The holders of the FirstMark A-10 and A-11 Warrants and the Constellation A-11 Warrants, collectively (the “June Warrants”) may exercise the purchase rights represented by the June Warrants at any time. Cashless exercise is permitted. The June Warrants expire four years after the issue date. The Company allocated and charged approximately $0.2 million to debt discount, which will be amortized over the life of the June FirstMark Notes and the Constellation Notes to interest expense, and assigned and credited to additional paid in capital approximately $0.2 million for the fair value of the June Warrants. A more complete description of the June Warrants can be found in its entirety by reference to the full text of the respective documents.
On January 29, 2009, the Company issued and sold to FirstMark the following Promissory Notes (the “FirstMark 09 Notes”): (1) a promissory note in the principal amount of $876,449 to FirstMark III L.P., and (2) a promissory note in the principal amount of $123,551 to FirstMark III Offshore Partners, L.P. The FirstMark 09 Notes bear interest at a rate per annum equal to 15%. Interest on the FirstMark 09 Notes shall be due and payable in cash or, at the option of the Company, in shares of the Company’s Series A-12 Preferred Stock at a price per share of $0.638. Proceeds from the FirstMark 09 Notes were used to fund working capital needs.
On February 11, 2009, the Company and FirstMark amended the FirstMark 09 Notes (the “Amended FirstMark 09 Notes”) to (i) change the maturity date from February 13, 2009 (or the date on which the Company obtained all necessary consents from its Senior Lenders to such payment if later) to December 15, 2009, (ii) change the interest rate on overdue unpaid principal or interest from 10.5% to 16.5% and (iii) change the priority of payments if the Company is not able to pay the full amounts due under all of its Subordinated Promissory Notes, such that payments to FirstMark with respect to all Subordinated Promissory Notes held by it (the “FirstMark Notes”) have first preference over the Constellation Notes.
On February 11, 2009, the Company also issued warrants to FirstMark (the “FirstMark A-12 Warrants”) entitling: (i) FirstMark III L.P. to purchase 120,889 shares of the Company’s Series A-12 Preferred Stock and (ii) FirstMark III Offshore Partners, L.P. warrants to purchase 17,042 shares of the Company’s Series A-12 Preferred Stock, both at an exercise price of $0.725 per share. The holders of the FirstMark A-12 Warrants may exercise the purchase rights represented by the FirstMark A-12 Warrants at any time. Cashless exercise is permitted. The FirstMark A-12 Warrants expire on February 11, 2013.
The Second Amended FirstMark Notes together with the June FirstMark Notes, the Constellation Notes and the Amended FirstMark 09 Notes, collectively are sometimes referred to herein as the “Investors Notes”. At March 31, 2009 the balance of the Investors Notes was approximately $6.8 million, net of debt discounts. At March 31, 2009, approximately $0.5 million in interest has been accrued on the Investors Notes and is payable at maturity.
The Company entered into an amendment to the Investors Notes (the “Amendment”) on February 11, 2009. The Amendment (i) amends all Subordinated Promissory Notes issued to FirstMark (or its predecessors) or Constellation to change the priority of payments if the Company is not able to pay the full amounts due under all of its Subordinated Promissory Notes, such that payments to FirstMark with respect to the FirstMark Notes have first preference over the Constellation Notes; (ii) amends the Constellation Notes to provide that the rights of Constellation to the payment of principal and interest with respect to such Constellation Notes are subordinated to the payment rights of FirstMark in connection with the FirstMark Notes (as well as the payment rights of the Senior Lenders with respect to the Senior Debt); and (iii) provides for the express subordination of the payment of the Constellation Notes to the prior payment in full of the FirstMark Notes.
The foregoing description of the Investors Notes and the related warrants as well as the Amendment does not purport to be complete, and is qualified in its entirety by reference to the full text of such documents, which are incorporated by reference herein.
The right of repayment of principal and interest on the Investors Notes is subordinated to the rights and security interest of (i) CDF in connection with the August 21, 2007 Credit Facilities Agreement (described below in this Item), and (ii) CP Investment Management and NEBF in connection with the CP/NEBF Credit Agreement (described below in this Item), (CDF and NEBF collectively, the “Senior Lenders” and the Credit Facilities Agreement and the CP/NEBF Credit Agreement collectively, the “Senior Debt”). While any default or event of default has occurred and is continuing with respect to any Senior Debt, the Company is prohibited from making any payments or distribution in respect of the Investors Notes.
Upon an event of default, as set forth in the Investors Notes, the holders of the Investors Notes may declare all amounts outstanding under the Investors Notes immediately due and payable and exercise other remedies permitted by the Investors Notes or at law or in equity, subject to the above mentioned subordination. A more complete description of the Investors Notes can be found in its entirety by reference to the full text of the applicable documents.
Since the commencement of the Company’s fiscal year 2010, the Company entered in the following further amendment with FirstMark and Constellation.
The Company entered into a Second Amendment to the Investors Notes (the “Second Amendment”) on June 11, 2009. The Second Amendment (i) amends all of the Investors Notes to extend the maturity dates to November 30, 2010 from December 15, 2009; (ii) amends the FirstMark Notes to provide that the rights of FirstMark to the payment of principal and interest with respect to such FirstMark Notes are subordinated to the payment rights of CP Investment Manager, as Investment Manager for the L/C Guarantors under the L/C Agreement; and (iii) amends the Constellation Notes to provide that the rights of Constellation to the payment of principal and interest with respect to such Constellation Notes are subordinated to the payment rights of CP Investment Manager, as Investment Manager for the L/C Guarantors under the L/C Agreement.
On May 29, 2009, the Company received a $1,900,000 advance from CDF under the Credit Facilities Agreement. As a condition of such advance, CDF required NEBF to enter into a Limited Guarantee for the benefit of CDF, whereby NEBF guaranteed the repayment obligations of the $1,900,000 advance to the Company (the “NEBF Guarantee”).
Credit Facilities Agreement
On August 21, 2007, the Company entered into a secured Credit Facilities Agreement (the “Credit Facilities Agreement”) with CDF as Administrative Agent, GECC Capital Markets Group, Inc. as Sole Lead Arranger and Sole Bookrunner, and CDF and the other lenders listed in the Credit Facilities Agreement as (the “Lenders”), providing a combined maximum availability of up to $34 million.
The Credit Facilities Agreement refinanced the Company’s prior senior lender facilities and is secured by a first priority lien on and security interest in substantially all of the present and future assets of the Company, including the issued and outstanding stock of the Company (other than MTM Technologies, Inc.), except for permitted encumbrances. Credit and advances to the Company pursuant to the Credit Facilities Agreement will be used to fund working capital and floor-planning needs, and for general corporate purposes. Terms not otherwise defined in this discussion have the meaning ascribed to them in the Credit Facilities Agreement.
The Revolving Credit Facility under the Credit Facilities Agreement encompasses a two year revolving credit facility, unless earlier terminated by the Company or the Lenders, for up to $15 million, pursuant to the Sixth Amendment to the Credit Facilities Agreement (the “Sixth Amendment”), subject to a borrowing base based on eligible accounts receivable, minus the sum of any outstanding Swingline Loan, Floorplan Shortfall, Letter of Credit Exposure, and Bid Bonds, and certain other limitations. All amounts under the Credit Facilities Agreement are due upon the termination thereof, subject to optional prepayment in accordance with the terms of the Credit Facilities Agreement, and mandatory repayment of any Swingline Loan in the event that any of the Lenders fails to pay its allocated portion thereof. Amounts borrowed under the Revolving Credit Facility, pursuant to the Sixth Amendment, bear interest at LIBOR plus 3.5% or LIBOR plus 4.5% during any default period.
The Floorplan Loan Facility under the Credit Facilities Agreement is not a commitment to lend or advance funds but is a discretionary facility, for up to $20 million, pursuant to the Sixth Amendment, unless terminated by the Company or the Lenders, which allows the Company to finance inventory purchases from vendors as may be approved by the Administrative Agent, on an up to 45-day interest-free basis in many cases. Interest accrues after expiration of any applicable interest free period at a rate to be determined under each Transaction Statement, and not to exceed a maximum rate of 16% per annum in the event the Company objects to the terms under any Transaction Statement. Generally, the Company would receive at least 60 days advance notice of a termination of the Floorplan Facility, during which period the Company would continue to be able to finance inventory purchases under the facility.
The Letter of Credit Facility under the Credit Facilities Agreement will allow the Company to request standby letters of credit and commercial letters of credit for the account of the Company from time to time up to the lesser of $2 million or then applicable availability limits less certain outstanding obligations of the Company under the Credit Facilities Agreement. As of March 31, 2009, the Company has no outstanding letters of credit.
During fiscal 2008 and 2009, the Company entered into several amendments to the Credit Facilities Agreement with CDF in order to waive compliance with and or modify certain financial covenants, modify certain terms including the definitions regarding certain covenant calculations, eligible accounts receivable, cash reserves applicable to the Borrowing Base, and floor plan inventory value, and to consent to and approve various indebtedness incurred by the Company and to update disclosures.
The Credit Facilities Agreement, as amended through March 31, 2009 requires, among other things, that the Company maintain certain financial covenants including Maximum Total Funded Indebtedness to EBITDA, as defined, of not greater than 4.00 to 1.00 for the preceding four fiscal quarters then ended, beginning with the period ended March 31, 2008; Minimum EBITDA, as defined, for the fiscal quarter ending on March 31, 2009 of $800,000, and for the fiscal quarter ending on June 30, 2009 of $2,000,000; Minimum Excess Cash/Marketable Securities plus Availability of $1,500,000 on the last day of each calendar month; and Minimum Liquidation Multiple of 1.20 to 1.00 as of the last day of each fiscal month; as well as restrictions on the Company’s ability to incur certain additional indebtedness, and various customary provisions, including affirmative and negative covenants, representations and warranties and events of default.
Upon a breach or an event of default by the Company with respect to any of the Investors Notes or the Senior Debt not cured by the Company within any applicable grace period, any of the Lenders may terminate the Credit Facilities Agreement and/or declare all amounts outstanding under the Credit Facilities Agreement immediately due and payable and exercise other remedies including foreclosure of the security for the obligations under the Credit Facilities Agreement.
As of March 31, 2009, the Company was not in compliance with all covenants and was in default of certain other provisions prescribed under the Credit Facility. On June 2, 2009, the Company entered into the Eighth Amendment to the Credit Facilities Agreement with CDF, (the “Eighth Amendment”), whereby CDF waived all existing defaults. In consideration of CDF agreeing to the Eighth Amendment and the waivers contained therein the Company agreed to pay an Eighth Amendment fee of $250,000.
Available funds under the Credit Facilities Agreement as of March 31, 2009, net of the $1,750,000 cash reserve, amounted to approximately $2,400,000.
Since the commencement of the Company’s fiscal year 2010, the Company entered in the following amendments of the Credit Facilities Agreement.
On June 2, 2009 and June 11, 2009, the Company entered into, respectively, the Eighth and Ninth Amendments to the Credit Facilities Agreement with CDF. The Eighth Amendment provides for, among other things, (a) an acknowledgement of the NEBF Guarantee; (b) the waiver by CDF of the Companies’ existing defaults as of June 2, 2009 under the Credit Facilities Agreement; (c) the termination of all existing Commitments and replacement with new Facilities comprised of a $15,000,000 Revolving Loan Facility and a $15,000,000 Floorplan Loan Facility, with the aggregate limit of such Facilities not to exceed $25,000,000; and (d) amendments to certain definitions and the elimination of most financial covenants, including Maximum Total Funded Indebtedness to EBITDA, Minimum EBITDA and the Minimum Liquidation Multiple. The Ninth Amendment provides for, among other things, (a) consent to the incurrence by the Company of the indebtedness provided for in the L/C Agreement, (b) amendments relating to the L/C Agreement, (c) consent to the sale by the Company of its facilities business, (d) a change in the maturity date of the Revolving Loan Facility under the Credit Facilities Agreement to March 31, 2010 from August 21, 2009, and (e) amendments to certain definitions including the computation of the Borrowing Base and (f) amendments to representations and warranties.
On June 29, 2009 CDF consented to certain extensions to the compliance provisions under the Credit Facilities Agreement to July 14, 2009 and agreed to modify certain other qualification provisions related to the issuance of the 2009 annual financial statements.
18
CP/NEBF Credit Agreement
On November 23, 2005, the Company entered into a secured Credit Agreement (the “CP/NEBF Credit Agreement”) and accompanying promissory note in the principal amount of $25 million (the “CP/NEBF Note”), with CP Investment Management and NEBF, as Lender (the “Lender”). During fiscal 2008 and 2009, the Company entered into several amendments to the CP/NEBF Credit Agreement in order to modify certain terms including extending the maturity date, subordinating the CP/NEBF Note, modifying and or waiving compliance with certain financial covenants, consenting to and approving various indebtedness incurred by the Company and to update disclosures.
Pursuant to the Subordination Agreement dated as of August 21, 2007 (the “Subordination Agreement”) with CDF, for itself and agent to the Lenders under the Credit Facilities Agreement, the CP/NEBF Credit Agreement was extended until November 23, 2010.
On June 11, 2008 and June 17, 2008, the Company entered into Amendments No. 4 and 5 to the CP/NEBF Credit Agreement with CP Investment Management and the Lender whereby each (a) consented to and approved the Second Amended Notes, the June FirstMark Notes and the Constellation Notes in the principal amount of up to $6,000,000, (b) modified certain financial covenants contained in the CP/NEBF Credit Agreement, (c) amended the existing CP/NEBF Note to increase the principal amount by $3,000,000 to $28,000,000 (the “CP/NEBF Amended Note”), and (d) amended the payment premium in respect of the CP/NEBF Amended Note equal to an amount which, when combined with previous payments made, will yield an internal rate of return of 15% per annum from the Closing Date. Proceeds from the additional funding of $3,000,000 were used to fund working capital needs.
The amount outstanding on the CP/NEBF Amended Note bears interest equal to 4.52%; of which the Applicable Current Cash Rate of interest was 1% per annum through August 21, 2008, which rate was increased to 2% per annum through November 22, 2009, and then will increase to 8% per annum thereafter. The Applicable Current Cash Rate is payable quarterly in cash and all remaining interest will accrue and only become due at maturity. Pursuant to Amendment No. 5, upon maturity or in the event of acceleration or upon the occurrence of certain liquidity events, the Company will pay a payment premium in respect of the Note equal to an amount which, when combined with previous payments made, will yield an internal rate of return to the Lender of 15% per annum from the Closing Date, except during any period in which an Event of Default shall have occurred and be continuing, in which case the internal rate of return for such period shall be adjusted to 17% per annum. At March 31, 2009, $13.7 million in interest has been accrued on the Note, $0.2 million is accrued and payable within the next quarter, and $13.5 million is accrued and is payable at maturity.
Required financial covenants under the CP/NEBF Agreement are less restrictive in nature and coincide substantially with those under the Credit Facilities Agreement. The CP/NEBF Credit Agreement requires, among other things, that the Company maintain certain financial covenants including Maximum Total Funded Indebtedness to EBITDA, as defined, of not greater than 4.40 to 1.00 for the preceding four fiscal quarters then ended, beginning with the period ended March 31, 2008.
On January 29, 2009, the Company entered into Amendment No. 7 to the CP/NEBF Credit Agreement with CP Investment Management and the Lender, whereby each of Investment Manager and Lender (a) consented to and approved the incurrence by the Company of certain unsecured subordinated indebtedness to FirstMark in the principal amount up to $1,000,000, and the issuance of warrants in connection therewith, (b) obtained a waiver of certain terms of the CP/NEBF Credit Agreement in relation to the foregoing request, (c) modified effective December 1, 2008 certain financial covenants and financial covenant definitions and waived compliance with the Maximum Total Funded Indebtedness to EBITDA covenant for the period ended December 31, 2008, and (d) amended the existing CP/NEBF Note to increase the principal amount by $1,000,000 to $29,000,000. Proceeds from the additional funding of $1,000,000 were used to fund working capital needs.
Subject to the terms of the Subordination Agreement, upon an event of default, the lenders under the CP/NEFB Credit Agreement may terminate such Credit Agreement and/or declare all amounts outstanding immediately due and payable and exercise other remedies including foreclosure of the security for the obligations under the CP/NEFB Credit Agreement, as amended. Terms not otherwise defined in this discussion have the meaning ascribed to them in the CP/NEFB Credit Agreement, as amended or in the Subordination Agreement.
As of March 31, 2009, the Company was not in compliance with all covenants and was in default of certain other provisions prescribed under the CP/NEBF Credit Agreement. On June 2, 2009, the Company entered into Amendment No. 8, with CP Investment Management and the Lender, to the CP/NEBF Credit Agreement (“Amendment No. 8”), whereby CP Investment Management and the Lender waived all existing defaults.
Since the commencement of the Company’s fiscal year 2010, the Company entered in the following amendments of the CP/NEBF Credit Agreement.
On June 2, 2009 and June 11, 2009, the Company entered into Amendments No. 8 and 9, respectively, to the CP/NEBF Credit Agreement with CP Investment Management, as Investment Manager and NEBF, as Lender. Amendment No. 8 provides for, among other things, (a) the waiver by CP Investment Management and NEBF of the Companies’ existing defaults as of June 2, 2009 under the terms of the CP/NEBF Credit Agreement; (b) the Companies’ guarantee of reimbursement of payments made by NEBF under the NEBF Guarantee; (c) setting the interest rate equal to (i) 4.52% per annum for the term between the date of issuance and June 30, 2010, and (ii) 8.00% per annum thereafter; with (iii) the Current Cash Rate for April 1, 2009 through June 30, 2010 reduced to 0% on an annualized basis, and then the rate will increase to 8% per annum thereafter; (d) an amendment to the definition of “Senior Indebtedness” and the elimination of all financial covenants; and (e) the waiver by the Company of any claims it may have against CP Investment Management and NEBF existing or occurring on or prior to the date of Amendment No. 8. Amendment No. 9 provides for, among other things, (a) consent to the incurrence by the Company of the indebtedness provided for in the L/C Agreement, (b) amendments relating to the L/C Agreement, (c) consent to the sale by the Company of its facilities business; and (d) amendments to certain definitions and rights of CP Investment Management and NEBF.
19
For the year ended March 31, 2009, the Company generated cash of $1.4 million in operating activities. The cash generated is derived from a net loss of $39.6 million offset by a decrease in net operating assets of $4.4 million and non-cash charges of $36.6 million. The decrease in net operating assets relates primarily to a decrease in accounts receivable and in payables. Accounts receivable at March 31, 2008 includes a $3.6 million receivable of which $3.5 million was subsequently collected in June 2008. The decrease in accounts receivable is also directly related to approximately 32% lower billings in the second half of fiscal 2009 as compared to the prior year. The Company also had strong cash collections in fiscal 2009 especially with regard to past due accounts. Accounts payable decreased as proceeds from the promissory notes with FirstMark and Constellation received in the first quarter of fiscal 2009 were used to pay vendors. The decrease in accrued expenses and in deferred revenue is due to lower operating costs over the prior year, primarily the result of cost cutting initiatives and the impact of lower revenues. Prepaid expenses also decreased over the prior year, primarily as a function of less rebates and deal commissions earned by the Company in the current year due to lower volumes of product sold and due to the timing of expenses.
Cash used in investing activities was $2.2 million for the year ended March 31, 2009 related to additions to capital expenditures. The level of investment was comparable to the prior year period. The Company has no plans for any material purchases of property and equipment including capital software projects for fiscal 2010.
Cash used in financing activities was $0.3 million for the year ended March 31, 2009, which was primarily the result of net cash proceeds received of $4.3 million from our issuance of promissory notes to the Investors during fiscal 2009 amounting to $4.5 million, and an additional $3.9 million of net cash proceeds received under the CP/NEBF Credit Agreement which increased the principal amount by $4.0 million, both for the purpose of funding working capital needs. The increase in cash generated from financing activities was offset by the increase in cash collections used to repay a portion of the borrowings on our working capital lines under our Credit Facilities Agreement with CDF. The Company had net borrowings under its Credit Facilities Agreement of a decrease of $8.2 million during fiscal 2009, which consisted of additional gross borrowings of $289.3 million offset by gross repayments of $297.5 million.
Contractual Obligations
The following table sets forth, as of March 31, 2009, the Company’s known contractual obligations and borrowings, and the timing and effect that such commitments are expected to have on the Company’s liquidity and capital requirements in future periods (in thousands).
| | | | | | | | | | | | | | | | |
| | Payment Due by Period | |
| |
| |
Contractual Obligations | | Total | | Less than
1 year | | 1-3
years | | 3-5
years | | More than
5 years | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | (In thousands of dollars) | |
| | | |
Secured revolving credit facilities | | $ | 5,898 | | $ | 5,898 | | | — | | | — | | | — | |
Inventory financing agreements | | | 9,769 | | | 9,769 | | | — | | | — | | | — | |
Related party notes payable (1) | | | 7,966 | | | 7,966 | | | — | | | — | | | — | |
Secured promissory note (1) | | | 54,168 | | | 1,194 | | $ | 52,974 | | | — | | | — | |
Capital lease obligations | | | 122 | | | 116 | | | 6 | | | — | | | — | |
Operating lease obligations | | | 11,151 | | | 3,363 | | | 4,148 | | $ | 2,005 | | $ | 1,635 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total | | $ | 89,074 | | $ | 28,306 | | $ | 57,128 | | $ | 2,005 | | $ | 1,635 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
(1) | Amounts include the principal maturities and expected interest payments. |
The Company sustained net losses during the fiscal years ended March 31, 2009 and 2008. Our decline in performance during fiscal 2009 continued to be impacted by a weaker US economy and reduced access to business credit. Our business requires significant levels of working capital to fund future revenue growth and current operations. We have historically relied on and continue to rely heavily on, trade credit from vendors and our credit facilities for our working capital needs. The Company has made a concerted effort to improve its working capital position over the past few years and during fiscal 2009 had taken significant measures to further reduce headcount, streamline operations, consolidate facilities and manage costs in response to the impact of the economic downturn. We have also significantly reduced our infrastructure investment by limiting future capital expenditures including, the internal development of purchased and developed software. We continue to drive accounts receivable and have made strong progress in collecting overdue accounts. The Company continues to actively pursue additional financing arrangements including the successful negotiation in June of fiscal 2010 of an additional $7.0 million in borrowing capacity under our existing Credit Facilities Agreement with CDF.
We expect that results for fiscal 2010 will continue to be impacted by a very difficult economic environment in the U.S. and a potentially widening global recession. We believe, however, that the combination of adequate immediate financing, a focused “go to market” strategy and strong cost controls will enable us to lay a foundation for improved future operating results and the ability to generate cash flow.
Our ability to continue as a going concern, however, is contingent upon our ability to obtain debt and or capital financing in order to meet obligations that mature in fiscal 2010; including the Company’s current Credit Facilities Agreement with CDF, which matures in March 2010, as well as our ability to restructure our operations in order to improve future operating results and to generate cash flow.
Our immediate liquidity and capital requirements going forward will depend on numerous factors, including general economic conditions and conditions in the financial services, government and technology industry in particular; the ability to extend or refinance our current maturities; the ability to negotiate additional flexibility in borrowing restrictions and reserves under our current financing facilities and vendor lines of credit; our dependence on third party licenses and our ability to maintain our status as an authorized reseller/service provider of IT products; the cost effectiveness of our product and service development activities and our ability to reduce and leverage our centralized infrastructure, all of which may impact our ability to fund our operations for the foreseeable future. The Company currently has no commitments for material capital expenditures. To the extent that our existing capital resources are insufficient to meet our working capital requirements, we may seek to raise additional funds or seek additional financing arrangements. However, no assurance can be given that such financing may be obtained on terms attractive to us, or at all. Furthermore, any additional debt or equity financing arrangements may be dilutive to shareholders, and debt financing, if available, may involve restrictive covenants. Our failure to raise capital when needed could have a material adverse effect on our business, operating results and financial condition.
20
Recent Accounting Pronouncements
See Note 1 to the Consolidated Financial Statements in this Annual Report on Form 10-K for a discussion of the accounting standards adopted in fiscal 2009 and recent accounting standards not yet adopted.
Subsequent Events
Subsequent events which relate to the financial arrangements entered into by the Company during the Company’s fiscal year 2009 have been included within the discussion hereinabove set forth in this Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
Item 8.Financial Statements and Supplementary Data
Set forth below is a list of our audited consolidated financial statements included in this Annual Report on Form 10-K and their location.
| | |
Item | | Page* |
| |
|
Report of McGladrey & Pullen, LLP | | F-1 |
MTM Technologies, Inc. and subsidiaries Consolidated Balance Sheets at March 31, 2009 and 2008 | | F-2 |
MTM Technologies, Inc. and subsidiaries Consolidated Statements of Operations for the years ended March 31, 2009 and 2008 | | F-3 |
MTM Technologies, Inc. and subsidiaries Consolidated Statements of Shareholders’ Equity for the years ended March 31, 2009 and 2008 | | F-4 |
MTM Technologies, Inc. and subsidiaries Consolidated Statements of Cash Flows for the years ended March 31, 2009 and 2008 | | F-5 |
MTM Technologies, Inc. and subsidiaries Notes to Consolidated Financial Statements | | F-6 |
|
|
* Page F-1 follows Part III to this Annual Report on Form 10-K. |
21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures
Not applicable.
Item 9A(T). Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
As of the end of the period covered by this Annual Report on Form 10-K, we conducted under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, an evaluation of the effectiveness of our “disclosure controls and procedures” (as that term is defined under the Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded as of the period covered by this report that our disclosure controls and procedures were effective in recording, processing, summarizing and reporting information required to be disclosed within the time periods specified in the Securities and Exchange Commissions rules and forms.
(b) Management’s report on internal control over financial reporting.
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; (ii) provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2009 based on the framework established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that assessment, management concluded that, as of March 31, 2009, the Company’s internal control over financial reporting was effective based on the criteria established inInternal Control—Integrated Framework.
This Annual Report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting since temporary rules of the SEC permit the Company to provide only management’s report on this Annual Report on Form 10-K.
(c) Changes in internal control over financial reporting.
As of the end of the period covered by this report, there have been no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended March 31, 2009 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Limitations on the Effectiveness of Controls
We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all controls issues and instances of fraud, if any, within a company have been detected. Our disclosure controls and procedures are designed to provide a reasonable assurance of achieving their objectives and our principal executive officer and principal financial officer have concluded that the controls and procedures evaluated are effective at the “reasonable assurance” level.
Item 9B.Other Information
None.
22
PART III
Item 10.Directors, Executive Officers of the Registrant and Corporate Governance Matters
Directors and Executive Officers
Set forth below is a brief description of the background of each of our directors and current executive officers as of May 31, 2009, based on information provided to us by them. Each director currently serving has been elected to a term that expires at the next Annual Meeting of shareholders.
| | | | | | |
Name | | Age | | Principal Positions and
Offices with our Company | | Director
Since |
| |
| |
| |
|
|
Gerald A. Poch | | 62 | | Non-executive Chairman of the Board of Directors | | 2004 |
Keith B. Hall | | 55 | | Director | | 2008 |
William Lerner | | 74 | | Director | | 1995 |
Alvin E. Nashman | | 82 | | Director | | 1998 |
Sterling Phillips | | 62 | | Director | | 2008 |
Arnold J. Wasserman | | 71 | | Director | | 1998 |
Thomas Wasserman | | 34 | | Director | | 2005 |
Steven Stringer | | 54 | | President and Chief Executive Officer | | N/A |
J.W. Braukman III | | 55 | | Senior Vice President and Chief Financial Officer | | N/A |
Gerald A. Poch has served as Managing Director of FirstMark Capital, L.L.C. (“FirstMark Capital”) since August 2008. FirstMark is the investment manager of certain funds formerly managed by Pequot Capital Management Inc. (“Pequot”). These funds included, among other securities, all of Pequot’s interests in the Pequot Private Equity Fund III, L.P. (“Pequot Fund”) and Pequot Offshore Private Equity Partners III, L.P. (“Pequot Partners”) now known as FirstMark III L.P. (“FirstMark Fund”) and FirstMark III Offshore Partners, L.P. (“FirstMark Offshore Partners”) respectively. Previously Mr. Poch served as Managing Director of Pequot, since 1999. Mr. Poch also served as a Managing General Partner of both Pequot Fund and Pequot Partners. From August 1998 through January 2000, he was a principal of Pequot and co-leader of Pequot Fund’s and Pequot Partners’ venture capital team. From August 1996 to June 1998 he was the Chairman, President and Chief Executive Officer of GE Capital Information Technology Solutions, Inc., a technology solutions provider. Prior to that, he was a founder, and served as Co-Chairman and Co-President, of AmeriData Technologies, Inc., a value-added reseller and systems integrator of hardware and software systems. Mr. Poch is a director of a number of private companies.
