominating and governance committee. Each of
our committees will have a charter in effect upon the closing of
this offering and we expect that each charter will be posted on
our website.
The following sets forth the membership of each of our
committees upon completion of this offering.
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Nominating and Governance
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Audit Committee
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Committee
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Compensation Committee
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Sven A. Wehrwein, Chairperson
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Steve A. Cobb, Chairperson
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George H. Spencer, III, Chairperson
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Martin J. Leestma
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Sven A. Wehrwein
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|
Michael B. Gorman
|
George H. Spencer, III
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|
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Martin J. Leestma
|
Audit
Committee
Among other matters, our audit committee will:
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•
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evaluate the qualifications, performance and independence of our
independent auditor and review and approve both audit and
nonaudit services to be provided by the independent auditor;
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•
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discuss with management and our independent auditors any major
issues as to the adequacy of our internal controls, any actions
to be taken in light of significant or material control
deficiencies and the adequacy of disclosures about changes in
internal control over financial reporting;
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•
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establish procedures for the receipt, retention and treatment of
complaints regarding accounting, internal accounting controls or
auditing matters, including the confidential, anonymous
submission by employees of concerns regarding accounting or
auditing matters; and
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•
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prepare the audit committee report that SEC rules require to be
included in our annual proxy statement and annual report on
Form 10-K.
|
Each of the members of our audit committee upon closing of this
offering meets the requirements for financial literacy under the
applicable rules and regulations of the SEC and the Nasdaq stock
market. Our board of directors has determined that
Mr. Wehrwein is an audit committee financial expert, as
defined under the applicable rules of the SEC. Each member of
our audit committee upon the closing of this offering satisfies
the Nasdaq stock market independence standards and the
independence standards of
Rule 10A-3(b)(1)
of the Securities Exchange Act.
61
Nominating
and Governance Committee
Our nominating and governance committee will identify
individuals qualified to become members of the board of
directors, recommend individuals to the board for nomination as
members of the board and board committees, review the
compensation paid to our non-employee directors and recommend
any adjustments in director compensation and oversee the
evaluation of our board of directors.
Compensation
Committee
Our compensation committee will review and approve on an annual
basis the goals and objectives relevant to our Chief Executive
Officer’s compensation and annually review the evaluation
of the performance of our executive officers and approve our
executive officers’ annual compensation. Our compensation
committee also will administer the issuance of stock options and
other awards under our 2010 Equity Incentive Plan.
Code of
Conduct
We expect to adopt a code of business conduct and ethics upon
completion of this offering relating to the conduct of our
business by our employees, officers and directors, which will be
posted on our website.
Director
Compensation
In 2009, we did not provide any compensation to our non-employee
directors other than to reduce the exercise price of an option
to purchase 75,000 shares of common stock granted to Sven
A. Wehrwein in July 2008 from $1.26 per share to
$0.81 per share, which was the fair market value of our
common stock on the date of the amendment.
We reimburse our directors for
out-of-pocket
expenses incurred in connection with attending our board and
committee meetings.
The table below sets forth the compensation provided to our
directors during the year ended December 31, 2009.
Mr. Black’s compensation is set forth under
“– Summary Compensation Table” because he
served as our President and Chief Executive Officer during that
year. Mr. Black did not receive any separate compensation
for his service as a director.
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Option Awards (1)
|
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Total
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Name
|
|
($)
|
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($)
|
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Steve A. Cobb
|
|
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–
|
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–
|
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Michael B. Gorman
|
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|
–
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–
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Martin J. Leestma
|
|
|
–
|
|
|
|
–
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|
George H. Spencer, III
|
|
|
–
|
|
|
|
–
|
|
Murray R. Wilson
|
|
|
–
|
|
|
|
–
|
|
Sven A. Wehrwein
|
|
|
7,110
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7,110
|
|
|
|
|
(1) |
|
Reflects the incremental fair value related to an amendment to
the terms of an option to purchase 75,000 shares of common
stock held by Mr. Wehrwein. The amendment decreased the
option’s exercise price from $1.26 per share to
$0.81 per share, which was the fair market value of our
common stock on the date of the amendment. The incremental fair
value related to the amendment is calculated as of the date of
the amendment in accordance with ASC 718 (excluding
estimates of forfeitures) and is determined based on the
assumptions in Note G to our financial statements in this
prospectus. None of our directors held any unvested options at
December 31, 2009, except for Mr. Wehrwein, who held
26,563 unvested options and Mr. Leestma, who held 4,688
unvested options. |
We adopted a new director compensation policy that will be
effective immediately prior to consummation of this offering.
The new policy will provide that each non-employee director will
receive an initial stock option grant to purchase up to
60,000 shares of our common stock upon appointment to the
board. Each grant will vest in equal monthly installments over
three years for so long as the director remains a member of
62
the board. With respect to our current non-employee directors
other than Mr. Wehrwein, each will receive a stock option
grant to purchase up to 60,000 shares of our common stock
upon consummation of this offering, with each grant vesting on
the schedule described above. Mr. Wehrwein will receive an
award to purchase up to 16,250 shares of our common stock
upon consummation of this offering, which will give him unvested
options to purchase up to 60,000 shares of our common stock
upon the consummation of the offering in combination with the
July 2008 option grant we made when he joined the board.
The new director compensation policy also will provide that each
non-employee director will receive an annual stock option grant
to purchase up to 20,000 shares of our common stock on the
date of each annual meeting of stockholders at which the
director is elected to the board or continues to serve as a
director. The awards will vest in full on the earlier of one
year after the date of grant or the date of the next year’s
annual meeting of stockholders, provided the recipient remains a
member of the board as of the vesting date. All stock options
granted under the new policy will have an exercise price equal
to the fair market value of our common stock on the date of
grant in accordance with our 2010 Equity Incentive Plan, which,
in the case of grants made upon consummation of this offering,
will be the price to the public for shares sold in this
offering. All share numbers described above for the new policy
will be adjusted to reflect the reverse stock split that will
occur immediately prior to consummation of this offering.
Non-employee directors will receive cash fees in addition to the
equity awards described above. Each non-employee director will
receive an annual retainer of $20,000. In addition, the chair of
each committee will receive an annual fee as follows:
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Committee Chair
|
|
Annual Cash Fee
|
|
Audit
|
|
$
|
11,000
|
|
Compensation
|
|
$
|
8,000
|
|
Nominating and Governance
|
|
$
|
5,000
|
|
Each committee member, other than the chair, will receive an
annual fee as follows:
|
|
|
|
|
Non-Chair
|
|
|
Committee Members
|
|
Annual Cash Fee
|
|
Audit
|
|
$
|
5,000
|
|
Compensation
|
|
$
|
4,000
|
|
Nominating and Governance
|
|
$
|
2,000
|
|
The chairman of our board of directors will receive an
additional annual fee of $12,500.
Compensation
Discussion and Analysis
The following is a discussion and analysis of compensation
arrangements of our named executive officers for 2009. Our named
executive officers for 2009 were Archie C. Black, our President
and Chief Executive Officer, Kimberly K. Nelson, our Executive
Vice President and Chief Financial Officer, James J. Frome, our
Executive Vice President and Chief Strategy Officer, Michael J.
Gray, our Executive Vice President of Operations, and David J.
Novak, Jr., our Executive Vice President of Business
Development.
Compensation
Objectives and Process
We have designed the compensation arrangements for our named
executive officers to provide compensation in overall amounts
and in forms that attract and retain talented and experienced
individuals and motivate executives to achieve the goals that
are important to our growth. During 2009, our compensation
primarily consisted of salary and annual cash incentive awards.
We also have granted our named executive officers stock options
from time to time as part of our overall compensation package to
align incentives with the interests of our stockholders. As
further described below, in 2009 we amended the terms of certain
stock options previously granted to Ms. Nelson and
Mr. Frome as a means of providing them additional
compensation. We also granted a stock option to Mr. Gray in
early 2009 in connection with his
63
hiring in November 2008. We have not adopted any formal or
informal policies or guidelines for allocating compensation
between the elements of compensation we provide our named
executive officers.
Historically, our compensation committee has established all
elements of compensation for all of our named executive
officers. Prior to this offering, our compensation committee has
never engaged a compensation consultant. Our compensation
committee engaged Compensia, Inc., a compensation consultant, in
connection with this offering to help evaluate our compensation
philosophy and provide guidance in administering our
compensation program. Following the completion of this offering,
we anticipate that our compensation committee will determine
executive compensation, at least in part, by reference to the
compensation information for the executives of a peer group of
comparable companies. In January 2010, our compensation
committee increased the base salaries of our named executive
officers based in part on a comparison of their compensation
relative to compensation paid by a peer group of companies
outlined in a report prepared by Compensia. Despite these
increases, our named executive officers remain at the low end of
compensation for this peer group. Our compensation committee
intends to annually reevaluate our named executive
officers’ compensation and to incrementally move their
compensation closer to the median compensation paid to
comparable executives at comparable companies.
Base
Salary
Base salaries are used to recognize the experience, skills,
knowledge and responsibilities required of all our employees,
including our named executive officers. Base salaries for each
of our named executive officers are initially established based
on arm’s-length negotiations between us and the executive.
The compensation committee reviews our named executive
officers’ salaries annually at the beginning of each year.
When negotiating or reviewing base salaries, the compensation
committee considers market competitiveness based on their market
experience, the executive’s expected future contribution to
our success and the relative salaries and responsibilities of
our other executives. For 2009, each named executive officer
received a salary increase of 2% compared to 2008. In January
2010, our named executive officers received salary increases
ranging from 5% to 9% compared to 2009.
Bonuses
We provide our named executive officers an opportunity to
receive two types of bonuses: a formula-based bonus and a
discretionary bonus. The formula-based bonus is intended to
motivate our executives to achieve specific financial goals that
reflect the growth and success of our business. The
discretionary bonus is designed to motivate our executive team
to achieve goals that contribute to our growth and success but
are not necessarily measurable by our results of operations.
Formula-Based Bonuses. The formula-based bonus is based
on a target bonus for each named executive officer established
by the compensation committee at the beginning of each year. The
compensation committee establishes the target based on an amount
it believes is necessary to provide a competitive overall
compensation package in light of each named executive
officer’s base salary and to motivate our executives to
achieve an aggressive level of growth. The amount of the
formula-based bonus, if any, actually paid to executives after
the end of each year is determined by a matrix that takes into
account our revenues and earnings before interest, taxes,
depreciation, amortization and stock-based compensation, or
Adjusted EBITDA. The formula-based bonus is based in part on
revenues because, given the scalability of our current core
business, the compensation committee believes our financial
results are driven most significantly by the revenues we
generate. The compensation committee also believes formula-based
bonuses should be based in part on Adjusted EBITDA because
Adjusted EBITDA is a useful measure of our operating performance.
The matrix provides that each executive will receive a
percentage of his or her target bonus, between 0% and 145%,
based on our revenues and Adjusted EBITDA for the year. For
example, for our executives to earn their target bonuses for
2009, we needed to generate revenues of approximately
$34.3 million and Adjusted EBITDA of approximately
$3.4 million. If we failed to have either revenues of
approximately $33.1 million or Adjusted EBITDA of
approximately $2.5 million, our named executive officers
would not receive a formula-based bonus for the year. The
percentage of the target bonus earned between the minimum and
the
64
maximum varies in five-percentage-point increments based on
revenues and Adjusted EBITDA for the year relative to increments
established for each metric in the matrix. The effect of
acquisitions, if any, during the year are excluded for purposes
of determining the revenues and Adjusted EBITDA for the year as
applied to the matrix. The compensation committee establishes
the intervals for the matrix with the intent that achieving 100%
of an executive’s target bonus will be a difficult but
achievable goal in light of the prior year’s results of
operations and anticipated growth for the year at the time the
matrix is created. For 2009, our revenues and Adjusted EBITDA
resulted in the maximum formula-based bonus being paid to our
named executive officers.
Discretionary Bonuses. At the beginning of each year, the
compensation committee also establishes a target discretionary
bonus for each named executive officer that it may pay to the
executive at the end of the year in the compensation
committee’s discretion. The compensation committee
establishes the target amount for each executive in an amount
the committee believes is appropriate to incentivize our
executives to strive to exceed performance expectations and
pursue activities that will not necessarily increase the
calculations of revenues or Adjusted EBITDA applied to the
formula-based bonus matrix.
For 2009, the target discretionary bonus for each named
executive officer was as follows:
• Mr. Black — $29,728
• Ms. Nelson — $23,625
• Mr. Frome — $24,800
• Mr. Gray — $15,000
• Mr. Novak — $23,625
The amount actually paid to each named executive officer is
based on the compensation committee’s subjective evaluation
of our executive team’s achievement during the year. Our
compensation committee does not have any predetermined criteria
or goals that they are required to consider in connection with
payment of the discretionary bonus. For 2009, in determining
whether to pay a discretionary bonus, the compensation
committee, in January 2010, discussed our Company’s
performance and our executive officers’ performance in the
areas of general leadership, pursuit of strategic initiatives
and overall performance relative to expectations. The
compensation committee has historically evaluated achievement
for our executive team as a group and has granted each named
executive officer an award based on a percentage of the target
discretionary bonus that is the same for all named executive
officers. The compensation committee determines the amount of
the discretionary bonus actually paid to each member of our
executive team independent of the formula-based bonus earned
after considering the criteria described above. For 2009, the
compensation committee awarded each named executive officer 100%
of the executive’s target discretionary bonus.
Equity
Awards
Historically, we have granted our named executive officers stock
options in connection with our hiring of the executive. When
determining the size of the award, the compensation committee
considers the executive’s title and responsibilities, the
equity position of our other executives and the anticipated
future contribution the executive will make to our success. We
believe stock options are an important element of compensation
because they provide our executives a potential ownership
interest in our company, which helps align executives’
interests with those of other stockholders. We believe stock
options further align the interest of our executives and
stockholders because executives profit from stock options only
if our stock price increases relative to the option’s
exercise price. We believe options also help retain our
executives because the awards vest over several years, and
vesting depends on the executive’s continued employment
with us. The typical vesting provisions for stock option grants
made to our executives provide that one-quarter of the options
vest on the first anniversary of the grant date, with the
remaining shares vesting in 36 successive equal monthly
installments thereafter upon completion of each additional month
of service. In February 2009, we granted Mr. Gray an option
to purchase 300,000 shares of our
65
common stock with a per share exercise price of $0.92 in
connection with his hiring in November 2008. As described below,
we subsequently amended this option to lower the per share
exercise price to $0.65.
We do not have a formal policy for making additional option
grants after we hire an executive and we have not historically
made annual or other periodic option grants to our executives.
We anticipate that equity compensation, whether in the form of
restricted stock, stock options, restricted stock units, or
other stock-based awards, will be a more significant part of our
executive compensation as a public company. We also expect to
make more regular equity grants to our executives as a public
company, although the form and frequency of our equity
compensation as a public company has not yet been determined.
Our policy is to grant stock options with an exercise price
equal to the fair market value of our common stock on the date
of grant. As a private company during 2009, the fair market
value of our common stock was determined by our audit committee.
Throughout the first quarter of 2009, the fair value of our
common stock declined significantly in connection with the
general economic downturn at that time. On April 1, 2009, our
compensation committee amended the terms of stock options
granted to three employees, including Mr. Gray, on February 10,
2009. The amendment lowered the exercise price for all shares
subject to the option awards from $0.92 per share to $0.65 per
share, which was the fair value of our common stock on the date
of the amendment, and did not affect the vesting provisions or
number of shares subject to any award. Our compensation
committee believed that the exercise price of the options should
be amended to account for the extraordinary market turmoil that
occurred in the short time since the grant date, which caused
the options granted on February 10 to be significantly
underwater without regard to the performance of the award
recipients.
In July 2009, we amended the terms of certain stock options
granted to 17 employees and one director, including
Mr. Frome and Ms. Nelson, to reduce the exercise price
for all of the shares subject to each option to $0.81 per share,
which was the fair market value of our common stock on the date
of the amendment. The amendments did not affect the vesting
provisions or the number of shares subject to any of the option
awards. Ms. Nelson’s amended option award was
originally granted in November 2007 when we hired her and had an
exercise price of $0.99 per share. Two of Mr. Frome’s
option awards were amended; one was granted in October 2001 and
one was granted in July 2002, and each had an exercise price of
$2.00 per share. During 2008 and first half of 2009, the fair
market value of our common stock as determined by our audit
committee declined in connection with the general economic
downturn as the comparable companies utilized in the valuation
determination had a decrease in their stock prices. Our
compensation committee, however, believed that Ms. Nelson
and Mr. Frome performed well during that time. The
compensation committee therefore reduced the exercise prices of
Ms. Nelson’s and Mr. Frome’s stock options
to our then fair market value as determined by our audit
committee to provide them additional compensation without
requiring our company to use any cash to compensate them for
their strong contributions in a difficult economic environment.
The compensation committee did not amend any of the outstanding
option awards held by Messrs. Black, Gray or Novak because
all of their outstanding options had exercise prices less than
the fair market value of our common stock at the time of the
amendments.
Other
Compensation
Perquisites are not a material aspect of our executive
compensation plan. All of our full-time employees, including our
named executive officers, are eligible to participate in our
401(k) plan. Pursuant to our 401(k) plan, employees may elect to
reduce their current compensation by up to the statutorily
prescribed annual limit and to have the amount of this reduction
contributed to our 401(k) plan. Our 401(k) plan provides that we
will match eligible employees’ 401(k) contributions equal
to 25% of the employee’s elective deferrals, up to an
amount not to exceed 6% of the employee’s compensation.
We entered into agreements with our named executive officers
that provide for payments to them under certain circumstances
involving a termination of their employment with us or upon a
change in control of our
66
company. These agreements are described in more detail below
under “– Potential Payments Upon Termination or
Change in Control.”
Summary
Compensation Table
The following table provides information regarding the
compensation earned during 2009 by our named executive officers:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
Incentive Plan
|
|
All Other
|
|
|
|
|
|
|
Salary
|
|
Bonus
|
|
Awards
|
|
Compensation
|
|
Compensation
|
|
Total
|
Name and Principal Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)(1)
|
|
($)
|
|
Archie C. Black
|
|
|
2009
|
|
|
|
276,000
|
|
|
|
29,728
|
|
|
|
–
|
|
|
|
100,579
|
|
|
|
2,827
|
|
|
|
409,134
|
|
Chief Executive Officer and President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kimberly K. Nelson
|
|
|
2009
|
|
|
|
215,000
|
|
|
|
23,625
|
|
|
|
22,550
|
(2)
|
|
|
79,931
|
|
|
|
3,110
|
|
|
|
344,216
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James J. Frome
|
|
|
2009
|
|
|
|
215,000
|
|
|
|
24,800
|
|
|
|
28,431
|
(2)
|
|
|
83,908
|
|
|
|
3,123
|
|
|
|
355,262
|
|
Executive Vice President and Chief Strategy Officer
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Michael J. Gray
|
|
|
2009
|
|
|
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184,000
|
|
|
|
15,000
|
|
|
|
113,790
|
(3)
|
|
|
50,750
|
|
|
|
–
|
|
|
|
363,540
|
|
Executive Vice President of Operations
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
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David J. Novak, Jr.
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2009
|
|
|
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215,000
|
|
|
|
23,625
|
|
|
|
–
|
|
|
|
79,931
|
|
|
|
1,745
|
|
|
|
320,301
|
|
Executive Vice President of Business Development
|
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|
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|
|
|
|
|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
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(1) |
|
Represents matching 401(k) contributions. |
|
(2) |
|
Reflects the incremental fair value related to an amendment to
the terms of an option granted to the named executive officer
prior to 2009. See “– Compensation Discussion and
Analysis – Equity Awards.” The incremental fair
value is calculated as of the date of the amendment in
accordance with ASC 718 (excluding estimates of
forfeitures) and is determined based on the assumptions in
Note G to the financial statements in this prospectus. |
|
(3) |
|
Represents the grant date fair value of an award granted to
Mr. Gray on February 10, 2009 computed in accordance
with ASC 718 (excluding estimates of forfeitures) and the
incremental fair value related to an amendment to that award on
April 1, 2009, in each case based on the assumptions in
Note G to the financial statements in this prospectus. |
67
Grants of
Plan-Based Awards
The following table sets forth certain information regarding
grants of plan-based awards to our named executive officers in
2009.
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|
|
|
|
|
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All Other
|
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|
|
|
|
|
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|
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
Estimated Future Payouts
|
|
Number
|
|
Exercise or
|
|
Grant Date
|
|
|
|
|
Under Non-Equity Incentive
|
|
Securities
|
|
Base Price
|
|
Fair Value
|
|
|
|
|
Plans
|
|
Underlying
|
|
of Option
|
|
of Stock
|
|
|
|
|
Threshold
|
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Target
|
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Maximum
|
|
Options
|
|
Awards
|
|
and Option
|
Name
|
|
Grant Date
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
($/Sh)
|
|
Awards
|
|
Archie C. Black
|
|
January 30, 2009
|
|
|
38,151
|
|
|
|
99,093
|
|
|
|
130,307
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Kimberly K. Nelson
|
|
January 30, 2009
|
|
|
30,319
|
|
|
|
78,750
|
|
|
|
103,556
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
July 23, 2009
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
500,000
|
(1)
|
|
|
0.81
|
|
|
|
22,500
|
|
James J. Frome
|
|
January 30, 2009
|
|
|
31,827
|
|
|
|
82,668
|
|
|
|
108,709
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
July 23, 2009
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
140,364
|
(1)
|
|
|
0.81
|
|
|
|
28,431
|
|
Michael J. Gray
|
|
January 30, 2009
|
|
|
19,250
|
|
|
|
50,000
|
|
|
|
65,750
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
February 10, 2009
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
300,000
|
(2)
|
|
|
0.92
|
|
|
|
103,620
|
|
|
|
April 1, 2009
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
300,000
|
(2)
|
|
|
0.65
|
|
|
|
10,170
|
|
David J. Novak, Jr.
|
|
January 30, 2009
|
|
|
30,319
|
|
|
|
78,750
|
|
|
|
103,556
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
(1) |
|
Represents amendments to the per share exercise price of stock
options granted to the named executive officer prior to 2009.
See “– Compensation Discussion and Analysis.” |
|
(2) |
|
The April 1, 2009 grant to Mr. Gray represents an
amendment to the per share exercise price of stock options
granted to him on February 10, 2009. See
“– Compensation Discussion and Analysis.” |
68
Outstanding
Equity Awards at Fiscal Year-End
The following table sets forth certain information regarding
equity awards granted to our named executive officers
outstanding as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
|
|
|
Options (#)
|
|
Options (#)
|
|
Exercise
|
|
|
Name
|
|
Exercisable (1)
|
|
Unexercisable (1)
|
|
Price ($)(1)
|
|
Option Expiration Date
|
|
Archie C. Black
|
|
|
162,500
|
|
|
|
–
|
|
|
|
0.10
|
|
|
October 5, 2011(2)
|
|
|
|
15,102
|
|
|
|
–
|
|
|
|
0.10
|
|
|
June 30, 2012(3)
|
|
|
|
364,760
|
|
|
|
–
|
|
|
|
0.10
|
|
|
November 12, 2013(4)
|
|
|
|
162,500
|
|
|
|
–
|
|
|
|
0.10
|
|
|
June 30, 2014(5)
|
|
|
|
144,000
|
|
|
|
–
|
|
|
|
0.10
|
|
|
December 31, 2014(6)
|
|
|
|
404,938
|
|
|
|
36,832
|
|
|
|
0.10
|
|
|
March 31, 2016(7)
|
Kimberly K. Nelson
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
0.81
|
|
|
November 27, 2017(8)
|
James J. Frome
|
|
|
3,000
|
|
|
|
–
|
|
|
|
0.55
|
|
|
July 5, 2010(9)
|
|
|
|
125,000
|
|
|
|
–
|
|
|
|
0.81
|
|
|
October 5, 2011(10)
|
|
|
|
15,364
|
|
|
|
–
|
|
|
|
0.81
|
|
|
June 30, 2012(3)
|
|
|
|
530,000
|
|
|
|
–
|
|
|
|
0.10
|
|
|
August 17, 2013(11)
|
|
|
|
125,000
|
|
|
|
–
|
|
|
|
0.10
|
|
|
June 30, 2014(12)
|
|
|
|
22,890
|
|
|
|
2,110
|
|
|
|
0.10
|
|
|
March 31, 2016(13)
|
Michael J. Gray
|
|
|
–
|
|
|
|
300,000
|
|
|
|
0.65
|
|
|
March 31, 2019(14)
|
David J. Novak, Jr.
|
|
|
302,802
|
|
|
|
197,198
|
|
|
|
0.78
|
|
|
June 30, 2017(15)
|
|
|
|
(1) |
|
Does not reflect the effect of the for
reverse split of our common stock that will occur immediately
prior to consummation of this offering. |
|
(2) |
|
This option vested as to one-fourth of the shares on
May 26, 2002, with the remaining shares vesting in 36 equal
monthly installments thereafter beginning June 26, 2002 and
continuing to and including May 26, 2005. |
|
(3) |
|
This option vested in full on July 25, 2002. |
|
(4) |
|
This option vested as to 113,988 shares on August 18,
2003, with the remaining shares vesting in equal monthly
installments of 7,599 shares thereafter beginning
September 1, 2003. |
|
(5) |
|
This option vested as to 88,030 shares on July 1,
2004, with the remaining shares vesting in equal monthly
installments of 3,385 shares thereafter beginning
August 1, 2004. |
|
(6) |
|
This option vested as to 93,730 shares on December 24,
2005, with the remaining shares vesting in equal monthly
installments of 8,521 shares thereafter beginning
January 1, 2006 for each additional month of service. |
|
(7) |
|
This option vested as to 110,442 shares on April 1,
2007, with the remaining shares vesting in equal monthly
installments of 9,203 shares thereafter beginning
May 1, 2007 for each additional month of service. |
|
(8) |
|
This option vested as to one-fourth of the shares on
December 1, 2008, with the remaining shares vesting in 36
equal monthly installments on the first day of each month
thereafter beginning January 1, 2009 for each additional
month of service. |
|
(9) |
|
This option vested as to one-fourth of the shares on each of
July 5, 2000, July 5, 2001, July 5, 2002 and
July 5, 2003. |
|
(10) |
|
This option vested as to one-fourth of the shares on
May 26, 2002, with the remaining shares vesting in 36 equal
monthly installments thereafter beginning June 26, 2002. |
69
|
|
|
(11) |
|
This option vested as to 165,625 shares on August 18,
2003, with the remaining shares vesting in equal installments of
11,042 shares on the first day of each month thereafter
beginning September 1, 2003. |
|
(12) |
|
This option vested as to 67,712 shares on July 1,
2004, with the remaining shares vesting in equal monthly
installments of 2,604 shares thereafter beginning
August 1, 2004. |
|
(13) |
|
This option vested as to 6,250 shares on April 1,
2007, with the remaining shares vesting in equal monthly
installments of 520 shares on the first day of each month
thereafter beginning May 1, 2007 for each additional month
of service. |
|
(14) |
|
This option vests as to one-fourth of the shares on
January 1, 2010, with the remaining shares vesting in
36 equal monthly installments on the first day of each
month thereafter beginning February 1, 2010 for each
additional month of service. |
|
(15) |
|
This option vested as to 125,000 shares on July 1,
2008, with the remaining shares vesting in 36 equal monthly
installments on the first day of each month thereafter beginning
August 1, 2008 for each additional month of service. |
Option
Exercises and Stock Vested in 2009
The following table sets forth certain information regarding
stock option exercises by our named executive officers during
2009. We have never granted any restricted stock, restricted
stock units or similar instruments to our named executive
officers.
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Number of Shares
|
|
Value Realized
|
Name
|
|
Acquired on Exercise (#)
|
|
on Exercise ($)
|
|
Archie C. Black
|
|
|
25,000
|
|
|
|
22,250(1
|
)
|
|
|
|
(1) |
|
The value realized on exercise represents (1) the
difference between (a) the value of our common stock (as
most recently determined by our audit committee prior to
exercise) and (b) the per share exercise price
(2) multiplied by the number of shares acquired on exercise. |
Pension
Benefits
We do not offer pension benefits to our named executive officers.
Non-Qualified
Deferred Compensation
We do not offer non-qualified deferred compensation to our named
executive officers.
Employment
Agreements
We entered into an employment agreement with Archie C. Black,
our Chief Executive Officer. The initial term of the agreement
expired on December 31, 2009, but the agreement
automatically renews for additional one-year terms unless
terminated by us or Mr. Black. This agreement renewed for
an additional year on January 1, 2010. Pursuant to the
agreement, Mr. Black’s salary is reviewed annually by
our compensation committee and may be maintained or increased,
but not decreased, in the compensation committee’s
discretion. Mr. Black’s employment agreement requires
him not disclose our confidential information or disparage us or
our officers or employees at any time during the term of the
agreement or thereafter.
We entered into confidentiality and non-competition agreements
with our named executive officers other than Mr. Black.
These agreements require the executives to not to disclose our
confidential information at any time. The agreements also
require the executives not to compete with us or solicit our
employees to engage in other employment during the term of the
executive’s employment with us and for one year thereafter.
We do not have a non-competition agreement with Mr. Black.
The employment and confidentiality and non-competition
agreements with our named executive officers address various
termination of employment scenarios. No severance payments are
made to executives who are terminated for cause. The terms of
potential payments under these agreements upon termination are
summarized below under “– Potential Payments Upon
Termination or
Change-in-Control.”
70
We entered into management incentive agreements with each of
Archie C. Black and James J. Frome that provide for a bonus to
be paid to them upon a sale of our company. A “sale”
includes (1) the disposition of all or substantially all of
our assets; (2) the sale of at least 70% of our voting
stock to a person who was not a stockholder of our company on
July 1, 2002 and (3) a merger or consolidation of our
company resulting in 70% or more of the voting power of the
surviving company following the transaction being held by
persons who were not a stockholder of our company on
July 1, 2002. The payment to Mr. Black would be equal
to 0.114% of the amount of the purchase price, as defined,
exceeding $25 million but less than $65 million,
subject to a maximum of $45,600. The payment to Mr. Frome
would be equal to 0.115% of the amount of the purchase price, as
defined, exceeding $25 million but less than
$65 million, subject to a maximum of $46,000. These
agreements terminate on June 30, 2012.
Potential
Payments Upon Termination or
Change-in-Control
We have entered into agreements that will require us to provide
compensation to our named executive officers in the event of a
termination of employment or a change in control of our company.
Our employment agreement with Archie C. Black, our Chief
Executive Officer, provides that, if we terminate his employment
without cause, or if he terminates his employment with us for
good reason, we will (1) pay his salary for 12 months
in accordance with our regular payroll practices and any unused
vacation accrued as of the date of termination and
(2) provide health care benefits to him and his family for
12 months after the date of termination on the same terms
as they are provided as of termination. “Cause” for
termination exists upon (a) conviction of a felony;
(b) dishonesty or gross misconduct in the performance of
the agreement; or (c) failure by Mr. Black to cure his
material breach of the agreement within 30 days of
receiving written notice of breach from us. Mr. Black may
terminate his employment for “good reason” (a) by
providing us with notice of his intent to terminate his
employment within 10 days of his annual performance review;
(b) our failure to cure our material breach of the
agreement within 30 days of receiving written notice of
breach from him; or (c) upon a change in control, which
includes removal of Mr. Black as our Chief Executive
Officer by our board of directors or the occurrence of a
transaction that results in the holders of our stock immediately
prior to the transaction ceasing to hold the voting power
necessary to elect a majority of our board following the
transaction. Also, if we terminate Mr. Black’s
employment if he suffers a permanent disability, we will
maintain for his benefit for 12 months after termination
all health benefit plans in which he was entitled to participate
immediately prior to termination.
We have entered into agreements with each of our named executive
officers other than Mr. Black that provide that, if we
terminate the named executive officer’s employment without
cause, and provided the termination does not occur upon or
within 12 months of a change in control of our company, we
will pay the named executive officer six months of his or her
then-current base salary over a six-month period in accordance
with our normal payroll practices. If we terminate the named
executive officer’s employment without cause upon or within
12 months after a change in control, or if the named
executive officer terminates his or her employment for good
reason upon or within 12 months after a change in control,
we will pay the named executive officer 12 months of his or
her then-current base salary over a
12-month
period in accordance with our normal payroll practices. Payment
of these amounts is subject to certain conditions and
limitations, including that the named executive officer execute
a release of claims against us. A “change in control”
and the reasons for which a named executive officer may
terminate without “cause” are defined in accordance
with our 2001 Stock Option Plan and described below. A named
executive officer may terminate his or her employment for
“good reason” if there is a material reduction in the
officer’s salary at the time of the change in control or a
material reduction in responsibilities following the change in
control.
Generally, option agreements executed pursuant to our 2001 Stock
Option Plan provide that, in the event of a change in control of
our company, outstanding stock options granted to senior
management, including our named executive officers, immediately
become exercisable as to 50% of the unvested shares subject to
option. Our option agreements with our named executive officers
also provide that if the named executive officer’s
employment with us is terminated, or the named executive
officer’s employment responsibilities or base salary are
materially reduced, other than for cause, prior to the first
anniversary of the change in control, all remaining unvested
shares subject to the option immediately become fully
exercisable. A “change in
71
control” includes (1) any person’s acquisition of
beneficial ownership of 50% or more of our outstanding common
stock; (2) a failure to have a majority of our board of
directors be people for whose election our board solicited
proxies; (3) approval by our stockholders of a
reorganization, merger or consolidation, unless our stockholders
immediately prior to the transaction own more than 50% of the
voting power of the corporation resulting from the transaction;
or (4) approval by our stockholders of the disposition of
all or substantially all of our assets. “Cause” for
termination exists upon (a) failure by the named executive
officer to cure his or her material breach of the terms of a non
competition/non solicitation agreement between us and the
officer within 30 days of receipt of written notice of
breach from us; (b) gross negligence or willful misconduct
by the officer; (c) conviction of the officer of a crime
involving moral turpitude or any felony; (d) willful
violation of instructions from our board of directors or Chief
Executive Officer; or (e) fraud, embezzlement, theft or
proven dishonesty against us.
We entered into the management incentive agreements with each of
Archie C. Black and James J. Frome described above under
“– Employment Agreements” that provide for a
bonus to be paid to them upon a sale of our company. The payment
to Mr. Black would be equal to 0.114% of the amount of the
purchase price, as defined, exceeding $25 million but less
than $65 million, subject to a maximum of $45,600. The
payment to Mr. Frome would be equal to 0.115% of the amount
of the purchase price, as defined, exceeding $25 million
but less than $65 million, subject to a maximum of $46,000.
The following tables list the potential payments and benefits
upon termination of employment or change in control of our
company for our named executive officers. The tables assume the
triggering event for the payments or provision of benefits
occurred on December 31, 2009. Amounts in the tables for
the vesting of unvested stock options are calculated based on
the number of accelerated stock options multiplied by the
difference between $0.99, the fair market value of our common
stock as most recently determined by our audit committee prior
to the end of our most recently completed fiscal year, and the
exercise price.
Archie C.
Black
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary, Bonus &
|
|
Health
|
|
Vesting of Unvested
|
Triggering Event
|
|
Unused Vacation
|
|
Benefits(1)
|
|
Stock Options
|
|
Termination Without Cause or for Good Reason
|
|
$
|
302,538
|
|
|
$
|
6,212
|
|
|
|
–
|
|
Permanent Disability
|
|
|
–
|
|
|
$
|
6,212
|
|
|
|
–
|
|
Change in Control Without Related Termination
|
|
$
|
45,600
|
|
|
|
–
|
|
|
$
|
16,390
|
|
Change in Control With Related Termination
|
|
$
|
45,600
|
|
|
|
–
|
|
|
$
|
32,780
|
|
|
|
|
(1) |
|
The amounts for health benefits were calculated by multiplying
our standard monthly rates for family health and dental benefits
by 12. |
Kimberly
K. Nelson
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of Unvested
|
Triggering Event
|
|
Salary
|
|
Stock Options
|
|
Termination Without Cause or for Good Reason Unrelated to Change
in Control
|
|
$
|
107,500
|
|
|
|
–
|
|
Termination Without Cause or for Good Reason Related to Change
in Control
|
|
$
|
215,000
|
|
|
|
–
|
|
Change in Control Without Related Termination
|
|
|
–
|
|
|
|
22,500
|
|
Change in Control With Related Termination
|
|
|
–
|
|
|
|
45,000
|
|
72
James J.
Frome
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of Unvested
|
Triggering Event
|
|
Salary & Bonus
|
|
Stock Options
|
|
Termination Without Cause or for Good Reason
|
|
$
|
107,500
|
|
|
|
–
|
|
Termination Without Cause or for Good Reason Related to Change
in Control
|
|
$
|
215,000
|
|
|
|
–
|
|
Change in Control Without Related Termination
|
|
$
|
46,000
|
|
|
$
|
939
|
|
Change in Control With Related Termination
|
|
$
|
46,000
|
|
|
$
|
1,878
|
|
Michael
J. Gray
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of Unvested
|
Triggering Event
|
|
Salary
|
|
Stock Options
|
|
Termination Without Cause or for Good Reason
|
|
$
|
92,000
|
|
|
|
–
|
|
Termination Without Cause or for Good Reason Related to Change
in Control
|
|
$
|
184,000
|
|
|
|
–
|
|
Change in Control Without Related Termination
|
|
|
–
|
|
|
|
51,000
|
|
Change in Control With Related Termination
|
|
|
–
|
|
|
|
102,000
|
|
David J.
Novak
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of Unvested
|
Triggering Event
|
|
Salary
|
|
Stock Options
|
|
Termination Without Cause or for Good Reason
|
|
$
|
107,500
|
|
|
|
–
|
|
Termination Without Cause or for Good Reason Related to Change
in Control
|
|
$
|
215,000
|
|
|
|
–
|
|
Change in Control Without Related Termination
|
|
|
–
|
|
|
$
|
20,706
|
|
Change in Control With Related Termination
|
|
|
–
|
|
|
$
|
41,412
|
|
Equity
and Stock Option Plans
2010
Equity Incentive Plan
In connection with this offering, we adopted our 2010 Equity
Incentive Plan, which we refer to as our 2010 Plan. The purposes
of the 2010 Plan are to attract and retain the best available
personnel, to provide them with additional incentives and to
align their interests with those of our stockholders. The
material terms of the 2010 Plan are summarized below.
Share Reserve. As of March 1, 2010, options to
purchase
shares of our common stock were outstanding under the 2010 Plan
and shares
were reserved for future issuance under the plan. The number of
shares reserved under our 2010 Plan will increase on January 1
of each year beginning in 2011 and ending on January 1,
2020 in an amount equal to the least of: 6% of the total number
of shares outstanding as of December 31 of the immediately
preceding calendar year or a number of shares determined by our
board of directors. Shares subject to awards under the plan that
expire unexercised, are forfeited, are settled in cash or are
surrendered pursuant to an exchange program will again become
available for grant under the plan. If any award under the 2010
Plan is exercised by the tendering or withholding of shares in
payment of the exercise price or any applicable tax withholding
arising from an award under the 2010 Plan is satisfied by the
tendering or withholding of shares, the shares tendered or
withheld also will again become available for grant under the
plan. The number of shares reserved for issuance under the 2010
Plan will also increase for each share subject to an award under
our 2001 Stock Option Plan and 1999 Equity Incentive Plan, which
are described below, that expires unexercised or otherwise does
not result in the issuance of shares subject to the award under
those plans.
Administration of Plan. The compensation committee of our
board of directors administers the 2010 Plan. Subject to the
terms of the plan, the compensation committee has the authority
to, among other things,
73
interpret the plan and determine who is granted awards under the
plan, the types of awards granted and the terms and conditions
of the awards, including the number of shares covered by awards,
the exercise price of awards and the vesting schedule or other
restrictions applicable to awards. The committee also has the
power to make any determinations and take any action necessary
or desirable for the administration of the plan. Determinations
of the committee under the plan may be made by a majority of the
committee members present at a meeting at which at least a
majority of the committee members are present.
To the extent permitted by law and stock exchange rules, the
2010 Plan permits the committee to delegate to one or more of
our executive officers or non-employee directors any or all of
the committee’s authority under the plan with respect to
awards made to individuals who are neither non-employee
directors nor executive officers of our company. Our full board
of directors administers the plan with respect to awards to
non-employee directors.
Eligibility. Our employees, non-employee directors and
certain consultants and advisors who provide services to us are
eligible to receive awards under the 2010 Plan. Incentive stock
options may be granted only to our employees.
Awards. The 2010 Plan allows us to grant stock options,
stock appreciation rights, or SARs, restricted stock, stock
units and other stock-based awards. Each award will be evidenced
by an agreement with the award recipient setting forth the terms
and conditions of the award, including vesting conditions.
Awards under the plan will have a maximum term of ten years from
the date of grant. The plan administrator may provide that the
vesting or payment of any award will be subject to the
attainment of certain performance measures established by the
administrator, and the administrator will determine whether such
measures have been achieved. The administrator at any time may
amend the terms of any award previously granted, except that, in
general, no amendment may be made that materially impairs the
rights of any participant with respect to an outstanding award
without the participant’s consent. In addition, we may
amend the plan and any award agreements under the plan in order
to ensure compliance with the requirements of Section 409A
of the Internal Revenue Code.
|
|
|
|
•
|
Stock Options. Stock options permit the holder to
purchase a specified number of shares of our common stock at a
set price. Options granted under the plan may be either
incentive or nonqualified stock options. The exercise price of
options granted under the plan generally may not be less than
the fair market value of our common stock on the date of grant.
Incentive stock options granted to employees who hold more than
10% of the total combined voting power of our stock will have an
exercise price not less than 110% of the fair market value of
our common stock on the date of grant and will have a maximum
term of five years. The plan administrator will determine the
terms and conditions of options granted under the plan,
including exercise price and vesting and exercisability terms.
The maximum number of shares subject to stock options that may
be granted during a calendar year to a participant may not
exceed .
|
|
|
•
|
SARs. SARs provide for payment to the holder of all or a
portion of the excess of the fair market value of a specified
number of shares of our common stock on the date of exercise
over a specified exercise price. Payment may be made in cash or
shares of our common stock or a combination of both, as
determined by the plan administrator. The administrator will
establish the terms and conditions of exercise, including the
exercise price, of SARs granted under the plan. The maximum
number of shares subject to SARs that may be granted during a
calendar year to a participant may not
exceed .
|
|
|
•
|
Restricted Stock. Restricted stock awards are awards of
shares of our common stock that are subject to restrictions
determined by the plan administrator, which may include vesting
conditions, forfeiture conditions and other restrictions. The
administrator will determine whether any consideration other
than services to our company must be paid for a restricted stock
award. The maximum number of shares of restricted stock that may
be granted during a calendar year to a participant may not
exceed .
|
|
|
•
|
Stock Units. Stock units provide the holder with the
right to receive, in cash or shares of our common stock or a
combination of both, the fair market value of a share of our
common stock and will be subject
|
74
|
|
|
|
|
to such vesting and forfeiture conditions and other restrictions
as the plan administrator determines. Stock unit awards may, at
the discretion of the plan administrator, provide the holder
with the right to receive dividend equivalent payments with
respect to the shares subject to the award. The administrator
will determine whether any consideration other than services to
our company must be paid for a stock unit award. The maximum
number of stock units that may be granted during a calendar year
to a participant may not
exceed .
|
|
|
|
|
•
|
Other. The plan administrator, in its discretion, may
grant other stock-based awards under the plan. The administrator
will set the terms and conditions of such awards.
|
Substitute Awards. The plan administrator may grant
awards under the 2010 Plan in substitution for awards granted by
another entity acquired by our company or with which our company
combines. The terms and conditions of these substitute awards
will be comparable to the terms of the awards replaced, and may
therefore differ from the terms and conditions otherwise set
forth in the plan.
Exchange Program. The plan administrator may institute an
exchange program under which outstanding stock options or SARs
are surrendered or canceled in exchange for stock options or
SARs of the same type (with higher or lower exercise prices or
different terms), awards of a different type or cash. The plan
administrator also may institute a program under which the
exercise price of an outstanding stock option or SAR is reduced.
Transferability. Unless otherwise determined by the plan
administrator, awards granted under the plan generally are not
transferable except by will or the laws of descent and
distribution or to an appropriately designated beneficiary. The
plan administrator may permit the transfer of awards other than
incentive stock options pursuant to a qualified domestic
relations order or by way of gift to a family member.
Termination of Service. Unless otherwise provided in an
award agreement (and except with respect to terminations
following certain corporate transactions described below under
“Change in Control; Corporate Transaction”), upon
termination of an award recipient’s service with our
company, all unvested and unexercisable portions of the
recipient’s outstanding awards will immediately be
forfeited. If an award recipient’s service with our company
terminates other than for cause (as defined in the plan), death
or disability, the vested and exercisable portions of the
recipient’s outstanding options and SARs generally will
remain exercisable for three months after termination. If a
recipient’s service terminates due to death or disability
(or if a recipient dies during the three-month period after
termination of service other than for cause), the vested and
exercisable portions of the recipient’s outstanding options
and SARs generally will remain exercisable for one year after
termination. Upon termination for cause, all unexercised stock
options and SARs will also be forfeited.
Change in Control; Corporate Transaction. Unless
otherwise provided in an award agreement, in the event of a sale
of all or substantially all of our assets or a merger,
consolidation, or share exchange involving our company, the
surviving or successor entity may continue, assume or replace
some or all of the outstanding awards under the 2010 Plan. Our
awards agreements with our executive officers will typically
provide that if awards granted to the executive officer under
the 2010 Plan are continued, assumed or replaced in connection
with such an event and if within one year after the event the
executive officer experiences an involuntary termination of
service other than for cause, the executive officer’s
outstanding awards will vest in full, will immediately become
fully exercisable and will remain exercisable for one year
following termination. If awards granted to any participant are
not continued, assumed or replaced, the administrator may
provide for the surrender of any outstanding award in exchange
for payment to the holder of the amount of the consideration
that would have been received in the event for the number of
shares subject to the award less the aggregate exercise price
(if any) of the award. In the event of a change in control (as
defined in the 2010 Plan) that does not involve a merger,
consolidation, share exchange, or sale of all or substantially
all of our company’s assets, the plan administrator, in its
discretion, may provide that any outstanding award will become
fully vested and exercisable upon the change in control or upon
the involuntary termination of the participant within one year
after the change in control or that any outstanding award will
be surrendered in exchange for payment to the holder of the
amount of the consideration that
75
would have been received in the change in control for the number
of shares subject to the award less the aggregate exercise price
(if any) of the award.
Adjustment of Awards. In the event of an
equity restructuring that affects the per share value of our
common stock, including a stock dividend, stock split, spinoff,
rights offering or recapitalization through an extraordinary
dividend, the plan administrator will make appropriate
adjustment to: (1) the number and kind of securities
reserved for issuance under the plan, (2) the number and
kind of securities subject to outstanding awards under the plan,
(3) the exercise price of outstanding options and SARs, and
(4) any maximum limitations prescribed by the plan as to
grants of certain types of awards. The administrator may also
make similar adjustments in the event of any other change in our
company’s capitalization, including a merger,
consolidation, reorganization or liquidation.
Amendment and Termination. The 2010 Plan will
remain in effect until terminated by our board of directors;
however we may not grant incentive stock options under the plan
more than ten years after its effective date, which we expect
will be shortly before the closing of this offering. Our board
of directors may terminate, suspend or amend the plan at any
time, but, in general, no termination, suspension or amendment
may materially impair the rights of any participant with respect
to outstanding awards without the participant’s consent.
Awards that are outstanding on the plan’s termination date
will remain in effect in accordance with the terms of the plan
and the applicable award agreements. Stockholder approval of any
amendment of the plan will be obtained if required by applicable
law or the rules of the Nasdaq stock market.
Registration. We intend to file with the SEC a
registration statement on
Form S-8
covering the shares of our common stock issuable under the 2010
Plan.
2001
Stock Option Plan
Our board of directors adopted our 2001 Stock Option Plan, which
we refer to as our 2001 Plan, in August 2001, and our
stockholders approved the plan in July 2002. The 2001 Plan has
been amended several times, primarily to change the number of
shares of our common stock available for issuance under the
plan, with the most recent amendment occurring in July 2008. The
2001 Plan provides for the grant of incentive and nonqualified
stock options to our employees, non-employee directors, and
other consultants who provide services to us. A total
of shares
of our common stock are reserved for issuance under the 2001
Plan. As
of ,
options to purchase a total
of shares
of our common stock with a weighted average exercise price of
$ were outstanding under our 2001
Plan. We do not intend to grant any additional awards under the
2001 Plan following the completion of this offering. All awards
outstanding under the 2001 Plan will remain in effect and will
continue to be governed by their existing terms after completion
of this offering.
Administration. The compensation committee of our board
of directors administers the 2001 Plan and the awards granted
under it, except that our full board of directors administers
the plan with respect to awards to non-employee directors. The
committee has the authority to, among other things, interpret
the plan, adopt and amend rules relating to the administration
of the plan and prescribe and amend the terms of outstanding
awards, including accelerating the vesting schedule of awards.
Stock Options. The exercise price of nonqualified stock
options granted under the 2001 Plan may not be less than 85% of
the fair market value of our common stock on the date of grant.
The exercise price of incentive stock options granted under the
plan to employees who at the time of grant own more than 10% of
the total combined voting power of all classes of our stock may
not be less than 110% of the fair market value of our common
stock on the date of grant, and the exercise price of incentive
stock options granted to any other employees may not be less
than 100% of the fair market value of our common stock on the
date of grant.
The stock options that are outstanding under the 2001 Plan
generally provide for vesting over four years. Options granted
to senior management and non-employee directors generally vest
as to 25% of the shares subject to option on the first
anniversary of the vesting commencement date and in 36 equal
monthly installments thereafter. Options granted to employees
other than senior management generally vest in 48
76
equal monthly installments. In addition, the administrator has
the authority to declare at any time that any or all outstanding
options shall immediately become exercisable in full.
Option Term. In general, stock options granted under the
2001 Plan have a maximum term of ten years from the date of
grant. Options awarded under the plan may be exercised while the
optionee is employed by or providing services to us, and, if an
optionee’s service relationship with us terminates (other
than due to death or disability or for cause (as defined in the
plan)), the optionee may exercise the vested portion of such
option for 30 days after such termination of service. If an
optionee’s service relationship with us terminates due to
death or disability, such option may be exercised for one year
following such termination.
Change in Control. In the event of a change in control
(as defined in the plan) of our company, (1) outstanding
incentive stock options granted to senior management generally
immediately become exercisable as to 50% of the unvested shares
subject to option and (2) outstanding nonqualified stock
options immediately become exercisable in full. Option
agreements for senior management also generally provide that if
the optionee’s employment with us is terminated, or the
optionee’s employment responsibilities or base salary are
materially reduced, other than for cause (as defined in the
plan) prior to the first anniversary of the change in control,
all remaining unvested shares subject to such option immediately
become fully exercisable. Further, upon a change in control the
administrator of the 2001 Plan may cancel some or all
outstanding stock options and pay the holders of such options
cash equal to the excess of the per share fair market value of
our common stock immediately prior to the change in control over
the exercise price per share of such options.
Corporate Event. In the event of a merger or
consolidation of our company with or into another entity, a sale
of all or substantially all of our assets or a dissolution or
liquidation of our company, the plan administrator may
(1) substitute for stock options outstanding under the plan
shares of stock or options to purchase stock of the surviving
company or its parent or (2) declare that all outstanding
options will be cancelled at the time of such event and cause
payment to be made to each option holder equal to, for each
share subject to the option, the excess of the proceeds per
share received in such event over the exercise price of the
option. In the event of such a declaration by the plan
administrator, all outstanding options will immediately become
exercisable in full. In addition, the plan administrator has
authority to adjust the number and kind of securities issuable
upon exercise of options under the plan, and the exercise price
thereof, in the event of a reorganization, merger,
consolidation, recapitalization, liquidation, reclassification,
stock dividend, stock split or combination, rights offering or
extraordinary dividend or other change in our corporate
structure.
Registration. We intend to file with the SEC a
registration statement on
Form S-8
covering the shares of our common stock issuable under the 2001
Plan.
1999
Equity Incentive Plan
We adopted our 1999 Equity Incentive Plan, which we refer to as
our 1999 Plan, in May 1999 and our stockholders approved the
1999 Plan in June 1999. The 1999 Plan permits the grant of
incentive and nonqualified stock options and restricted stock to
our employees, officers, directors and other consultants who
provide services to us. As
of ,
there were outstanding under the 1999 Plan options to purchase a
total
of shares
of our common stock with a weighted average exercise price of
$ .
There are no shares of unvested restricted stock outstanding
under the 1999 Plan.
Plan Expiration. The term of the 1999 Plan was ten years
and has expired. Consequently, we are no longer authorized to
issue any awards under the 1999 Plan. All awards outstanding
under the 1999 Plan will remain in effect and will continue to
be governed by their existing terms and the terms of the plan
after completion of this offering.
Administration. Our board of directors, or a committee
appointed by our board of directors, has the authority to
administer the 1999 Plan and the awards granted under it. The
compensation committee of our board of directors currently
administers the plan. The plan administrator has the authority
to, among other
77
things, interpret the plan, prescribe and amend rules relating
to the plan and amend the terms of outstanding awards, including
accelerating the vesting of awards.
Stock Options. In general, options granted under the 1999
Plan have a maximum term of ten years from the date of grant.
The exercise price of options granted under the 1999 Plan
generally is equal to the fair market value of our common stock
on the date of grant, unless otherwise determined by the plan
administrator. The exercise price of incentive stock options
granted under the 1999 Plan may not be less than the fair market
value of our common stock on the date of grant, and the exercise
price of incentive stock options granted to employees who at the
time of grant own more than 10% of the total combined voting
power of all classes of our stock may not be less than 110% of
the fair market value of our common stock on the date of grant.
Change in Control; Corporate Transactions. In the event
of a change in control (as defined in the 1999 Plan), the plan
administrator may determine that all outstanding awards will
immediately become fully vested and exercisable and will
terminate thirty days after the change in control. In the event
of a change in our capital structure by reason of a stock
dividend, stock split, reclassification, recapitalization,
merger, consolidation, share exchange, reorganization,
liquidation, extraordinary cash dividend or similar event, the
plan administrator has authority to adjust the number and class
of securities issuable upon exercise of options under the plan
and the terms and conditions of such options, including the
exercise price, and to provide for payment to option holders of
an amount equal to the difference between the then-current fair
market value of our common stock and the exercise prices of such
options.
Registration. We intend to file with the SEC a
registration statement on
Form S-8
covering the shares of our common stock issuable under the 1999
Plan.
401(k)
Plan
We maintain a deferred savings retirement plan for our
employees. The deferred savings retirement plan is intended to
qualify as a tax-qualified plan under Section 401 of the
Internal Revenue Code. The deferred savings retirement plan
provides that each participant may contribute his or her pre-tax
compensation (up to a statutory limit, which was $16,500 in
2009). For employees 50 years of age or older, an
additional
catch-up
contribution of $5,500 is allowable. In 2009, the statutory
limit for those who qualify for
catch-up
contributions was $22,000. Under the plan, each employee is
fully vested in his or her deferred salary contributions. On the
first day of the plan quarter following an employee’s
one-year anniversary of employment, we contribute 25% of the
first 6% of salary contributions made by an employee.
Compensation
Committee Interlocks and Insider Participation
None of the members of our compensation committee is or has at
any time during the last completed fiscal year been an officer
or employee of ours. None of our executive officers has served
as a member of the board of directors, or as a member of the
compensation or similar committee, of any entity that has one or
more executive officers who served on our board of directors or
compensation committee during the last completed fiscal year.
78
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Since January 1, 2006, we have entered into the following
transactions with our directors, executive officers, holders of
more than five percent of our voting securities, and affiliates
of our directors, executive officers and five percent
stockholders in addition to the matters described under
“Management”:
Sale of
Preferred Stock
In February 2006, we sold the following affiliated funds of our
directors shares of our Series B convertible preferred
stock at the price of $0.97875 per share.
|
|
|
|
•
|
BVCF IV, L.P., an affiliated fund of George H.