Keith B. Hall has served as a director since February 2008. Mr. Hall was Senior Vice President and Chief Financial Officer of LendingTree, Inc., (TREE) from 1999 to 2007, a public company and subsequently a division of InterActive Corp, (IACI). Prior to LendingTree, Mr. Hall served as Vice President and Chief Financial Officer for three other publicly traded companies that were subsequently acquired (Broadway & Seymour, Inc., from 1997 to 1999; Loctite Corporation from 1996 to 1997; and Legent in 1995). Mr. Hall also served in the financial organization of United Technologies (UTX) from 1983-1995. Mr. Hall serves as a member of the board of directors of the following companies: Polymer Group, Inc. (NASDAQ: POLGA), a one billion global leader of non-woven materials (since 2009; and Chairman of its Capital Expenditures & Investment Committee); Tectura, one of the world’s leading providers, implementers and integrators of Microsoft business management solutions (since 2008; and Chairman of its Corporate Governance Committee); CoreLogic, a leading provider of technological solutions to the home mortgage risk management and property valuation industries (since 2008; and Chairman of its Audit Committee); and NewRiver, Inc., a private company that provides technology solutions that enable financial services companies to ensure mutual fund and variable insurance product sales are compliant with federal regulations (since 2004). Mr. Hall is also on the Board of Trustees of Coe College in Cedar Rapids, Iowa and is Chairman of its Budget & Accounting Committee.
William Lerner has served as chairman of our Corporate Governance and Nominating Committee since November 2003. Mr. Lerner has been engaged in the private practice of corporate and securities law in New York since 1961 and in Pennsylvania since 1990. Mr. Lerner is a director/trustee of the Reich & Tang Family of Money Market Mutual Funds including The Daily Income Fund, and several state tax free money market funds including California, Connecticut, New Jersey and New York.
Alvin E. Nashman has been an independent consultant in the field of computer service for the past ten years. Dr. Nashman is a director of Freedom Bank of Virginia.
Sterling Phillips is a Venture Partner with FirstMark Capital. Mr. Phillips joined FirstMark Capital in 2007. Prior to joining FirstMark Capital, Mr. Phillips served for six years as Chairman and Chief Executive Officer of Analex Corporation, a publicly traded federal professional services firm that was acquired in March 2007 by QinetiQ North America. Prior to joining Analex Corporation, Mr. Phillips was Senior Vice President of Federal Data Corporation (now part of Northrop Grumman).
Arnold J. Wasserman has served as chairman of our Audit Committee since March 1999. Mr. Wasserman has been a principal of Panda Financial Associates, Inc., a leasing/consulting firm, for the past 40 years. He was a director of Stratasys, Inc., a NASDAQ National Market listed company which manufactures rapid prototyping systems and materials, and served as Chairman of its Audit Committee for the past fifteen years.
Thomas Wasserman has served as Managing Director at Constellation Ventures which he joined in June 2001 as an associate before becoming a Vice President. From March 2000 to June 2001, he served as a senior manager of corporate development for 360Networks, a global telecommunications service provider. Prior to 360Networks Mr. Wasserman worked at Charterhouse Group International, a private equity firm, and at the investment banking firm of Donaldson, Lufkin and Jenrette. Mr. Wasserman is a director of a number of private companies including Bridgevine, Inc., One Phone AB and Crispy Gamer, Inc.
23
Steven Stringer has served as our President since June 2005 and as our Chief Executive Officer since August 12, 2008. From June through September 2004 he was employed by Pequot as a consultant and was made available by Pequot to us to assist with the selection, evaluation and integration of acquisitions. From January 2002 through May 2004, Mr. Stringer pursued private investment opportunities. Prior to that time he served in a number of senior executive roles with Rhythms NetConnections Inc. (“Rhythms”), including as Chief Executive Officer and President from July through December 2001, Chief Executive Officer, President and Chief Operating Officer from April through July 2001, and President and Chief Operating Officer from April 1999 through March 2001. Rhythms was a national provider of digital subscriber line services and operated one of the largest DSL networks in the United States, serving 60 major markets with 67,000 digital subscriber lines in service.
J.W. (Jay) Braukman III has served as a Senior Vice President, as well as our Chief Financial Officer, since September 2006. Mr. Braukman’s experience includes 23 years with The General Electric Company (“GE”), where he held numerous executive positions, including Chief Financial Officer of several divisions. In addition to his experience at GE, Mr. Braukman served during 2006 as Chief Financial Officer of Cleartel Communications, Inc., a CLEC. His prior experience also includes serving from 2004 until 2005 as Chief Financial Officer of Chiquita Brands International, Inc., a publicly traded company in the New York Stock Exchange, as Chief Operating Officer from 2002 until 2004 of ITC ^Deltacom, Inc., a publicly held company, and as Chief Financial Officer from 2000 until 2001 of Rhythms, a publicly traded company in the NASDAQ stock market. In late May 2009, the Company was advised that Mr. Braukman would be taking a leave of absence for medical reasons.
Under the terms of the Restated Shareholders Agreement, each of Mr. Poch and Mr. Phillips are directors designated by FirstMark Capital and Mr. T. Wasserman is a director designated by Constellation. See Item 12, “Security Ownership of Certain Beneficial Owners and Management—Restated Shareholders’ Agreement.”
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3, 4 and 5 and amendments to these forms furnished to us, all parties subject to the reporting requirements of Section 16(a) of the Exchange Act filed on a timely basis all such required reports during and with respect to our 2009 fiscal year.
Code of Ethics
Our Board of Directors has established a code of business conduct and ethics (“Code”) that applies to all employees and our principal executive, financial and accounting officer(s). On April 2, 2008, the Board of Directors modified the Code. A copy of our Code is filed as Exhibit 14.1 to our Annual Report on Form 10-K for the fiscal year ended March 31, 2008. The Code is posted on the Company’s website at http://www.mtm.com/investorrelations/codeofbusinessconductethics.asp.
Committees of our Board of Directors
Our Board of Directors currently has four standing committees, consisting of an Audit Committee, a Compensation Committee, a Corporate Governance and Nominating Committee and an Independent Directors Committee.
Audit Committee
Our Audit Committee currently is composed of Keith B. Hall, William Lerner, Alvin E. Nashman and Arnold J. Wasserman, with Mr. Wasserman serving as its chairman. We believe that each of these committee members is “independent,” within the meaning of such term under applicable law and the Marketplace Rules of The NASDAQ Stock Market, Inc. Our Board of Directors has determined that Mr. Hall and Mr. Wasserman are each an “audit committee financial expert,” as such term is defined by the SEC. The Audit Committee is primarily concerned with the accuracy and effectiveness of the audits of our financial statements by our independent auditors. Its duties include:
| | |
| • | selecting and retaining the independent auditors, as well as ascertaining the auditors’ independence; |
| | |
| • | reviewing the scope of the audits to be conducted, as well as the results of their audits; |
| | |
| • | approving non-audit services provided to our Company by the independent auditors; |
| | |
| • | reviewing the organization and scope of our internal system of audit, financial and disclosure controls; |
| | |
| • | appraising our financial reporting activities, including our Annual Report on Form 10-K, and the accounting standards and principles followed; and |
| | |
| • | conducting other reviews relating to compliance by employees with our internal policies and applicable laws. |
Our Board of Directors adopted a charter for its Audit Committee in 2001. We amended the Audit Committee Charter in June 2003 in order to comply with rules mandated by the SEC. The Audit Committee charter is posted on the Company’s website athttp://www.mtm.com/InvestorRelations/AuditCommitteeCharter.asp.
24
Compensation Committee
Our Compensation Committee currently is composed of William Lerner, Alvin E. Nashman and Sterling Phillips, each of whom is an “independent” director, within the meaning of the current NASDAQ rules, with Mr. Phillips serving as its chairman. The duties of our Compensation Committee include recommending to the full Board of Directors remuneration to be paid our executive officers, determining the number of and conditions related to the exercise of options and other equity incentives granted pursuant to our various stock plans and recommending the establishment and monitoring of a compensation and incentive program for all of our executive officers.
The Compensation Committee charter is posted on the Company’s website at http://www.mtm.com/InvestorRelations/CompensationCommitteeCharter.asp.
Corporate Governance and Nominating Committee
Our Corporate Governance and Nominating Committee currently is composed of William Lerner, Sterling Phillips, Arnold J. Wasserman and Thomas Wasserman, with Mr. Lerner serving as its chairman. The duties of our Corporate Governance and Nominating Committee include overseeing our board’s policies, reviewing director compensation, as well as ensuring that we are in compliance with all applicable federal and state securities laws and the NASDAQ rules, and determining our Board of Directors’ slate of director-nominees for each shareholder election of directors.
The Corporate Governance and Nominating Committee charter is attached as Appendix A to the Proxy Statement contained as a part of our definitive Schedule 14A filed with the Securities Exchange Commission on October 20, 2004, and can be found on our website athttp://www.mtm.com/InvestorRelations/CorporateGovernanceCommitteeCharter.asp.
In identifying and evaluating nominees for director, including nominees recommended by shareholders, the Corporate Governance and Nominating Committee shall take into consideration any criteria approved by the board, which may include:
| | |
| • | judgment, skill, diversity, experience with business and other organizations in related industries and of comparable size; |
| | |
| • | the interplay of the candidate’s experience with the experience of the other board members; and |
| | |
| • | the extent to which the candidate would be a desirable addition to the board and any committees of the board |
| | |
Other than the foregoing, and the independence requirements discussed above, there are no stated minimum criteria for director nominees.
Nominating Process
The Corporate Governance and Nominating Committee will consider all candidates recommended by shareholders in accordance with the procedures set forth below. Shareholders who wish to recommend a nominee for election as director at an annual shareholders meeting must submit their recommendations at least 120 calendar days before the date that our Proxy Statement is released to shareholders in connection with the previous year’s annual meeting of shareholders. Shareholders may recommend candidates for consideration by the Board by writing to Investor Relations, at our corporate offices, 1200 High Ridge Road, Stamford, Connecticut 06905, giving the candidate’s name, business and residence contact information, biographical data, including the principal occupation or employment of the candidate, qualifications, the class and number of our shares, if any, beneficially owned by such candidate, a description of all arrangements or understandings between the shareholder and the candidate and any other person or persons (naming them) pursuant to which the nominations are to be made by the shareholder and any other information relating to the candidate that is required to be disclosed in solicitations of proxies for election of directors, or as otherwise required, pursuant to Regulation 14A under the Exchange Act of 1934. A written statement from the candidate consenting to be named as a candidate and, if nominated and elected, to serve as a director must accompany any shareholder recommendation. Any shareholder who wishes to recommend a nominee for election as director also must provide his, her or its name and address, as they appear in our books, the number and class of shares beneficially owned by such shareholder and any other information that is required to be provided by the shareholder pursuant to Regulation 14A under the Exchange Act of 1934.
Independent Directors Committee
Our Independent Directors Committee was formed by our Board of Directors in September 2004. It consists only of directors who are neither members of management nor associated with FirstMark Capital or Constellation and is to consider, review and provide guidance and oversight regarding transactions or other situations in which other board members, who are either members of management or employees of FirstMark Capital or Constellation, have interests that may be in addition to, or different from, the interests of the shareholders in general. This committee currently is composed of Keith B. Hall, William Lerner, Alvin E. Nashman and Arnold J. Wasserman.
Meetings of Our Board of Directors and its Committees
Our Board of Directors held eight formal meetings during our fiscal year ended March 31, 2009 and acted nine times by unanimous written consent. During our 2009 fiscal year: (i) Our Audit Committee held twelve formal meetings, (ii) our Compensation Committee held two formal meetings, (iii) our Corporate Governance and Nominating Committee held four formal meetings and acted one time by unanimous written consent, and (iv) our Independent Directors Committee held two formal meetings and acted six times by unanimous written consent. Each member of our Board of Directors attended, in person or telephonically, at least 75% of the total number of meetings of our board and each committee of the board on which the director serves.
25
Item 11.Executive Compensation
The compensation of the Company’s executive officers is determined by the Compensation Committee of the Board. The Committee has three members, each of whom is independent of management. None of the members of the Committee has any insider or interlocking relationship with the Company, and each of them is a non-employee director, as these terms are defined in applicable rules and regulations of the SEC.
The Company has entered into agreements with its current named executive officers and certain other key employees. The purpose of these agreements is to ensure predictability in determining the executives’ terms and conditions of employment, to provide the executives with some security so that they are able to devote their full attention to providing superior performance, and to provide a reasonable level of protection, based on their relative position in the organization, in the event they are terminated without cause. Each named executive officer’s employment or severance agreement provides for certain severance payments and benefits in the event that his employment is terminated by the Company without “cause”, or by the executive with “good reason”, or upon the executive’s death or total disability. These payments and benefits are more fully described below.
Summary Compensation Table for Fiscal Year 2009
The following table sets forth, with respect to our fiscal year ended March 31, 2009 and 2008, all compensation earned by our Principal Executive Officer (“PEO”), and one other of our most highly compensated “named executive officers” other than our PEO who was serving as an executive officer at the end of our 2009 fiscal year and whose total compensation exceeded $100,000, and one other individual who would have been among the most highly compensated executive officers except for the fact that such person was not serving as an executive officer at the end of our 2009 fiscal year.
| | | | | | | | | | | | | | | | | | | |
Name and Principal Position(s) | | Fiscal
Year | | Salary(1) | | Stock
Awards(2) | | Option
Awards(3) | | All Other
Compensation | | Total | |
| |
| |
| |
| |
| |
| |
| |
Steven Stringer (4) | | | 2009 | | $ | 336,057 | | $ | 28,354 | | $ | 165,068 | | | | | $ | 529,479 | |
President and Chief Executive Officer | | | 2008 | | $ | 335,000 | | $ | 28,354 | | $ | 212,286 | | | | | $ | 575,640 | |
| | | | | | | | | | | | | | | | | | | |
J.W. Braukman III (5) | | | 2009 | | $ | 276,730 | | $ | 13,125 | | $ | 89,375 | | | | | $ | 379,230 | |
Senior Vice President and Chief Financial Officer | | | 2008 | | $ | 260,000 | | $ | 13,125 | | $ | 89,375 | | | | | $ | 362,500 | |
| | | | | | | | | | | | | | | | | | | |
Stephen Hicks (6) | | | 2009 | | $ | 179,644 | | | | | $ | 6,407 | | $ | 8,994 | (7) | $ | 195,045 | |
Senior Vice President and General Counsel | | | 2008 | | $ | 51,826 | | | | | $ | 1,281 | | | | | $ | 53,107 | |
(1) Amounts shown as “Salary” include gross salary earned for the fiscal year ended March 31.
(2) The “Stock Awards” column reports the dollar amount recognized for financial statement reporting purposes in accordance with SFAS No. 123(R), for restricted stock units held, excluding the impact of estimated forfeitures related to service based vesting conditions. See Note 6 of the Notes to Consolidated Financial Statements contained herein for a discussion of the assumptions made in the valuation of Stock Awards for financial reporting purposes. Amounts shown in the Stock Awards column do not reflect compensation actually received by the named executive officer.
(3) The “Option Awards” column reports the dollar amount recognized for financial statement reporting purposes in accordance with SFAS No. 123(R), for options held, excluding the impact of estimated forfeitures related to service based vesting conditions. See Note 6 of the Notes to Consolidated Financial Statements contained herein for a discussion of the assumptions made in the valuation of Option Awards for financial reporting purposes. Amounts shown in the Option Awards column do not reflect compensation actually received by the named executive officer.
(4) Mr. Stringer has served as our PEO since April 27, 2007. Mr. Stringer was named Chief Executive Officer on August 12, 2008.
(5) Mr. Braukman has served as our Senior Vice President and Chief Financial Officer since September 28, 2006.
(6) Mr. Hicks served as our Senior Vice President and General Counsel from January 2, 2008 to February 16, 2009. In connection with the voluntary termination of Mr. Hick’s employment with the Company, all of his unvested stock options were forfeited.
(7) The amount reported for Mr. Hicks in “All Other Compensation” consists of accrued paid time off paid by the Company during fiscal 2009 in connection with the termination of Mr. Hick’s employment with the Company.
Essential to an understanding of the Summary Compensation Table is an understanding of the Employment and Termination of Employment Arrangements of the named executive officers.
Summary of Employment Agreements
Named Executive Officers who Terminated Employment During 2009.
Stephen Hicks. Effective February 16, 2009, Mr. Hicks terminated his employment with the Company voluntarily. Mr. Hicks vested options remain exercisable until May 16, 2009 in accordance with the termination provisions of the 2004 Equity Incentive Plan (the “2004 Plan”). Mr. Hicks forfeited all equity awards that were not vested on his termination date, and did not receive any other payments or benefits in connection with his termination.
26
All Other Named Executive Officers.
Steve Stringer. We entered into an employment agreement dated October 1, 2004 with Mr. Stringer which agreement was superseded by an agreement dated August 10, 2006 (the “Stringer Employment Agreement”), to employ Mr. Stringer as our President and Chief Operating Officer. The Stringer Employment Agreement has an initial term ending December 31, 2009 (the “Initial Term Date”). On the Initial Term Date and each subsequent anniversary of the Initial Term Date, the term of the agreement shall automatically be extended for an additional period of twelve (12) months; provided, however, that either party may elect not to extend the agreement by giving written notice to the other party at least twelve (12) months prior to the Initial Term Date or any anniversary date thereof. The Stringer Employment Agreement as amended provided that Mr. Stringer be paid a base salary of $335,000 per annum and he was eligible to receive an annual bonus based upon the achievement of performance targets of up to 75% of his base salary payable 67% in cash and 33% in common stock consisting of 1,666 shares of common stock, subject to certain limitations on the number of shares to be issued. Payment of the annual bonus is subject to the achievement of performance targets established under the Company’s management bonus plan. Concurrent with the execution of the Stringer Employment Agreement, Mr. Stringer was granted 7,133 options to purchase shares of Company stock and a grant of 1,333 restricted stock units. On June 30, 2008, the Compensation Committee approved an amendment to the Stringer Employment Agreement whereby Mr. Stringer is to be paid (i) an annual salary of $400,000 effective July 1, 2008 and (ii) cash bonuses of up to $200,000 provided the Company achieves certain EBITDA targets in the 2009 fiscal year. Mr. Stringer did not receive a bonus in fiscal years 2009 and 2008 because the Company did not achieve its performance targets. Mr. Stringer was named Chief Executive Officer of the Company on August 12, 2008 and was appointed Principal Financial Officer of the Company on June 15, 2009.
The Stringer Employment Agreement’s termination related clauses and benefits are described below. The tables below provide an estimate of the payments that would be made to Mr. Stringer under various termination scenarios. These include voluntary termination, termination by the Company without “cause” or by the executive with “good reason,” and “for cause” termination by the Company. The amounts shown are estimates assuming that such termination was effective as of March 31, 2009. The actual amounts to be paid can only be determined at the time of such executive’s termination of employment from the Company.
| | | | | | | | | | |
Steven Stringer - Executive
Benefits and Payments on
Termination | | Voluntary
Termination | | Involuntary
Termination
Without Cause,
due to Death or
Disability, or
for Good Reason | | For Cause
Termination | |
| |
| |
| |
| |
Severance Payments | | $ | 0 | | $ | 400,000 | | $ | 0 | |
Post Termination Employee Benefits | | | 0 | | | 20,520 | | | 0 | |
Acceleration of Equity Awards (1) | | | 0 | | | 102,310 | | | 0 | |
| |
|
| |
|
| |
|
| |
| | $ | 0 | | $ | 522,830 | | $ | 0 | |
| |
|
| |
|
| |
|
| |
(1) Represents the dollar amount recognized for financial statement reporting purposes in accordance with SFAS No. 123(R).
In the event of a termination of Mr. Stringer’s employment during the term of the Stringer Employment Agreement by the Company without “cause” or by Mr. Stringer for “good reason” or as a result of his death or permanent and total disability, the Company agreed to provide to Mr. Stringer (or his legal representative):
| | |
| • | A continuance of his salary at one hundred percent (100%) of his then current base salary, for a period equal to the greater of (i) one year from the date of termination of Mr. Stringer’s employment or (ii) the period ending on the Initial Term Date (the “Severance Period”). |
| | |
| • | Subject to certain limitations, during the Severance Period, Mr. Stringer will be entitled to a continuance of coverage under all health, life, disability and similar employee benefit plans and programs on the same basis as he was entitled to participate immediately prior to the commencement of the Severance Period. |
Additionally, the impact of Mr. Stringer’s termination of employment on the stock options or other equity incentives held by him (including the maximum period that any such option or other equity incentive shall remain exercisable) shall be governed by the applicable equity incentive plan and agreement. All stock options and other equity incentives granted to Mr. Stringer provide that, upon termination of his employment by the Company other than for “cause” or by him for “good reason”, any unvested shares subject to such options or other equity incentives shall become fully vested and immediately exercisable in connection with such termination.
In connection with any termination by the Company other than for “cause” or by Mr. Stringer for “good reason” or as a result of his death or permanent and total disability the Company is required to execute a release and waiver of claims in favor of Mr. Stringer, as consideration for the execution and non-revocation by Mr. Stringer of a release agreement in favor of the Company and its shareholders and their respective directors, officers and employees. The foregoing payments shall be in lieu of any other severance benefits to which Mr. Stringer is entitled pursuant to any other severance plans, programs, arrangements, or policies of the Company.
In the event that Mr. Stringer’s employment with the Company is terminated during the term of the Stringer Employment Agreement by the Company for “cause”, or by Mr. Stringer other than for “good reason”, the Company will pay to him (or his legal representative) any earned but unpaid salary amounts and any unreimbursed expenses through his final date of employment with the Company, and the Company shall have no further obligations to him.
The foregoing payments are in lieu of any other severance benefits to which Mr. Stringer is entitled pursuant to any other severance plans, programs, arrangements, or policies of the Company.
27
During the term of the Stringer Employment Agreement and for a period of: (i) two years thereafter upon Mr. Stringer’s non-renewal of that agreement, (ii) one year thereafter upon the Company’s non-renewal of that agreement, or (iii) two years thereafter upon termination of employment by either Mr. Stringer or the Company for any reason other than non-renewal, Mr. Stringer is prohibited from engaging in any Business Activities on behalf of any person, firm or corporation, and, subject to certain limitations, he shall not acquire any financial interest in any entity which engages in Business Activities within 200 miles of any of the Company’s offices in operation on the commencement date of the Stringer Employment Agreement and within 100 miles of any office of the Company established after such commencement date. During the period that the foregoing non-competition restriction applies, Mr. Stringer shall not, without the written consent of the Company: (i) solicit any employee of the Company or any of the Company’s affiliates to terminate his employment, or (ii) solicit any customers, partners, resellers, vendors or suppliers of the Company on behalf of any individual or entity other than the Company or its affiliates. “Business Activities” means conduct of business as a computer and communications technology management and/or consulting business providing information technology networking and data center services, including secure access, VOIP, storage, security, messaging solutions, network and mainframe connectivity consulting, remote network monitoring and management, network and system diagnostics, product maintenance and support, training, and product procurement solutions.
J.W. Braukman III. We entered into a letter agreement with Mr. Braukman dated September 12, 2006, which was amended by an agreement dated September 28, 2006 (the “Braukman Agreement”), to employ Mr. Braukman as our Senior Vice President and Chief Financial Officer at a base salary of $260,000 per annum. Mr. Braukman is eligible to receive a bonus to be determined by the Board of Directors and the Compensation Committee consistent with our management bonus plan. Concurrent with the execution of the Braukman Agreement, Mr. Braukman was granted 16,666 options to purchase shares of Company stock and a grant of 2,333 restricted stock units. On June 30, 2008, the Compensation Committee approved an amendment to the Braukman Agreement whereby Mr. Braukman is to be paid (i) an annual salary of $300,000 effective July 1, 2008 and (ii) cash bonuses of up $50,000 provided the Company achieves certain EBITDA targets in the 2009 fiscal year. Mr. Braukman did not receive a bonus in fiscal years 2009 and 2008 because the Company did not achieve its performance targets. In late May 2009, the Company was advised that Mr. Braukman would be taking a leave of absence for medical reasons.
The Braukman Agreement’s termination related clauses and benefits are described below. The tables below provide an estimate of the payments that would be made to Mr. Braukman under various termination scenarios. These include voluntary termination, termination by the Company without “cause” or by the executive with “good reason,” and “for cause” termination by the Company. The amounts shown are estimates assuming that such termination was effective as of March 31, 2009. The actual amounts to be paid can only be determined at the time of such executive’s termination of employment from the Company.
| | | | | | | | | | |
Jay Braukman - Executive
Benefits and Payments on
Termination | | Voluntary
Termination | | Involuntary
Termination
Without Cause,
due to Death or
Disability, or
for Good Reason | | For Cause
Termination | |
| |
| |
| |
| |
Severance Payments | | $ | 0 | | $ | 300,000 | | $ | 0 | |
Post Termination Employee Benefits | | | 0 | | | 14,208 | | | 0 | |
Acceleration of Equity Awards (1) | | | 0 | | | 155,671 | | | 0 | |
| |
|
| |
|
| |
|
| |
| | $ | 0 | | $ | 469,879 | | $ | 0 | |
| |
|
| |
|
| |
|
| |
(1) Represents the dollar amount recognized for financial statement reporting purposes in accordance with SFAS No. 123(R).
In the event of a termination of Mr. Braukman’s employment on or before the fourth anniversary date of the Braukman Agreement by the Company without “cause” or by Mr. Braukman for “good reason” or as a result of his death or permanent and total disability, the Company agreed to provide to Mr. Braukman (or his legal representative):
| | |
| • | A continuance of his salary at one hundred percent (100%) of his then current base salary, for a period equal to one year from the date of termination of Mr. Braukman’s employment (the “Severance Period”). |
| | |
| • | Subject to certain limitations, during the Severance Period, Mr. Braukman will be entitled to a continuance of coverage under all health, life, disability and similar employee benefit plans and programs on the same basis as he was entitled to participate immediately prior to the commencement of the Severance Period. |
Additionally, the impact of Mr. Braukman’s termination of employment on the stock options or other equity incentives held by him (including the maximum period that any such option or other equity incentive shall remain exercisable) shall be governed by the applicable equity incentive plan and agreement. All stock options and other equity incentives granted to Mr. Braukman provide that, upon termination of his employment by the Company other than for “cause” or by him for “good reason”, any unvested shares subject to such options or other equity incentives shall become fully vested and immediately exercisable in connection with such termination.
In connection with any termination by the Company other than for “cause” or by Mr. Braukman for “good reason” or as a result of his death or permanent and total disability the Company is required to execute a release and waiver of claims in favor of Mr. Braukman, as consideration for the execution and non-revocation by Mr. Braukman of a release agreement in favor of the Company and its shareholders and their respective directors, officers and employees. The foregoing payments shall be in lieu of any other severance benefits to which Mr. Braukman is entitled pursuant to any other severance plans, programs, arrangements, or policies of the Company.
In the event that Mr. Braukman’s employment with the Company is terminated by the Company for “cause”, or by Mr. Braukman other than for “good reason”, the Company shall pay to him (or his legal representative) any earned but unpaid salary amounts and any unreimbursed expenses through his final date of employment with the Company, and the Company shall have no further obligations to him.
The foregoing payments are in lieu of any other severance benefits to which Mr. Braukman is entitled pursuant to any other severance plans, programs, arrangements, or policies of the Company.
28
During the term of Mr. Braukman’s employment and for a period of: (i) two years following Mr. Braukman’s termination of his employment or (ii) one year following the Company’s termination of his employment, Mr. Braukman is prohibited from engaging in any Business Activities on behalf of any person, firm or corporation, and, subject to certain limitations, he shall not acquire any financial interest in any entity which engages in Business Activities within 200 miles of any of the Company’s offices in operation on the commencement date of the Braukman Employment Agreement and within 100 miles of any office of the Company established after such commencement date. During the period that the foregoing non-competition restriction applies, Mr. Braukman shall not, without the written consent of the Company: (i) solicit any employee of the Company or any of the Company’s affiliates to terminate his employment, or (ii) solicit any customers, partners, resellers, vendors or suppliers of the Company on behalf of any individual or entity other than the Company or its affiliates. “Business Activities” means conduct of business as a computer and communications technology management and/or consulting business providing information technology networking and data center services, including secure access, VOIP, storage, security, messaging solutions, network and mainframe connectivity consulting, remote network monitoring and management, network and system diagnostics, product maintenance and support, training, and product procurement solutions.
Outstanding Equity Awards at Fiscal 2009 Year End
| | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards | |
| |
| |
| |
| | Number of Securities Underlying
Unexercised Options (#) | | Option
Exercise
Price
($) | | Option
Expiration
Date | | Number of
Shares or Units of
Stock That
Have Not Vested
(#) | | Market
Value
of Shares or
Units of
Stock
That Have
Not
Vested (1) | |
| |
| |
| |
| |
| |
| |
Name | | Exercisable | | Unexercisable | | | | | | | | | | | | | |
| |
| |
| | | | | | | | | | | | | |
Steven Stringer | | | 14,333 | | | | | $ | 43.05 | | | 11/2/2014 | | | | | | | |
| | | 2,360 | | | 786 | (2) | $ | 60.75 | | | 4/15/2015 | | | | | | | |
| | | 3,566 | | | 3,567 | (3) | $ | 45.45 | | | 8/10/2016 | | | | | | | |
| | | | | | | | | | | | | | | 2,666 | (4) | $ | 1,466 | |
| | | | | | | | | | | | | | | 393 | (5) | $ | 216 | |
| | | | | | | | | | | | | | | 667 | (6) | $ | 367 | |
| | | | | | | | | | | | | | | | | | | |
J.W. Braukman III | | | 8,332 | | | 8,334 | (7) | $ | 33.00 | | | | | | | | | | |
| | | | | | | | | | | | 9/28/2016 | | | 1,167 | (8) | $ | 642 | |
| | | | | | | | | | | | | | | | | | | |
Stephen Hicks (9) | | | 1,250 | | | | | | | | | | | | | | | | |
| |
|
(1) | Market value is calculated by multiplying the adjusted closing market price of the Company’s common stock as of March 31, 2009 by the number of unvested restricted stock units. |
| |
(2) | The remaining 786 options vest on April 15, 2009. |
| |
(3) | 1,783 options vest on August 10, 2009 and 1,784 options vest on August 10, 2010. |
| |
(4) | All restricted stock units vest on November 2, 2009, provided that vesting will accelerate in the event that the Company’s common stock trades at $150 or higher for any thirty trading days within a sixty trading day period. |
| |
(5) | All restricted stock units vest on April 15, 2010, provided that vesting will accelerate in the event that the Company’s common stock trades at $150 or higher for any thirty trading days within a sixty trading day period. |
| |
(6) | 333 restricted stock units vest on August 10, 2009 and 334 restricted stock units vest on August 10, 2010. |
| |
(7) | 4,166 options vest on September 28, 2009 and 4,168 options vest on September 28, 2010. |
| |
(8) | 583 restricted stock units vest on September 28, 2009 and 584 restricted stock units vest on September 28, 2010. |
| |
(9) | 3,750 unvested options were cancelled upon Mr. Hick’s resignation with the Company, effective February 16, 2009. Mr. Hicks 1,250 vested options remain exercisable until May 16, 2009 in accordance with the termination provisions of the 2004 Plan. |
Outstanding Equity Awards at Fiscal Year End Table Narrative.
The outstanding options listed under “Option Awards” primarily relate to options granted under the 2004 Equity Incentive Plan pursuant to option agreements, the principal terms of which are disclosed in the table.
The outstanding awards listed under “Stock Awards” primarily relate to restricted stock units under the 2004 Equity Incentive Plan pursuant to restricted stock unit agreements, the principal terms of which are disclosed in the table.
Accelerated Vesting of Equity Awards.
The applicable award agreement governing the outstanding equity awards may accelerate vesting in connection with a termination of employment, change in control, or other specified events.
29
Director Compensation for Fiscal Year 2009
The following table shows the cash paid to each non-employee director for services rendered in that capacity during the fiscal year ended March 31, 2009.
| | | | | | | | | | | | | |
Name | | Fees
Earned
or Cash
Paid | | Stock
Awards(5) | | Option
Awards | | Total | |
| |
| |
| |
| |
| |
Arnold J. Wasserman (1) | | $ | 32,500 | | | 6,150 | | | N/A | | $ | 38,650 | |
Alvin E. Nashman (2) | | $ | 30,000 | | | 6,150 | | | | | $ | 36,150 | |
William Lerner (3) | | $ | 33,500 | | | 6,150 | | | | | $ | 39,650 | |
Keith B. Hall (4) | | $ | 27,500 | | | 16,400 | | | | | $ | 43,900 | |
|
|
|
(1) As of March 31, 2009, Mr. Wasserman held options to purchase 6,532 shares of common stock. These options were fully vested prior to fiscal 2009. |
(2) As of March 31, 2009, Dr. Nashman held options to purchase 5,032 shares of common stock. These options were fully vested prior to fiscal 2009.
(3) As of March 31, 2009, Mr. Lerner held options to purchase 5,032 shares of common stock. These options were fully vested prior to fiscal 2009.
(4) Mr. Hall became a director on February 8, 2008.
(5) On April 2, 2008 each non-employee director was awarded 1,000 shares of common stock. Mr. Hall was awarded an additional 1,666 shares of common stock upon his initial appointment to the Board of Directors. The shares were fully vested at the date of grant.
Director Compensation Table Narrative
The “Fees Earned or Cash Paid” column includes the aggregate of all fees earned or paid in cash for services as a director, including annual retainer fees, committee and/or chairman fees, and meeting fees.
The “Stock Awards” column reports the dollar amount recognized for financial statement reporting purposes for the applicable fiscal year, in accordance with SFAS No. 123(R), for common stock awards in fiscal 2009.
Directors who are employees of the Company or who are designated as a director by FirstMark Capital or Constellation, receive no compensation for their service as directors. As a result, we did not pay any compensation to Mr. Poch, Mr. Phillips, or Mr. Thomas Wasserman for serving on our Board of Directors.
Director Fees
Each director who is not an employee of our Company or who is not appointed to the Board of Directors by either FirstMark Capital or Constellation receives an annual fee of $25,000 as compensation for serving on our Board of Directors. Each such member of the board’s Audit, Compensation and Corporate Governance and Nominating Committees receives $2,500 per year, and each chairman of the committees receives $3,500 (except the chairman of the Audit Committee who receives $5,000), as compensation for serving on such committees. Effective April 2, 2008, non-employee directors who are not appointed to the Board of Directors by either FirstMark Capital or Constellation are also granted stock awards of 1,666 shares of common stock on their initial appointment or election to the Board of Directors. Beginning in January 2009 and each year thereafter these directors will be granted a stock award of shares of common stock in an amount to be determined by the Board. The Board of Directors waived its right to make such an award for January 2009.
The Company does not provide non-equity plan compensation or pension benefits to directors; nor does it provide any deferred compensation programs for directors.
30
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
Our Current Beneficial Owners
Our Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series A-3 Preferred Stock, Series A-4 Preferred Stock, Series A-5 Preferred Stock, Series A-6 Preferred Stock, Series A-7 Preferred Stock, Series A-8 Preferred Stock, Series A-9 Preferred Stock, Series A-10 Preferred Stock, Series A-11 Preferred Stock and Series A-12 Preferred Stock (collectively referred to as the “Series A Preferred Stock”) and common stock are the only classes of our voting securities presently outstanding. The Series A Preferred Stock votes on an as converted basis, such that the holder of each share of Series A Preferred Stock is entitled to a number of votes equal to the number of shares of common stock that the holder of such share of Series A Preferred Stock would receive upon conversion of the share of Series A Preferred Stock, provided that (i) for the shares of the Series A-1, A-2, and A-3 Preferred Stock, such number of votes shall not exceed such number of shares of common stock which would be received if the conversion price were $28.9425 per preferred share (subject to appropriate adjustment for stock splits, stock dividends, combinations and other similar recapitalizations affecting such shares), (ii) for the shares of the Series A-4, A-5, A-6, and A-7 Preferred Stock, such number of votes shall not exceed one-fifteenth vote per share, (iii) for the shares of the Series A-8 Preferred Stock, such number of votes shall be one vote for each share of common stock which would be received if the conversion price were $17.655 per share (subject to appropriate adjustment for stock splits, stock dividends, combinations and other similar recapitalizations affecting such shares), (iv) for the shares of the Series A-9 Preferred Stock, such number of votes shall be one vote for each share of common stock which would be received if the conversion price were $8.415 per share (subject to appropriate adjustment for stock splits, stock dividends, combinations and other similar recapitalizations affecting such shares), (v) for the shares of the Series A-10 Preferred Stock, such number of votes shall be one vote for each share of common stock which would be received if the conversion price were $4.95 per share (subject to appropriate adjustment for stock splits, stock dividends, combinations and other similar recapitalizations affecting such shares), (vi) for the shares of the Series A-11 Preferred Stock, such number of votes shall be one vote for each share of common stock which would be received if the conversion price were $5.115 per share (subject to appropriate adjustment for stock splits, stock dividends, combinations and other similar recapitalizations affecting such shares), and (vii) for the shares of the Series A-12 Preferred Stock, such number of votes shall be one vote for each share of common stock which would be received if the conversion price were $0.638 per share (subject to appropriate adjustment for stock splits, stock dividends, combinations and other similar recapitalizations affecting such shares).
The Company has authorized and designated Series A-9, Series A-10, Series A-11 and Series A-12 Preferred Stock. No Preferred Stock from Series A-9 through Series A-12 is outstanding, but the Company has issued Preferred Stock warrants for each of these Series of Preferred Stock. Series A-9 Preferred Stock became effective and the warrants exercisable upon the filing of the Fourth Restated Certificate of Incorporation on June 25, 2008. In addition, the Series A-10, A-11 and A-12 Preferred Stock became effective, and the warrants exercisable, upon the filing of the Fifth Restated Certificate of Incorporation on February 17, 2009.
The following table sets forth as of May 31, 2009 the beneficial ownership of the following persons:
| | |
| • | each person known by us to beneficially own 5% or more of our Series A Preferred Stock and/or our common stock, based on filings with the SEC and certain other information; |
| | |
| • | each of our “named executive officers” and directors; and |
| | |
| • | all of our executive officers and directors as a group. |
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power. In addition, under SEC rules, a person is deemed to be the beneficial owner of securities which may be acquired by such person upon the exercise of options and warrants or the conversion of convertible securities within 60 days from the date on which beneficial ownership is to be determined. Our “named executive officers,” in accordance with SEC rules, are those executive officers who are required to be listed in the Summary Compensation Table provided in Item 11 of this Annual Report on Form 10-K. Except as otherwise indicated in the notes to the Beneficial Ownership Table, we believe that all shares are beneficially owned, and investment and voting power is held by, the persons named as owners; and the address for each beneficial owner listed in the table, except where otherwise noted, is MTM Technologies, Inc., 1200 High Ridge Road, Stamford, Connecticut 06905.
| | | | | | | | | | | | | |
| | Series A Preferred Stock | | Common Stock | |
| |
| |
| |
Name of Shareholder | | Amount and Nature
of Beneficial
Ownership | | Percentage of
Outstanding
Shares | | Amount and Nature
of Beneficial
Ownership | | Percentage of
Outstanding
Shares | |
| |
| |
| |
| |
| |
FirstMark Capital (1) | | 26,451,323 | (2) | | 78.4 | % | | 3,820,423 | (3) | | 71.2 | % | |
Gerald A. Poch (4) | | 26,451,323 | (5) | | 78.4 | % | | 3,827,756 | (6) | | 71.3 | % | |
Constellation (7) | | 7,308,978 | (8) | | 21.6 | % | | 697,545 | (9) | | 14.1 | % | |
Arnold Wasserman | | 0 | | | 0.0 | % | | 10,048 | (10) | | 0.2 | % | |
William Lerner | | 0 | | | 0.0 | % | | 6,848 | (11) | | 0.1 | % | |
Alvin E. Nashman | | 0 | | | 0.0 | % | | 7,815 | (12) | | 0.2 | % | |
Steven Stringer | | 0 | | | 0.0 | % | | 21,711 | (13) | | 0.4 | % | |
J.W. Braukman III | | 0 | | | 0.0 | % | | 9,498 | (14) | | 0.2 | % | |
Keith B. Hall | | 0 | | | 0.0 | % | | 2,666 | | | 0.1 | % | |
Sterling Phillips (15) | | 0 | (16) | | 0.0 | % | | 0 | (17) | | 0.0 | % | |
Thomas Wasserman (18) | | 0 | (19) | | 0.0 | % | | 0 | (20) | | 0.0 | % | |
| | | | | | | | | | | | | |
All directors and executive officers as a group
(9 persons) | | 26,451,323 | (21) | | 78.4 | % | | 3,886,342 | (22) | | 71.7 | % | |
(footnotes on the next page)
31
| |
|
| |
(1) | According to a Schedule 13D filed with the SEC on August 25, 2008, effective August 20, 2008, FirstMark Capital, L.L.C., a Delaware limited liability company (“FirstMark Capital”), became the investment manager of certain funds formerly managed by Pequot Capital Management Inc. These funds included Pequot Private Equity Fund III, L.P. and Pequot Offshore Private Equity Partners III, L.P. now known as FirstMark III L.P. (“FirstMark Fund”) and FirstMark III Offshore Partners, L.P. (“FirstMark Offshore Partners” together with FirstMark Fund, “FirstMark”), respectively. Gerald Poch is Chairman & Managing Director of FirstMark and Sterling Phillips is a Venture Partner at FirstMark. Gerald A. Poch, the chairman of our Board of Directors since May 21, 2004, and Sterling Phillips, one of our directors since April 2, 2008, disclaim beneficial ownership over the shares held by FirstMark Capital, except to the extent of their pecuniary interest. The address for FirstMark, as well as the FirstMark Fund and FirstMark Offshore Partners, is 1221 Avenue of the Americas, New York, NY 10020. |
| |
(2) | Represents (a) ownership of the following Series of Preferred Stock: |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Record
Holder | | Series A-1 | | Series A-2 | | Series A-3 | | Series A-4 | | Series A-5 | | Series A-6 | | Series A-7 | | Series A-8 | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
FirstMark Fund | | | 3,406,475 | | | 2,092,547 | | | 2,012,066 | | | 5,336,716 | | | 2,736,410 | | | 2,008,938 | | | 3,700,502 | | | 725,736 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
FirstMark Offshore Partners | | | 480,199 | | | 294,980 | | | 283,634 | | | 752,300 | | | 385,741 | | | 283,193 | | | 521,648 | | | 102,301 | |
| |
| and (b) the following Series A-9 through Series A-12 Preferred Stock warrants which are exercisable within the 60 days following the date of this Beneficial Ownership Table: |
| | | | | | | | | | | | | |
| | Series A-9 | | Series A-10 | | Series A-11 | | Series A-12 | |
| |
| |
| |
| |
| |
FirstMark Fund | | 343,705 | | | 642,729 | | | 56,545 | | | 120,889 | | |
| | | | | | | | | | | | | |
FirstMark Offshore Partners | | 48,452 | | | 90,604 | | | 7,971 | | | 17,042 | | |
| |
| Does not include any shares of Series A Preferred Stock that we may issue in lieu of cash dividends on the Series A Preferred Stock for any period after May 21, 2009. Accrual of dividends on the Series A Preferred Stock commenced on May 21, 2006. |
| |
(3) | Represents (a) the maximum 3,344,565 shares of our common stock issuable upon conversion of all of the Series A-1 through Series A-8 Preferred Stock currently owned of record by FirstMark Fund and FirstMark Offshore Partners, as discussed in note (2) to this Beneficial Ownership Table, which shares are convertible within the 60 days following the date of the Beneficial Ownership Table, and (b) the following shares of our common stock issuable upon exercise of common stock warrants which shares are exercisable within the 60 days following the date of this Beneficial Ownership Table: |
| | | | |
Record Holder | | Common Stock Warrants | |
| |
| |
| | | | |
FirstMark Fund | | 195,620 | | |
| | | | |
FirstMark Offshore Partners | | 27,573 | | |
| |
| and (c) the following shares of common stock issuable upon the conversion of Series A-9 through Series A-12 Preferred Stock issuable upon exercise of the Series A-9 through Series A-12 Preferred Stock warrants, which shares are exercisable within the 60 days following the date of this Beneficial Ownership Table: |
| | | | |
Record Holder | | Series A-9 to Series A-12 Preferred Stock Warrants
as converted to Common Stock | |
| |
| |
| | | | |
FirstMark Fund | | 221,449 | | |
| | | | |
FirstMark Offshore Partners | | 31,216 | | |
| |
| The number of shares of our common stock issuable upon conversion of the Series A Preferred Stock and the exercise of the warrants which the FirstMark Fund and FirstMark Offshore Partners own of record are subject to an anti-dilution adjustment. Amounts do not include (i) Series A-1 common stock warrants that expired on May 21, 2008; (ii) Series A-2 common stock warrants that expired on September 16, 2008; (iii) Series A-3 common stock warrants that expired on December 7, 2008; and (iv) Series A-4 common stock warrants that expired on December 10, 2008 and on March 11, 2009. Amounts also do not include any shares of Series A Preferred Stock that we may issue in lieu of cash dividends on the Series A Preferred Stock for any period after May 21, 2009. Accrual of dividends on the Series A Preferred Stock commenced May 21, 2006. |
| |
(4) | The address for Mr. Poch is c/o FirstMark Capital, 1221 Avenue of the Americas, New York, NY 10020. |
| |
(5) | Includes the shares of Series A Preferred Stock beneficially owned by FirstMark Capital (see note (2) to this Beneficial Ownership Table), of which Mr. Poch is a Managing Director. Mr. Poch disclaims beneficial ownership to the Series A Preferred Stock beneficially owned by FirstMark Capital, except to the extent of his pecuniary interest therein. |
| |
(6) | Represents 7,333 shares of our common stock held by Mr. Poch in his personal account plus the 3,820,423 shares of our common stock beneficially owned by FirstMark Capital (see note (3) to this Beneficial Ownership Table), of which Mr. Poch is a Managing Director. Mr. Poch disclaims beneficial ownership to our common stock beneficially owned by FirstMark Capital, except to the extent of his pecuniary interest therein. |
(footnotes continued on next page)
32
(footnotes continued from previous page)
| |
(7) | According to Amendment No. 7 to Schedule 13D filed with the SEC on August 17, 2007 and information provided to us by Constellation, The Bear Stearns Companies LLC, a JP Morgan Chase company (“BSCL”) is the sole managing member of Constellation Ventures Management II, LLC (“Management”) and the sole stockholder of Bear Stearns Asset Management Inc. (“BSAM”). Management is the sole managing general partner of BSC, the sole general partner of Constellation Venture and the sole general partner of Constellation Offshore. Mr. Clifford H. Friedman, who served on our Board of Directors from December 7, 2004 to August 9, 2005, is a member of Management and a senior managing director of BSAM. Mr. Thomas Wasserman, who has served as our director since August 9, 2005, is an employee of BSAM. BSAM is the sole managing member of CVC and investment adviser to BSC, Constellation Ventures, Constellation Offshore and CVC. Management, BSAM and Mr. Friedman share investment and voting control of shares beneficially owned by BSC, Constellation Ventures and Constellation Offshore. BSAM exercises sole investment and voting control of shares beneficially owned by CVC. BSCL, Management, BSAM and Mr. Friedman disclaim beneficial ownership over the shares held by BSC, Constellation Ventures, Constellation Offshore and CVC except to the extent of their pecuniary interests therein. The address for each entity in Constellation and each individual referenced in this footnote is 40 West 57th Street, 30th Floor, New York, New York 10019. |
| |
(8) | Represents (a) ownership of the following Series of Preferred Stock: |
| | | | | | | | | | | | | | | | |
Record Holder | | Series A-3 | | Series A-4 | | Series A-5 | | Series A-6 | | Series A-7 | |
| |
| |
| |
| |
| |
| |
Constellation Venture | | | 1,146,093 | | | 1,636,088 | | | 275,060 | | | 293,277 | | | 233,981 | |
Constellation Offshore | | | 609,897 | | | 870,649 | | | 146,373 | | | 156,068 | | | 124,512 | |
BSC | | | 511,085 | | | 729,590 | | | 122,657 | | | 130,781 | | | 104,338 | |
CVC | | | 28,617 | | | 40,852 | | | 6,866 | | | 7,321 | | | 5,841 | |
| |
| and (b) the following Series A-11 Preferred Stock warrants which are exercisable within the 60 days following the date of this Beneficial Ownership Table: |
| | | | |
Record Holder | | Series A-11 | |
| |
| |
Constellation Venture | | 64,417 | | |
Constellation Offshore | | 34,280 | | |
BSC | | 28,726 | | |
CVC | | 1,609 | | |
| |
| Does not include any shares of Series A Preferred Stock that we may issue in lieu of cash dividends on the Series A Preferred Stock for any period after May 21, 2009. Accrual of dividends on the Series A Preferred Stock commenced May 21, 2006. |
| |
(9) | Represents (a) the maximum 634,715 shares of our common stock issuable upon conversion of all of the Series A Preferred Stock currently owned of record by Constellation, as discussed in note (8) to this Beneficial Ownership Table, which shares are convertible within the 60 days following the date of the Beneficial Ownership Table, and (b) the following shares of our common stock issuable upon exercise of common stock warrants which shares are exercisable within the 60 days following the date of this Beneficial Ownership Table: |
| | | | |
Record Holder | | Common Stock Warrants | |
| |
| |
Constellation Venture | | 9,991 | | |
Constellation Offshore | | 18,776 | | |
BSC | | 8,372 | | |
CVC | | 467 | | |
| |
| and (c) the following shares of common stock issuable upon the conversion of Series A-11 Preferred Stock issuable upon exercise of the Series A-11 Preferred Stock warrants, which shares are exercisable within the 60 days following the date of this Beneficial Ownership Table: |
| | | | |
Record Holder | | Series A-11 Preferred Stock Warrants as converted to
Common Stock | |
| |
| |
Constellation Venture | | 12,593 | | |
Constellation Offshore | | 6,701 | | |
BSC | | 5,616 | | |
CVC | | 314 | | |
| |
| The number of shares of our common stock issuable upon conversion of the Series A Preferred Stock and the exercise of the warrants which Constellation owns of record are subject to an anti-dilution adjustment. Amounts do not include (i) Series A-3 common stock warrants that expired on December 7, 2008; and (ii) Series A-4 common stock warrants that expired on December 10, 2008 and on March 11, 2009. Amounts do not include any shares of Series A Preferred Stock that we may issue in lieu of cash dividends on the Series A Preferred Stock for any period after May 21, 2009. Accrual of dividends on the Series A Preferred Stock commenced May 21, 2006. |
| |
(10) | Includes 6,532 shares of our common stock issuable upon exercise of options granted to Mr. Wasserman, which are exercisable within the 60 days following the date of this Beneficial Ownership Table. |
| |
(11) | Includes 5,032 shares of our common stock issuable upon exercise of options granted to Mr. Lerner, which are exercisable within the 60 days following the date of this Beneficial Ownership Table. |
| |
(12) | Includes 5,032 shares of our common stock issuable upon exercise of options granted to Dr. Nashman, which are exercisable within the 60 days following the date of this Beneficial Ownership Table. |
(footnotes continued on next page)
33
(footnotes continued from previous page)
| |
(13) | Includes 21,045 shares of our common stock issuable upon exercise of options granted to Mr. Stringer and 666 shares of our common stock issuable upon vesting of restricted stock units granted to Mr. Stringer, which are exercisable in the case of options or vest in the case of restricted stock units within 60 days following the date of this Beneficial Ownership Table. Does not include 3,567 shares of our common stock issuable upon exercise of options, which are not exercisable within the 60 days following the date of this Beneficial Ownership Table nor does it include 3,726 restricted stock units which do not vest within the 60 days following the date of this Beneficial Ownership Table. |
| |
(14) | Includes 8,332 shares of our common stock issuable upon exercise of options granted to Mr. Braukman and 1,166 shares of our common stock issuable upon vesting of restricted stock units granted to Mr. Braukman, which are exercisable in the case of options or vest in the case of restricted stock units within 60 days following the date of this Beneficial Ownership Table. Does not include 8,334 shares of our common stock issuable upon exercise of options granted to Mr. Braukman, which are not exercisable within 60 days following the date of this Beneficial Ownership Table nor does it include 1,167 units which do not vest within 60 days following the date of this Benefit Ownership Table. |
| |
(15) | The address for Mr. Phillips is c/o FirstMark Capital, Inc., 1221 Avenue of the Americas, New York, NY 10020. |
| |
(16) | Does not include the shares of Series A Preferred Stock beneficially owned by FirstMark Capital (see note (2) to this Beneficial Ownership Table), of which Mr. Phillips is a Venture Partner. Mr. Phillips does not have voting power nor investment power with respect to the Series A Preferred Stock beneficially owned by FirstMark Capital. |
| |
(17) | Does not include the shares of our common stock beneficially owned by FirstMark Capital (see note (3) to this Beneficial Ownership Table), of which Mr. Phillips is a Venture Partner. Mr. Phillips does not have voting power nor investment power with respect to our common stock beneficially owned by FirstMark Capital. |
| |
(18) | The address for Mr. Wasserman is c/o Constellation Growth Capital, 40 West 57th Street, 30th Floor, New York, New York 10019. |
| |
(19) | Does not include the shares of our Series A Preferred Stock beneficially owned by Constellation Venture, Constellation Offshore, BSC and CVC (see note (8) to this Beneficial Ownership Table). Mr. Wasserman is a Vice President of Constellation Ventures. Mr. Wasserman does not have voting power nor investment power with respect to the Series A Preferred Stock beneficially owned by Constellation Venture, Constellation Offshore, BSC or CVC. |
| |
(20) | Does not include the shares of our common stock beneficially owned by Constellation Venture, Constellation Offshore, BSC and CVC (see note (9) to this Beneficial Ownership Table). Mr. Wasserman is a Vice President of Constellation Ventures. Mr. Wasserman does not have voting power nor investment power with respect to the common stock beneficially owned by Constellation Venture, Constellation Offshore, BSC or CVC. |
| |
(21) | Includes those Series A Preferred Stock beneficially owned by our current executives officers and directors, as set forth in notes to this Beneficial Ownership Table. |
| |
(22) | Includes those common shares beneficially owned by our current executives officers and directors, as set forth in notes to this Beneficial Ownership Table. |
Restated Shareholders’ Agreement
On August 1, 2005 we entered into an Amended and Restated Shareholders’ Agreement (as amended, the “Restated Shareholders Agreement”) with Pequot (now “FirstMark Capital”), Constellation, Howard A. Pavony and Steven H. Rothman. The Restated Shareholders Agreement reflected certain amendments to the original Shareholders’ Agreement entered into by the parties on May 21, 2004, as a condition to the consummation of our sale to the FirstMark Fund and FirstMark Offshore Partners of our Series A-1 Preferred Stock.
The Restated Shareholders Agreement provides that parties agree to vote, or cause to be voted, all securities of the Company owned by such party or over which such party has voting control so that the number of directors will consist of: (i) the Company’s CEO; (ii) two directors designated by FirstMark Capital, or its assignee; (iii) one director designated by Constellation or its assignee; (iv) Mr. Rothman; (v) three “independent” directors, within the meaning of “independent” under the current rules of NASDAQ, selected by the Company’s nominating and corporate governance committee; and (vi) two additional independent directors to be selected by the CEO and reasonably acceptable to the Company’s nominating and corporate governance committee. Under certain circumstances where FirstMark Capital holds less than 25% of the securities FirstMark Capital purchased pursuant to the Purchase Agreement, the right to designate two directors in (ii) above will be reduced to one director and the above voting provisions will be adjusted in the manner described in the Restated Shareholders’ Agreement. On July 7, 2006, in connection with the termination of his employment with the Company, Mr. Rothman waived the obligation that FirstMark Capital and Constellation vote in favor of his appointment.