Spencer, III, purchased 494,570 shares
|
|
|
•
|
River Cities SBIC III L.P., an affiliated fund of Murray R.
Wilson, purchased 1,435,928 shares
|
|
|
•
|
St. Paul Venture Capital VI, LLC, an affiliated fund of Michael
B. Gorman, purchased 463,767 shares
|
In April 2007, we sold the following affiliated funds of our
directors shares of our Series C convertible preferred
stock at the price of $1.60 per share.
|
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|
•
|
BVCF IV, L.P., an affiliated fund of George H.
Spencer, III, purchased 250,000 shares
|
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|
•
|
CID Mezzanine Capital, L.P., an affiliated fund of Steve A.
Cobb, purchased 901,745 shares
|
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|
•
|
River Cities SBIC III L.P. and River Cities Capital Fund II
L.P., affiliated funds of Murray R. Wilson, purchased an
aggregate of 2,348,438 shares
|
|
|
•
|
St. Paul Venture Capital VI, LLC, an affiliated fund of Michael
B. Gorman, purchased 468,750 shares
|
Voting
and Co-Sale Agreement
The election of the members of our board of directors is
governed by a voting and co-sale agreement that we entered into
with certain holders of our capital stock and related provisions
of our certificate of incorporation. The voting agreement
requires these stockholders to vote in favor of nominees of CID
Capital, Inc., St. Paul Venture Capital V, LLC, BVCF IV,
L.P., River Cities SBIC III L.P., a majority of the
Series B convertible preferred stock, which nominee may not
be affiliated with any officer or director of our company, and a
majority of the Series C convertible preferred stock, which
nominee may not be affiliated with any officer or director of
our company. In addition, our chief executive officer is to be
elected to the board. CID Capital, Inc. has nominated Steve
Cobb; St. Paul Venture Capital V, LLC has nominated Michael
Gorman; BVCF IV, L.P. has nominated George Spencer; River Cities
SBIC III L.P. has nominated Murray Wilson, a majority of the
Series B convertible preferred stock has nominated Martin
J. Leestma and a majority of the Series C convertible
preferred stock has nominated Sven A. Wehrwein.
In addition, under the voting and co-sale agreement our
preferred stockholders are granted a right of first refusal to
purchase shares of our capital stock held by the stockholders
party to this agreement, rights of co-sale in the event of a
sale of our capital stock held by the stockholders party to this
agreement and drag-along rights that require the stockholders
party to this agreement to participate in a sale of the company
if the sale is approved by a certain percentage of the
stockholders party to the agreement.
Upon the closing of this offering, the voting and co-sale
agreement will terminate in its entirety and none of our
stockholders will have any special rights regarding the election
or designation of members of our board of directors or the other
rights granted under this agreement.
Registration
Rights Agreement
We are party to a registration rights agreement which generally
provides that holders of our redeemable convertible preferred
stock have the right to demand that we file a registration
statement or request that their shares be covered by a
registration statement that we are otherwise filing. After
giving effect to
the
for
reverse stock split that will occur immediately prior to the
consummation of this offering and the automatic conversion of
our preferred stock, the holders
of shares
of our common stock will have
79
these registration rights, which will survive the closing of
this offering. Certain of our directors and executive officers
and all holders of 5% of our capital stock and all other selling
stockholders are parties to this agreement. Entities affiliated
with Steve A. Cobb, Michael B. Gorman, George H. Spencer, III
and Murray R. Wilson hold shares representing 23%, 18%, 18% and
23% of the shares subject to the agreement. For a more detailed
description of these registration rights, see “Description
of Capital Stock – Registration Rights.”
2009
Stock Option Amendments
On July 23, 2009, we unilaterally amended the terms of
certain stock options granted to 17 employees and one
director, including Kimberly K. Nelson, James J. Frome and Sven
A. Wehrwein, to reduce the exercise price for all of the shares
subject to each option to $0.81 per share, which was the
fair market value of our common stock on the date of the
amendments. On April 1, 2009, we unilaterally amended the
terms of certain stock options granted to three employees,
including Michael J. Gray, to reduce the exercise price for all
of the shares subject to each option from $0.92 to $0.65 per
share, which was the fair market value of our common stock on
the date of the amendments. None of these amendments affected
the vesting provisions or the number of shares subject to any of
the option awards and none of the holders of these options made
any investment decisions in connection with the amendments.
Director
Indemnification Agreements
We entered into indemnification agreements with each of our
directors that provide, in general, that we will indemnify them
to the fullest extent permitted by law in connection with their
service to us or on our behalf.
Policy
for Approval of Related Party Transactions
In connection with this offering, our board of directors adopted
a written statement of policy regarding transactions with
related persons, which we refer to as our related person policy.
Our related person policy requires that any executive officer
requesting to enter into a transaction with a “related
person” generally must promptly disclose to our audit
committee the related person transaction and all material facts
with respect thereto. In reviewing a transaction, our audit
committee will consider all relevant facts and circumstances,
including (1) the commercial reasonableness of the terms,
(2) the benefit and perceived benefits, or lack thereof, to
us, (3) opportunity costs of alternate transactions and
(4) the materiality and character of the related
person’s interest, and the actual or apparent conflict of
interest of the related person. Our audit committee will not
approve or ratify a related person transaction unless it
determines that, upon consideration of all relevant information,
the transaction is beneficial to our company and stockholders
and the terms of the transaction are fair to our company. No
related person transaction will be consummated without the
approval or ratification of our audit committee. It will be our
policy that directors interested in a related person transaction
will recuse themselves from any vote relating to a related
person transaction in which they have an interest. Under our
related person policy, a “related person” includes any
of our directors, director nominees, executive officers, any
beneficial owner of more than 5% of our common stock and any
immediate family member of any of the foregoing. Related party
transactions exempt from our policy include transactions
available to all of our employees and stockholders on the same
terms and transactions between us and the related person that,
when aggregated with the amount of all other transactions
between us and the related person or its affiliates, involve
less than $120,000 in a fiscal year. We did not have a formal
review and approval policy for related party transactions at the
time of any transaction described in this “Certain
Relationships and Related Party Transactions” section.
80
PRINCIPAL
AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect
to the beneficial ownership of our outstanding common stock as
of ,
2010 by (i) each of our named executive officers;
(ii) each of our directors; (iii) all of our executive
officers and directors as a group; (iv) each of those known
by us to be beneficial owners of more than 5% of our common
stock; and (v) our other stockholders selling shares in this
offering. This table lists applicable percentage ownership based
on shares
of common stock outstanding as of that date.
Beneficial ownership is determined in accordance with the rules
of the SEC. To our knowledge and subject to applicable community
property laws, each of the holders of stock listed below has
sole voting and investment power as to the stock owned unless
otherwise noted. The table below includes the number of shares
underlying options which are exercisable within 60 days
from the date of this offering. Except as otherwise noted below,
the address for each director, officer or 5% stockholder listed
in the table is
c/o SPS
Commerce, Inc., 333 South Seventh Street, Suite 1000,
Minneapolis, Minnesota 55402. The 5% stockholders who are
selling shares in this offering and the other selling
stockholders are parties to a registration rights agreement and
voting and co-sale agreement to which we are also a party. See
“Certain Relationships and Related Party Transactions.”
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Beneficial Ownership
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Prior to Offering
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Beneficial Ownership After this Offering
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Percent
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Percent
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Number
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(assuming no
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(assuming full
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of Shares
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exercise of
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exercise of
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Name
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Number
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Percent
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Offered
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Number
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over-allotment)
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over-allotment)
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Executive Officers and Directors:
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Archie C. Black
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(1
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)
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%
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%
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%
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Steve A. Cobb
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(2
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)
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%
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%
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%
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James J. Frome
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(3
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)
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%
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%
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%
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Michael J. Gray
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(4
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)
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%
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%
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%
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Michael B. Gorman
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(5
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)
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%
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%
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%
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Martin J. Leestma
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(6
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)
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%
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%
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%
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Kimberly K. Nelson
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(7
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)
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%
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%
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%
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David J. Novak, Jr.
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(8
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)
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%
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%
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%
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George H. Spencer, III
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(9
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)
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%
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%
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%
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Sven A. Wehrwein
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(10
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%
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%
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%
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Murray R. Wilson
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(11
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)
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%
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%
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%
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Executive officers and directors as a group (11 persons)
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%
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%
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%
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5% Stockholders:
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BVCF IV, LP
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(9
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)
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%
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%
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%
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Funds affiliated with CID Capital
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(2
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%
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%
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%
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Funds affiliated with River Cities Capital Funds
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(11
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%
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%
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%
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Funds affiliated with Split Rock Partners
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(5
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%
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%
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%
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81
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Beneficial Ownership
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Prior to Offering
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Beneficial Ownership After this Offering
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Percent
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Percent
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Number
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(assuming no
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(assuming full
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of Shares
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exercise of
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exercise of
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Name
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Number
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Percent
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Offered
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Number
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over-allotment)
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over-allotment)
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Other Selling Stockholders:
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Steven Addis, trustee of the Steven Addis Trust u/d/t 7/28/92
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%
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%
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%
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PV Securities Corporation
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%
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%
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%
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Axiom Venture Partners II Limited Partnership
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%
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%
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%
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BlueCrest Venture Finance Master Fund Limited
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%
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%
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%
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Barry M. Bloom
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%
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%
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%
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Thomas Domencich
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%
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%
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%
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ML Partners
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%
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%
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%
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Granite Private Equity II, LLC
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%
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%
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%
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Pacific Capital Ventures, LLC.
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%
|
|
|
|
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%
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%
|
Casimir Skrzypczak
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%
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%
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%
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JAMIT, LLC.
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%
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%
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%
|
Ronald Karlsberg
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(12
|
)
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%
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%
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%
|
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* |
|
Indicates ownership of less than 1%. |
|
(1) |
|
Includes shares
owned by the Archie C. and Jane McDonald Black Charitable Trust
(the “Charitable Trust”) for which Mr. Black serves as
a co-trustee
and shares
subject to options that are exercisable within 60 days of
the date of the table. Mr. Black may be deemed to have shared
voting and investment power over the shares held by the
Charitable Trust, but disclaims beneficial ownership of such
shares. |
|
(2) |
|
Includes shares
owned by CID Equity Fund V Liquidating Trust (the “CID
Trust”)
and shares
owned by CID Mezzanine Capital, LP (“CID Mezzanine
Capital”). Mr. Cobb is a representative to an advisory
board that controls the voting and disposition of the shares
held by the CID Trust and CID Mezzanine Capital. Mr. Cobb
may be deemed to have shared voting and investment power over
the shares held by the CID Trust and CID Mezzanine Capital.
Mr. Cobb disclaims beneficial ownership of such shares,
except to the extent of his pecuniary interest therein. The
address of the CID Trust and CID Mezzanine Capital is
201 W. 103rd Street, Suite 200, Indianapolis, IN
46290. |
|
(3) |
|
Includes shares
subject to options that are exercisable within 60 days of
the date of the table. |
|
(4) |
|
Includes shares
subject to options that are exercisable within 60 days of
the date of the table. |
|
(5) |
|
Includes shares
held by SPVC IV,
LLC, shares
held by SPVC V,
LLC, shares
held by SPVC VI, LLC
and shares
held by SPVC Affiliates Fund I, LLC. Split Rock Partners,
LLC, together with Vesbridge Partners, LLC, is the manager of
SPVC IV, LLC, SPVC V, LLC, SPVC VI, LLC and SPVC Affiliates
Fund I, LLC, however voting and investment power are
delegated solely to Split Rock Partners, LLC. Michael Gorman,
James Simons, David Stassen and Allan Will, as managing
directors of Split Rock Partners, LLC, share voting and
investment power with respect to the shares. Voting and
investment power over shares held by each of the named funds
above may be deemed to be shared with each of the managing
directors and Split Rock Partners, LLC due to the affiliate
relationships described above. Each of the managing directors
and Split Rock Partners, LLC disclaims any beneficial ownership |
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of the shares, except to the extent of any pecuniary interest
therein. The address for each of these SPVC funds is 10400
Viking Drive, Suite 550, Minneapolis, MN 55344. |
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(6) |
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Includes shares
subject to options that are exercisable within 60 days of
the date of the table. |
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(7) |
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Includes shares
subject to options that are exercisable within 60 days of
the date of the table. |
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(8) |
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Includes shares
subject to options that are exercisable within 60 days of
the date of the table. |
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(9) |
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Includes shares
held by BVCF IV, LP. Mr. Spencer is a partner in
BVCF IV, LP and may be deemed to have shared voting and
investment power over the shares held by BVCF IV, LP.
Mr. Spencer disclaims beneficial ownership of such shares,
except to the extent of his pecuniary interest therein. The
address for BVCF IV, LP is One N. Wacker Drive, Chicago, IL
60606. |
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(10) |
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Includes shares
subject to options that are exercisable within 60 days of
the date of the table. |
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(11) |
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Includes shares
owned by River Cities Capital Fund II Limited
Partnership
and shares
owned by River Cities SBIC III, L.P. Mr. Wilson is a
special consultant to the general partner of River Cities
Capital Fund II Limited Partnership and River Cities SBIC
III, L.P. Mr. Wilson may be deemed to have shared voting
and investment power over the shares held by River Cities
Capital Fund II Limited Partnership and River Cities SBIC
III, L.P. Mr. Wilson disclaims beneficial ownership of such
shares, except to the extent of his pecuniary interest therein.
The address for each of these River Cities funds is 221 East
Fourth Street, Suite 2400, Cincinnati, OH 45202. |
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(12) |
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Includes shares
held by Ronald Karlsberg as trustee for the benefit of R.P.
Karlsberg Cardiovascular Medical Group of Southern California
401K Profit Sharing Plan, dated 1/1/1989. |
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DESCRIPTION
OF CAPITAL STOCK
The following is a description of the material provisions of
our capital stock, as well as other material terms of our
amended and restated certificate of incorporation and amended
and restated bylaws as they will be in effect as of the
consummation of the offering. We refer you to the form of our
amended and restated certificate of incorporation and to the
form of our amended and restated bylaws, copies of which have
been filed as exhibits to the registration statement of which
this prospectus is a part.
Authorized
Capital
Prior to the completion of this offering, our authorized capital
stock consists of (without giving effect to
the
for
reverse stock split of our common stock to be effected
immediately prior to completion of this offering):
(1) 50,345,706 shares of common stock and
(2) 33,927,144 shares of preferred stock, including
4,427,782 shares of Series A convertible preferred
stock, 23,499,362 shares of Series B convertible
preferred stock and 6,000,000 shares of Series C
convertible preferred stock. As of December 31, 2009, there
were 183 holders of record of our common stock, 27 holders of
record of our Series A convertible preferred stock, 15
holders of record of our Series B convertible preferred
stock and 10 holders of record of our Series C convertible
preferred stock.
Upon completion of this offering, we will amend and restate our
certificate of incorporation to provide that our authorized
capital stock will consist of
(1) shares
of common stock and
(2) shares
of preferred stock. Upon completion of this offering, all
currently outstanding shares of our preferred stock will be
converted into shares of a single class of common stock.
Immediately following the completion of this offering, we expect
to
have shares
of common stock and no shares of preferred stock outstanding
(or shares
of common stock and no shares of preferred stock outstanding if
the underwriters exercise in full their option to purchase
additional shares to cover overallotments, if any).
Common
Stock
Voting. Except as otherwise required by Delaware law, at
every annual or special meeting of stockholders, every holder of
common stock is entitled to one vote per share. There is no
cumulative voting in the election of directors.
Dividends Rights. Subject to preferences that may be
applicable to any outstanding series of preferred stock, the
holders of our common stock will receive ratably any dividends
declared by our board of directors out of funds legally
available for the payment of dividends. It is our present
intention not to pay dividends on our common stock for the
foreseeable future. Our board of directors may, at its
discretion, modify or repeal our dividend policy. Future
dividends, if any, with respect to shares of our common stock
will depend on, among other things, our results of operations,
cash requirements, financial condition, contractual
restrictions, provisions of applicable law and other factors
that our board of directors deems relevant. Our credit agreement
currently limits our ability to pay cash dividends. See
“Dividend Policy.”
Liquidation and Preemptive Rights. In the event of our
liquidation, dissolution or
winding-up,
the holders of our common stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to
prior distribution rights of preferred stock, if any, then
outstanding. The holders of our common stock have no preemptive
or other subscription rights.
Preferred
Stock
Our charter provides that we may issue up
to shares
of preferred stock in one or more series as may be determined by
our board of directors. Our board has broad discretionary
authority with respect to the rights of any new series of
preferred stock and may establish the following with respect to
the shares to be included in each series, without any vote or
action of the stockholders:
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the number of shares;
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the designations, preferences and relative rights, including
voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences; and
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any qualifications, limitations or restrictions.
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We believe that the ability of our board to issue one or more
series of preferred stock will provide us with flexibility in
structuring possible future financings and acquisitions, and in
meeting other corporate needs that may arise. The authorized
shares of preferred stock, as well as authorized and unissued
shares of common stock, will be available for issuance without
action by our stockholders, unless such action is required by
applicable law or the rules of any stock exchange or automated
quotation system on which our securities may be listed or traded.
Our board may authorize, without stockholder approval, the
issuance of preferred stock with voting and conversion rights
that could adversely affect the voting power and other rights of
holders of common stock. Although our board has no current
intention of doing so, it could issue a series of preferred
stock that could, depending on the terms of such series, impede
the completion of a merger, tender offer or other takeover
attempt of our company. Our board could also issue preferred
stock having terms that could discourage an acquisition attempt
through which an acquiror may be able to change the composition
of our board, including a tender offer or other transaction that
some, or a majority, of our stockholders might believe to be in
their best interests or in which stockholders might receive a
premium for their stock over the then-current market price. Any
issuance of preferred stock therefore could have the effect of
decreasing the market price of our common stock.
Our board will make any determination to issue such shares based
on its judgment as to our best interests of our company and
stockholders. We have no current plan to issue any preferred
stock after this offering.
Registration
Rights
After the completion of this offering, the holders of
approximately shares
of our common stock will be entitled to certain registration
rights.
Demand
Registration Rights
After the completion of this offering, we will be obligated to
effect up to four registrations as requested by the holders of
our common stock having registration rights, including two that
may be on
Form S-1.
A request for registration must cover at least 20% in the
aggregate of the then outstanding shares, on a fully diluted
basis, entitled to registration rights. We may delay the filing
of a registration statement in connection with a demand
registration for a period of up to 120 calendar days upon the
advice of the investment banker(s) and manager(s) that will
administer the offering.
Piggyback
Registration Rights
After the completion of this offering, in the event that we
propose to register any of our securities under the Securities
Act (except for the registration of securities to be offered
pursuant to an employee benefit plan on
Form S-8
or pursuant to a registration made on
Form S-4
or any successor forms then in effect), we will include in these
registrations all securities with respect to which we have
received written requests for inclusion under our registration
rights agreement, but subject to certain limitations.
We will not make any public sale or distribution of any of our
securities during the seven days prior to and the 90 days
after the effective date of any underwritten demand registration
or any underwritten piggyback registration unless the managing
underwriters agree otherwise. We will not register any of our
securities until at least three months has elapsed from the
effective date of the previous registration (except for the
registration of securities to be issued in connection with
employee benefit plans, to permit exercise or conversions of
previously issued options, warrants, or other convertible
securities or in connection with a demand registration). We will
pay substantially all of the registration expenses of the
holders of the shares registered pursuant to the demand and
piggyback registrations described above.
Anti-Takeover
Provisions
Delaware
Law
We are subject to Section 203 of the Delaware General
Corporation Law. Section 203 generally prohibits a public
Delaware corporation from engaging in a “business
combination” with an “interested stockholder” for
85
a period of three years after the date of the transaction in
which the person became an interested stockholder, unless:
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prior to the date of the transaction, the board of directors of
the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an
interested stockholder;
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the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of
shares outstanding (a) shares owned by persons who are
directors and also officers and (b) shares owned by
employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange
offer; or
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on or subsequent to the date of the transaction, the business
combination is approved by the board of directors and authorized
at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least two-thirds
of the outstanding voting stock which is not owned by the
interested stockholder.
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Section 203 defines a business combination to include:
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any merger or consolidation involving the corporation and the
interested stockholder;
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any sale, transfer, pledge or other disposition involving the
interested stockholder of 10% or more of the assets of the
corporation;
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subject to exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder; and
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the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
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In general, Section 203 defines an interested stockholder
as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or
person affiliated with or controlling or controlled by the
entity or person.
Certificate
of Incorporation and Bylaws
Provisions of our amended and restated certificate of
incorporation and amended and restated bylaws, each of which
will become effective upon the closing of this offering, may
delay or discourage transactions involving an actual or
potential change in control of our company or change in our
management, including transactions in which stockholders might
otherwise receive a premium for their shares, or transactions
that our stockholders might otherwise deem to be in their best
interests. Therefore, these provisions could adversely affect
the price of our common stock. Among other things, our amended
and restated certificate of incorporation and amended and
restated bylaws:
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provide for our board of directors to be divided into three
classes with staggered three-year terms, with only one class of
directors being elected at each annual meeting of our
stockholders and the other classes continuing for the remainder
of their respective three-year terms;
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permit our board of directors to issue up
to shares
of preferred stock, with any rights, preferences and privileges
as they may designate, including the right to approve an
acquisition or other change in our control;
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provide that the authorized number of directors may be changed
by resolution of the board of directors;
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provide that all vacancies, including newly created
directorships, may, except as otherwise required by law, be
filled by the affirmative vote of a majority of directors then
in office, even if less than a quorum;
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provide that stockholders seeking to present proposals before a
meeting of stockholders or to nominate candidates for election
as directors at a meeting of stockholders must provide notice in
writing in a timely manner, and also specify requirements as to
the form and content of a stockholder’s notice; and
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do not provide for cumulative voting rights (therefore allowing
the holders of a majority of the shares of common stock entitled
to vote in any election of directors to elect all of the
directors standing for election, if they should so choose).
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Limitation
on Liability of Directors and Indemnification
Our amended and restated certificate of incorporation, in the
form that will become effective upon the closing of this
offering, limits the liability of our directors to the fullest
extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as
directors, except for liability for any:
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breach of their duty of loyalty to us or our stockholders;
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act or omission not in good faith or that involves intentional
misconduct or a knowing violation of law;
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unlawful payment of dividends or redemption of shares as
provided in Section 174 of the Delaware General Corporation
Law; or
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transaction from which the directors derived an improper
personal benefit.
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These limitations of liability do not apply to liabilities
arising under federal securities laws and do not affect the
availability of equitable remedies such as injunctive relief or
rescission.
Our amended and restated bylaws, in the form that will become
effective upon the closing of this offering, provide that we
will indemnify and advance expenses to our directors and
officers to the fullest extent permitted by law or, if
applicable, pursuant to indemnification agreements. They further
provide that we may choose to indemnify other employees or
agents of the corporation from time to time. Section 145(g)
of the Delaware General Corporation Law and our amended and
restated bylaws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability
arising out of his or her actions in connection with their
services to us, regardless of whether our bylaws permit
indemnification. We obtained a directors’ and
officers’ liability insurance policy.
We entered into indemnification agreements with each of our
directors that provide, in general, that we will indemnify them
to the fullest extent permitted by law in connection with their
service to us or on our behalf.
At present, there is no pending litigation or proceeding
involving any of our directors or officers as to which
indemnification is required or permitted, and we are not aware
of any threatened litigation or proceeding that may result in a
claim for indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission this
indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock is Wells
Fargo Shareowner Services.
Nasdaq
Stock Market
We have applied to have our common stock listed on the Nasdaq
Capital Market under the symbol “SPSC.”
87
SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there was no public market for our
common stock, and a liquid trading market for the common stock
may not develop or be sustained after this offering. We cannot
predict the effect, if any, that market sales of shares of our
common stock or the availability of shares of our common stock
for sale will have on the market price of our common stock.
Sales of substantial amounts of our common stock in the public
market, including shares issued upon exercise of outstanding
options or in the public market after this offering, or the
anticipation of these sales, could adversely affect the market
prices of our common stock and could impair our future ability
to raise capital through the sale of our equity securities.
Upon completion of this offering, based on our outstanding
shares as
of ,
2010, and assuming no exercise of outstanding options or
warrants, we will have outstanding an aggregate
of shares
of our common stock
( shares
if the underwriters’ over-allotment option is exercised in
full). Of these shares, all of the shares sold in this offering
(plus any shares sold as a result of the underwriters’
exercise of the over-allotment option) will be freely tradable
without restriction or further registration under the Securities
Act, unless those shares are purchased by our affiliates as that
term is defined in Rule 144 under the Securities Act.
The
remaining shares
of common stock to be outstanding after this offering will be
“restricted securities” under Rule 144. Of these
restricted
securities, shares
will be subject to transfer restrictions for 180 days from
the date of this prospectus pursuant to market stand-off
agreements. Restricted securities may be sold in the public
market only if they have been registered or if they qualify for
an exemption from registration under Rules 144 or 701 under
the Securities Act.
Lock-up
Agreements
All of our officers and directors, and holders
of shares
of our common stock and holders
of shares
of our common stock issuable upon exercise of outstanding
options, in each case after giving effect to
a
for
reverse stock split of our common stock that will occur
immediately prior to the closing of this offering, have entered
into lock-up
agreements pursuant to which they have agreed, subject to
limited exceptions, not to offer, sell or otherwise transfer or
dispose of, directly or indirectly, any shares of common stock
or securities convertible into or exchangeable or exercisable
for shares of common stock for a period of 180 days from
the date of this prospectus without our prior written consent
or, in some cases, the prior written consent of Thomas Weisel
Partners LLC. Thomas Weisel Partners LLC has advised us that it
has no current intent or arrangement to release any of the
shares subject to the
lock-up
agreements prior to the expiration of the
lock-up
period. There are no contractually specified conditions for the
waiver of
lock-up
restrictions and any waiver is at the sole discretion of Thomas
Weisel Partners LLC, which may be granted by Thomas Weisel
Partners LLC for any reason. The
180-day
lock-up
period will be automatically extended if (i) during the
last 17 days of the
180-day
restricted period we issue an earnings release or announce
material news or a material event or (ii) prior to the
expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
15-day
period following the last day of the
180-day
period, in which case the restrictions described in this
paragraph will continue to apply until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
announcement of the material news or material event. After the
lock-up
period, these shares may be sold, subject to applicable
securities laws. See “Underwriting.”
Rule 144
In general, and beginning 90 days after the date of this
prospectus, under Rule 144 as in effect on the date of this
prospectus, a person who is not one of our affiliates at any
time during the three months preceding a sale, and who has
beneficially owned shares of our common stock for at least six
months, would be entitled to sell an unlimited number of shares
of our common stock provided current public information about us
is available and, after owning such shares for at least one
year, would be entitled to sell an unlimited number of shares of
our common stock without restriction. Beginning 90 days
after the date of this prospectus, our
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affiliates who have beneficially owned shares of our common
stock for at least six months are entitled to sell within any
three-month period a number of shares that does not exceed the
greater of:
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1% of the number of shares of our common stock then
outstanding; or
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the average weekly trading volume of our common stock on the
Nasdaq Capital Market during the four calendar weeks preceding
the filing of a notice on Form 144 with respect to the sale.
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Sales under Rule 144 by our affiliates are also subject to
manner of sale provisions and notice requirements and to the
availability of current public information about us.
Upon expiration of the
lock-up
period described
above, additional
shares of our common stock will be eligible for sale under
Rule 144, including shares eligible for resale immediately
upon the closing of this offering as described above. We cannot
estimate the number of shares of our common stock that our
existing stockholders will elect to sell under Rule 144.
Options
and Warrants
Upon completion of this offering, stock options to purchase a
total
of shares
of our common stock will be outstanding with a weighted average
per share exercise price of $ and
expiration dates
between
and .
We have reserved an
additional shares
of common stock for issuance pursuant to our 2010 Equity
Incentive Plan. This number is subject to increase on an annual
basis and subject to increase for shares of stock subject to
awards under our prior equity plans that expire unexercised or
otherwise do not result in the issuance of shares subject to the
award. Upon completion of this offering, warrants to purchase a
total
of shares
of our common stock will be outstanding with a weighted average
per share exercise price of $ and
expiration dates
between
and .
In general, under Rule 701 of the Securities Act as
currently in effect, any of our employees, consultants or
advisors who purchase shares of our common stock from us
pursuant to options granted prior to the completion of this
offering under our existing stock option plan or other written
agreement is eligible to resell those shares 90 days after
the effective date of this offering in reliance on
Rule 144, but without compliance with some of the
restrictions, including the holding period, contained in
Rule 144. Additionally, following the consummation of this
offering, we intend to file one or more registration statements
on
Form S-8
under the Securities Act to register the sale of shares issued
or issuable upon the exercise of all these stock options. The
registration statements will become effective upon filing.
Subject to the exercise of issued and outstanding options and
contractual restrictions, shares of our directors and executive
officers to which Rule 701 is applicable or which are to be
registered under the registration statement on
Form S-8
will be available for sale into the public market after the
expiration of the
180-day
lock-up
agreements with the underwriters, subject to the vesting
requirements.
Registration
Rights
After the completion of this offering, holders
of shares
of common stock will be entitled to specific rights to register
those shares for sale in the public market. See
“Description of Capital Stock – Registration
Rights.” Registration of these shares under the Securities
Act would result in the shares becoming freely tradable without
restriction under the Securities Act, except for shares
purchased by affiliates, immediately upon the effectiveness of
the registration statement relating to such shares.
89
MATERIAL
U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-U.S.
HOLDERS OF OUR COMMON STOCK
The following discussion summarizes certain material
U.S. federal income and estate tax considerations relating
to the acquisition, ownership and disposition of our common
stock purchased pursuant to this offering by a
non-U.S. holder
(as defined below). This discussion is based on the provisions
of the U.S. Internal Revenue Code of 1986, as amended,
final, temporary and proposed U.S. Treasury regulations
promulgated thereunder and current administrative rulings and
judicial decisions, all as in effect as of the date hereof. All
of these authorities may be subject to differing interpretations
or repealed, revoked or modified, possibly with retroactive
effect, which could materially alter the tax consequences to
non-U.S. holders
described in this prospectus.
There can be no assurance that the IRS will not take a contrary
position to the tax consequences described herein or that such
position will not be sustained by a court. No ruling from the
IRS or opinion of counsel has been obtained with respect to the
U.S. federal income or estate tax consequences to a
non-U.S. holder
of the purchase, ownership or disposition of our common stock.
This discussion is for general information only and is not
tax advice. All prospective
non-U.S. holders
of our common stock should consult their own tax advisors with
respect to the U.S. federal, state, local and
non-U.S. tax
consequences of the purchase, ownership and disposition of our
common stock.
As used in this discussion, the term
“non-U.S. holder”
means a beneficial owner of our common stock that is not any of
the following for U.S. federal income tax purposes:
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an individual who is a citizen or a resident of the United
States;
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a corporation or other entity taxable as a corporation for
U.S. federal income tax purposes that was created or
organized in or under the laws of the United States, any state
thereof or the District of Columbia;
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an estate whose income is subject to U.S. federal income
taxation regardless of its source;
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a trust (a) if a U.S. court is able to exercise
primary supervision over the trust’s administration and one
or more U.S. persons have the authority to control all of
the trust’s substantial decisions or (b) that has a
valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person; or
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an entity that is disregarded as separate from its owner if all
of its interests are owned by a single person described above.
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An individual may be treated, for U.S. federal income tax
purposes, as a resident of the United States in any calendar
year by being present in the United States on at least
31 days in that calendar year and for an aggregate of at
least 183 days during a three-year period ending in the
current calendar year. The
183-day test
is determined by counting all of the days the individual is
treated as being present in the current year, one-third of such
days in the immediately preceding year and one-sixth of such
days in the second preceding year. Residents are subject to
U.S. federal income tax as if they were U.S. citizens.
This discussion assumes that a prospective
non-U.S. holder
will hold shares of our common stock as a capital asset
(generally, property held for investment). This discussion does
not address all aspects of U.S. federal income and estate
taxation that may be relevant to a particular
non-U.S. holder
in light of that
non-U.S. holder’s
individual circumstances. In addition, this discussion does not
address any aspect of U.S. state or local or
non-U.S. taxes,
or the special tax rules applicable to particular
non-U.S. holders,
such as:
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insurance companies and financial institutions;
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tax-exempt organizations;
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controlled foreign corporations and passive foreign investment
companies;
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partnerships or other pass-through entities;
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regulated investment companies or real estate investment trusts;
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pension plans;
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persons who received our common stock as compensation;
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brokers and dealers in securities;
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owners that hold our common stock as part of a straddle, hedge,
conversion transaction, synthetic security or other integrated
investment; and
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former citizens or residents of the United States subject to tax
as expatriates.
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If a partnership or other entity treated as a partnership for
U.S. federal income tax purposes is a beneficial owner of
our common stock, the treatment of a partner in the partnership
generally will depend on the status of the partner and the
activities of the partnership. We urge any beneficial owner of
our common stock that is a partnership and partners in that
partnership to consult their tax advisors regarding the
U.S. federal income tax consequences of acquiring, owning
and disposing of our common stock.
Distributions
on Our Common Stock
Any distribution on our common stock paid to
non-U.S. holders
will generally constitute a dividend for U.S. federal
income tax purposes to the extent paid from our current or
accumulated earnings and profits, as determined under
U.S. federal income tax principles. Distributions in excess
of our current and accumulated earnings and profits will
generally constitute a return of capital to the extent of the
non-U.S. holder’s
adjusted tax basis in our common stock, and will be applied
against and reduce the
non-U.S. holder’s
adjusted tax basis. Any remaining excess will be treated as
capital gain, subject to the tax treatment described below in
“– Gain on Sale, Exchange or Other Disposition of
Our Common Stock.”
Dividends paid to a
non-U.S. holder
that are not treated as effectively connected with the
non-U.S. holder’s
conduct of a trade or business in the United States generally
will be subject to withholding of U.S. federal income tax
at a rate of 30% on the gross amount paid, unless the
non-U.S. holder
is entitled to an exemption from or reduced rate of withholding
under an applicable income tax treaty. In order to claim the
benefit of a tax treaty or to claim an exemption from
withholding, a
non-U.S. holder
must provide a properly executed IRS
Form W-8BEN
(or successor form) prior to the payment of dividends. A
non-U.S. holder
eligible for a reduced rate of withholding pursuant to an income
tax treaty may be eligible to obtain a refund of any excess
amounts withheld by timely filing an appropriate claim for a
refund with the IRS.
Dividends paid to a
non-U.S. holder
that are treated as effectively connected with a trade or
business conducted by the
non-U.S. holder
within the United States (and, if an applicable income tax
treaty so provides, are also attributable to a permanent
establishment or a fixed base maintained within the
United States by the
non-U.S. holder)
are generally exempt from the 30% withholding tax if the
non-U.S. holder
satisfies applicable certification and disclosure requirements.
To obtain the exemption, a
non-U.S. holder
must provide us with a properly executed IRS
Form W-8ECI
(or successor form) prior to the payment of the dividend.
Dividends received by a
non-U.S. holder
that are treated as effectively connected with a U.S. trade
or business generally are subject to U.S. federal income
tax at rates applicable to U.S. persons. A
non-U.S. holder
that is a corporation may, under certain circumstances, be
subject to an additional “branch profits tax” imposed
at a rate of 30%, or such lower rate as specified by an
applicable income tax treaty between the United States and such
holder’s country of residence.
A
non-U.S. holder
who provides us with an IRS
Form W-8BEN
or
Form W-8ECI
must update the form or submit a new form, as applicable, if
there is a change in circumstances that makes any information on
such form incorrect.
91
Gain On
Sale, Exchange or Other Disposition of Our Common
Stock
In general, a
non-U.S. holder
will not be subject to any U.S. federal income tax or
withholding on any gain realized from the
non-U.S. holder’s
sale, exchange or other disposition of shares of our common
stock unless:
|
|
|
|
•
|
the gain is effectively connected with a U.S. trade or
business (and, if an applicable income tax treaty so provides,
is also attributable to a permanent establishment or a fixed
base maintained within the United States by the
non-U.S. holder),
in which case the gain will be taxed on a net income basis
generally in the same manner as if the
non-U.S. holder
were a U.S. person, and, if the
non-U.S. holder
is a corporation, the additional branch profits tax described
above in “Distributions on Our Common Stock” may also
apply;
|
|
|
•
|
the
non-U.S. holder
is an individual who is present in the United States for
183 days or more in the taxable year of the disposition and
certain other conditions are met, in which case the
non-U.S. holder
will be subject to a 30% tax on the net gain derived from the
disposition, which may be offset by
U.S.-source
capital losses of the
non-U.S. holder,
if any; or
|
|
|
•
|
we are, or have been at any time during the five-year period
preceding such disposition (or the
non-U.S. holder’s
holding period, if shorter), a “United States real property
holding corporation.”
|
Generally, we will be a “United States real property
holding corporation” if the fair market value of our
U.S. real property interests equals or exceeds 50% of the
sum of the fair market values of our worldwide real property
interests and other assets used or held for use in a trade or
business, all as determined under applicable U.S. Treasury
regulations. We believe that we have not been and are not
currently, and do not anticipate becoming in the future, a
“United States real property holding corporation” for
U.S. federal income tax purposes.
Backup
Withholding and Information Reporting
We must report annually to the IRS and to each
non-U.S. holder
the amount of distributions paid to such holder and the amount
of tax withheld, if any. Copies of the information returns filed
with the IRS to report the distributions and withholding may
also be made available to the tax authorities in a country in
which the
non-U.S. holder
is a resident under the provisions of an applicable income tax
treaty or agreement.
The United States imposes a backup withholding tax on the gross
amount of dividends and certain other types of payments
(currently at a rate of 28%). Dividends paid to a
non-U.S. holder
will not be subject to backup withholding if proper
certification of foreign status (usually on IRS
Form W-8BEN)
is provided, and we do not have actual knowledge or reason to
know that the
non-U.S. holder
is a U.S. person. In addition, no backup withholding or
information reporting will be required regarding the proceeds of
a disposition of our common stock made by a
non-U.S. holder
within the United States or conducted through certain
U.S. financial intermediaries if we receive the
certification of foreign status described in the preceding
sentence and we do not have actual knowledge or reason to know
that such
non-U.S. holder
is a U.S. person or the
non-U.S. holder
otherwise establishes an exemption.
Non-U.S. holders
should consult their own tax advisors regarding the application
of the information reporting and backup withholding rules to
them.
Backup withholding is not an additional tax. Amounts withheld
under the backup withholding rules from a payment to a
non-U.S. holder
can be refunded or credited against the
non-U.S. holder’s
U.S. federal income tax liability, if any, provided that
certain required information is furnished to the IRS in a timely
manner.
U.S.
Federal Estate Tax
An individual
non-U.S. holder
who is treated as the owner, or who has made certain lifetime
transfers, of an interest in our common stock will be required
to include the value of the common stock in his or her gross
estate for U.S. federal estate tax purposes, and may be
subject to U.S. federal estate tax unless an applicable
estate tax treaty provides otherwise.
92
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement, each of the underwriters named below has severally
agreed to purchase from us and the selling stockholders the
aggregate number of shares of common stock set forth opposite
their respective names below:
|
|
|
|
|
Underwriters
|
|
Number of Shares
|
|
|
Thomas Weisel Partners LLC
|
|
|
|
|
William Blair & Company, L.L.C.
|
|
|
|
|
Needham & Company, LLC
|
|
|
|
|
JMP Securities LLC
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Weisel Partners LLC is the book-running manager and
William Blair & Company, L.L.C. and
Needham & Company, LLC are co-lead managers.
Of
the shares
to be purchased by the
underwriters, shares
will be purchased from us
and
will be purchased from the selling stockholders.
The underwriting agreement provides that the obligations of the
several underwriters are subject to various conditions,
including approval of legal matters by counsel. The nature of
the underwriters’ obligations commits them to purchase and
pay for all of the shares of common stock listed above if any
are purchased.
The underwriting agreement provides that we and the selling
stockholders will indemnify the underwriters against liabilities
specified in the underwriting agreement under the Securities
Act, or will contribute to payments that the underwriters may be
required to make relating to these liabilities.
Thomas Weisel Partners LLC expects to deliver the shares of
common stock to purchasers on or
about ,
2010.
Over-Allotment
Option
We have granted a
30-day
over-allotment option to the underwriters to purchase up to a
total
of
additional shares of our common stock from us at the initial
public offering price, less the underwriting discount payable by
us, as set forth on the cover page of this prospectus. If the
underwriters exercise this option in whole or in part, then each
of the underwriters will be separately committed, subject to the
conditions described in the underwriting agreement, to purchase
the additional shares of our common stock in proportion to their
respective commitments set forth in the table above.
Determination
of Offering Price
Prior to this offering, there has been no public market for our
common stock. The initial public offering price will be
determined through negotiations between us and the underwriters.
In addition to prevailing market conditions, the factors to be
considered in determining the initial public offering price will
include:
|
|
|
|
•
|
the valuation multiples of publicly-traded companies that the
representatives of the underwriters believe are comparable to us;
|
|
|
•
|
our financial information;
|
|
|
•
|
our history and prospects and the outlook for our industry;
|
|
|
•
|
an assessment of our management, our past and present
operations, and the prospects for, and timing of, our future
revenues; and
|
|
|
•
|
the above factors in relation to market values and various
valuation measures of other companies engaged in activities
similar to ours.
|
93
We cannot assure you that an active or orderly trading market
will develop for our common stock or that our common stock will
trade in the public markets subsequent to this offering at or
above the initial offering price.
Commissions
and Discounts
The underwriters propose to offer the shares of common stock
directly to the public at the public offering price set forth on
the cover page of this prospectus, and at this price less a
concession not in excess of $ per
share of common stock to other dealers specified in a master
agreement among underwriters who are members of the Financial
Industry Regulatory Authority, Inc. The underwriters may allow,
and the other dealers specified may reallow, concessions not in
excess of $ per share of common
stock to these other dealers. After this offering, the offering
price, concessions and other selling terms may be changed by the
underwriters. Our common stock is offered subject to receipt and
acceptance by the underwriters and to other conditions,
including the right to reject orders in whole or in part.
The following table summarizes the compensation to be paid to
the underwriters by us and the proceeds, before expenses,
payable to us and the selling stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Without
|
|
Without
|
|
|
Per Share
|
|
Over-Allotment
|
|
Over-Allotment
|
|
Public offering price
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Underwriting discount
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds, before expenses, to us
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds, before expenses, to selling stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Indemnification
of Underwriters
We and the selling stockholders will indemnify the underwriters
against some civil liabilities, including liabilities under the
Securities Act and liabilities arising from breaches of our
representations and warranties contained in the underwriting
agreement. If we or the selling stockholders are unable to
provide this indemnification, we and the selling stockholders
will contribute to payments the underwriters may be required to
make in respect of those liabilities.
No Sales
of Similar Securities
The underwriters will require all of our directors and officers,
the selling stockholders and certain other of our stockholders
to agree not to offer, sell, agree to sell, directly or
indirectly, or otherwise dispose of any shares of common stock
or any securities convertible into or exchangeable for shares of
common stock except for the shares of common stock offered in
this offering without the prior written consent of Thomas Weisel
Partners LLC for a period of 180 days after the date of
this prospectus.
We have agreed that for a period of 180 days after the date
of this prospectus, we will not, without the prior written
consent of Thomas Weisel Partners LLC, offer, sell or otherwise
dispose of any shares of common stock, except for the shares of
common stock offered in this offering, the shares of common
stock issuable upon exercise of outstanding options on the date
of this prospectus and the shares of our common stock that are
issued under our 2010 Equity Incentive Plan.
The 180-day
restricted period described in the preceding two paragraphs will
be automatically extended if: (1) during the last
17 days of the l80-day restricted period we issue an
earnings release or announce material news or a material event
or (2) prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
15-day
period following the last day of the
180-day
period, in which case the restrictions described in the
preceding paragraph will continue to apply until the expiration
of the
18-day
period beginning on the issuance of the earnings release or the
announcement of the material news or material event.
94
Nasdaq
Stock Market
We have applied to have our common stock listed on the Nasdaq
Capital Market under the symbol “SPSC.”
Short
Sales, Stabilizing Transactions and Penalty Bids
In order to facilitate this offering, persons participating in
this offering may engage in transactions that stabilize,
maintain or otherwise affect the price of our common stock
during and after this offering. Specifically, the underwriters
may engage in the following activities in accordance with the
rules of the SEC.
Short Sales. Short sales involve the sales by the
underwriters of a greater number of shares than they are
required to purchase in the offering. Covered short sales are
short sales made in an amount not greater than the
underwriters’ overallotment option to purchase additional
shares from us in this offering. The underwriters may close out
any covered short position by either exercising their
over-allotment option to purchase shares or purchasing shares in
the open market. In determining the source of shares to close
out the covered short position, the underwriters will consider,
among other things, the price of shares available for purchase
in the open market as compared to the price at which they may
purchase shares through the over-allotment option. Naked short
sales are any short sales in excess of such over-allotment
option. The underwriters must close out any naked short position
by purchasing shares in the open market. A naked short position
is more likely to be created if the underwriters are concerned
that there may be downward pressure on the price of the common
stock in the open market after pricing that could adversely
affect investors who purchase in this offering.
Stabilizing Transactions. The underwriters may make bids
for or purchases of the shares for the purpose of pegging,
fixing or maintaining the price of the shares, so long as
stabilizing bids do not exceed a specified maximum.
Penalty Bids. If the underwriters purchase shares in the
open market in a stabilizing transaction or syndicate covering
transaction, they may reclaim a selling concession from the
underwriters and selling group members who sold those shares as
part of this offering. Stabilization and syndicate covering
transactions may cause the price of the shares to be higher than
it would be in the absence of these transactions. The imposition
of a penalty bid might also have an effect on the price of the
shares if it discourages presales of the shares.
The transactions above may occur on the Nasdaq Capital Market or
otherwise. Neither we nor the underwriters make any
representation or prediction as to the effect that the
transactions described above may have on the price of the
shares. If these transactions are commenced, they may be
discontinued without notice at any time.
95
LEGAL
MATTERS
The validity of the shares of common stock offered hereby and
certain other legal matters will be passed upon for us by
Faegre & Benson
LLP, Minneapolis, Minnesota.
The underwriters have been represented in connection with this
offering by Goodwin Procter
LLP, Boston, Massachusetts.
EXPERTS
The financial statements of SPS Commerce, Inc. as of
December 31, 2008 and 2009 and for each of the three years
in the period ended December 31, 2009 included in this
prospectus and registration statement have been so included in
reliance on the report of Grant Thornton LLP, an independent
registered public accounting firm, as set forth in its report
thereon appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts
in accounting and auditing.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act with respect to the shares of common
stock offered by this prospectus. This prospectus does not
contain all of the information included in the registration
statement, portions of which are omitted as permitted by the
rules and regulations of the SEC. For further information
pertaining to us and the common stock to be sold in this
offering, you should refer to the registration statement and its
exhibits. Whenever we make reference in this prospectus to any
of our contracts, agreements or other documents, the references
are not necessarily complete, and you should refer to the
exhibits attached to the registration statement for copies of
the actual contract, agreement or other document filed as an
exhibit to the registration statement or such other document,
each such statement being qualified in all respects by such
reference. On the closing of this offering, we will be subject
to the informational requirements of the Securities Exchange Act
and will be required to file annual, quarterly and current
reports, proxy statements and other information with the SEC. We
anticipate making these documents publicly available, free of
charge, on our website (www.spscommerce.com) as soon as
reasonably practicable after filing such documents with the SEC.
You can read the registration statement and our future filings
with the SEC over the Internet at the SEC’s website at
www.sec.gov. You may request copies of the filing, at no cost,
by telephone at
(612) 435-9400
or by mail at SPS Commerce, Inc., 333 South Seventh Street,
Suite 1000, Minneapolis, Minnesota 55402. You may also read
and copy any document we file with the SEC at its public
reference facility at 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549. You may also obtain
copies of the documents at prescribed rates by writing to the
Public Reference Section of the SEC. Please call the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
facilities.
96
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
SPS Commerce, Inc.
We have audited the accompanying balance sheets of SPS Commerce,
Inc. (the “Company”) as of December 31, 2008 and
2009, and the related statements of operations, redeemable
convertible preferred stock and stockholders’ deficit, and
cash flows for each of the three years in the period ended
December 31, 2009. Our audits of the basic financial
statements included the financial statement schedule listed in
the index. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of SPS Commerce, Inc. as of December 31, 2008 and 2009, and
the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2009 in
conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole presents fairly, in
all material respects, the information set forth therein.
/s/ Grant Thornton LLP
Minneapolis, Minnesota
February 12, 2010
F-2
SPS
Commerce, Inc.
BALANCE SHEETS
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,715
|
|
|
$
|
5,931
|
|
Accounts receivable, less allowance for doubtful accounts of
$308 and $226
|
|
|
4,564
|
|
|
|
4,766
|
|
Deferred costs, current
|
|
|
4,058
|
|
|
|
4,126
|
|
Prepaid expenses and other current assets
|
|
|
785
|
|
|
|
1,440
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
13,122
|
|
|
|
16,263
|
|
PROPERTY AND EQUIPMENT
|
|
|
|
|
|
|
|
|
Computer equipment and purchased software
|
|
|
7,560
|
|
|
|
8,542
|
|
Office equipment and furniture
|
|
|
1,660
|
|
|
|
1,678
|
|
Leasehold improvements
|
|
|
609
|
|
|
|
609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,829
|
|
|
|
10,829
|
|
Less accumulated depreciation and amortization
|
|
|
(7,020
|
)
|
|
|
(8,309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
2,809
|
|
|
|
2,520
|
|
GOODWILL
|
|
|
1,166
|
|
|
|
1,166
|
|
INTANGIBLE ASSETS, net
|
|
|
446
|
|
|
|
290
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Deferred costs, net of current portion
|
|
|
1,587
|
|
|
|
1,617
|
|
Other non-current assets
|
|
|
67
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
1,654
|
|
|
|
1,680
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,197
|
|
|
$
|
21,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Current portion of capital lease obligations
|
|
$
|
441
|
|
|
$
|
338
|
|
Equipment and term loans
|
|
|
1,409
|
|
|
|
499
|
|
Line of credit, net of discount
|
|
|
1,300
|
|
|
|
1,500
|
|
Accounts payable
|
|
|
804
|
|
|
|
1,345
|
|
Accrued compensation and benefits
|
|
|
1,884
|
|
|
|
3,005
|
|
Accrued expenses and other current liabilities
|
|
|
567
|
|
|
|
1,071
|
|
Deferred rent
|
|
|
112
|
|
|
|
123
|
|
Current portion of deferred revenue
|
|
|
2,574
|
|
|
|
3,407
|
|
Interest payable
|
|
|
36
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
9.127
|
|
|
|
11.290
|
|
Deferred revenue, less current portion
|
|
|
4,014
|
|
|
|
4,025
|
|
Equipment and term loans, less current portion
|
|
|
732
|
|
|
|
233
|
|
Capital lease obligations, less current portion
|
|
|
553
|
|
|
|
122
|
|
Convertible preferred stock warrant liability
|
|
|
188
|
|
|
|
569
|
|
Deferred tax liability
|
|
|
82
|
|
|
|
110
|
|
Other long-term liabilities
|
|
|
381
|
|
|
|
258
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
15,077
|
|
|
|
16,607
|
|
REDEEMABLE CONVERTIBLE PREFERRED STOCK
|
|
|
|
|
|
|
|
|
Series A redeemable convertible preferred stock,
$0.001 par value, 4,427,782 shares authorized,
4,322,708 shares issued and outstanding; aggregate
liquidation preference of $10,000
|
|
|
37,676
|
|
|
|
37,676
|
|
Series B redeemable convertible preferred stock,
$0.001 par value, 23,499,362 shares authorized,
21,570,242 and 21,303,838 shares issued and outstanding,
aggregate liquidation preference of $21,112
|
|
|
20,844
|
|
|
|
20,658
|
|
Series C redeemable convertible preferred stock,
$0.001 par value, 6,000,000 shares authorized,
4,687,500 shares issued and outstanding, aggregate
liquidation preference of $7,500
|
|
|
7,444
|
|
|
|
7,444
|
|
|
|
|
|
|
|
|
|
|
Total redeemable convertible preferred stock
|
|
|
65,964
|
|
|
|
65,778
|
|
STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 50,345,706 shares
authorized; 1,240,588 and 1,225,459 shares issued and
outstanding
|
|
|
1
|
|
|
|
1
|
|
Additional paid-in capital
|
|
|
4,969
|
|
|
|
5,185
|
|
Accumulated deficit
|
|
|
(66,814
|
)
|
|
|
(65,652
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity (deficit)
|
|
|
(61,844
|
)
|
|
|
(60,466
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,197
|
|
|
$
|
21,919
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of these financial statements.
F-3
SPS
Commerce, Inc.
STATEMENTS OF OPERATIONS
(In thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Revenues
|
|
$
|
25,198
|
|
|
$
|
30,697
|
|
|
$
|
37,746
|
|
Cost of revenues
|
|
|
6,379
|
|
|
|
9,258
|
|
|
|
11,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
18,819
|
|
|
|
21,439
|
|
|
|
26,031
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
11,636
|
|
|
|
12,493
|
|
|
|
13,506
|
|
Research and development
|
|
|
3,546
|
|
|
|
3,640
|
|
|
|
4,305
|
|
General and administrative
|
|
|
5,458
|
|
|
|
6,716
|
|
|
|
6,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
20,640
|
|
|
|
22,849
|
|
|
|
24,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(1,821
|
)
|
|
|
(1,410
|
)
|
|
|
1,881
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(439
|
)
|
|
|
(419
|
)
|
|
|
(270
|
)
|
Other income
|
|
|
120
|
|
|
|
28
|
|
|
|
(358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(319
|
)
|
|
|
(391
|
)
|
|
|
(628
|
)
|
Income tax expense
|
|
|
(16
|
)
|
|
|
(94
|
)
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,156
|
)
|
|
$
|
(1,895
|
)
|
|
$
|
1,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(3.12
|
)
|
|
$
|
(1.72
|
)
|
|
$
|
0.94
|
|
Fully diluted
|
|
$
|
(3.12
|
)
|
|
$
|
(1.72
|
)
|
|
$
|
0.03
|
|
Weighted average common shares used to compute net income (loss)
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
692
|
|
|
|
1,101
|
|
|
|
1,232
|
|
Fully diluted
|
|
|
692
|
|
|
|
1,101
|
|
|
|
34,711
|
|
The accompanying notes are an integral part of these financial
statements.