The obligation of the parties under the Restated Shareholders’ Agreement will expire upon the earliest to occur of (i) the completion of any voluntary or involuntary liquidation or dissolution of the Company, (ii) the sale of all or substantially all of the Company’s assets or of a majority of the outstanding equity of the Company to any person that is not a party to the Restated Shareholders’ Agreement, or (iii) December 10, 2009. Messrs. Rothman and Pavony’s obligation to vote for (i) two directors designated by FirstMark Capital, and (ii) one director designated by Constellation or its assignee, shall terminate if (a) FirstMark Capital or their assignees own less than 10% of the outstanding Series A Preferred Stock (or shares of our common stock issuable upon conversion thereof) issued to FirstMark Capital, (b) Constellation or its assignees own less than 10% of the Series A-3 Preferred Stock (or shares of our common stock issuable upon conversion thereof) issued to Constellation, or (c) any other shareholders that are introduced to the Company by FirstMark Capital own less than 10% of the shares acquired by such shareholders from the Company in a transaction not including a public offering or (ii) if Messrs. Pavony and Rothman individually own less than 10% of the number of shares of common stock owned by such person on December 10, 2004.
The Restated Shareholders Agreement also contains a provision restricting the transfer of any securities by shareholders party to the Restated Shareholders Agreement in certain circumstances.
34
Item 13.Certain Relationships and Related Transactions, and Director Independence
Thomas Wasserman a director of the Company, became an employee of JP Morgan Chase & Co. as a result of its merger with Bear Stearns Companies Inc. on May 29, 2008. Since 1999, the Company has maintained a banking relationship with JP Morgan Chase. The amount the Company maintained on deposit averaged approximately $3,500,000 during fiscal 2009 and $4,415,000 during fiscal 2008. The Company paid approximately $51,000 and $19,800 in fees to JP Morgan Chase during fiscal 2009 and 2008, respectively.
During fiscal 2009 and 2008 the Company paid approximately $248,000 and $152,000, respectively in fees to Tectura Corporation (“Tectura”) for certain consulting services related to the customization and management of the Company’s accounting systems. Funds controlled by FirstMark Capital hold more than 10% of the equity securities of Tectura and Gerald A. Poch, Non-executive Chairman of the Board of the Company, is a director of Tectura.
During fiscal 2009 and 2008 the Company paid approximately $1,000,000 and $1,200,000, respectively in fees to Savvis, Inc. (“Savvis”) for certain technology and data center services. Members of the Constellation Group or funds affiliated with them held, during fiscal 2009 and 2008, more than 10% of the preferred equity securities of Savvis and Clifford Friedman, who is a member of Constellation Ventures Management II, LLC and a senior managing director of Bear Stearns Asset Management Inc., was a director of Savvis.
Director Independence
Our Independent Directors Committee, which consists only of directors who are neither members of the management nor associated with FirstMark or Constellation (or other similar investors) considers, reviews and provides guidance and oversight regarding transactions or other situations in which other Board members, who are either members of management or employees of FirstMark or Constellation (or other similar investors), have interests that may be in addition to, or different from, the interests of the shareholders in general. Additionally, we have adopted a Code of Business Conduct and Ethics which mandates that directors, officers and employees of the Company must avoid any conflicts of interest between their personal interests and the Company’s interests. Other than as set forth above, our Board does not have a specific policy regarding review of transactions involving directors, management or other related parties. However, we discourage such transactions and have historically limited the approval of such transactions to specific and rare instances with the full disclosure to, and approval of, the disinterested members of our Board.
We undertook a review of the independence of our directors and, using the definitions and independence standards for directors provided in the rules of the NASDAQ, we determined that all of our directors are “independent directors” as defined under the rules of the NASDAQ.
In determining director independence for fiscal 2009, the Board of Directors considered the following transactions or relationships:
• Any indirect payments Mr. Poch and Mr. Phillips have received from us from their affiliation with FirstMark arose solely from FirstMark’s investments in our securities. Further, while through the end of fiscal 2009, FirstMark has loaned us $6.5 million, this amount does not exceed 5% of our gross revenues for such fiscal year. FirstMark has not loaned us any other amounts in the past three fiscal years.
• Any indirect payments Mr. Thomas Wasserman has received from us from his affiliation with Constellation arose solely from Constellation’s investments in our securities. Further, while through the end of fiscal 2009, Constellation has loaned us $500,000, this amount does not exceed 5% of our gross revenues for such fiscal year. Constellation has not loaned us any other amounts in the past three fiscal years.
35
Item 14.Principal Accountant Fees and Services
Principal Accounting Fees and Services
On November 15, 2007, we were notified that certain of the partners of Goldstein Golub & Kessler LLP (“GGK”) became partners of McGladrey & Pullen in a limited asset purchase agreement. As a result, GGK resigned as our independent registered public accounting firm effective as of November 15, 2007 and McGladrey & Pullen was appointed by our Audit Committee as our new independent registered public accounting firm for the Company’s annual financial statements for the year ended March 31, 2008. Our Board of Directors has approved the selection of McGladrey & Pullen to audit our financial statements for the year ending March 31, 2009, and such appointment was ratified by the shareholders.
Through November 15, 2007, GGK had a continuing relationship with RSM McGladrey, Inc. (“RSM”) from which it leased auditing staff who were full time, permanent employees of RSM and through which its partners provided non-audit services. Subsequent to November 15, 2007, this relationship ceased and McGladrey & Pullen established, and maintains, a similar relationship with RSM. McGladrey & Pullen has no full time employees and, therefore, none of the audit services were provided by permanent full-time employees of McGladrey & Pullen. McGladrey & Pullen manages and supervises the audit and audit staff and is exclusively responsible for the opinion rendered in connection with its examination.
The following table sets forth the fees billed by our independent accountants for each of our last two fiscal years for the categories of services indicated.
| | | | | | | |
| | 2009 | | 2008 | |
| |
| |
| |
| | | | | | | |
Audit fees(1) | | $ | 317,500 | | $ | 327,000 | |
Audit-related fees(2) | | | — | | | — | |
Tax fees(3) | | | — | | | — | |
All other fees(4) | | | — | | | — | |
|
|
| |
(1) | Consists of fees billed for the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements. |
| |
(2) | Consists of assurance and related services that are reasonably related to the performance of the audit and reviews of our financial statements and are not included in “audit fees” in this table. The services provided by our accountants within this category consisted of advice relating to SEC matters and employee benefit matters. |
| |
(3) | Consists of professional services rendered by a company aligned with our principal accountant for tax compliance, tax advice and tax planning. |
| |
(4) | Not applicable. |
| |
| Such fees have been pre-approved by our audit committee. |
Audit Committee Pre-Approval Policy
We understand the need for McGladrey & Pullen to maintain objectivity and independence in its audit of our financial statements. To minimize relationships that could appear to impair the objectivity of McGladrey & Pullen, our Audit Committee has restricted the non-audit services that McGladrey & Pullen may provide to us primarily to merger and acquisition due diligence and audit services, and valuation services and has determined that we would obtain even these non-audit services from McGladrey & Pullen only when the services offered by McGladrey & Pullen are more effective or economical than services available from other service providers.
The Audit Committee also has adopted policies and procedures for pre-approving all non-audit work performed by McGladrey & Pullen and any other accounting firms we may retain. Specifically, the Audit Committee has pre-approved the use of McGladrey & Pullen for detailed, specific types of services within the following categories of non-audit services: merger and acquisition due diligence and audit services; valuation services; internal control reviews; and reviews and procedures that we request McGladrey & Pullen to undertake to provide assurances of accuracy on matters not required by laws or regulations. In each case, the Audit Committee has also set a specific annual limit on the amount of such services which we would obtain from McGladrey & Pullen, and has required management to report the specific engagements to the committee on a quarterly basis and to obtain specific pre-approval from the Audit Committee for all engagements.
36
PART IV
Item 15.Exhibits, Financial Statements Schedules.
(a) Exhibits
Set forth below is a list of the exhibits to this Annual Report on Form 10-K.
| | | | |
Exhibit
Number | | Description |
| |
|
| | |
2.1 | | Asset Purchase Agreement, dated September 17, 2004, among Network Catalyst, Inc., William Corbin, Rocci J. Della Maggiore and MTM Technologies, Inc. * |
| | |
2.2 | | Asset Purchase Agreement, dated December 1, 2004, by and among Vector ESP, Inc., Vector ESP Management, Inc. and Vector Global Services, Inc. and MTM Technologies, Inc. * |
| | |
2.3 | | Stock Purchase Agreement, dated January 27, 2005, among Info Systems, Inc., Mark Stellini, Emidio F. Stellini, Jr., Jay Foggy, Richard Roux, Jennifer McKenzie and MTM Technologies, Inc. * |
| | |
2.4 | | Merger Agreement, dated August 16, 2005, among NEXL, Inc., MTM Technologies (Massachusetts), LLC, MTM Technologies, Inc. and Clifford L. Rucker * |
| | |
3.1 | | Fifth Restated Certificate of Incorporation dated March 5, 2009 * |
| | |
3.2 | | Amended and Restated By-Laws * |
| | |
4.1 | | Purchase Agreement, dated January 29, 2004, among Micros-to-Mainframes, Inc., Pequot Private Equity Fund III, L.P. and Pequot Offshore Private Equity Partners III, L.P. * |
| | |
4.2 | | Purchase Agreement, dated December 7, 2004, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC * |
| | |
4.3 | | Amendment No. 1 to the Purchase Agreement, dated December 7, 2004, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC * |
| | |
4.4 | | Amendment No. 2 to the Purchase Agreement, dated December 7, 2004, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC * |
| | |
4.5 | | Waiver Letter dated December 9, 2005, by Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC * |
| | |
4.6 | | Purchase Agreement, dated March 29, 2007, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC * |
| | |
4.7 | | Purchase Agreement, dated May 24, 2007, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC * |
| | |
4.8 | | Purchase Agreement, dated July 25, 2007, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., and Pequot Offshore Private Equity Partners III, L.P. * |
| | |
4.9 | | Amended and Restated Shareholders’ Agreement, dated August 1, 2005, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC * |
| | |
4.10 | | Amended and Restated Registration Rights Agreement, dated August 1, 2005, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC * |
| | |
4.11 | | Amendment No. 1 to the Amended and Restated Registration Rights Agreement, dated November 23, 2005, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC * |
| | |
4.12 | | Amendment No. 2 to the Amended and Restated Registration Rights Agreement, dated March 29, 2007, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC * |
37
| | |
4.13 | | Amendment No. 3 to the Amended and Restated Registration Rights Agreement, dated April 9, 2007, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC * |
| | |
4.14 | | Amendment No. 4 to the Amended and Restated Registration Rights Agreement, dated May 24, 2007, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC * |
| | |
4.15 | | Amendment No. 5 to the Amended and Restated Registration Rights Agreement, dated July 25, 2007, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC * |
| | |
4.16 | | Amendment No. 6 to the Amended and Restated Registration Rights Agreement, dated February 13, 2009, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, FirstMark III, L.P., FirstMark III Offshore Partners, L.P., as successors-in-interest to Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC * |
| | |
4.17 | | Columbia Voting Agreement, dated November 4, 2005 * |
| | |
4.18 | | Series A-5 Voting Agreement, dated November 23, 2005 * |
| | |
4.19 | | Form of the Series A-4 Warrant Certificate * |
| | |
4.20 | | Form of the Series A-5 Warrant Certificate * |
| | |
4.21 | | Warrant Certificate issued to National Electrical Benefit Fund (2005) * |
| | |
4.22 | | Form of the Series A-6 Warrant Certificate * |
| | |
4.23 | | Form of the Series A-7 Warrant Certificate * |
| | |
4.24 | | Form of the Series A-8 Warrant Certificate * |
| | |
4.25 | | Warrant Certificate issued to National Electrical Benefit Fund (2007) * |
| | |
4.26 | | Warrant Certificate, evidencing 343,705 warrants registered in the name of Pequot Private Equity Fund III, LLP * |
| | |
4.27 | | Warrant Certificate, evidencing 48,452 warrants registered in the name of Pequot Offshore Private Equity Partners III, L.P. * |
| | |
4.28 | | Form of June 11, 2008 Warrant Certificate * |
| | |
4.29 | | Form of June 16, 2008 Warrant Certificate * |
| | |
4.30 | | Warrant Certificate, evidencing 120,889 warrants registered in the name FirstMark III, L.P. * |
| | |
4.31 | | Warrant Certificate, evidencing 17,042 warrants registered in the name FirstMark III Offshore Partners, L.P. * |
| | |
10.1 | | Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, LLC Investment Management as Investment Manager and National Electrical Benefit Fund as Lender * |
| | |
10.2 | | Amendment No.1 dated July 31, 2007, to the Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, L.L.C. Investment Management, as Investment Manager and National Electrical Benefit Fund, as Lender * |
| | |
10.3 | | Amendment No.2 dated August 21, 2007, to the Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, L.L.C. Investment Management, as Investment Manager and National Electrical Benefit Fund, as Lender* |
| | |
10.4 | | Amendment No.3 dated February 28, 2008, to the Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, L.L.C. Investment Management, as Investment Manager and National Electrical Benefit Fund, as Lender * |
| | |
10.5 | | Amendment No.4 dated June 11, 2008, to the Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, L.L.C. Investment Management, as Investment Manager and National Electrical Benefit Fund, as Lender * |
| | |
10.6 | | Amendment No.5 dated June 17, 2008, to the Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, L.L.C. Investment Management, as Investment Manager and National Electrical Benefit Fund, as Lender * |
38
| | |
10.7 | | Amendment No.6 dated November 11, 2008, to the Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, L.L.C. Investment Management, as Investment Manager and National Electrical Benefit Fund, as Lender * |
| | |
10.8 | | Amendment No.7 dated January 29, 2009, to the Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, L.L.C. Investment Management, as Investment Manager and National Electrical Benefit Fund, as Lender * |
| | |
10.9 | | Amendment No.8 dated June 2, 2009, to the Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, L.L.C. Investment Management, as Investment Manager and National Electrical Benefit Fund, as Lender * |
| | |
10.10 | | Amendment No.9 dated June 11, 2009, to the Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, L.L.C. Investment Management, as Investment Manager and National Electrical Benefit Fund, as Lender * |
| | |
10.11 | | Subordination Agreement dated as of August 21, 2007, among GE Commercial Distribution Finance Corporation, and National Electrical Benefit Fund and Columbia Partners, L.L.C. Investment Management * |
| | |
10.12 | | Credit Facilities Agreement dated August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as Borrowers, and GE Commercial Distribution Finance Corporation (“CDF”), as Administrative Agent, and CDF and the other lenders listed therein, as Lenders * |
| | |
10.13 | | First Amendment dated August 21, 2007 to Credit Facilities entered into as of August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc., as Borrowers, and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender * |
| | |
10.14 | | Second Amendment dated February 4, 2008 to Credit Facilities entered into as of August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc., as Borrowers, and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender * |
| | |
10.15 | | Third Amendment dated February 28, 2008 to Credit Facilities entered into as of August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc., as Borrowers, and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender * |
| | |
10.16 | | Fourth Amendment dated May 16, 2008 but effective as of May 1, 2008 to Credit Facilities entered into as of August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc., as Borrowers, and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender * |
| | |
10.17 | | Fifth Amendment dated June 16, 2008 to Credit Facilities entered into as of August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc., as Borrowers, and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender * |
| | |
10.18 | | Sixth Amendment dated November 11, 2008 to Credit Facilities entered into as of August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc., as Borrowers, and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender * |
| | |
10.19 | | Seventh Amendment dated January 29, 2009 to Credit Facilities entered into as of August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc., as Borrowers, and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender * |
| | |
10.20 | | Eighth Amendment dated June 2, 2009 to Credit Facilities entered into as of August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc., as Borrowers, and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender * |
| | |
10.21 | | Ninth Amendment dated June 11, 2009 to Credit Facilities entered into as of August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc., as Borrowers, and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender * |
| | |
10.22 | | Consent to Credit Facilities Agreement dated June 16, 2008 among MTM Technologies, Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC and Info Systems, Inc., as borrowers and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender * |
| | |
10.23 | | Letter of Credit Commitment and Repayment Agreement dated June 11, 2009 among MTM Technologies, Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC and Info Systems, Inc., as borrowers, and National Electrical Benefit Fund, FirstMark III L.P., FirstMark III Offshore Partners, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., CVC II Partners LLC, BSC Employee Fund VI, L.P. and Columbia Partners, L.L.C. Investment Management as Investment Manager * |
| | |
10.24 | | Security Agreement dated June 11, 2009 by and among MTM Technologies, Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC and Info Systems, Inc., as borrowers, and Columbia Partners, L.L.C. Investment Management as Investment Manager, for the benefit of itself and National Electrical Benefit Fund, FirstMark III L.P., FirstMark III Offshore Partners, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., CVC II Partners LLC, and the BSC Employee Fund VI, L.P. * |
39
| | |
10.25 | | Intellectual Property Security Agreement dated June 11, 2009 by and among MTM Technologies, Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC and Info Systems, Inc., as borrowers, and Columbia Partners, L.L.C. Investment Management as Investment Manager, for the benefit of itself and National Electrical Benefit Fund, FirstMark III L.P., FirstMark III Offshore Partners, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., CVC II Partners LLC, and the BSC Employee Fund VI, L.P. * |
| | |
10.26 | | Stock Pledge Agreement dated June 11, 2009 by and among MTM Technologies, Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC and Info Systems, Inc., as borrowers, and Columbia Partners, L.L.C. Investment Management as Investment Manager, for the benefit of itself and National Electrical Benefit Fund, FirstMark III L.P., FirstMark III Offshore Partners, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., CVC II Partners LLC, and the BSC Employee Fund VI, L.P. * |
| | |
10.27 | | Third Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of FirstMark III, L.P. in the amount of $2,191,123 * |
| | |
10.28 | | Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of FirstMark III, L.P. in the amount of $2,410,235 * |
| | |
10.29 | | Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of FirstMark III, L.P. in the amount of $219,112 * |
| | |
10.30 | | Second Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of FirstMark III, L.P. in the amount of $876,449 * |
| | |
10.31 | | Third Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of FirstMark III Offshore Partners, L.P. in the amount of $308,877 * |
| | |
10.32 | | Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of FirstMark III Offshore Partners, L.P. in the amount of $339,765 * |
| | |
10.33 | | Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of FirstMark III Offshore Partners, L.P. in the amount of $30,888 * |
| | |
10.34 | | Second Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of FirstMark III Offshore Partners, L.P. in the amount of $123,551 * |
| | |
10.35 | | Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of Constellation Venture Capital II, L.P. in the amount of $249,617.80 * |
| | |
10.36 | | Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of Constellation Venture Capital Offshore II, L.P. in the amount of $132,834.65 * |
| | |
10.37 | | Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of The BSC Employee Fund VI, L.P. in the amount of $111,313.95 * |
| | |
10.38 | | Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of CVC Partners II, LLC in the amount of $6,233.60 * |
| | |
10.39 | | Micros-to-Mainframes, Inc. 1993 Employee Stock Option Plan * |
| | |
10.40 | | Micros-to-Mainframes, Inc. 1996 Stock Option Plan * |
| | |
10.41 | | Micros-to-Mainframes, Inc. 1998 Stock Option Plan * |
| | |
10.42 | | Micros-to-Mainframes, Inc. 2000 Long-Term Performance Plan * |
| | |
10.43 | | Micros-to-Mainframes, Inc. 2002 Long-Term Performance Plan * |
| | |
10.44 | | Micros-to-Mainframes, Inc. 2004 Equity Incentive Plan * |
| | |
10.45 | | Form of Employee Stock Option Agreement * |
| | |
10.46 | | MTM Technologies, Inc. Associates Stock Purchase Plan * |
| | |
10.47 | | Form of Employee Restricted Stock Unit Agreement * |
| | |
10.48 | | Form of Executive Stock Option Agreement * |
| | |
10.49 | | Form of Executive Restricted Stock Unit Agreement * |
| | |
10.50 | | Employment Agreement, dated August 10, 2006 between MTM Technologies, Inc. and Steven Stringer* |
| | |
10.51 | | Letter Agreement, dated September 28, 2006 between MTM Technologies, Inc. and J.W. Braukman, III* |
| | |
10.52 | | Lease Agreement, dated August 15, 2005 between 1200 High Ridge Company, LLC and MTM Technologies, Inc. * |
| | |
14.1 | | Code of Ethics* |
40
| | | | |
| 16.1 | | Letter dated November 15, 2007 from Goldstein Golub Kessler LLP (“GGK”) to MTM Technologies, Inc. notifying MTM that certain of the partners of GGK became partners of McGladrey & Pullen, LLP in a limited asset purchase agreement * | |
| | | | |
| 16.2 | | Goldstein Golub Kessler LLP Letter to the Securities and Exchange Commission dated November 15, 2007 * | |
| | | | |
| 21.1 | | Subsidiaries of MTM Technologies, Inc. | |
| | | | |
| 31.1 | | Certification pursuant to Exchange Act Rule 13a-14(a) of Steven Stringer, as PEO and PFO | |
| | | | |
| 32.1 | | Certification pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 of Steven Stringer, as PEO and PFO |
| |
| |
* Incorporated by Reference. See Exhibit Index. |
Financial Statements and Schedules
We have provided in Item 8 to this Annual Report on Form 10-K a complete list of the financial statements being filed with this Form 10-K. There are no financial statement schedules applicable to this Form 10-K.
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
MTM TECHNOLOGIES, INC.
We have audited the accompanying consolidated balance sheets of MTM Technologies, Inc. and Subsidiaries as of March 31, 2009 and 2008, and the related consolidated statements of operations, shareholders’ equity and cash flows for the years then ended. 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of MTM Technologies, Inc. and Subsidiaries as of March 31, 2009 and 2008, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1,Liquidity,the Company has recurring losses from operations and a working capital deficiency at March 31, 2009. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also discussed in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
We were not engaged to examine management’s assertion about the effectiveness of MTM Technologies, Inc.’s internal control over financial reporting as of March 31, 2009 included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting and, accordingly, we do not express an opinion thereon.
/S/ MCGLADREY & PULLEN, LLP
New York, New York
July 13, 2009
F-1
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| | | | | | | |
| | March 31, | |
| |
| |
| | 2009 | | 2008 | |
| |
| |
| |
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash | | $ | 2,150 | | $ | 3,210 | |
Accounts receivable-trade, net of allowance of $867 and $974, respectively | | | 31,193 | | | 42,207 | |
Inventories | | | 149 | | | 576 | |
Prepaid expenses and other current assets | | | 3,248 | | | 5,958 | |
| |
|
| |
|
| |
Total current assets | | | 36,740 | | | 51,951 | |
Property and equipment, net | | | 6,648 | | | 10,813 | |
Goodwill | | | 50,346 | | | 69,960 | |
Intangible assets, net | | | 844 | | | 1,783 | |
Other assets | | | 666 | | | 968 | |
| |
|
| |
|
| |
Total assets | | $ | 95,244 | | $ | 135,475 | |
| |
|
| |
|
| |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
| | | | | | | |
Current liabilities: | | | | | | | |
Secured revolving credit facilities | | $ | 5,898 | | $ | 8,100 | |
Inventory financing agreements | | | 9,769 | | | 15,801 | |
Related party notes payable | | | 6,833 | | | 2,431 | |
Accounts payable | | | 12,712 | | | 18,603 | |
Accrued expenses | | | 2,633 | | | 4,225 | |
Deferred revenue | | | 4,564 | | | 5,734 | |
Current portion of capital lease obligations | | | 113 | | | 383 | |
| |
|
| |
|
| |
Total current liabilities | | | 42,522 | | | 55,277 | |
| |
|
| |
|
| |
Secured promissory note | | | 28,117 | | | 23,578 | |
Long-term accrued interest on secured promissory note | | | 13,523 | | | 6,538 | |
Other long-term liabilities | | | 2,591 | | | 3,135 | |
| |
|
| |
|
| |
Total liabilities | | | 86,753 | | | 88,528 | |
| |
|
| |
|
| |
| | | | | | | |
Shareholders’ equity: | | | | | | | |
Series A preferred stock, $.001 par value; 44,750,000 and 39,300,000 shares authorized; 31,369,986 and 29,569,259 shares issued and outstanding at March 31, 2009 and March 31, 2008, respectively | | | 71,311 | | | 66,515 | |
Common stock, $.001 par value; 150,000,000 shares authorized, 912,511 and 890,228 shares issued and outstanding at March 31, 2009 and March 31, 2008, respectively | | | 1 | | | 1 | |
Additional paid-in capital | | | 50,543 | | | 54,151 | |
Accumulated deficit | | | (113,364 | ) | | (73,720 | ) |
| |
|
| |
|
| |
Total shareholders’ equity | | | 8,491 | | | 46,947 | |
| |
|
| |
|
| |
Total liabilities and shareholders’ equity | | $ | 95,244 | | $ | 135,475 | |
| |
|
| |
|
| |
See Notes to Consolidated Financial Statements.
F-2
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| | | | | | | |
| | Year Ended March 31, | |
| |
| |
| | 2009 | | 2008 | |
| |
| |
| |
| | | | | | | |
Net revenues: | | | | | | | |
Products | | $ | 122,485 | | $ | 171,940 | |
Services | | | 52,220 | | | 70,745 | |
| |
|
| |
|
| |
Total net revenues | | | 174,705 | | | 242,685 | |
| |
|
| |
|
| |
Costs and expenses: | | | | | | | |
Cost of products sold | | | 102,085 | | | 144,831 | |
Cost of services provided | | | 32,814 | | | 42,283 | |
Selling, general and administrative expenses | | | 49,494 | | | 62,326 | |
Goodwill impairment | | | 19,614 | | | — | |
| |
|
| |
|
| |
| | | | | | | |
Total costs and expenses | | | 204,007 | | | 249,440 | |
| |
|
| |
|
| |
Operating loss | | | (29,302 | ) | | (6,755 | ) |
| |
|
| |
|
| |
Interest (expense) and other, net | | | (10,442 | ) | | (6,628 | ) |
| |
|
| |
|
| |
Loss before income tax provision | | | (39,744 | ) | | (13,383 | ) |
| | | | | | | |
(Benefit from) provision for income taxes | | | (100 | ) | | 1,022 | |
| |
|
| |
|
| |
| | | | | | | |
Net loss | | $ | (39,644 | ) | $ | (14,405 | ) |
| |
|
| |
|
| |
| | | | | | | |
Preferred stock dividend | | | (4,890 | ) | | (4,509 | ) |
| |
|
| |
|
| |
| | | | | | | |
Net loss available to common shareholders | | $ | (44,534 | ) | $ | (18,914 | ) |
| |
|
| |
|
| |
Net loss per common share: | | | | | | | |
Basic and Diluted | | $ | (49.31 | ) | $ | (21.79 | ) |
| |
|
| |
|
| |
Weighted average number of common shares outstanding: | | | | | | | |
Basic and Diluted | | | 903 | | | 868 | |
| |
|
| |
|
| |
See Notes to Consolidated Financial Statements.
F-3
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | | Common Stock | | Additional
Paid-in
Capital | | Accumulated
Deficit | | | |
| |
| |
| | | | | |
| | Number of
Shares | | Amount | | Number of
Shares | | Amount | | | | Total | |
| |
| |
| |
| |
| |
| |
| |
| |
Balance at March 31, 2007 | | | 22,646 | | $ | 54,307 | | | 795 | | $ | 1 | | $ | 54,326 | | $ | (59,315 | ) | $ | 49,319 | |
Issuance of preferred stock | | | 5,431 | | | 8,051 | | | | | | | | | 1,131 | | | | | | 9,182 | |
Dividends on Series A preferred stock | | | 1,492 | | | 4,157 | | | | | | | | | (4,510 | ) | | | | | (353 | ) |
Additional warrants issued for secured promissory note | | | | | | | | | | | | | | | 476 | | | | | | 476 | |
Issuance of common stock to employees pursuant to employee stock plans | | | | | | | | | 10 | | | — | | | 71 | | | | | | 71 | |
Issuance of common stock in connection with Nexl acquisition | | | | | | | | | 85 | | | — | | | 1,358 | | | | | | 1,358 | |
Warrants issued with related party notes payable | | | | | | | | | | | | | | | 75 | | | | | | 75 | |
Stock-based compensation expense | | | | | | | | | | | | | | | 1,224 | | | | | | 1,224 | |
Net loss | | | | | | | | | | | | | | | | | | (14,405 | ) | | (14,405 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at March 31, 2008 | | | 29,569 | | | 66,515 | | | 890 | | | 1 | | | 54,151 | | | (73,720 | ) | | 46,947 | |
Dividends on Series A preferred stock | | | 1,801 | | | 4,796 | | | | | | | | | (4,890 | ) | | | | | (94 | ) |
Issuance of common stock to Board | | | | | | | | | 6 | | | — | | | 35 | | | | | | 35 | |
Issuance of common stock to employees pursuant to employee stock plans | | | | | | | | | 17 | | | — | | | 20 | | | | | | 20 | |
Warrants issued with related party notes payable | | | | | | | | | | | | | | | 265 | | | | | | 265 | |
Stock-based compensation expense | | | | | | | | | | | | | | | 962 | | | | | | 962 | |
Net loss | | | | | | | | | | | | | | | | | | (39,644 | ) | | (39,644 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at March 31, 2009 | | | 31,370 | | $ | 71,311 | | | 913 | | $ | 1 | | $ | 50,543 | | $ | (113,364 | ) | $ | 8,491 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
See Notes to Consolidated Financial Statements.
F-4
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | |
| | Year Ended March 31, | |
| |
| |
| | 2009 | | 2008 | |
| |
| |
| |
OPERATING ACTIVITIES: | | | | | | | |
Net loss | | $ | (39,644 | ) | $ | (14,405 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | | | |
Goodwill impairment | | | 19,614 | | | — | |
Provision for uncollectible accounts | | | 148 | | | (168 | ) |
Depreciation | | | 6,311 | | | 7,268 | |
Amortization of intangibles | | | 939 | | | 2,026 | |
Provision for deferred income taxes | | | (219 | ) | | 772 | |
Amortization of debt discount | | | 706 | | | 553 | |
Non-cash interest on secured subordinated promissory note | | | 6,985 | | | 3,723 | |
Amortization of debt issuance costs | | | 589 | | | 590 | |
Stock-based compensation | | | 997 | | | 1,224 | |
Non-cash interest on note payable | | | 479 | | | 17 | |
Loss on disposal of fixed assets | | | 47 | | | — | |
Cash provided/(used) by changes in operating assets and liabilities: | | | | | | | |
(Increase)decrease in assets: | | | | | | | |
Accounts receivable | | | 10,713 | | | 3,927 | |
Inventories | | | 427 | | | 1,634 | |
Prepaid expenses and other current assets | | | 2,348 | | | (1,159 | ) |
Other assets | | | 302 | | | 111 | |
Increase(decrease) in liabilities: | | | | | | | |
Accounts payable and accrued expenses | | | (8,169 | ) | | (17,310 | ) |
Deferred revenue | | | (1,170 | ) | | (743 | ) |
| |
|
| |
|
| |
Net cash provided by (used in) operating activities | | | 1,403 | | | (11,940 | ) |
| |
|
| |
|
| |
| | | | | | | |
INVESTING ACTIVITIES: | | | | | | | |
Additions to property and equipment | | | (2,193 | ) | | (2,368 | ) |
| |
|
| |
|
| |
Net cash used in investing activities | | | (2,193 | ) | | (2,368 | ) |
| |
|
| |
|
| |
| | | | | | | |
FINANCING ACTIVITIES: | | | | | | | |
Repayments on secured revolving credit facility | | | (2,202 | ) | | (2,592 | ) |
(Repayments) borrowings on inventory financing | | | (6,032 | ) | | 4,443 | |
Proceeds from issuance of preferred stock, net | | | — | | | 9,182 | |
Proceeds from issuance of related party notes payable | | | 4,344 | | | 2,500 | |
Proceeds from issuance of secured promissory note | | | 3,929 | | | — | |
Common stock issued under stock plans | | | 20 | | | 71 | |
Principal payments on capital lease obligations | | | (329 | ) | | (525 | ) |
| |
|
| |
|
| |
Net cash(used in) provided by financing activities | | | (270 | ) | | 13,079 | |
| |
|
| |
|
| |
Net decrease in cash | | | (1,060 | ) | | (1,229 | ) |
Cash at beginning of year | | | 3,210 | | | 4,439 | |
| |
|
| |
|
| |
Cash at end of year | | $ | 2,150 | | $ | 3,210 | |
| |
|
| |
|
| |
Supplemental disclosures of cash flow information: | | | | | | | |
Cash paid during the year for: | | | | | | | |
Interest | | $ | 1,621 | | $ | 1,937 | |
Income taxes | | $ | 101 | | $ | 181 | |
Supplemental disclosure of non-cash financing activities: | | | | | | | |
Series A Preferred Stock dividend accrued | | $ | 4,890 | | $ | 4,509 | |
Series A Preferred Stock dividend settled with preferred stock | | $ | 4,796 | | $ | 4,157 | |
Warrants issued in connection with notes payable | | $ | 265 | | $ | 75 | |
Warrants issued in connection with secured promissory note | | $ | — | | $ | 476 | |
Supplemental disclosure of non-cash investing activities: | | | | | | | |
Common stock issued to settle contingent consideration relative to acquisition | | $ | — | | $ | 1,358 | |
Non-cash adjustments to goodwill | | $ | — | | $ | 27 | |
See Notes to Consolidated Financial Statements.
F-5
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business and Summary of Significant Accounting Policies
Principles of Consolidation and Nature of Operations
The accompanying consolidated financial statements include the accounts of MTM Technologies, Inc. and its wholly owned subsidiaries, MTM Technologies (US), Inc., Info Systems, Inc. and MTM Technologies (Massachusetts) LLC, collectively referred to as (the “Company”). All significant intercompany accounts and transactions have been eliminated. The Company operates on a fiscal year that ends on March 31.
The Company is a leading national provider of sophisticated information technology solutions services including information technology networking, communications, software applications and data center services, including secure access, voice over internet protocol, storage, security and messaging solutions. The Company serves as a single source provider of advanced technology solutions to support its clients’ mission-critical business processes. The Company’s clients consist of divisions of Global 2000 corporations, middle market corporations (generally those with $50 million to $1 billion in revenues), municipal, state and federal government agencies, and educational, financial and health-care institutions. The Company serves clients in most major metropolitan markets in the United States.
The Company purchases software, computers and related products directly from suppliers as either an authorized dealer or a value-added reseller. The Company has entered into authorization agreements with major suppliers, which can be terminated by the suppliers, with or without cause, upon short notice, or immediately upon the occurrence of certain events. The sales of products from the Company’s two largest suppliers accounted for 27% and 26% of all product sales for the year ended March 31, 2009. The Company believes that it has excellent relationships with its major suppliers; however, there can be no assurance that the aforementioned agreements will be renewed. If these agreements are not renewed, the Company may have difficulty in obtaining inventory at an amount to allow for profitable resale at a competitive market price.
Certain prior year’s balances have been reclassified to conform to the current format.
Effective August 20, 2008, FirstMark Capital, L.L.C., a Delaware limited liability company (“FirstMark Capital”), became the investment manager of certain funds formerly managed by Pequot Capital Management Inc. (“Pequot”). These funds included Pequot Private Equity Fund III, L.P. and Pequot Offshore Private Equity Partners III, L.P., now known as FirstMark III L.P. (“FirstMark Fund”) and FirstMark III Offshore Partners, L.P. (“FirstMark Offshore Partners” together with FirstMark Fund, “FirstMark”), respectively. “Constellation Venture” refers to Constellation Venture Capital II, L.P., “Constellation Offshore” refers to Constellation Venture Capital Offshore II, L.P., “BSC” refers to The BSC Employee Fund VI, L.P., “CVC” refers to CVC II Partners, LLC, and collectively with Constellation Venture, Constellation Offshore and BSC, “Constellation”, and together with FirstMark, the “Investors”.
The consolidated financial statements have been prepared by the Company under the assumption that it will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities during the normal course of business. In preparing these consolidated financial statements the Company has considered the liquidity issues below which may raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Liquidity
The Company sustained net losses during the fiscal years ended March 31, 2009 and 2008. The Company’s decline in performance during fiscal 2009 continued to be impacted by a weaker US economy and reduced access to business credit. The Company’s business requires significant levels of working capital to fund future revenue growth and current operations. Working capital at March 31, 2009 was a deficit of $(5.8) million as compared to a working capital deficit of $(3.3) million at March 31, 2008. The Company has historically relied on and continues to rely heavily on, trade credit from vendors and its credit facilities for its working capital needs. The Company has made a concerted effort to improve its working capital position over the past few years and during fiscal 2009 had taken significant measures to further reduce headcount, streamline operations, consolidate facilities and manage costs in response to the impact of the economic downturn. The Company has also significantly reduced its infrastructure investment by limiting future capital expenditures including, the internal development of purchased and developed software. The Company continues to drive accounts receivable and has made strong progress in collecting overdue accounts. The Company continues to actively pursue additional financing arrangements including the successful negotiation in June of fiscal 2010 of an additional $7.0 million in borrowing capacity under our existing Credit Facilities Agreement with GE Commercial Distribution Finance Corporation (“CDF”), See Note 12Subsequent Eventsand most recently prior to that the Company was able to secure an additional $2.0 million in financing during the fourth quarter of fiscal 2009; $1.0 million from the Investors and an increase of $1.0 million under the CP/NEBF Credit Agreement. We were also able to complete several other financing arrangements with the Investors over the past two years amounting to $6.0 million, we secured an additional $3.0 million in financing under our Secured Promissory Note with CP Investment Management and NEBF during the first quarter of fiscal 2009, and issued additional shares of Series A Preferred Stock raising over $9.0 million in the prior fiscal year alone.
The Company’s ability to continue as a going concern, however, is contingent upon its ability to obtain debt and or capital financing in order to meet obligations that mature in fiscal 2010; including the Company’s current Credit Facilities Agreement with CDF, which matures in March 2010, See Note 12Subsequent Eventsas well as the Company’s ability to restructure its operations in order to improve future operating results and to generate cash flow.
The Company’s immediate liquidity and capital requirements going forward will depend on numerous factors, including general economic conditions and conditions in the financial services, government and technology industry in particular; the ability to extend or refinance its current maturities; the ability to negotiate additional flexibility in borrowing restrictions and reserves under its current financing facilities and vendor lines of credit; the Company’s dependence on third party licenses and the Company’s ability to maintain its status as an authorized reseller/service provider of IT products; the cost effectiveness of our product and service development activities and our ability to reduce and leverage our centralized infrastructure, all of which may impact the Company’s ability to fund its operations for the foreseeable future. The Company currently has no commitments for material capital expenditures. To the extent that the Company’s existing capital resources are insufficient to meet its working capital requirements, the Company will seek to raise additional funds or seek additional financing arrangements. However, no assurance can be given that such financing may be obtained on terms attractive to the Company, or at all. Furthermore, any additional debt or equity financing arrangements may be dilutive to shareholders, and debt financing, if available, may involve restrictive covenants. The Company’s failure to raise capital when needed could have a material adverse effect on its business, operating results and financial condition.
F-6
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its cash with high credit quality institutions. At times, such amounts may be in excess of the FDIC insurance limits. Credit risk related to trade accounts receivable is limited due to the large number of customers and their dispersion across geographic areas. The Company did not have any customer at March 31, 2009 or 2008 which accounted for more than 10% of its total accounts receivable. At March 31, 2009 the combined top four customer balances accounted for approximately 11% of the Company’s total accounts receivable. Credit is extended to customers based on an evaluation of their financial condition in an effort to reduce the risk of loss. Collateral is generally not required.
Accounts Receivable
Accounts receivable are reported at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts. The Company estimates the allowance for doubtful accounts based on historical experience, customer credit risk and application of the specific identification method. The Company writes off accounts receivable against the allowance when a balance is determined to be uncollectible.
Information relating to the allowance for doubtful accounts is as follows (in thousands):
| | | | | | | | | | | | | |
| | Beginning of
Year | | Additions (a) | | Deductions (b) | | End of Year | |
| |
| |
| |
| |
| |
Year ended March 31, | | | | | | | | | | | | | |
2008 | | $ | 1,552 | | $ | — | | $ | 578 | | $ | 974 | |
2009 | | $ | 974 | | $ | 148 | | $ | 255 | | $ | 867 | |
| |
(a) | Includes bad debt provisions. |
| |
(b) | Includes write-offs for uncollectible accounts receivables and net changes to allowance estimates. |
Inventories
Inventories, comprised principally of computer hardware and software, are stated at the lower of cost or market using the first-in, first-out method.
Fair Value of Financial Instruments
The estimated fair value of amounts reported in the consolidated financial statements has been determined by using available market information and appropriate valuation methodologies. All current assets are carried at their cost and current liabilities are recorded at their contract amount, which approximates fair value because of their short term nature. The carrying value of short-term financing arrangements approximates fair value because interest rates over the relative term of these instruments approximate current market interest rates. The fair value of the Company’s long-term debt obligations is estimated based on the current rates offered to the Company for debt of the same remaining maturities.
Software Development Costs
The cost of software developed for internal use incurred during the preliminary project stage is expensed as incurred. Direct costs incurred during the application development stage are capitalized. Costs incurred during the post implementation/operation stage are expensed as incurred. Capitalized software development costs are amortized on a straight-line basis over their estimated useful lives, generally three years.
F-7
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Property and Equipment
Property and equipment, which includes assets under capital leases, are stated at cost and are depreciated using the straight-line method over estimated useful lives, generally ranging from three to seven years. Leasehold improvements are amortized over the shorter of the lease term or economic life of the related improvement. Expenditures which extend the useful lives of the existing assets are capitalized. The cost of maintenance and repairs are charged to operations as incurred. When assets are retired or sold, the asset cost and related accumulated depreciation are eliminated with any remaining gain or loss reflected in net earnings.
The Company incurred approximately $6.3 million and $7.3 million of depreciation and amortization expense for the years ended March 31, 2009 and 2008, respectively.
The following is a summary of property and equipment held by the Company at:
| | | | | | | |
| | March 31, | |
| |
| |
(in thousands) | | 2009 | | 2008 | |
| |
| |
| |
|
Furniture, fixtures and office equipment | | $ | 17,544 | | $ | 16,662 | |
Software and software development costs | | | 18,904 | | | 17,276 | |
Capitalized lease equipment | | | 708 | | | 1,650 | |
Leasehold Improvements | | | 2,567 | | | 2,532 | |
Vehicles | | | 97 | | | 783 | |
| |
|
| |
|
| |
| | | 39,820 | | | 38,903 | |
Less: accumulated depreciation and amortization | | | (33,172 | ) | | (28,090 | ) |
| |
|
| |
|
| |
Property and equipment, net | | $ | 6,648 | | $ | 10,813 | |
| |
|
| |
|
| |
Goodwill
Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is tested for impairment on an annual basis and more frequently if facts and circumstances indicate goodwill carrying values exceed estimated fair values. Because the Company has fully integrated its acquisitions, it has determined that it has only one reporting unit for purposes of testing for goodwill impairment.
In the fourth quarter of fiscal 2009, the Company conducted its annual assessment of goodwill for impairment. The Company performed extensive valuation analyses, utilizing both income and market approaches, in its goodwill assessment process. Over the past few quarters the Company has experienced a significant decline in its stock price for both common and preferred stock resulting in a lower estimated fair value of the Company. The decline in the fair value of the Company below its book value is also attributable to the current economic crisis and lower than expected revenues and cash flows, and the uncertainty related to future cash flows. As a result, for the year ended March 31, 2009, the Company recorded a pretax impairment charge of $19.6 million to reduce the carrying value of the Company’s goodwill. Additional impairment charges could be recognized in the near term if current conditions continue to decline. No goodwill impairment charge was required for the year ended March 31, 2008.
The change in goodwill during the years ended March 31, 2008 and 2009, respectively, was as follows (in thousands):
| | | | |
Balance at March 31, 2007 | | $ | 69,987 | |
| | | | |
Purchase price adjustment of previous acquisition | | | (27 | ) |
| |
|
| |
Balance at March 31, 2008 | | | 69,960 | |
| |
|
| |
Goodwill impairment | | | (19,614 | ) |
| |
|
| |
Balance at March 31, 2009 | | $ | 50,346 | |
| |
|
| |
F-8
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Intangible Assets
Definite-lived intangibles, which mainly consist of client relationships, are amortized over their estimated useful lives, three to five years.
Intangible assets consist of the following at:
| | | | | | | |
| | March 31, | |
| |
| |
(in thousands) | | | 2009 | | | 2008 | |
| |
|
| |
|
| |
| | | | | | | |
Client relationships | | $ | 8,915 | | $ | 8,915 | |
Know-how | | | 710 | | | 710 | |
Non-compete agreements | | | 250 | | | 250 | |
| |
|
| |
|
| |
| | | 9,875 | | | 9,875 | |
Less: accumulated amortization | | | (9,031 | ) | | (8,092 | ) |
| |
|
| |
|
| |
Intangible assets, net | | $ | 844 | | $ | 1,783 | |
| |
|
| |
|
| |
Amortization expense amounted to approximately $0.9 million and $2.0 million for the years ended March 31, 2009 and 2008, respectively. Estimated amortization expense for each of the next few fiscal years is as follows (in thousands):
| | | | |
Year ending March 31, | | | | |
| | | | |
| | | | |
2010 | | $ | 506 | |
2011 | | | 338 | |
| |
|
| |
Total | | $ | 844 | |
| |
|
| |
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. An asset is considered to be impaired when its carrying amount exceeds the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition. Long-lived assets include property and equipment. The amount of impairment loss, if any, is charged by the Company to current operations. For each of the fiscal years ended March 31, 2009 and 2008, no such impairment existed.
Revenue Recognition
The Company recognizes revenue from the sales of hardware when the rights and risks of ownership have passed to the client, upon shipment or receipt by the client, depending on the terms of the sales contract with the client. Revenue from the sales of software not requiring significant modification or customization is recognized upon delivery or installation. Revenue from services is recognized upon performance and acceptance after consideration of all of the terms and conditions of the client contract. Service contracts generally do not extend over one year, and are recognized when persuasive evidence of an arrangement exists, the sales price is fixed and determinable, and collection of the resulting receivables is reasonably assured. Revenue is recognized as services are performed or over the contracted period, as specified in the agreement. For arrangements with multiple deliverables, delivered items are accounted for separately, provided that the delivered item has value to the client on a stand-alone basis and there is objective and reliable evidence of the fair value of the undelivered items. Revenue billed on retainer is recognized as services are performed and amounts not recognized are recorded as deferred revenue. Shipping and handling costs are included in the cost of sales.
Vendor Programs
Funds received from vendors for product rebates, commissions and marketing programs are recorded as adjustments to product costs, revenue, or selling, general and administrative expenses according to the nature of the program. Some of these programs may extend over one or more quarterly reporting periods. The Company accrues rebates or other vendor incentives as earned based on sales of qualifying products or as services are provided in accordance with the terms of the related program.
Accrual of Unreported Medical Claims
The Company adopted a self-funded medical insurance plan effective May 1, 2008 covering all enrolled employees with regard to medical, dental, vision and prescription benefits. Beginning in the first quarter of fiscal 2009, the Company established an estimate of an amount to accrue for medical costs incurred but not yet reported under these self-funded employee medical insurance plans. The Company estimates the reserve based on an evaluation of past rates of claim payouts and trends in the amount of payouts. To mitigate a portion of the claim risk, the Company maintains a stop loss policy for individual and aggregate claims.
F-9
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Operating Leases
The Company leases office space under operating leases. Most lease agreements contain rent escalation clauses and/or contingent rent provisions. For purposes of recognizing minimum rental expenses on a straight-line basis over the terms of the leases, the Company uses the date of initial possession to begin amortization, which is generally when the Company enters the space.
Accounting for Stock-Based Compensation
The Company maintains several stock equity incentive plans under which incentive stock options, non-qualified stock options, and restricted stock units (“RSUs”) may be granted to employees (including officers), consultants, independent contractors, and non-employee directors. The Company also has an Associate Stock Purchase Plan (“ASPP”). Effective April 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123,“Share-Based Payment” (“SFAS No. 123(R)”), which replaced SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and superseded Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations. Stock-based compensation expense represents the cost related to stock-based awards granted by the Company. RSUs issued by the Company are equivalent to nonvested shares, as defined by SFAS No. 123(R). No stock-based compensation expense was recognized in the consolidated financial statements related to the ASPP, since the related purchase discounts did not exceed the amount allowed under SFAS No. 123(R) for non-compensatory treatment. See Note 6Stock and Benefit Plansfor additional details.
Reverse Stock Split
On June 25, 2008, the Company affected a reverse stock split of its Common Stock at a split ratio of 1-for-15 (“Reverse Stock Split”).
The Reverse Stock Split was approved by the Independent Committee of the Board of Directors on April 25, 2008 and by our Board of Directors on April 28, 2008. On May 1, 2008, FirstMark and Constellation, the holders of a majority of the Company’s voting stock delivered to the Company an executed written stockholders’ consent approving the Reverse Stock Split. As of May 1, 2008, FirstMark and Constellation collectively owned approximately 70% of the Company’s voting securities and 100% of the Company’s Series A Preferred Stock. As a result of FirstMark and Constellation’s approval, no further stockholder approval or action was necessary.
As a result of the Reverse Stock Split, every fifteen shares of the Company’s Common Stock were converted into one share of Common Stock. The Reverse Stock Split affected all of the Company’s common stockholders uniformly and did not affect any common stockholder’s percentage ownership interest in the Company or proportionate voting power, except for minor changes resulting from the cash payment of fractional shares. All outstanding options, restricted stock units, warrants and convertible securities were appropriately adjusted for the Reverse Stock Split automatically on the effective date of the Reverse Stock Split.
The effects of the Reverse Stock Split have been reflected retroactively in the accompanying consolidated financial statements and notes thereto for all periods presented.
The Reverse Stock Split was implemented to avoid being delisted from the NASDAQ Stock Market (the “NASDAQ”) due to the failure to comply with the minimum bid price requirement.
On May 14, 2008, the Company received a NASDAQ Staff Determination indicating our failure to comply with NASDAQ Marketplace Rule 4310(c)(4)- the minimum bid price requirement- for continued listing, and that our securities were subject to delisting from The NASDAQ Capital Market. Pursuant to the NASDAQ rules, we requested a hearing before a NASDAQ Listing Qualifications Panel (the “Panel”). The hearing request stayed the suspension of trading and delisting of our Common Stock. Following a hearing held on July 10, 2008, the Panel, by letter dated July 16, 2008, indicated that MTM had regained compliance with the continued listing standards of the NASDAQ. Accordingly, the Panel determined to continue the listing of the Company’s shares on the NASDAQ.
Per Share Data
Basic net loss per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted net income per share is calculated using the weighted-average number of common shares plus dilutive potential common shares outstanding during the period. Dilutive securities, which are convertible into 3.9 million and 2.5 million common shares as of March 31, 2009 and 2008, respectively, have not been included in the weighted-average shares used for the calculation of earnings per share for the years then ended since the effect of such securities would be anti-dilutive.
Income Taxes
Deferred income taxes are provided, using the asset and liability method, for temporary differences between financial and tax reporting purposes which arise principally from the deductions related to the allowances for doubtful accounts, certain capitalized software costs, the basis of inventory and differences arising from book versus tax depreciation methods. A valuation allowance for deferred tax assets will be established if it is more likely than not that these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. We have recorded a 100% valuation allowance against the deferred tax assets as of March 31, 2009 and 2008.
F-10
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Adoption of New Accounting Standards
On April 1, 2008, the Company adopted the Financial Accounting Standards Board (“FASB”) Statement No. 157,“Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157, issued in September 2006, defines fair value, establishes a framework for measuring fair value and expands fair value measurement disclosures. In February 2008, the FASB deferred the effective date for SFAS No. 157 for one year for certain nonfinancial assets and nonfinancial liabilities and removed certain leasing transactions from its scope. The adoption of SFAS No. 157 did not have a material impact on the Company’s financial position or results of operations.
Effective April 1, 2008, the Company adopted FASB Statement No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities”(“SFAS No. 159”), which was issued in February 2007. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. The Company has not elected to apply the fair value option to any of its financial instruments. As a result, adoption of this statement had no impact on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141(Revised),“Business Combinations” (“SFAS No. 141(R)), which replaces SFAS No. 141,“Business Combinations”, and requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at fair values as of that date, with limited exceptions. SFAS No. 141(R) requires the acquirer to record contingent consideration at the estimated fair value at the time of purchase and establishes principles for treating subsequent changes in such estimates which could affect earnings in those periods. SFAS 141(R) also requires additional disclosures designed to enable users of the financial statements to evaluate the nature and financial effects of the business combination and disallows the capitalization of acquisition costs. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company will implement the provisions of SFAS No. 141(R) for any acquisitions made by the Company on or subsequent to April 1, 2009.
In February 2008, the FASB issued Staff Position (“FSP”) No. 157-1 and FSP No. 157-2. FSP No. 157-1 removes certain leasing transactions from the scope of SFAS No. 157. FSP No. 157-2 partially defers the effective date of SFAS No. 157 for one year for certain nonfinancial assets and nonfinancial liabilities that are recognized at fair value on a nonrecurring basis. Under FSP No. 157-2, the effective date for non-financial assets and liabilities that are recognized at fair value on a nonrecurring basis will be for fiscal years beginning after November 15, 2008. FSP No. 157-2 is effective for the Company from the first quarter of fiscal year 2010. The Company is assessing the potential impact of adopting FSP No. 157-2, but does not believe that the adoption will have a significant impact on the Company’s consolidated financial statements.
In April 2008, the FASB issued FSP No. FAS 142-3,“Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142,“Goodwill and Other Intangible Assets”(“SFAS No. 142”). The intent of the position is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R). FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and is effective for the Company from the first quarter of fiscal year 2010. The Company is assessing the potential impact that the adoption of FSP FAS 142-3 will have on the useful lives of its intangible assets, but does not expect it to have a material impact on its consolidated results of operations and financial condition.
In May 2008, the FASB issued FSP Accounting Principles Board (“APB”) 14-1“Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis and will be adopted by the Company in the first quarter of fiscal year 2010. The Company is assessing the potential impact that the adoption of FSP APB 14-1 may have on its consolidated results of operations and financial condition. However, it is expected that the allocation of the proceeds to the conversion option will result in an increase in interest expense.
In May 2008, the FASB issued SFAS No. 162,“The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. This statement shall be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The Company is assessing the potential impact that the adoption of SFAS No. 162 may have on its consolidated results of operations and financial condition.
F-11
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Note 2. Related Party Notes Payable
The Company has issued and sold a series of unsecured subordinated promissory notes and warrants to the Investors during the period from February 28, 2008 to March 31, 2009 as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
Issue
Date | | Party to Promissory Note | | Principal
Amount | | Price per share if
Interest is
Paid in
Series A
Preferred Stock | | | | Number of
Warrants
Issued | | Exercise
Price of
Warrants | | Warrant
Exercisable
Expiration Date | | Preferred
Stock
Series | |
| |
2/28/08 | | FirstMark III L.P. | | $ | 2,191,123 | | $ | 0.561 | | (a | ) | | | 343,705 | | $ | 0.6375 | | March 29, 2012 | | | A-9 | |
2/28/08 | | FirstMark III Offshore Partners, L.P. | | $ | 308,877 | | $ | 0.561 | | (a | ) | | | 48,452 | | $ | 0.6375 | | March 29, 2012 | | | A-9 | |
6/11/08 | | FirstMark III L.P. | | $ | 2,410,235 | | $ | 0.33 | | (b | ) | | | 642,729 | | $ | 0.375 | | June 11, 2012 | | | A-10 | |
6/11/08 | | FirstMark III Offshore Partners, L.P. | | $ | 339,765 | | $ | 0.33 | | (b | ) | | | 90,604 | | $ | 0.375 | | June 11, 2012 | | | A-10 | |
6/16/08 | | FirstMark III L.P. | | $ | 219,112 | | $ | 0.341 | | (b | ) | | | 56,545 | | $ | 0.3875 | | June 16, 2012 | | | A-11 | |
6/16/08 | | FirstMark III Offshore Partners, L.P. | | $ | 30,888 | | $ | 0.341 | | (b | ) | | | 7,971 | | $ | 0.3875 | | June 16, 2012 | | | A-11 | |
6/16/08 | | Constellation Venture Capital II, L.P. | | $ | 249,618 | | $ | 0.341 | | (b | ) | | | 64,417 | | $ | 0.3875 | | June 16, 2012 | | | A-11 | |
6/16/08 | | Constellation Venture Capital Offshore II, L.P. | | $ | 132,834 | | $ | 0.341 | | (b | ) | | | 34,280 | | $ | 0.3875 | | June 16, 2012 | | | A-11 | |
6/16/08 | | The BSC Employee Fund VI, L.P. | | $ | 111,314 | | $ | 0.341 | | (b | ) | | | 28,726 | | $ | 0.3875 | | June 16, 2012 | | | A-11 | |
6/16/08 | | CVC II Partners, LLC | | $ | 6,234 | | $ | 0.341 | | (b | ) | | | 1,609 | | $ | 0.3875 | | June 16, 2012 | | | A-11 | |
1/29/09 | | FirstMark III L.P. | | $ | 876,449 | | $ | 0.638 | | (c | ) | | | 120,889 | | $ | 0.7250 | | February 11, 2013 | | | A-12 | |
1/29/09 | | FirstMark III Offshore Partners, L.P. | | $ | 123,551 | | $ | 0.638 | | (c | ) | | | 17,042 | | $ | 0.7250 | | February 11, 2013 | | | A-12 | |
| | | |
|
| | | | | | | | | | | | | | | | | | |
| | Total Investors Notes (d) | | $ | 7,000,000 | | | | | | | | | | | | | | | | | | |
| | | |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
(a) On February 28, 2008, the Company issued and sold to FirstMark promissory notes in the principal amount of $2,500,000 (the “FirstMark 08 Notes”) and warrants entitling FirstMark to purchase 392,157 shares of the Company’s Series A-9 Preferred Stock at an exercise price of $0.6375 per share (the “FirstMark A-9 Warrants”). The FirstMark 08 Notes bear interest at a rate per annum equal to 8.5%. Interest on the FirstMark 08 Notes shall be due and payable in cash or, at the option of the Company, in shares of the Company’s Series A-9 Preferred Stock at a price per share of $0.561. Proceeds from the FirstMark Notes were used to fund working capital needs.