F-4
SPS
Commerce, Inc.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS’ DEFICIT
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Convertible Preferred Stock
|
|
|
|
Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Series A
|
|
|
Series B
|
|
|
Series C
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
Balances at January 1, 2007
|
|
|
4,322,708
|
|
|
$
|
37,676
|
|
|
|
21,570,244
|
|
|
$
|
20,844
|
|
|
|
–
|
|
|
$
|
–
|
|
|
$
|
58,520
|
|
|
|
|
457,872
|
|
|
$
|
–
|
|
|
$
|
4,717
|
|
|
$
|
(62,763
|
)
|
|
$
|
(58,046
|
)
|
Issuance of redeemable convertible preferred stock, net of
offering costs of $56
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
4,687,500
|
|
|
|
7,444
|
|
|
|
7,444
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
46
|
|
|
|
–
|
|
|
|
46
|
|
Exercise of stock options
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
466,642
|
|
|
|
1
|
|
|
|
44
|
|
|
|
–
|
|
|
|
45
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,156
|
)
|
|
|
(2,156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007
|
|
|
4,322,708
|
|
|
|
37,676
|
|
|
|
21,570,244
|
|
|
|
20,844
|
|
|
|
4,687,500
|
|
|
|
7,444
|
|
|
|
65,964
|
|
|
|
|
924,514
|
|
|
|
1
|
|
|
|
4,807
|
|
|
|
(64,919
|
)
|
|
|
(60,111
|
)
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
157
|
|
|
|
–
|
|
|
|
157
|
|
Exercise of warrants
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
8,360
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Exercise of stock options
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
307,684
|
|
|
|
–
|
|
|
|
5
|
|
|
|
–
|
|
|
|
5
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,895
|
)
|
|
|
(1,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
4,322,708
|
|
|
|
37,676
|
|
|
|
21,570,244
|
|
|
|
20,844
|
|
|
|
4,687,500
|
|
|
|
7,444
|
|
|
|
65,964
|
|
|
|
|
1,240,558
|
|
|
|
1
|
|
|
|
4,969
|
|
|
|
(66,814
|
)
|
|
|
(61,844
|
)
|
Stock-based compensation
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
228
|
|
|
|
–
|
|
|
|
228
|
|
Exercise of stock options
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
58,580
|
|
|
|
–
|
|
|
|
2
|
|
|
|
–
|
|
|
|
2
|
|
Repurchase of common and redeemable convertible preferred stock
|
|
|
–
|
|
|
|
–
|
|
|
|
(266,406
|
)
|
|
|
(186
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(186
|
)
|
|
|
|
(73,679
|
)
|
|
|
–
|
|
|
|
(14
|
)
|
|
|
–
|
|
|
|
(14
|
)
|
Net income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
–
|
|
|
|
|
|
|
|
–
|
|
|
|
1,162
|
|
|
|
1,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009
|
|
|
4,322,708
|
|
|
$
|
37,676
|
|
|
|
21,303,838
|
|
|
$
|
20,658
|
|
|
|
4,687,500
|
|
|
$
|
7,444
|
|
|
$
|
65,778
|
|
|
|
|
1,225,459
|
|
|
$
|
1
|
|
|
$
|
5,185
|
|
|
$
|
(65,652
|
)
|
|
$
|
(60,466
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of these financial statements.
F-5
SPS
Commerce, Inc.
STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,156
|
)
|
|
$
|
(1,895
|
)
|
|
$
|
1,162
|
|
Reconciliation of net income (loss) to net cash provided by
(used in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,729
|
|
|
|
1,963
|
|
|
|
1,445
|
|
Provision for doubtful accounts
|
|
|
151
|
|
|
|
396
|
|
|
|
439
|
|
Amortization of debt issue costs
|
|
|
29
|
|
|
|
25
|
|
|
|
10
|
|
Stock-based compensation
|
|
|
46
|
|
|
|
157
|
|
|
|
228
|
|
Change in carrying value of preferred stock warrants
|
|
|
68
|
|
|
|
45
|
|
|
|
381
|
|
Non-cash interest expense
|
|
|
57
|
|
|
|
33
|
|
|
|
—
|
|
Changes in assets and liabilities, excluding effects of business
acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(800
|
)
|
|
|
(811
|
)
|
|
|
(641
|
)
|
Prepaid expenses and other current assets
|
|
|
54
|
|
|
|
232
|
|
|
|
(655
|
)
|
Other assets
|
|
|
(6
|
)
|
|
|
(8
|
)
|
|
|
(6
|
)
|
Deferred costs
|
|
|
(2,885
|
)
|
|
|
(1,659
|
)
|
|
|
(98
|
)
|
Accounts payable
|
|
|
520
|
|
|
|
(319
|
)
|
|
|
541
|
|
Interest payable
|
|
|
(101
|
)
|
|
|
(4
|
)
|
|
|
(34
|
)
|
Deferred revenue
|
|
|
1,849
|
|
|
|
1,526
|
|
|
|
844
|
|
Deferred tax liability
|
|
|
—
|
|
|
|
82
|
|
|
|
28
|
|
Accrued compensation and benefits
|
|
|
658
|
|
|
|
(510
|
)
|
|
|
1,121
|
|
Deferred rent
|
|
|
(65
|
)
|
|
|
27
|
|
|
|
(112
|
)
|
Accrued expenses and other current liabilities
|
|
|
49
|
|
|
|
(87
|
)
|
|
|
505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(803
|
)
|
|
|
(807
|
)
|
|
|
5,158
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(1,123
|
)
|
|
|
(884
|
)
|
|
|
(1,000
|
)
|
Maturities of short-term investments
|
|
|
—
|
|
|
|
1,263
|
|
|
|
—
|
|
Purchase of short-term investments
|
|
|
(1,263
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) investing activities
|
|
|
(2,386
|
)
|
|
|
379
|
|
|
|
(1,000
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on line of credit
|
|
|
3,125
|
|
|
|
10,425
|
|
|
|
16,325
|
|
Payments on line of credit
|
|
|
(2,875
|
)
|
|
|
(10,125
|
)
|
|
|
(16,125
|
)
|
Proceeds from equipment loans
|
|
|
756
|
|
|
|
855
|
|
|
|
—
|
|
Payments on equipment loans
|
|
|
(432
|
)
|
|
|
(721
|
)
|
|
|
(730
|
)
|
Payments on term loan
|
|
|
(553
|
)
|
|
|
(621
|
)
|
|
|
(679
|
)
|
Proceeds from exercise of stock options
|
|
|
45
|
|
|
|
5
|
|
|
|
2
|
|
Payments of capital lease obligations
|
|
|
(117
|
)
|
|
|
(529
|
)
|
|
|
(534
|
)
|
Proceeds from preferred stock
|
|
|
6,152
|
|
|
|
—
|
|
|
|
—
|
|
Purchase of preferred and common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
(201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) financing activities
|
|
|
6,101
|
|
|
|
(711
|
)
|
|
|
(1,942
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
2,912
|
|
|
|
(1,139
|
)
|
|
|
2,216
|
|
Cash and cash equivalents at beginning of period
|
|
|
1,942
|
|
|
|
4,854
|
|
|
|
3,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
4,854
|
|
|
$
|
3,715
|
|
|
|
5,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
512
|
|
|
$
|
374
|
|
|
$
|
285
|
|
Supplemental schedule of non-cash investing and financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations incurred
|
|
$
|
1,407
|
|
|
$
|
166
|
|
|
$
|
—
|
|
Issuance of preferred stock upon conversion of debt
|
|
$
|
1,292
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these financial
statements.
F-6
SPS
Commerce, Inc.
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
|
|
NOTE A –
|
BUSINESS
DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
|
Business
Description
SPS Commerce, Inc. (the “Company”) is a leading
provider of on-demand supply chain management solutions,
providing integration, collaboration, connectivity, visibility
and data analytics to thousands of customers worldwide. The
Company provides its solutions through SPSCommerce.net, a hosted
software suite that improves the way suppliers, retailers,
distributors and other customers manage and fulfill orders. The
Company derives the majority of its revenues from thousands of
monthly recurring subscriptions from businesses that utilize the
Company’s solutions.
Use of
Estimates
Preparing financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could
differ from those estimates.
Risk and
Uncertainties
The company relies on hardware and software licensed from third
parties to offer its on-demand management solutions. Management
believes alternate sources are available; however, disruption or
termination of these relationships could adversely affect the
Company’s operating results in the near term.
Cash and
Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid
investments with original maturities when purchased of less than
90 days.
Concentration
of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of temporary
cash investments in financial institutions in excess of
federally insured limits and trade accounts receivable.
Temporary cash investments are held with financial institutions
that the Company believes are subject to minimal risk.
Accounts
Receivable
Accounts receivable are initially recorded upon the sale of
products to customers. Credit is granted in the normal course of
business without collateral. Accounts receivable are stated net
of allowances for doubtful accounts, which represent estimated
losses resulting from the inability of customers to make the
required payments. Accounts that are outstanding longer than the
contractual terms are considered past due. When determining the
allowances for doubtful accounts, the Company takes several
factors into consideration including the overall composition of
the accounts receivable aging, the Company’s prior history
of accounts receivable write-offs, the type of customers and the
Company’s
day-to-day
knowledge of specific customers. The Company writes off accounts
receivable when they become uncollectible. Changes in the
allowances for doubtful accounts are recorded as bad debt
expense and are included in general and administrative expense
in the Company’s statements of operations.
F-7
SPS
Commerce, Inc.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(In thousands, except share and per share amounts)
Property
and Equipment
Property and equipment, including assets acquired under capital
lease obligations, are stated at cost, net of accumulated
depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the shorter of the
estimated useful lives of the individual assets or the lease
term.
The estimated useful lives are:
|
|
|
|
|
Computer equipment and purchased software
|
|
|
2 – 5 years
|
|
Office equipment and furniture
|
|
|
5 – 7 years
|
|
Leasehold improvements
|
|
|
2 – 7 years
|
|
Significant additions or improvements extending asset lives
beyond one year are capitalized, while repairs and maintenance
are charged to expense as incurred. The assets and related
accumulated depreciation and amortization accounts are adjusted
for asset retirements and disposals with the resulting gain or
loss included in net income (loss).
Research
and Development
Costs incurred to develop software applications used in the
Company’s on-demand supply chain management solution are
accounted for in accordance with ASC
350-40,
Intangibles — Goodwill and Other. Capitalizable
costs consists of (a) certain external direct costs of
materials and services incurred in developing or obtaining
internal-use computer software and (b) payroll and
payroll-related costs for employees who are directly associated
with, and who devote time to, the project. These costs generally
consist of internal labor during configuration, coding and
testing activities. Research and development costs incurred
during the preliminary project stage or costs incurred for data
conversion activities, training, maintenance and general and
administrative or overhead costs are expensed as incurred. Costs
that cannot be separated between maintenance of, and relatively
minor upgrades and enhancements to, internal-use software are
also expensed as incurred. Capitalization begins when the
preliminary project stage is complete, management with the
relevant authority authorizes and commits to the funding of the
software project, it is probable the project will be completed,
the software will be used to perform the functions intended and
certain functional and quality standards have been met.
Historically, no projects have had material costs beyond the
preliminary project stage.
The Company’s research and development efforts during 2007,
2008 and 2009, related to its on-demand supply chain management
solution were primarily maintenance and data conversion
activities. As such, the Company did not capitalize any research
and development costs during 2007, 2008 and 2009.
Long-Lived
Assets
The Company reviews long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount may not be recoverable. The carrying amount of a
long-lived asset is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and
eventual disposition of the asset at the date it is tested for
recoverability, whether in use or under development. An
impairment loss is measured as the amount by which the carrying
amount of a long-lived asset exceeds its fair value. There has
been no impairment of these assets to date.
Income
Taxes
The Company provides for income taxes using the asset and
liability method, which requires recognition of deferred tax
assets and liabilities for the expected future tax consequences
of events that have been included
F-8
SPS
Commerce, Inc.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(In thousands, except share and per share amounts)
in the financial statements. Under this method, deferred tax
assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in
which the differences are expected to reverse. Deferred tax
assets are reduced by a valuation allowance to the extent that
utilization is not presently more likely than not.
Effective January 1, 2007, the Company adopted the
provisions of ASC
740-10,
Income Taxes. Previously, the Company had accounted for
tax contingencies in accordance with ASC
450-10,
Contingencies. As required by ASC
740-10 the
Company recognizes the financial statement benefit of a tax
position only after determining that the relevant tax authority
would more likely than not sustain the position following an
audit. For tax positions meeting the more-likely-than-not
threshold, the amount recognized in the financial statements is
the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the
relevant tax authority. At the adoption date, the Company
applied ASC
740-10 to
all tax positions for which the statute of limitations remained
open. The implementation of ASC
740-10 did
not have a material impact on the Company’s financial
statements.
Revenue
Recognition
The Company generates revenues by providing a number of
solutions to its customers. These solutions include Trading
Partner Integration, Trading Partner Enablement and Trading
Partner Intelligence. All of the Company’s solutions are
hosted applications that allow customers to meet their supply
chain management requirements. Revenues from its Trading Partner
Integration and Trading Partner Intelligence solutions are
generated through
set-up fees
and recurring monthly hosting fees. Revenues from its Trading
Partner Enablement solutions are generally one-time service fees.
Fees related to recurring monthly hosting services and one-time
services are recognized when the services are provided. The
recurring monthly fee is comprised of both a fixed and
transaction based fee. Revenue is recorded in accordance with
Staff Accounting Bulletin (SAB) 104, Revenue Recognition in
Financial Statements, when all of the following criteria are
met: (1) persuasive evidence of an arrangement exists;
(2) delivery has occurred; (3) the fee is fixed and
determinable and (4) collectability is probable. If
collection is not considered probable, revenues are recognized
when the fees are collected.
Set-up fees
paid by customers in connection with the Company’s
solutions, as well as associated direct and incremental costs,
such as labor and commissions, are deferred and recognized
ratably over the expected life of the customer relationship,
which is generally two years. The Company continues to evaluate
and adjust the length of these amortization periods as more
experience is gained with customer renewals, contract
cancellations and technology changes requested by its customers.
It is possible that, in the future, the estimates of expected
customer lives may change and, if so, the periods over which
such subscription
set-up fees
and costs are amortized will be adjusted. Any such change in
estimated expected customer lives will affect the Company’s
future operations.
In accordance with ASC
605-45,
Revenue Recognition, taxes are presented on a net-basis.
Basic and
Diluted Net Income (Loss) Per Share
Net income (loss) per share has been computed using the weighted
average number of shares of common stock outstanding during each
period. Diluted amounts per share include the impact of the
Company’s outstanding potential common shares, such as
options and warrants and redeemable convertible preferred stock.
Potential common shares that are anti-dilutive are excluded from
the calculation of diluted net income (loss) per common share.
F-9
SPS
Commerce, Inc.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(In thousands, except share and per share amounts)
The following table sets forth the components of the computation
of basic and diluted net income (loss) per common share for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,156
|
)
|
|
$
|
(1,895
|
)
|
|
$
|
1,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
691,700
|
|
|
|
1,100,628
|
|
|
|
1,232,395
|
|
Options and warrants to purchase common and preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
2,963,650
|
|
Redeemable convertible preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
30,514,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, fully diluted
|
|
|
691,700
|
|
|
|
1,100,628
|
|
|
|
34,710,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share-basic
|
|
$
|
(3.12
|
)
|
|
$
|
(1.72
|
)
|
|
$
|
0.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share- fully diluted
|
|
$
|
(3.12
|
)
|
|
$
|
(1.72
|
)
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following outstanding options, redeemable convertible
preferred stock and warrants were excluded from the computation
of diluted net loss per share for the periods indicated because
including them would have had an anti-dilutive effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Options to purchase common stock
|
|
|
4,646,144
|
|
|
|
4,448,079
|
|
|
|
71,221
|
|
Redeemable convertible preferred stock
|
|
|
30,580,451
|
|
|
|
30,580,451
|
|
|
|
—
|
|
Preferred and common stock warrants
|
|
|
356,447
|
|
|
|
256,185
|
|
|
|
—
|
|
Stock-Based
Compensation
ASC 718, Compensation — Stock Compensation,
requires the cost of all share-based payments to employees,
including grants of employee stock options, to be recognized in
the financial statements based on the grant date fair value of
those awards. In accordance with ASC 718, this cost is
recognized over the period for which an employee is required to
provide service in exchange for the award. ASC 718 requires that
the benefits associated with tax deductions in excess of
recognized compensation expense be reported as a financing cash
flow rather than as an operating cash flow. The compensation
cost recognized by the Company for stock options was $46, $157
and $228 at December 31, 2007, 2008 and 2009, respectively.
As of December 31, 2008 and 2009, there was $466 and $459,
respectively, of total unrecognized compensation cost related to
non-vested share-based compensation arrangements granted under
the Company’s stock option plans. As of December 31,
2008 and 2009, that cost is expected to be recognized on a
straight line basis over a weighted average period of
approximately 2.0 and 2.4 years.
The Company estimates the fair value of the options granted
using the Black-Scholes method. The estimation of stock awards
that will ultimately vest requires judgment, and to the extent
actual results differ from the Company’s estimates, such
amounts will be recorded as an adjustment in the period
estimates are revised. In valuing share-based awards,
significant judgment is required in determining the expected
volatility of common stock and the expected term individuals
will hold their share-based awards prior to exercising. Expected
volatility of the stock is based on the Company’s peer
group in the industry in which the
F-10
SPS
Commerce, Inc.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(In thousands, except share and per share amounts)
Company does business because the Company does not have
sufficient historical volatility data for its own stock. The
expected term of the options is based on evaluations of
historical and expected future employee exercise behavior.
Advertising
Costs
Advertising costs are charged to expense as incurred.
Advertising costs were approximately $655, $85 and $56 at
December 31, 2007, 2008 and 2009, respectively. Advertising
costs are included in operating expenses in the statement of
operations.
Goodwill
Goodwill represents the excess of the purchase price over the
fair value of identifiable net assets acquired in business
combinations. The Company tests goodwill for impairment annually
at December 31, or more frequently if events or changes in
circumstances indicate that the asset might be impaired. The
impairment test is conducted by comparing the fair value of the
Company with its carrying value. Fair value is determined using
the future cash flows expected to be generated by the reporting
unit. If the carrying value exceeds the fair value, goodwill may
be impaired. If this occurs, the fair value is then allocated to
its assets and liabilities in a manner similar to a purchase
price allocation in order to determine the implied fair value of
the reporting unit with goodwill. This implied fair value is
then compared with the carrying amount of goodwill and, if it is
less, the Company would then recognize an impairment loss. There
has been no impairment of the Company’s goodwill to date.
Intangible
Assets
Intangible assets include subscriber relationships and covenants
not-to-compete.
The subscriber relationship asset is being amortized on a
straight-line basis over three years, which approximates its
respective useful life. The covenants
not-to-compete
are amortized on a straight-line basis over two years upon
termination of employment of the respective employees.
The carrying amounts and accumulated amortization for intangible
assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriber relationships
|
|
$
|
1,930
|
|
|
$
|
1,822
|
|
|
$
|
108
|
|
|
$
|
1,930
|
|
|
$
|
1,930
|
|
|
$
|
—
|
|
Covenants
not-to-compete
|
|
|
580
|
|
|
|
242
|
|
|
|
338
|
|
|
|
580
|
|
|
|
290
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,510
|
|
|
$
|
2,064
|
|
|
$
|
446
|
|
|
$
|
2,510
|
|
|
$
|
2,220
|
|
|
$
|
290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense incurred was $740, $788 and $156
for the years ended December 31, 2007, 2008 and 2009.
Segment
Information
The Company operates in and reports on one segment, supply chain
management solutions, based upon the provisions of ASC
280-10,
Segment Reporting.
F-11
SPS
Commerce, Inc.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(In thousands, except share and per share amounts)
Fair
Value of Financial Instruments
The carrying amounts of the Company’s financial
instruments, which include cash and cash equivalents, accounts
receivable, accounts payable, and other accrued expenses,
approximate their fair values due to their short maturities.
Based on borrowing rates currently available to the Company for
loans with similar terms, the carrying value of debt and capital
lease obligations approximates fair value.
Fair
Value Measurements
Effective January 1, 2008, the Company adopted ASC 820,
Fair Value Measurements and Disclosures, for financial
assets and liabilities. ASC 820 defines fair value, establishes
a framework for measuring fair value in accordance with
generally accepted accounting principles and expands disclosures
about fair value measurements. The adoption of ASC 820 did not
have a material impact on the Company’s financial condition
or results of operations.
ASC 820 defines fair value as the price that would be received
for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants
on the measurement date. ASC 820 also describes three levels of
inputs that may be used to measure fair value:
|
|
|
|
•
|
Level 1 — quoted prices in active markets for
identical assets and liabilities.
|
|
|
•
|
Level 2 — observable inputs other than quoted
prices in active markets for identical assets and liabilities.
|
|
|
•
|
Level 3 — unobservable inputs in which there is
little or no market data available, which require the reporting
entity to develop its own assumptions.
|
The table below presents our assets and liabilities measured at
fair value on a recurring basis as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Cash and cash equivalents
|
|
$
|
5,931
|
|
|
$
|
5,931
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Preferred stock warrants
|
|
$
|
569
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
569
|
|
The following is a reconciliation of the preferred stock
warrants, which are measured at fair value on a recurring basis
using significant unobservable inputs (Level 3 inputs):
|
|
|
|
|
Balance as of January 1, 2008
|
|
$
|
143
|
|
Total (gains) losses recognized
|
|
|
45
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
188
|
|
Total (gains) losses recognized
|
|
|
381
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
569
|
|
|
|
|
|
|
Recent
Accounting Pronouncements
In February 2008, the FASB issued guidance that delayed the
effective date of ASC 820 for non-financial assets and
non-financial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a
recurring basis (at least annually). The Company adopted ASC 820
for non-financial assets and non-financial liabilities on
January 1, 2009, and such adoption did not have a material
impact on the Company’s financial condition or results of
operations.
F-12
SPS
Commerce, Inc.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(In thousands, except share and per share amounts)
In April 2009, the FASB issued guidance that requires interim
reporting period disclosure about the fair value of certain
financial instruments, effective for interim reporting periods
ending after June 15, 2009. The Company has adopted these
disclosure requirements. Due to their nature, the carrying value
of cash, receivables, payables and debt obligations approximates
fair value.
In May 2009, the FASB issued ASC 855, Subsequent Events.
ASC 855 incorporates guidance into accounting literature that
was previously addressed only in auditing standards. The
statement refers to subsequent events that provide additional
evidence about conditions that existed at the balance-sheet date
as “recognized subsequent events”. Subsequent events
that provide evidence about conditions that arose after the
balance-sheet date but prior to the issuance of the financial
statements are referred to as ’non-recognized subsequent
events”. ASC 855 also requires companies to disclose the
date through which subsequent events have been evaluated and
whether this date is the date the financial statements were
issued or the date the financial statements were available to be
issued. The disclosure requirements of ASC 855 are effective for
interim and annual periods ending after June 15, 2009. The
Company has adopted this new standard.
In June 2009, the FASB issued guidance that establishes the FASB
Accounting Standards Codification (the Codification) as the
source of authoritative accounting principles recognized by the
FASB to be applied by nongovernmental entities in the
preparation of financial statements in conformity with generally
accepted accounting principles (GAAP). Use of the new
Codification is effective for interim and annual periods ending
after September 15, 2009. The Company has used the new
Codification in reference to GAAP in this report and such use
has not impacted the results of the Company.
In October 2009, the FASB issued the following ASUs:
|
|
|
|
•
|
ASU
No. 2009-13,
Revenue Recognition (ASC Topic 605), Multiple-Deliverable
Revenue Arrangements, a consensus of the FASB Emerging Issues
Task Force; and
|
|
|
•
|
ASU
No. 2009-14,
Software (ASC Topic 985), Certain Revenue Arrangements That
Include Software Elements, a consensus of the FASB Emerging
Issues Task Force.
|
ASU
No. 2009-13:
This guidance modifies the fair value requirements of ASC
subtopic
605-25
Revenue Recognition-Multiple Element Arrangements, by
allowing the use of the “best estimate of selling
price” in addition to VSOE and Vendor Objective Evidence
(now referred to as third-party evidence, or TPE) for
determining the selling price of a deliverable. A vendor is now
required to use its best estimate of the selling price when VSOE
or TPE of the selling price cannot be determined. In addition,
the residual method of allocating arrangement consideration is
no longer permitted.
ASU
No. 2009-14:
This guidance modifies the scope of ASC subtopic
965-605,
Software-Revenue Recognition, to exclude from its
requirements (a) non-software components of tangible
products and (b) software components of tangible products
that are sold, licensed, or leased with tangible products when
the software components and non-software components of the
tangible product function together to deliver the tangible
product’s essential functionality.
These updates require expanded qualitative and quantitative
disclosures and are effective for fiscal years beginning on or
after June 15, 2010. However, companies may elect to adopt
the updated requirements as early as interim periods ended
September 30, 2009. These updates may be applied either
prospectively from the beginning of the fiscal year for new or
materially modified arrangements or retrospectively. The Company
is currently evaluating the impact of adopting these updates on
its financial statements.
F-13
SPS
Commerce, Inc.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(In thousands, except share and per share amounts)
Reclassifications
Certain reclassifications have been made to the 2007 and 2008
financial statements to conform with the presentation used in
2009. These reclassifications had no effect on net income
(loss), stockholders’ deficit or net income (loss) per
share previously reported.
NOTE B –
FINANCIAL STATEMENT COMPONENTS
Debt
Issue Costs
The Company capitalizes all debt issue costs and amortizes these
costs as interest expense over the term of the related debt.
Debt issue costs are included in other assets on the Balance
Sheet. Debt issue costs consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Debt issue costs
|
|
$
|
114
|
|
|
$
|
119
|
|
Accumulated amortization
|
|
|
(106
|
)
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $29, $22 and $9 for the years ended
December 31, 2007, 2008 and 2009.
Accounts
Payable
Accounts payable included the following at December 31,
2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Costs incurred for initial public offering
|
|
$
|
—
|
|
|
$
|
318
|
|
Other accounts payable
|
|
|
804
|
|
|
|
1,027
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
804
|
|
|
$
|
1,345
|
|
|
|
|
|
|
|
|
|
|
Other
expenses and other current liabilities
Other expenses and other current liabilities included the
following at December 31, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Costs accrued for initial public offering
|
|
$
|
—
|
|
|
$
|
377
|
|
Other accrued expenses and other current liabilities
|
|
|
567
|
|
|
|
694
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
567
|
|
|
$
|
1,071
|
|
|
|
|
|
|
|
|
|
|
F-14
SPS
Commerce, Inc.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(In thousands, except share and per share amounts)
NOTE C –
INCOME TAXES
The provision for income taxes at December 31, 2007, 2008
and 2009, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Current
|
|
$
|
16
|
|
|
$
|
12
|
|
|
$
|
63
|
|
Deferred
|
|
|
—
|
|
|
|
82
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
16
|
|
|
$
|
94
|
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax provision includes estimated federal alternative minimum
taxes, state taxes and deferred tax expense related to book and
income tax basis differences in goodwill created in the Owens
Direct asset acquisition.
A reconciliation of income tax expense (benefit) to the
statutory federal rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Expected federal income tax at statutory rate
|
|
$
|
(728
|
)
|
|
$
|
(612
|
)
|
|
$
|
420
|
|
State income taxes, net of federal tax effect
|
|
|
(68
|
)
|
|
|
(52
|
)
|
|
|
52
|
|
Meals and entertainment
|
|
|
47
|
|
|
|
16
|
|
|
|
13
|
|
Stock compensation expense
|
|
|
16
|
|
|
|
53
|
|
|
|
67
|
|
Stock warrants
|
|
|
23
|
|
|
|
15
|
|
|
|
129
|
|
Change in valuation allowance
|
|
|
729
|
|
|
|
614
|
|
|
|
(805
|
)
|
Change in state deferred rate
|
|
|
—
|
|
|
|
—
|
|
|
|
54
|
|
Prior year true-up
|
|
|
—
|
|
|
|
—
|
|
|
|
100
|
|
AMT expense
|
|
|
—
|
|
|
|
—
|
|
|
|
36
|
|
Other
|
|
|
(3
|
)
|
|
|
60
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
16
|
|
|
$
|
94
|
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, the Company had net operating loss
carryforwards of $53,437 for U.S. federal tax purposes and
$32,491 for state tax purposes. These loss carryforwards expire
between 2010 and 2029. To the extent these net operating loss
carryforwards are available, the Company will use them to reduce
its corporate income tax liability associated with its
operations. Section 382 of the U.S. Internal Revenue
Code generally imposes an annual limitation on the amount of net
operating loss carryforwards that might be used to offset
taxable income when a corporation has undergone significant
changes in stock ownership. Due to changes in ownership, some of
the Company’s net operating loss carryforwards will be
limited.
F-15
SPS
Commerce, Inc.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(In thousands, except share and per share amounts)
Significant components of the Company’s deferred tax assets
and liabilities at December 31, 2008 and 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Accounts receivable allowances
|
|
$
|
125
|
|
|
$
|
115
|
|
Accrued expenses
|
|
|
252
|
|
|
|
285
|
|
|
|
|
|
|
|
|
|
|
Total current deferred tax assets
|
|
|
377
|
|
|
|
400
|
|
Valuation allowance
|
|
|
(377
|
)
|
|
|
(400
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Noncurrent:
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
19,867
|
|
|
$
|
19,096
|
|
Deferred revenue
|
|
|
530
|
|
|
|
761
|
|
Depreciation and amortization
|
|
|
789
|
|
|
|
527
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent deferred tax assets
|
|
|
21,186
|
|
|
|
20,384
|
|
Valuation allowance
|
|
|
(21,268
|
)
|
|
|
(20,494
|
)
|
|
|
|
|
|
|
|
|
|
Net noncurrent deferred tax liability
|
|
$
|
82
|
|
|
$
|
110
|
|
|
|
|
|
|
|
|
|
|
The Company’s net deferred tax assets have been reduced
fully by a valuation allowance, as realization is not considered
to be likely based on an assessment of the history of losses and
the likelihood of sufficient future taxable income. The deferred
tax liability recorded at December 31, 2009 and 2008
relates to goodwill created in the Owens Direct asset
acquisition which is deductible for tax purposes.
In the event the Company realizes its deferred tax assets in the
future, approximately $29 of the NOL carry-forwards were
generated through stock option deductions and will be recorded
in additional paid-in capital rather than offset income tax
expense.
It is the Company’s practice to recognize penalties
and/or
interest to income tax matters in income tax expenses. As of
December 31, 2009, the Company did not have an accrual for
interest or penalties related to unrecognized tax benefits. The
Company is no longer subject to U.S. federal tax
examinations by tax authorities for tax years before 2006. The
Company is open to state tax audits until the applicable
statutes of limitations expire.
NOTE D –
LINE OF CREDIT AND LONG-TERM DEBT
On March 30, 2009, the Company agreed to terms with a
lender to provide for equipment loans in the aggregate amount
not to exceed $1,100. All loans are payable in 36 monthly
installments of principal and interest at 12.75%. The Company
entered into an equipment loan with the same lender on
March 24, 2008 to provide equipment loans in the aggregate
amount not to exceed $1,250. All loans are payable in
36 monthly installments of principal and interest at 9.25%
plus the greater of 2.55% or the yield for the three-year
U.S. Treasury note on the date of the advance.
The Company entered in to an equipment loan agreement with the
same lender on March 20, 2007 in the aggregate amount not
to exceed $1,250. All loans from the agreement dated
March 20, 2007 are payable in 36 monthly installments
of principal and interest at 7.20% plus the greater of 4.84% or
the yield for the three-year U.S. treasury note on the date
of the advance.
F-16
SPS
Commerce, Inc.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(In thousands, except share and per share amounts)
On February 3, 2006, the Company entered into a loan and
security agreement with the same lender which included a $2,000
term loan, an equipment loan not to exceed an aggregate of
$1,250, and a revolving line of credit. The revolving line of
credit was limited to the lesser of $1,250 or 85% of eligible
domestic accounts receivable plus 70% of eligible foreign
accounts receivable less any reserves. On April 8, 2009,
the Company agreed to terms for a renewal of the revolving line
of credit which provides for available borrowings up to $3,500
based on eligible receivables, and expires on March 31,
2010.
Each loan is collateralized by the assets of the Company and
contains certain nonfinancial covenants with which the Company
was in compliance at December 31, 2009. The fair value of
the preferred stock warrant issued in connection with the loan
and security agreement was $160 and was recorded as a debt
discount. This debt discount is being amortized to interest
expense over the weighted average life of the term loan,
equipment loan and the revolving line of credit.
At December 31, 2008 and 2009, the Company’s
outstanding borrowings under the revolving line of credit were
$1,300 and $1,500 with effective interest rates of 9.50% and
9.00%, respectively.
The long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Term note of $2,000 payable in six monthly interest only
payments followed by 39 monthly payments of principal and
interest at 6.95% plus the greater of 4.54% or the yield for the
four-year U.S. Treasury note on the date of the loan (effective
rate of 11.60% and 0% at December 31, 2008 and
2009) through December 1, 2009
|
|
$
|
697
|
|
|
$
|
—
|
|
Equipment line — all loans made under the equipment
line are payable in 36 monthly installments of principal
and interest.
|
|
|
|
|
|
|
|
|
Various equipment loans — interest ranging from 11.49%
to 12.53% and due at dates through January 1, 2012
|
|
|
1,462
|
|
|
|
732
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
2,159
|
|
|
$
|
732
|
|
Less: discount
|
|
|
(18
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total debt, less discount
|
|
|
2,141
|
|
|
|
732
|
|
Less: current maturities
|
|
|
(1,409
|
)
|
|
|
(499
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
732
|
|
|
$
|
233
|
|
|
|
|
|
|
|
|
|
|
Future maturities of long-term debt are as follows for the year
ended December 31, 2009:
|
|
|
|
|
2010
|
|
|
499
|
|
2011
|
|
|
224
|
|
2012
|
|
|
9
|
|
|
|
|
|
|
|
|
$
|
732
|
|
|
|
|
|
|
F-17
SPS
Commerce, Inc.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(In thousands, except share and per share amounts)
NOTE E –
COMMITMENTS AND CONTINGENCIES
Capital
Leases
The Company leases certain computer equipment under capital
leases that bear interest ranging from 8.9% to 10.75%. A summary
of the Company’s property under these leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Computer equipment and purchased software
|
|
$
|
1,664
|
|
|
$
|
1,664
|
|
Less: accumulated amortization
|
|
|
(795
|
)
|
|
|
(892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
869
|
|
|
$
|
772
|
|
|
|
|
|
|
|
|
|
|
Future minimum payments under capital leases are as follows for
2009:
|
|
|
|
|
2010
|
|
|
366
|
|
2011
|
|
|
125
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
491
|
|
Less: amount representing interest
|
|
|
(31
|
)
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
460
|
|
Less: current portion
|
|
|
338
|
|
|
|
|
|
|
|
|
$
|
122
|
|
|
|
|
|
|
Operating
Leases
The Company is obligated under non-cancellable operating leases
primarily for office space. In addition to base rent under the
leases, the Company pays utilities and its pro rata share of
real estate taxes. Rent expense charged to operations was $580,
$663 and $682 for the years ended December 31, 2007, 2008
and 2009.
Future minimum lease payments are as follows:
|
|
|
|
|
2010
|
|
|
776
|
|
2011
|
|
|
787
|
|
2012
|
|
|
666
|
|
|
|
|
|
|
|
|
$
|
2,229
|
|
|
|
|
|
|
Management
Incentive Agreements
During 2002, the Board of Directors of the Company approved
management incentive agreements that provide for a bonus to be
paid to certain executive officers upon the sale of the Company.
The aggregate bonus is equal to 0.322% of the amount of the
purchase price, as defined, exceeding $25,000 and less than
$65,000. The aggregate bonus under these agreements is limited
to $150. The management incentive agreements terminate on
June 30, 2012, regardless of employment status. At
December 31, 2008 and 2009, no expense or liability had
been recorded relating to these agreements.
F-18
SPS
Commerce, Inc.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(In thousands, except share and per share amounts)
Other
Contingencies
The Company is involved in various claims and legal actions in
the normal course of business. Management believes that the
outcome of such legal actions will not have a significant
adverse effect on the Company’s financial position, results
of operations or cash flows.
NOTE F –
STOCKHOLDERS’ DEFICIT
Redeemable
Convertible Preferred Stock
The Company has issued various classes of redeemable convertible
preferred stock. The holders of Series A, B, and C
redeemable convertible preferred stock have the option to put
their shares back to the Company at the liquidation preference
value, as defined in the Certificate of Incorporation, in the
event of any liquidation, dissolution or winding up of the
Company. Certain events defined in the Certificate of
Incorporation are deemed to be a liquidation.
None of the series A, B and C redeemable convertible
preferred stock have a mandatory redemption feature. In the
event of liquidation, as defined, the holders of Series C
redeemable convertible preferred stock shall be entitled to
receive, prior to and in preference to any distribution of any
assets or surplus funds of the Company to the holders of
Series B and A redeemable convertible preferred stock or
common stock, an amount in cash equal to $1.60 per share plus
accrued unpaid dividends. After the liquidation payment to
Series C redeemable convertible preferred stockholders, the
holders of Series B redeemable convertible preferred stock
shall be entitled to receive, prior to and in preference to any
distribution of any assets or surplus funds of the Company to
the holders of Series A redeemable convertible preferred
stock or common stock, an amount in cash equal to $0.98 per
share plus accrued unpaid dividends. After the liquidation
payment of Series B redeemable convertible preferred
stockholders, the holders of Series A redeemable
convertible preferred stock shall be entitled to receive, prior
to and in preference to any distribution of any assets or
surplus funds of the Company to the holders of common stock, an
amount in cash equal to $2.31 per share plus accrued unpaid
dividends. After the liquidation payment to Series C, B and
A redeemable convertible preferred stockholders, holders of
common stock and Series A, B and C redeemable convertible
preferred stock shall share pro rata in the remaining assets of
the Company.
Each share of Series A, B, and C redeemable convertible
preferred stock, at the option of the holder, is convertible
into common shares at a conversion ratio which was 1 to 1 at
December 31, 2009. The conversion ratio is equal to the
conversion value divided by the conversion price. The conversion
value and conversion price were initially set in the
Company’s Fifth Amended and Restated Certificate of
Incorporation at $2.31, $0.98 and $1.60 for the Series A, B
and C redeemable convertible preferred stock, respectively. The
conversion price is subject to adjustment for certain dilutive
issuances. The Company has not issued any dilutive instruments
which would adjust the conversion price. Therefore, at
December 31, 2009, the conversion value and the conversion
price have not changed since they were initially set.
Each share of Series A, B and C redeemable convertible
preferred stock shall automatically and immediately be converted
into shares of common stock upon the closing of a public
offering pursuant to an effective registration statement at the
then effective conversion ratio, if the offering price per share
is not less than $3.59 and the gross proceeds to the Company are
at least $20,000. Each share of redeemable convertible preferred
stock is subject to weighted-average anti-dilution price
protection. The holders of the redeemable convertible preferred
stock are entitled to dividends only when declared. No dividends
have been declared since the issuance of the redeemable
convertible preferred stock. Generally, holders of
Series A, B and C redeemable convertible preferred stock
shall vote on all matters submitted to a vote of stockholders,
except those required by law to be submitted to a class vote.
F-19
SPS
Commerce, Inc.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(In thousands, except share and per share amounts)
NOTE G –
SHARE-BASED COMPENSATION
At December 31, 2009, there were 459,572 options available
for grant under approved stock option plans. At
December 31, 2007, 2008 and 2009 there were 581 stock
options outstanding issued outside the stock option plans. The
stock options generally vest over three to four years and
generally have a contractual term of ten years from the date of
grant. The 2001 Stock Option Plan provides for the grant of
incentive and nonqualified stock options to employees,
non-employee directors, and other consultants who provide
services to the Company. The 2001 Stock Option Plan provides
that grants of incentive stock options cannot be less than 110%
of the fair market value of the Company’s common stock on
the date of grant and the exercise price of incentive stock
options granted to any other employees may not be less than 100%
of the fair market value of the Company’s common stock on
the date of grant.
Stock
Options
A summary of the Company’s stock option activity is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
Outstanding at January 1, 2007
|
|
|
4,093,801
|
|
|
$
|
0.46
|
|
Granted
|
|
|
1,165,115
|
|
|
|
0.87
|
|
Exercised
|
|
|
(466,642
|
)
|
|
|
0.10
|
|
Forfeited
|
|
|
(146,130
|
)
|
|
|
0.13
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
4,646,144
|
|
|
|
0.61
|
|
Granted
|
|
|
173,000
|
|
|
|
1.23
|
|
Exercised
|
|
|
(307,684
|
)
|
|
|
0.10
|
|
Forfeited
|
|
|
(63,381
|
)
|
|
|
0.98
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
4,448,079
|
|
|
|
0.66
|
|
Granted
|
|
|
1,270,364
|
|
|
|
0.76
|
|
Exercised
|
|
|
(58,580
|
)
|
|
|
0.10
|
|
Forfeited
|
|
|
(984,739
|
)
|
|
|
2.10
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
4,675,124
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
F-20
SPS
Commerce, Inc.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(In thousands, except share and per share amounts)
The following table summarizes our stock option grants from
January 1, 2009 through December 31, 2009 and our
contemporaneous valuations for those grants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
Fair
|
|
Intrinsic
|
|
|
|
|
Number of
|
|
Per Share
|
|
Value(s)
|
|
Value of
|
|
|
|
|
Options
|
|
Exercise
|
|
Estimate
|
|
Options
|
|
Valuation
|
Period of Grant
|
|
Granted
|
|
Price(s)
|
|
Per Share
|
|
Granted
|
|
Date(s)
|
|
First Quarter – 2009
|
|
|
309,000
|
|
|
$
|
0.92
|
|
|
$
|
0.92
|
|
|
$
|
664
|
|
|
February 10, 2009
|
Second Quarter – 2009
|
|
|
374,000
|
|
|
$
|
0.65-$0.68
|
|
|
$
|
0.65-$0.68
|
|
|
$
|
903
|
|
|
April 1, 2009 and
April 22, 2009
|
Third Quarter – 2009(1)
|
|
|
893,364
|
|
|
$
|
0.81
|
|
|
$
|
0.81
|
|
|
$
|
2,019
|
|
|
July 23, 2009
|
Fourth Quarter – 2009
|
|
|
3,000
|
|
|
$
|
0.99
|
|
|
$
|
0.99
|
|
|
$
|
6
|
|
|
October 22, 2009
|
|
|
|
(1) |
|
On July 23, 2009, 890,364 options were modified to lower
the per share exercise price to $0.81. |
The following table summarizes information about stock options
outstanding at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Options
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Options
|
|
|
Exercise
|
|
Exercise price
|
|
Outstanding
|
|
|
Life
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
$0.10
|
|
|
2,819,424
|
|
|
|
4.3
|
|
|
$
|
0.10
|
|
|
|
2,796,952
|
|
|
$
|
0.10
|
|
$0.11 – $1.99
|
|
|
1,784,479
|
|
|
|
7.6
|
|
|
|
0.76
|
|
|
|
825,886
|
|
|
|
0.78
|
|
$2.00 – $3.00
|
|
|
70,540
|
|
|
|
1.7
|
|
|
|
2.05
|
|
|
|
70,540
|
|
|
|
2.05
|
|
$40.00 – $66.00
|
|
|
100
|
|
|
|
0.8
|
|
|
|
60.00
|
|
|
|
100
|
|
|
|
60.00
|
|
$102.40 – $115.60
|
|
|
581
|
|
|
|
0.2
|
|
|
|
102.40
|
|
|
|
581
|
|
|
|
102.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,675,124
|
|
|
|
5.5
|
|
|
$
|
0.40
|
|
|
|
3,694,059
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised during the year ended
December 31, 2007, 2008, and 2009 was $280, $346, and $101.
The weighted-average fair value of the options granted during
2007, 2008 and 2009 were $0.47, $0.64, and $0.41 respectively.
The fair value of each option granted was estimated on the date
of grant using the Black-Scholes method with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2008
|
|
2009
|
|
Weighted-average volatility
|
|
|
52.0
|
%
|
|
|
53.0
|
%
|
|
49% - 53%
|
Expected dividends
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
0.0%
|
Expected life (in years)
|
|
|
8.0
|
|
|
|
7.0
|
|
|
4.0 - 7.0
|
Weighted-average risk-free interest rate
|
|
|
4.4
|
%
|
|
|
4.0
|
%
|
|
2.71% - 4.01%
|
The expected term of the options is based on evaluations of
historical and expected future employee exercise behavior. The
risk-free interest rate is based on the U.S. Treasury rates
at the date of grant with maturity dates approximately equal to
the expected life at the grant date. Volatility is based on
historic volatilities from traded shares of a selected publicly
traded peer group. It is not routine for the Company to issue
dividends and it does not expect to do so in the future.
On July 23, 2009, the Company unilaterally amended the
terms of 890,364 stock options granted to 17 employees and
one director to reduce the exercise price for all the shares
subject to each option to $0.81
F-21
SPS
Commerce, Inc.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(In thousands, except share and per share amounts)
per share, which was the fair market value of the common stock
on the date of the amendments. The amendments did not change the
vesting provisions or the number of shares subject to any of the
option awards. This was accounted for as a stock option
modification and required the remeasurement of these stock
options. This remeasurement resulted in total additional
incremental stock-based compensation cost of $60, which will be
recognized ratably over the remaining vesting period of the
original awards. Of the $228 of stock based compensation
recognized in the period ended December 31, 2009,
approximately $32 related to the stock-based compensation costs
associated with the modified options.
Common
Stock Warrants
The Company had 750 and 0 warrants outstanding to purchase
common stock, with exercise prices ranging from $0.20 to
$105.00, at December 31, 2008 and 2009.
Preferred
Stock Warrants
At December 31, 2008 and 2009, the Company had warrants
outstanding to purchase 255,435 shares of Series B
redeemable convertible preferred stock, with exercise prices of
$0.98 per share. These warrants expire on dates ranging from May
2011 to February 2016.
The Company is required to classify the outstanding warrants to
purchase redeemable convertible preferred stock as a liability
on its balance sheet and record adjustments to their fair value
in the statements of operations. The Company recorded income
(expense) of $(69), $(45) and $(381) for the years ended
December 31, 2007, 2008 and 2009. This expense was recorded
in other income (expense). The warrants are subject to
revaluation at each balance sheet date and any change in fair
value is recognized as a component of other income (expense),
net, until conversion of the preferred stock warrants to common
stock upon completion of the Company’s initial public
offering.
NOTE H –
EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) retirement savings plan whereby
employees are allowed to contribute up to 50% of their salaries
and the Company will match 25% up to the first 6%. The
Company’s contributions vest immediately. Company
contributions to the plan were $124, $172 and $219, respectively
for the years ended December 31, 2007, 2008 and 2009.
NOTE I –
GUARANTEES
The Company provides limited guarantees to certain customers
through service level agreements. These agreements are defined
in the master agreements with the customer and performance is
measured on a monthly basis for the life of the contracts.
Service level agreements require the Company to perform at
specified levels, which would include, but are not limited to,
document processing times, data center availability, customer
support and issue resolution.
NOTE J –
SUBSEQUENT EVENTS
The Company has evaluated its financial statements as of
December 31, 2009 for subsequent events through
February 12, 2010 the date the financial statements were
available to be issued. The Company is not aware of any
subsequent events that would require recognition or disclosure
in the financial statements.
F-22
SCHEDULE II –
Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to
|
|
|
|
|
|
|
Balance at
|
|
Revenue,
|
|
|
|
|
|
|
Beginning of
|
|
Cost or
|
|
|
|
Balance at
|
Description
|
|
Period
|
|
Expenses
|
|
Deductions
|
|
End of Period
|
|
|
(In thousands)
|
|
Reserves deducted from assets to which it applies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007 Accounts Receivable Allowance
|
|
$
|
241
|
|
|
$
|
150
|
|
|
$
|
(193
|
)
|
|
$
|
198
|
|
Year ended December 31, 2008 Accounts Receivable Allowance
|
|
$
|
198
|
|
|
$
|
396
|
|
|
$
|
(286
|
)
|
|
$
|
308
|
|
Year ended December 31, 2009 Accounts Receivable Allowance
|
|
$
|
308
|
|
|
$
|
439
|
|
|
$
|
(521
|
)
|
|
$
|
226
|
|
F-23
Shares
Common
Stock
PROSPECTUS
,
2010
Thomas
Weisel Partners LLC
|
|
William
Blair & Company |
Needham & Company, LLC |
JMP
Securities
Neither we nor any
of the selling stockholders or underwriters have authorized
anyone to provide information different from that contained in
this prospectus. When you make a decision about whether to
invest in our common stock, you should not rely upon any
information other than the information in this prospectus. This
prospectus is not an offer to sell or solicitation of an offer
to buy these shares of common stock in any circumstances under
which the offer or solicitation is unlawful.
Until ,
2010, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to the
dealers’ obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotment or
subscriptions.
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item 13.
Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other
than the underwriting discounts and commissions, payable by us
in connection with the sale of common stock being registered.
All amounts shown are estimates, except the SEC registration
fee, the Financial Industry Regulatory Authority, Inc. filing
fee and the Nasdaq Capital Market listing fee.
|
|
|
|
|
|
|
Amount
|
|
|
SEC registration fee
|
|
$
|
2,567
|
|
FINRA fee
|
|
|
5,100
|
|
Nasdaq Capital Market listing fee
|
|
|
50,000
|
|
Legal fees and expenses
|
|
|
*
|
|
Accounting fees and expenses
|
|
|
*
|
|
Printing expenses
|
|
|
*
|
|
Transfer agent and registrar fees and expenses
|
|
|
*
|
|
Miscellaneous
|
|
|
*
|
|
|
|
|
|
|
Total
|
|
$
|
*
|
|
|
|
|
* |
|
To be filed by amendment |
Item 14.
Indemnification of Directors and Officers.
We are a corporation organized under the laws of the State of
Delaware. Section 145 of the Delaware General Corporation
Law provides that a corporation may indemnify any person who was
or is a party or is threatened to be made a party to an action
by reason of the fact that he or she was a director, officer,
employee or agent of the corporation or is or was serving at the
request of the corporation against expenses (including
attorneys’ fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in
connection with such action if he or she acted in good faith and
in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe his or her conduct was unlawful, except that,
in the case of an action by or in right of the corporation, no
indemnification may generally be made in respect of any claim as
to which such person is adjudged to be liable to the
corporation. Our amended and restated bylaws, in the form that
will become effective upon the closing of this offering, provide
that we will indemnify and advance expenses to our directors and
officers (and may choose to indemnify and advance expenses to
other employees and other agents) to the fullest extent
permitted by law; provided, however, that if we enter into an
indemnification agreement with such directors or officers, such
agreement controls.
Section 102(b)(7) of the Delaware General Corporation Law
permits a corporation to provide in its certificate of
incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duties as a director,
except for liability for any:
|
|
|
|
•
|
breach of a director’s duty of loyalty to the corporation
or its stockholders;
|
|
|
•
|
act or omission not in good faith or that involves intentional
misconduct or a knowing violation of law;
|
|
|
•
|
unlawful payment of dividends or redemption of shares; or
|
|
|
•
|
transaction from which the director derives an improper personal
benefit.
|
II-1
Our amended and restated certificate of incorporation, in the
form that will become effective upon the closing of this
offering, provides that our directors are not personally liable
for breaches of fiduciary duties to the fullest extent permitted
by the Delaware General Corporation Law.
These limitations of liability do not apply to liabilities
arising under federal securities laws and do not affect the
availability of equitable remedies such as injunctive relief or
rescission.
Section 145(g) of the Delaware General Corporation Law
permits a corporation to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee
or agent of the corporation. Our amended and restated bylaws, in
the form that will become effective upon the closing of this
offering, permit us to secure insurance on behalf of any
officer, director, employee or other agent for any liability
arising out of his or her actions in connection with their
services to us, regardless of whether our bylaws permit
indemnification. We intend to obtain a directors’ and
officers’ liability insurance policy prior to the closing
of this offering.
As permitted by the Delaware General Corporation Law, we entered
into indemnity agreements with each of our directors that
require us to indemnify such persons against various actions
including, but not limited to, third-party actions where such
director, by reason of his or her corporate status, is a party
or is threatened to be made a party to an action, or by reason
of anything done or not done by such director in any such
capacity. We indemnify directors against all costs, judgments,
penalties, fines, liabilities, amounts paid in settlement by or
on behalf such directors, and for any expenses actually and
reasonably incurred by such directors in connection with such
action, if such directors acted in good faith and in a manner
they reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal
proceeding, had no reasonable cause to believe their conduct was
unlawful. We also advance to our directors expenses (including
attorney’s fees) incurred by such directors in advance of
the final disposition of any action after the receipt by the
corporation of a statement or statements from directors
requesting such payment or payments from time to time, provided
that such statement or statements are accompanied by an
undertaking, by or on behalf of such directors, to repay such
amount if it shall ultimately be determined that they are not
entitled to be indemnified against such expenses by the
corporation.
The indemnification agreements set forth certain procedures that
will apply in the event of a claim for indemnification or
advancement of expenses, including, among others, provisions
about providing notice to the corporation of any action in
connection with which a director seeks indemnification or
advancement of expenses from the corporation, and provisions
concerning the determination of entitlement to indemnification
or advancement of expenses.
Prior to the closing of this offering we plan to enter into an
underwriting agreement, which will provide that the underwriters
are obligated, under some circumstances, to indemnify our
directors, officers and controlling persons against specified
liabilities.
II-2
Item 15.
Recent Sales of Unregistered Securities.
In the three years preceding the filing of this registration
statement, we issued the securities indicated below that were
not registered under the Securities Act. All share and price
information in the table below does not reflect the impact of
the conversion of all of our preferred stock into common stock
immediately prior to consummation of this offering and
a for
reverse stock split of our common stock that will occur
immediately prior to consummation of this offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
Individual or Group Name
|
|
Type of Securities
|
|
Date of Sale
|
|
Preferred
|
|
Common
|
|
Consideration
|
|
Pacific Capital Ventures LLC
|
|
Series C convertible preferred stock
|
|
April 10, 2007
|
|
|
124,536
|
|
|
|
—
|
|
|
$
|
199,257.60
|
|
River Cities Capital Fund II L.P.
|
|
Series C convertible preferred stock
|
|
April 10, 2007
|
|
|
250,000
|
|
|
|
—
|
|
|
$
|
400,000.00
|
|
River Cities SBIC III L.P.
|
|
Series C convertible preferred stock
|
|
April 10, 2007
|
|
|
625,000
|
|
|
|
—
|
|
|
$
|
1,000,000.00
|
|
SPVC VI, LLC
|
|
Series C convertible preferred stock
|
|
April 10, 2007
|
|
|
468,750
|
|
|
|
—
|
|
|
$
|
750,000.00
|
|
CID Mezzanine Capital, L.P.
|
|
Series C convertible preferred stock
|
|
April 10, 2007
|
|
|
901,742
|
|
|
|
—
|
|
|
$
|
1,442,787.20
|
|
River Cities SBIC III L.P.
|
|
Series C convertible preferred stock
|
|
April 18, 2007
|
|
|
1,473,438
|
|
|
|
—
|
|
|
$
|
2,357,500.80
|
|
Axiom Venture Partners II, L.P.
|
|
Series C convertible preferred stock
|
|
April 18, 2007
|
|
|
312,500
|
|
|
|
—
|
|
|
$
|
500,000.00
|
|
BlueCrest Strategic Limited
|
|
Series C convertible preferred stock
|
|
April 18, 2007
|
|
|
263,127
|
|
|
|
—
|
|
|
$
|
421,003.20
|
|
BVCF IV, L.P.
|
|
Series C convertible preferred stock
|
|
April 18, 2007
|
|
|
250,000
|
|
|
|
—
|
|
|
$
|
400,000.00
|
|
Ronald P. Karlsberg, TTEE FBO R.P. Karlsberg Cardiovascular
Medical Group of Southern California 401K, profit sharing plan,
DTD 1/1/1989
|
|
Series C convertible preferred stock
|
|
April 18, 2007
|
|
|
15,000
|
|
|
|
—
|
|
|
$
|
24,000.00
|
|
Casimir Skrzypczak
|
|
Series C convertible preferred stock
|
|
April 18, 2007
|
|
|
3,407
|
|
|
|
—
|
|
|
$
|
5,451.20
|
|
Robert J. Guerriere
|
|
common stock
|
|
April 20, 2007
|
|
|
—
|
|
|
|
27,092
|
|
|
$
|
2,709.20
|
|
Thomas C. Velin
|
|
common stock
|
|
June 29, 2007
|
|
|
—
|
|
|
|
232,848
|
|
|
$
|
23,284.80
|
|
Archie C. Black
|
|
common stock
|
|
July 11, 2007
|
|
|
—
|
|
|
|
200,000
|
|
|
$
|
20,000.00
|
|
Thomas C. Velin
|
|
common stock
|
|
August 9, 2007
|
|
|
—
|
|
|
|
6,322
|
|
|
$
|
632.20
|
|
Gregory R. Storlie
|
|
common stock
|
|
August 18, 2007
|
|
|
—
|
|
|
|
380
|
|
|
$
|
38.00
|
|
John P. Sekeres
|
|
common stock
|
|
January 16, 2008
|
|
|
—
|
|
|
|
3,038
|
|
|
$
|
778.80
|
|
PNC Investment Corp.
|
|
common stock
|
|
May 21, 2008
|
|
|
—
|
|
|
|
8,360
|
|
|
|
*
|
|
Patrick J. Maurer
|
|
common stock
|
|
May 30, 2008
|
|
|
—
|
|
|
|
263,260
|
|
|
|
*
|
|
Chad Johnson
|
|
common stock
|
|
August 8, 2008
|
|
|
—
|
|
|
|
1,386
|
|
|
$
|
138.60
|
|
Archie C. Black
|
|
common stock
|
|
September 4, 2008
|
|
|
—
|
|
|
|
40,000
|
|
|
$
|
4,000.00
|
|
Sandra L. Evanson
|
|
common stock
|
|
September 11, 2009
|
|
|
—
|
|
|
|
30,188
|
|
|
|
|
*
|
Archie C. Black
|
|
common stock
|
|
December 22, 2009
|
|
|
—
|
|
|
|
25,000
|
|
|
$
|
2,500.00
|
|
|
|
|
*
|
|
Indicates shares acquired upon
cashless exercise of an option or warrant. In the case of PNC
Investment Corp., the exercise price of $2,000 was paid by
cancellation of 1,640 shares subject to the applicable
warrant. In the case of Patrick J. Maurer, the exercise price of
$28,676 was paid by cancellation of 25,506 shares subject
to the applicable option. In the case of Sandra L. Evanson, the
exercise price of $3,358 was paid by cancellation of
3,392 shares subject to the applicable option.
|
The above-described sales of Series C convertible preferred
stock were made in reliance upon the exemption from registration
requirements of the Securities Act available under
Section 4(2) of the Securities Act and Rule 506 of
Regulation D. These sales did not involve any underwriters,
underwriting discounts or commissions or any public offering.