On March 28, 2008, the Company and FirstMark amended the FirstMark 08 Notes (the “Amended FirstMark Notes”) to change the maturity as follows: thirty percent (30%) of the principal amount of the Amended FirstMark Notes ($750,000) was due and payable on December 28, 2008, and the remaining principal balance and all interest accrued from February 28, 2008 to the date of payment of the principal amount is due on March 28, 2009.
On June 11, 2008, the Company and FirstMark further amended the Amended FirstMark Notes to change the maturity and payment terms such that all principal and all interest accrued on such notes from the date of original issuance of February 28, 2008 through the date of payment of the principal amount shall be due on December 15, 2009 (the “Second Amended FirstMark Notes”).
The holders of the FirstMark A-9 Warrants may exercise the purchase rights represented by the FirstMark A-9 Warrants at any time. Cashless exercise is permitted. The Company allocated and charged approximately $0.1 million to debt discount, which will be amortized over the life of the Second Amended FirstMark Notes to interest expense, and assigned and credited to additional paid in capital approximately $0.1 million for the fair value of the FirstMark A-9 Warrants. The values attributed to the FirstMark A-9 Warrants were determined utilizing the Black-Scholes model.
(b) On June 11, 2008 and June 16, 2008, the Company issued and sold to FirstMark promissory notes in the aggregate principal amount of $3,000,000 (the “June FirstMark Notes”) and warrants entitling FirstMark to purchase 733,333 shares of the Company’s Series A-10 Preferred Stock at an exercise price of $0.375 per share and 64,516 shares of the Company’s Series A-11 Preferred Stock at an exercise price of $0.3875 per share, at June 11, 2008 and June 16, 2008, respectively (the “FirstMark A-10 and A-11 Warrants”). Proceeds from the June FirstMark Notes were used to fund working capital needs.
On June 16, 2008, the Company issued and sold to Constellation promissory notes in the aggregate principal amount of $500,000 (the “Constellation Notes”) and warrants entitling Constellation to purchase 129,032 shares of the Company’s Series A-11 Preferred Stock at an exercise price of $0.3875 per share (the “Constellation A-11 Warrants”). Proceeds from the Constellation Notes were used to fund working capital needs.
The June FirstMark Notes and the Constellation Notes are due and payable in full on December 15, 2009 and bear interest at a rate per annum equal to 8.5%. Interest on the June FirstMark Notes and the Constellation Notes is due and payable in cash or, at the option of the Company, in shares of the Company’s Series A-10 Preferred Stock or Series A-11 Preferred Stock (as noted in the chart above).
The holders of the FirstMark A-10 and A-11 Warrants and the Constellation A-11 Warrants, collectively (the “June Warrants”) may exercise the purchase rights represented by the June Warrants at any time. Cashless exercise is permitted. The Company allocated and charged approximately $0.2 million to debt discount, which will be amortized over the life of the June FirstMark Notes and the Constellation Notes to interest expense, and assigned and credited to additional paid in capital approximately $0.2 million for the fair value of the June Warrants. The values attributed to the June Warrants were determined utilizing the Black-Scholes model.
F-12
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(c) On January 29, 2009, the Company issued and sold to FirstMark the following Promissory Notes (the “FirstMark 09 Notes”): (1) a promissory note in the principal amount of $876,449 to FirstMark III L.P., and (2) a promissory note in the principal amount of $123,551 to FirstMark III Offshore Partners, L.P. The FirstMark 09 Notes bear interest at a rate per annum equal to 15%. Interest on the FirstMark 09 Notes shall be due and payable in cash or, at the option of the Company, in shares of the Company’s Series A-12 Preferred Stock at a price per share of $0.638. Proceeds from the FirstMark 09 Notes were used to fund working capital needs.
On February 11, 2009, the Company and FirstMark amended the FirstMark 09 Notes (the “Amended FirstMark 09 Notes”) to (i) change the maturity date from February 13, 2009 (or the date on which the Company obtained all necessary consents from its Senior Lenders to such payment if later) to December 15, 2009, (ii) change the interest rate on overdue unpaid principal or interest from 10.5% to 16.5% and (iii) change the priority of payments if the Company is not able to pay the full amounts due under all of its Subordinated Promissory Notes, such that payments to FirstMark with respect to all Subordinated Promissory Notes held by it (the “FirstMark Notes”) have first preference over the Constellation Notes.
On February 11, 2009, the Company also issued warrants to FirstMark (the “FirstMark A-12 Warrants”) entitling: (i) FirstMark III L.P. to purchase 120,889 shares of the Company’s Series A-12 Preferred Stock and (ii) FirstMark III Offshore Partners, L.P. warrants to purchase 17,042 shares of the Company’s Series A-12 Preferred Stock, both at an exercise price of $0.725 per share. The holders of the FirstMark A-12 Warrants may exercise the purchase rights represented by the FirstMark A-12 Warrants at any time. Cashless exercise is permitted.
(d) The Second Amended FirstMark Notes together with the June FirstMark Notes, the Constellation Notes and the Amended FirstMark 09 Notes, collectively are sometimes referred to herein as the “Investors Notes”. At March 31, 2009 the balance of the Investors Notes was approximately $6.8 million, net of debt discounts. At March 31, 2009, approximately $0.5 million in interest has been accrued on the Investors Notes and is payable at maturity. FirstMark currently owns approximately 57% of the Company’s voting stock and had the right to acquire up to 62% of the Company’s voting stock. Gerald A. Poch and Sterling Phillips are members of the Company’s Board of Directors and are also affiliated with FirstMark. Additionally, Constellation currently owns approximately 15% of the Company’s voting stock and has the right to acquire up to 15% of the Company’s Voting Stock. Thomas Wasserman is a member of the Company’s Board of Directors and is also affiliated with Constellation.
The Company entered into an amendment to the Investors Notes (the “Amendment”) on February 11, 2009. The Amendment (i) amends all Subordinated Promissory Notes issued to FirstMark (or its predecessors) or Constellation to change the priority of payments if the Company is not able to pay the full amounts due under all of its Subordinated Promissory Notes, such that payments to FirstMark with respect to the FirstMark Notes have first preference over the Constellation Notes; (ii) amends the Constellation Notes to provide that the rights of Constellation to the payment of principal and interest with respect to such Constellation Notes are subordinated to the payment rights of FirstMark in connection with the FirstMark Notes (as well as the payment rights of the Senior Lenders with respect to the Senior Debt); and (iii) provides for the express subordination of the payment of the Constellation Notes to the prior payment in full of the FirstMark Notes.
The foregoing description of the Investors Notes and the related warrants as well as the Amendment does not purport to be complete, and is qualified in its entirety by reference to the full text of such documents, which are incorporated by reference herein.
The right of repayment of principal and interest on the Investors Notes is subordinated to the rights and security interest of (i) CDF in connection with the August 21, 2007 Credit Facilities Agreement with CDF, as Administrative Agent, GECC Capital Markets Group, Inc. as Sole Lead Arranger and Sole Bookrunner, and CDF and the other lenders listed in the Credit Facilities Agreement, See Note 3Credit Facilities, and (ii) Columbia Partners, L.L.C. Investment Management, as Investment Manager, and National Electric Benefit Fund (“NEBF”), as Lender, in connection with the November 23, 2005, secured credit agreement (the “CP/NEBF Credit Agreement”), See Note 5Long-term Debt - Secured Promissory Note, (CDF and NEBF collectively, the “Senior Lenders” and the Credit Facilities Agreement and the CP/NEBF Credit Agreement collectively, the “Senior Debt”). While any default or event of default has occurred and is continuing with respect to any Senior Debt, the Company is prohibited from making any payments or distribution in respect of the Investors Notes.
Upon an event of default, as set forth in the Investors Notes, the holders of the Investors Notes may declare all amounts outstanding under the Investors Notes immediately due and payable and exercise other remedies permitted by the Investors Notes or at law or in equity, subject to the above mentioned subordination. A more complete description of the Investors Notes can be found in its entirety by reference to the full text of the applicable documents.
Note 3. Credit Facilities
On August 21, 2007, the Company entered into a secured Credit Facilities Agreement (the “Credit Facilities Agreement”) with CDF as Administrative Agent, GECC Capital Markets Group, Inc. as Sole Lead Arranger and Sole Bookrunner, and CDF and the other lenders listed in the Credit Facilities Agreement as (the “Lenders”), providing a combined maximum availability of up to $34 million.
The Credit Facilities Agreement refinanced the Company’s prior senior lender facilities and is secured by a first priority lien on and security interest in substantially all of the present and future assets of the Company, including the issued and outstanding stock of the Company (other than MTM Technologies, Inc.), except for permitted encumbrances. Credit and advances to the Company pursuant to the Credit Facilities Agreement will be used to fund working capital and floor-planning needs, and for general corporate purposes. Terms not otherwise defined in this discussion have the meaning ascribed to them in the Credit Facilities Agreement.
The Revolving Credit Facility under the Credit Facilities Agreement encompasses a two year revolving credit facility, unless earlier terminated by the Company or the Lenders, for up to $15 million, subject to a borrowing base based on eligible accounts receivable, minus the sum of any outstanding Swingline Loan, Floorplan Shortfall, Letter of Credit Exposure, and Bid Bonds, and certain other limitations. All amounts under the Credit Facilities Agreement are due upon the termination thereof, subject to optional prepayment in accordance with the terms of the Credit Facilities Agreement, and mandatory repayment of any Swingline Loan in the event that any of the Lenders fails to pay its allocated portion thereof. Amounts borrowed under the Revolving Credit Facility bear interest at LIBOR plus 3.5%, or LIBOR plus 4.5% during any default period.
F-13
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Floorplan Loan Facility under the Credit Facilities Agreement is not a commitment to lend or advance funds but is a discretionary facility, for up to $20 million, unless terminated by the Company or the Lenders, which allows the Company to finance inventory purchases from vendors as may be approved by the Administrative Agent, on an up to 45-day interest-free basis in many cases. Interest accrues after expiration of any applicable interest free period at a rate to be determined under each Transaction Statement, and not to exceed a maximum rate of 16% per annum in the event the Company objects to the terms under any Transaction Statement. Generally, the Company would receive at least 60 days advance notice of a termination of the Floorplan Facility, during which period the Company would continue to be able to finance inventory purchases under the facility.
The Letter of Credit Facility under the Credit Facilities Agreement will allow the Company to request standby letters of credit and commercial letters of credit for the account of the Company from time to time up to the lesser of $2 million or then applicable availability limits less certain outstanding obligations of the Company under the Credit Facilities Agreement. As of March 31, 2009, the Company has no outstanding letters of credit.
During fiscal 2008 and 2009, the Company entered into several amendments to the Credit Facilities Agreement with CDF in order to modify certain terms including the definitions regarding certain covenant calculations, eligible accounts receivable, and floor plan inventory value, to consent to and approve various indebtedness incurred by the Company and to update disclosures.
On November 13, 2008, the Company entered into the Sixth Amendment to the Credit Facilities Agreement with CDF (the “Sixth Amendment”), whereby CDF modified effective September 1, 2008 certain financial covenants and financial covenant definitions and waived compliance with the Maximum Total Funded Indebtedness to EBITDA covenant for the period ended September 30, 2008. Certain other provisions of the Sixth Amendment, as reflected above, became effective as of November 1, 2008 whereby CDF (a) amended the definition of “Eligible Accounts” to exclude previously allowed items, (b) reduced the Revolving Credit Facility to $15 million from $20 million and increased the Floorplan Loan Facility to $20 million from $14 million, (c) increased the cash reserve applicable to the Borrowing Base to $1,750,000 for the period November 1, 2008 to December 31, 2008, for all other times $1,500,000: minus and (d) modified the definition of the adjusted LIBOR rate and increased the LIBOR Increment to 3.5% from 3.0%.
On February 3, 2009, the Company entered into the Seventh Amendment to the Credit Facilities Agreement with CDF (the “Seventh Amendment”), whereby CDF modified effective December 1, 2008 the Minimum EBITDA financial covenant and waived compliance with the Maximum Total Funded Indebtedness to EBITDA covenant for the period ended December 31, 2008. Certain other provisions of the Seventh Amendment became effective subsequent to December 31, 2008, whereby CDF (a) amended certain definitions and other provisions related to other creditor indebtedness, intercreditor documents, subordinated indebtedness and FirstMark indebtedness and (b) increased the cash reserve applicable to the Borrowing Base to $1,750,000: minus from $1,500,000: minus, effective December 31, 2008.
The Credit Facilities Agreement, as amended through March 31, 2009 requires, among other things, that the Company maintain certain financial covenants including Maximum Total Funded Indebtedness to EBITDA, as defined, of not greater than 4.00 to 1.00 for the preceding four fiscal quarters then ended, beginning with the period ended March 31, 2008; Minimum EBITDA, as defined, for the fiscal quarter ending on March 31, 2009 of $800,000, and for the fiscal quarter ending on June 30, 2009 of $2,000,000; Minimum Excess Cash/Marketable Securities plus Availability of $1,500,000 on the last day of each calendar month; and Minimum Liquidation Multiple of 1.20 to 1.00 as of the last day of each fiscal month; as well as restrictions on the Company’s ability to incur certain additional indebtedness, and various customary provisions, including affirmative and negative covenants, representations and warranties and events of default.
Upon a breach or an event of default by the Company with respect to any of the Investors Notes or the Senior Debt not cured by the Company within any applicable grace period, any of the Lenders may terminate the Credit Facilities Agreement and/or declare all amounts outstanding under the Credit Facilities Agreement immediately due and payable and exercise other remedies including foreclosure of the security for the obligations under the Credit Facilities Agreement.
As of March 31, 2009, the Company was not in compliance with all covenants and was in default of certain other provisions prescribed under the Credit Facility. On June 2, 2009, the Company entered into the Eighth Amendment to the Credit Facilities Agreement with CDF, (the “Eighth Amendment”), whereby CDF waived all existing defaults. In consideration of CDF agreeing to the Eighth Amendment and the waivers contained therein the Company agreed to pay an Eighth Amendment fee of $250,000.
Available funds under the Credit Facilities Agreement as of March 31, 2009, net of the $1,750,000 cash reserve, amounted to approximately $2,400,000.
Note 4. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
| | | | | | | |
| | March 31, | |
| |
| |
| | 2009 | | 2008 | |
| |
| |
| |
|
Accrued interest | | $ | 639 | | $ | 79 | |
Acquisition related costs | | | 260 | | | 984 | |
Compensation related costs | | | 558 | | | 1,174 | |
Accrued sales tax | | | 383 | | | 778 | |
Accrued rent | | | 103 | | | 480 | |
Accrued other | | | 689 | | | 730 | |
| |
|
| |
|
| |
| | $ | 2,633 | | $ | 4,225 | |
| |
|
| |
|
| |
F-14
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Note 5. Long-Term Debt
Secured Promissory Note
On November 23, 2005, the Company entered into the CP/NEBF Credit Agreement and accompanying promissory note in the principal amount of $25 million (the “CP/NEBF Note”), with Columbia Partners, L.L.C. Investment Management, as Investment Manager (“CP Investment Management”), and NEBF, as Lender (the “Lender”). During fiscal 2008 and 2009, the Company entered into several amendments to the CP/NEBF Credit Agreement in order to modify certain terms including extending the maturity date, subordinating the CP/NEBF Note, modifying certain financial covenants, consenting to and approving various indebtedness incurred by the Company and to update disclosures.
Pursuant to the Subordination Agreement dated as of August 21, 2007 (the “Subordination Agreement”) with CDF, for itself and agent to the Lenders under the Credit Facilities Agreement, the CP/NEBF Credit Agreement was extended until November 23, 2010.
On June 11, 2008 and June 17, 2008, the Company entered into Amendments No. 4 and 5 to the CP/NEBF Credit Agreement with CP Investment Management and the Lender whereby each (a) consented to and approved the Second Amended Notes, the June FirstMark Notes and the Constellation Notes in the principal amount of up to $6,000,000, (b) modified certain financial covenants contained in the CP/NEBF Credit Agreement, (c) amended the existing CP/NEBF Note to increase the principal amount by $3,000,000 to $28,000,000 (the “CP/NEBF Amended Note”), and (d) amended the payment premium in respect of the CP/NEBF Amended Note equal to an amount which, when combined with previous payments made, will yield an internal rate of return of 15% per annum from the Closing Date. Proceeds from the additional funding of $3,000,000 were used to fund working capital needs.
The amount outstanding on the CP/NEBF Amended Note bears interest equal to 4.52%; of which the Applicable Current Cash Rate of interest was 1% per annum through August 21, 2008, which rate was increased to 2% per annum through November 22, 2009, and then will increase to 8% per annum thereafter. The Applicable Current Cash Rate is payable quarterly in cash and all remaining interest will accrue and only become due at maturity. Pursuant to Amendment No. 5, upon maturity or in the event of acceleration or upon the occurrence of certain liquidity events, the Company will pay a payment premium in respect of the Note equal to an amount which, when combined with previous payments made, will yield an internal rate of return to the Lender of 15% per annum from the Closing Date, except during any period in which an Event of Default shall have occurred and be continuing, in which case the internal rate of return for such period shall be adjusted to 17% per annum. At March 31, 2009, $13.7 million in interest has been accrued on the Note, $0.2 million is accrued and payable within the next quarter, and $13.5 million is accrued and is payable at maturity.
Required financial covenants under the CP/NEBF Agreement are less restrictive in nature and coincide substantially with those under the Credit Facilities Agreement. The CP/NEBF Credit Agreement requires, among other things, that the Company maintain certain financial covenants including Maximum Total Funded Indebtedness to EBITDA, as defined, of not greater than 4.40 to 1.00 for the preceding four fiscal quarters then ended, beginning with the period ended March 31, 2008.
On November 11, 2008, the Company entered into Amendment No. 6 to the CP/NEBF Credit Agreement with CP Investment Management and the Lender, whereby CP Investment Management and the Lender modified effective September 1, 2008 certain financial covenants and financial covenant definitions and waived compliance with the Maximum Total Funded Indebtedness to EBITDA covenant for the period ended September 30, 2008.
On January 29, 2009, the Company entered into Amendment No. 7 to the CP/NEBF Credit Agreement with CP Investment Management and the Lender, whereby each of Investment Manager and Lender (a) consented to and approved the incurrence by the Company of certain unsecured subordinated indebtedness to FirstMark in the principal amount up to $1,000,000, and the issuance of warrants in connection therewith, (b) obtained a waiver of certain terms of the CP/NEBF Credit Agreement in relation to the foregoing request, (c) modified effective December 1, 2008 certain financial covenants and financial covenant definitions and waived compliance with the Maximum Total Funded Indebtedness to EBITDA covenant for the period ended December 31, 2008, and (d) amended the existing CP/NEBF Note to increase the principal amount by $1,000,000 to $29,000,000. Proceeds from the additional funding of $1,000,000 were used to fund working capital needs.
Subject to the terms of the Subordination Agreement, upon an event of default, the lenders under the CP/NEFB Credit Agreement may terminate such Credit Agreement and/or declare all amounts outstanding immediately due and payable and exercise other remedies including foreclosure of the security for the obligations under the CP/NEFB Credit Agreement, as amended. Terms not otherwise defined in this discussion have the meaning ascribed to them in the CP/NEFB Credit Agreement, as amended or in the Subordination Agreement.
As of March 31, 2009, the Company was not in compliance with all covenants and was in default of certain other provisions prescribed under the CP/NEBF Credit Agreement. On June 2, 2009, the Company entered into Amendment No. 8, with CP Investment Management and the Lender, to the CP/NEBF Credit Agreement (“Amendment No. 8”), whereby CP Investment Management and the Lender waived all existing defaults.
On November 23, 2005, in connection with the issuance of the CP/NEBF Note the Company issued and sold to the Lender a warrant entitling the Lender to purchase 46,666 shares of the Company’s Common Stock at an exercise price of $60.90 per share (the “Lender Warrant”), the Company allocated and charged $2.2 million to debt discount, which will be amortized over the life of the CP/NEBF Amended Note to interest expense, and assigned and credited to additional paid in capital $2.2 million for the fair value of the Lender Warrant. The Company is permitted to settle the warrants with unregistered shares. On August 21, 2007, in connection with the Subordination Agreement, the Company issued a second Warrant to the Lender for the right to purchase up to the maximum number of 46,666 shares of the Company’s Common Stock at an exercise price of $17.55 per share (collectively with the Lender Warrant, the “Lender Warrants”), and allocated and charged $0.5 million to debt discount, which will be amortized over the remaining life of the CP/NEBF Amended Note to interest expense, and assigned and credited to additional paid-in capital $0.5 million for the fair value of the second Warrant. The values attributed to the Lender Warrants were determined utilizing the Black-Scholes model.
F-15
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Note 6. Stock and Benefit Plans
The Company maintains several stock equity incentive plans under which incentive stock options, non-qualified stock options, stock bonuses and RSUs may be granted to employees (including officers), consultants, independent contractors, and non-employee directors.
Stock Option Plans:
The 1993 Employee Stock Option Plan, the 1996 Stock Option Plan and the 1998 Stock Options Plan, all previously adopted by the Company have expired. Accordingly, we can no longer grant new options under such plans. The Company had also adopted a 2000 Long-Term Performance Plan, which provides for the award of an aggregate of 23,333 shares of our common stock, of which, as of March 31, 2009, 8,666 shares are subject to outstanding awards; and a 2002 Long-Term Performance Plan, which provides for the award of an aggregate of 16,666 shares of our common stock of which, as of March 31, 2009, 1,998 shares are subject to outstanding awards. The Company has chosen, with the approval of the Board of Directors, not to grant future options from the 2000 and 2002 Plans.
Lastly, the Company adopted a 2004 Equity Incentive Plan (the “2004 Plan”), which provides for the award of an aggregate of 400,000 shares of our common stock, of which, as of March 31, 2009, 28,048 shares have been issued upon the exercise of options and vested RSUs and 188,170 shares are subject to outstanding awards. Under the terms of the 2004 Plan, options to purchase common stock generally are granted at not less than fair market value, become exercisable as established by the Board of Directors (generally ratably over four years) and generally expire ten years from the date of grant. At March 31, 2009, we had outstanding options and RSUs to purchase approximately 0.2 million shares of common stock and approximately 0.2 million shares of common stock are available for future awards.
The Company recognizes stock-based compensation cost under the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”), which requires the measurement and recognition of compensation expense for all share-based payment awards made based on estimated fair values. The estimated fair value of the Company’s stock-based awards, less expected forfeitures, is amortized on a straight-line basis over the awards’ requisite service period, typically the vesting period. In determining whether an award is expected to vest, we generally use an estimated forfeiture rate based on historical forfeiture rates. The estimated forfeiture rate is updated for actual forfeitures quarterly.
Total stock-based compensation cost recognized in the consolidated statement of operations in selling, general and administrative expenses for the years ended March 31, 2009 and 2008 was as follows:
| | | | | | | |
| | March 31, | |
| |
| |
(in thousands) | | 2009 | | 2008 | |
| |
| |
| |
|
Stock-based compensation expense by type of award: | | | | | | | |
Stock options | | $ | 863 | | $ | 1,083 | |
Stock bonus | | | 35 | | | — | |
Restricted stock units | | | 99 | | | 141 | |
| |
|
| |
|
| |
Total stock-based compensation | | | 997 | | | 1,224 | |
Tax effect on stock-based compensation | | | — | | | — | |
| |
|
| |
|
| |
Net effect of stock-based compensation on net loss | | $ | 997 | | $ | 1,224 | |
| |
|
| |
|
| |
No income tax benefit has been recognized in the consolidated statement of operations related to stock-based compensation expense, due to the Company fully reserving against the related deferred tax assets.
On April 2, 2008, the Board of Directors approved an aggregate stock bonus of 5,666 shares to those directors who are not employees of the Company and who were not appointed to the Board of Directors by either FirstMark or Constellation. The shares were fully vested at the date of grant.
F-16
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Stock Options
Consistent with the provisions of SFAS No. 123(R) and SEC Staff Accounting Bulletin No. 107, the fair value of each stock option grant was estimated at the date of grant using the Black-Scholes option pricing model (“Black-Scholes”) with the following weighted-average assumptions:
| | | | | | | |
| | Year Ended March 31, | |
| |
| |
| | 2009 | | 2008 | |
| |
| |
| |
Expected term | | | 5.9 years | | | 4.4 years | |
Expected stock price volatility | | | 84 | % | | 73 | % |
Risk-free interest rate | | | 2.7 | % | | 3.8 | % |
Expected dividend yield | | | 0 | % | | 0 | % |
Weighted-average grant-date fair value of options granted | | $ | 1.45 | | $ | 7.50 | |
The expected term of the options represents the estimated period of time until exercise and is based on historical exercise patterns and expectations of future employee behavior. The risk-free interest rate is based on United States Treasury instruments as of the grant dates and represents the yields on securities for terms equal to the expected term of the options. Expected volatility is calculated based on historical volatility of the Company’s common stock over the expected term of the stock option. We do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future. Accordingly, our expected dividend yield is zero.
A summary of stock option activity under these plans as of March 31, 2009 and 2008, and changes during the years then ended, is presented below:
| | | | | | | | | | | | | |
| | Number of
Shares | | Weighted-
Average
Exercise Price | | (In the money options)
Aggregate
Intrinsic
Value | | Weighted-
Average
Remaining
Contractual Term | |
|
|
|
|
|
|
|
|
| |
Outstanding at March 31, 2007 | | | 207,802 | | $ | 44.25 | | $ | 11,130 | | | 6.8 years | |
Granted | | | 91,467 | | | 12.97 | | | | | | | |
Exercised | | | (133 | ) | | 11.25 | | | | | | | |
Canceled/Expired | | | (74,442 | ) | | 42.60 | | | | | | | |
| |
|
| | | | | | | | | | |
Outstanding at March 31, 2008 | | | 224,694 | | $ | 31.99 | | $ | — | | | 7.4 years | |
Granted | | | 22,682 | | | 2.74 | | | | | | | |
Exercised | | | — | | | — | | | | | | | |
Canceled/Expired | | | (51,810 | ) | | 20.25 | | | | | | | |
| |
|
| | | | | | | | | | |
Outstanding at March 31, 2009 | | | 195,566 | | $ | 31.71 | | $ | — | | | 6.6 years | |
| |
|
| | | | |
|
| |
|
| |
Exercisable at March 31, 2009 | | | 139,489 | | $ | 37.54 | | $ | — | | | 5.8 years | |
| |
|
| | | | |
|
| |
|
| |
Expected to vest after March 31, 2009 | | | 50,988 | | $ | 18.25 | | $ | — | | | 8.4 years | |
| |
|
| | | | |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
The aggregate intrinsic value in the table above is before applicable income taxes and represents the amount optionees would have received if all in the money options had been exercised on the last business day of the period indicated, based on the Company’s closing stock price.
The unrecognized stock-based compensation expense associated under the fair value method for shares expected to vest (unvested shares net of expected forfeitures) as of March 31, 2009 was approximately $0.4 million and is expected to be recognized over a weighted average period of 1.8 years. Relatively all of the remaining outstanding options are expected to vest.
F-17
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Additional information regarding options outstanding as of March 31, 2009 is as follows:
| | | | | | | | | | | | | | | | |
| | OPTIONS OUTSTANDING | | OPTIONS EXERCISABLE | |
| |
| |
| |
Range of Exercise Prices | | Shares | | Weighted
Average
Remaining
Contractual
Life (Years) | | Weighted
Average
Exercise
Price | | Shares | | Weighted
Average
Exercise
Price | |
|
|
|
|
|
|
|
|
|
|
| |
$0.66-$9.00 | | | 21,848 | | 9.3 | | | $ | 4.12 | | | 1,832 | | $ | 8.22 | |
$9.01-$14.55 | | | 41,723 | | 8.2 | | | $ | 14.28 | | | 21,075 | | $ | 14.19 | |
$14.56-$21.60 | | | 12,063 | | 3.8 | | | $ | 18.90 | | | 10,763 | | $ | 19.27 | |
$21.61-$33.00 | | | 50,225 | | 5.7 | | | $ | 32.50 | | | 41,891 | | $ | 32.40 | |
$33.01-$48.75 | | | 35,345 | | 5.2 | | | $ | 44.03 | | | 31,778 | | $ | 43.87 | |
$48.76-$60.75 | | | 25,008 | | 6.8 | | | $ | 56.44 | | | 23,152 | | $ | 56.16 | |
$60.76-$78.30 | | | 9,354 | | 5.9 | | | $ | 73.44 | | | 8,998 | | $ | 73.79 | |
| |
|
| | | | | | | |
|
| | | | |
| | | 195,566 | | 6.6 | | | $ | 31.71 | | | 139,489 | | $ | 37.54 | |
| |
|
| | | | | | | |
|
| | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Restricted Stock Units
RSUs are awarded to eligible employees under the 2004 Plan and entitle the grantee to receive shares of common stock at the end of a vesting period, typically annually over four years, subject to the employee’s continuing employment. A summary of the status of RSUs nonvested shares as of March 31, 2009 and changes during the year then ended is presented below:
| | | | | | | |
| | Number of Shares | | Weighted-Average
Grant-Date Fair Value | |
|
|
|
|
| |
Nonvested at April 1, 2008 | | | 15,006 | | $ | 27.09 | |
Granted | | | — | | | — | |
Vested | | | (3,317 | ) | | 29.31 | |
Forfeited | | | (3,128 | ) | | 24.16 | |
| |
|
| | | | |
Nonvested at March 31, 2009 | | | 8,561 | | $ | 27.30 | |
| |
|
| | | | |
As of March 31, 2009 there was $0.1 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2004 Plan for RSUs. That cost is expected to be recognized over a weighted-average period of 1.0 year. The total fair value of shares vested during the years ended March 31, 2009 and 2008 were approximately $0.1 million and $0.1 million, respectively.
Associate Stock Purchase Plan
Effective April 15, 2005, the Company adopted the MTM Technologies, Inc. Associate Stock Purchase Plan. The ASPP allows eligible employees to contribute up to 15% of their base earnings to a maximum annual contribution of $25,000 toward the semi-annual purchase of the Company’s common stock. The employee’s purchase price is 95% of the fair market value of the stock on the last business day of the offering period. Employees may purchase shares up to a maximum of 233 shares per offering period. The total numbers of shares issuable under the ASPP is 66,666. From the inception of the ASPP through March 31, 2009, the Company has issued approximately 23,000 shares of common stock to the ASPP at an average price of $11.06. Of the 416 associates eligible to participate, approximately 11 were participants in the ASPP during fiscal 2009. No stock-based compensation expense was recognized in the consolidated financial statements related to the ASPP, since the related purchase discounts did not exceed the amount allowed under SFAS No. 123(R) for non-compensatory treatment. Effective April 1, 2009, the Company discontinued the ASPP.
F-18
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Employee Savings Plan
MTM maintains a voluntary defined contribution savings plan (the “MTM 401(k) Plan”) covering eligible employees as defined in the plan documents. Participating employees may elect to defer and contribute a portion of their compensation to the plan up to limits stated in the plan documents, not to exceed the dollar amounts set by applicable laws. Beginning April 1, 2006, MTM adopted a discretionary match contribution of 25% for the first 6% of each employee’s eligible contribution, senior management was excluded from receiving this match. Eligible participants become fully vested in the match following four years of qualified service. Effective December 1, 2008 the Company suspended payment of any matching contributions to the participants under the MTM 401(k) Plan. The Company contributed approximately $217,000 and $336,000 to the MTM 401(k) Plan for the years ended March 31, 2009 and 2008, respectively.
Note 7. Shareholders’ Equity
Common Stock
At March 31, 2008 and 2009, respectively, the Company had 150,000,000 shares of Common Stock authorized, par value $.001 per share.
As described in Note 1 underReverse Stock Split, on June 25, 2008, the Company affected a Reverse Stock Split of its Common Stock at a split ratio of 1-for-15. Shareholders’ equity reflects the stock split by reclassifying to “Additional paid-in capital” from “Common Stock” an amount equal to the change in par value of the shares arising from the Reverse Stock Split. The par value and the amount of authorized shares were not impacted by the Reverse Stock Split. All outstanding options, restricted stock units, warrants and convertible securities were appropriately adjusted for the Reverse Stock Split automatically on the effective date of the Reverse Stock Split. As of March 31, 2009, there were approximately 913,000 shares of Common Stock outstanding.
Preferred Stock
At March 31, 2008, the Company had authorized 48,000,000 shares of preferred stock, 39,300,000 of which were designated Series A Preferred Stock, par value $.001 per share and 8,700,000 of which were “blank check” preferred stock, par value $.001 per share. At March 31, 2008, there were approximately 29,600,000 shares of Series A Preferred Stock issued.
Effective upon the filing of the Fifth Restated Certificate of Incorporation on March 6, 2009 the Company increased the authorized number of shares of Series A Preferred Stock from 39,300,000 shares to 44,750,000 shares, including the designation of 1,200,000 shares of Series A-9 Preferred Stock, 1,900,000 shares of Series A-10 Preferred Stock, 600,000 shares of Series A-11 Preferred Stock and 500,000 shares of Series A-12 Preferred Stock. No preferred stock from the A-9 to A-12 series is outstanding. The Company has issued Preferred Stock Warrants for these series, see Note 2Related Party Notes Payable. The holders of the Series A-9 to A-12 Preferred Stock Warrants may exercise the purchase rights represented by the respective warrants at any time. Cashless exercise is permitted.
As of March 31, 2009, the Company had authorized 48,000,000 shares of preferred stock, 44,750,000 shares of which are designated Series A Preferred Stock, par value $.001 per share and 3,250,000 shares of which are “blank check” preferred stock, par value $.001 per share. As of March 31, 2009, there were approximately 31,370,000 shares of Series A Preferred Stock issued.
Series A Preferred Stock
During the year ended March 31, 2005, the Investors purchased $41.0 million of Series A-1, Series A-2, Series A-3 and Series A-4 Convertible Preferred Stock and associated common stock warrants. During the year ended March 31, 2006, the Investors purchased an additional $19.0 million of Series A-4 and Series A-5 Convertible Preferred Stock, and associated common stock warrants. During the year ended March 31, 2007, the Investors purchased an additional $3.0 million of Series A-6 Convertible Preferred Stock, and associated common stock warrants.
On April 9, 2007, FirstMark exercised its option to purchase additional shares under the A-6 Purchase Agreement and the Company issued and sold to FirstMark 517,526 shares of Series A-6 Convertible Preferred Stock and Series A-6 Warrants to purchase 10,349 shares of the Company’s common stock for an aggregate purchase price of $0.8 million. This transaction resulted in a further adjustment to the conversion price of each of the series of Series A Preferred Stock. During the first quarter of fiscal 2008 the Company allocated and recorded $0.7 million to Series A Preferred Stock and assigned and credited to additional paid-in capital $0.1 million for the fair value of the warrants. The value attributed to the Series A-6 warrants was determined by utilizing Black-Scholes.
On May 24, 2007, the Company entered into the A-7 Purchase Agreement with the Investors to sell to the Investors up to an aggregate of $5.0 million of Series A-7 Convertible Preferred Stock, together with warrants to purchase additional shares of common stock. On May 24, 2007, the Company issued and sold to FirstMark 3,753,127 shares of Series A-7 Preferred Stock and Series A-7 Warrants to purchase up to 75,062 shares of the Company’s common stock for an aggregate purchase price of $4.5 million. At the same time, the Company also granted an option to Constellation to purchase up to 417,015 shares of Series A-7 Preferred Stock and Series A-7 Warrants to purchase up to 8,338 shares of the Company’s common stock. On May 30, 2007 Constellation exercised its rights under the foregoing options and the Company issued and sold to Constellation 417,015 shares of Series A-7 Preferred Stock and 8,338 Series A-7 Warrants for an aggregate purchase price of $0.5 million. This transaction resulted in a further adjustment to the conversion price of each of the series of Series A Preferred Stock. During the first quarter of fiscal 2008 the Company allocated and recorded $4.4 million to Series A Preferred Stock and assigned and credited to additional paid-in capital $0.6 million for the fair value of the warrants. The value attributed to the Series A-7 warrants was determined by utilizing Black-Scholes.
F-19
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
On July 25, 2007, the Company entered into the A-8 Purchase Agreement with FirstMark, whereby the Company issued and sold to FirstMark 743,415 shares of Series A-8 Convertible Preferred Stock and Series A-8 Warrants to purchase up to 59,472 shares of the Company’s common stock for an aggregate purchase price of $3.5 million. This transaction resulted in a further adjustment to the conversion price of each of the series of Series A Preferred Stock. Each share of Series A-8 Convertible Preferred Stock is convertible into four shares of the Company’s common stock at a conversion price equal to $1.1770 per share (subject to adjustment). During the second quarter of fiscal 2008 the Company allocated and recorded $3.0 million to Series A Preferred Stock and assigned and credited to additional paid-in capital $0.5 million for the fair value of the warrants. The value attributed to the Series A-8 warrants was determined by utilizing Black-Scholes.
In the event of any liquidation of the Company, the holders of the Series A Preferred Stock shall be entitled to be paid in preference to any distribution to holders of common stock, in an amount per share equal to the sum of the applicable Series A Purchased Shares Purchase Price plus any accrued but unpaid dividends on the Series A Preferred Stock.
The following table sets forth the Series A Preferred Stock and associated warrants issued to the Investors under the various purchases agreements, including in-kind dividends paid.
| | | | | | | |
| | No. of Shares
(in thousands) | | Purchase Price | |
| |
| |
| |
| | | | | | | |
Series A-1 Convertible Preferred Stock | | | 3,774 | | $ | 2.15 | |
Series A-2 Convertible Preferred Stock | | | 2,319 | | $ | 2.75 | |
Series A-3 Convertible Preferred Stock | | | 4,459 | | $ | 3.25 | |
Series A-4 Convertible Preferred Stock | | | 9,096 | | $ | 3.25 | |
Series A-5 Convertible Preferred Stock | | | 3,567 | | $ | 3.25 | |
Series A-6 Convertible Preferred Stock | | | 2,796 | | $ | 1.485 | |
Series A-7 Convertible Preferred Stock | | | 4,555 | | $ | 1.199 | |
Series A-8 Convertible Preferred Stock | | | 804 | | $ | 4.708 | |
| |
|
| | | | |
| | | 31,370 | (a) | | | |
| |
|
| | | | |
| | | | | | | |
| | | No. of Warrants
(in thousands) | | | Exercise Price | |
| |
| |
| |
| | | | | | | |
Series A-1 Common Stock Warrants | | | — | (b) | | | |
Series A-2 Common Stock Warrants | | | — | (b) | | | |
Series A-3 Common Stock Warrants | | | — | (b) | | | |
Series A-4 Common Stock Warrants | | | 37 | (c) | $ | 60.90 | |
Series A-5 Common Stock Warrants | | | 30 | | $ | 60.90 | |
Series A-6 Common Stock Warrants | | | 51 | | $ | 24.45 | |
Series A-7 Common Stock Warrants | | | 83 | | $ | 19.7835 | |
Series A-8 Common Stock Warrants | | | 59 | | $ | 19.4205 | |
| |
|
| | | | |
| | | 260 | | | | |
| |
|
| | | | |
| | | | | | | |
| | | No. of Warrants
(in thousands) | | | Exercise Price | |
| |
| |
| |
| | | | | | | |
Series A-9 Preferred Stock Warrants | | | 392 | | $ | 0.6375 | |
Series A-10 Preferred Stock Warrants | | | 733 | | $ | 0.3750 | |
Series A-11 Preferred Stock Warrants | | | 194 | | $ | 0.3875 | |
Series A-12 Preferred Stock Warrants | | | 138 | | $ | 0.7250 | |
| |
|
| | | | |
| | | 1,457 | (d) | | | |
| |
|
| | | | |
| | |
| (a) | The funds raised from the sales of Series A Convertible Preferred Stock were used to fund the cash portion of the purchase price for the Company’s various acquisitions, as well as for working capital and general corporate purposes. |
| | |
| (b) | The option to exercise the A-1, A-2 and the A-3 Common Stock Warrants expired on May 21, 2008, September 16, 2008 and on December 7, 2008, respectively. |
| | |
| (c) | The option to exercise 41,024 and 24,612 of the A-4 Common Stock Warrants expired on December 10, 2008 and on March 11, 2009, respectively. |
| | |
| (d) | See Note 2Related Party Notes Payable regarding details of the transactions involving the Preferred Stock Warrants. |
The funds raised from the sales of Series A Convertible Preferred Stock were used to fund the cash portion of the purchase price for the Company’s various acquisitions, as well as for working capital and general corporate purposes.
F-20
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Beginning May 21, 2006, the Series A Preferred Stock began to accrue dividends, payable semi-annually in arrears, in an amount equal to 6% of the applicable Series A purchase price. Until and including November 21, 2009 dividends may, at the option of the Company, be paid in cash or in shares of the applicable Series A Preferred Stock valued at the applicable Series A purchase price. During fiscal 2009 the Company paid $4.8 million in preferred dividends for the period November 21, 2007 to November 20, 2008 in the form of 1,800,727 shares of Series A Preferred Stock. The Series A purchase prices ranged from $1.199 to $4.708. For the year ended March 31, 2009, the Company has accrued and charged to equity $4.9 million in preferred dividends. At March 31, 2009 $1.8 million was accrued in preferred dividends for the period beginning November 21, 2008. The Preferred Stock Series A-1 to A-8 purchase prices accrued range from $1.199 to $4.708. Dividends are accrued as other long-term liabilities since the current intention of the Company is to pay dividends in the form of equity.
Note 8. Income Taxes
Effective April 1, 2007, the Company adopted the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48,“Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”), which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits. Upon the adoption of FIN 48, the Company had no unrecognized tax benefits. The application of FIN 48 did not have any impact on the Company’s consolidated balance sheets, statements of operations, or statements of cash flows during the years ended March 31, 2009 and 2008, respectively.
The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The (benefit from) provision for income taxes consisted of the following (in thousands):
| | | | | | | |
| | Year Ended March 31, | |
| |
| |
| | 2009 | | 2008 | |
| |
| |
| |
Current: | | | | | | | |
Federal | | $ | — | | $ | — | |
State | | | 119 | | | 250 | |
| |
|
| |
|
| |
| | | 119 | | | 250 | |
Deferred: | | | | | | | |
Federal | | | (191 | ) | | 673 | |
State | | | (28 | ) | | 99 | |
| |
|
| |
|
| |
| | | (219 | ) | | 772 | |
| |
|
| |
|
| |
(Benefit from) provision for income taxes | | $ | (100 | ) | $ | 1,022 | |
| |
|
| |
|
| |
The reconciliations of income tax (benefit) provision computed at the federal statutory tax rates to actual income tax (benefit) provision are as follows (in thousands):
| | | | | | | |
| | Year Ended March 31, | |
| |
| |
| | 2009 | | 2008 | |
| |
| |
| |
Tax benefit at federal statutory rates applied to pretax loss | | $ | (13,479 | ) | $ | (4,898 | ) |
State income taxes, net of federal benefit | | | 91 | | | 149 | |
Federal income taxes | | | (191 | ) | | 673 | |
Changes in valuation allowance | | | 6,766 | | | 3,676 | |
Other permanent items | | | 6,900 | | | 476 | |
Adjustments to prior provisions | | | (187 | ) | | 946 | |
| |
|
| |
|
| |
(Benefit from) provision for income taxes | | $ | (100 | ) | $ | 1,022 | |
| |
|
| |
|
| |
F-21
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The tax effects of temporary differences that give rise to the net short-term deferred income tax asset are presented below (in thousands):
| | | | | | | |
| | March 31, | |
| |
| |
| | 2009 | | 2008 | |
| |
| |
| |
| | | | | | | |
Reserve for bad debts | | $ | 338 | | $ | 380 | |
Inventory | | | 1 | | | 11 | |
Accrued compensation | | | 53 | | | — | |
| |
|
| |
|
| |
| | | 392 | | | 391 | |
Valuation allowance | | | (392 | ) | | (391 | ) |
| |
|
| |
|
| |
Total short-term deferred income tax asset | | $ | — | | $ | — | |
| |
|
| |
|
| |
The tax effects of temporary differences that give rise to the net long-term deferred income tax asset (liability) are presented below (in thousands):
| | | | | | | |
| | March 31, | |
| |
| |
| | 2009 | | 2008 | |
| |
| |
| |
| | | | | | | |
Property and Equipment, net | | $ | (4,521 | ) | $ | (3,837 | ) |
Goodwill | | | (2,894 | ) | | (2,524 | ) |
Other | | | 36 | | | 50 | |
Net operating loss | | | 35,101 | | | 27,268 | |
Research and development credit | | | 190 | | | 190 | |
| |
|
| |
|
| |
| | | 27,912 | | | 21,147 | |
Valuation allowance | | | (28,465 | ) | | (21,919 | ) |
| |
|
| |
|
| |
Net long-term deferred income tax asset (liability) | | $ | (553 | ) | $ | (772 | ) |
| |
|
| |
|
| |
At March 31, 2009, the Company has net operating loss carry forwards of approximately $90 million to offset taxable income through the year 2029. Realization of the benefit of the carry forward losses depends on earning sufficient taxable income before expiration of loss carry forwards. The utilization of the net operating loss carry forwards may also be limited as a result of “change of ownership” provision under section 382 of the Internal Revenue Services Code. At March 31, 2009 and 2008, the Company has established a valuation allowance that offsets the deferred tax assets.
Note 9. Related Party Transactions
During fiscal 2009 and 2008 the Company paid approximately $248,000 and $152,000, respectively in fees to Tectura Corporation (“Tectura”) for certain consulting services related to the customization and management of the Company’s accounting systems. Funds controlled by FirstMark Capital hold more than 10% of the equity securities of Tectura and Gerald A. Poch, Non-executive Chairman of the Board of the Company, is a director of Tectura.
During fiscal 2009 and 2008 the Company paid approximately $1,000,000 and $1,200,000, respectively in fees to Savvis, Inc. (“Savvis”) for certain technology and data center services. Members of the Constellation Group or funds affiliated with them held, during fiscal 2009 and 2008, more than 10% of the preferred equity securities of Savvis and Clifford Friedman, who is a member of Constellation Ventures Management II, LLC and a senior managing director of Bear Stearns Asset Management Inc., was a director of Savvis.
F-22
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Note 10. Commitments and Contingencies
Lease Commitments
The Company leases 21 locations for its administrative and operational functions under operating leases expiring at various dates through 2016. Certain leases are subject to escalation based on the Company’s share of increases in operating expenses for the locations. In addition, the Company leases equipment, software and vehicles used in operations under both operating and capital leases.
Future annual minimum lease payments including estimated escalation amounts under non-cancelable operating and capital leases as of March 31, 2009 are as follows (in thousands):
| | | | | | | | | | |
| | Total | | Operating | | Capital | |
| |
| |
| |
| |
| | | | | | | | | | |
Year Ending March 31, | | | | | | | | | | |
2010 | | $ | 2,924 | | $ | 2,811 | | $ | 113 | |
2011 | | | 2,559 | | | 2,553 | | | 6 | |
2012 | | | 1,595 | | | 1,595 | | | — | |
2013 | | | 1,266 | | | 1,266 | | | — | |
2014 | | | 739 | | | 739 | | | — | |
Thereafter | | | 1,635 | | | 1,635 | | | — | |
| |
|
| |
|
| |
|
| |
| | $ | 10,718 | | $ | 10,599 | | $ | 119 | |
| |
|
| |
|
| |
|
| |
Rental expense for operating leases including amounts from non-cancelable leases approximated $2.9 million and $3.2 million for the years ended March 31, 2009 and 2008, respectively.
Legal Proceedings
From time to time, in the normal course of business, various claims are made against the Company. Except for the proceedings described below, there are no material proceedings to which the Company is a party.
On January 22, 2009, the parties entered into a Confidential Settlement Agreement and Release of Claims (“Mhanna Confidential Settlement”) with the plaintiff in the lawsuit styled Amanda Mhanna v. MTM Technologies, Inc, et al., filed on December 4, 2007 in the Superior Court of the State of California. The plaintiff, a former Company employee, alleged discrimination, harassment, retaliation and other causes of action against the defendants, and sought an unstated amount of compensatory and punitive damages, attorneys’ fees, and costs. Under the terms of the Mhanna Confidential Settlement all claims against Company and the individual defendant have been dismissed with prejudice and without admission of liability or wrongdoing.
On May 18, 2009, the parties entered into a Confidential Settlement Agreement and Release of Claims (“Patel Confidential Settlement”) with the plaintiff in the lawsuit styled Sonal Patel v. MTM Technologies, Inc, et al., filed on March 14, 2008 in the Superior Court of the State of California. The plaintiff, a former Company employee, alleged hostile work environment, harassment, and intentional infliction of emotional distress against the defendants and sought an unstated amount of compensatory and punitive damages, attorneys’ fees, and costs. Under the terms of the Patel Confidential Settlement all claims against Company and the individual defendant have been dismissed with prejudice and without admission of liability or wrongdoing.
As permitted under New York law, the Company has agreements under which it indemnifies its officers, directors and certain employees for certain events or occurrences while the officer or director is or was serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has a director and officer insurance policy that limits its exposure and enables it to recover a portion of any future amounts paid. Given the insurance coverage in effect, the Company believes the estimated fair value of these indemnification agreements is minimal. The Company has no liabilities recorded for these agreements as of March 31, 2009.
The Company is a party to other various claims and legal actions arising in the ordinary course of its business. The Company believes that the ultimate outcome of these matters would not have a material adverse impact on the Company’s financial condition or the results of its operations.
F-23
MTM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Note 11. Segment Information
The Company currently operates only within the United States. Substantially, all of the Company’s revenue generating operations have similar economic characteristics, including the nature of the products and services sold; the type and class of clients for products and services; the methods used to deliver products and services and regulatory environments.
Note 12. Subsequent Events
NEBF Guarantee
On May 29, 2009, the Company received a $1,900,000 advance from CDF under the Credit Facilities Agreement. As a condition of such advance, CDF required NEBF to enter into a Limited Guarantee for the benefit of CDF, whereby NEBF guaranteed the repayment obligations of the $1,900,000 advance to the Company (the “NEBF Guarantee”).
Letter of Credit Agreement
On June 11, 2009, the Company entered into a Letter of Credit Commitment and Reimbursement Agreement with NEBF, CP Investment Management, FirstMark and Constellation (collectively, the “L/C Guarantors”) and CP Investment Management, as Investment Manager for the L/C Guarantors (the “L/C Agreement”). As a condition of CDF continuing to make advances under the Credit Facilities Agreement, CDF required that one or more of the L/C Guarantors provide letters of credit in the aggregate amount of $8,500,000 to provide credit support and additional collateral to secure the Companies’ obligations under the CDF Credit Facilities Agreement. The terms of the L/C Agreement provide that the letters of credit shall expire no later than May 31, 2010.
The Company is obligated to reimburse the L/C Guarantors for any drawing made on a letter of credit immediately following any payment made by the issuing bank of such letter of credit. The Company is required to pay a drawing fee equal to the amount required to provide the L/C Guarantors with a 15% rate of return on drawings made on the letters of credit. Additionally, in the event of a Change of Control, Event of Default or Liquidity Event (as such terms are defined in the L/C Agreement), the Company is required to pay to the L/C Guarantors a Success Fee payable in cash in the amount of $34,000,000.
To secure the repayment obligations of the Company under the L/C Agreement (including the obligation to pay the Success Fee), the Company has granted to CP Investment Management, as Investment Manager, a security interest in: (i) all of the Companies’ rights, title and interest in and to certain property of the Company pursuant to a Security Agreement between the Company and the L/C Guarantors; (ii) certain trademarks of the Company pursuant to an Intellectual Property Security Agreement between the Company and the L/C Guarantors; and (iii) 100% of the capital stock of the Company pursuant to a Stock Pledge Agreement between the Company and the L/C Guarantors.
FirstMark and Constellation Notes
The Company entered into a Second Amendment to the Investors Notes (the “Second Amendment”) on June 11, 2009. The Second Amendment (i) amends all of the Investors Notes to extend the maturity dates to November 30, 2010 from December 15, 2009; (ii) amends the FirstMark Notes to provide that the rights of FirstMark to the payment of principal and interest with respect to such FirstMark Notes are subordinated to the payment rights of CP Investment Manager, as Investment Manager for the L/C Guarantors under the L/C Agreement; and (iii) amends the Constellation Notes to provide that the rights of Constellation to the payment of principal and interest with respect to such Constellation Notes are subordinated to the payment rights of CP Investment Manager, as Investment Manager for the L/C Guarantors under the L/C Agreement.
Credit Facilities Agreement
On June 2, 2009 and June 11, 2009, the Company entered into, respectively, the Eighth and Ninth Amendments to the Credit Facilities Agreement with CDF. The Eighth Amendment provides for, among other things, (a) an acknowledgement of the NEBF Guarantee; (b) the waiver by CDF of the Companies’ existing defaults as of June 2, 2009 under the Credit Facilities Agreement; (c) the termination of all existing Commitments and replacement with new Facilities comprised of a $15,000,000 Revolving Loan Facility and a $15,000,000 Floorplan Loan Facility, with the aggregate limit of such Facilities not to exceed $25,000,000; and (d) amendments to certain definitions and the elimination of most financial covenants, including Maximum Total Funded Indebtedness to EBITDA, Minimum EBITDA and the Minimum Liquidation Multiple. The Ninth Amendment provides for, among other things, (a) consent to the incurrence by the Company of the indebtedness provided for in the L/C Agreement, (b) amendments relating to the L/C Agreement, (c) consent to the sale by the Company of its facilities business, (d) a change in the maturity date of the Revolving Loan Facility under the Credit Facilities Agreement to March 31, 2010 from August 21, 2009, and (e) amendments to certain definitions including the computation of the Borrowing Base and (f) amendments to representations and warranties.
On June 29, 2009 CDF consented to certain extensions to the compliance provisions under the Credit Facilities Agreement to July 14, 2009 and agreed to modify certain other qualification provisions related to the issuance of the 2009 annual financial statements.
F-24
CP/NEBF Credit Agreement
On June 2, 2009 and June 11, 2009, the Company entered into Amendments No. 8 and 9, respectively, to the CP/NEBF Credit Agreement with CP Investment Management, as Investment Manager and NEBF, as Lender. Amendment No. 8 provides for, among other things, (a) the waiver by CP Investment Management and NEBF of the Companies’ existing defaults as of June 2, 2009 under the terms of the CP/NEBF Credit Agreement; (b) the Companies’ guarantee of reimbursement of payments made by NEBF under the NEBF Guarantee; (c) setting the interest rate equal to (i) 4.52% per annum for the term between the date of issuance and June 30, 2010, and (ii) 8.00% per annum thereafter; with (iii) the Current Cash Rate for April 1, 2009 through June 30, 2010 reduced to 0% on an annualized basis, and then the rate will increase to 8% per annum thereafter; (d) an amendment to the definition of “Senior Indebtedness” and the elimination of all financial covenants; and (e) the waiver by the Company of any claims it may have against CP Investment Management and NEBF existing or occurring on or prior to the date of Amendment No. 8. Amendment No. 9 provides for, among other things, (a) consent to the incurrence by the Company of the indebtedness provided for in the L/C Agreement, (b) amendments relating to the L/C Agreement, (c) consent to the sale by the Company of its facilities business; and (d) amendments to certain definitions and rights of CP Investment Management and NEBF.