The recipients of the securities in these transactions
represented that they were sophisticated persons and that they
intended to acquire the securities for investment only and not
with a view to, or for sale in connection with, any distribution
thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such sales. We believe
that the purchasers either received adequate information about
us or had adequate access, through their relationships with us,
to such information.
The sale of common stock to PNC Investment Corp. was made in
reliance upon the exemption from registration requirements of
the Securities Act available under Section 4(2) of the
Securities Act. This sale did not involve any underwriters,
underwriting discounts or commissions or any public offering.
All other sales of common stock described above were made
pursuant to the exercise of stock options granted under our 2001
Stock Option Plan to our officers, directors, employees and
consultants in reliance upon an available exemption from the
registration requirements of the Securities Act, including those
II-3
contained in Rule 701 promulgated under Section 3(b)
of the Securities Act. Among other things, we relied on the fact
that, under Rule 701, companies that are not subject to the
reporting requirements of Section 13 or Section 15(d)
of the Exchange Act are exempt from registration under the
Securities Act with respect to certain offers and sales of
securities pursuant to “compensatory benefit plans” as
defined under that rule. We believe that our 2001 Stock Option
Plan qualifies as a compensatory benefit plan.
The following table sets forth information on the stock options
issued by us in the three years preceding the filing of this
registration statement. All information in the table below
relating to the number of options or exercise price does not
reflect
a
for
reverse stock split of our common stock that will occur
immediately prior to consummation of this offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Number of
|
|
Grant Date
|
|
Grant Date
|
|
Exercise
|
Date of Issuance
|
|
Options Granted
|
|
Exercise Price
|
|
Fair Value
|
|
Price
|
|
January 24, 2007
|
|
|
53,475
|
|
|
$
|
0.53
|
|
|
$
|
0.53
|
|
|
$
|
0.53
|
|
April 26, 2007
|
|
|
3,000
|
|
|
$
|
0.64
|
|
|
$
|
0.64
|
|
|
$
|
0.64
|
|
July 26, 2007
|
|
|
522,640
|
|
|
$
|
0.78
|
|
|
$
|
0.78
|
|
|
$
|
0.78
|
|
October 24, 2007
|
|
|
15,000
|
|
|
$
|
0.96
|
|
|
$
|
0.96
|
|
|
$
|
0.81
|
|
October 24, 2007
|
|
|
6,000
|
|
|
$
|
0.96
|
|
|
$
|
0.96
|
|
|
$
|
0.96
|
|
November 27, 2007
|
|
|
500,000
|
|
|
$
|
0.99
|
|
|
$
|
0.99
|
|
|
$
|
0.81
|
|
November 28, 2007
|
|
|
65,000
|
|
|
$
|
0.99
|
|
|
$
|
0.99
|
|
|
$
|
0.81
|
|
January 21, 2008
|
|
|
35,000
|
|
|
$
|
1.14
|
|
|
$
|
1.14
|
|
|
$
|
0.81
|
|
January 21, 2008
|
|
|
3,000
|
|
|
$
|
1.14
|
|
|
$
|
1.14
|
|
|
$
|
1.14
|
|
April 23, 2008
|
|
|
3,000
|
|
|
$
|
1.22
|
|
|
$
|
1.22
|
|
|
$
|
0.81
|
|
July 24, 2008
|
|
|
123,500
|
|
|
$
|
1.26
|
|
|
$
|
1.26
|
|
|
$
|
0.81
|
|
October 31, 2008
|
|
|
8,500
|
|
|
$
|
1.25
|
|
|
$
|
1.25
|
|
|
$
|
0.81
|
|
February 10, 2009
|
|
|
309,000
|
|
|
$
|
0.92
|
|
|
$
|
0.92
|
|
|
$
|
0.65
|
|
April 1, 2009
|
|
|
309,000
|
(1)
|
|
$
|
0.65
|
|
|
$
|
0.65
|
|
|
$
|
0.65
|
|
April 22, 2009
|
|
|
65,000
|
|
|
$
|
0.68
|
|
|
$
|
0.68
|
|
|
$
|
0.68
|
|
July 23, 2009
|
|
|
893,364
|
(2)
|
|
$
|
0.81
|
|
|
$
|
0.81
|
|
|
$
|
0.81
|
|
October 22, 2009
|
|
|
3,000
|
|
|
$
|
0.99
|
|
|
$
|
0.99
|
|
|
$
|
0.99
|
|
|
|
|
(1) |
|
Represents stock options granted to three employees that result
from our unilateral amendment to reduce the exercise price for
all of the shares subject to options granted to the employees on
February 10, 2009. The amendments reduce the exercise price
of the previously granted options to $0.65 per share, which was
the fair market value of our common stock on the date of the
amendments. The amendments did not affect the vesting provisions
or the number of shares subject to any of the option awards. For
financial statement reporting, we treat the previously granted
options as being forfeited and the amendments as new option
grants; however, none of the holders of the previously granted
options made any investment decisions in connection with the
amendments. |
|
(2) |
|
Includes a total of 890,364 stock options granted to
17 employees and one director that result from our
unilateral amendment to reduce the exercise price for all of the
shares subject to options previously granted to the employees
and director. The amendments reduce the exercise price of the
previously granted options to $0.81 per share, which was the
fair market value of our common stock on the date of the
amendments. The amendments did not affect the vesting provisions
or the number of shares subject to any of the option awards. For
financial statement reporting, we treat the previously granted
options as being forfeited and the amendments as new option
grants; however, none of the holders of the previously granted
options made any investment decisions in connection with the
amendments. |
No consideration was paid to us by any recipient of any of the
foregoing options for the grant of such options. All of the
stock options described above were granted under our 2001 Stock
Option Plan to our
II-4
officers, directors, employees and consultants in reliance upon
an available exemption from the registration requirements of the
Securities Act, including those contained in Rule 701
promulgated under Section 3(b) of the Securities Act. Among
other things, we relied on the fact that, under Rule 701,
companies that are not subject to the reporting requirements of
Section 13 or Section 15(d) of the Exchange Act are
exempt from registration under the Securities Act with respect
to certain offers and sales of securities pursuant to
“compensatory benefit plans” as defined under that
rule. We believe that our 2001 Stock Option Plan qualifies as a
compensatory benefit plan.
Item 16.
Exhibits and Financial Statement Schedules.
See the Exhibit Index following the signature page.
Item 17.
Undertakings.
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting
agreement, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this amendment
no. 3 to registration statement on
Form S-1
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, State of Minnesota on
this 5th day of March, 2010.
SPS COMMERCE, INC.
|
|
|
|
By:
|
/s/ Kimberly
K. Nelson
|
Kimberly K. Nelson
Executive Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment no. 3 to registration statement has been signed
by the following persons in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
*
Archie
C. Black
|
|
President and Chief Executive Officer (principal executive
officer)
|
|
March 5, 2010
|
|
|
|
|
|
/s/ Kimberly
K. Nelson
Kimberly
K. Nelson
|
|
Executive Vice President and Chief Financial Officer
(principal financial and accounting officer)
|
|
March 5, 2010
|
|
|
|
|
|
*
Steve
A. Cobb
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
|
*
Michael
B. Gorman
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
|
*
Martin
J. Leestma
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
|
*
George
H. Spencer, III
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
|
*
Murray
R. Wilson
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
|
*
Sven
A. Wehrwein
|
|
Director
|
|
March 5, 2010
|
|
|
|
|
|
* /s/ Kimberly
K. Nelson
|
|
|
|
|
By: Kimberly K. Nelson
Agent and attorney-in-fact
|
|
|
|
|
II-6
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement
|
|
3
|
.1*
|
|
Amended and Restated Certificate of Incorporation of the
registrant to be effective immediately prior to the closing of
the offering
|
|
3
|
.2
|
|
Amended and Restated Bylaws of the registrant to be effective
immediately prior to the closing of the offering
|
|
4
|
.1
|
|
Specimen Certificate representing shares of common stock of SPS
Commerce, Inc.
|
|
4
|
.2†
|
|
Registration rights agreement dated April 10, 2007
|
|
5
|
.1*
|
|
Opinion of Faegre & Benson LLP
|
|
10
|
.1†
|
|
1999 Equity Incentive Plan**
|
|
10
|
.2†
|
|
Form of Option Agreement under 1999 Equity Incentive Plan**
|
|
10
|
.3†
|
|
2001 Stock Option Plan**
|
|
10
|
.4†
|
|
Form of Incentive Stock Option Agreement under 2001 Stock Option
Plan**
|
|
10
|
.5†
|
|
Form of Non-Statutory Stock Option Agreement (Director) under
2001 Stock Option Plan**
|
|
10
|
.6
|
|
2010 Equity Incentive Plan**
|
|
10
|
.7
|
|
Form of Incentive Stock Option Agreement under 2010 Equity
Incentive Plan**
|
|
10
|
.8
|
|
Form of Non-Statutory Stock Option Agreement (Director) under
2010 Equity Incentive Plan**
|
|
10
|
.9†
|
|
Loan and Security Agreement dated February 3, 2006 by and
between Ritchie Capital Finance, L.L.C. and the Company
|
|
10
|
.10†
|
|
Amendment to Loan and Security Agreement dated March 20,
2007 by and between BlueCrest Venture Finance Master
Fund Limited, as assignee of Ritchie Capital Finance, LLC
and Ritchie Debt Acquisition Fund, Ltd., and the Company
|
|
10
|
.11†
|
|
Second Amendment to Loan and Security Agreement dated
March 24, 2008 by and between BlueCrest Venture Finance
Master Fund Limited, as assignee of Ritchie Capital
Finance, LLC and Ritchie Debt Acquisition Fund, Ltd., and the
Company
|
|
10
|
.12†
|
|
Third Amendment to Loan and Security Agreement dated
March 30, 2009 by and between BlueCrest Venture Finance
Master Fund Limited, as assignee of Ritchie Capital
Finance, LLC and Ritchie Debt Acquisition Fund, Ltd., and the
Company
|
|
10
|
.13†
|
|
Fourth Amendment to Loan and Security Agreement dated
April 8, 2009 by and between BlueCrest Venture Finance
Master Fund Limited, as assignee of Ritchie Capital
Finance, LLC and Ritchie Debt Acquisition Fund, Ltd., and the
Company
|
|
10
|
.14†
|
|
2002 Management Incentive Agreement between the Company and
Archie C. Black**
|
|
10
|
.15†
|
|
2002 Management Incentive Agreement between the Company and
James J. Frome**
|
|
10
|
.16†
|
|
Non-Employee Director Compensation Policy**
|
|
10
|
.17†
|
|
Form of Indemnification Agreement for Steve A. Cobb, Michael B.
Gorman, George H. Spencer, III and Murry R. Wilson
|
|
10
|
.18†
|
|
Form of Indemnification Agreement for Martin J. Leestma and Sven
A. Wehrein
|
|
10
|
.19†
|
|
Form of Indemnification Agreement for Archie C. Black**
|
|
10
|
.20
|
|
Employment Agreement between the Company and Archie C. Black**
|
|
10
|
.21
|
|
Form of At-will Confidentiality Agreement Regarding Certain
Terms and Conditions of Employment for Kimberly K. Nelson, James
J. Frome, Michael J. Gray and David J. Novak, Jr.**
|
II-7
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.22
|
|
Warrant to Purchase Stock issued by the Company to Silicon
Valley Bank as of May 20, 2004
|
|
10
|
.23
|
|
Warrant issued by the Company to Ritchie Capital Finance, L.L.C.
as of February 3, 2006
|
|
23
|
.1
|
|
Consent of Grant Thornton LLP
|
|
23
|
.2*
|
|
Consent of Faegre & Benson LLP (included in
Exhibit 5.1)
|
|
24
|
.1†
|
|
Power of Attorney
|
|
|
|
* |
|
To be filed by amendment. |
|
** |
|
Indicates management contract or compensatory plan or
arrangement. |
|
† |
|
Previously filed. |
II-8
exv1w1
Exhibit 1.1
SPS Commerce, Inc.
Common Stock
Underwriting Agreement
, 2010
Thomas Weisel Partners LLC
As representative of the Underwriters
named in Schedule I hereto,
c/o Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, CA 94104
Ladies and Gentlemen:
SPS Commerce, Inc., a Delaware corporation (the “Company”), proposes, subject to the terms and
conditions stated herein, to issue and sell to the Underwriters named in Schedule I hereto
(the “Underwriters”) an aggregate of [ ] shares of Common Stock, $0.001 par value (“Stock”) of
the Company, and, at the election of the Underwriters, up to [ ] additional shares of Stock, and
the stockholders of the Company named in Schedule II hereto (the “Selling Stockholders”)
propose, subject to the terms and conditions stated herein, to sell to the Underwriters an
aggregate of [ ] shares of Stock, and, at the election of the Underwriters, up to [ ]
additional shares of Stock. The aggregate of [ ] shares to be sold by the Company and the
Selling Stockholders is herein called the “Firm Shares” and the aggregate of [ ] additional
shares to be sold by the Company is herein called the “Optional Shares”. The Firm Shares and the
Optional Shares are herein collectively called the “Shares”.
1. The Company represents and warrants to, and agrees with, each of the Underwriters that:
(a) A registration statement on Form S-1 (File No. 333- ) (the “Initial Registration
Statement”) in respect of the Shares has been filed with the Securities and Exchange Commission
(the “Commission”); the Initial Registration Statement and any post-effective amendment thereto,
each in the form heretofore delivered to you, have been declared effective by the Commission in
such form; other than a registration statement, if any, increasing the size of the offering (a
“Rule 462(b) Registration Statement”), filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the “Act”), which became effective upon filing, no other document with respect to
the Initial Registration Statement has heretofore been filed with the Commission; and no stop order
suspending the effectiveness of the Initial Registration Statement, any post-effective amendment
thereto or the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for
that purpose, to the best of the knowledge of the Company, has been initiated or threatened by the
Commission (any preliminary prospectus included in the Initial Registration Statement or filed with
the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Act
is hereinafter called a “Preliminary Prospectus”; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including all exhibits thereto and
including the information contained in the form of final prospectus filed with the Commission
pursuant to Rule 424(b) under the Act in accordance with Section 6(a) hereof and deemed by virtue
of Rule 430A under the Act to be part of the Initial Registration Statement at the time it was
declared effective, each as amended at the time such part of the Initial Registration Statement
became effective or such part of the Rule 462(b) Registration Statement, if any, became or
hereafter becomes effective, are hereinafter collectively called the “Registration Statement”; the
Preliminary Prospectus, as amended and supplemented immediately prior to the Applicable Time,
including any document incorporated by reference therein is hereinafter called the “Statutory
Prospectus”; the General Use Free Writing Prospectus(es) (as defined in Section 1(c) hereof) issued
at or prior to the Applicable Time (as defined in
1
Section 1(c) hereof) and the Statutory Prospectus, all considered together are hereinafter
called the “Pricing Prospectus”; such final prospectus, in the form first filed pursuant to Rule
424(b) under the Act, is hereinafter called the “Prospectus”; and any “issuer free writing
prospectus” as defined in Rule 433 under the Act, relating to the Shares in the form filed or
required to be filed with the Commission or, if not required to be filed, in the form retained in
the Company’s records pursuant to Rule 433(g) under the Act is hereinafter called an “Issuer Free
Writing Prospectus”); all references in this Agreement to the Initial Registration Statement, the
Rule 462(b) Registration Statement, a Preliminary Prospectus, the Pricing Prospectus and the
Prospectus, or any amendments or supplements to the foregoing, shall be deemed to refer to and
include any copy thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System;
(b) No order preventing or suspending the use of any Preliminary Prospectus or any Issuer Free
Writing Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time
of filing thereof, conformed in all material respects to the requirements of the Act and the rules
and regulations of the Commission thereunder, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information furnished in writing to the
Company by an Underwriter through Thomas Weisel Partners LLC expressly for use therein, it being
understood and agreed that the only such information is that described in Section 10(d) hereof;
(c) For the purposes of this Agreement, the “Applicable Time” is [___] p.m. (Eastern time) on
the date of this Agreement. As of the Applicable Time, and as of each Time of Delivery, as the
case may be, neither (i) the Pricing Prospectus nor (ii) any individual Limited Use Free Writing
Prospectus (as defined below), when considered together with the Pricing Prospectus, included or
will include any untrue statement of a material fact or omitted or will omit to state any material
fact necessary in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; and each Issuer Free Writing Prospectus (A) does not conflict
with the information contained in the Registration Statement and the Pricing Prospectus, (B) will
not conflict with the information contained in the Prospectus, and (C) as supplemented by and taken
together with the Pricing Prospectus as of the Applicable Time, did not include any untrue
statement of a material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were made, not misleading;
and each broadly available road show, if any, when considered together with the Pricing Prospectus,
does not contain any untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and warranties in this Section
1(c) shall not apply to statements or omissions made in the Pricing Prospectus or an Issuer Free
Writing Prospectus in reliance upon and in conformity with information furnished in writing to the
Company by an Underwriter through Thomas Weisel Partners LLC expressly for use therein, it being
understood and agreed that the only such information is that described in Section 10(d) hereof. As
used in this subsection and elsewhere in this Agreement:
“Broadly available road show” means a “bona fide electronic road show” as defined in Rule
433(h)(5) under the Act that has been made available without restriction to any person
“General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is
intended for general distribution to prospective investors, as evidenced by its being so identified
on Schedule IV to this Agreement.
“Limited Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is not a
General Use Free Writing Prospectus.
2
(d) The Registration Statement conforms, and the Prospectus and any further amendments or
supplements to the Registration Statement or the Prospectus will conform, in all material respects
to the requirements of the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the Registration Statement and any
amendment thereto and as of the applicable filing date as to the Prospectus and any amendment or
supplement thereto, contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not misleading; provided,
however, that the representations and warranties in this Section 1(d) shall not apply to any
statements or omissions made in reliance upon and in conformity with information furnished in
writing to the Company by an Underwriter through Thomas Weisel Partners LLC expressly for use
therein, it being understood and agreed that the only such information is that described in Section
10(d) hereof;
(e) The Company has not, directly or indirectly, distributed and will not distribute any
offering material in connection with the offering and sale of the Shares other than any Preliminary
Prospectus, the Prospectus and other materials, if any, permitted under the Act and consistent with
Section 6 below. The Company will file with the Commission all Issuer Free Writing Prospectuses
required to be filed in the time and manner required under Rule 433(d) under the Act;
(f) The Company (i) has not sustained since the date of the latest audited financial
statements included in the Pricing Prospectus any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree and (ii) is not in violation of its charter or
by-laws or in default (or with the giving notice or lapse of time would be in default) under any
existing obligation, agreement, covenant or condition contained in any indenture, loan agreement,
mortgage, lease or other agreement or instrument to which it is a party or by which it is bound or
to which its properties is subject, in each case otherwise than as set forth or contemplated in the
Pricing Prospectus, and in each case except for such loss, interference, default or violation as
would not, individually or in the aggregate, have a material adverse effect on the business,
prospects, properties, operations, assets, condition (financial or otherwise), stockholders’ equity
or results of operations of the Company (a “Material Adverse Effect”); and, since the respective
dates as of which information is given in the Registration Statement and the Pricing Prospectus,
there has not been (A) any change in the capital stock or long-term debt of the Company, other than
the expiration of or grants of stock options to employees of the Company pursuant to the Company’s
equity incentive plans in the ordinary course of business and the issuance of shares of Stock upon
the exercise of warrants and stock options by existing security holders of the Company in the
ordinary course of business, or (B) any material adverse change, or any development reasonably
expected to result in a material adverse change, in or affecting the business, prospects,
operations, assets, condition (financial or otherwise) or results of operations of the Company,
otherwise than as set forth or contemplated in the Pricing Prospectus;
(g) The Company does not own any real property. The Company has good and marketable title to
all personal property owned by it, in each case free and clear of all liens, encumbrances and
defects except such as are described in the Pricing Prospectus or such as do not materially affect
the value of such property and do not interfere with the use made and proposed to be made of such
property by the Company. Any real property and buildings held under lease by the Company are held
by it under valid, subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and buildings by the
Company;
(h) The Company has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the State of Delaware, with power and authority (corporate and other) to
own, lease and operate its properties and conduct its business as described in the Pricing
Prospectus, and is duly qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns or leases properties or
conducts any business so as to require such
3
qualification, except where the failure to be so qualified and in good standing in any such
jurisdiction would not have, individually or in the aggregate, a Material Adverse Effect;
(i) The Company does not own, and at each Time of Delivery (as defined in Section 4(a)
hereof), will not own, directly or indirectly, any shares of stock or any other equity or long-term
debt securities of any corporation or have any equity interest in any corporation, firm,
partnership, joint venture, association or other entity;
(j) The Company has the authorized, and issued and outstanding capital stock as set forth in
the “Description of Capital Stock” section of the Pricing Prospectus; all of the issued shares of
capital stock of the Company (i) have been duly authorized and validly issued, (ii) are fully paid
and non-assessable, and (iii) were issued in compliance with all applicable state and federal
securities laws or an exemption thereto; all of the issued shares of Stock conform to the
description of the Stock that is contained in the “Description of Capital Stock” section of the
Pricing Prospectus and that will be contained in the “Description of Capital Stock” section of the
Prospectus; and none of the holders of capital stock of the Company are entitled to receive any
liquidation preference payment solely by virtue of the consummation of the offering contemplated in
this Agreement;
(k) The Shares have been duly authorized and, when issued and delivered against payment
therefor as provided herein, will be validly issued, fully paid and non-assessable and will conform
to the description of the Stock that is contained in the Pricing Prospectus and that will be
contained in the Prospectus; and no preemptive or similar rights with respect to (except as have
been waived in writing and delivered to Thomas Weisel Partners LLC), or any restrictions (other
than under federal and state securities laws) upon the voting or transfer of, any of the Shares or
the issue and sale thereof exist or will exist prior to or at any Time of Delivery with respect to
such Shares;
(l) The issue and sale of the Shares to be sold by the Company, the compliance by the Company
with all of the provisions of this Agreement and the consummation of the transactions herein
contemplated will not violate any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its properties, or
conflict with or result in a breach or violation of any of the terms or provisions of, or
constitute a default under, or give rise to a right of termination under, or result in the
acceleration of any obligation under any statute, indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company is a party or by which the Company
is bound or affected or to which any of the property or assets of the Company is subject or
affected, except for such breaches or violations as would not, individually or in the aggregate,
have a Material Adverse Effect, nor will such action result in any violation of the provisions of
the Certificate of Incorporation or By-laws of the Company;
(m) No consent, approval, authorization, order, registration, qualification, permit, license,
exemption, filing or notice (each an “Authorization”) of, from, with or to any court, tribunal,
government, governmental or regulatory authority, self-regulatory organization or body is required
for the issue and sale of the Shares or the consummation by the Company of the transactions
contemplated by this Agreement, except (A) the registration of the Shares under the Act; (B) such
Authorizations as may be required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters; (C) the approval of the Financial
Industry Regulatory Authority, Inc. (“FINRA”) of the underwriting terms and arrangements of the
offering of the Shares; and (D) such other Authorizations the absence of which would not,
individually or in the aggregate, have a Material Adverse Effect; and no event has occurred, nor is
any proceeding, to the best of the knowledge of the Company, pending or threatened, that allows or
results in, or after notice or lapse of time or both would allow or result in, revocation,
suspension, termination or invalidation of any such Authorization or any other impairment of the
rights of the holder or maker of any such Authorization;
4
(n) The Company has full corporate power and authority to enter into this Agreement. This
Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid
and binding agreement of the Company, enforceable against the Company in accordance with the terms
hereof. All actions (including those of stockholders) necessary for the Company to consummate the
transactions contemplated in this Agreement have been taken and are in effect;
(o) The Company is not (A) in violation of its Certificate of Incorporation or By-laws or
other organizational documents or (B) in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any agreement or instrument to which it
is a party or by which it or any of its properties may be bound or affected or any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement, except for such violations or
defaults that would not, individually or in the aggregate, have a Material Adverse Effect. The
Company has in effect controls and procedures for ensuring compliance in all material respects with
any agreement or instrument to which it is a party or by which it or any of its properties may be
bound or affected or any indenture, mortgage, deed of trust, loan agreement, lease or other
agreement, except for such agreements the breach of which would not, individually or in the
aggregate, have a Material Adverse Effect;
(p) The statements that are set forth in the Pricing Prospectus, and that will be set forth in
the Prospectus, under the caption “Description of Capital Stock”, insofar as they purport to
constitute a summary of the terms of the Stock, and under the captions “Material U.S. Federal Tax
Considerations for Non-U.S. Holders of Our Common Stock” and “Underwriting”, insofar as they
purport to describe the provisions of the laws and documents referred to therein, are (in the case
of the Pricing Prospectus) or will be (in the case of the Prospectus), as the case may be,
accurate, complete and fair;
(q) Except as is disclosed in the Pricing Prospectus and will be disclosed in the Prospectus,
there are no legal or governmental proceedings pending to which the Company is a party or of which
any property of the Company is the subject which, if determined adversely to the Company, could
reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, or
would materially and adversely affect the ability of the Company to perform its obligations under
this Agreement, or which are otherwise material in the context of the sale of the Shares; and to
the best of the Company’s knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(r) Except as is disclosed in the Pricing Prospectus, and will be disclosed in the Prospectus,
(i) the Company owns or possesses adequate rights to use all trademarks, trade names, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary
or confidential information, systems or procedures), licenses, approvals and governmental
authorizations to conduct its business as now conducted and none of the foregoing intellectual
property rights owned or possessed by the Company which is material to the Company is invalid or
unenforceable; to the Company’s knowledge, the Company is not infringing any third party’s patents
or patent applications; the Company is not infringing any third party’s trademarks, trade name
rights, inventions, copyrights, licenses, trade secrets or other similar rights of others, (iii)
the Company is not engaging in any improper use of data obtained by it from customers or other
third parties or through its own survey collection efforts, (iv) the Company is not aware of any
infringement, misappropriation or violation by others of, or conflict by others with rights of the
Company with respect to, any of the foregoing intellectual property rights, where such infringement
would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect,
and (v) there is no claim being made against the Company, or to the best of the Company’s
knowledge, any employee of the Company, regarding trademark, trade name, patent, inventions,
copyright, license, trade secret or other infringement or improper use of any data obtained by the
Company from third parties which would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. The Company has no patents or patent applications;
5
(s) All current employees, consultants and contractors of the Company have executed written
instruments with the Company that assign to the Company all rights, title and interest in and to
any and all (i) inventions, improvements, discoveries, writings and other works of authorship, and
information relating to the business of the Company or any of the products or services being
researched, developed or sold by the Company or that may be used with any such products or services
and (ii) any intellectual property and/or proprietary rights related thereto, including but not
limited to trademarks, trade names, patents, patent applications, inventions, copyrights and
know-how (including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures). To our knowledge, all former employees,
consultants and contractors of the Company have executed written instruments with the Company that
assign to the Company all rights, title and interest in and to any and all (i) inventions,
improvements, discoveries, writings and other works of authorship, and information relating to the
business of the Company or any of the products or services being researched, developed or sold by
the Company or that may be used with any such products or services and (ii) any intellectual
property and/or proprietary rights related thereto, including but not limited to trademarks, trade
names, patents, patent applications, inventions, copyrights and know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential information, systems or
procedures), except to the extent that failure to execute such written instruments would not have a
Material Adverse Effect;
(t) Except as is disclosed in the Pricing Prospectus and will be disclosed in the Prospectus,
there are no contracts, agreements or understandings between the Company and any person that
materially restrict the Company’s ability to conduct its business as described in the Pricing
Prospectus;
(u) The Company possesses all certificates, certifications, registrations, notifications,
orders, licenses, authorizations, approvals and permits (collectively, “Permits”) issued by the
appropriate federal, state, local or foreign regulatory authorities necessary to conduct its
business and such Permits are valid and in full force and effect, except for Permits where the
failure to possess, or the invalidity of which, individually or in the aggregate, would not have a
Material Adverse Effect. The Company is in compliance in all respects with the terms and conditions
of such Permits, except where the failure to comply would not have a Material Adverse Effect. The
Company has not received any notice of proceedings relating to the revocation or modification of
any such Permit which, individually or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a Material Adverse Effect;
(v) The Company is insured against such losses and risks and in such amounts as the Company
reasonably believes are prudent and customary in the business in which it is engaged; and the
Company does not have any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would not have a Material
Adverse Effect;
(w) The Company (i) is in compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii)
has received all Permits required of it under applicable Environmental Laws to conduct its business
and (iii) is in compliance in all respects with any such Permit, except where such noncompliance
with Environmental Laws, failure to receive required Permits, or failure to comply with the terms
and conditions of such Permits would not have, individually or in the aggregate, a Material Adverse
Effect;
(x) There are no costs or liabilities associated with Environmental Laws (including, without
limitation, any capital or operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any Permit, any related constraints on operating activities
and any potential liabilities to third parties) which would, individually or in the aggregate, have
a Material Adverse Effect;
6
(y) The Company has filed all federal, state, local and foreign tax returns which have been
required to be filed and has paid or made provision to pay all taxes and assessments received by it
to the extent that such taxes or assessments have become due, except where the failure to file such
returns or pay, or make provision to pay, all such taxes and assessments would not have a Material
Adverse Effect. The Company does not have any tax deficiency which has been or, to the best of the
knowledge of the Company, might be asserted or threatened against it which would reasonably be
expected to have a Material Adverse Effect;
(z) The Company’s liabilities to its customers are as set forth in the Company’s standard form
of Master Services Agreement and in the Prospectus, except as would not, individually or in the
aggregate, have a Material Adverse Effect;
(aa) The Company is not and, after giving effect to the offering and sale of the Shares and
the application of the proceeds thereof, will not be an “investment company”, as such term is
defined in the Investment Company Act of 1940, as amended;
(bb) At the time of filing the Initial Registration Statement, the Company was not an
“ineligible issuer,” as defined in Rule 405 under the Act;
(cc) Except as disclosed in the Pricing Prospectus, there are no contracts, agreements or
understandings between the Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any securities of the
Company or to require the Company to include such securities with the Shares registered pursuant to
the Initial Registration Statement other than as have been waived in writing in connection with the
offering contemplated hereby;
(dd) Grant Thornton LLP, who have certified certain financial statements of the Company and
its subsidiaries, are independent public accountants as required by the Act and the rules and
regulations of the Commission thereunder;
(ee) The financial statements of the Company (including all notes and schedules thereto)
included in the Registration Statement, the Pricing Prospectus and Prospectus comply in all
material respects with the requirements of the Act and the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) and present fairly the financial position of the Company at the dates
indicated and the statement of operations, stockholders’ equity and cash flows of the Company for
the periods specified are in conformity with generally accepted accounting principles, consistently
applied throughout the periods involved; and the summary and selected financial data that are
included in the Registration Statement and the Pricing Prospectus and that will be included in the
Prospectus, (i) are, in the case of the financial information for the years ended December 31,
2007, December 31, 2008 and December 31, 2009, derived from the consolidated financial statements
that are set forth in the Registration Statement and the Pricing Prospectus and that will be set
forth in the Prospectus, (ii) are, in the case of financial information for the years ended
December 31, 2005 and December 31, 2006, complete and accurate in all respects and fairly present
the financial condition of the Company at the respective dates thereof and the results of the
Company’s operations for the periods then ended and were prepared in accordance with the books and
records of the Company in conformity with generally accepted accounting principles, consistently
applied during the periods covered thereby except for the omission of footnotes and normal year-end
adjustments which are not, individually and in the aggregate, material. All financial statements
or schedules of the Company which are required by the Act or the rules and regulations of the
Commission thereunder to be included in the Registration Statement, the Preliminary Prospectus or
the Prospectus have been or, in the case of the Prospectus, will be so included;
(ff) It is the intention of the Company’s management to become fully compliant in all respects
with applicable laws, rules and regulations of the Commission regarding internal control over
financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) on or before
the date on which
7
such laws, rules or regulations become applicable to the Company. Except as is disclosed in
the Pricing Prospectus and will be disclosed in the Prospectus, the Company is not aware of any
material weaknesses in its internal control over financial reporting;
(gg) Since the date of the latest audited financial statements of the Company included in the
Pricing Prospectus, there has been no change in the Company’s internal control over financial
reporting that has materially diminished, or is reasonably likely to materially diminish, the
effectiveness of the Company’s internal control over financial reporting (other than as set forth
in the Pricing Prospectus);
(hh) The Company maintains disclosure controls and procedures (as such term is defined in Rule
13a-15(e) under the Exchange Act) that comply with the requirements of the Exchange Act; such
disclosure controls and procedures have been designed to ensure that material information relating
to the Company is made known to the Company’s principal executive officer and principal financial
officer by others within the Company; and such disclosure controls and procedures are effective;
(ii) The Company is in compliance with all currently effective provisions of the
Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder that are
applicable, or will be applicable to the Company as of each Time of Delivery;
(jj) There are no off-balance sheet arrangements, outstanding guarantees or other contingent
obligations of the Company that could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(kk) The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and
agreed with the selection, application and disclosure of critical accounting policies and have
consulted with the Company’s independent registered public accounting firm with regard to such
disclosure;
(ll) No relationship, direct or indirect, exists between or among the Company, on the one
hand, and the directors, officers, stockholders, customers or suppliers of the Company, on the
other hand, which is required to be described in the Registration Statement, the Pricing Prospectus
and the Prospectus and which is not so described. There are no outstanding loans, advances or
guarantees of indebtedness by the Company to or for the benefit of any of the executive officers or
directors of the Company;
(mm) To the knowledge of the Company, no person associated with or acting on behalf of the
Company, including without limitation any director, officer, agent or employee of the Company has,
directly or indirectly, while acting on behalf of the Company (A) used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating to political
activity, (B) made any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds, (C) violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended or (D) made any other unlawful
payment;
(nn) Except as contemplated by this Agreement and as is disclosed in the Pricing Prospectus
and will be disclosed in the Prospectus, no person is entitled to receive from the Company a
brokerage commission, finder’s fee or other like payment in connection with the transactions
contemplated herein;
(oo) The Company does not conduct business with the government of, or with any person located
in any country in a manner that violates in any material respect any of the economic sanctions
programs or similar sanctions-related measures of the United States as administered by the United
States Treasury Department’s Office of Foreign Assets Control; and the net proceeds from this
offering will not be used to fund any operations in, finance any investments in or make any
payments to any country, or to make any payments to
8
any person, in a manner that violates any of the economic sanctions of the United States
administered by the United States Treasury Department’s Office of Foreign Assets Control;
(pp) There is no document, contract, permit or instrument of a character required to be
described in the Initial Registration Statement, the Pricing Prospectus or the Prospectus or to be
filed as an exhibit to the Initial Registration Statement which is not (or, in the case of the
Prospectus, will not be) described or filed as required. All such contracts described (or, in the
case of the Prospectus, to be described) in the Initial Registration Statement, the Pricing
Prospectus or the Prospectus or filed as exhibits to the Initial Registration Statement to which
the Company is a party have been duly authorized, executed and delivered by the Company, constitute
valid and binding agreements of the Company and are enforceable against and by the Company in
accordance with the terms thereof;
(qq) Except for stock issuances disclosed in the Initial Registration Statement, the Company
has not sold or issued any shares of Stock during the six-month period preceding the date of the
Prospectus, including any sales pursuant to Rule 144A, or Regulations D or S, under the Act, other
than any shares of Stock issued upon exercise of warrants and stock options granted pursuant to the
Company’s equity incentive plans and Stock issued upon conversion of the Company’s Series A
Convertible Preferred Stock, $0.001 par value per share, Series B Convertible Preferred Stock,
$0.001 par value per share, and Series C Convertible Preferred Stock, $0.001 par value per share,
(collectively, the “Preferred Stock”), which warrants, equity incentive plans and Preferred Stock
are described in the Pricing Prospectus and will be described in the Prospectus;
(rr) Statistical, industry-related and market-related data included in the Initial
Registration Statement, the Pricing Prospectus and the Prospectus are (or, in the case of the
Prospectus, will be) based on or derived from sources which the Company reasonably and in good
faith believes are reliable and accurate in all material respects;
(ss) The Company has not distributed and will not distribute prior to the last Time of
Delivery and completion of the distribution of the Shares, any offering material in connection with
the offering and sale of the Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and Issuer Free Writing Prospectuses listed in Schedule IV hereto;
(tt) Neither the Company nor any of its directors, officers or controlling persons has taken,
directly or indirectly, any action designed, or which would reasonably be expected, to cause or
result, under the Act or otherwise, in, or which has constituted, stabilization or manipulation of
the price of any security of the Company;
(uu) (i) Each employee benefit plan, within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”), for which the Company or any member
of its “Controlled Group” (defined as any organization which is a member of a controlled group of
corporations within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended
(the “Code”)) would have any liability (each, a “Plan”) has been maintained in material compliance
with its terms and the requirements of any applicable statutes, orders, rules and regulations,
including but not limited to ERISA and the Code; (ii) no prohibited transaction, within the meaning
of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any Plan
excluding transactions effected pursuant to a statutory or administrative exemption; (iii) for each
Plan that is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA, no
material “accumulated funding deficiency” as defined in Section 412 of the Code, whether or not
waived, has occurred or is reasonably expected to occur; (iv) the fair market value of the assets
of each Plan exceeds the present value of all benefits accrued under such Plan (determined based on
those assumptions used to fund such Plan); (v) no “reportable event” (within the meaning of Section
4043(c) of ERISA) has occurred or is reasonably expected to occur; and (vi) neither the Company nor
any member of the Controlled Group has incurred, nor reasonably expects to incur, any material
liability under Title IV of ERISA (other than contributions to the Plan
9
or premiums to the PBGC, in the ordinary course and without default) in respect of a Plan
(including a “multiemployer plan”, within the meaning of Section 4001(a)(3) of ERISA);
(vv) The Company does not do business with the government of Cuba or with any person located
in Cuba within the meaning of Section 517.075, Florida Statutes;
(ww) Copies of the minute books of the Company have been furnished to counsel for the
Underwriters, and such books (i) contain all minutes and written actions of the board of directors
(including each committee thereof) of the Company prepared since the time of its incorporation and
(ii) accurately reflect all matters referred to in such minutes;
(xx) The Company has caused each of the parties named in Annex I hereto, including
each of the executive officers and directors of the Company and each of the Selling Stockholders,
to deliver to Thomas Weisel Partners LLC an agreement (each a “Lock-Up Agreement”) that restricts
transfers of securities of the Company and that is in a form previously provided, or agreed upon,
by Thomas Weisel Partners LLC; and
(yy) The Company has no subsidiaries.
2. Each of the Selling Stockholders severally and not jointly represents and warrants to,
and agrees with, each of the Underwriters that:
(a) All consents, approvals, authorizations and orders necessary for the execution and
delivery by such Selling Stockholder of this Agreement and the Power of Attorney and the Custody
Agreement hereinafter referred to, and for the sale and delivery of the Shares to be sold by such
Selling Stockholder hereunder, have been obtained; and such Selling Stockholder has full right,
power and authority to enter into this Agreement, the Power of Attorney and the Custody Agreement
to make the representations, warranties and agreements hereunder and thereunder and to sell,
assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder;
(b) The sale of the Shares to be sold by such Selling Stockholder hereunder and the compliance
by such Selling Stockholder with all of the provisions of this Agreement, the Power of Attorney and
the Custody Agreement and the consummation of the transactions herein contemplated will not
conflict with or result in a breach or violation of any of the terms or provisions of, or
constitute a default under, or give rise to a right of termination under, or result in the
acceleration of any obligations under, any statute, indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder is bound or affected or to which any of the property or assets of such
Selling Stockholder is subject or affected, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By laws of such Selling Stockholder if such
Selling Stockholder is a corporation, the Partnership Agreement of such Selling Stockholder if such
Selling Stockholder is a partnership, or any other organizational and/or governing document of such
Selling Stockholder if such Selling Stockholders is not a natural person, or any statute or any
order, rule or regulation of any court or governmental agency or body having jurisdiction over such
Selling Stockholder or the property of such Selling Stockholder, except for such breaches, defaults
or violations that would not have an adverse effect on the ability of such Selling Stockholder to
perform its obligations under this Agreement;
(c) Such Selling Stockholder has, and immediately prior to each Time of Delivery (as defined
in Section 4(a) hereof) such Selling Stockholder will have, good and valid title to the Shares to
be sold by such Selling Stockholder hereunder, free and clear of all liens, encumbrances, equities
or claims (other than pursuant to the Custody Agreement); and, upon delivery of such Shares and
payment therefor pursuant hereto, good and valid title to such Shares, free and clear of all liens,
encumbrances, equities or claims (other than pursuant to the Custody Agreement), will pass to the
several Underwriters;
10
(d) Such Selling Stockholder has not taken and will not take, directly or indirectly, any
action which is designed to or which has constituted or which might reasonably be expected to cause
or result in stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares;
(e) Such Selling Stockholder is not prompted by any material nonpublic information concerning
the Company or its subsidiaries which is not set forth in the Pricing Prospectus to sell its Shares
pursuant to this Agreement;
(f) To the extent that any statements or omissions made in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto are made in reliance
upon and in conformity with written information furnished to the Company by such Selling
Stockholder expressly for use therein, such Preliminary Prospectus and the Registration Statement
did not, and the Prospectus and any further amendments or supplements to the Registration Statement
and the Prospectus, when they become effective or are filed with the Commission, as the case may
be, will not contain any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not misleading based on
the written information furnished to the Company by such Selling Stockholder expressly for use
therein. The Company and the Underwriters acknowledge that the information provided by the Selling
Stockholders in connection with preparing responses to Items 7 and 11(m) of Form S-1 constitute the
only written information furnished to the Company by the Selling Stockholders for use in the
Registration Statement, any Preliminary Prospectus, the Prospectus or amendment thereto for
purposes of this Agreement;
(g) Each broadly available road show, if any, when considered together with the Pricing
Prospectus, does not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided that the representations and warranties set forth in
this Section 2(g) are limited to statements or omissions made in reliance upon and in conformity
with written information furnished to the Company by such Selling Stockholder expressly for use in
the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto as set forth in Section 2(f);
(h) In order to document the Underwriters’ compliance with the reporting and withholding
provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions
herein contemplated, such Selling Stockholder will deliver to you prior to or at the First Time of
Delivery (as defined in Section 4(a) hereof) a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or statement specified by Treasury
Department regulations in lieu thereof);
(i) Certificates in negotiable form representing all of the Shares to be sold by such Selling
Stockholder hereunder have been placed in custody under a Custody Agreement, in the form heretofore
furnished to you (the “Custody Agreement”), duly executed and delivered by such Selling Stockholder
to the Company, as custodian (the “Custodian”), and such Selling Stockholder has duly executed and
delivered a Power of Attorney, in the form heretofore furnished to you (the “Power of Attorney”),
appointing Archie C. Black and Kimberly K. Nelson, and each of them, as such Selling Stockholder’s
attorneys-in-fact (the “Attorneys-in-Fact”) with authority to execute and deliver this Agreement on
behalf of such Selling Stockholder, to determine the purchase price to be paid by the Underwriters
to the Selling Stockholders as provided in Section 3 hereof, to authorize the delivery of the
Shares to be sold by such Selling Stockholder hereunder and otherwise to act on behalf of such
Selling Stockholder in connection with the transactions contemplated by this Agreement and the
Custody Agreement; and
(j) The Shares represented by the certificates held in custody for such Selling Stockholder
under the Custody Agreement are for the benefit and coupled with and subject to the interests of
the Underwriters, the Custodian, the Attorneys-in-Fact, each other Selling Stockholder and the
Company; the
11
arrangements made by such Selling Stockholder for such custody, and the appointment by such
Selling Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that extent
irrevocable; the obligations of the Selling Stockholders hereunder shall not be terminated by
operation of law, whether by the death or incapacity of any individual Selling Stockholder or, in
the case of an estate or trust, by the death or incapacity of any executor or trustee or the
termination of such estate or trust, or in the case of a partnership or corporation, by the
dissolution of such partnership or corporation, or by the occurrence of any other event; if any
individual Selling Stockholder or any such executor or trustee should die or become incapacitated,
or if any such estate or trust should be terminated, or if any such partnership or corporation
should be dissolved, or if any other such event should occur, before the delivery of the Shares
hereunder, certificates representing the Shares shall be delivered by or on behalf of the Selling
Stockholders in accordance with the terms and conditions of this Agreement and of the Custody
Agreements; and actions taken by the Attorneys-in-Fact pursuant to the Powers of Attorney shall be
as valid as if such death, incapacity, termination, dissolution or other event had not occurred,
regardless of whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall have
received notice of such death, incapacity, termination, dissolution or other event.
3. Subject to the terms and conditions herein set forth,
(a) The Company and each of the Selling Stockholders agree, severally and not jointly, to sell
to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to (i)
purchase from the Company and each of the Selling Stockholders, at a purchase price per share of
$[ ], the number of Firm Shares (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying the aggregate number of Firm Shares to be sold by the Company and each of
the Selling Stockholders as set forth opposite their respective names in Schedule II hereto
by a fraction, the numerator of which is the aggregate number of Firm Shares to be purchased by
such Underwriter as set forth opposite the name of such Underwriter in Schedule I hereto
and the denominator of which is the aggregate number of Firm Shares to be purchased by all of the
Underwriters from the Company and all of the Selling Stockholders hereunder and (ii) in the event
and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as
provided below, the Company agrees to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company at the purchase price
per share set forth in clause (i) of this Section 3(a), that portion of the number of Optional
Shares as to which such election shall have been exercised (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction
the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled
to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the maximum number of Optional Shares that all of the Underwriters are
entitled to purchase hereunder.
(b) The Company hereby grants to the Underwriters the right to purchase at their election up
to [ ] Optional Shares, at the purchase price per share set forth clause (i) of Section 3(a),
for the sole purpose of covering sales of shares in excess of the number of Firm Shares. Any such
election to purchase Optional Shares may be exercised only by written notice from you to the
Company, given within a period of 30 calendar days after the date of this Agreement and setting
forth the aggregate number of Optional Shares to be purchased and the date on which such Optional
Shares are to be delivered, as determined by you but in no event earlier than the First Time of
Delivery (as defined in Section 4 hereof) or, unless you and the Company otherwise agree in
writing, earlier than two or later than ten business days after the date of such notice.
4. Payment and Delivery.
(a) The Shares to be purchased by each Underwriter hereunder will be represented by one or
more definitive global Shares in book-entry form which will be deposited by or on behalf of the
Company with the Depository Trust Company (“DTC”) or its designated custodian. The Company and the
Custodian will deliver the Shares to Thomas Weisel Partners LLC, for the account of each
Underwriter, against payment by or
12
on behalf of each such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company and each of the Selling Stockholders, as
their interests may appear, by causing DTC to credit the Shares to the account of Thomas Weisel
Partners LLC at DTC. The time and date of such delivery and payment shall be, with respect to the
Firm Shares, [ ] a.m., New York time, on [ ], or such other time and date as Thomas Weisel
Partners LLC and the Company may agree upon in writing, and, with respect to the Optional Shares,
[ ] a.m., New York time, on the date specified by Thomas Weisel Partners LLC in the written
notice given by Thomas Weisel Partners LLC of the Underwriters’ election to purchase such Optional
Shares, or such other time and date as Thomas Weisel Partners LLC and the Company may agree upon in
writing. Such time and date for delivery of the Firm Shares is herein called the “First Time of
Delivery”, each such time and date for delivery of the Optional Shares, if not the First Time of
Delivery, is herein called an “Optional Time of Delivery”, and each such time and date for delivery
is herein called a “Time of Delivery”.
(b) The documents to be delivered at each Time of Delivery by or on behalf of the parties
hereto pursuant to Section 9 hereof, including the cross receipt for the Shares and any additional
documents requested by the Underwriters pursuant to Section 9(q) hereof, will be delivered at the
offices of Goodwin Procter LLP, 53 State Street, Exchange Place, Boston, Massachusetts 02109 (the
“Closing Location”), and the Shares will be delivered at the office of DTC or its designated
custodian, all at such Time of Delivery. A meeting will be held at the Closing Location at [ ]
p.m., New York City time, on the New York Business Day next preceding such Time of Delivery, at
which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence
will be available for review by the parties hereto. For the purposes of this Agreement, “New York
Business Day” shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in New York City are generally authorized or obligated by law or
executive order to close.
5. Each of the Company and the Selling Stockholders acknowledges and agrees that (i) the
purchase and sale of the Shares pursuant to this Agreement is an arm’s-length commercial
transaction between the Company and the Selling Stockholders, on the one hand, and the several
Underwriters, on the other, (ii) in connection therewith and with the process leading to such
transaction each Underwriter is acting solely as a principal and not the agent or fiduciary of the
Company or the Selling Stockholders, (iii) no Underwriter has assumed an advisory or fiduciary
responsibility in favor of the Company or the Selling Stockholders with respect to the offering
contemplated hereby or the process leading thereto (irrespective of whether such Underwriter has
advised or is currently advising the Company or the Selling Stockholders on other matters) or any
other obligation to the Company or the Selling Stockholders except the obligations expressly set
forth in this Agreement, (iv) the Underwriters and their respective affiliates may be engaged in a
broad range of transactions that involve interests that differ from those of the Company or any
Selling Stockholder and have no obligation to disclose or account to the Company or any Selling
Stockholder for any of such differing interests and (v) each of the Company and the Selling
Stockholders has consulted its own legal and financial advisors to the extent it deemed
appropriate. Each of the Company and the Selling Stockholders agrees that it will not claim that
the Underwriters, or any of them, has rendered advisory services of any nature or respect, or owes
a fiduciary or similar duty to the Company or the Selling Stockholders, in connection with such
transaction or the process leading thereto.
6. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant
to Rule 424(b) under the Act not later than the Commission’s close of business on the second
business day following the execution and delivery of this Agreement, or, if applicable, such
earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or
any supplement to the Registration Statement or the Prospectus prior to the last Time of Delivery
which shall be disapproved by you promptly after reasonable notice thereof; to advise you, promptly
after it receives notice thereof, of the time
13
when any amendment to the Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and to furnish you with
copies thereof; to advise you, promptly after it receives notice thereof, of the happening of any
event during the Prospectus Delivery Period (as defined in Section 6(c)) that in the judgment of
the Company makes any statement made in the Registration Statement, the Preliminary Prospectus or
the Prospectus untrue or that requires the making of any changes in the Registration Statement, the
Preliminary Prospectus or the Prospectus in order to make the statements therein, in the light of
the circumstances in which they are made, not misleading; to file promptly all material required to
be filed by the Company with the Commission pursuant to Rule 433(d) under the Act; to advise you,
promptly after it receives notice thereof, of the issuance by the Commission of any stop order or
of any order preventing or suspending the use of any Preliminary Prospectus or other prospectus in
respect of the Shares or to the best of the knowledge of the Company the initiation or threatening
of any proceeding for that purpose, of the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, or to the best of the knowledge of the Company the initiation
or threatening of any proceeding for that purpose, of the receipt of any notification with respect
to the suspension of the Shares for quotation on The NASDAQ Capital Market (“Nasdaq”) or to the
best of the knowledge of the Company the initiation or threatening of any proceeding for that
purpose or of any request by the Commission for the amending or supplementing of the Registration
Statement or the Prospectus or for additional information or any other purpose; and, in the event
of the issuance of any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or other prospectus or suspending any such qualification, to promptly use
its best efforts to obtain the withdrawal of such order. If the Company has omitted any
information from the Registration Statement pursuant to Rule 430A, the Company will comply with the
provisions of and make all requisite filings with the Commission pursuant to said Rule 430A and
notify Thomas Weisel Partners LLC promptly of all such filings;
(b) To promptly take such action as you may reasonably request to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may request and to comply
with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions
for as long as may be necessary to complete the distribution of the Shares, provided that in
connection therewith the Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(c) On the second New York Business Day next succeeding the date of this Agreement and from
time to time, to furnish the Underwriters with written and electronic copies of the Prospectus in
New York City in such quantities as you may reasonably request, and, if the delivery of a
prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) is required at
any time prior to the expiration of nine months after the time of issue of the Prospectus (the
“Prospectus Delivery Period”) in connection with the offering or sale of the Shares and if at such
time any events shall have occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the circumstances under
which they were made when such Prospectus (or in lieu thereof, the notice referred to in Rule
173(a) under the Act) is delivered, not misleading, or, if for any other reason it shall be
necessary during such same period to amend or supplement the Prospectus in order to comply with the
Act, to notify you and upon your request prepare and duly file with the Commission an appropriate
supplement or amendment to the Prospectus which will correct such statement or omission or effect
such compliance and furnish without charge to each Underwriter and to any dealer in securities as
many written and electronic copies as you may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus, and in case any Underwriter is required to deliver a
prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) in connection
with sales of any of the Shares at any time nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such Underwriter, to prepare and deliver to
such Underwriter as many written and electronic copies as you may request of an amended or
supplemented Prospectus complying with Section 10(a)(3) of the Act;
14
(d) To make generally available to its securityholders as soon as practicable, but in any
event not later than eighteen months after the effective date of the Registration Statement (as
defined in Rule 158(c) under the Act), an earning statement of the Company (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission
thereunder (including Rule 158 of the Act);
(e) During the period beginning from the date hereof and continuing to and including the date
180 days after the date of the Prospectus (the “Initial Lock-Up Period”), not to offer, sell,
pledge, contract to sell or otherwise dispose of, except as provided hereunder, any securities of
the Company that are substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that represent the right to receive,
Stock or any such substantially similar securities (other than pursuant to employee stock option
plans existing on, or upon the exercise of warrants or the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Agreement), without your prior written
consent. Notwithstanding the foregoing, if (1) during the last 17 days of the initial Lock-Up
Period, the Company releases earnings results or announces material news or a material event or (2)
prior to the expiration of the initial Lock-Up Period, the Company announces that it will release
earnings results during the 15-day period following the last day of the initial Lock-Up Period,
then in each case the Lock-Up Period will be automatically extended until the expiration of the
18-day period beginning on the date of release of the earnings results or the announcement of the
material news or material event, as applicable, unless Thomas Weisel Partners LLC waives, in
writing, such extension; the Company will provide Thomas Weisel Partners LLC and each stockholder
subject to a Lock-Up Agreement with prior notice of any such announcement that gives rise to an
extension of the Lock-Up Period;
(f) Unless otherwise publicly available in electronic format on the website of the Company or
the Commission, to furnish to its stockholders as soon as practicable after the end of each fiscal
year an annual report (including a balance sheet and statements of income, stockholders’ equity and
cash flows of the Company certified by independent public accountants) and, as soon as practicable
after the end of each of the first three quarters of each fiscal year (beginning with the fiscal
quarter ending after the effective date of the Registration Statement), to make available to its
stockholders consolidated summary financial information of the Company and its subsidiaries for
such quarter in reasonable detail;
(g) During a period of five years from the effective date of the Registration Statement,
unless otherwise publicly available in electronic format on the website of the Company or the
Commission, to furnish to you copies of all reports or other communications (financial or other)
furnished to stockholders, and to deliver to you (i) as soon as they are available, copies of any
reports and financial statements furnished to or filed with the Commission or any national
securities exchange on which any class of securities of the Company is listed; and (ii) such
additional information concerning the business and financial condition of the Company as you may
from time to time reasonably request (such financial statements to be on a consolidated basis to
the extent the accounts of the Company are consolidated in reports furnished to its stockholders
generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the Shares pursuant to this
Agreement in the manner specified in the Pricing Prospectus, and will be specified in the
Prospectus, under the caption “Use of Proceeds”;
(i) During the Prospectus Delivery Period, the Company shall file, on a timely basis, with the
Commission and Nasdaq all reports and documents required to be filed under the Exchange Act.
Additionally, the Company shall file with the Commission such information on Form 10-Q or Form 10-K
as may be required under Rule 463 of the Act;
15
(j) If the Company elects to rely upon Rule 462(b), to file a Rule 462(b) Registration
Statement with the Commission within the time required by, and otherwise in compliance with, Rule
462(b), and at the time of filing either pay to the Commission the filing fee for the Rule 462(b)
Registration Statement or give irrevocable instructions for the payment of such fee pursuant to
Rule 111(b) under the Act;
(k) To refrain from taking at any time, directly or indirectly, any action designed or that
might reasonably be expected to cause or result in, or that will constitute, stabilization of the
price of the shares of any security of the Company;
(l) Except as otherwise required by law (as determined in the reasonable judgment of the
Company and its counsel), prior to the last Time of Delivery, to refrain from issuing any press
release, directly or indirectly, or holding any press conference, in each case with respect to the
Company’s financial condition, earnings, business, operations or prospects, or the offering of the
Shares, without the prior written consent of Thomas Weisel Partners LLC; and
(m) Upon request of any Underwriter, to furnish, or cause to be furnished, to such Underwriter
an electronic version of the Company’s trademarks, servicemarks and corporate logo for use on the
website, if any, operated by such Underwriter for the purpose of facilitating the on-line offering
of the Shares (the “License”); provided, however, that the License shall be used solely for the
purpose described above, is granted without any fee and may not be assigned or transferred.
7. (a) The Company represents and agrees that, without the prior written consent of Thomas
Weisel Partners LLC, it has not made and will not make any offer relating to the Shares that would
constitute a “free writing prospectus” as defined in Rule 405 under the Act; each Underwriter
represents and agrees that, without the prior consent of the Company and Thomas Weisel Partners
LLC, it has not made and will not make any offer relating to the Shares that would constitute a
free writing prospectus; any such free writing prospectus the use of which has been consented to by
the Company and Thomas Weisel Partners LLC is listed on Schedule IV hereto.
(b) The Company has complied and will comply with the requirements of Rule 433 under the Act
applicable to any Issuer Free Writing Prospectus, including timely filing with the Commission or
retention where required and legending; and the Company represents that it has satisfied and agrees
that it will satisfy the conditions under Rule 433 under the Act to avoid a requirement to file
with the Commission any electronic road show.
(c) The Company agrees that if at any time following issuance of an Issuer Free Writing
Prospectus any event occurred or occurs as a result of which such Issuer Free Writing Prospectus
would conflict with the information in the Registration Statement, the Pricing Prospectus or the
Prospectus or would include an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the circumstances then
prevailing, not misleading, the Company will give prompt notice thereof to Thomas Weisel Partners
LLC and, if requested by Thomas Weisel Partners LLC, will prepare and furnish without charge to
each Underwriter an Issuer Free Writing Prospectus or other document which will correct such
conflict, statement or omission; provided, however, that this representation and warranty shall not
apply to any statements or omissions in an Issuer Free Writing Prospectus made in reliance upon and
in conformity with information furnished in writing to the Company by an Underwriter through Thomas
Weisel Partners LLC expressly for use therein, it being understood and agreed that the only such
information is that described in Section 10(d) hereof.
8. Whether or not the transactions contemplated by this Agreement are consummated or this
Agreement is terminated, the Company and each of the Selling Stockholders covenant and agree with
one another and with the several Underwriters that (a) the Company and such Selling Stockholder
will pay or cause
16
to be paid a pro rata share (based on the number of Shares to be sold by the Company and such
Selling Stockholder hereunder) of the following: (i) the fees, disbursements and expenses of the
Company’s counsel and accountants in connection with the registration of the Shares under the Act
and all other expenses in connection with the preparation, printing, reproduction and filing of the
Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus and the
Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof
to the Underwriters and dealers; (ii) the cost, other than the fees of counsel to the Underwriters,
of printing or producing this Agreement, the Custody Agreement, the Power of Attorney, closing
documents (including any compilations thereof) and any other documents in connection with the
offering, purchase, sale and delivery of the Shares; (iii) all expenses in connection with the
qualification of the Shares for offering and sale under state securities laws as provided in
Section 6(b) hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey; (iv) all fees and
expenses in connection with listing the Shares on Nasdaq; (v) the filing fees of the Commission and
all expenses associated with transmitted documents to the Commission in connection with the
offering of the Shares; and (vi) the filing fees incident to, and the fees and disbursements of
counsel for the Underwriters in connection with, securing the review by FINRA of the terms of the
sale of the Shares; (b) the Company will pay or cause to be paid: (i) the cost of preparing stock
certificates; (ii) the cost and charges of the transfer agent or registrar for the Stock and (iii)
all other costs and expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section; (c) such Selling Stockholder will pay or cause
to be paid all costs and expenses incident to the performance of such Selling Stockholder’s
obligations hereunder which are not otherwise specifically provided for in this Section, including
(i) any fees and expenses of counsel for such Selling Stockholder, the Attorneys-in-Fact and the
Custodian, and (ii) all expenses and taxes incident to the sale and delivery of the Shares to be
sold by such Selling Stockholder to the Underwriters hereunder; and (d) the Company and the
Underwriters shall pay or cause to be paid their own respective expenses incurred for lodging and
travel in connection with conducting the road show, however any expenses incurred for chartered
travel for the road show taken jointly by Company employees and the Underwriters shall be borne
equally by the Company and the Underwriters. In connection with clause (c)(ii) of the preceding
sentence, Thomas Weisel Partners LLC agrees to pay New York State stock transfer tax, and each
Selling Stockholder agrees to reimburse Thomas Weisel Partners LLC for associated carrying costs if
such tax payment is not rebated on the day of payment and for any portion of such tax payment not
rebated and to comply with applicable tax laws. The Underwriters may deem the Company to be the
primary obligor with respect to all costs, fees and expenses to be paid by the Company and by the
Selling Stockholders pursuant to this Section 8. It is understood, however, that the Company shall
pay, or reimburse Selling Stockholders for, any fees and expenses otherwise payable under
subsection (a) hereof. It is further understood, however, that the Company shall bear, and the
Selling Stockholders shall not be required to pay or to reimburse the Company for, the cost of any
other matters not directly relating to the sale and purchase of the Shares pursuant to this
Agreement, and that, except as provided in this Section, and Sections 10 and 13 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of their counsel,
stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected
with any offers they may make.
9. The obligations of the Underwriters hereunder, as to the Shares to be delivered at each
Time of Delivery, shall be subject to the following conditions:
(a) All representations and warranties and other statements of the Company and the Selling
Stockholders (for the First Time of Delivery only with respect to the Selling Stockholders) herein
are, at and as of such Time of Delivery, true and correct;
(b) The Company and the Selling Stockholders (for the First Time of Delivery only with respect
to the Selling Stockholders) shall have performed and complied with all of its and their covenants,
agreements and obligations hereunder;
17
(c) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) under the
Act within the applicable time period prescribed for such filing by the rules and regulations under
the Act and in accordance with Section 6(a) hereof; all material required to be filed by the
Company pursuant to Rule 433(d) under the Act shall have been filed with the Commission within the
applicable time period prescribed for such filing by Rule 433; if the Company has elected to rely
upon Rule 462(b) under the Act, the Company shall file a Rule 462(b) Registration Statement with
the Commission within the time required by, and otherwise in compliance with, Rule 462(b), and the
Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b)
Registration Statement or give irrevocable instructions for the payment of such fee pursuant to
Rule 111(b) under the Act; no stop order suspending the effectiveness of the Registration Statement
or any part thereof shall have been issued and no proceeding for that purpose shall, to the best of
the knowledge of the Company, have been initiated or threatened by the Commission; no stop order
suspending or preventing the use of the Prospectus or any Issuer Free Writing Prospectus shall have
been initiated or threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable satisfaction;
(d) Goodwin Procter LLP, counsel for the Underwriters, shall have furnished to you such
written opinion or opinions, dated such Time of Delivery, in form and substance reasonably
acceptable to you;
(e) Faegre & Benson LLP, counsel for the Company, shall have furnished to you their written
opinion and letter, dated such Time of Delivery, in the forms attached as Annex II(a)
hereto;
(f) For the First Time of Delivery only, the respective counsel for each of the Selling
Stockholders, as indicated in Schedule II hereto, each shall have furnished to you their
written opinion with respect to each of the Selling Stockholders for whom they are acting as
counsel (a draft of each such opinion is attached as Annex II(b) hereto), dated such First
Time of Delivery, in form and substance satisfactory to you;
(g) Concurrently with the execution of this Agreement and also at each Time of Delivery, Grant
Thornton LLP shall have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance reasonably satisfactory to you, containing statements and
information of the type customarily included in accountants’ “comfort letters” to underwriters with
respect to the financial statements and certain financial information contained in the Registration
Statement and the Prospectus and shall use a “cut off” date no more than three business days prior
to such Time of Delivery;
(h) (i) The Company has not sustained since the date of the latest audited financial
statements included in the Pricing Prospectus any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise than as set forth or contemplated in
the Pricing Prospectus, and (ii) since the respective dates as of which information is given in the
Pricing Prospectus there shall not have been any change in the capital stock or long-term debt of
the Company or any of its subsidiaries or any change, or any development involving a prospective
change, in or affecting the business, operations, management, assets, condition (financial or
otherwise) or results of operations of the Company, otherwise than as set forth or contemplated in
the Pricing Prospectus, the effect of which, in any such case described in clause (i) or (ii), is
in the judgment of Thomas Weisel Partners LLC so material and adverse as to make it impracticable
or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at
such Time of Delivery on the terms and in the manner contemplated in the Pricing Prospectus;
(i) On or after the Applicable Time there shall not have occurred any of the following: (i)
trading in securities generally on the New York Stock Exchange, the NASDAQ Stock Market or the NYSE
Amex or in the over-the-counter market shall have been suspended or minimum or maximum prices or
maximum ranges for prices shall have been established on any such exchange or such market by the
Commission, by such exchange or by any other regulatory body or governmental authority having
jurisdiction,
18
(ii) a banking moratorium shall have been declared by Federal or state authorities or a
material disruption has occurred in commercial banking or securities settlement or clearance
services in the United States, (iii) (A) the United States shall have become engaged in
hostilities, or the subject of an act of terrorism, there shall have been a material escalation in
hostilities involving the United States or there shall have been a declaration of a national
emergency or war by the United States or (B) there shall have occurred such a material adverse
change in general economic, political or financial conditions (or the effect of international
conditions on the financial markets in the United States shall be such) as to make it with respect
to either (A) or (B), in the sole judgment of Thomas Weisel Partners LLC, impracticable or
inadvisable to proceed with the sale or delivery of the Shares;
(j) The Shares to be sold at such Time of Delivery shall have been duly listed, subject to
notice of issuance, on Nasdaq;
(k) The Company shall have (i) obtained and delivered to the Underwriters executed copies of
Lock-Up Agreements from each of the parties named on Annex I hereto and (ii) provided to
the transfer agent and registrar for the Stock a written order, in a form reasonably acceptable to
Thomas Weisel Partners LLC, instructing such transfer agent and registrar not to effect any
transfer of stock that would be inconsistent with the terms of a Lock-Up Agreement delivered by any
of the parties named on Annex I hereto;
(l) The Company shall have complied with the provisions of Section 6(c) hereof with respect to
the furnishing of prospectuses on the New York Business Day next succeeding the date of this
Agreement;
(m) The Company shall have furnished or caused to be furnished to you at such Time of Delivery
certificates of officers of the Company satisfactory to you certifying as to the accuracy of the
representations and warranties of the Company and the Selling Stockholders herein at and as of such
Time of Delivery, as to the performance by the Company of all of its respective obligations
hereunder to be performed at or prior to such Time of Delivery, and as to such other matters as you
may reasonably request;
(n) For the First Time of Delivery Only, each of the Selling Stockholders shall have furnished
or caused to be furnished to you at such First Time of Delivery certificates of officers of the
Selling Stockholders substantially in the form attached hereto as Annex III;
(o) FINRA shall have raised no objection to the fairness and reasonableness of the
underwriting terms and arrangements;
(p) A certificate signed by the Secretary or Assistant Secretary of the Company dated each
Time of Delivery certifying: (i) that the By-Laws and Amended and Restated Certificate of
Incorporation of the Company are true and complete, have not been modified and are in full force
and effect, (ii) that the resolutions relating to the offering contemplated by this Agreement are
in full force and effect and have not been modified, (iii) all correspondence between the Company
or its counsel and the Commission (attached to the certificate) and (iv) as to the incumbency of
the officers of the Company; and
(q) At each Time of Delivery, the Underwriters and counsel for the Underwriters shall have
received all such information, documents and opinions as they may reasonably request for the
purpose of enabling them to pass upon the issuance and sale of the Shares as contemplated herein or
in order to evidence the accuracy of any of the representations and warranties or the satisfaction
of any of the conditions or agreements herein contained.
10. (a) The Company will indemnify and hold harmless each Underwriter, and each of their
respective directors and officers, and any person who controls or is alleged to control an
Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against
any losses, claims, damages or
19
liabilities, joint or several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based in whole or in part upon (i) an untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, any Preliminary Prospectus,
the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer
Free Writing Prospectus or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not misleading, in light
of the circumstances under which they are made, or (ii) any inaccuracy in the representations and
warranties of the Company contained herein or any failure of the Company to perform its obligations
hereunder or under the law in connection with the transactions contemplated by this Agreement, and
will reimburse each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or claim as such expenses
are incurred; provided, however, that the Company shall not be liable in any such
case to any Underwriter to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the
Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, in
reliance upon and in conformity with written information furnished to the Company by any
Underwriter through Thomas Weisel Partners LLC expressly for use therein, it being understood and
agreed that the only such information is that described in Section 10(d) hereof and
provided, further, that the Company shall not be liable in any such case to any
Underwriter with respect to any untrue statement or omission of a material fact if, (i) prior to
the Time of Sale the Company shall have notified Thomas Weisel Partners LLC in writing in
accordance with Section 14 hereof that the Registration Statement, any Preliminary Prospectus, the
Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free
Writing Prospectus contains an untrue statement or alleged untrue statement of material fact or
omits or allegedly omits to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) such untrue statement, alleged untrue
statement, omission or alleged omission of a material fact was corrected in an amendment or
supplement and such amendment or supplement was provided to the Underwriters prior to the
Applicable Time, and (iii) the information contained in such corrected disclosure was not conveyed
at or prior to the Applicable Time.
(b) Each of the Selling Stockholders set forth on
Schedule III hereto (the “Principal
Selling Stockholders”) will, severally and not jointly, indemnify and hold harmless each
Underwriter, and each of their respective directors and officers, and any person who controls or is
alleged to control an Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, against any losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based in whole or in part upon
(i) an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the
Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free
Writing Prospectus or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements
therein not misleading, in light of the circumstances under which they are made, or (ii) any
inaccuracy in the representations and warranties of such Principal Selling Stockholder contained
herein or any failure of the Principal Selling Stockholder to perform its obligations hereunder or
under the law in connection with the transactions contemplated by this Agreement, and will
reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter
in connection with investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Principal Selling Stockholders shall not be
liable in any such case to any Underwriter to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the
Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free
Writing Prospectus, in reliance upon and in conformity with written information furnished to the
Company by any Underwriter through Thomas Weisel Partners LLC expressly for use therein, it being
understood and agreed that the only such information is that described in Section 10(d) hereof and
provided, further, that a Principal Selling Stockholder shall not be liable in any
such case to any Underwriter with respect to any untrue statement or omission of a material fact
if, (i) prior to the Time of Sale the Principal Selling Stockholder shall have notified Thomas
Weisel Partners LLC in writing in accordance with Section 14 hereof that the Registration
Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment
or supplement thereto, or any Issuer Free Writing Prospectus contains an untrue statement or
alleged untrue statement of material fact or omits or allegedly omits to state therein a material
fact required to be stated therein or necessary to make the statements therein not misleading, (ii)
such untrue statement, alleged untrue statement, omission or alleged omission of a material fact
was corrected in an amendment or supplement and such amendment or supplement was provided to the
Company and the Underwriters prior to the Applicable Time, and (iii) the information contained in
such corrected disclosure was not conveyed at or prior to the Applicable Time.
(c) Each of the Selling Stockholders who is not a Principal Selling Stockholder will, severally and not jointly, indemnify and hold harmless the
Company, each Underwriter and each of their respective directors and officers, and any person who
controls or is alleged to
20
control an Underwriter or the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, against any losses, claims, damages or liabilities to which the Company or
such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based in whole or in
part upon (i) an untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or
any amendment or supplement thereto, or any Issuer Free Writing Prospectus or the omission or
alleged omission to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in light of the circumstances under which they are
made, or (ii) any inaccuracy in the representations and warranties of such Selling Stockholder
contained herein or any failure of such Selling Stockholder to perform its obligations hereunder or
under law in connection with the transactions contemplated by this Agreement, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any Preliminary Prospectus, the Pricing
Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing
Prospectus, in reliance upon and in conformity with information relating to a Selling Stockholder
furnished to the Company in writing by such Selling Stockholder or counsel therefor expressly for
use therein; and will reimburse the Company and each Underwriter for any legal or other expenses
reasonably incurred by the Company or such Underwriter in connection with investigating or
defending any such action or claim as such expenses are incurred. Notwithstanding the foregoing, a
Selling Stockholder shall not be liable in any such case to the Company or any Underwriter with
respect to any untrue statement or omission of a material fact if, (i) prior to the Time of Sale
the Selling Stockholder shall have notified the Company and Thomas Weisel Partners LLC in writing
in accordance with Section 14 hereof that the Registration Statement, any Preliminary Prospectus,
the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer
Free Writing Prospectus contains an untrue statement or alleged untrue statement of material fact
or omits or allegedly omits to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) such untrue statement, alleged untrue
statement, omission or alleged omission of a material fact was corrected in an amendment or
supplement and such amendment or supplement was provided to the Company and the Underwriters prior
to the Applicable Time, and (iii) the information contained in such corrected disclosure was not
conveyed at or prior to the Applicable Time.
(d) Each Underwriter will indemnify and hold harmless the Company, each Selling Stockholder
and each of their respective directors and officers, and any person who controls or is alleged to
control the Company or a Selling Stockholder within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, against any losses, claims, damages or liabilities to which the Company or
such Selling Stockholder may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment
or supplement thereto, or any Issuer Free Writing Prospectus, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission or alleged omission
was made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the
Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, in
reliance upon and in conformity with written information furnished to the Company by such
Underwriter through Thomas Weisel Partners LLC expressly for use therein; and will reimburse the
Company and each Selling Stockholder for any legal or other expenses reasonably incurred by the
Company or such Selling Stockholder in connection with investigating or defending any such action
or claim as such expenses are incurred. The Company and the Selling Stockholders acknowledge that
[ ] constitute the only information relating to any Underwriter furnished in
writing
to the Company by Thomas Weisel Partners LLC on behalf of the Underwriters expressly for inclusion
in the Registration Statement, any Preliminary Prospectus, the Prospectus or any Issuer Free
Writing Prospectus.
21
(e) Promptly after receipt by an indemnified party under subsection (a), (b), (c) or
(d) above
of notice of the commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under such subsection, notify the indemnifying
party in writing of the commencement thereof; but the omission to so notify the indemnifying party
shall not relieve it from any liability which it may have to any indemnified party otherwise than
under such subsection. In case any such action shall be brought against any indemnified party and
it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party (who shall not, except with the consent of the indemnified party, be counsel
to the indemnifying party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in connection with the
defense thereof other than reasonable costs of investigation; provided, however that the reasonable
fees, disbursements and other charges of counsel will be at the expense of the indemnifying party
or parties if (i) the employment of counsel by the indemnified party has been authorized in writing
by the indemnifying party, (ii) the indemnified party has reasonably concluded (based on advice of
counsel) that there may be legal defenses available to it or other indemnified parties that are
different from or in addition to those available to the indemnifying party, (iii) a conflict or
potential conflict exists (based on advice of counsel to the indemnified party) between the
indemnified party and the indemnifying party (in which case the indemnifying party will not have
the right to direct the defense of such action on behalf of the indemnified party), or (iv) the
indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified
party to assume the defense of such action within a reasonable time after receiving notice of the
commencement of the actions. It is understood that the indemnifying party or parties shall not, in
connection with any proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees, disbursements and other charges of more than one separate firm admitted to
practice in such jurisdiction at any one time for all such indemnified party or parties. All such
fees, disbursements and other charges will be reimbursed by the indemnifying party promptly as they
are incurred. No indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment with respect to,
any pending or threatened action or claim in respect of which indemnification or contribution may
be sought hereunder (whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action or claim and (ii)
does not include a statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(f) If the indemnification provided for in this Section 10 is unavailable to or
insufficient
to hold harmless an indemnified party under subsection (a), (b), (c) or (d) above in respect of any
losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then
each indemnifying party shall contribute to the amount paid or payable by such indemnified party as
a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other from the offering of the
Shares. If, however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the notice required under
subsection (e) above, then each indemnifying party shall contribute to such amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company and the Selling Stockholders on the one hand
and the Underwriters on the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting expenses) received by the
Company and the Selling Stockholders bear to the total underwriting discounts and commissions
received by the
22
Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company or the Selling Stockholders on the one hand or
the Underwriters on the other and the parties’ relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company, each of the Selling
Stockholders and the Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (f) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this subsection (f). The amount
paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities
(or actions in respect thereof) referred to above in this subsection (f) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the provisions of this
subsection (f), no Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters’ obligations in this subsection (f) to contribute are several
in proportion to their respective underwriting obligations and not joint.
(g) The obligations of the Company and the Selling Stockholders under this Section 10
shall be
in addition to any liability which the Company and the respective Selling Stockholders may
otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters
under this Section 10 shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each officer and director
of the Company (including any person who, with his or her consent, is named in the Registration
Statement as about to become a director of the Company) and to each person, if any, who controls
the Company or any Selling Stockholder within the meaning of the Act.
(h) The liability of each Selling Stockholder under the indemnity and contribution provisions
of this Section 10 shall be limited to an amount equal to the initial public offering price of the
Shares sold by such Selling Stockholder, less the underwriting discount, as set forth on the front
cover page of the Prospectus.
11. (a) If any Underwriter shall default in its obligation to purchase the Shares which it has
agreed to purchase hereunder at a Time of Delivery, you may in your discretion arrange for you or
another party or other parties to purchase such Shares on the terms contained herein. If within
thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such
Shares, then the Company and the Selling Stockholders shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties satisfactory to you to
purchase such Shares on such terms. In the event that, within the respective prescribed periods,
you notify the Company and the Selling Stockholders that you have so arranged for the purchase of
such Shares, or the Company and the Selling Stockholders notify you that they have so arranged for
the purchase of such Shares, you or the Company and the Selling Stockholders shall have the right
to postpone a Time of Delivery for a period of not more than seven days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or
in any other documents or arrangements, and the Company agrees to file promptly any amendments or
supplements to the Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term “Underwriter” as used in this Agreement shall include any person
substituted under this Section with like effect as if such person had originally been a party to
this Agreement with respect to such Shares.
23
(b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting
Underwriter or Underwriters by you and the Company and the Selling Stockholders as provided in
subsection (a) above, the aggregate number of such Shares which remains unpurchased does not exceed
one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery,
then the Company and the Selling Stockholders shall have the right to require each non-defaulting
Underwriter to purchase the number of Shares which such Underwriter agreed to purchase hereunder at
such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its
pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder)
of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not
been made; but nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting
Underwriter or Underwriters by you and the Company and the Selling Stockholders as provided in
subsection (a) above, the aggregate number of such Shares which remains unpurchased exceeds
one-eleventh of the aggregate number of all of the Shares to be purchased at such Time of Delivery,
or if the Company and the Selling Stockholders shall not exercise the right described in subsection
(b) above to require non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or
Underwriters, then this Agreement (or, with respect to an Optional Time of Delivery, the
obligations of the Underwriters to purchase and of the Company and the Selling Stockholders to sell
the Optional Shares) shall thereupon terminate, without liability on the part of any non-defaulting
Underwriter, the Company or the Selling Stockholders, except for the expenses to be borne by the
Company, the Selling Stockholders and the Underwriters as provided in Section 8 hereof and the
indemnity and contribution agreements in Section 10 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
12. The respective indemnities, agreements, representations, warranties and other statements
of the Company, the Selling Stockholders and the several Underwriters, as set forth in this
Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain
in full force and effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or
the Company, or any of the Selling Stockholders, or any officer or director or controlling person
of the Company, or any controlling person of any Selling Stockholder, and shall survive delivery of
and payment for the Shares.
13. If this Agreement shall be terminated pursuant to Section 11 hereof, neither the Company
nor the Selling Stockholders shall then be under any liability to any Underwriter except as
provided in Sections 10 and 13 hereof; but, if for any other reason any Shares are not delivered by
or on behalf of the Company and the Selling Stockholders as provided herein, the Company will
reimburse the Underwriters through you for all out-of-pocket expenses approved in writing by you,
including fees and disbursements of counsel, reasonably incurred by the Underwriters in making
preparations for the purchase, sale and delivery of the Shares not so delivered, but the Company
and the Selling Stockholders shall then be under no further liability to any Underwriter in respect
of the Shares not so delivered except as provided in Sections 10 and 13 hereof.
14. In all dealings hereunder, you shall act on behalf of each of the Underwriters, and the
parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement
on behalf of any Underwriter made or given by the Underwriters jointly or by Thomas Weisel Partners
LLC. on behalf of the Underwriters as the representative; and in all dealings with any Selling
Stockholder hereunder, you and the Company shall be entitled to act and rely upon any statement,
request, notice or agreement on behalf of such Selling Stockholder made or given by any or all of
the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in writing, and if to the
Underwriters shall be delivered or sent by mail, telex or facsimile transmission to you as the
representative in
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care of Thomas Weisel Partners LLC, One Montgomery Street, Suite 3700, San
Francisco, CA 94104,
Attention: General Counsel; if to any Selling Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Stockholder at its address set forth in
Schedule II hereto; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the Registration Statement,
Attention: Secretary; provided, however, that any notice to an Underwriter pursuant to Section
10(e) hereof shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters’ Questionnaire or telex constituting such
Questionnaire, which address will be supplied to the Company or the Selling Stockholders by you on
request; if to any other signatory to a Lock-Up Agreement referred to in Section 9(k), to the
address listed on the signature page thereto. Any such statements, requests, notices or agreements
shall take effect upon receipt thereof.
15. This Agreement shall be binding upon, and inure solely to the benefit of, the
Underwriters, the Company and the Selling Stockholders and, to the extent provided in Sections 10
and 12 hereof, the officers and directors of the Company and each person who controls the Company,
any Selling Stockholder or any Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right under or by virtue of
this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor
or assign by reason merely of such purchase.
16. Time shall be of the essence of this Agreement. As used herein, the term “business day”
shall mean any day when the Commission’s office in Washington, D.C. is open for business.
17. This Agreement shall be governed by and construed in accordance with the laws of the State
of New York.
18. In case any provision in this Agreement shall be invalid, illegal or unenforceable, the
validity and enforceability of the remaining provisions shall not in any way be affected or
impaired thereby. This Agreement constitutes the entire agreement of the parties to this Agreement
and supersedes all prior and all contemporaneous agreements (whether written or oral),
understandings and negotiations with respect to the subject matter hereof. This Agreement may only
be amended or modified in writing, signed by all of the parties hereto, and no condition herein
(express or implied) may be waived unless waived in writing by each party whom the condition is
meant to benefit.
19. This Agreement may be executed by any one or more of the parties hereto by facsimile or .pdf signature and in any number of
counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
20. Each of the Company, the Selling Stockholders and the Underwriters hereby waive any right
it may have to trial by jury in respect of any claim based upon or arising out of this Agreement or
the transactions contemplated hereby.
21. Notwithstanding anything herein to the contrary, the Company and the Selling Stockholders
are authorized to disclose to any persons the U.S. federal and state income tax treatment and tax
structure of the potential transaction contemplated by this Agreement and all materials of any kind
(including tax opinions and other tax analyses) provided to the Company and the Selling
Stockholders relating to that treatment and structure, without the Underwriters imposing any
limitation of any kind. However, any information relating to the tax treatment and tax structure
shall remain confidential (and the foregoing sentence shall not apply) to the extent necessary to
enable any person to comply with securities laws. For this purpose, “tax structure” is limited to
any facts that may be relevant to that treatment.
If the foregoing is in accordance with your understanding, please sign this Agreement and
return to us originally executed signature pages for the Company and each of the Selling
Stockholders plus one for each
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counsel and upon the acceptance hereof by you, on behalf of each of
the Underwriters, this letter and such
acceptance hereof shall constitute a binding agreement among each of the Underwriters, the
Company and each of the Selling Stockholders. It is understood that your acceptance of this letter
on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement
among Underwriters, the form of which shall be submitted to the Company and the Selling
Stockholders for examination, upon request, but without warranty on your part as to the authority
of the signers thereof.
Any person executing and delivering this Agreement as Attorney-in-Fact for a Selling
Stockholder represents by so doing that he has been duly appointed as Attorney-in-Fact by such
Selling Stockholder pursuant to a validly existing and binding Power-of-Attorney which authorizes
such Attorney-in-Fact to take such action.
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SPS Commerce, Inc.
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By: |
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Kimberly Nelson |
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Chief Financial Officer |
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[Names of Selling Stockholders]
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By: |
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Name: |
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Title: |
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Accepted as of the date hereof at San Francisco, California
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Thomas Weisel Partners LLC
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By: |
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Name: |
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Title: |
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On behalf of each of the Underwriters
(Signature Page to Underwriting Agreement)
exv3w2
Exhibit 3.2
Amended And Restated Bylaws
of
SPS COMMERCE, INC.
As of , 2010
ARTICLE I
OFFICES
Section 1.1 Registered Office. The Corporation shall maintain a registered
office and registered agent within the State of Delaware at such place within such state as may be
designated from time to time by the board of directors of the Corporation.
Section 1.2 Other Offices. The Corporation may also have offices in such
other places, either within or without the State of Delaware, as the board of directors from time
to time may designate or the business of the Corporation may from time to time require.
ARTICLE II
STOCKHOLDERS
Section 2.1 Meetings of Stockholders.
(a) Meetings. Meetings of the stockholders of the Corporation shall be held on such
date and at such time as may be fixed by resolution of the board of directors. At the annual
meeting stockholders shall elect directors and transact such other business as properly may be
brought before the meeting.
(b) Place of Meetings. Meetings of the stockholders shall be held at such place,
either within or without the State of Delaware, as the board of directors shall determine.
(c) Notice of Meeting. Written notice, stating the place, day and hour of the
meeting shall be delivered by the Corporation not less than ten days nor more than 60 days before
the date of the meeting to each stockholder of record entitled to vote at such meeting. Notice of
a special meeting shall also state the purpose or purposes for which the meeting has been called.
Without limiting the manner by which notice may otherwise be given, notice may be given by a form
of electronic transmission that satisfies the requirements of the Delaware General Corporation Law
and has been consented to by the stockholder to whom notice is given. If mailed, such notice shall
be deemed to be delivered when deposited in the United States mail with postage thereon prepaid,
addressed to the stockholder at his or her address as it appears in the Corporation’s records.
Meetings may be held without notice if all stockholders entitled to vote are present, or if notice
is waived by those not present in accordance with Article VIII of these Bylaws. Any previously
scheduled meeting of the stockholders may be postponed, and any special meeting of the stockholders
may be cancelled, by resolution of the board of directors upon public notice given prior to the
date previously scheduled for such meeting of stockholders. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the meeting pursuant to the
Corporation’s notice of meeting (or any supplement thereto).
(d) Chair of Stockholder’s Meeting. The Chair of the Board, or in the Chair’s
absence, a Vice Chair, or in the absence of any Vice Chair, the Chief Executive Officer, or in the
absence of the Chief Executive Officer, the Secretary, or in the absence of the Secretary, a chair
chosen by a majority of the directors present, shall act as chair of the meetings of the
stockholders.
Section 2.2 Quorum of Stockholders; Adjournment; Required Vote.
(a) Quorum of Stockholders; Adjournment. Except as otherwise provided by law, by the
Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) or by
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these Bylaws, the holders of a majority of the voting power of the outstanding shares of the
Corporation entitled to vote generally in the election of directors (the “Voting Stock”), present
in person or represented by proxy, shall constitute a quorum at a meeting of the stockholders,
except that when specified business is to be voted on by a class or series of stock voting as a
class, the holders of a majority of the shares of such class or series shall constitute a quorum of
such class or series for the transaction of such business. The chair of the meeting or a majority
of the shares so represented may adjourn the meeting from time to time, whether or not there is
such a quorum. No notice of the time and place of adjourned meetings need be given, except that
notice of the adjourned meeting shall be required if the adjournment is for more than 30 days or if
after the adjournment a new record date is fixed for the adjourned meeting. The stockholders
present at a duly called meeting at which a quorum is present may continue to transact business
until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
(b) Required Vote. The affirmative vote of a majority of the voting power of the
shares present in person or represented by proxy at the meeting and entitled to vote on the matter
shall be the act of the stockholders, except as otherwise provided by express provision of law, the
Certificate of Incorporation or these Bylaws requiring a larger or different vote, in which case
such express provision shall govern and control the decision of such matter.
Section 2.3 Voting by Stockholders; Procedures for Election of Directors.
(a) Voting by Stockholders. Each stockholder of record entitled to vote at any
meeting may do so in person or by proxy appointed by instrument in writing or in such other manner
prescribed by the Delaware General Corporation Law, subscribed by such stockholder or his or her
duly authorized attorney in fact.
(b) Procedure for Election of Directors. Election of directors at all meetings of
the stockholders at which directors are to be elected shall be by ballot, and, subject to the
rights of the holders of any series of Preferred Stock to elect directors under specified
circumstances, a plurality of the votes cast thereat shall elect directors.
Section 2.4 Notice of Stockholder Business and Nominations.
(a) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the board of directors of the Corporation
and the proposal of business to be considered by the stockholders may be made at an annual
meeting of stockholders (A) pursuant to the Corporation’s notice of meeting, (B) by or at
the direction of the board of directors, or (C) by any stockholder of the Corporation who
was a stockholder of record at the time of giving of notice provided for in this Bylaw, who
is entitled to vote at the meeting and who complies with the notice procedures set forth in
this Bylaw.
(2) For nominations or other business to be properly brought before an annual meeting
by a stockholder pursuant to clause (C) of paragraph (a)(1) of this Bylaw, the stockholder
must have given timely notice thereof in writing to the Secretary of the Corporation and
such other business must otherwise be a proper matter for stockholder action. To be timely,
a stockholder’s notice shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business on the 90th day nor earlier
than the close of business on the 120th day prior to the first anniversary of the preceding
year’s annual meeting; provided, however, that in the event that the date of
the annual meeting is more than 30 days before or more than 60 days after such anniversary
date, notice by the stockholder to be timely must be so delivered not earlier than the close
of business on the 120th day prior to such annual meeting and not later than the close of
business on the later of the 90th day prior to such annual meeting or the 10th day following
the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving of a
stockholder’s
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notice as described above. Such stockholder’s notice shall set forth (A) as to
each person whom the stockholder proposes to nominate for election or reelection as a
director, all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), and Rule 14a-11 thereunder (including such person’s written
consent to being named in the proxy statement as a nominee and to serving as a director if
elected); (B) as to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose behalf the proposal
is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any,
on whose behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation’s books, and of such beneficial owner, (ii)
the class and number of shares of capital stock of the Corporation which are owned
beneficially and of record by such stockholder and any such beneficial owner, as well as a
description of all securities or contracts, with a value derived in whole or in part from
the value of any shares of the Corporation, held by the stockholder and such beneficial
owner or to which either is a party, (iii) a description of all arrangements or
understandings between such stockho1der and any such beneficial owner and any other person
or persons (including their names) regarding the nomination or other business, (iv) a
representation that such stockholder intends to appear in person or by proxy at the meeting
to nominate the persons named in its notice or to vote on the business proposed to be
brought before the meeting, and (v) a description of any other information relating to such
stockholder and any such beneficial owner that would be required to be disclosed in a proxy
statement or other filing required to be made in connection with the solicitation of proxies
pursuant to Regulation 14A under the Exchange Act.
(3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this Bylaw
to the contrary, in the event that the number of directors to be elected to the board of
directors of the Corporation is increased and there is no public announcement by the
Corporation naming all of the nominees for director or specifying the size of the increased
board of directors at least 100 days prior to the first anniversary of the preceding year’s
annual meeting, a stockholder’s notice required by this Bylaw shall also be considered
timely, but only with respect to nominees for any new positions created by such increase, if
it shall be delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the 10th day following the day on which such public
announcement is first made by the Corporation.
(b) Special Meetings of Stockholders. The business to be transacted at any special
meeting shall be limited to the purposes stated in the notice of such meetings. Nominations of
persons for election to the board of directors may be made at a special meeting of stockholders at
which directors are to be elected pursuant to the Corporation’s notice of meeting (1) by or at the
direction of the board of directors or (2) provided that the board of directors has determined that
directors shall be elected at such meeting, by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in this Bylaw, who shall be
entitled to vote at the meeting and who complies with the notice procedures set forth in this
Bylaw. In the event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the board of directors, any such stockholder may nominate a
person or persons (as the case may be), for election to such position(s) as specified in the
Corporation’s notice of meeting, if the stockholder’s notice required by paragraph (a)(2) of this
Bylaw shall be delivered to the Secretary at the principal executive offices of the Corporation not
earlier than the close of business on the 120th day prior to such special meeting and not later
than the close of business on the later of the 90th day prior to such special meeting or the 10th day
following the day on which public announcement is first made of the date of the special meeting and
of the nominees
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proposed by the board of directors to be elected at such meeting. In no event shall
the public announcement of an adjournment of a special meeting commence a new time period for the
giving of a stockholder’s notice as described above.
(c) General.
(1) Only such persons who are nominated in accordance with the procedures set forth in
this Bylaw shall be eligible to serve as directors and only such business shall be conducted
at a meeting of stockholders as shall have been brought before the meeting in accordance
with the procedures set forth in this Bylaw. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, the chair of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be brought before the
meeting was made or proposed, as the case may be, in accordance with the procedures set
forth in this Bylaw and, if any proposed nomination or business is not in compliance with
this Bylaw, to declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Bylaw, “public announcement” shall mean disclosure in a press
release reported by the Dow Jones News Service, Associated Press or comparable national news
service or in a document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a stockholder shall also
comply with all applicable requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Bylaw. Nothing in this Bylaw shall
be deemed to affect any rights (A) of stockholders to request inclusion of proposals in the
Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or (B) of the
holders of any series of Preferred Stock to elect directors under specified circumstances.
Section 2.5 Inspectors of Elections; Opening and Closing the Polls. The
board of directors by resolution shall appoint one or more inspectors, which inspector or
inspectors may include individuals who serve the Corporation in other capacities, including,
without limitation, as officers, employees, agents or representatives, to act at the meetings of
stockholders and make a written report thereof. One or more persons may be designated as alternate
inspectors to replace any inspector who fails to act. If no inspector or alternate has been
appointed to act or is able to act at a meeting of stockholders, the chair of the meeting shall
appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her
duties, shall take and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspectors shall have the duties
prescribed by law. The chair of the meeting shall fix and announce at the meeting the date and time
of the opening and the closing of the polls for each matter upon which the stockholders will vote
at the meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 General Powers. The business and affairs of the
Corporation shall be managed under the direction of the board of directors. In addition to the
powers and authorities by these Bylaws expressly conferred upon them, the board of directors may
exercise all such powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these Bylaws required to be exercised or done
by the stockholders.
Section 3.2 Number, Tenure and Qualifications. Subject to the rights of the
holders of any series of Preferred Stock to elect directors under specified circumstances, the
number of directors of the Corporation shall be fixed, and may be increased or decreased from time
to time, exclusively by the board of directors. The directors shall hold office until their
successors are elected and qualified. At each
annual meeting of the stockholders of the Corporation, the directors whose term expires at that
meeting shall be elected for a term expiring at the next annual meeting of stockholders.
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Section 3.3 Regular Meetings. A regular meeting of the board of directors
may be held without other notice than this Bylaw immediately after, and at the same place as, the
Annual Meeting of Stockholders. The board of directors may, by resolution, provide the time and
place for the holding of additional regular meetings without other notice than such resolution.
Section 3.4 Special Meetings. Special meetings of the board of directors may
be called at the request of the Chair of the Board, the Chief Executive Officer or the board of
directors. The person or persons authorized to call special meetings of the board of directors may
fix the place and time of the meetings. Notice of any special meeting shall be given to each
director and shall state the time and place for the special meeting.
Section 3.5 Notice. If notice of a board of directors’ meeting is required
to be given, notice of shall be given to each director at his or her business or residence in
writing by hand delivery, first-class or overnight mail or courier service, electronic transmission
(including, without limitation, via facsimile transmission or electronic mail), or orally by
telephone. If mailed by first-class mail, such notice shall be deemed adequately delivered when
deposited in the United States mails so addressed, with postage thereon prepaid, no later than the
third business day preceding the date of such meeting. If by overnight mail or courier service,
such notice shall be deemed adequately delivered when the notice is delivered to the overnight mail
or courier service company at least twenty-four hours before such meeting. If by electronic
transmission, such notice shall be deemed adequately delivered when the notice is transmitted at
least 12 hours before such meeting. If by telephone or by hand delivery, the notice shall be given
at least 12 hours prior to the time set for the meeting. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the board of directors need be specified in
the notice of such meeting, except for amendments to these Bylaws, as provided under Article IX of
these Bylaws. A meeting may be held at any time without notice if all the directors are present or
if those not present waive notice of the meeting in accordance with Article VIII of these Bylaws.
Section 3.6 Quorum. Subject to Section 3.9 of these Bylaws, a majority of
the board of directors then in office shall constitute a quorum for the transaction of business,
but if at any meeting of the board of directors there shall be less than a quorum present, a
majority of the directors present may adjourn the meeting from time to time without further notice.
The act of the majority of the directors present at a meeting at which a quorum is present shall be
the act of the board of directors. The directors present at a duly organized meeting may continue
to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave
less than a quorum.
Section 3.7 Use of Communications Equipment. Directors may participate in a
meeting of the board of directors or any committee thereof by means of conference telephone or
other communications equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in person at the meeting.
Section 3.8 Action by Consent of Board of Directors. Any action required or
permitted to be taken at any meeting of the board of directors or of any committee thereof may be
taken without a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing or by electronic transmission, and the writing or writings or electronic
transmission or transmissions are filed with the minutes of proceedings of the Board or committee.
Section 3.9 Vacancies. Subject to applicable law and the rights of the
holders of any series of Preferred Stock with respect to such series of Preferred Stock, and unless
the board of directors otherwise determines, vacancies resulting from death, resignation,
retirement, disqualification, removal from office or other cause, and newly created directorships
resulting from any increase in the authorized number of directors, may be filled only by the
affirmative vote of a majority of the remaining directors,
though less than a quorum of the board of directors, or by the sole remaining director, and
directors so chosen shall hold office for a term expiring at the next annual meeting of
stockholders and until such
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director’s successor shall have been duly elected and qualified. No
decrease in the number of authorized directors constituting the board of directors shall shorten
the term of any incumbent director.
Section 3.10 Committees. The board of directors may designate one or more
committees, each of which shall consist of one or more directors. The board of directors may
designate one or more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or disqualification of any
member of such committee or committees, the member or members thereof present at any meeting and
not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another
member of the board of directors to act at the meeting in the place of any such absent or
disqualified member.
Any committee shall, to the extent provided in a resolution of the board of directors and
subject to the limitations contained in the Delaware General Corporation Law, have and may exercise
all the powers and authority of the board of directors in the management of the business and
affairs of the Corporation. Each committee shall keep such records and report to the board of
directors in such manner as the board of directors may from time to time determine. Except as the
board of directors may otherwise determine, any committee may make rules for the conduct of its
business. Unless otherwise provided in a resolution of the board of directors or in rules adopted
by the committee, each committee shall conduct its business as nearly as possible in the same
manner as provided in these Bylaws for the board of directors.
The board of directors shall have power at any time to fill vacancies in, to change the
membership of, or to dissolve any such committee. The term of office of the members of each
committee shall be as fixed from time to time by the board of directors; provided,
however, that any committee member who ceases to be a member of the board of directors
shall automatically cease to be a committee member.
Nothing herein shall be deemed to prevent the board of directors from appointing one or more
committees consisting in whole or in part of persons who are not directors of the Corporation;
provided, however, that no such committee shall have or may exercise any authority
of the board of directors.
ARTICLE IV
BOOKS AND RECORDS
The board of directors shall cause to be kept a record containing the minutes of the
proceedings of the meetings of the Board and of the stockholders, appropriate stock books and
registers and such books of records and accounts as may be necessary for the proper conduct of the
business of the Corporation. Unless otherwise required by the laws of Delaware, the books and
records of the Corporation may be kept at the principal office of the Corporation, or at any other
place or places inside or outside the State of Delaware, as the board of directors from time to
time may designate.
ARTICLE V
OFFICERS
Section 5.1 Officers; Election or Appointment. The board of directors shall
take such action as may be necessary from time to time to ensure that the Corporation has such
officers as are necessary, under Section 6.1 of these Bylaws and the Delaware General Corporation
Law as currently in effect or as the same may hereafter be amended, to enable it to sign stock
certificates. In addition, the board of directors at any time and from time to time may elect (a)
one or more Chair of the Board and/or one or more Vice Chairs of the Board from among its members,
(b) one or more Chief Executive Officers, one or more Presidents and/or one or more Chief Operating
Officers, (c) one or more Vice Presidents, one or more Treasurers and/or one or more Secretaries
and/or (d) one or more other officers, in each case if and to the extent the board of directors
deems desirable. The board of directors may give any officer such further designations or alternate
titles as it considers desirable. In addition, the board of directors at any time and from time to
time may authorize the Chair of the Board or the Chief Executive
Officer of the Corporation to appoint one or more officers of the kind described in clauses (c) and
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(d) above. Any number of offices may be held by the same person and directors may hold any office
unless the Certificate of Incorporation or these Bylaws otherwise provide.
Section 5.2 Term of Office; Resignation; Removal; Vacancies. Unless
otherwise provided in the resolution of the board of directors electing or authorizing the
appointment of any officer, each officer shall hold office until his or her successor is elected or
appointed and qualified or until his or her earlier resignation or removal. Any officer may resign
at any time upon written notice to the board of directors or to such person or persons as the board
of directors may designate. Such resignation shall take effect at the time specified therein, and
unless otherwise specified therein no acceptance of such resignation shall be necessary to make it
effective. The board of directors may remove any officer with or without cause at any time. The
Chair of the Board or the Chief Executive Officer authorized by the board of directors to appoint a
person to hold an office of the Corporation may also remove such person from such office with or
without cause at any time, unless otherwise provided in the resolution of the Board providing such
authorization. Any such removal shall be without prejudice to the contractual rights of such
officer, if any, with the Corporation, but the election or appointment of an officer shall not of
itself create contractual rights. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise may be filled by the board of directors at any regular or special
meeting or by the Chair of the Board or the Chief Executive Officer authorized by the board of
directors to appoint a person to hold such office.
Section 5.3 Powers and Duties. The officers of the Corporation shall have
such powers and duties in the management of the Corporation as shall be stated in these Bylaws or
in a resolution of the board of directors which is not inconsistent with these Bylaws and, to the
extent not so stated, as generally pertain to their respective offices, subject to the control of
the board of directors. A Secretary or such other officer appointed to do so by the board of
directors shall have the duty to record the proceedings of the meetings of the stockholders, the
board of directors and any committees in a book to be kept for that purpose.
ARTICLE VI
STOCK CERTIFICATES
Section 6.1 Stock Certificates. The board of directors may authorize the issuance of
stock either in certificated or in uncertificated form. If shares are issued in uncertificated
form, each stockholder shall be entitled upon written request to a stock certificate or
certificates duly numbered, certifying the number and class of shares in the Corporation owned by
him and otherwise as specified in this Section 6.1. Each certificate for shares of stock shall be
in such form as may be prescribed by the board of directors and shall be signed in the name of the
Corporation by (a) the Chair of the Board, the Chief Executive Officer or a Vice President, and (b)
by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer. Any or all
of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be
issued by the Corporation with the same effect as if he or she were such officer, transfer agent or
registrar at the date of issue. Each certificate will include any legends required by law or
deemed necessary or advisable by the board of directors.
Section 6.2 Lost Certificates. No certificate for shares of stock in the
Corporation shall be issued in place of any certificate alleged to have been lost, destroyed or
stolen, except on production of such evidence of such loss, destruction or theft and on delivery to
the Corporation of a bond of indemnity in such amount, upon such terms and secured by such surety,
as the board of directors or any financial officer of the Corporation may in its or his or her
discretion require.
Section 6.3 Transfers of Stock. The shares of the stock of the Corporation
shall be transferable on the books of the Corporation by the holder thereof in a person or by his
or her attorney
upon surrender for cancellation of a certificate or certificates for at least the same number of
shares, or
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other evidence of ownership if no certificates shall have been issued, with an
assignment and power of transfer endorsed thereon or attached thereto, duly executed, and with such
proof of the validity and authenticity of the signature as the Corporation or its agents may
reasonably require.
ARTICLE VII
DEPOSITARIES AND CHECKS
Depositaries of the funds of the Corporation shall be designated by the board of directors;
and all checks on such funds shall be signed by such officers or other employees of the Corporation
as the board of directors from time to time may designate.
ARTICLE VIII
WAIVER OF NOTICE
Any notice of a meeting required to be given by law, by the Certificate of Incorporation, or
by these Bylaws may be waived by the person entitled thereto, either before or after the time of
such meeting stated in such notice. Neither the business to be transacted at, nor the purpose of,
any annual or special meeting of the stockholders or the board of directors or committee thereof
need be specified in any waiver of notice of such meeting.
ARTICLE IX
AMENDMENT
These Bylaws may be altered, amended, or repealed at any meeting of the board of directors or
of the stockholders, provided notice of the proposed change was given in the notice of the meeting.
ARTICLE X
INDEMNIFICATION AND INSURANCE
Section 10.1 Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit, claim or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of
the fact that he or she or a person of whom he or she is the legal representative is or was a
director or officer of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit plans maintained or
sponsored by the Corporation, whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), against all expense, liability and loss
(including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or
to be paid in settlement) reasonably incurred or suffered by such person in connection therewith
and such indemnification shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of his or her heirs, executors and administrators;
provided, however, that except as provided in Section 10.4 of this Article X, the
Corporation shall indemnify any such person seeking indemnification in connection with a proceeding
(or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized
by the board of directors.
Section 10.2 Advancement of Expenses. The right to indemnification conferred
in this Article X shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of its final
disposition, such advances to be paid by the Corporation within 20 days after receipt by the
Corporation of a written statement or statements from
the claimant requesting such advance or advances; provided, however, that if the
Delaware General
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Corporation Law requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an undertaking by or on behalf
of such director or officer, to repay all amounts so advanced if it shall ultimately be determined
that such director or officer is not entitled to be indemnified under this Article X or otherwise.
Section 10.3 Obtaining Indemnification. To obtain indemnification under this
Article X, a claimant shall submit to the Corporation a written request, including therein or
therewith such documentation and information as is reasonably available to the claimant and is
reasonably necessary to determine whether and to what extent the claimant is entitled to
indemnification. Upon written request by a claimant for indemnification pursuant to the first
sentence of this Section 10.3, a determination, if required by applicable law, with respect to the
claimant’s entitlement thereto shall be made as follows: (1) if requested by the claimant, by
Independent Counsel (as hereinafter defined), or (2) if no request is made by the claimant for a
determination by Independent Counsel, (i) by the board of directors by a majority vote of a quorum
consisting of Disinterested Directors (as hereinafter defined), or (ii) if a quorum of the board of
directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such
quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the
board of directors, a copy of which shall be delivered to the claimant, or (iii) if a quorum of
Disinterested Directors so directs, by the stockholders of the Corporation. In the event the
determination of entitlement to indemnification is to be made by Independent Counsel at the request
of the claimant, the Independent Counsel shall be selected by the board of directors unless there
shall have occurred within two years prior to the date of the commencement of the action, suit or
proceeding for which indemnification is claimed a Change in Control (as defined below), in which
case the Independent Counsel shall be selected by the claimant unless the claimant shall request
that such selection be made by the board of directors. If it is so determined that the claimant is
entitled to indemnification, payment to the claimant shall be made within 30 days after such
determination. If a claimant is successful, in whole or in part, in any suit brought against the
Corporation to recover the unpaid amount of any written claim to indemnification, the claimant
shall be entitled to be paid also the expense of prosecuting such claim.
Section 10.4 Right of Claimant to Bring Suit. If a claim under Section 10.1
of this Article X is not paid in full by the Corporation within thirty days after a written claim
pursuant to Section 10.3 of this Article X has been received by the Corporation, the claimant may
at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense
of prosecuting such claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standard of conduct which makes it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of
the Corporation (including its board of directors, Independent Counsel or stockholders) to have
made a determination prior to the commencement of such action that indemnification of the claimant
is proper in the circumstances because he or she has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by the Corporation
(including its board of directors, Independent Counsel or stockholders) that the claimant has not
met such applicable standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
Section 10.5 Corporation’s Obligation to Indemnify. If a determination shall
have been made pursuant to Section 10.3 of this Article X that the claimant is entitled to
indemnification, the
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Corporation shall be bound by such determination in any judicial proceeding commenced pursuant to
Section 10.4 of this Article X.
Section 10.6 Preclusion from Challenging Article X. The Corporation shall be
precluded from asserting in any judicial proceeding commenced pursuant to Section 10.4 of this
Article X that the procedures and presumptions of this Article X are not valid, binding and
enforceable and shall stipulate in such proceeding that the Corporation is bound by all the
provisions of this Article X.
For purposes of this Article X:
(a) “Change in Control” shall be deemed to occur only if a majority of the members of the
board of directors shall not be (i) individuals elected as directors of the Corporation for whose
election proxies shall have been solicited by the board of directors of the Corporation or (ii)
individuals elected or appointed by the board of directors of the Corporation to fill vacancies on
the board of directors caused by death or resignation (but not by removal) or to fill newly created
directorships.
(b) “Disinterested Director” means a director of the Corporation who is not and was not a
party to the matter in respect of which indemnification is sought by the claimant.
(c) “Independent Counsel” means a law firm, a member of a law firm, or an independent
practitioner, that is experienced in matters of corporation law and shall include any person who,
under the applicable standards of professional conduct then prevailing, would not have a conflict
of interest in representing either the Corporation or the claimant in an action to determine the
claimant’s rights under this Article X.
Section 10.7 Non-exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final disposition
conferred in this Article X shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws,
agreement, vote of stockholders or otherwise. No repeal or modification of this Article X shall in
any way diminish or adversely affect the rights of any director, officer, employee or agent of the
Corporation hereunder in respect of any occurrence or matter arising prior to any such repeal or
modification.
Section 10.8 Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General Corporation Law. To the extent
that the Corporation maintains any policy or policies providing such insurance, each such director
or officer, and each such agent or employee to which rights to indemnification have been granted as
provided in Section 10.9 of this Article X, shall be covered by such policy or policies in
accordance with its or their terms to the maximum extent of the coverage thereunder for any such
director, officer, employee or agent.
Section 10.9 Other Employees and Agents. The Corporation may, to the extent
authorized from time to time by the board of directors, grant rights to indemnification, and rights
to be paid by the Corporation the expenses incurred in defending any proceeding in advance of its
final disposition, to any employee or agent or class of employees or agents of the Corporation
(including the heirs, executors, administrators or estate of each such person) to the fullest
extent of the provisions of this Article X with respect to the indemnification and advancement of
expenses of directors and officers of the Corporation.
Section 10.10 Validity of Article X. If any provision or provisions of this
Article X shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the
validity, legality and enforceability of the remaining provisions of this Article X (including,
without limitation, each portion of any paragraph of this Article X containing any such provision
held to be invalid, illegal or unenforceable,
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that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected
or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article X
(including, without limitation, each such portion of any paragraph of this Article X containing any
such provision held to be invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or unenforceable.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.1 Fiscal Year. The fiscal year of the Corporation shall be as
fixed by the board of directors.
Section 11.2 Dividends. The board of directors may from time to time declare,
and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and the Certificate of Incorporation.
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exv4w1
EXHIBIT 4.1
DE
THIS CERTIFICATE IS TRANSFERABLE INCORPORATED UNDER THE LAWS OF THE STATE OF DALAWARE SEE REVERSE
SIDE
IN SOUTH SAINT PAUL, MN. FOR CERTAIN DEFINITIONS
CUSIP 78463M 10 7
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES, $0.001 PAR VALUE, OF
SPS COMMERCE, INC.
transferable on the books of the Corporation by the holder hereof in person or by Attorney upon
surrender of this certificate
properly endorsed. This certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
IN WITNESS WHEREOF, the said Corporation has caused this certificate to be signed by facsimile
signatures of its duly
authorized officers.
Dated:
SIG TO COME SIG TO COME
TITLE TITLE
COUNTERSIGNED AND REGISTERED:
WELLS FORGO BANK, N.A.
BY /s/ Illigeble TRANSFER AGENT
AND REGISTRAR
AUTHORIZED SIGNATURE
AMERICAN FINANCIAL PRINTING INCORPORATED — MINNEAPOLIS |
The following abbreviations, when used in the inscription on the face of this certificate, shall be
construed as though they were
written out in full according to applicable laws or regulations:
TEN COM — as tenants in common UTMA — Custodian
(Cust) (Minor)
TEN ENT — as tenants by entireties under Uniform Transfers to Minors
JT TEN — as joint tenants with right of survivorship Act
and not as tenants in common (State)
Additional abbreviations may also be used though not in above list.
For value received hereby sell, assign, and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
Shares
of the capital stock represented by the within Certificate, and do hereby irrevocably constitute
and appoint
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated X
X
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
SIGNATURE GUARANTEED
ALL GUARANTEES MUST BE MADE BY A FINANCIAL INSTITUTION (SUCH AS A
BANK OR BROKER) WHICH IS A PARTICIPANT IN THE SECURITIES TRANSFER
AGENTS MEDALLION PROGRAM (“STAMP”), THE NEW YORK STOCK EXCHANGE,
INC. MEDALLION SIGNATURE PROGRAM (“MSP”), OR THE STOCK EXCHANGES
MEDALLION PROGRAM (“SEMP”) AND MUST NOT BE DATED. GUARANTEES BY A
NOTARY PUBLIC ARE NOT ACCEPTABLE. |
exv10w6
Exhibit 10.6
SPS COMMERCE, INC.
2010 EQUITY INCENTIVE PLAN
1. Purpose. The purpose of the SPS Commerce, Inc. 2010 Equity Incentive Plan (the “Plan”)
is to attract and retain the best available personnel for positions of responsibility with the
Company, to provide additional incentives to them and align their interests with those of the
Company’s stockholders, and to thereby promote the Company’s long-term business success.
2. Definitions. In this Plan, the following definitions will apply.
(a) “Affiliate” means any corporation that is a Subsidiary or Parent of the Company.
(b) “Agreement” means the written or electronic agreement containing the terms and conditions
applicable to each Award granted under the Plan. An Agreement is subject to the terms and
conditions of the Plan.
(c) “Award” means a grant made under the Plan in the form of Options, Stock Appreciation
Rights, Restricted Stock, Stock Units, or Other Stock-Based Award.
(d) “Board” means the Board of Directors of the Company.
(e) “Cause” means what the term is expressly defined to mean in a then-effective written
agreement (including an Agreement) between a Participant and the Company or any Affiliate, or in
the absence of any such then-effective agreement or definition, a Participant’s (i) incompetence or
failure or refusal to perform satisfactorily the duties reasonably required of the Participant by
the Company (other than by reason of Disability); (ii) material violation of any law, rule,
regulation, court order or regulatory directive (other than traffic violations, misdemeanors or
other minor offenses); (iii) material breach of any fiduciary duty or nondisclosure,
non-solicitation, non-competition or similar obligation owed to the Company or any Affiliate; (iv)
engaging in any act or practice that involves personal dishonesty on the part of the Participant or
demonstrates a willful and continuing disregard for the best interests of the Company and its
Affiliates; or (v) engaging in dishonorable or disruptive behavior, practices or acts which would
be reasonably expected to harm or bring disrepute to the Company or any of its Affiliates, their
business or any of their customers, employees or vendors.
(f) “Change in Control” means, unless otherwise provided in an Agreement, one of the
following:
(1) Any individual, entity or Group (a “Person”), other than (i) one or more Subsidiaries, or
(ii) any employee benefit plan (or related trust) sponsored or maintained by the Company or any
Affiliate, becomes the beneficial owner (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934) of equity securities of the Company representing more than 50% of the
combined voting power of the Company’s then outstanding securities entitled to vote generally in
the election of directors (“voting securities”), except that (A) any acquisition of Company equity
securities by a Person directly from the Company for the purpose of providing financing to the
Company, any formation of a Group consisting solely of beneficial owners of the Company’s voting
securities as of the effective date of this Plan, or any repurchase or other acquisition by the
Company of its equity securities that causes any Person to become the beneficial owner of more than
50% of the Company’s voting securities, will not be considered a Change in Control unless and
until, in either case, such Person acquires beneficial ownership of additional Company voting
securities after the Person initially became the beneficial owner of more than 50% of the Company’s
voting securities by one of the means described in this clause (A); and (B) a Change in Control
will occur if a Person becomes the beneficial owner of more than 50% of the Company’s voting
securities as the result of a Corporate Transaction only if the Corporate Transaction is itself a
Change in Control pursuant to subsection 2(f)(3);
(2) Individuals who are Continuing Directors cease for any reason to constitute a majority of
the members of the Board; or
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(3) The consummation of a Corporate Transaction unless, immediately following such
Corporate Transaction, all or substantially all of the Persons who were the beneficial owners of
Company voting securities immediately prior to such Corporate Transaction beneficially own,
directly or indirectly, more than 50% of the combined voting power of the then outstanding voting
securities (or comparable equity interests) of the surviving or acquiring entity (or its Parent)
resulting from such Corporate Transaction in substantially the same proportions as their ownership
of Company voting securities immediately prior to such Corporate Transaction.
Notwithstanding the foregoing, to the extent that any Award constitutes a deferral of compensation
subject to Code Section 409A, and if that Award provides for a change in the time or form of
payment upon a Change in Control, then no Change in Control shall be deemed to have occurred upon
an event described in Section 2(f) unless the event would also constitute a change in ownership or
effective control of, or a change in the ownership of a substantial portion of the assets of, the
Company under Code Section 409A.
(g) “Code” means the Internal Revenue Code of 1986, as amended and in effect from time to
time, and the regulations promulgated thereunder.
(h) “Committee” means two or more Non-Employee Directors designated by the Board to administer
the Plan under Section 3, each member of which shall be (i) an independent director within the
meaning of the rules and regulations of the Nasdaq Stock Market, (ii) a non-employee director
within the meaning of Exchange Act Rule 16b-3, and (iii) an outside director for purposes of Code
Section 162(m).
(i) “Company” means SPS Commerce, Inc., a Delaware corporation, or any successor thereto.
(j) “Continuing Director” means an individual (A) who is, as of the effective date of the
Plan, a director of the Company, (B) who is elected as a director of the Company subsequent to the
effective date hereof pursuant to a nomination or board representation right of preferred
stockholders of the Company, or (C) who becomes a director of the Company after the effective date
hereof and whose initial election, or nomination for election by the Company’s stockholders, was
approved by at least a majority of the then Continuing Directors.
(k) “Corporate Transaction” means (i) a sale or other disposition of all or substantially all
of the assets of the Company, or (ii) a merger, consolidation, share exchange or similar
transaction involving the Company, regardless of whether the Company is the surviving corporation.
(l) “Disability” means (A) any permanent and total disability under any long-term disability
plan or policy of the Company or its Affiliates that covers the Participant, or (B) if there is no
such long-term disability plan or policy, “total and permanent disability” within the meaning Code
Section 22(e)(3).
(m) “Employee” means an employee of the Company or an Affiliate.
(o) “Exchange Act” means the Securities Exchange Act of 1934, as amended and in effect from
time to time.
(p) “Exchange Program” means a program under which (i) outstanding Options or SARs are
surrendered or cancelled in exchange for Options or SARs of the same type (which may have lower or
higher exercise prices and different terms), Awards of a different type and/or cash, and/or
(ii) the exercise price of an outstanding Option or SAR is reduced.
(q) “Fair Market Value” means the fair market value of a Share determined as follows:
(1) If the Shares are readily tradable on an established securities market (as determined
under Code Section 409A), then Fair Market Value will be the closing sales price for a Share on the
principal securities market on which it trades on the date for which it is being determined, or if
no
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sale of Shares occurred on that date, on the next preceding date on which a sale of Shares
occurred, as reported in The Wall Street Journal or such other source as the Committee deems
reliable; or
(2) If the Shares are not then readily tradable on an established securities market (as
determined under Code Section 409A), then Fair Market Value will be determined by the Committee as
the result of a reasonable application of a reasonable valuation method that satisfies the
requirements of Code Section 409A.
(r) “Full Value Award” means an Award other than an Option or Stock Appreciation Right.
(s) “Grant Date” means the date on which the Committee approves the grant of an Award under
the Plan, or such later date as may be specified by the Committee on the date the Committee
approves the Award.
(t) “Group” means two or more persons acting as a partnership, limited partnership, syndicate
or other group for the purpose of acquiring, holding or disposing of securities of the Company.
(u) “Non-Employee Director” means a member of the Board who is not an Employee.
(v) “Option” means a right granted under the Plan to purchase a specified number of Shares at
a specified price. An “Incentive Stock Option” or “ISO” means any Option designated as such and
granted in accordance with the requirements of Code Section 422. A “Non-Statutory Stock Option”
means an Option other than an Incentive Stock Option.
(w) “Other Stock-Based Award” means an Award described in Section 11 of this Plan.
(x) “Parent” means a “parent corporation,” as defined in Code Section 424(e).
(y) “Participant” means a person to whom an Award is or has been made in accordance with the
Plan.
(z) “Performance-Based Compensation” means an Award to a person who is, or is determined by
the Committee to likely become, a “covered employee” (as defined in Section 162(m)(3) of the Code)
and that is intended to constitute “performance-based compensation” within the meaning of Section
162(m)(4)(C) of the Code.
(aa) “Plan” means this SPS Commerce, Inc. 2010 Equity Incentive Plan, as amended and in effect
from time to time.
(bb) “Prior Plans” means the Company’s 1999 Equity Incentive Plan and 2001 Stock Option Plan.
(cc) “Restricted Stock” means Shares issued to a Participant that are subject to such
restrictions on transfer, forfeiture conditions and other restrictions or limitations as may be set
forth in this Plan and the applicable Agreement.
(dd) “Service” means the provision of services by a Participant to the Company or any
Affiliate in any Service Provider capacity. A Service Provider’s Service shall be deemed to have
terminated either upon an actual cessation of providing services or upon the entity for which the
Service Provider provides services ceasing to be an Affiliate. Except as otherwise provided in
this Plan or any Agreement, Service shall not be deemed terminated in the case of (i) any approved
leave of absence; (ii) transfers among the Company and any Affiliates in any Service Provider
capacity; or (iii) any change in status so long as the individual remains in the service of the
Company or any Affiliate in any Service Provider capacity.
(ee) “Service Provider” means an Employee, a Non-Employee Director, or any consultant or
advisor who is a natural person and who provides services (other than in connection with (i) a
capital-raising transaction or (ii) promoting or maintaining a market in Company securities) to the
Company or any Affiliate.
(ff) “Share” means a share of Stock.
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(gg) “Stock” means the common stock, $0.001 par value, of the Company.
(hh) “Stock Appreciation Right” or “SAR” means the right to receive, in cash and/or Shares as
determined by the Committee, an amount equal to the appreciation in value of a specified number of
Shares between the Grant Date of the SAR and its exercise date.
(ii) “Stock Unit” means a right to receive, in cash and/or Shares as determined by the
Committee, the Fair Market Value of a Share, subject to such restrictions on transfer, forfeiture
conditions and other restrictions or limitations as may be set forth in this Plan and the
applicable Agreement.
(jj) “Subsidiary” means a “subsidiary corporation,” as defined in Code Section 424(f), of the
Company.
(kk) “Substitute Award” means an Award granted upon the assumption of, or in substitution or
exchange for, outstanding awards granted by a company or other entity acquired by the Company or
any Affiliate or with which the Company or any Affiliate combines.
3. Administration of the Plan.
(a) Administration. The authority to control and manage the operations and
administration of the Plan shall be vested in the Committee in accordance with this Section 3.
(b) Scope of Authority. Subject to the terms of the Plan, the Committee shall have
the authority, in its discretion, to take such actions as it deems necessary or advisable to
administer the Plan, including:
(1) determining the Service Providers to whom Awards will be granted, the timing of each such
Award, the types of Awards and the number of Shares covered by each Award, the terms, conditions,
performance criteria, restrictions and other provisions of Awards, and the manner in which Awards
are paid or settled;
(2) cancelling or suspending an Award, accelerating the vesting or extending the exercise
period of an Award, or otherwise amending the terms and conditions of any outstanding Award,
subject to the requirements of Section 15(d);
(3) establishing, amending or rescinding rules to administer the Plan, interpreting the Plan
and any Award or Agreement made under the Plan, and making all other determinations necessary or
desirable for the administration of the Plan; and
(4) instituting an Exchange Program.
The terms and conditions of any Exchange Program shall be determined by the Committee in its sole
discretion. Notwithstanding the foregoing provisions of this Section 3(b), the Board shall perform
the duties and have the responsibilities of the Committee with respect to Awards made to
Non-Employee Directors.
(c) Acts of the Committee; Delegation. A majority of the members of the Committee
shall constitute a quorum for any meeting of the Committee, and any act of a majority of the
members present at any meeting at which a quorum is present or any act unanimously approved in
writing by all members of the Committee shall be the act of the Committee. To the extent not
inconsistent with applicable law or stock exchange rules, the Committee may delegate all or any
portion of its authority under the Plan to determine and administer Awards that are made to
Participants who are neither Non-Employee Directors nor executive officers of the Company to one or
more persons who are either Non-Employee Directors or executive officers of the Company.
(d) Finality of Decisions. The Committee’s interpretation of the Plan and of any
Award or Agreement made under the Plan and all related decisions or resolutions of the Board or
Committee shall be final and binding on all parties with an interest therein.
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(e) Indemnification. Each person who is or has been a member of the Committee or
of the Board, and any other person to whom the Committee delegates authority under the Plan, shall
be indemnified by the Company, to the maximum extent permitted by law, against liabilities and
expenses imposed upon or reasonably incurred by such person in connection with or resulting from
any claims against such person by reason of the performance of the individual’s duties under the
Plan. This right to indemnification is conditioned upon such person providing the Company an
opportunity, at the Company’s expense, to handle and defend the claims before such person
undertakes to handle and defend them on such person’s own behalf. The Company will not be required
to indemnify any person for any amount paid in settlement of a claim unless the Company has first
consented in writing to the settlement. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such person or persons may be entitled
under the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise.
4. Shares Available Under the Plan.
(a) Shares Available. Subject to Sections 4(b) and (c) and to adjustment as provided
in Section 12(a), the number of Shares that may be the subject of Awards and issued under the Plan
will be 2,600,000, plus any Shares remaining available for future grants under the Prior Plans on
the effective date of this Plan. Shares issued under the Plan may come from authorized and
unissued shares or treasury shares. In determining the number of Shares to be counted against this
share reserve in connection with any Award, the following rules shall apply:
(1) Where the number of Shares subject to an Award is variable on the Grant Date, the number
of Shares to be counted against the share reserve prior to the settlement of the Award shall be the
maximum number of Shares that could be received under that particular Award.
(2) Where two or more types of Awards are granted to a Participant in tandem with each other,
such that the exercise of one type of Award with respect to a number of Shares cancels at least an
equal number of Shares of the other, the number of Shares to be counted against the share reserve
shall be the largest number of Shares that would be counted against the share reserve under either
of the Awards.
(3) Substitute Awards shall not be counted against the share reserve, nor shall they reduce
the Shares authorized for grant to a Participant in any calendar year.
(b) Automatic Share Reserve Increase. The share reserve specified in Section 4(a)
will be increased on January 1 of each year commencing in 2011 and ending on (and including)
January 1, 2020 in an amount equal to the lesser of: (i) 6% of the total number of Shares
outstanding as of December 31 of the immediately preceding calendar year or (ii) such number of
Shares determined by the Board.
(c) Effect of Forfeitures and Other Actions. Any Shares subject to an Award, or to an
award granted under one of the Prior Plans that is outstanding on the effective date of this Plan
(a “Prior Plan Award”), that is forfeited, expires, is settled for cash, is surrendered pursuant to
an Exchange Program, or otherwise does not result in the issuance of all or a portion of the Shares
subject to such Award or Prior Plan Award (including a payment in Shares on the exercise of a Stock
Appreciation Right) shall, to the extent of such forfeiture, expiration, cash settlement, surrender
or non-issuance, again become available for Awards under this Plan and correspondingly increase the
total number of Shares available for grant and issuance under Section 4(a). In the event that (i)
any Award or Prior Plan Award is exercised through the tendering of Shares (either actually or by
attestation) or by the withholding of Shares by the Company in payment of the applicable exercise
price, or (ii) any tax withholding obligations arising from such Award or Prior Plan Award are
satisfied by the tendering of Shares (either actually or by attestation) or by the withholding of
Shares by the Company, then the Shares so tendered or withheld shall again become available for
Awards under this Plan and correspondingly increase the total number of Shares available for grant
and issuance under Section 4(a).
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(d) Effect of Plans Operated by Acquired Companies. If a company acquired by the
Company or any Subsidiary or with which the Company or any Subsidiary combines has shares available
under a pre-existing plan approved by stockholders and not adopted in contemplation of such
acquisition or combination, the shares available for grant pursuant to the terms of such
pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other
adjustment or valuation ratio or formula used in such acquisition or combination to determine the
consideration payable to the holders of common stock of the entities party to such acquisition or
combination) may be used for Awards under the Plan and
shall not reduce the Shares authorized for grant under the Plan. Awards using such available
shares shall not be made after the date awards or grants could have been made under the terms of
the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals
who were not Employees or Non-Employee Directors prior to such acquisition or combination.
(e) No Fractional Shares. Unless otherwise determined by the Committee, the number of
Shares subject to an Award shall always be a whole number. No fractional Shares may be issued
under the Plan, but the Committee may, in its discretion, pay cash in lieu of any fractional Share
in settlement of an Award.
(f) Individual Option and SAR Limit. Subject to adjustment as provided in Section
12(a), the aggregate number of Shares subject to Options and/or Stock Appreciation Rights granted
during any calendar year to any one Participant shall not exceed 1,500,000 Shares.
5. Eligibility. Participation in the Plan is limited to Service Providers. Incentive
Stock Options may only be granted to Employees.
6. General Terms of Awards.
(a) Award Agreement. Each Award shall be evidenced by an Agreement setting forth the
number of Shares subject to the Award together with such other terms and conditions applicable to
the Award (and not inconsistent with the Plan) as determined by the Committee. An Award to a
Participant may be made singly or in combination with any form of Award. Two types of Awards may
be made in tandem with each other such that the exercise of one type of Award with respect to a
number of Shares reduces the number of Shares subject to the related Award by at least an equal
amount.
(b) Vesting and Term. Each Agreement shall set forth the period until the applicable
Award is scheduled to expire (which shall not be more than ten years from the Grant Date), and any
applicable performance period.
(c) Transferability. Except as provided in this Section 6(c), (i) during the lifetime
of a Participant, only the Participant or the Participant’s guardian or legal representative may
exercise an Option or SAR, or receive payment with respect to any other Award; and (ii) no Award
may be sold, assigned, transferred, exchanged or encumbered other than by will or the laws of
descent and distribution. Any attempted transfer in violation of this Section 6(c) shall be of no
effect. The Committee may, however, provide in an Agreement or otherwise that an Award (other than
an Incentive Stock Option) may be transferred pursuant to a qualified domestic relations order or
may be transferable by gift to any “family member” (as defined in General Instruction A(5) to Form
S-8 under the Securities Act of 1933) of the Participant. Any Award held by a transferee shall
continue to be subject to the same terms and conditions that were applicable to that Award
immediately before the transfer thereof. For purposes of any provision of the Plan relating to
notice to a Participant or to acceleration or termination of an Award upon the death or termination
of employment of a Participant, the references to “Participant” shall mean the original grantee of
an Award and not any transferee.
(d) Designation of Beneficiary. Each Participant may designate a beneficiary or
beneficiaries to exercise any Award or receive a payment under any Award payable on or after the
Participant’s death. Any such designation shall be on a form approved by the Committee and shall
be effective upon its receipt by the Company.
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(e) Termination of Service. Unless otherwise provided in an Agreement, and
subject to Section 12 of this Plan, if a Participant’s Service with the Company and all of its
Affiliates terminates, the following provisions shall apply (in all cases subject to the scheduled expiration of an
Option or Stock Appreciation Right, as applicable):
(1) Upon termination of Service for Cause, all unexercised Options and SARs and all unvested
portions of any other outstanding Awards shall be immediately forfeited without consideration.
(2) Upon termination of Service for any other reason, all unvested and unexercisable portions
of any outstanding Awards shall be immediately forfeited without consideration.
(3) Upon termination of Service for any reason other than Cause, death or Disability, the
currently vested and exercisable portions of Options and SARs may be exercised for a period of
three months after the date of such termination. However, if a Participant thereafter dies during
such three-month period, the vested and exercisable portions of the Options and SARs may be
exercised for a period of one year after the date of such termination.
(4) Upon termination of Service due to death or Disability, the currently vested and
exercisable portions of Options and SARs may be exercised for a period of one year after the date
of such termination.
(f) Rights as Stockholder. No Participant shall have any rights as a stockholder with
respect to any securities covered by an Award unless and until the date the Participant becomes the
holder of record of the Shares, if any, to which the Award relates.
(g) Performance-Based Awards. Any Award may be granted as a performance-based Award
if the Committee establishes one or more measures of corporate, business unit or individual
performance which must be attained, and the performance period over which the specified performance
is to be attained, as a condition to the vesting, exercisability, lapse of restrictions and/or
settlement in cash or Shares of such Award. In connection with any such Award, the Committee shall
determine the extent to which performance measures have been attained and other applicable terms
and conditions have been satisfied, and the degree to which vesting, exercisability, lapse of
restrictions and/or settlement in cash or Shares of such Award has been earned. Any
performance-based Award that is intended by the Committee to qualify as Performance-Based
Compensation shall additionally be subject to the requirements of Section 17 of this Plan. Except
as provided in Section 17 with respect to Performance-Based Compensation, the Committee shall also
have the authority to provide, in an Agreement or otherwise, for the modification of a performance
period and/or an adjustment or waiver of the achievement of performance measures upon the
occurrence of certain events, which may include a Change of Control, a Corporate Transaction, a
recapitalization, a change in the accounting practices of the Company, or the Participant’s death
or Disability.
7. Stock Option Awards.
(a) Type and Exercise Price. The Agreement pursuant to which an Option is granted
shall specify whether the Option is an Incentive Stock Option or a Non-Statutory Stock Option. The
exercise price at which each Share subject to an Option may be purchased shall be determined by the
Committee and set forth in the Agreement, and shall not be less than the Fair Market Value of a
Share on the Grant Date, except in the case of Substitute Awards.
(b) Payment of Exercise Price. The purchase price of the Shares with respect to which
an Option is exercised shall be payable in full at the time of exercise, which may include, to the
extent permitted by the Committee, payment under a broker-assisted sale and remittance program
acceptable to the Committee. The purchase price may be paid in cash or in such other manner as the
Committee may permit, including by withholding Shares otherwise issuable to the Participant upon
exercise of the Option or by delivery to the Company of Shares (by actual delivery or attestation)
already owned by the Participant (in
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each case, such Shares having a Fair Market Value as of the date the Option is exercised equal to the purchase price of the Shares being purchased).
(c) Exercisability and Expiration. Each Option shall be exercisable in whole or in
part on the terms provided in the Agreement. No Option shall be exercisable at any time after its
scheduled expiration. When an Option is no longer exercisable, it shall be deemed to have
terminated.
(d) Incentive Stock Options.
(1) An Option will constitute an Incentive Stock Option only if the Participant receiving the
Option is an Employee, and only to the extent that (i) it is so designated in the applicable
Agreement and (ii) the aggregate Fair Market Value (determined as of the Option’s Grant Date) of
the Shares with respect to which Incentive Stock Options held by the Participant first become
exercisable in any calendar year (under the Plan and all other plans of the Company and its
Affiliates) does not exceed $100,000. To the extent an Option granted to a Participant exceeds
this limit, the Option shall be treated as a Non-Statutory Stock Option. The maximum number of
Shares that may be issued upon the exercise of Incentive Stock Options shall equal 4,500,000. No
Incentive Stock Option may be granted after the tenth anniversary of the effective date of the
Plan.
(2) No Participant may receive an Incentive Stock Option under the Plan if, immediately after
the grant of such Award, the Participant would own (after application of the rules contained in
Code Section 424(d)) Shares possessing more than 10% of the total combined voting power of all
classes of stock of the Company or an Affiliate, unless (i) the option price for that Incentive
Stock Option is at least 110% of the Fair Market Value of the Shares subject to that Incentive
Stock Option on the Grant Date and (ii) that Option will expire no later than five years after its
Grant Date.
(3) For purposes of continued Service by a Participant who has been granted an Incentive Stock
Option, no approved leave of absence may exceed three months unless reemployment upon expiration of
such leave is provided by statute or contract. If reemployment is not so provided, then on the
date six months following the first day of such leave, any Incentive Stock Option held by the
Participant shall cease to be treated as an Incentive Stock Option and shall be treated for tax
purposes as a Non-Statutory Stock Option.
(4) If an Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purposes of Code Section 422, such Option shall thereafter be treated as a
Non-Statutory Stock Option.
(5) The Agreement covering an Incentive Stock Option shall contain such other terms and
provisions that the Committee determines necessary to qualify the Option as an Incentive Stock
Option.
8. Stock Appreciation Rights.
(a) Nature of Award. An Award of Stock Appreciation Rights shall be subject to such
terms and conditions determined by the Committee, to receive upon exercise of the Stock
Appreciation Right all or a portion of the excess of (i) the Fair Market Value of a specified
number of Shares as of the date of exercise of the Stock Appreciation Right over (ii) a specified
exercise price that shall not be less than 100% of the Fair Market Value of such Shares on the
Grant Date of the Stock Appreciation Right, except in the case of Substitute Awards.
(b) Exercise of SAR. Each Stock Appreciation Right may be exercisable in whole or in
part at the times, on the terms and in the manner provided in the Agreement. No Stock Appreciation
Right shall be exercisable at any time after its scheduled expiration. When a Stock Appreciation
Right is no longer exercisable, it shall be deemed to have terminated. Upon exercise of a Stock
Appreciation Right, payment to the Participant shall be made at such time or times as shall be
provided in the Agreement in the form of cash, Shares or a combination of cash and Shares as
determined by the Committee. The
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Agreement may provide for a limitation upon the amount or percentage of the total appreciation
on which payment (whether in cash and/or Shares) may be made in the event of the exercise of a
Stock Appreciation Right.
9. Restricted Stock Awards.
(a) Vesting and Consideration. Shares subject to a Restricted Stock Award shall be
subject to vesting conditions, and the corresponding lapse or waiver of forfeiture conditions and
other restrictions, based on such factors and occurring over such period of time as the Committee
may determine in its discretion. The Committee may provide whether any consideration other than
Services must be received by the Company or any Affiliate as a condition precedent to the grant of
a Restricted Stock Award.
(b) Shares Subject to Restricted Stock Awards. Unvested Shares subject to a
Restricted Stock Award shall be evidenced by a book-entry in the name of the Participant with the
Company’s transfer agent or by one or more Stock certificates issued in the name of the
Participant. Any such Stock certificate shall be deposited with the Company or its designee,
together with an assignment separate from the certificate, in blank, signed by the Participant, and
bear an appropriate legend referring to the restricted nature of the Restricted Stock evidenced
thereby. Any book-entry shall be subject to transfer restrictions and accompanied by a similar
legend. Upon the vesting of Shares of Restricted Stock and the corresponding lapse of the
restrictions and forfeiture conditions, the corresponding transfer restrictions and restrictive
legend will be removed from the book-entry evidencing such Shares or the certificate evidencing
such Shares, and such certificate shall be delivered to the Participant. Such vested Shares may,
however, remain subject to additional restrictions as provided in Section 18(c).
(c) Dividends and Distributions. Except as otherwise provided in this Plan and the
applicable Agreement, a Participant with a Restricted Stock Award shall have all the other rights
of a stockholder, including the right to receive dividends and the right to vote the Shares of
Restricted Stock. Except as otherwise provided in the applicable Agreement, any Shares or property
other than regular cash dividends distributed with respect to unvested Shares subject to a
Restricted Stock Award shall be subject to the same conditions and restrictions as the underlying
Shares.
10. Stock Unit Awards.
(a) Vesting and Consideration. A Stock Unit Award shall be subject to vesting
conditions, and the corresponding lapse or waiver of forfeiture conditions and other restrictions,
based on such factors and occurring over such period of time as the Committee may determine in its
discretion. The Committee may provide whether any consideration other than Services must be
received by the Company or any Affiliate as a condition precedent to the settlement of a Stock Unit
Award.
(b) Payment of Award. Following the vesting of a Stock Unit Award, settlement of the
Award and payment to the Participant shall be made at such time or times in the form of cash,
Shares (which may themselves be considered Restricted Stock under the Plan subject to restrictions on
transfer and forfeiture conditions) or a combination of cash and Shares as determined by the
Committee. If the Stock Unit Award is not by its terms exempt from the requirements of Code
Section 409A, then the applicable Agreement shall contain terms and conditions necessary to avoid
adverse tax consequences specified in Code Section 409A.
(c) Dividend Equivalents. A Stock Unit Award may, if so determined by the Committee,
provide the Participant with the right to receive dividend equivalent payments with respect to
Shares subject to the Award (both before and after the Shares are earned or vested), which payments
may be either made currently, credited to an account for the Participant, or deemed to have been
reinvested in additional Shares which shall thereafter be deemed to be part of and subject to the
underlying Award, including the same vesting, performance and settlement conditions.
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11. Other Stock-Based Awards. The Committee may from time to time grant Stock and
other Awards that are valued by reference to and/or payable in whole or in part in Shares under the
Plan. The Committee, in its sole discretion, shall determine the terms and conditions of such
Awards, which shall be consistent with the terms and purposes of the Plan. The Committee may, in
its sole discretion, direct the Company to issue Shares subject to restrictive legends and/or stop
transfer instructions that are consistent with the terms and conditions of the Award to which the
Shares relate.
12. Changes in Capitalization, Corporate Transactions, Change in Control.
(a) Adjustments for Changes in Capitalization. In the event of any equity
restructuring (within the meaning of FASB ASC Topic 718 — Stock Compensation) that causes the per
share value of Shares to change, such as a stock dividend, stock split, spinoff, rights offering or
recapitalization through an extraordinary dividend, the Committee shall make such adjustments as it
deems equitable and appropriate to (i) the aggregate number and kind of Shares or other securities
issued or reserved for issuance under the Plan, (ii) the number and kind of Shares or other
securities subject to outstanding Awards, (iii) the exercise price of outstanding Options and SARs,
and (iv) any maximum limitations prescribed by the Plan with respect to certain types of Awards or
the grants to individuals of certain types of Awards. In the event of any other change in
corporate capitalization, including a merger, consolidation, reorganization, or partial or complete
liquidation of the Company, such equitable adjustments described in the foregoing sentence may be
made as determined to be appropriate and equitable by the Committee to prevent dilution or
enlargement of rights of Participants. In either case, any such adjustment shall be conclusive and
binding for all purposes of the Plan. No adjustment shall be made pursuant to this Section 12(a)
in connection with the conversion of any convertible securities of the Company, or in a manner that
would cause Incentive Stock Options to violate Section 422(b) of the Code or cause an Award to be
subject to adverse tax consequences under Section 409A of the Code.
(b) Corporate Transactions. Unless otherwise provided in an applicable Agreement, the
following provisions shall apply to outstanding Awards in the event of a Change in Control that
involves a Corporate Transaction.
(1) Continuation, Assumption or Replacement of Awards. In the event of a Corporate
Transaction, then the surviving or successor entity (or its Parent) may continue, assume or replace
Awards outstanding as of the date of the Corporate Transaction (with such adjustments as may be
required or permitted by Section 12(a)), and such Awards or replacements therefor shall remain
outstanding and be governed by their respective terms. A surviving or successor entity may elect
to continue, assume or replace only some Awards or portions of Awards. For purposes of this
Section 12(b)(1), an Award shall be considered assumed or replaced if, in connection with the
Corporate Transaction and in a manner consistent with Code Sections 409A and 424, either (i) the
contractual obligations represented by the Award are expressly assumed by the surviving or
successor entity (or its Parent) with appropriate adjustments to the number and type of securities
subject to the Award and the exercise price thereof that preserves the intrinsic value of the Award
existing at the time of the Corporate Transaction, or (ii) the Participant has received a
comparable equity-based award that preserves the intrinsic value of the Award existing at the time
of the Corporate Transaction and provides for a vesting or exercisability schedule that is the same
as or more favorable to the Participant.
(2) Acceleration. If and to the extent that outstanding Awards under the Plan are not
continued, assumed or replaced in connection with a Corporate Transaction, then the Committee may
provide that (i) some or all outstanding Options and SARs shall become fully exercisable for such
period of time prior to the effective time of the Corporate Transaction as is deemed fair and
equitable by the Committee, and shall terminate at the effective time of the Corporate Transaction,
and (ii) some or all outstanding Full Value Awards shall fully vest immediately prior to the
effective time of the Corporate Transaction. The Committee will not be required to treat all
Awards similarly for purposes of this Section 12(b)(2). The Committee shall provide written notice
of the period of accelerated exercisability of
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Options and SARs to all affected Participants. The exercise of any Option or SAR whose exercisability
is accelerated as provided in this Section
12(b)(2) shall be conditioned upon the consummation of the Corporate Transaction and shall be
effective only immediately before such consummation.
(3) Payment for Awards. If and to the extent that outstanding Awards under the Plan
are not continued, assumed or replaced in connection with a Corporate Transaction, then the
Committee may provide that holders of some or all of such outstanding Awards must surrender the
Awards at or immediately prior to the effective time of the Corporate Transaction in exchange for
payments to the holders as provided in this Section 12(b)(3). The Committee will not be required
to treat all Awards similarly for purposes of this Section 12(b)(3). The payment for any Award
surrendered shall be in an amount equal to the difference, if any, between (i) the fair market
value (as determined in good faith by the Committee) of the consideration that would otherwise be
received in the Corporate Transaction for the number of Shares subject to the Award, and (ii) the
aggregate exercise price (if any) for the Shares subject to such Award. Payment shall be made in
such form, on such terms and subject to such conditions as the Committee determines in its
discretion, which may or may not be the same as the form, terms and conditions applicable to
payments to the Company’s stockholders in connection with the Corporate Transaction, and may
include subjecting such payments to vesting conditions comparable to those of the Award
surrendered, or to escrow or holdback terms comparable to those imposed upon the Company’s
stockholders under the Corporate Transaction.
(c) Change in Control. In connection with a Change in Control that does not involve a
Corporate Transaction, the Committee may provide (in the applicable Agreement or otherwise) for one
or more of the following: (i) that any Award shall become vested and exercisable, in whole or in
part, upon the occurrence of the Change in Control or upon the involuntary termination of the
Participant without Cause within a specified period of time of the Change in Control, (ii) that any
Option or SAR shall remain exercisable during all or some specified portion of its remaining term,
or (iii) that Awards shall be surrendered in exchange for payments in a manner similar to that
provided in Section 12(b)(3). The Committee will not be required to treat all Awards similarly in
such circumstances.
(d) Dissolution or Liquidation. Unless otherwise provided in an applicable Agreement,
in the event of a proposed dissolution or liquidation of the Company, the Committee will notify
each Participant as soon as practicable prior to the effective date of such proposed transaction.
An Award will terminate immediately prior to the consummation of such proposed action.
13. Plan Participation and Service Provider Status. Status as a Service Provider shall
not be construed as a commitment that any Award will be made under the Plan to that Service
Provider or to eligible Service Providers generally. Nothing in the Plan or in any Agreement or related documents
shall confer upon any Service Provider or Participant any right to continued Service with the
Company or any Affiliate, nor shall it interfere with or limit in any way any right of the Company
or any Affiliate to terminate the person’s Service at any time with or without Cause or change such
person’s compensation, other benefits, job responsibilities or title.
14. Tax Withholding. The Company or any Affiliate, as applicable, shall have the right to
(i) withhold from any cash payment under the Plan or any other compensation owed to a Participant
an amount sufficient to cover any required withholding taxes related to the grant, vesting,
exercise or settlement of an Award, and (ii) require a Participant or other person receiving Shares
under the Plan to pay a cash amount sufficient to cover any required withholding taxes before
actual receipt of those Shares. In lieu of all or any part of a cash payment from a person
receiving Shares under the Plan, the Committee (in its sole discretion) may permit the individual
to cover all or any part of the required withholdings (up to the Participant’s minimum required tax
withholding rate) through a reduction in the number of Shares delivered or a delivery or tender to
the Company of Shares held by the Participant or other person, in each case valued in the same
manner as used in computing the withholding taxes under applicable laws.
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15. Effective Date, Duration, Amendment and Termination of the Plan.
(a) Effective Date. The Plan shall become effective on the date it is approved by the
requisite vote of the Board, subject to approval by the Company’s stockholders. If the
stockholders fail to approve the Plan within 12 months of its adoption by the Board, any Awards
already made will be null and void and no additional Awards shall be made.
(b) Duration of the Plan. The Plan shall remain in effect until all Shares subject to
it shall be distributed, all Awards have expired or terminated or the Plan is terminated pursuant
to Section 15(c), whichever occurs first (the “Termination Date”). Awards made before the
Termination Date may be exercised, vested or otherwise effectuated beyond the Termination Date
unless limited in the Agreement or otherwise.
(c) Amendment and Termination of the Plan. The Board may at any time terminate,
suspend or amend the Plan. The Company shall submit any amendment of the Plan to its stockholders
for approval only to the extent required by applicable laws or regulations or the rules of any
securities exchange on which the Shares may then be listed. No termination, suspension, or
amendment of the Plan may materially impair the rights of any Participant under a previously
granted Award without the Participant’s consent, unless such action is necessary to comply with
applicable law, stock exchange rules or accounting rules.
(d) Amendment of Awards. The Committee may unilaterally amend the terms of any
Agreement previously granted, except that no such amendment may materially impair the rights of any
Participant under the applicable Award without the Participant’s consent, unless such amendment is
necessary to comply with applicable law, stock exchange rules or accounting rules.
16. Substitute Awards. The Committee may also grant Awards under the Plan in substitution
for, or in connection with the assumption of, existing awards granted or issued by another
corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by
reason of a transaction involving a merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation to which the Company or an Affiliate is a party. The
terms and conditions of the Substitute Awards may vary from the terms and conditions set forth in
the Plan to the extent that the Board at the time of the grant may deem appropriate to conform, in
whole or in part, to the provisions of the awards in substitution for which they are granted.
17. Performance-Based Compensation.
(a) Designation of Awards. If the Committee determines at the time a Full Value Award
is granted to a Participant that such Participant is, or is likely to be, a “covered employee” for
purposes of Code Section 162(m) as of the end of the tax year in which the Company would ordinarily
claim a tax deduction in connection with such Award, then the Committee may provide that this
Section 17 will be applicable to such Award, which shall be considered Performance-Based
Compensation.
(b) Performance Measures. If an Award is subject to this Section 17, then the lapsing
of restrictions thereon and the distribution of cash, Shares or other property pursuant thereto, as
applicable, shall be subject to the achievement of one or more of the performance measures
specified in Section 17(d) over the applicable performance period. The Committee shall specify the
manner of calculating the performance measures it selects to use in any performance period, which
may include adjustments to such measures as otherwise defined under U.S. Generally Accepted
Accounting Principles. The Committee may also adjust performance measures for a performance period
to the extent permitted by Code Section 162(m) in connection with an event described in Section
12(a) to prevent the dilution or enlargement of a Participant’s rights with respect to
Performance-Based Compensation. The Committee will determine the applicable performance measures
for any performance period and any amount payable in connection with an Award subject to this
Section 17 within the time periods prescribed by and consistent with the other requirements of Code
Section 162(m). The Committee may adjust downward, but not upward, any
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2010 Equity Incentive Plan
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Page 12 |
amount determined to be
otherwise payable in connection with such an Award. The Committee may also provide, in an
Agreement or otherwise, that the achievement of specified performance measures in connection with
an Award subject to this section 17 may be waived upon the death or Disability of the Participant
or under any other circumstance with respect to which the existence of such possible waiver will
not cause the Award to fail to qualify as “performance-based compensation” under Code Section
162(m).
(c) Limitations. Subject to adjustment as provided in Section 12(a), the maximum
number of Shares that may be the subject of Full Value Awards of Performance-Based Compensation
granted to any Participant during any calendar year shall not exceed 1,500,000 Shares.
(d) For purposes of any Full Value Award considered Performance-Based Compensation subject to
this Section 17, the performance measures to be utilized shall be limited to one or a combination
of two or more of the following performance criteria: revenues; gross profit; income from
operations; net income; earnings before income taxes; earnings before interest and taxes; earnings
before interest, taxes, depreciation and amortization; earnings before interest, taxes,
depreciation, amortization and share-based compensation expense; net income per share (basic or
diluted); profitability as measured by return ratios (including, but not limited to, return on
assets, return on equity, return on investment and return on revenues or gross profit) or by the
degree to which any of the foregoing earnings measures exceed a percentage of revenues or gross
profit; cash flow; market share; margins (including, but not limited to, one or more of gross,
operating and net earnings margins); stock price; total stockholder return; asset quality;
non-performing assets; revenue growth; cash flow per share; operating assets; balance of cash, cash
equivalents and marketable securities; improvement in or attainment of expense levels or cost
savings; economic value added; improvement in or attainment of working capital levels; employee
retention; customer satisfaction; and implementation or completion of critical projects. Any
performance measure utilized may be expressed in absolute amounts, on a per share basis, as a
growth rate or change from preceding periods, or as a comparison to the performance of specified
companies or other external measures, and may relate to one or any combination of corporate, group,
unit, division, Affiliate or individual performance.
18. Other Provisions.
(a) Unfunded Plan. The Plan shall be unfunded and the Company shall not be required
to segregate any assets that may at any time be represented by Awards under the Plan. Neither the
Company, its Affiliates, the Committee, nor the Board shall be deemed to be a trustee of any
amounts to be paid under the Plan nor shall anything contained in the Plan or any action taken
pursuant to its provisions create or be construed to create a fiduciary relationship between the
Company and/or its Affiliates, and a Participant. To the extent any person has or acquires a
right to receive a payment in connection with an Award under the Plan, this right shall be no
greater than the right of an unsecured general creditor of the Company.
(b) Limits of Liability. Except as may be required by law, neither the Company nor
any member of the Board or of the Committee, nor any other person participating (including
participation pursuant to a delegation of authority under Section 3(c) of the Plan) in any
determination of any question under the Plan, or in the interpretation, administration or
application of the Plan, shall have any liability to any party for any action taken, or not taken,
in good faith under the Plan.
(c) Compliance with Applicable Legal Requirements. No Shares distributable pursuant
to the Plan shall be issued and delivered unless the issuance of the Shares complies with all
applicable legal requirements, including compliance with the provisions of applicable state and
federal securities laws, and the requirements of any securities exchanges on which the Company’s
Shares may, at the time, be listed. During any period in which the offering and issuance of Shares
under the Plan is not registered under federal or state securities laws, Participants shall
acknowledge that they are acquiring Shares under the Plan for investment purposes and not for
resale, and that Shares may not be transferred except
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2010 Equity Incentive Plan
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Page 13 |
pursuant to an effective registration
statement under, or an exemption from the registration requirements of, such securities laws.
Stock certificates evidencing Shares issued under the Plan that are subject to such securities law
restrictions shall bear an appropriate restrictive legend.
(d) Other Benefit and Compensation Programs. Payments and other benefits received by
a Participant under an Award made pursuant to the Plan shall not be deemed a part of a
Participant’s regular, recurring compensation for purposes of the termination, indemnity or
severance pay laws of any country and shall not be included in, nor have any effect on, the
determination of benefits under any other employee benefit plan, contract or similar arrangement
provided by the Company or an Affiliate unless expressly so provided by such other plan, contract
or arrangement, or unless the Committee expressly determines that an Award or portion of an Award
should be included to accurately reflect competitive compensation practices or to recognize that an
Award has been made in lieu of a portion of competitive cash compensation.
(e) Requirements of Law.
(1) To the extent that federal laws do not otherwise control, the Plan and all determinations
made and actions taken pursuant to the Plan shall be governed by the laws of the State of Delaware
without regard to its conflicts-of-law principles and shall be construed accordingly.
(2) If any provision of the Plan shall be held illegal or invalid for any reason, the
illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be
construed and enforced as if the illegal or invalid provision had not been included.
(3) It is intended that (i) all Awards of Options, SARs and Restricted Stock under the Plan
will not provide for the deferral of compensation within the meaning of Code Section 409A and
thereby be exempt from Code Section 409A, and (ii) all other Awards under the Plan will either not
provide for the deferral of compensation within the meaning of Code Section 409A, or will comply
with the requirements of Code Section 409A, and Awards shall be structured and the Plan
administered in accordance with this intent. The Plan and any Agreement may be unilaterally
amended by the Company in any manner deemed necessary or advisable by the Committee or Board in
order to maintain such exemption from or compliance with Code Section 409A, and any such amendment shall conclusively
be presumed to be necessary to comply with applicable law.
(4) It is intended that the Plan and all Awards granted pursuant to it shall be administered
by the Committee so as to permit the Plan and Awards to comply with Exchange Act Rule 16b-3. If
any provision of the Plan or of any Award would otherwise frustrate or conflict with the intent
expressed in this Section 18(e)(4), that provision to the extent possible shall be interpreted and
deemed amended in the manner determined by the Committee so as to avoid the conflict. To the
extent of any remaining irreconcilable conflict with this intent, the provision shall be deemed
void as applied to Participants subject to Section 16 of the Exchange Act to the extent permitted
by law and in the manner deemed advisable by the Committee.
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2010 Equity Incentive Plan
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exv10w7
Exhibit 10.7
SPS COMMERCE, INC.
Incentive Stock Option Agreement
Under the 2010 Equity Incentive Plan
SPS Commerce, Inc. (the “Company”), pursuant to its 2010 Equity Incentive Plan (the
“Plan”), hereby grants an Option to purchase shares of the Company’s common stock to you, the
Optionee named below. The terms and conditions of the Option Award are set forth in this
Agreement, consisting of this cover page and the Option Terms and Conditions on the following
pages, and in the Plan document which is attached.
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Name of Optionee: |
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No. of Shares Covered:
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Date of Grant: , 20 |
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Exercise Price Per Share: $
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Expiration Date: , 20 |
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Vesting and Exercise Schedule: |
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Dates
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Portion of Covered Shares as to Which
Option Becomes Vested and Exercisable |
By signing below, you agree to all of the terms and conditions contained in this Agreement and
in the Plan document, a copy of which is attached. You acknowledge that you have reviewed these
documents and that they set forth the entire agreement between you and the Company regarding your
right to purchase shares of the Company’s common stock pursuant to this Option.
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OPTIONEE: |
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SPS COMMERCE, INC.
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By: |
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Title: |
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Incentive Stock Option Agreement (2010 Equity Incentive Plan)
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Page 1 |
SPS Commerce, Inc.
2010 Equity Incentive Plan
Incentive Stock Option Agreement
Option Terms and Conditions*
1. |
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Incentive Stock Option. This Option is intended to be an “incentive stock option”
within the meaning of Section 422 of the Internal Revenue Code (the “Code”) and will be
interpreted accordingly. To the extent that, for any reason, the Option does not qualify as
an incentive stock option under Code Section 422, the Option will be treated as a
non-statutory stock option, subject to the tax consequences applicable to such options. |
2. |
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Vesting and Exercise Schedule. This Option will vest and become exercisable as to
the number of Shares and on the dates specified in the Vesting and Exercise Schedule on the
cover page to this Agreement, so long as your Service to the Company does not end. The
Vesting and Exercise Schedule is cumulative, meaning that to the extent the Option has not
already been exercised and has not expired, terminated or been cancelled, you or the person
otherwise entitled to exercise the Option as provided in this Agreement may at any time
purchase all or any portion of the Shares that may then be purchased under that Schedule. |
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**[Notwithstanding the foregoing, if and to the extent this Option is continued, assumed or
replaced in connection with a Change in Control that constitutes a Corporate Transaction,
and if within one year after the Corporate Transaction you experience an involuntary
termination of Service for reasons other than Cause, then this Option shall immediately
become exercisable in full and shall remain exercisable for one year following your
termination of Service.] |
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In addition, vesting and exercisability of this Option may be accelerated during the term of
the Option under the circumstances described in Section 12(c) of the Plan, and at the
discretion of the Committee in accordance with Section 3(b)(2) of the Plan. |
3. |
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Expiration. This Option will expire and will no longer be exercisable at 5:00 p.m.
Central Time on the earliest of: |
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The expiration date specified on the cover page of this Agreement; |
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(b) |
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Upon your termination of Service for Cause; |
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(c) |
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Upon the expiration of any applicable period specified in Section 6(e) of the
Plan or Section 2 of this Agreement during which this Option may be exercised after
your termination of Service; or |
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(d) |
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The date (if any) fixed for termination or surrender of this Option pursuant to
Sections 12(b)(3), (c) or (d) of the Plan. |
4. |
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Service Requirement. Except as otherwise provided in Section 6(e) of the Plan or
Section 2 of this Agreement, this Option may be exercised only while you continue to provide
Service to the Company or any Affiliate, and only if you have continuously provided such
Service since the date this Option was granted. |
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* |
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Unless the context indicates otherwise, terms
that are not defined in this Agreement shall have the meaning set forth in the
Plan as it currently exists or as it is amended in the future. |
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Incentive Stock Option Agreement (2010 Equity Incentive Plan)
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Page 2 |
5. |
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Exercise of Option. Subject to Section 4, the vested and exercisable portion of this
Option may be exercised at any time during the Option term by delivering a written notice of
exercise to the Company at its principal executive office, and by providing for payment of the
exercise price of the Shares being acquired and any related withholding taxes. The notice of
exercise, in the form attached to this Agreement, shall be provided to the Company’s Chief
Financial Officer. The notice shall state the number of Shares to be purchased, and shall be
signed by the person exercising the Option. If you are not the person exercising the Option,
the person submitting the notice also must submit appropriate proof of his/her right to
exercise the Option. |
6. |
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Payment of Exercise Price. When you submit your notice of exercise, you must include
payment of the exercise price of the Shares being purchased through one or a combination of
the following methods: |
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(a) |
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Cash (including personal check, cashier’s check or money order); |
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(b) |
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To the extent permitted by the Committee, by means of a broker-assisted
cashless exercise in which you irrevocably instruct your broker to deliver proceeds of
a sale of all or a portion of the Shares to be issued pursuant to the exercise to the
Company in payment of the exercise price of such Shares; or |
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(c) |
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By delivery to the Company of Shares (by actual delivery or attestation of
ownership in a form approved by the Company) already owned by you that are not subject
to any security interest and that have an aggregate Fair Market Value on the date of
exercise equal to the exercise price of the Shares being purchased. |
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However, if the Committee determines, in any given circumstance, that payment of the
exercise price with Shares is undesirable for any reason, you will not be permitted to pay
any portion of the exercise price in that manner. |
7. |
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Tax Consequences. You hereby acknowledge that if any Shares received pursuant to the
exercise of any portion of this Option are sold within two years from the Date of Grant or
within one year from the effective date of exercise of this Option, or if certain other
requirements of the Code are not satisfied, such Shares will be deemed under the Code not to
have been acquired by you pursuant to an “incentive stock option” as defined in the Code. You
agree to promptly agree to notify the Company if you sell any Shares received upon the
exercise of this Option within the time periods specified in the previous sentence. The
Company shall not be liable to you if this Option for any reason is deemed not to be an
“incentive stock option” within the meaning of the Code. |
8. |
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Delivery of Shares. As soon as practicable after the Company receives the notice and
exercise price provided for above, and has determined that all conditions to exercise,
including Sections 7 and 9 of this Agreement, have been satisfied, it shall deliver to the
person exercising the Option, in the name of such person, the Shares being purchased, as
evidenced by issuance of a stock certificate or certificates, electronic delivery of such
Shares to a brokerage account designated by such person, or book-entry registration of such
Shares with the Company’s transfer agent. The Company shall pay any original issue or
transfer taxes with respect to the issue or transfer of the Shares and all fees and expenses
incurred by it in connection therewith. All Shares so issued shall be fully paid and
nonassessable. |
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Compliance with Laws. This Option may be exercised only if the issuance of Shares
upon such exercise complies with all applicable legal requirements, including compliance with
the provisions of applicable federal and state securities laws. |
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Incentive Stock Option Agreement (2010 Equity Incentive Plan)
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Page 3 |
10. |
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Transfer of Option. During your lifetime, only you (or your guardian or legal
representative in the event of legal incapacity) may exercise this Option. You may not assign
or transfer this Option except for a transfer upon your death in accordance with your will, by
the laws of descent and distribution or pursuant to a beneficiary designation submitted in
accordance with Section 6(d) of the Plan. The Option held by any such transferee will
continue to be subject to the same terms and conditions that were applicable to the Option
immediately prior to its transfer and may be exercised by such transferee as and to the extent
that the Option has become exercisable and has not terminated in accordance with the
provisions of the Plan and this Agreement. |
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No Stockholder Rights Before Exercise. Neither you nor any permitted transferee of
this Option will have any of the rights of a stockholder of the Company with respect to any
Shares subject to this Option until a certificate evidencing such Shares has been issued,
electronic delivery of such Shares has been made to your designated brokerage account, or an
appropriate book entry in the Company’s stock register has been made. No adjustments shall be
made for dividends or other rights if the applicable record date occurs before your stock
certificate has been issued, electronic delivery of your Shares has been made to your
designated brokerage account, or an appropriate book entry in the Company’s stock register has
been made, except as otherwise described in the Plan. |
12. |
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Governing Plan Document. This Agreement and Option are subject to all the provisions
of the Plan, and to all interpretations, rules and regulations which may, from time to time,
be adopted and promulgated by the Committee pursuant to the Plan. If there is any conflict
between the provisions of this Agreement and the Plan, the provisions of the Plan will govern. |
13. |
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Choice of Law. This Agreement will be interpreted and enforced under the laws of the
state of Delaware (without regard to its conflicts or choice of law principles). |
14. |
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Binding Effect. This Agreement will be binding in all respects on your heirs,
representatives, successors and assigns , and on the successors and assigns of the Company. |
15. |
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Other Agreements. You agree that in connection with the exercise of this Option, you
will execute such documents as may be necessary to become a party to any stockholder, voting
or similar agreements as the Company may require. |
16. |
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Restrictive Legends. The Company may place a legend or legends on any certificate
representing Shares issued upon the exercise of this Option summarizing transfer and other
restrictions to which the Shares may be subject under applicable securities laws, other
provisions of this Agreement, or other agreements contemplated by Section 15 of this
Agreement. You agree that in order to ensure compliance with the restrictions referred to in
this Agreement, the Company may issue appropriate “stop transfer” instructions to its transfer
agent. |
By signing the cover page of this Agreement, you agree to all the terms and conditions described
above and in the Plan document.
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Incentive Stock Option Agreement (2010 Equity Incentive Plan)
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Page 4 |
NOTICE OF EXERCISE
Incentive Stock Option
, 20___
SPS Commerce, Inc.
333 South Seventh Street, Suite 1000
Minneapolis, Minnesota 55402
Attention: Chief Financial Officer
Ladies and Gentlemen:
I hereby exercise the following option (the “Option”) granted to me under the SPS Commerce, Inc.
2010 Equity Incentive Plan (as amended from time to time, the “Plan”) with respect to the number of
shares of common stock of SPS Commerce, Inc. (the “Company”) indicated below:
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Name: |
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Date of Grant of Option: |
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Exercise Price Per Share: |
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Number of Shares With Respect to Which
the Option is Hereby Exercised: |
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Total Exercise Price: |
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Enclosed with this Notice is a check, cashier’s check or money order in the amount
of the Total Exercise Price. |
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Enclosed with this Notice is a copy of my irrevocable instruction to my broker,
, to deliver to the Company proceeds of the sale of some or all
of the Shares being acquired in an amount equal to the Total Exercise Price. |
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Enclosed with this Notice is a certificate evidencing unencumbered Shares (duly
endorsed in blank) having an aggregate Fair Market Value (as defined in the Plan) equal
to or in excess of the Total Exercise Price or an affidavit of ownership (in the form
of Exhibit A attached hereto) attesting to my ownership of unencumbered Shares having
an aggregate Fair Market Value (as defined in the Plan) equal to or in excess of the
Total Exercise Price. |
In connection with this exercise, I represent, warrant and acknowledge that I am the owner of all
Shares delivered with this Notice or attested to on the attached affidavit of ownership, free and
clear of all liens, security interests and other restrictions or encumbrances.
Please issue the number of Shares with respect to which the Option is being exercised in the manner
indicated below:
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Issue a certificate (the “Certificate”) for the Shares in the name of the
person(s) indicated below and deliver the Certificate to the address indicated: |
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Name(s) in Which to Issue Certificate:
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Address to Which Certificate
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Should be Delivered:
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Principal Mailing Address for
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Holder of the Certificate (if
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different from above):
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Electronic delivery of the Shares to my brokerage account as indicated below: |
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Name of Brokerage Firm:
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My Account Number:
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Brokerage Firm DWAC Participant Number:
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Create a book-entry registration of the Shares in the name of the person(s)
indicated below: |
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Name(s) in Which to Create Book-Entry
Registration:
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Mailing Address for Book-Entry Holders:
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Very truly yours, |
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Signature |
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Name, please print |
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Social Security Number |
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Exhibit A
Affidavit of Ownership of
SPS Commerce, Inc. Common Stock
Pursuant to the Notice of Exercise that I have submitted to SPS Commerce, Inc. (the “Company”), I
am electing to pay the Total Exercise Price for the option shares by attesting to ownership of the
shares listed below and hereby tender for accounting purposes such shares in payment thereof. I
hereby certify that:
1. |
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I beneficially own shares of Company common stock (the “Swap Shares”) as of the
date hereof. These Swap Shares are: |
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Held in my name individually and a photocopy of the stock certificate
evidencing my ownership is attached. |
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Held in my name and as joint tenants and a photocopy
of the stock certificate evidencing ownership is attached. |
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Held in a brokerage account in the name of . A
photocopy of a brokerage statement of account, dated within the preceding two months
and showing evidence of ownership of Company stock, is attached. (The option holder may
block out information not relevant to Company stock ownership on the account
statement.) |
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The Swap Shares are held by me as described above and are not held for my benefit by a
Trustee or custodian in the SPS Commerce, Inc. 401(k) Retirement Savings Plan, in an IRA
account or in any other type of employee benefit or tax deferral plan. |
exv10w8
Exhibit 10.8
SPS COMMERCE, INC.
Non-Statutory Stock Option Agreement
Under the 2010 Equity Incentive Plan (Employee)
SPS Commerce, Inc. (the “Company”), pursuant to its 2010 Equity Incentive Plan (the
“Plan”), hereby grants an Option to purchase shares of the Company’s common stock to you, the
Optionee named below. The terms and conditions of the Option Award are set forth in this
Agreement, consisting of this cover page and the Option Terms and Conditions on the following
pages, and in the Plan document which is attached.
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Name of Optionee: |
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No. of Shares Covered:
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Date of Grant:
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, 20 |
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Exercise Price Per Share:
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$ |
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Expiration Date:
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, 20 |
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Vesting and Exercise Schedule: |
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Portion of Shares as to Which |
Dates |
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Option Becomes Vested and Exercisable |
By signing below, you agree to all of the terms and conditions contained in this Agreement and
in the Plan document, a copy of which is attached. You acknowledge that you have reviewed these
documents and that they set forth the entire agreement between you and the Company regarding your
right to purchase shares of the Company’s common stock pursuant to this Option.
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OPTIONEE: |
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SPS COMMERCE, INC. |
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By: |
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Title: |
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Non-Statutory Stock Option Agreement-Employee (2010 Equity Incentive Plan)
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Page 1 |
SPS Commerce, Inc.
2010 Equity Incentive Plan
Non-Statutory Stock Option Agreement
Option Terms and Conditions*
1. |
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Non-Qualified Stock Option. This Option is not intended to be an “incentive
stock option” within the meaning of Section 422 of the Internal Revenue Code and will be
interpreted accordingly. |
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2. |
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Vesting and Exercise Schedule. This Option will vest and become exercisable as to
the number of Shares and on the dates specified in the Vesting and Exercise Schedule on the
cover page to this Agreement, so long as your Service to the Company does not end. The
Vesting and Exercise Schedule is cumulative, meaning that to the extent the Option has not
already been exercised and has not expired, terminated or been cancelled, you or the person
otherwise entitled to exercise the Option as provided in this Agreement may at any time
purchase all or any portion of the Shares that may then be purchased under that Schedule. |
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** [For Executive Officers: Notwithstanding the foregoing, if and to the extent this Option
is continued, assumed or replaced in connection with a Change in Control that constitutes a
Corporate Transaction, and if within one year after such Corporate Transaction you
experience an involuntary termination of Service for reasons other than Cause, then this
Option shall immediately become exercisable in full and shall remain exercisable for one
year following your termination of Service.] |
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In addition, vesting and exercisability of this Option may be accelerated during the term of
the Option under the circumstances described in Section 12(c) of the Plan, and at the
discretion of the Committee in accordance with Section 3(b)(2) of the Plan. |
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Expiration. This Option will expire and will no longer be exercisable at 5:00 p.m.
Central Time on the earliest of: |
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The expiration date specified on the cover page of this Agreement; |
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Upon your termination of Service for Cause; |
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Upon the expiration of any applicable period specified in Section 6(e) of the
Plan or Section 2 of this Agreement during which this Option may be exercised after
your termination of Service; or |
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The date (if any) fixed for termination or surrender of this Option pursuant to
Sections 12(b)(3), (c) or (d) of the Plan. |
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Service Requirement. Except as otherwise provided in Section 6(e) of the Plan or
Section 2 of this Agreement, this Option may be exercised only while you continue to provide
Service to the Company or any Affiliate, and only if you have continuously provided such
Service since the date this Option was granted. |
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Exercise of Option. Subject to Section 4, the vested and exercisable portion of this
Option may be exercised at any time during the Option term by delivering a written notice of
exercise to the Company at its principal executive office, and by providing for payment of the
exercise price of the |
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Unless the context indicates otherwise, terms
that are not defined in this Agreement shall have the meaning set forth in the
Plan as it currently exists or as it is amended in the future. |
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Non-Statutory Stock Option Agreement-Employee (2010 Equity Incentive Plan)
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Page 2 |
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Shares being acquired and any related withholding taxes. The notice of
exercise, in the form attached to this Agreement, shall be provided to the Company’s Chief
Financial Officer. The notice shall state the number of Shares to be purchased, and shall be
signed by the person exercising the Option. If you are not the person exercising the Option,
the person submitting the notice also must submit appropriate proof of his/her right to
exercise the Option. |
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Payment of Exercise Price. When you submit your notice of exercise, you must include
payment of the exercise price of the Shares being purchased through one or a combination of
the following methods: |
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Cash (including personal check, cashier’s check or money order); |
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To the extent permitted by the Committee, by means of a broker-assisted
cashless exercise in which you irrevocably instruct your broker to deliver proceeds of
a sale of all or a portion of the Shares to be issued pursuant to the exercise to the
Company in payment of the exercise price of such Shares; or |
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By delivery to the Company of Shares (by actual delivery or attestation of
ownership in a form approved by the Company) already owned by you that are not subject
to any security interest and that have an aggregate Fair Market Value on the date of
exercise equal to the exercise price of the Shares being purchased; or |
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By authorizing the Company to retain, from the total number of Shares as to
which the Option is being exercised, that number of Shares having a Fair Market Value
on the date of exercise equal to the exercise price for the total number of Shares as
to which the Option is being exercised. |
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However, if the Committee determines, in any given circumstance, that payment of the
exercise price with Shares or by authorizing the Company to retain Shares is undesirable for
any reason, you will not be permitted to pay any portion of the exercise price in that
manner. |
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Withholding Taxes. You may not exercise this Option in whole or in part unless you
make arrangements acceptable to the Company for payment of any federal, state, local or
foreign withholding taxes that may be due as a result of the exercise of this Option. You
hereby authorize the Company (or any Affiliate) to withhold from payroll or other amounts
payable to you any sums required to satisfy such withholding tax obligations, and otherwise
agree to satisfy such obligations in accordance with the provisions of Section 14 of the Plan.
If you wish to satisfy some or all of such withholding tax obligations by delivering Shares
you already own or by having the Company retain a portion of the Shares being acquired upon
exercise of the Option, you must make such a request which shall be subject to approval by the
Company. Delivery of Shares upon exercise of this Option is subject to the satisfaction of
applicable withholding tax obligations. |
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Delivery of Shares. As soon as practicable after the Company receives the notice
and exercise price provided for above, and has determined that all conditions to exercise,
including Sections 7 and 9 of this Agreement, have been satisfied, it shall deliver to the
person exercising the Option, in the name of such person, the Shares being purchased, as
evidenced by issuance of a stock certificate or certificates, electronic delivery of such
Shares to a brokerage account designated by such person, or book-entry registration of such
Shares with the Company’s transfer agent. The
Company shall pay any original issue or transfer taxes with respect to the issue or transfer
of the Shares and all fees and expenses incurred by it in connection therewith. All Shares
so issued shall be fully paid and nonassessable. |
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Non-Statutory Stock Option Agreement-Employee (2010 Equity Incentive Plan)
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Page 3 |
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Compliance with Laws. This Option may be exercised only if the issuance of Shares
upon such exercise complies with all applicable legal requirements, including compliance with
the provisions of applicable federal and state securities laws. |
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Transfer of Option. During your lifetime, only you (or your guardian or legal
representative in the event of legal incapacity) may exercise this Option except in the case
of a transfer described below. You may not assign or transfer this Option except (i) for a
transfer upon your death in accordance with your will, by the laws of descent and distribution
or pursuant to a beneficiary designation submitted in accordance with Section 6(d) of the
Plan, (ii) pursuant to a qualified domestic relations order, or (iii) with the prior written
approval of the Company, by gift, in a form accepted by the Company, to a permitted
transferred under General Instruction A(5) to Form S-8 under the Securities Act. The Option
held by any such transferee will continue to be subject to the same terms and conditions that
were applicable to the Option immediately prior to its transfer and may be exercised by such
transferee as and to the extent that the Option has become exercisable and has not terminated
in accordance with the provisions of the Plan and this Agreement. |
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No Stockholder Rights Before Exercise. Neither you nor any permitted transferee of
this Option will have any of the rights of a stockholder of the Company with respect to any
Shares subject to this Option until a certificate evidencing such Shares has been issued,
electronic delivery of such Shares has been made to your designated brokerage account, or an
appropriate book entry in the Company’s stock register has been made. No adjustments shall be
made for dividends or other rights if the applicable record date occurs before your stock
certificate has been issued, electronic delivery of your Shares has been made to your
designated brokerage account, or an appropriate book entry in the Company’s stock register has
been made, except as otherwise described in the Plan. |
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Governing Plan Document. This Agreement and Option are subject to all the provisions
of the Plan, and to all interpretations, rules and regulations which may, from time to time,
be adopted and promulgated by the Committee pursuant to the Plan. If there is any conflict
between the provisions of this Agreement and the Plan, the provisions of the Plan will govern. |
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Choice of Law. This Agreement will be interpreted and enforced under the laws of the
state of Delaware (without regard to its conflicts or choice of law principles). |
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Binding Effect. This Agreement will be binding in all respects on your heirs,
representatives, successors and assigns , and on the successors and assigns of the Company. |
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Other Agreements. You agree that in connection with the exercise of this Option, you
will execute such documents as may be necessary to become a party to any stockholder, voting
or similar agreements as the Company may require. |
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Restrictive Legends. The Company may place a legend or legends on any certificate
representing Shares issued upon the exercise of this Option summarizing transfer and other
restrictions to which the Shares may be subject under applicable securities laws, other
provisions of this Agreement, or other agreements contemplated by Section 15 of this
Agreement. You agree that in order to ensure compliance with the restrictions referred to in
this Agreement, the Company may issue appropriate “stop transfer” instructions to its transfer
agent. |
By signing the cover page of this Agreement, you agree to all the terms and conditions described
above and in the Plan document.
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Non-Statutory Stock Option Agreement-Employee (2010 Equity Incentive Plan)
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Page 4 |
NOTICE OF EXERCISE
Non-Statutory Stock Option
, 20___
SPS Commerce, Inc.
333 South Seventh Street, Suite 1000
Minneapolis, Minnesota 55402
Attention: Chief Financial Officer
Ladies and Gentlemen:
I hereby exercise the following option (the “Option”) granted to me under the SPS Commerce, Inc.
2010 Equity Incentive Plan (as amended from time to time, the “Plan”) with respect to the number of
shares of common stock of SPS Commerce, Inc. (the “Company”) indicated below:
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Name: |
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Date of Grant of Option: |
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Exercise Price Per Share: |
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Number of Shares With Respect to Which the Option is Hereby Exercised: |
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Total Exercise Price: |
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o
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Enclosed with this Notice is a check, cashier’s check or money order in the amount
of the Total Exercise Price. |
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o
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Enclosed with this Notice is a copy of my irrevocable instruction to my broker,
, to deliver to the Company proceeds of the sale of some or all
of the Shares being acquired in an amount equal to the Total Exercise Price. |
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Enclosed with this Notice is a certificate evidencing unencumbered
Shares (duly endorsed in blank) having an aggregate Fair Market
Value (as defined in the Plan) equal to or in excess of the Total
Exercise Price or an affidavit of ownership in the form of Exhibit
A attached hereto attesting to my ownership of unencumbered Shares
having an aggregate Fair Market Value (as defined in the Plan)
equal to or in excess of the Total Exercise Price. |
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I elect to pay the Total Exercise Price through a reduction in the
number of Shares to be delivered to me upon this exercise of the
Option. |
In connection with this exercise, I represent, warrant and acknowledge as follows:
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I will provide for the payment to the Company, in a manner agreed to by the Company, of
the amount of any required withholding taxes in connection with this exercise as provided
in Section 14 of the Plan. |
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I am the owner of all Shares delivered with this Notice or attested to on the attached
affidavit of ownership, free and clear of all liens, security interests and other
restrictions or encumbrances. |
Please issue the number of Shares with respect to which the Option is being exercised (or the net
number of Shares if the Total Exercise Price and/or applicable withholding taxes are being paid
through a reduction in the number of Shares to be delivered to me) in the manner indicated below:
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Issue a certificate (the “Certificate”) for the Shares in the name of the
person(s) indicated below and deliver the Certificate to the address indicated: |
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Name(s) in Which to Issue |
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Certificate:
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Address to Which Certificate |
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Should be Delivered:
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Principal Mailing Address for |
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Holder of the Certificate (if
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different from above):
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Electronic delivery of the Shares to my brokerage account as indicated below: |
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Name of Brokerage Firm: |
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My Account Number:
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Brokerage Firm DWAC Participant Number:
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Create a book-entry registration of the Shares in the name of the person(s)
indicated below: |
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Name(s) in Which to Create |
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Book-Entry Registration:
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Mailing Address for Book- |
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Entry Holders:
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Very truly yours,
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Signature |
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Name,
please print |
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Social
Security Number |
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Exhibit A
Affidavit of Ownership of
SPS Commerce, Inc. Common Stock
Pursuant to the Notice of Exercise that I have submitted to SPS Commerce, Inc. (the “Company”), I
am electing to pay (select one or both)
o the Total Exercise Price for the option shares
o federal income tax withholding in excess of the minimum required withholding amount
by attesting to ownership of the shares listed below and hereby tender for accounting purposes such
shares in payment thereof. I hereby certify that:
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I beneficially own shares of Company common stock (the “Swap Shares”) as of the
date hereof. These Swap Shares are: |
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[ ]
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Held in my name individually and a photocopy of the stock certificate
evidencing my ownership is attached. |
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[ ]
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Held in my name and as joint tenants and a photocopy
of the stock certificate evidencing ownership is attached. |
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[ ]
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Held in a brokerage account in the name of . A
photocopy of a brokerage statement of account, dated within the preceding two months
and showing evidence of ownership of Company stock, is attached. (The option holder may
block out information not relevant to Company stock ownership on the account
statement.) |
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The Swap Shares are held by me as described above and are not held for my benefit by a
Trustee or custodian in the SPS Commerce, Inc. 401(k) Retirement Savings Plan, in an IRA
account or in any other type of employee benefit or tax deferral plan. |
exv10w20
Exhibit 10.20
SPS COMMERCE, INC.
EMPLOYMENT, NONCOMPETITION AND NONDISCLOSURE AGREEMENT
This Amended and Restated Employment, Noncompetition, and Nondisclosure Agreement (the
“Agreement”), dated as of October 31, 2008 (the “Effective Date”), is entered into by and between
SPS Commerce, Inc., a Delaware corporation, and any successor company or corporation thereto (the
“Company”), and Archie C. Black, a Minnesota resident (the “Employee”).
WITNESSETH
WHEREAS, the Employee has certain skills, experience, and abilities that are critical to the
success of the Company’s operations and future profitability;
WHEREAS, the Employee and the Company previously entered into that certain Employment,
Noncompetition and Nondisclosure Agreement dated January 1, 2002, the “Prior Agreement”);
WHEREAS, the Company desires to continue to employ and retain the services of the Employee,
and the Employee desires to continue to work for and be employed by the Company;
WHEREAS, the Company and the Employee desire to set forth the terms and conditions pursuant to
which the Employee will continue to be employed by the Company; and
WHEREAS, Employer and Employee agree that it is in their mutual best interest to amend,
modify, and restate the Prior Agreement to comply with the requirements of Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”), so as to avoid additional taxes and
penalties under Code Section 409A(a)(1).
NOW, THEREFORE, in consideration of the foregoing premises and of the mutual covenants and
undertakings contained herein, and for such other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
ARTICLE I — DUTIES AND COMPENSATION
1.01 (A) Initial Term of Employment and Duties. The Company and the Employee hereby
agree that for the period commencing on the Effective Date and continuing until December 31, 2009
(the “Initial Term”), at which point the period will automatically be extended for additional
one-year terms (each an “Additional Term” and together with the Initial Term, the “Term”) unless
and until terminated by either party pursuant to Article II, the Company shall employ the Employee
and the Employee shall perform services for the Company as its Chief Executive Officer under the
terms and conditions set forth herein. In such capacity, the Employee shall be entitled to
exercise all rights and powers and shall have all the privileges and
authorities commensurate with his office, as established by the Board of Directors of the Company
(the “Board”).
(B) Compensation. During the first period of this Agreement beginning with the
Effective Date through December 31, 2008, the Employee’s annual gross base salary shall be
$270,000, payable in bi-monthly installments (prorated for any portion of a year), in accordance
with the regular payroll policies and practices of the Company. Employee’s annual gross base
salary for services rendered during the second year of this Agreement (i.e. January 1, 2009 through
December 31, 2009) will be reviewed in January 2009, as part of Employee’s annual performance
review and shall be increased or maintained, but not decreased, as the Compensation Committee of
the Board (the “Compensation Committee”), in its sole discretion, shall determine. In the event
this Agreement is extended beyond December 2009, Employee’s annual gross base salary will be
reviewed in January each year, as part of Employee’s annual performance review (each such annual
performance review, a “Review”) and shall be increased or maintained, but not decreased, as the
Compensation Committee, in its sole discretion, shall determine.
(C) Discretionary Bonuses. During the period the Employee is employed by the Company
(the “Employment Period”), the Employee shall be eligible for annual bonuses as the Compensation
Committee, in its sole discretion, shall determine.
(D) Expenses. During the Employment Period, the Employee shall be entitled to receive
reimbursement, in accordance with the Company’s usual and customary practices, for all reasonable
and necessary out-of-pocket business expenses incurred by Employee in performing services
hereunder, including all expenses of travel and living expenses while away from home on Company
business or at the request and in the service of the Company, provided that such expenses are
incurred and accounted for in accordance with the policies and procedures established by the
Company.
(E) Insurance. During the Employment Period, the Employee and his dependents shall be
entitled to participate in hospitalization/medical insurance coverage maintained by the Company for
its employees in accordance with the terms of that coverage, as to scope and eligibility of
participants.
(F) Other Benefits; Options.
(i) Employee Benefits. The Employee shall be entitled to participate in, or receive
benefits under, any employee benefit plan or arrangement generally made available by the Company to
its Employees and key management employees on the date hereof or, upon approval of the Compensation
Committee, in the future, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements. Unless the Employee hereafter agrees,
nothing paid to the Employee under any such plan or arrangement shall be deemed to be in lieu of
the salary payable to the Employee pursuant to paragraph (B) of this Section (except as to any
deferred compensation plan in which the Employee elects to participate, which shall be in lieu of
the salary payable to the Employee to the extent of the amount deferred).
(ii) Options. Prior to the Effective Date, Employee has been granted options to
acquire shares of the capital stock of the Company. All such options, as well as any
2
such options granted in the future, shall be governed by the terms set forth in the respective option agreements
related to such grants.
(iii) Vacation. Employee shall be entitled to 4 weeks paid vacation each year.
ARTICLE II — RIGHTS ON TERMINATION OF EMPLOYMENT
2.01 Termination. The Employee’s employment hereunder may be terminated only under
the following circumstances:
(A) Death. The Employee’s employment hereunder shall terminate upon his death.
(B) Permanent Disability. If the Employee, due to a Permanent Disability (as
hereinafter defined) is, for a period of 180 consecutive days, unable to perform his work-related
duties and obligations to the Company, the Company may terminate the Employee’s employment
hereunder within 10 days after written notice of termination is given to the Employee by the
Company. A disability shall be a “Permanent Disability” if it is so characterized under applicable
employee benefit plans of the Company in effect at that time. If no plan defining “Permanent
Disability” is in effect and the Company and the Employee are unable to agree as to whether the
Employee has suffered a Permanent Disability, the question of Permanent Disability shall be
submitted to a physician expert in the complaint, disease or injury from which the Employee suffers
and in disability matters generally appointed by the Board, and his or her decision shall be final
and binding. Upon termination under this subparagraph, the Employee shall receive payment for any
unused vacation time remaining for the year in which said termination occurred, which shall be paid
to the Employee at his per diem salary rate then in effect.
(C) Cause. The Company may terminate Employee’s employment hereunder for Cause (as
hereinafter defined). For purposes of this Agreement, the Company shall have “Cause” to terminate
the Employee’s employment hereunder upon (i) conviction of Employee for commission of any felony;
(ii) dishonesty or gross misconduct by Employee in the performance of his duties under this
Agreement or action by him in the course of the performance of his duties hereunder with intent to
cause or that results in substantial harm to Company; or (iii) material breach by Employee of his
duties, responsibilities or agreements hereunder (other than by reason of Permanent Disability),
which breach is not cured as promptly as practicable but in any event within 30 days after written
notice thereof containing the specifics of such material breach from the Board to Employee;
provided, however, that the Employee shall not be permitted to cure any such breach if it is the
second breach.
(D) Without Cause. The Company may terminate the Employment Period and Employee’s
employment hereunder without Cause by notice to Employee.
(E) Termination by Employee. The Employee may terminate his employment hereunder for
Good Reason (as hereinafter defined). For purposes of this Agreement, “Good
Reason” shall mean (i) a Change in Control (as hereinafter defined) of the Company, (ii) a failure
by the Company to comply with any material provision of this Agreement which has not
3
been cured within 30 days after written notice of such noncompliance has been given by the Employee to the
Board, or (iii) Employee providing the Board with written notice of intent to terminate within 10
days of a Review. For purposes of this Agreement, a “Change in Control” shall mean: (aa) the Board
fails to appoint the Employee as its Chief Executive Officer, (bb) the Board removes the Employee
as its Chief Executive Officer, (cc) the Board fails to vest the Employee with the powers and
authority of the Chief Executive Officer, or (dd) the occurrence of any transaction or event
(including, without limitation, any sale, transfer, or issuance or related series of sales,
transfers, and/or issuances of shares of capital stock by the Company or any holder thereof) which
results in the holders of the Company’s outstanding capital stock immediately prior to such
transaction or event (or series of such transactions or events) ceasing to hold shares of capital
stock of the Company possessing the voting power (under normal circumstances) to elect a majority
of the Board or otherwise control the Company following such transaction or event.
(F) Notice of Termination. Any termination of the Employee’s employment by the
Company or by the Employee other than termination pursuant to subsection (A) above shall be
communicated by written notice of termination to the other party hereto. A notice of termination
tendered by the Employee pursuant to subsection (E) above shall be delivered to the Board not less
than 45 days prior to the Date of Termination.
(G) Date of Termination. “Date of Termination” shall mean (i) if the Employee’s
employment is terminated by his death, the date of his death, (ii) if the Employee’s employment is
terminated pursuant to subsection (B) above, 10 days after Notice of Termination is given, (iii) if
the Employee’s employment is terminated pursuant to subsection (C) or (D) above, the date specified
in the notice of termination, and (iv) if the Employee’s employment is terminated pursuant to
subsection (E) above, the date stated in the notice of termination provided under subsection (F)
above, which date shall be at least 45 days following the date on which such notice of termination
is given to the Board. For purposes of Article III of this Agreement only, with respect to the
timing of payments thereunder, Date of Termination shall mean the date on which a “separation from
service” has occurred for purposes of Section 409A of the Code and the regulations and guidance
thereunder.
ARTICLE III — COMPENSATION UPON TERMINATION OR DURING DISABILITY
3.01 Termination or Disability.
(A) During any period that the Employee fails to perform his duties hereunder as a result of
incapacity due to the impairment of his physical and/or mental condition (“Disability Period”),
Employee shall continue to receive his full salary at the rate then in effect for such period,
until his employment is terminated.
(B) If the Employee’s employment is terminated by his death, the Company shall pay to the
Employee’s spouse, or if he leaves no spouse, his estate or such other
beneficiaries as he shall designate any amount due and owing to the Employee through the date of
his death.
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(C) If the Employee’s employment shall be terminated for Cause, the Company shall pay the
Employee his full salary through the Date of Termination at the rate in effect at the time notice
of termination is given and the Company shall have no further obligations to the Employee under
this Agreement; provided, however, that if the termination is attributable to dishonesty, fraud,
embezzlement or other defalcation, the Company may exercise such legal rights as it may have to set
off any damages or losses it has suffered as a result of the Employee’s conduct against the amount
owed to the Employee and pursue any other legal remedies available to the Company.
(D) If (i) the Company shall terminate the Employee’s employment without Cause or (ii) the
Employee shall terminate his employment for Good Reason, then, subject to the conditions set forth
in Section 3.01 (G):
(a) the Company shall pay the Employee his base salary for a period of time
equal to 12 months (payable in bi-monthly installments commencing on the first
regular payroll date of the Company to occur following the Date of Termination) and
any unused vacation accrued as of the Date of Termination, in accordance with the
provisions of Sections 1.01(B) and (F), provided, however, that if the Company
determines Employee is a “specified employee” as of the Termination Date (within the
meaning of Code § 409A(a)(2)(B)(i) and determined in accordance with Treas. Reg. §
1.409A-1(i) and the Company’s specified employee identification policy, if any, in
effect on the Date of Termination), the bi-monthly installments of base salary shall
commence on the first regular payroll date of the Company to occur following the
date that is six (6) months after the Date of Termination; and
(b) the Company shall also provide health care benefits to Employee and his
family, on the same terms as they were provided on the Date of Termination,
commencing on the Date of Termination and continuing for 12 months thereafter.
(E) Except as provided in Section 3.01(F), if the Employee shall terminate his employment for
any reason other than Good Reason, the Company shall pay the Employee his full salary through the
Date of Termination at the rate in effect at the time notice of termination is given and the
Company shall have no further obligations to the Employee under this Agreement.
(F) If the Employee’s employment is terminated due to Permanent Disability, the Company shall
maintain in full force and effect, for the continued benefit of the Employee and on the same terms,
all employee health benefit plans in which the Employee was entitled to participate immediately
prior to the Date of Termination, provided that the Employee’s continued participation is possible
under the general terms of such plans and programs, commencing on the Date of Termination and
continuing for 12 months thereafter.
(G) The Employee shall not be required to mitigate the amount of any payment provided for in
this Article III by seeking other employment or otherwise, nor shall any compensation from any
other such employment reduce any amounts payable hereunder, except
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that the continued health care coverage provided under subsection 3.01(D)(b) and Section 3.01(F) shall end on the date Employee
(and his covered dependents) is provided comparable coverage by a subsequent employer or the date
Employee would no longer otherwise be entitled to continuation of coverage under Code Section 4980B
(COBRA), if such date occurs prior to expiration of the 12-month period. Employee and the Company
intend the continued health care coverage provided by subsection 3.01(D)(b) and Section 3.01(F) to
be excluded from deferred compensation as a reimbursement of medical benefits under Treas. Reg. §
1.409A-1(b)(9)(v).
ARTICLE IV — COMPETITIVE PROTECTIONS/CONFIDENTIALITY
4.01 Confidentiality; Nondisclosure; Competitive Disparagement. Other than is
required in discharging his obligations under this Agreement in the ordinary course of business,
the Employee hereby agrees that he will not, either during the term of this Agreement or at any
time following the termination hereof for any reason, do or cause to have done any of the
following: (i) use for his own purposes or disclose to any person, other than pursuant to a final
judicial order, any Confidential Information (as hereinafter defined) of the Company; or (ii)
disparage the Company, any officer or employee of the Company, or any business practice employed by
the company or any officer or employee thereof. For purposes of this Agreement, “Confidential
Information” shall mean all information relating to or arising out of the business of the Company
or any of its affiliates, including without limitation, inventions, trademarks, designs,
copyrightable works, source codes, all sales and marketing information, customer lists and data,
personnel records, pricing information, financial information, and all other information that would
be considered a trade secret under the Trade Secret Act by or furnished, disclosed, or
disseminated, to the Company, or any of its affiliates or obtained, assembled, or complied by it,
and all physical embodiments of the foregoing, all of which are hereby agreed to be confidential,
but the Employee shall not be required to treat as Confidential Information any of the foregoing to
the extent such information is or becomes publicly known through no fault or breach of this
Agreement or other by the Employee. Employee acknowledges that all Confidential Information is the
exclusive property of the Company. Employee agrees that, upon the termination of this Agreement
for any reason, Employee will not disclose, take with him or retain, without express, written
consent of an officer of the Company other than Employee, any Confidential Information in original
or reproduced form, belonging to the Company or otherwise pertaining to the business or financial
condition of the Company.
4.02 Invention by Employee. All ideas, inventions, trademarks, designs, copyrightable
work and other developments or improvements conceived by Employee, alone or with others, during the
term of his employment, whether or not during working hours, that are within the scope of the
Company’s business operations or that relate to any Company work or projects, are the exclusive
property of the Company. Employee agrees to assist the Company, at its expense, to obtain patents
or to apply for registration of copyrights or trademarks on any such patentable ideas, inventions,
trademarks, designs, copyrightable works and other developments, and agrees to execute all
documents necessary to obtain such patents or to apply for such registrations in the name of the
Company. Any and all patentable or copyrightable material, or other intellectual
property, developed by Employee as described in the preceding paragraph, shall be considered work
for hire and shall be solely the property of the Company.
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4.03 Reasonableness of Covenants. The Employee hereby agrees that the covenants and
restrictions of this Article IV are reasonable in their terms and do not impose any undue hardship
on the Employee’s current or future employment prospects. The Employee further agrees that if the
laws of the State of Minnesota applicable to the provisions set forth in this Article IV should
change, or if any court of competent jurisdiction should hold any term or provision of this Article
IV invalid or unenforceable, then the Employee agrees that there shall be substituted in the place
of such changed, invalid, or unenforceable term or provision a new term or provision that most
nearly fulfills or promotes the purpose and intention of this Article IV and is consistent with
such law or judicial decision.
ARTICLE V — MISCELLANEOUS
5.01 Further Assurances. Each party hereto agrees to perform any further acts and to
execute and deliver any further documents that may be reasonably necessary to carry out the
provisions of this Agreement.
5.02 Severability. In the event that any of the provisions, or portions thereof, of
this Agreement are held to be unenforceable or invalid by any court of competent jurisdiction, the
validity and enforceability of the remaining provisions, or portions thereof, shall not be affected
thereby.
5.03 Construction. Whenever used herein, the singular number shall include the
plural, and the plural number shall include the singular.
5.04 Gender. Any references herein to the masculine gender, or to the masculine form
of any noun, adjective, or possessive, shall be construed to include the feminine or neuter gender
and form, vice versa.
5.05 Headings. The headings contained in this Agreement are for purposes of reference
only and shall not limit or otherwise affect the meaning of any of the provisions contained herein.
5.06 Facsimile Signature and Counterparts. This Agreement may be executed by
facsimile signature and in multiple counterparts, each of which shall be deemed to be an original
but all of which together shall constitute one and the same instrument.
5.07 Governing Law and Choice of Forum. This agreement has been executed in and shall
be governed by the laws of the State of Minnesota. The parties hereto submit themselves to the
state courts of Hennepin County, Minnesota for resolution of any dispute hereunder.
5.08 Legal Remedies; Specific Performance. The parties to this Agreement understand
and agree that it will be impossible to measure in money the damages that may accrue to a party to
this Agreement or to his or its heirs, personal representatives, or assigns by reason of a failure
to perform any of the obligations under this Agreement, and that any such money damages would be an
insufficient remedy for such failure of performance. Therefore, each party hereto
hereby consents to be subject to the remedy of specific performance of any provision of this
Agreement if such party shall have been found to be in violation of such provision by any court of
competent jurisdiction. If any party or his or its heirs, personal representatives, or assigns
7
institute any action or proceeding to specifically enforce the provisions of this Agreement, any
person against whom such action or proceeding is brought hereby waives the claim or defense in such
action or proceeding that such party has an adequate remedy at law, and such person shall not urge
in any such action or proceeding a claim or defense that such remedy at law exists.
5.09 Inurement. Subject to the restrictions against transfer or assignment as herein
contained, the provisions of this Agreement shall inure to the benefit of, and shall be binding on,
the assigns, successors in interest, personal representatives, estates, heirs, and legatees of each
of the parties hereto.
5.10 Waivers. No waiver of any provision or condition of this Agreement shall be
valid unless executed in writing and signed by the party to be bound thereby, and then only to the
extent specified in such waiver. No waiver of any provision or condition of this Agreement shall
be construed as a waiver of any other provision or condition of this Agreement, and no present
waiver of any provision or condition of this Agreement shall be construed as a future waiver of
such provision or condition. Any waiver by the Company shall not be effective unless signed by an
officer of the Company other then the Employee at the direction of the Board.
5.11 Amendment. This Agreement may be amended only by the written consent of the
parties hereto. Any amendment shall not be effective unless signed by an officer of the Company
other than the Employee at the direction of the Board.
5.12 Entire Agreement. This Agreement and any stock option agreement between Employee
and the Company, including without limitation the Amendment to Option Agreements and Covenant
Regarding Future Options between the parties dated January 1, 2002, contain the entire
understanding between the parties hereto concerning the subject matter contained herein. There are
no representations, agreements, arrangements, or understandings, oral or written, between or among
the parties hereto relating to the subject matter of this Agreement that are not fully expressed
herein. Without limiting the foregoing, this Agreement supercedes and replaces the Prior
Agreement.
5.13 Construction of Agreement. Each party and its counsel have participated fully in
the review and revision of this Agreement. Any rule of construction to the effect that ambiguities
are to be resolved against the drafting party shall not apply in the interpretation of this
Agreement.
5.14 Execution. Each party to this Agreement hereby represents and warrants to the
other parties hereto that such party has full power and capacity to execute, deliver, and perform
this Agreement, which has been duly executed and delivered by, and which evidences the valid and
binding obligation of, such party enforceable in accordance with its terms subject to applicable
liquidation, conservatorship, bankruptcy, insolvency, reorganization moratorium, or similar laws
affecting the enforcement of creditor’s rights from time to time in effect and to general
principles of equity.
5.15 Notification. All notification to the Employee shall be by certified mail to:
Archie C. Black, 924 Adeline Lane North, Golden Valley, Minnesota 55422 or to such other address as
the Employee may direct by written notification to the Company. All notification to
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the Company shall be by certified mail to: SPS Commerce, Inc., 333 South Seventh St., Suite 1000, Minneapolis,
MN 55402, Attention: Board of Directors, with copies to each member of the Board (at the address on
the books of the Company) or to such other address as the Board may direct by written notification
to the Employee.
5.16 No Assignment. The Employee may not assign his rights or delegate his
obligations under this Agreement to any other party.
5.17 Section 409A. This Agreement is intended to satisfy, or be exempt from, the
requirements of Section 409A(a)(2)(3) and (4) of the Code, including current and future guidance
and regulations interpreting such provisions, and should be interpreted accordingly.
5.18 Taxes. The Company may withhold from any amounts payable under this Agreement
such federal, state and local income and employment taxes as the Company shall determine are
required to be withheld pursuant to any applicable law or regulation. Employee shall be solely
responsible for the payment of all taxes due and owing with respect to wages, benefits, and other
compensation provided to him hereunder.
5.19 Survival. The provisions of Articles IV and V shall survive the termination of
this Agreement or the termination of Employee’s employment for any reason.
IN WITNESS WHEREOF, the parties to this Agreement have set their respective hands hereto as of
the date first written above.
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SPS COMMERCE, INC. |
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EMPLOYEE |
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EMPLOYER |
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By:
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/s/ Archie C. Black
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By:
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/s/ Kimberly K. Nelson |
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Its:
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Chief Financial Officer |
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Date: November 4, 2008 |
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Date: November 4, 2008 |
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9
exv10w21
Exhibit 10.21
AT-WILL CONFIDENTIALITY AGREEMENT
REGARDING
CERTAIN TERMS AND CONDITIONS
OF EMPLOYMENT
AT SPS COMMERCE, INC.
THIS AMENDED AND RESTATED AGREEMENT (the “Agreement”) dated as of ,
2008 (the “Effective Date”) is made between , , ,
MN (hereinafter referred to as “Employee”) and SPS Commerce, Inc., a Delaware corporation,
with offices at 333 South Seventh Street, Suite 1000, Minneapolis, Minnesota 55402 (hereinafter
referred to as “Employer”);
WHEREAS, Employer is engaged in the business of developing, marketing and distributing
computer software products and services;
WHEREAS, Employee has knowledge and experience in the above-designated business;
WHEREAS, Employee and Employer are parties to an At-Will Confidentiality Agreement Regarding
Certain Terms and Conditions of Employment at SPS Commerce, Inc.,
dated
(the “Prior Agreement”), which the parties desire to amend and restate in its entirety with this
Agreement;
WHEREAS, Employer and Employee desire to amend, modify, and restate the Prior Agreement to
comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”), and with the intent to exclude amounts payable as severance from deferred compensation
under Code Section 409A(a)(1); and
WHEREAS, Employee acknowledges the receipt of good and valuable consideration from Employer in
support of the Prior Agreement, and Employee further acknowledges and agrees that such
consideration shall, together with the benefits hereunder, support the restatement of his/her
obligations in this Agreement.
For the reasons set forth above, and in consideration of the mutual promises and agreements
hereinafter set forth, Employer and Employee agree as follows:
1. EMPLOYMENT. Employee shall serve as , subject to
the general supervision and pursuant to the order, advice, and direction of Employer. Employee
shall perform such duties as are customarily performed by one holding such position in other, same,
or similar businesses or enterprises as that engaged in by Employer, and shall also additionally
render such other and unrelated services and duties as may reasonably be assigned to him/her from
time to time by Employer.
2. BEST EFFORTS OF EMPLOYEE. Employee agrees that he/she will at all times
faithfully, industriously, and to the best of his/her ability, experience and talents, perform all
of the duties that may be required of and from his/her pursuant to the express and implicit terms
hereof, to the reasonable satisfaction of Employer.
-1-
3. OTHER EMPLOYMENT. Employee shall devote all of his/her time, attention, knowledge,
and skills solely to the business and interest of Employer.
4. CONFIDENTIALITY AND TRADE SECRETS. Employee will not disclose, use, reveal,
disseminate or transfer any confidential information acquired by Employee to any outside party,
except as directly required in the performance of Employee’s duties for Employer or as required by
law. Confidential information includes, but is not limited to, information regarding Employer’s
products, processes, services, research, development, inventions, computer media, operations,
manufacture, purchasing, accounting, financial data, engineering, sales, marketing, merchandising,
selling, payroll, customer lists, credit classification, record, statistics, contracts and
suppliers which was obtained by Employee while employed by Employer or as a consequence of such
employment with Employer and not generally known. The foregoing is all deemed as confidential
information and/or a trade secret, whether or not such information is clearly marked as
“Confidential” or as a “Trade Secret”, the parties hereto stipulating that as between them the same
are important, material, confidential and constitute trade secrets, and as such gravely affect the
effective and successful conduct of Employer’s business and goodwill. Confidential information
also includes similar information belonging to Employer’s customers which Employee may gain access
to in rendering services to any such customer on behalf of Employer.
5. DISCLOSURE AND ASSIGNMENT. Employee agrees that all trade secrets, all inventions
and patents, except those excluded from any obligation to assign to Employer as a matter of law by
any applicable state statute existing at the time such invention was made, all works of authorship
(including, but not limited to, illustrations, writing, mask works, software and computer programs,
and other programming documentation) and all other business or technical information created,
prepared or conceived by Employee, either alone or with others, while employed by Employer and
related to the existing or contemplated business or research of Employer, or resulting from
Employee’s work with Employer or from Employee’s knowledge of any proprietary, technical or
business information possessed or owned by Employer under paragraph 4 above, belongs to Employer.
All such works of authorship shall be works made for hire. Until proven otherwise, any invention
shall be presumed to have been conceived during such employment if, within one (1) year after
termination of such employment, it is disclosed to others, completed, or it has a copyright notice
affixed thereto or a patent application filed thereon.
Employee will promptly disclose to Employer all trade secrets, inventions, works of
authorship, and information which belong to Employer as set forth herein; and Employee will assign
to Employer, or to others as directed by Employer, all of Employee’s interest in such inventions
and works of authorship, and will execute any papers and do any acts which Employer may consider
necessary to secure to it any and all rights relating to such inventions and works of authorship,
including all patents and copyrights (and renewals thereof) in any country.
Pursuant to Minnesota Statute 181.78, Subd. 1, the assignment provisions of this paragraph
shall not apply to any ideas, discoveries, inventions or improvement for which no equipment,
supplies, facility or trade secret information of the Employer was used, and which was
developed entirely on Employee’s own time, and (1) which does not relate (a) directly to
the
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business of the Employer or (b) to the Employer’s actual or demonstrably anticipated research
or development; or (2) which does not result from any work performed by Employee for the Employer.
6. ASSISTANCE TO EMPLOYER. Employee shall give Employer, at Employer’s expense, all
assistance Employer reasonably requires to perfect, protect, and exercise the rights to all ideas,
discoveries, inventions or improvements acquired by Employer pursuant to the assignment provisions
of paragraph 5 of this Agreement.
7. RETURN OF DOCUMENTS. All documents or other property relating in any way to the
business of Employer which are conceived or generated by Employee or come into Employee’s
possession during Employee’s employment shall be and remain Employer’s exclusive property.
Employee will, upon termination of employment, leave with or deliver to Employer’s possession all
copies of documents, records, notes, books, directories, telephone and/or address listings,
computer media, and similar repositories containing any confidential information whether prepared
or maintained by Employee or another.
8. NON-COMPETITION AND NON-SOLICITATION. During the term of employment with Employer
and for one (1) year thereafter, Employee will not act as a Competing Person or Organization, act
as an employee, owner, partner, consultant, or agent of any Competing Person or Organization or
render any services, directly or indirectly, to any Competing Person or Organization.
“Competing Person or Organization” includes any person or organization engaged in, or about to
become engaged in, research, development, production, marketing or selling of any product, process
or service in which the Employee was involved in any capacity, or about which Employee obtained
confidential information while employed by Employer. Competing Person or Organization does not
include:
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A person or organization involved solely in a business substantially different
from those in which Employee was engaged, and about which Employee obtained no
confidential information while employed by Employer; or |
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(B) |
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A person or organization involved in a business similar to that in which
Employee was engaged while employed by Employer but which markets and sells exclusively
to persons or organizations: (i) which have not purchased any product, process or
service from Employer within two (2) years prior to Employee’s separation from
employment; and (ii) about which Employee obtained no confidential information while
employed by Employer. |
During the term of employment with Employer and for one (1) year thereafter, Employee will
not, individually or in combination with any Competing Person or Organization, market, produce,
solicit orders, sell, deliver, create or provide any product, process, or service which resembles
or competes with a product, process or service with which Employee was involved in any capacity
while employed by Employer to any person or organization that was a customer or identified prospect
of Employer within the two (2) year period prior to the date of Employee’s
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separation from employment or was contacted by the Employee within two (2) years prior to the
date of Employee’s separation from employment.
Employee further agrees that during the term of employment and for one (1) year thereafter,
Employee shall not directly or indirectly in any manner solicit, assist, or encourage (or assist
any other person or entity in soliciting or encouraging) any other officer or employee of Employer
to work or otherwise provide services to Employee or to any entity in which Employee participates
in the ownership, management, operation, or control of, or is connected with in any manner as an
independent contractor, consultant, or otherwise.
9. REASONABLENESS OF TERMS. Employee acknowledges that compliance with the covenants
contained herein upon separation from employment with Employer shall not impair Employee’s ability
to earn a livelihood. Employee further acknowledges that the time and area restrictions contained
herein are reasonable and not unduly burdensome.
10. AT-WILL EMPLOYMENT; TERMINATION. Employee understands that Employer is an at-will
employment employer. This means the employment relationship may be terminated by either party at
any time and for any reason. This Agreement is not a contract for employment for any specific
length of time. Notwithstanding the foregoing, if either Employee or Employer desire to terminate
the employment of Employee, each such party shall give at least 30 days notice to the other party
prior to the effective date of such termination (except in the case of a termination by Employer
for Cause (as defined in paragraph 11(c) below), in which case Employer shall be permitted to
terminate Employee’s employment immediately upon notice thereof).
11. SEVERANCE.
a. Involuntary Termination without Cause. In the event that Employer terminates Employee’s
employment without Cause, and provided that such termination of employment does not occur upon or
within twelve (12) months after a Change in Control, Employer shall pay Employee severance equal to
six (6) months of Employee’s then current base salary, provided that such severance shall not
exceed two times the lesser of (a) the Code § 401(a)(17) compensation limit for the year in which
the Termination Date occurs, or (b) Employee’s annualized compensation based upon the annual rate
of pay for services to Employer for the calendar year prior to the calendar year in which the
Termination Date occurs (adjusted for any increase during that year that was expected to continue
indefinitely if the Employee had not separated from service). Payment of such severance will be
conditioned on Employee’s execution (and non-rescission) of a standard release of claims in the
form provided by Employer at the time of such termination. Severance will be paid to Employee over
the six (6) month severance period commencing from and after the Termination Date, in accordance
with Employer’s normal payroll schedule. Severance payments shall be subject to normal payroll
withholdings. The Employer and Employee intend the severance payments under this paragraph 11(a)
to be a “separation pay plan due to involuntary separation from service” under Treas. Reg. §
1.409A-1(b)(9)(iii).
b. Involuntary Termination After Change in Control. In the event that Employer terminates
Employee’s employment without Cause upon or within twelve (12) months
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after a Change in Control, or in the event that Employee quits for Good Reason upon or within
twelve (12) months after a Change in Control, Employer shall pay Employee severance equal to twelve
months of Employee’s then current base salary, as follows:
(i) Limitation on Payment Amount. Such severance shall not exceed a maximum amount
of two times the lesser of (x) the Code § 401(a)(17) compensation limit for the year in which the
Termination Date occurs, or (y) Employee’s annualized compensation based upon the annual rate of
pay for services to the Service Recipient for the calendar year prior to the calendar year in which
the Termination Date occurs (adjusted for any increase during that year that was expected to
continue indefinitely if the Employee had not separated from service). Severance will be paid to
Employee over the twelve-month severance period commencing from and after the Termination Date, in
accordance with Employer’s normal payroll schedule. Employer and Employee intend the severance
payments under this paragraph 11(b)(i) to be a “separation pay plan due to involuntary separation
from service” under Treas. Reg. § 1.409A-1(b)(9)(iii).
(ii) Alternative Form of Payment. If the severance otherwise payable to Employee is
reduced to zero (0) by application of the maximum limitation under paragraph 11(b)(i)(y), then
Employer shall in the alternative pay Employee severance equal to twelve months of Employee’s
then-current base salary commencing from and after the Termination Date, in accordance with the
normal payroll schedule of Employer, except that any amounts that remain payable as of the
Short-Term Deferral Deadline shall be paid in a lump sum no later than the Short-Term Deferral
Deadline. Employer and Employee intend the severance payments under this paragraph 11(b)(ii) to
constitute a short-term deferral under Treas. Reg. § 1.409A-1(b)(4).
(iii) Other Conditions. Payment of such severance under this paragraph 11(b) will be
conditioned on Employee’s execution (and non-rescission) of a standard release of claims in the
form provided by Employer at the time of such termination. If Employee’s employment is terminated
without Cause under conditions such that he/she is entitled to severance payments under this
paragraph 11(b), then Employee shall be entitled to severance payments only under this paragraph
11(b) and shall not be entitled to any severance payments under paragraph 11(a) of this Agreement.
Severance payments shall be subject to normal payroll withholdings.
c. Definitions. For purposes of this Agreement, the following terms shall have the following
meanings:
(i) “Cause” and “Change in Control” shall have the meanings ascribed to those terms as set
forth in the SPS Commerce, Inc. 2001 Stock Option Plan (the “Stock Option Plan”), as amended.
(ii) “Employer” shall include any current or future successor, parent, subsidiary, affiliate
or other joint venture partner to which any right or obligation has been assigned or delegated by
SPS Commerce, Inc. or by operation of law.
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(iii) “Good Reason” shall mean a material reduction in Employee’s then-current base salary at
the time of the Change in Control or a material reduction in Employee’s employment responsibilities
following such Change in Control, in each case without Employee’s consent, provided that Employee
first gives notice of the material reduction giving rise to Good Reason to the Employer within
ninety (90) days of the first occurrence of the reduction, and provided further that upon giving
notice Employee provides Employer 30 days in which to remedy the reduction and not be required to
pay the severance amount set forth in paragraph 11(b). Notwithstanding anything to the contrary in
this paragraph 11(c), Employee shall not be deemed to have quit for Good Reason, and Employee shall
not be entitled to payments upon his/her resignation under this Agreement, unless Employee’s
Termination Date following his/her resignation for Good Reason occurs within two (2) years
following the first occurrence of the reduction.
(iv) “Service Recipient” shall have the meaning set forth in Treas. Reg. § 1.409A-1(g).
(v) “Short-Term Deferral Deadline” shall mean the date that is the 15th day of the third month
following the end of the later of the calendar year, or the Service Recipient’s taxable year, in
which the Termination Date occurs.
(vi) “Termination Date” shall mean the date upon which Employee’s termination of employment
with Employer is effective. For purposes of paragraph 11 of this Agreement only, the Termination
Date shall mean the date on which a “separation from service” has occurred for purposes of Section
409A of the Code and the regulations and guidance thereunder.
12. SURVIVAL OF OBLIGATIONS. All provisions of this Agreement relating to
discoveries, confidential information, trade secrets, competitive activities, and ownership of
proprietary property, shall survive termination of the employment relationship between Employee and
Employer.
13. MODIFICATION OF AGREEMENT. No waiver or modification of this Agreement or of any
covenant, condition, or limitation herein contained shall be valid unless in writing and duly
executed by both parties.
14. CHOICE OF LAW, JURISDICTION, AND VENUE. The validity, construction and
performance of this Agreement shall be governed by, and construed in accordance with, the laws of
the State of Minnesota, without reference to any choice of laws provisions thereof. The parties
further agree that any litigation or proceeding arising out of, or relating to, this Agreement
(whether the same sounds in tort or contract or both) shall be commenced and maintained in a
federal or state court located in Hennepin County, Minnesota, and for such purpose the parties
consent to any such court’s exercise of personal jurisdiction over them.
15. INJUNCTIVE RELIEF — ATTORNEY’S FEES. In recognition of the irreparable harm that
violation of this Agreement could cause Employer, Employee agrees that, in addition to any relief
afforded by law, an injunction against such violation or violations may
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be issued against Employee, it being understood by the parties that both damages and an
injunction shall be proper modes of relief and not considered alternative remedies. In the event
of any such violation(s), Employee agrees to pay the reasonable attorneys’ fees incurred by
Employer in the enforcement of any of its rights with respect to said violation(s), in addition to
the actual damages sustained by Employer as a result thereof.
16. ASSIGNMENTS. This Agreement is personal in nature and cannot be assigned by
Employee. The terms, conditions, covenants, and representations herein shall inure to and be
binding upon the heirs and representatives of Employee and shall inure to the benefit of and shall
be binding upon the successors and assigns of Employer.
17. SEVERABILITY. Agreements and covenants contained herein are severable, and in the
event any of them shall be held to be invalid by any competent court, this Agreement shall be
interpreted as if such invalid agreement or covenants were not contained herein.
18. INTERPRETATION. This Agreement is intended to satisfy, or be exempt from, the
requirements of Section 409A(a)(2), (3), and (4) of the Code, including current and future guidance
and regulations interpreting such provisions, and should be interpreted accordingly.
19. TAXES. Employer may withhold from any amounts payable under this Agreement such
federal, state and local income and employment taxes as Employer shall determine are required to be
withheld pursuant to any applicable law or regulation. Employee shall be solely responsible for
the payment of all taxes due and owing with respect to wages, benefits, and other compensation
provided to him/her hereunder.
20. COMPLETE AGREEMENT. This Agreement and any
stock option agreements between Employer and Employee contain the complete agreement
concerning the terms and conditions of the employment arrangement between the parties and shall, as
of the effective date hereof, supersede all other agreements between the parties, including without
limitation the Prior Agreement. The parties stipulate that neither of them has made any
representation with respect to the subject matter of this Agreement or any representations
including the execution and delivery hereof except such representations as are specifically set
forth herein and the parties hereto acknowledge that they have relied on their own judgment in
entering into this Agreement.
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SPS COMMERCE, INC. |
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EMPLOYEE |
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EMPLOYER |
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By:
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Its: |
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Date:
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Date: |
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-7-
exv10w22
Exhibit 10.22
SUBJECT TO SECTION 5.3 HEREOF, THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED EXCEPT (i) PURSUANT TO REGISTRATION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR
APPLICABLE EXEMPTIONS THEREFROM OR (ii) IF, IN THE OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY, THE PROPOSED TRANSFER MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE FEDERAL AND STATE
SECURITIES LAWS WITHOUT REGISTRATION.
WARRANT TO PURCHASE STOCK
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Corporation:
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SPS COMMERCE, INC., a Delaware corporation |
Initial Number of Shares:
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20,435 |
Class of Stock:
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Series B Convertible Preferred Stock, par value $0.001 per share (the “Series B
Preferred Stock”) |
Initial Exercise Price:
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$0.97875 per share |
Issue Date:
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As of May 20, 2004 |
Expiration Date:
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May 20, 2011 |
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other good and
valuable consideration, SILICON VALLEY BANK (“Holder”) is entitled to purchase the number of fully
paid and nonassessable shares of the class of securities (the “Shares”) of the corporation (the
“Company”) at the initial exercise price per Share (the “Warrant Price”) all as set forth above and
as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and
conditions set forth in this Warrant.
For background information only, the Initial Number of Shares was determined from the quotient
(rounded up to the nearest whole number) resulting from dividing $20,000 by the Warrant Price.
Holder and the Company hereby acknowledge and agree that this Warrant is issued by the Company to
Holder in exchange for that certain Amended and Restated Warrant to Purchase Stock, issued by the
Company to Holder on May 16, 2003 for the purchase of 400,044 shares of the Company’s Series A
Convertible Preferred Stock at an initial exercise price of $0.30 per share (the “Prior Warrant”).
Promptly (and in any event within 2 business days) following Holder’s receipt of this Warrant duly
issued by the Company, Holder will return the original of the Prior Warrant to the Company for
physical cancellation; provided, however, that Holder and the Company hereby agree that, effective
from and after the concurrent delivery to Holder of this Warrant duly issued by the Company, then
for all purposes the Prior Warrant shall be deemed cancelled and of no further force and effect.
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by delivering a duly
executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal
office of the Company. Unless Holder is exercising the conversion right set forth in Section 1.2,
Holder shall also deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified in Section 1.1,
Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares
determined by dividing (a) the aggregate fair market value of the Shares or other securities
otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares shall be determined
pursuant to Section 1.3.
1.3 Fair Market Value. If the Shares (or the Company’s stock into which the Shares
are convertible) are traded in a public market, the fair market value of the Shares shall be the
closing price of the Shares (or the closing price of the Company’s stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If neither the Shares nor the Company’s stock into which the Shares are
convertible is traded in a public market, the Board of Directors of the Company shall determine
fair market value in its reasonable good faith judgment.
1.4 Delivery of Certificate and New Warrant. Promptly after Holder exercises or
converts this Warrant, the Company shall deliver to Holder certificates for the Shares acquired
and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant
representing the Shares not so acquired under Section 1.1 or not so converted under Section 1.2.
1.5 Replacement of Warrants. On receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss,
theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and
amount to the Company or, in the case of mutilation, upon surrender and cancellation of this
Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new warrant of like
tenor.
1.6 Assumption on Sale, Merger. or Consolidation of the Company.
1.6.1 “Acquisition”. For the purpose of this Warrant, “Acquisition” means any sale,
license, or other disposition of all or substantially all of the assets of the Company, or any
reorganization, consolidation, or merger of the Company where the holders of the Company’s
securities before the transaction beneficially own less than 50% of the · outstanding voting
securities of the surviving entity after the transaction.
2
1.6.2 Assumption of Warrant. Upon the closing of any Acquisition, the successor
entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the
same securities, cash, and property as would be payable for the Shares issuable upon exercise of
the unexercised portion of this Warrant as if such Shares were outstanding on the record date for
the Acquisition and subsequent closing. The Warrant Price and/or number of Shares (as applicable)
shall be adjusted accordingly.
ARTICLE 2. ADJUSTMENTS TO THE SHARES. During the term of this Warrant, this Article 2
applies, as of any date of determination, solely to the remaining Shares issuable (but not already
issued) upon exercise of this Warrant under Section 1.1 or conversion of this Warrant under Section
1.2; it being understood and agreed that, with respect to any Shares already issued upon exercise
or conversion of this Warrant, those issued Shares are entitled to adjustment from time to time in
the manner set forth in the Company’s Certificate of Incorporation then in effect (but not further
adjustment under this Section 2) but not entitled to any further adjustment pursuant to this
Article 2.
2.1 Stock Dividends, Stock Splits, Etc. If the Company declares or pays a dividend on
its Series B Preferred Stock payable in Series B Preferred Stock, or other securities, or
subdivides the outstanding Series B Preferred Stock into a greater amount of Series B Preferred
Stock, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without
cost to Holder, the total number and kind of securities to which Holder would have been entitled
had Holder owned the Shares of record as of the date the dividend or subdivision occurred. If the
outstanding shares of Series B Preferred Stock are combined or consolidated, by reclassification or
otherwise, into a lesser number of shares, the Warrant Price then in effect shall be
proportionately increased and the number of Shares issuable upon exercise or conversion of this
Warrant shall be proportionately reduced.
2.2 Reclassification, Exchange, Combinations or Substitution. Upon any
reclassification, exchange, substitution, or other event (excluding an adjustment event covered by
Section 2.1) that results in a change of the number and/or class of the securities issuable upon
exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or
conversion of this Warrant, the number and kind of securities and property that Holder would have
received for the Shares if this Warrant had been exercised immediately before such
reclassification, exchange, substitution, or other event. Such an event shall include any automatic
conversion of the outstanding or issuable securities of the Company of the same class or series as
the Shares to the Company’s common stock, par value $0.001 per share (the “Common Stock”) pursuant
to the terms of the Company’s Certificate of Incorporation, as then in effect, upon the closing of
a registered public offering of the Common Stock. The Company or its successor shall promptly issue
to Holder a new Warrant for such new securities or other property. The new Warrant shall provide
for adjustments that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article 2 including, without limitation, adjustments to the Warrant Price
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then in effect and to the number of securities or property issuable upon exercise of the new
Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications,
exchanges, substitutions, or other events.
2.3 Adjustments for Diluting Issuances. The number of shares of common stock of
Borrower issuable upon conversion of the Shares under this Warrant shall be subject to adjustment,
from time to time, in the manner set forth in the Company’s Certificate of Incorporation. The
provisions set forth in the Company’s Certificate of Incorporation as of the Issue Date relating to
the above, as applied to the number of shares of common stock issuable upon conversion of the
Shares under this Warrant, may not be amended, modified or waived, without the prior written
consent of Holder, unless such amendment, modification or waiver affects the rights associated with
all other shares of the same series and class as the Shares that may be purchased by the Holder
under this Warrant.
2.4 No Impairment. The Company shall not, by amendment of its Certificate of
Incorporation, as then in effect, or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or performed under this
Warrant by the Company, but shall at all times in good faith assist in carrying out of all the
provisions of this Article 2 and in taking all such action as may be necessary or appropriate to
protect Holder’s rights under this Article against impairment.
2.5 Fractional Shares. No fractional Shares shall be issuable upon exercise or
conversion of the Warrant and the number of Shares to be issued shall be rounded down to the
nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the
Warrant, the Company shall eliminate such fractional share interest by paying Holder the amount
computed by multiplying the fractional interest by the fair market value of a full Share.
2.6 Certificate as to Adjustments. Upon each adjustment of the Warrant Price, the
Company shall promptly notify Holder in writing, and, at the Company’s expense, promptly compute
such adjustment, and furnish Holder with a certificate of its chief financial officer or its chief
executive officer setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant
Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company represents and warrants to Holder as
follows:
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(a) The initial Warrant Price referenced on the first page of this Warrant is less than or
equal to the price per share (after taking into account adjustments resulting from the Company’s
1-for-20 share consolidation effective July 15, 2003) at which shares of the Series B Preferred
Stock of the Company were previously issued (and if they were issued at more than one price, the
lowest of such prices)).
(b) All Shares which may be issued upon the exercise of the purchase right represented by this
Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance,
be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and
encumbrances except for restrictions on transfer provided for herein or under applicable federal
and state securities laws, and except for any liens or encumbrances incurred by Holder.
(c) The Capitalization Table dated as of December 31, 2003 previously provided to Holder
remains true and complete as of the Issue Date.
3.2 Notice of Certain Events. If the Company proposes at any time (a) to declare any
dividend or distribution upon the Common Stock, whether in cash, property, stock, or other
securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to
the holders of any class or series of its stock any additional shares of stock of any class or
series or other rights; (c) to effect any reclassification or recapitalization of the Common Stock;
(d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey
all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders
of registration rights the opportunity to participate in an underwritten public offering of the
company’s securities for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 10 days prior written notice of the date on which a record will be taken for
such dividend, distribution, or subscription rights (and specifying the date on which the holders
of the Common Stock will be entitled thereto) or for determining rights to vote, if any, in respect
of the matters referred to above; (2) in the case of the matters referred to above, at least 10
days prior written notice of the date when the same will take place (and specifying the date on
which the holders of the Common Stock will be entitled to exchange their shares of the Common Stock
for securities or other property deliverable upon the occurrence of such event); and (3) in the
case of the matter referred to in (e) above, the same notice as is given to the holders of such
registration rights.
3.3 [Reserved]
ARTICLE 4. REPRESENTATIONS, WARRANTIES OF HOLDER. Holder represents and warrants to the
Company as follows:
4.1 Purchase for Own Account. Except for transfers to Holder’s Affiliates, this
Warrant and the Shares to be issued upon exercise or conversion of this Warrant by Holder and any
Common Stock that may be issued upon conversion of such issued Shares will be acquired
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for investment for Holder’s account, not as a nominee or agent, and not with a view to the public
resale or distribution within the meaning of the Securities Act of 1933, as amended (the “1933
Act”), and Holder has no present intention of selling, granting any participation in, or otherwise
distributing the same. Holder also represents that Holder has not been formed for the specific
purpose of acquiring this Warrant or the Shares. As used in this Warrant, the term “Affiliate”
shall have the meaning ascribed to such term set forth in Rule 144 promulgated under the Securities
Exchange Act of 1934, as amended.
4.2 Disclosure of Information. Holder has received or has had full access to all the
information it considers necessary or appropriate to make an informed investment decision with
respect to the acquisition of this Warrant and its underlying securities. Holder further has had an
opportunity to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of this Warrant and its underlying securities and to obtain additional
information (to the extent the Company possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify any information furnished to Holder or to which
Holder has access.
4.3 Investment Experience. Holder understands that the purchase of this Warrant and
its underlying securities involves substantial risk. Holder: (i) has experience as an investor in
securities of companies in the development stage and acknowledges that Holder is able to fend for
itself, can bear the economic risk of Holder’s investment in this Warrant and its underlying
securities and has such knowledge and experience in financial or business matters that Holder is
capable of evaluating the merits and risks of its investment in this Warrant and its underlying
securities and/or (ii) has a preexisting personal or business relationship with the Company and
certain of its officers, directors or controlling persons of a nature and duration that enables
Holder to be aware of the character, business acumen and financial circumstances of such persons.
4.4 Accredited Investor Status. Holder is an “accredited investor” within the meaning
of Regulation D promulgated under the 1933 Act.
4.5 No Public Market. Holder further understands that at the time it wishes to sell
this Warrant (or its underlying securities) there might not be a public market through which it
could make such a sale, and that even if a public market exists at such time, the current public
information requirements of Rule 144 might not be satisfied at such time. In that event, Holder
might be precluded from selling this Warrant (or its underlying securities) under Rule 144 even if
the one-year minimum holding period has been satisfied.
ARTICLE 5. MISCELLANEOUS.
5.1 Term: This Warrant is exercisable in whole or in part at any time and from time to
time on or before the Expiration Date.
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5.2 Legends. The Shares (and the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) shall be imprinted with a legend in substantially the following
form:
SUBJECT TO SECTION 5.3 OF THAT CERTAIN WARRANT TO PURCHASE STOCK, ISSUED APRIL
30, 2004, BY THE COMPANY TO HOLDER, THIS SECURITY HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS
AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT (i) PURSUANT TO REGISTRATION
UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS
THEREFROM OR (ii) IF, IN THE OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY, THE PROPOSED TRANSFER MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE
FEDERAL AND STATE SECURITIES LAWS WITHOUT REGISTRATION.
5.3 Compliance with Securities Laws on Transfer. This Warrant and the Shares issuable
upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion
of the Shares, if any) may not be transferred or assigned in whole or in part without compliance
with applicable federal and state securities laws by the transferor and the transferee (including,
without limitation, the delivery of investment representation letters and legal opinions reasonably
satisfactory to the Company, as reasonably requested by the Company).
The Company shall not require Holder to provide an opinion of counsel: (a) if the transfer is to an
Affiliate of Holder and the Company receives a copy of the assignment document in substantially the
form attached as Appendix 2 hereto, executed by both the transferor and the transferee; or (b) if
there is no material question as to the availability of current information as referenced in Rule
144(c), Holder represents in reasonable detail that it has complied with Rule 144(d) and (e), the
selling broker represents in reasonable detail that it has complied with Rule 144(f), and the
Company is provided with a copy of Holder’s notice of proposed sale.
5.4 Transfer Procedure. Subject to the provisions of Section 5.3, upon receipt by
Holder of the executed Warrant, Holder will transfer all or part of this Warrant or the Shares
issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) to Silicon Valley Bancshares, Holder’s parent company, pursuant
to an assignment document in substantially the form attached as Appendix 2 hereto. Subject to the
provisions of Section 5.3, Holder or Silicon Valley Bancshares (if applicable) may transfer all or
part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) to The Silicon Valley Bank
Foundation, or to any Affiliate of Holder, or to any other transferee, by giving the Company
written notice of the portion of the Warrant, Shares, or securities being transferred
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with the name, address and taxpayer identification number of the transferee and surrendering this
Warrant or the certificate or certificates evidencing such Shares or securities to the Company
(together with duly executed assignment documents) for reissuance to the transferee(s) (and Holder
if applicable). The Company may refuse to transfer this Warrant or the Shares (or the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) to any person who directly
competes with the Company unless the Company’s stock is publicly traded.
5.5 Notices. All notices and other communications from the Company to Holder, or vice
versa, shall be deemed delivered and effective when given personally or mailed by first-class
registered or certified mail, postage prepaid, at such address as may have been furnished to the
Company or Holder, as the case may be, in writing by the Company or Holder from time to time. All
notices to Holder shall be addressed as follows:
Silicon Valley Bank
Attn: Treasury Department
3003 Tasman Drive, HG 110
Santa Clara, CA 95054
All notices to the Company shall be addressed as follows:
SPS Commerce, Inc.
Attention: Chief Executive Officer
1450 Energy Park Drive, Suite 127
St. Paul, MN 55108
with a non-mandatory copy to:
Faegre & Benson LLP
Attention: Andrew G. Humphrey
2200 Wells Fargo Center
90 South Seventh Street
Minneapolis. MN 55402
5.6 Waiver. This Warrant and any term hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought.
5.7 Attorney’s Fees. In the event of any dispute between the parties concerning the
terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to
collect from the other party all costs incurred in such dispute, including reasonable
5.8 Automatic Conversion upon Expiration. In the event that, upon the Expiration Date,
the fair market value of one Share (or other security issuable upon the exercise hereof) as
determined in accordance with Section 1.3 above is greater than the Exercise Price in effect on
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such date, then this Warrant shall automatically be deemed on and as of such date to be converted
pursuant to Section 1.2 above as to all Shares (or such other securities) for which it shall not
previously have been exercised or converted, and the Company shall promptly deliver a certificate
representing the Shares (or such other securities) issued upon such conversion to Holder.
5.9 Governing Law. This Warrant shall be governed by and construed in accordance with
the laws of the State of Delaware, without giving effect to its principles regarding conflicts of
law.
[remainder of page intentionally left blank; signature page follows]
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This Warrant to Purchase Stock has been executed and delivered as of the date first written
above.
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“COMPANY” |
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SPS COMMERCE INC. |
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By:
Name:
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/s/ Thomas C. Velin
Thomas C. Velin
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Title:
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CEO |
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“HOLDER” |
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SILICON VALLEY BANK |
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By:
Name:
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/s/ Patrick McCarthy
Patrick McCarthy
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Title:
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Senior Vice President |
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SIGNATURE
PAGE
exv10w23
Exhibit 10.23
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND APPLICABLE LAWS.
Warrant to Purchase 235,000 Shares of Series B
Convertible Preferred Stock (subject to
adjustment)
WARRANT TO PURCHASE SERIES B CONVERTIBLE PREFERRED STOCK
OF
SPS COMMERCE, INC.
Void after *February 3, 2016
This certifies that, for value received, Ritchie Capital Finance, L.L.C., a Delaware limited
liability company (“Ritchie”), or its assigns (“Holder”) is entitled, subject to the terms set
forth below, to purchase from SPS Commerce, Inc. (the “Company”), a Delaware corporation, 235,000
shares of the Series B Convertible Preferred Stock of the Company, as constituted on the date
hereof (the “Warrant Issue Date”), upon surrender hereof, at the principal office of the Company
referred to below, with the subscription form attached hereto duly executed, and simultaneous
payment therefor in lawful money of the United States or otherwise as hereinafter provided, at the
Exercise Price as set forth in Section 2 below. The number, character and Exercise Price of such
shares of Series B Convertible Preferred Stock are subject to adjustment as provided below. The
term “Warrant” as used herein shall include this Warrant, and any warrants delivered in
substitution or exchange therefor as provided herein. This Warrant is issued in connection with
the Loan and Security Agreement (the “Loan Agreement”), made as of *February 3, 2006 by and between
Ritchie and the Company.
1. Term of Warrant. Subject to the terms and conditions set forth herein, this
Warrant shall be exercisable, in whole or in part, at any time, or from time to time, during the
term commencing on the Warrant Issue Date and ending at 5:00 p.m., New York City time, on *February
3, 2016, and shall be void thereafter.
2. Exercise Price. The exercise price at which this Warrant may be exercised shall be
$.97875 per share of Series B Convertible Preferred Stock (“Exercise Price”), as adjusted from time
to time pursuant to Section 12 hereof.
3. Exercise of Warrant.
(a) The purchase rights represented by this Warrant are exercisable by the Holder in whole or
in part, at any time, or from time to time, during the term hereof as described in Section 1 above,
by the surrender of this Warrant and the Notice of Exercise, annexed hereto
as Annex A,
duly completed and executed on behalf of the Holder, at the principal office of the Company (or
such other office or agency of the Company as it may designate by notice in writing to the Holder
at the address of the Holder appearing on the books of the Company), upon
payment (i) in cash or by check acceptable to the Company, (ii) by cancellation by the Holder
of indebtedness or other obligations of the Company to the Holder, or (iii) by a combination of (i)
and (ii), of the purchase price of the shares to be purchased.
(b) This Warrant shall be deemed to have been exercised immediately prior to the close of
business on the date of its surrender for exercise as provided above, and the person entitled to
receive the shares of Series B Convertible Preferred Stock issuable upon such exercise shall be
treated for all purposes as the holder of record of such shares as of the close of business on such
date. As promptly as practicable on or after such date and in any event within ten days
thereafter, the Company at its expense shall issue and deliver to the person or persons entitled to
receive the same a certificate or certificates for the number of shares issuable upon such
exercise. In the event that this Warrant is exercised in part, the Company at its expense will
execute and deliver a new warrant of like tenor exercisable for the number of shares for which this
Warrant may then be exercised.
(c) Net Issue Exercise. Notwithstanding any provisions herein to the contrary, if the
fair market value of one share of Series B Convertible Preferred Stock is greater than the Exercise
Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash,
the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or
the portion thereof being canceled) by surrender of this Warrant at the principal office of the
Company together with the properly endorsed Notice of Exercise and notice of such election in which
event the Company shall issue to the Holder a number of shares of Series B Convertible Preferred
Stock computed using the following formula:
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X =
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the number of shares of Series B Convertible Preferred Stock to be
issued to the Holder |
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Y =
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the number of shares of Series B Convertible Preferred Stock
purchasable under the Warrant or, if only a portion of the Warrant is
being exercised, the portion of the Warrant being canceled (at the
date of such calculation) |
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A =
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the fair market value of one share of the Company’s Series B
Convertible Preferred Stock (at the date of such calculation) |
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B =
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Exercise Price (as adjusted to the date of such calculation) |
For purposes of the above calculation, fair market value of one share of Series B Convertible
Preferred Stock shall be determined by the Company’s Board of Directors in good faith; provided,
however, that where there exists a public market for the Company’s Common Stock at the time of such
exercise, the fair market value per share shall be the product of (i) the average of
2
the closing
bid and asked prices of the Common Stock quoted in the Over-The-Counter Market Summary or the last
reported sale price of the Common Stock or the closing price quoted on the Nasdaq National Market
or on any exchange on which the Common Stock is listed, whichever is applicable, as published in
the Western Edition of The Wall Street Journal for the five (5) trading days prior to the date of
determination of fair market value and (ii) the number of shares of Common Stock into which each
share of Series B Convertible Preferred Stock is convertible at the time of such exercise.
Notwithstanding the foregoing, in the event the Warrant is exercised
in connection with the Company’s initial public offering of Common Stock, the fair market value per
share shall be the product of (i) the per share offering price to the public of the Company’s
initial public offering, and (ii) the number of shares of Common Stock into which each share of
Series B Convertible Preferred Stock is convertible at the time of such exercise.
4. No Fractional Shares or Scrip. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. In lieu of any fractional
share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal
to the Exercise Price multiplied by such fraction.
5. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss,
theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and
substance to the Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new
warrant of like tenor and amount.
6. Rights of Stockholders. Subject to Sections 10, 12 and 14 of this Warrant, the
Holder shall not be entitled to vote or receive dividends or be deemed the holder of Series B
Convertible Preferred Stock or any other securities of the Company that may at any time be issuable
on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer
upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote
for the election of directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance
of stock, reclassification of stock, change of par value, or change of stock to no par value,
consolidation, merger, conveyance, or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Warrant shall have been exercised as
provided herein.
7. Transfer of Warrant.
(a) Warrant Register. The Company will maintain a register (the “Warrant Register”)
containing the names and addresses of the Holder or Holders. Any Holder of this Warrant or any
portion thereof may change his or her address as shown on the Warrant Register by written notice to
the Company requesting such change. Any notice or written communication required or permitted to
be given to the Holder may be delivered or given by mail to such Holder as shown on the Warrant
Register and at the address shown on the Warrant Register. Until this Warrant is transferred on
the Warrant Register of the Company, the Company may treat the Holder as shown on the Warrant
Register as the absolute owner of this Warrant for all purposes, notwithstanding any notice to the
contrary.
3
(b) Warrant Agent. The Company may, by written notice to the Holder, appoint an agent
for the purpose of maintaining the Warrant Register referred to in Section 7(a) above, issuing the
Series B Convertible Preferred Stock or other securities then issuable upon the exercise of this
Warrant, exchanging this Warrant, replacing this Warrant, or any or all of the foregoing.
Thereafter, any such registration, issuance, exchange, or replacement, as the case may be, shall be
made at the office of such agent.
(c) Transferability and Nonnegotiability of Warrant. This Warrant may not be
transferred or assigned in whole or in part without compliance with all applicable federal and
state securities laws by the transferor and the transferee (including the delivery of investment
representation letters reasonably satisfactory to the Company, if such are requested by the
Company). Subject to the provisions of this Warrant with respect to compliance with the Securities
Act of 1933, as amended (the “Act”), title to this Warrant may be transferred by endorsement (by
the Holder executing the Assignment Form, annexed hereto as Annex B) and delivery in the
same manner as a negotiable instrument transferable by endorsement and delivery.
(d) Exchange of Warrant Upon a Transfer. On surrender of this Warrant for exchange,
properly endorsed on the Assignment Form and subject to the provisions of this Warrant with respect
to compliance with the Act and with the limitations on assignments and transfers contained in this
Section 7, the Company at its expense shall issue to or on the order of the Holder a new warrant or
warrants of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any
applicable transfer taxes) may direct, for the number of shares issuable upon exercise hereof.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof, acknowledges that this
Warrant and the shares of Series B Convertible Preferred Stock or Common Stock to be
issued upon exercise hereof or conversion thereof are being acquired solely for the
Holder’s own account and not as a nominee for any other party, and for investment,
and that the Holder will not offer, sell or otherwise dispose of this Warrant or any
shares of Series B Convertible Preferred Stock or Common Stock to be issued upon
exercise hereof or conversion thereof except under circumstances that will not
result in a violation of the Act or any state securities laws. Upon exercise of this
Warrant, the Holder shall, if requested by the Company, confirm in writing, in a
form satisfactory to the Company, that the shares of Series B Convertible Preferred
Stock or Common Stock so purchased are being acquired solely for the Holder’s own
account and not as a nominee for any other party, for investment; and not with a
view toward distribution or resale in violation of the Act.
(ii) The Holder of this Warrant, by acceptance hereof, represents and warrants
to the Company that such Holder is an “accredited investor” as that term is defined
in Regulation D promulgated under the Act and, either alone or with such advisers as
it may select, has such knowledge and experience in financial and business matters
that it is capable of evaluating the
4
merits and risks of its investment in this
Warrant and the shares of Series B Convertible Preferred Stock or Common Stock to be
issued upon exercise hereof or conversion thereof.
(iii) The Company did not offer this Warrant and the shares of Series B
Convertible Preferred Stock or Common Stock to be issued upon exercise hereof or
conversion thereof to the Holder by any form of general
solicitation or general advertising, including, but not limited to, any
advertisement, article, notice or similar media or broadcast over television or
radio, or any seminar or meeting whose attendees were invited by any general
solicitation or general advertising.
(iv) The Holder acknowledges, and upon exercise of this Warrant, the Holder
shall, if requested by the Company, confirm in writing, in a form satisfactory to
the Company, that it has received a copy of that certain Information Statement of
the Company dated *[February 3, 2006] and reviewed and discussed the Company’s
business, affairs and current prospects with such officers and others (including its
purchaser representative, if applicable) as it has deemed appropriate or desirable
in connection with the transactions contemplated hereby. The Holder further
acknowledges, and upon exercise of this Warrant, the Holder shall, if requested by
the Company, confirm in writing, in a form satisfactory to the Company, that it has
requested, received and reviewed such information, undertaken such investigation and
made such further inquiries of officers of the Company and others as it has deemed
appropriate or desirable in connection with such transactions.
(v) The Holder understands, and upon exercise of this Warrant, the Holder
shall, if requested by the Company, confirm in writing, in a form satisfactory to
the Company, that it understands, that it must bear the economic risk of its
investment for an indefinite period of time because the Series B Convertible
Preferred Stock and Common Stock are not, and will not be, registered under the Act
or any applicable state securities laws, except as may be otherwise be determined by
the Company or in connection with the Fourth Amended and Restated Registration
Rights Agreement, dated as of May 16, 2003, by and among the Company and the parties
who have executed the counterpart signature pages thereto or are otherwise bound
thereby, as such agreement may be amended and/or restated from time to time (the
“Registration Rights Agreement”), and such shares may not be resold unless
subsequently registered under the Act and such other federal or state securities
laws or unless an exemption from such registration is available. The Holder
understands, and upon exercise of this Warrant, the Holder shall, if requested by
the Company, confirm in writing, in a form satisfactory to the Company, that it
understands, that, except as may be otherwise be determined by the Company or
pursuant to the Registration Rights Agreement, it is not contemplated that any
registration will be made under the Act or any state securities laws.
5
(vi) This Warrant and all shares of Series B Convertible Preferred Stock or
Common Stock issued upon exercise hereof or conversion thereof shall be stamped or
imprinted with a legend in substantially the following form (in addition to any
legend required by state securities laws):
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY
NOT BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT (i) PURSUANT TO
REGISTRATION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR
(ii) IF, IN THE OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY, THE PROPOSED SALE OR TRANSFER MAY BE EFFECTED IN COMPLIANCE
WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS WITHOUT
REGISTRATION.
8. Representations and Warranties of Company. In connection with the transactions
provided for herein, the Company hereby represents and warrants to the Holder that:
(a) Organization, Good Standing, and Qualification. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to carry on its business as now conducted. The Company
is duly qualified to transact business and is in good standing in each jurisdiction in which the
failure to so qualify would have a material adverse effect on its business or properties, taken as
a whole.
(b) Authorization. The Company has all necessary corporate power and authority to
execute, deliver and perform its obligations under this Warrant. All corporate action has been
taken on the part of the Company, its officers, directors, and stockholders necessary for the due
authorization, execution and delivery of this Warrant by the Company and the performance by the
Company of its obligations hereunder. This Warrant has been duly executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors’
rights. The shares of Series B Convertible Preferred Stock issuable upon exercise of this Warrant
and the shares of Common Stock of the Company issuable upon conversion of such shares of Series B
Convertible Preferred Stock have been duly and validly authorized and reserved for issuance by the
Company.
(c) Compliance with Other Instruments. The authorization, execution and delivery of
this Warrant by the Company, the consummation of the transactions contemplated hereby and the
performance by the Company of its obligations hereunder will not (i) violate any judgment, order,
decree, injunction, law or regulation applicable to the Company; (ii) violate any term or provision
of the Certificate of Incorporation, as amended (the “Certificate”) or bylaws of the Company; (iii)
violate, or result in a breach or default under, any other agreement or instrument to which the
Company is a party or by which it is bound or to which its properties or
6
assets are subject, except
for such violations, breaches or defaults which, individually or in the aggregate, will not result
in a material adverse effect upon the business operations, properties, assets, results of
operations or condition (financial or otherwise) of the Company, taken as a whole, the
enforceability of any material provision of this Warrant or the ability of the Holder to
enforce its rights and remedies under this Warrant; or (iv) result in the creation of any
lien, claim or other encumbrance on any of the property or other assets of the Company.
(d) Valid Issuance of Preferred and Common Stock. The shares of Series B Convertible
Preferred Stock, when issued, sold, and delivered in accordance with the terms of this Warrant for
the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable
and will be issued in compliance with all applicable federal and state securities laws, and none of
such shares will be in violation of any preemptive rights of any person granted by the Company.
The issuance and delivery of the shares of Common Stock of the Company that are issuable upon
conversion of the Series B Convertible Preferred Stock, if any, when issued and delivered upon such
conversion in accordance with the terms of Series B Convertible Preferred Stock, will be duly and
validly issued, fully paid and nonassessable and will be issued in compliance with all applicable
federal and state securities laws, and none of such shares of Common Stock will be in violation of
any preemptive rights of any person granted by the Company.
9. Reservation of Stock. The Company covenants that during the term this Warrant is
exercisable, the Company will reserve from its authorized and unissued Series B Convertible
Preferred Stock a sufficient number of shares to provide for the issuance of Series B Convertible
Preferred Stock upon the exercise of this Warrant (and shares of its Common Stock for issuance on
conversion of such Series B Convertible Preferred Stock) and, from time to time, will take all
steps necessary to amend its Certificate to provide sufficient reserves of shares of Series B
Convertible Preferred Stock issuable upon exercise of this Warrant (and shares of its Common Stock
for issuance on conversion of such Series B Convertible Preferred Stock). The Company further
covenants that all shares that may be issued upon the exercise of rights represented by this
Warrant and payment of the Exercise Price, all as set forth herein, will be free from all taxes,
liens and charges in respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously or otherwise specified herein). The Company agrees that its issuance
of this Warrant shall constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for shares of Series B
Convertible Preferred Stock upon the exercise of this Warrant.
10. Notices.
(a) Whenever the Exercise Price or number of shares purchasable hereunder shall be adjusted
pursuant to Section 12 hereof, the Company shall issue a certificate signed by an authorized
officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise Price and number
of shares purchasable hereunder after giving effect to such adjustment, and shall cause a copy of
such certificate to be mailed (by first-class mail, postage prepaid) to the Holder of this Warrant.
(b) In case:
7
(i) the Company shall take a record of the holders of its Common Stock (or
other stock or securities at the time receivable upon the exercise of this Warrant)
for the purpose of entitling them to receive any dividend
or other distribution, or any right to subscribe for or purchase any shares of
stock of any class or any other securities, or to receive any other right, or
(ii) of any capital reorganization of the Company, any reclassification of the
capital stock of the Company, any consolidation or merger of the Company with or
into another corporation, or any conveyance of all or substantially all of the
assets of the Company to another corporation, or
(iii) of any voluntary dissolution, liquidation or winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the Holder or Holders a
notice specifying, as the case may be, (A) the date on which a record is to be taken for the
purpose of such dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right, or (B) the date on which such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record of Series B Convertible Preferred
Stock or Common Stock (or such stock or securities at the time receivable upon the exercise of this
Warrant) shall be entitled to exchange their shares of Series B Convertible Preferred Stock or
Common Stock (or such other stock or securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation
or winding-up. Such notice shall be personally delivered, or mailed by overnight delivery, at least
ten days prior to the date therein specified.
(c) All such notices, advices and communications shall be deemed to have been received (i) in
the case of personal delivery, on the date of such delivery and (ii) in the case of mailing, on the
next business day following the date of such mailing by overnight delivery.
11. Amendments.
(a) Any term of this Warrant may be amended with the written consent of the Company and the
Holder.
(b) No waivers of, or exceptions to, any term, condition or provision of this Warrant, in any
one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of
any such term, condition or provision.
12. Adjustments. The Exercise Price and the number of shares purchasable hereunder
are subject to adjustment from time to time as follows:
12.1 Conversion or Redemption of Series B Convertible Preferred Stock. Should all of
the Company’s Series B Convertible Preferred Stock be, or if outstanding would be, at any time
prior to the expiration of this Warrant or any portion thereof, redeemed or converted into shares
of the Company’s Common Stock in accordance with Section 4.3.4(b) of the Certificate, then this
Warrant shall become immediately exercisable for that number of shares
8
of the Company’s Common
Stock equal to the number of shares of the Common Stock that would have been received if this
Warrant had been exercised in full and the Series B Convertible Preferred Stock received thereupon
had been simultaneously converted immediately prior to
such event, and the Exercise Price (per share of such Common Stock) shall immediately be
adjusted to equal the quotient obtained by dividing (x) the aggregate Exercise Price of the maximum
number of shares of Series B Convertible Preferred Stock for which this Warrant was exercisable
immediately prior to such conversion or redemption, by (y) the number of shares of Common Stock for
which this Warrant is exercisable immediately after such conversion or redemption. For purposes of
the foregoing Section 12.1, the “Certificate” shall mean the Certificate of Incorporation of the
Company as amended and/or restated and effective immediately prior to the redemption or conversion
of all of the Company’s Series B Convertible Preferred Stock.
12.2 Merger, Sale of Assets, etc. If at any time while this Warrant, or any portion
hereof, is outstanding and unexpired there shall be (i) a reorganization (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for herein), (ii) a merger
or consolidation of the Company with or into another corporation in which the Company is not the
surviving entity, or a reverse triangular merger in which the Company is the surviving entity but
the shares of the Company’s capital stock outstanding immediately prior to the merger are converted
by virtue of the merger into other property, whether in the form of securities, cash, or otherwise,
or (iii) a sale or transfer of the Company’s properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization, merger, consolidation, sale
or transfer, lawful provision shall be made so that the Holder of this Warrant shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified herein and upon
payment of the Exercise Price then in effect, and in lieu of the number of shares of Series B
Convertible Preferred Stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, the number of shares of stock, securities or assets as would be
issuable or payable with respect to or in exchange for the number of shares that a holder of the
shares deliverable upon exercise of this Warrant would have been entitled to receive if this
Warrant had been exercised immediately before such reorganization, merger, consolidation, sale or
transfer, all subject to further adjustment as provided in this Section 12. The foregoing
provisions of this Section 12.2 shall similarly apply to successive reorganizations,
consolidations, mergers, sales and transfers and to the stock or securities of any other
corporation that are at the time receivable upon the exercise of this Warrant. If the per-share
consideration payable to the holder hereof for shares in connection with any such transaction is in
a form other than cash or marketable securities, then the value of such consideration shall be
determined in good faith by the Company’s or any successor’s Board of Directors. In all events,
appropriate adjustment (as determined in good faith by the Company’s or any successor’s Board of
Directors) shall be made in the application of the provisions of this Warrant with respect to the
rights and interests of the Holder after the transaction, to the end that the provisions of this
Warrant shall be applicable after that event, as near as reasonably may be, in relation to any
shares or other property deliverable after that event upon exercise of this Warrant.
12.3 Reclassification, etc. If the Company, at any time while this Warrant, or any
portion hereof, remains outstanding and unexpired by reclassification of securities or otherwise,
shall change any of the securities as to which purchase rights under this Warrant exist into the
same or a different number of securities of any other class or classes, this Warrant shall
9
thereafter represent the right to acquire such number and kind of securities as would have been
issuable as the result of such change with respect to the securities that were subject to the
purchase rights under this Warrant immediately prior to such reclassification or other change and
the Exercise Price therefor shall be appropriately adjusted, all subject to further adjustment
as provided in this Section 12. No adjustment shall be made pursuant to this Section 12.3, upon any
conversion or redemption of the Series B Convertible Preferred Stock which is the subject of
Section 12.1.
12.4 Split, Subdivision or Combination of Shares. If the Company at any time while
this Warrant, or any portion hereof, remains outstanding and unexpired shall split, subdivide or
combine the securities as to which purchase rights under this Warrant exist, into a different
number of securities of the same class, the Exercise Price for such securities shall be
proportionately decreased in the case of a split or subdivision or proportionately increased in the
case of a combination.
12.5 Adjustments for Dividends in Stock or Other Securities or Property. If while
this Warrant, or any portion hereof, remains outstanding and unexpired, then all holders of the
securities as to which purchase rights under this Warrant exist at the time shall have received,
or, on or after the record date fixed for the determination of eligible stockholders, shall have
become entitled to receive, without payment therefor, other or additional stock or other securities
or property (other than cash) of the Company by way of dividend, then and in each case, this
Warrant shall represent the right to acquire, in addition to the number of shares of the security
receivable upon exercise of this Warrant, and without payment of any additional consideration
therefor, the amount of such other or additional stock or other securities or property (other than
cash) of the Company that such holder would hold on the date of such exercise had it been the
holder of record of the security receivable upon exercise of this Warrant on the date hereof and
had thereafter, during the period from the date hereof to and including the date of such exercise,
retained such shares and/or all other additional stock available by it as aforesaid during such
period, giving effect to all adjustments called for during such period by the provisions of this
Section 12.
12.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or
readjustment pursuant to this Section 12, the Company at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to each Holder of this
Warrant a certificate setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the written request,
at any time, of any such Holder, furnish or cause to be furnished to such Holder a like certificate
setting forth: (i) such adjustments and readjustments; (ii) the Exercise Price at the time in
effect; and (iii) the number of shares and the amount, if any, of other property that at the time
would be received upon the exercise of the Warrant.
12.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or performed hereunder by
the Company, but will at all times in good faith assist in the carrying out of all the provisions
of this Section 12 and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder of this Warrant against impairment.
10
13. Registration Rights and Voting and Co-Sale Agreements. Upon exercise of this
Warrant, and as a condition precedent to the Company issuing any shares of Series B Convertible
Preferred Stock to the Holder in connection therewith, the Holder shall duly complete, execute
and deliver the Notices of Adoption, annexed hereto as Annex C and Annex D, by
which the Holder shall become a party to the Registration Rights Agreement and to the Fourth
Amended and Restated Voting and Co-Sale Agreement, dated as of May 16, 2003, by and among the
Company and the parties who have executed the counterpart signature pages thereto or are otherwise
bound thereby, as such agreement may be amended and/or restated from time to time.
14. Information. So long as the Holder holds the Warrant and/or shares of Preferred
Stock or Common Stock, the Company shall deliver to the Holder, promptly after mailing (i) the
fiscal year end unqualified audited financial statements of the Company, prepared in accordance
with generally accepted accounting principles, consistently applied (which shall not contain any
“going concern” exception) no later than 180 days after the related fiscal year end, and (ii)
copies of all notices, reports, financial statements, proxies or other written communication
delivered or mailed to all holders of the Series B Convertible Preferred Stock or otherwise to all
holders of the same class of stock held by the Holder.
15. Descriptive Headings and Governing Law. The description headings of the several
sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a
part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the laws of the State of Delaware without regard to
conflicts of law provisions.
[The Remainder Of This Page Is Intentionally Left Blank.]
11
IN WITNESS WHEREOF, the parties have executed this Warrant as of the date set forth below.
Dated: February 3, 2006
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RITCHIE CAPITAL FINANCE, L.L.C. |
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SPS COMMERCE, INC. |
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By:
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/s/ Mary J. Caulfield
Name: Mary J. Caulfield
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By:
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/s/ Thomas C. Velin
Name: Thomas C. Velin
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Title: President
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Title: Chief Financial Officer |
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12
ANNEX A
NOTICE OF EXERCISE
(1) The undersigned hereby (A) elects to purchase ___shares of Series B
Convertible Preferred Stock of SPS Commerce, Inc., pursuant to the provisions of Section
3(a) of the attached Warrant, and tenders herewith payment of the
purchase price for such shares in full, or (B) elects to exercise this Warrant for the purchase of___shares of
Series B Convertible Preferred Stock, pursuant to the provisions of Section 3(c) of the
attached Warrant.
(2) In exercising this Warrant, the undersigned hereby confirms and acknowledges that
the shares of Series B Convertible Preferred Stock or the Common Stock to be issued upon
conversion thereof are being acquired solely for the account of the undersigned and not as a
nominee for any other party, and for investment, and that the undersigned will not offer,
sell or otherwise dispose of any such shares of Series B Convertible Preferred Stock or
Common Stock except under circumstances that will not result in a violation of the
Securities Act of 1933, as amended, or any applicable state securities laws.
(3) The undersigned represents and warrants to the Company that the undersigned is an
“accredited investor” as that term is defined in Regulation D promulgated under the
Securities Act of 1933, as amended (the “Act”) and, either alone or with such advisers as it
may select, has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of its investment in the shares of Series B
Convertible Preferred Stock or Common Stock to be issued upon exercise hereby or conversion
thereof.
(4) In exercising this Warrant, the undersigned hereby confirms and acknowledges that
the Company did not offer the shares of Series B Convertible Preferred Stock or Common Stock
to be issued upon exercise hereby or conversion thereof to the Holder by any form of general
solicitation or general advertising, including, but not limited to, any advertisement,
article, notice or similar media or broadcast over television or radio, or any seminar or
meeting whose attendees were invited by any general solicitation or general advertising.
(5) In exercising this Warrant, the undersigned hereby confirms and acknowledges that
it has received a copy of that certain Information Statement of the Company dated *[January
___, 2006] and reviewed and discussed the Company’s business, affairs and current prospects
with such officers and others (including its purchaser representative, if applicable) as it
has deemed appropriate or desirable in connection with the transactions contemplated hereby.
In exercising this Warrant, the undersigned hereby confirms and acknowledges that it has
requested, received and reviewed such information, undertaken such investigation and made
such further inquiries of officers of the Company and others as it has deemed appropriate or
desirable in connection with such transactions.
A-1
(6) In exercising this Warrant, the undersigned understands that it must bear the
economic risk of its investment for an indefinite period of time because the Series B
Convertible Preferred Stock and Common Stock are not, and will not be, registered under the
Act or any applicable state securities laws, except as may be otherwise be determined by the
Company or in connection with the Fourth Amended and Restated Registration Rights Agreement,
dated as of May 16, 2003, by and among the Company and the parties who have executed the
counterpart signature pages thereto or are otherwise bound thereby, as such agreement may be
amended and/or restated from time to time (the “Registration
Rights Agreement”), and such shares may not be resold unless subsequently registered under the Act and such other federal
or state securities laws or unless an exemption from such registration is available. The
undersigned further understands that, except as may be otherwise be determined by the
Company or pursuant to the Registration Rights Agreement, it is not contemplated that any
registration will be made under the Act or any state securities laws.
(7) Please issue a certificate or certificates representing said shares of Series B
Convertible Preferred Stock in the name of the undersigned or in such other name as is
specified below:
(Name)
(8) Please issue a new Warrant for the unexercised portion of the attached Warrant in
the name of the undersigned or in such other name as is specified below:
A-2
ANNEX B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns and
transfers unto the Assignee named below all of the rights of the undersigned under the within
Warrant, with respect to the number of shares of Series B Convertible Preferred Stock (or Common
Stock) set forth below:
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Name of Assignee
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Address
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No. of Shares |
and does hereby irrevocably constitute and appoint Attorney to make such transfer on
the books of SPS Commerce, Inc., maintained for the purpose, with full power of substitution in the
premises.
The undersigned also represents that, by assignment hereof, the Assignee acknowledges that this
Warrant and the shares of stock to be issued upon exercise hereof or conversion thereof are being
acquired for investment and that the Assignee will not offer, sell or otherwise dispose of this
Warrant or any shares of stock to be issued upon exercise hereof or conversion thereof except under
circumstances which will not result in a violation of the Securities Act of 1933, as amended, or
any state securities laws. Further, the Assignee has acknowledged that upon exercise of this
Warrant, the Assignee shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of stock so purchased are being acquired for
investment and not with a view toward distribution or resale.
The undersigned, by assignment hereof, agrees to be bound by the terms and conditions of this
Warrant as the Holder of this Warrant.
B-1
ANNEX C
NOTICE OF ADOPTION
(Registration Rights Agreement)
This Notice of Adoption (“Adoption Notice”) is executed by the undersigned (the “Adopting
Party”) pursuant to the terms of that certain Fourth Amended and Restated Registration Rights
Agreement dated as of May 16, 2003, as may be amended from time to time (the “Agreement”), by and
among SPS Commerce, Inc., a Delaware corporation, and the other parties thereto. Capitalized terms
used but not defined herein will have the respective meanings ascribed to such terms in the
Agreement. By the execution and delivery of this Adoption Notice, the Adopting Party agrees as
follows:
1. Acknowledgment. Adopting Party acknowledges that Adopting Party is purchasing the
shares of the Company’s capital stock set forth below (the “Shares”).
2. Agreement. Adopting Party: (i) agrees that the Shares acquired by Adopting Party
will be bound by and subject to the terms of the Agreement; and (ii) hereby adopts the Agreement
with the same force and effect as if Adopting Party were originally an “Investor.”
3. Notice. Any notice required or permitted by the Agreement will be given to
Adopting Party at the address or facsimile listed beside Adopting Party’s signature below.
IN WITNESS WHEREOF, the Adopting Party has caused this Notice of Adoption to be executed by
its duly authorized representative as of the date first written below.
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Shares Purchased:
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Class of Stock:
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Printed Name of Adopting Party |
Date:
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Facsimile: (___)
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Printed Name and Title of Authorized |
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Signatory of Adopting Party |
C-1
ANNEX D
NOTICE OF ADOPTION
(Voting and Co-Sale Agreement)
This Notice of Adoption (“Adoption Notice”) is executed by the undersigned (the “Adopting
Party”) pursuant to the terms of that certain Fourth Amended and Restated Voting and Co-Sale
Agreement dated as of May 16, 2003, as may be amended from time to time (the “Agreement”), by and
among SPS Commerce, Inc., a Delaware corporation, and the other parties thereto. Capitalized terms
used but not defined herein will have the respective meanings ascribed to such terms in the
Agreement. By the execution and delivery of this Adoption Notice, the Adopting Party agrees as
follows:
1. Acknowledgment. Adopting Party acknowledges that Adopting Party is purchasing the
shares of the Company’s capital stock set forth below (the “Shares”).
2. Agreement. Adopting Party: (i) agrees that the Shares acquired by Adopting Party
will be bound by and subject to the terms of the Agreement; and (ii) hereby adopts the Agreement
with the same force and effect as if Adopting Party were originally an “Investor.”
3. Notice. Any notice required or permitted by the Agreement will be given to
Adopting Party at the address or facsimile listed beside Adopting Party’s signature below.
IN WITNESS WHEREOF, the Adopting Party has caused this Notice of Adoption to be executed by
its duly authorized representative as of the date first written below.
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Shares Purchased:
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Class of Stock:
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Printed Name of Adopting Party |
Date:
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Facsimile: (___)
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Printed Name and Title of Authorized |
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Signatory of Adopting Party |
D-1
exv23w1
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
have issued our report dated February 12, 2010, with respect to the financial statements
and schedule of SPS Commerce, Inc. contained in Amendment No. 3
to the Registration Statement and Prospectus. We
consent to the use of the aforementioned report in Amendment No. 3 to the Registration Statement and Prospectus, and
to the use of our name as it appears under the caption “Experts.”
Minneapolis, Minnesota
March 5, 2010
corresp
Jonathan R. Zimmerman
JZimmerman@faegre.com
(612) 766-8419
March 5, 2010
VIA EDGAR AND FEDERAL EXPRESS
United States Securities and Exchange Commission
Division of Corporate Finance
100 F Street, NE
Washington, DC 20549-3561
Attention: H. Christopher Owings, Assistant Director
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Re: |
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SPS Commerce, Inc. — Registration Statement on Form S-1 (File No. 333-163476)
(the “Registration Statement”) |
Ladies and Gentlemen:
On behalf of SPS Commerce, Inc. (the “Company”), we are transmitting the following responses
of the Company to the comments of the Commission’s staff (the “Staff”) as set forth in the letter
of H. Christopher Owings, Assistant Director, dated March 3, 2010 (the “Comment Letter”). We have
enclosed for your reference two courtesy copies of Amendment No. 3 to the Registration Statement
(the “Amendment”) in a clean version and two copies of the Amendment in a version marked to show
changes from Amendment No. 2 to the Registration Statement.
The responses herein were provided to this firm by the Company. In this letter, we have
recited the comment from the Staff in italicized, bold type and have followed the comment with the
Company’s response in regular type. References in this letter to we, our or us mean the Company or
its advisors, as the context may require. The page number references correspond to the page
numbers in the Amendment.
Prospectus Summary, page 1
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1. |
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We note your response to comment 2 in our letter dated February 2, 2010. We
also note that you continue to have repetitive information, such an overview that is
then expanded within the summary. You also provide revenue information that is again
repeated further in this section. Please revise. |
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Company Response: |
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In response to the Staff’s comment, the Company further revised the prospectus
summary. |
Risk Factors, page 9
“We have incurred operation losses in the past ...”, page 11
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2. |
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Please reconcile the amount you are presenting here for your accumulated
deficit as of December 31, 2009 to the amount seen in your audited financial
statements. |
March 5, 2010
Page 2
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Company Response: |
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The Company revised the amount presented on page 10 to conform to the
corresponding amount shown in the audited financial statements. |
“Our ability to use U.S. net operating loss carryforwards ...”, page 14
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3. |
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It appears that the first sentence under this risk factor should be revised
to refer to December 31, 2009. Please revise or advise. |
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Company Response: |
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The Company revised the first sentence of this risk factor to refer to December 31,
2009. |
Capitalization, page 22
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4. |
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Please reconcile the number of common stock shares issued and outstanding as
of December 31, 2009 with the number shown in your audited financial statements. |
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Company Response: |
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The Company revised the number of common stock shares issued and outstanding
presented on page 21 to conform to the corresponding amount shown in the audited
financial statements. |
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5. |
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We note you have included equity account balances under the Pro Forma column.
We have reviewed your response to prior comment 6 in our letter dated February 2,
2010; however, it remains unclear to us how you calculated the balances for pro forma
common stock par value and pro forma additional paid-in capital. Specifically, your
disclosure in Note F to your financial statements indicates that each share of Series
A, B and C redeemable convertible preferred stock is convertible into common stock at
a conversion price of $2.31, $0.98 and $1.60, respectively. It is unclear from your
response how you considered the conversion rates disclosed in your financial
statements when calculating these pro forma amounts. Please explain this to us in more
detail. |
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Company Response: |
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In response to the Staff’s comment, the Amendment deletes the sentence in Note F that
previously read “Each share of Series A, B and C redeemable convertible preferred stock, at the
option of the holder, is convertible at a conversion price of $2.31, $0.98 and $1.60 per share,
respectively.” In its place, the Company added the following language on page F-19:
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“Each share of Series A, B, and C redeemable convertible preferred stock, at the option of the
holder, is convertible into common shares at a conversion ratio that was 1 to 1 at December 31,
2009. The conversion ratio is equal to the conversion value divided by the conversion price. The
conversion value and conversion price were initially set in the Company’s Fifth Amended and Restated Certificate of
Incorporation at $2.31, $0.98 and $1.60 for the Series A, B and C redeemable convertible preferred
stock, respectively. The conversion price is subject to adjustment for certain dilutive issuances.
The Company has not issued any dilutive instruments which would adjust the conversion price.
Therefore, at December 31, 2009, the conversion value and the conversion price have not changed
since they were initially set.”
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In addition, the closing of the proposed public offering will result in the automatic
conversion of the Series A, B and C redeemable convertible preferred stock to common stock
at the then effective conversion ratio.
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Selected Financial Data, page 26
Operating Data, page 27
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6. |
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Please tell us why the number of historical recurring revenue customers,
presented here and throughout your document, changed from your last amendment. |
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Company Response: |
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The Company respectfully advises the Staff that the Company refined its method of
counting recurring revenue customers after filing Amendment No. 1 to the
Registration Statement. Historically, the Company counted each
business unit
within an organization as a separate recurring revenue customer since
these business units requested separate invoices and typically the
sales were made through different points of contact within the larger
organization. The Company’s refined method counts all of these
business units that share a common address as one customer. |
March 5, 2010
Page 3
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The application of this refined method to past
dates slightly reduced the historical numbers of recurring revenue customers. |
Financial Statements, page F-l
Balance Sheets, page F-3
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7. |
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We note your presentation of pro forma equity account balances on the face of
your balance sheet and related pro forma earnings per share amounts on the face of
your statements of operations. Based on the information presented, it appears that the
conversion of your redeemable convertible preferred stock into common stock upon
consummation of your offering will result in a material increase in your
permanent equity. While we would not object to your presentation of this change in
capitalization within separate pro forma financial statements, we believe it is
appropriate to present such pro forma information on the face of your historical
financial statements only if it results in a material reduction of your
permanent equity. Please revise your presentation of pro forma equity and earnings per
share accordingly. |
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Company Response: |
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In response to the Staff’s comment, the Company removed the pro forma equity
account balances on the face of the balance sheet on page F-3 and the pro forma
earnings per share amounts on the face of the statement of operations on page F-4.
The Company also removed the corresponding footnote on page F-7 of Amendment No. 2
to the Registration Statement. |
Notes to Financial Statements, page F-7
Note C — Income Taxes, page F-15
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8. |
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It appears that the first sentence in the last paragraph on this page should
refer to December 31, 2009 instead of December 31, 2008. Please revise. |
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The Company revised the first sentence in this paragraph to refer to December
31, 2009. |
Please do not hesitate to call me at 612-766-8419 if you have any questions or comments
regarding the foregoing or if we can be of service in facilitating your review of this filing.
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Sincerely,
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/s/ Jonathan R. Zimmerman |
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Jonathan R. Zimmerman |
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Enclosures
cc: |
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Scott M. Anderegg, Staff Attorney, Securities and Exchange
Commission (w/out encl.)
Archie C. Black, Chief Executive Officer, SPS Commerce, Inc. (w/out encl.)
Kimberley K. Nelson, Chief Financial Officer, SPS Commerce, Inc. (w/out encl.)
Kenneth J. Gordon, Partner, Goodwin Procter LLP (w/out encl.) |