The Eighth Amendment and Amendment No. 8 were intended to provide the MTM with bridge financing until the Ninth Amendment and Amendment No. 9 could be finalized.
Any term not otherwise defined in this discussion has the meaning ascribed to such term in the respective agreement or amendment thereto.
Going Dark
On July 13, 2009, the Company’s Board of Directors voted to voluntarily deregister MTM’s common stock under the Exchange Act and become a non-reporting company. In connection therewith, the Board of Directors approved the filing of Post-Effective Amendments to the Company’s previously filed Forms S-3 and S-8 to deregister all shares unsold to date pursuant to such forms, and, after the filing of this Form 10-K, to file with the SEC a Form 15, Notice of Termination of Registration and Suspension of Duty to File, to terminate its reporting obligations under the Exchange Act. Once the Company files the Form 15, its obligation to file reports and other information under the Exchange Act, such as Forms 10-K, 10-Q and 8-K, will be suspended immediately. The deregistration of the Company’s common stock under the Exchange Act will become effective 90 days after the date on which the Form 15 is filed. The Company is eligible to deregister under the Exchange Act because its common stock is held by fewer than 300 shareholders of record.
F-25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
| MTM TECHNOLOGIES, INC. |
| | |
Dated: July 14, 2009 | By: | /S/ STEVEN STRINGER |
| |
|
| | Steven Stringer |
| | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this annual report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
| | | | |
/S/ GERALD A. POCH | | Chairman of the Board of Directors | | July 14, 2009 |
| | | | |
Gerald A. Poch | | | | |
| | | | |
/S/ STEVEN STRINGER | | President and Chief Executive Officer | | July 14, 2009 |
| | (Principal Executive Officer) | | |
Steven Stringer | | (Principal Financial and Accounting Officer) | | |
| | | | |
| | Senior Vice President and Chief Financial Officer | | July , 2009 |
| | | | |
J.W. Braukman III | | | | |
| | | | |
/S/ KEITH B. HALL | | Director | | July 14, 2009 |
| | | | |
Keith B. Hall | | | | |
| | | | |
/S/ WILLIAM LERNER | | Director | | July 14, 2009 |
| | | | |
William Lerner | | | | |
| | | | |
/S/ ALVIN E. NASHMAN | | Director | | July 14, 2009 |
| | | | |
Alvin E. Nashman | | | | |
| | | | |
/S/ STERLING PHILLIPS | | Director | | July 14, 2009 |
| | | | |
Sterling Phillips | | | | |
| | | | |
/S/ ARNOLD J. WASSERMAN | | Director | | July 14, 2009 |
| | | | |
Arnold J. Wasserman | | | | |
| | | | |
/S/ THOMAS WASSERMAN | | Director | | July 14, 2009 |
| | | | |
Thomas Wasserman | | | | |
MTM TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
Fiscal Year Ended March 31, 2009
EXHIBIT INDEX
| | | | |
Exhibit
Number | | | Description | |
| | |
| |
| | |
2.1 | | Asset Purchase Agreement, dated September 17, 2004 among Network Catalyst, Inc., William Corbin, Rocci J. Della Maggiore and MTM Technologies, Inc. [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: September 16, 2004), filed with the Securities and Exchange Commission on September 22, 2004.] |
| | |
2.2 | | Asset Purchase Agreement, dated December 1, 2004, among Vector ESP, Inc., Vector ESP Management, Inc. and Vector Global Services, Inc. and MTM Technologies, Inc. [Incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K (Date of Report: December 7, 2004), filed with the Securities and Exchange Commission on December 13, 2004.] |
| | |
2.3 | | Stock Purchase Agreement, dated January 27, 2005, among Info Systems, Inc., Mark Stellini, Emidio F. Stellini, Jr., Jay Foggy, Richard Roux, Jennifer McKenzie and MTM Technologies, Inc. [Incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K (Date of Report: January 26, 2005) filed with the Securities and Exchange Commission on February 1, 2005.] |
| | |
2.4 | | Merger Agreement, dated August 16, 2005, among NEXL, Inc., MTM Technologies (Massachusetts), LLC, MTM Technologies, Inc. and Clifford L. Rucker [Incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K (Date of Report: August 15, 2005), filed with the Securities and Exchange Commission on August 19, 2005.] |
| | |
3.1 | | Fifth Restated Certificate of Incorporation dated March 5, 2009 [Incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K (Date of Report: March 3, 2009), filed with the Securities and Exchange Commission on March 6, 2009.] |
| | |
3.2 | | Amended and Restated By-Laws. [Incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K (Date of Report: August 5, 2004), filed with the Securities and Exchange Commission on August 13, 2004.] |
| | |
4.1 | | Purchase Agreement, dated January 29, 2004, among Micros-to-Mainframes, Inc., Pequot Private Equity Fund III, L.P. and Pequot Offshore Private Equity Partners III, L.P. [Incorporated by reference to Appendix A to the proxy statement contained as part of the registrant’s definitive Schedule 14A, filed with the Securities and Exchange Commission on April 15, 2004.] |
| | |
4.2 | | Purchase Agreement, dated December 7, 2004, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: December 7, 2004), filed with the Securities and Exchange Commission on December 13, 2004.] |
| | |
4.3 | | Amendment No. 1 to the Purchase Agreement, dated December 7, 2004, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC [Incorporated by reference to Exhibit 4.3 to the registrant’s Quarterly Report on Form 8-K (Date of Report: December 31, 2005), filed with the Securities and Exchange Commission on February 14, 2006.] |
| | |
4.4 | | Amendment No. 2 to the Purchase Agreement, dated December 7, 2004, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: November 22, 2005), filed with the Securities and Exchange Commission on November 29, 2005.] |
| | |
4.5 | | Waiver Letter dated December 9, 2005, by Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC Partners II, LLC [Incorporated by reference to Exhibit 99.7 to the registrant’s Registration Statement on Form S-3, filed with the Securities and Exchange Commission on December 28, 2005.] |
| | |
4.6 | | Purchase Agreement, dated March 29, 2007, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: March 29, 2007), filed with the Securities and Exchange Commission on April 2, 2007.] |
| | |
4.7 | | Purchase Agreement, dated May 24, 2007, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, (Date of Report: May 24, 2007), filed with the Securities and Exchange Commission on May 31, 2007.] |
| | |
4.8 | | Purchase Agreement, dated July 25, 2007, among MTM Technologies, Inc., Pequot Private Equity Fund III, L.P., and Pequot Offshore Private Equity Partners III, L.P. [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: July 25, 2007), filed with the Securities and Exchange Commission on July 31, 2007.] |
| | |
4.9 | | Amended and Restated Shareholders’ Agreement, dated August 1, 2005, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: August 1, 2005), filed with the Securities and Exchange Commission on August 4, 2005.] |
| | |
4.10 | | Amended and Restated Registration Rights Agreement, dated August 1, 2005, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC [Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K (Date of Report: August 1, 2005), filed with the Securities and Exchange Commission on August 4, 2005.] |
| | |
4.11 | | Amendment No. 1 to the Amended and Restated Registration Rights Agreement, dated November 23, 2005, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC [Incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K (Date of Report: November 22, 2005), filed with the Securities and Exchange Commission on November 29, 2005.] |
| | |
4.12 | | Amendment No. 2 to the Amended and Restated Registration Rights Agreement, dated March 29, 2007, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC [Incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K (Date of Report: March 29, 2007), filed with the Securities and Exchange Commission on April 2, 2007.] |
| | |
4.13 | | Amendment No. 3 to the Amended and Restated Registration Rights Agreement, dated April 9, 2007, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: April 9, 2007), filed with the Securities and Exchange Commission on April 13, 2007.] |
| | |
4.14 | | Amendment No. 4 to the Amended and Restated Registration Rights Agreement, dated May 24, 2007, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC [Incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K (Date of Report: May 24, 2007), filed with the Securities and Exchange Commission on May 31, 2005.] |
| | |
4.15 | | Amendment No. 5 to the Amended and Restated Registration Rights Agreement, dated July 25, 2007, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC [Incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K (Date of Report: July 25, 2007), filed with the Securities and Exchange Commission on July 31, 2007.] |
| | |
4.16 | | Amendment No. 6 to the Amended and Restated Registration Rights Agreement, dated February 13, 2009, among MTM Technologies, Inc., Steven Rothman, Howard Pavony, FirstMark III, L.P., FirstMark III Offshore Partners, L.P., as successors-in-interest to Pequot Private Equity Fund III, L.P., Pequot Offshore Private Equity Partners III, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., The BSC Employee Fund VI, L.P. and CVC II Partners, LLC [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: March 3, 2009), filed with the Securities and Exchange Commission on March 6, 2009.] |
| | |
4.17 | | Columbia Voting Agreement, dated November 4, 2005 [Incorporated by reference to Exhibit 99.1 to the registrant’s Current Report on Form 8-K (Date of Report: November 4, 2005), filed with the Securities and Exchange Commission on November 4, 2005.] |
| | |
4.18 | | Series A-5 Voting Agreement, dated November 23, 2005 [Incorporated by reference to Exhibit 99.2 to the registrant’s Current Report on Form 8-K (Date of Report: November 22, 2005), filed with the Securities and Exchange Commission on November 29, 2005.] |
| | |
4.19 | | Form of the Series A-4 Warrant Certificate [Incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K (Date of Report: December 7, 2004), filed with the Securities and Exchange Commission on December 13, 2004.] |
| | |
4.20 | | Form of the Series A-5 Warrant Certificate [Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K (Date of Report: November 22, 2005), filed with the Securities and Exchange Commission on November 29, 2005.] |
| | |
4.21 | | Warrant Certificate issued to National Electrical Benefit Fund [Incorporated by reference to Exhibit 10.5 to the registrants Current Report on Form 8-K (Date of Report: November 22, 2005), filed with the Securities and Exchange Commission on November 29, 2005.] |
| | |
4.22 | | Form of the Series A-6 Warrant Certificate [Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K (Date of Report: March 29, 2007), filed with the Securities and Exchange Commission on April 2, 2007.] |
| | |
4.23 | | Form of the Series A-7 Warrant Certificate [Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K (Date of Report: May 24, 2007), filed with the Securities and Exchange Commission on May 31, 2007.] |
| | |
4.24 | | Form of the Series A-8 Warrant Certificate [Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K, (Date of Report: July 25, 2007), filed with the Securities and Exchange Commission on July 31, 2007.] |
| | |
4.25 | | Warrant Certificate issued to National Electrical Benefit Fund [Incorporated by reference to Exhibit 10.6 to the registrant’s Current Report on Form 8-K (Date of Report: August 21, 2007), filed with the Securities and Exchange Commission on August 23, 2007.] |
| | |
4.26 | | Warrant Certificate, evidencing 343,705 warrants registered in the name of Pequot Private Equity Fund III, LLP [Incorporated by reference to Exhibit 10.3 of the registrant’s Current Report on Form 8-K (Date of Report: February 28, 2008), filed with the Securities and Exchange Commission on March 3, 2008.] |
| | |
4.27 | | Warrant Certificate, evidencing 48,452 warrants registered in the name of Pequot Offshore Private Equity Partners III, L.P. [Incorporated by reference to Exhibit 10.4 of the registrant’s Current Report on Form 8-K (Date of Report: February 28, 2008), filed with the Securities and Exchange Commission on March 3, 2008.] |
| | |
4.28 | | Form of the June 11, 2008 Warrant Certificate [Incorporated by reference to Exhibit 10.5 to the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2008), filed with the Securities and Exchange Commission on June 17, 2008.] |
| | |
4.29 | | Form of the June 16, 2008 Warrant Certificate [Incorporated by reference to Exhibit 10.6 to the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2008), filed with the Securities and Exchange Commission on June 17, 2008.] |
| | |
4.30 | | Warrant Certificate, evidencing 120,889 warrants registered in the name FirstMark III, L.P. [Incorporated by reference to Exhibit 4.1 of the registrant’s Current Report on Form 8-K (Date of Report: February 11, 2009), filed with the Securities and Exchange Commission on February 18, 2009.] |
| | |
4.31 | | Warrant Certificate, evidencing 17,042 warrants registered in the name FirstMark III Offshore Partners, L.P. [Incorporated by reference to Exhibit 4.2 of the registrant’s Current Report on Form 8-K (Date of Report: February 11, 2009), filed with the Securities and Exchange Commission on February 18, 2009.] |
| | |
10.1 | | Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, LLC Investment Management as Investment Manager and National Electrical Benefit Fund as Lender [Incorporated by reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K (Date of Report: November 22, 2005), filed with the Securities and Exchange Commission on November 29, 2005.] |
| | |
10.2 | | Amendment No.1 dated July 31, 2007, to the Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, L.L.C. Investment Management, as Investment Manager and National Electrical Benefit Fund, as Lender [Incorporated by reference to Exhibit 10.5 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, filed with the Securities and Exchange Commission on August 13, 2007.] |
| | |
10.3 | | Amendment No.2 dated August 21, 2007, to the Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, L.L.C. Investment Management, as Investment Manager and National Electrical Benefit Fund, as Lender [Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K (Date of Report: August 21, 2007), filed with the Securities and Exchange Commission on August 23, 2007.] |
| | |
10.4 | | Amendment No.3 dated February 28, 2008, to the Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, L.L.C. Investment Management, as Investment Manager and National Electrical Benefit Fund, as Lender [Incorporated by reference to Exhibit 10.6 to the registrant’s Current Report on Form 8-K (Date of Report: February 28, 2008), filed with the Securities and Exchange Commission on March 3, 2008.] |
| | |
10.5 | | Amendment No.4 dated June 11, 2008, to the Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, L.L.C. Investment Management, as Investment Manager and National Electrical Benefit Fund, as Lender [Incorporated by reference to Exhibit 10.15 to the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2008), filed with the Securities and Exchange Commission on June 17, 2008.] |
| | |
10.6 | | Amendment No.5 dated June 17, 2008, to the Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, L.L.C. Investment Management, as Investment Manager and National Electrical Benefit Fund, as Lender [Incorporated by reference to Exhibit 10.16 to the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2008), filed with the Securities and Exchange Commission on June 17, 2008.] |
| | |
10.7 | | Amendment No.6 dated November 11, 2008, to the Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, L.L.C. Investment Management, as Investment Manager and National Electrical Benefit Fund, as Lender [Incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, filed with the Securities and Exchange Commission on November 14, 2008.] |
| | |
10.8 | | Amendment No.7 dated January 29, 2009, to the Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, L.L.C. Investment Management, as Investment Manager and National Electrical Benefit Fund, as Lender [Incorporated by reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K (Date of Report: January 29, 2009), filed with the Securities and Exchange Commission on February 4, 2009.] |
| | |
10.9 | | Amendment No.8 dated June 2, 2009, to the Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, L.L.C. Investment Management, as Investment Manager and National Electrical Benefit Fund, as Lender [Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K (Date of Report: June 1, 2009), filed with the Securities and Exchange Commission on June 4, 2009.] |
| | |
10.10 | | Amendment No.9 dated June 11, 2009, to the Credit Agreement, dated November 23, 2005, among MTM Technologies, Inc., MTM Technologies (California), Inc., MTM Technologies (Texas), Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as borrowers and Columbia Partners, L.L.C. Investment Management, as Investment Manager and National Electrical Benefit Fund, as Lender [Incorporated by reference to Exhibit 10.6 to the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2009), filed with the Securities and Exchange Commission on June 17, 2009.] |
| | |
10.11 | | Subordination Agreement dated as of August 21, 2007, among GE Commercial Distribution Finance Corporation, and National Electrical Benefit Fund and Columbia Partners, L.L.C. Investment Management [Incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K (Date of Report: August 21, 2007), filed with the Securities and Exchange Commission on August 23, 2007.] |
| | |
10.12 | | Credit Facilities Agreement dated August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc. as Borrowers, and GE Commercial Distribution Finance Corporation (“CDF”), as Administrative Agent, and CDF and the other lenders listed therein, as Lenders [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: August 21, 2007), filed with the Securities and Exchange Commission on August 23, 2007.] |
| | |
10.13 | | First Amendment dated August 21, 2007 to Credit Facilities entered into as of August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc., as Borrowers, and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender [Incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, filed with the Securities and Exchange Commission on November 14, 2007]. |
| | |
10.14 | | Second Amendment dated February 4, 2008 to Credit Facilities entered into as of August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc., as Borrowers, and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender [Incorporated by reference to Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed with the Securities and Exchange Commission on November 14, 2008]. |
| | |
10.15 | | Third Amendment dated February 28, 2008 to Credit Facilities entered into as of August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc., as Borrowers, and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender [Incorporated by reference to Exhibit 10.5 to the registrant’s Current Report on Form 8-K (Date of Report: February 28, 2008), filed with the Securities and Exchange Commission on March 3, 2008.] |
| | |
10.16 | | Fourth Amendment dated May 16, 2008 but effective as of May 1, 2008 to Credit Facilities entered into as of August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc., as Borrowers, and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender [Incorporated by reference to Exhibit 10.19 to the registrant’s Annual Report on Form 10-K for the fiscal year ended March 31, 2008, filed with the Securities and Exchange Commission on June 24, 2008]. |
| | |
10.17 | | Fifth Amendment dated June 16, 2008 to Credit Facilities entered into as of August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc., as Borrowers, and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender [Incorporated by reference to Exhibit 10.13 to the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2008), filed with the Securities and Exchange Commission on June 17, 2008.] |
| | |
10.18 | | Sixth Amendment dated November 11, 2008 to Credit Facilities entered into as of August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc., as Borrowers, and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender [Incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2008, filed with the Securities and Exchange Commission on November 14, 2008.] |
| | |
10.19 | | Seventh Amendment dated January 29, 2009 to Credit Facilities entered into as of August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc., as Borrowers, and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender [Incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K (Date of Report: January 29, 2009), filed with the Securities and Exchange Commission on February 4, 2009.] |
| | |
10.20 | | Eighth Amendment dated June 2, 2009 to Credit Facilities entered into as of August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc., as Borrowers, and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: June 1, 2009), filed with the Securities and Exchange Commission on June 4, 2009.] |
| | |
10.21 | | Ninth Amendment dated June 11, 2009 to Credit Facilities entered into as of August 21, 2007 among MTM Technologies, Inc, MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC, and Info Systems, Inc., as Borrowers, and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender [Incorporated by reference to Exhibit 10.5 to the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2009), filed with the Securities and Exchange Commission on June 17, 2009.] |
| | |
10.22 | | Consent to Credit Facilities Agreement dated June 16, 2008 among MTM Technologies, Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC and Info Systems, Inc., as borrowers and GE Commercial Distribution Finance Corporation as Administrative Agent and the sole lender [Incorporated by reference to Exhibit 10.14 to the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2008), filed with the Securities and Exchange Commission on June 17, 2008.] |
| | |
10.23 | | Letter of Credit Commitment and Repayment Agreement dated June 11, 2009 among MTM Technologies, Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC and Info Systems, Inc., as borrowers, and National Electrical Benefit Fund, FirstMark III L.P., FirstMark III Offshore Partners, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., CVC II Partners LLC, BSC Employee Fund VI, L.P. and Columbia Partners, L.L.C. Investment Management as Investment Manager [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2009), filed with the Securities and Exchange Commission on June 17, 2009.] |
| | |
10.24 | | Security Agreement dated June 11, 2009 by and among MTM Technologies, Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC and Info Systems, Inc., as borrowers, and Columbia Partners, L.L.C. Investment Management as Investment Manager, for the benefit of itself and National Electrical Benefit Fund, FirstMark III L.P., FirstMark III Offshore Partners, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., CVC II Partners LLC, and the BSC Employee Fund VI, L.P. [Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2009), filed with the Securities and Exchange Commission on June 17, 2009.] |
| | |
10.25 | | Intellectual Property Security Agreement dated June 11, 2009 by and among MTM Technologies, Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC and Info Systems, Inc., as borrowers, and Columbia Partners, L.L.C. Investment Management as Investment Manager, for the benefit of itself and National Electrical Benefit Fund, FirstMark III L.P., FirstMark III Offshore Partners, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., CVC II Partners LLC, and the BSC Employee Fund VI, L.P. [Incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2009), filed with the Securities and Exchange Commission on June 17, 2009.] |
| | |
10.26 | | Stock Pledge Agreement dated June 11, 2009 by and among MTM Technologies, Inc., MTM Technologies (US), Inc., MTM Technologies (Massachusetts), LLC and Info Systems, Inc., as borrowers, and Columbia Partners, L.L.C. Investment Management as Investment Manager, for the benefit of itself and National Electrical Benefit Fund, FirstMark III L.P., FirstMark III Offshore Partners, L.P., Constellation Venture Capital II, L.P., Constellation Venture Capital Offshore II, L.P., CVC II Partners LLC, and the BSC Employee Fund VI, L.P. [Incorporated by reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2009), filed with the Securities and Exchange Commission on June 17, 2009.] |
| | |
10.27 | | Third Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of FirstMark III, L.P. in the amount of $2,191,123 [Incorporated by reference to Exhibit 10.8 of the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2009), filed with the Securities and Exchange Commission on June 17, 2009.] |
| | |
10.28 | | Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of FirstMark III, L.P. in the amount of $2,410,235 [Incorporated by reference to Exhibit 10.9 of the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2009), filed with the Securities and Exchange Commission on June 17, 2009.] |
| | |
10.29 | | Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of FirstMark III, L.P. in the amount of $219,112 [Incorporated by reference to Exhibit 10.10 of the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2009), filed with the Securities and Exchange Commission on June 17, 2009.] |
| | |
10.30 | | Second Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of FirstMark III, L.P. in the amount of $876,449 [Incorporated by reference to Exhibit 10.11 of the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2009), filed with the Securities and Exchange Commission on June 17, 2009.] |
| | |
10.31 | | Third Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of FirstMark III Offshore Partners, L.P. in the amount of $308,877 [Incorporated by reference to Exhibit 10.12 of the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2009), filed with the Securities and Exchange Commission on June 17, 2009.] |
| | |
10.32 | | Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of FirstMark III Offshore Partners, L.P. in the amount of $339,765 [Incorporated by reference to Exhibit 10.13 of the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2009), filed with the Securities and Exchange Commission on June 17, 2009.] |
| | |
10.33 | | Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of FirstMark III Offshore Partners, L.P. in the amount of $30,888 [Incorporated by reference to Exhibit 10.14 of the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2009), filed with the Securities and Exchange Commission on June 17, 2009.] |
| | |
10.34 | | Second Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of FirstMark III Offshore Partners, L.P. in the amount of $123,551 [Incorporated by reference to Exhibit 10.15 of the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2009), filed with the Securities and Exchange Commission on June 17, 2009.] |
| | |
10.35 | | Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of Constellation Venture Capital II, L.P. in the amount of $249,617.80 [Incorporated by reference to Exhibit 10.16 of the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2009), filed with the Securities and Exchange Commission on June 17, 2009.] |
| | |
10.36 | | Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of Constellation Venture Capital Offshore II, L.P. in the amount of $132,834.65 [Incorporated by reference to Exhibit 10.17 of the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2009), filed with the Securities and Exchange Commission on June 17, 2009.] |
| | |
10.37 | | Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of The BSC Employee Fund VI, L.P. in the amount of $111,313.95 [Incorporated by reference to Exhibit 10.18 of the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2009), filed with the Securities and Exchange Commission on June 17, 2009.] |
| | |
10.38 | | Amended and Restated Subordinated Promissory Note dated June 11, 2009 issued by MTM Technologies, Inc. in favor of CVC Partners II, LLC in the amount of $6,233.60 [Incorporated by reference to Exhibit 10.19 of the registrant’s Current Report on Form 8-K (Date of Report: June 11, 2009), filed with the Securities and Exchange Commission on June 17, 2009.] |
| | |
10.39 | | Micros-to-Mainframes, Inc. 1993 Employee Stock Option Plan [Incorporated by reference to Exhibit 10.2 to Amendment Number 2 to the registrant’s Registration Statement on Form S-2, filed with the Securities and Exchange Commission on July 14, 1993.] |
| | |
10.40 | | Micros-to-Mainframes, Inc. 1996 Stock Option Plan [Incorporated by reference to Exhibit 4.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, filed with the Securities and Exchange Commission on November 2, 1998.] |
| | |
10.41 | | Micros-to-Mainframes, Inc. 1998 Stock Option Plan [Incorporated by reference to Exhibit 4.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, filed with the Securities and Exchange Commission on November 2, 1998.] |
| | |
10.42 | | Micros-to-Mainframes, Inc. 2000 Long-Term Performance Plan [Incorporated by reference to Exhibit 99.B1 to the Company’s definitive Schedule 14A, filed with the Securities and Exchange Commission on September 25, 2000.] |
| | |
10.43 | | Micros-to-Mainframes, Inc. 2002 Long-Term Performance Plan [Incorporated by reference to Exhibit 10.2 to the registrant’s Registration Statement on Form S-8, filed with the Securities and Exchange Commission on March 4, 2005.] |
| | |
10.44 | | Micros-to-Mainframes, Inc. 2004 Equity Incentive Plan [Incorporated by reference to Appendix L to the proxy statement contained as part of the Company’s definitive Schedule 14A, filed with the Securities and Exchange Commission on April 15, 2004.] |
| | |
10.45 | | Form of Employee Stock Option Agreement [Incorporated by reference to Exhibit 10.4 to the registrant’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2004, filed with the Securities and Exchange Commission on November 15, 2004.] |
| | |
10.46 | | MTM Technologies, Inc. Associates Stock Purchase Plan [Incorporated by reference to Exhibit 10.1 to the registrant’s Registration Statement on Form S-8, filed with the Securities and Exchange Commission on July 1, 2005.] |
| | |
10.47 | | Form of Employee Restricted Stock Unit Agreement [Incorporated by reference to Exhibit 10.19 to the registrant’s Annual Report on Form 10-K/A (Date of Report: March 31, 2006), filed with the Securities and Exchange Commission on September 12, 2006.] |
| | |
10.48 | | Form of Executive Stock Option Agreement [Incorporated by reference to Exhibit 10.20 to the registrant’s Annual Report on Form 10-K/A (Date of Report: March 31, 2006), filed with the Securities and Exchange Commission on September 12, 2006.] |
| | |
10.49 | | Form of Executive Restricted Stock Unit Agreement [Incorporated by reference to Exhibit 10.21 to the registrant’s Annual Report on Form 10-K/A (Date of Report: March 31, 2006), filed with the Securities and Exchange Commission on September 12, 2006.] |
| | |
10.50 | | Employment Agreement, dated August 10, 2006 between MTM Technologies, Inc. and Steven Stringer [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: August 10, 2006), filed with the Securities and Exchange Commission on August 14, 2006.] |
| | |
10.51 | | Letter Agreement, dated September 28, 2006 between MTM Technologies, Inc. and J.W. Braukman, III [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: September 28, 2006), filed with the Securities and Exchange Commission on October 3, 2006.] |
| | |
10.52 | | Lease Agreement, dated August 15, 2005 between 1200 High Ridge Company, LLC and MTM Technologies, Inc. [Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K (Date of Report: August 15, 2005), filed with the Securities and Exchange Commission on August 19, 2005.] |
| | |
14.1 | | Code of Ethics [Incorporated by reference to Exhibit 14.1 to the registrant’s Annual Report on Form 10-K for the fiscal year ended March 31, 2008, filed with the Securities and Exchange Commission on June 24, 2008]. |
| | |
16.1 | | Letter dated November 15, 2007 from Goldstein Golub Kessler LLP (“GGK”) to MTM Technologies, Inc. notifying MTM that certain of the partners of GGK became partners of McGladrey & Pullen, LLP in a limited asset purchase agreement [Incorporated by reference to Exhibit 16.1 to the registrant’s Current Report on Form 8-K (Date of Report: November 15, 2007), filed with the Securities and Exchange Commission on November 15, 2007.] |
| | |
16.2 | | Goldstein Golub Kessler LLP Letter to the Securities and Exchange Commission dated November 15, 2007 [Incorporated by reference to Exhibit 16.2 to the registrant’s Current Report on Form 8-K (Date of Report: November 15, 2007), filed with the Securities and Exchange Commission on November 15, 2007.] |
| | |
21.1 | | Subsidiaries of MTM Technologies, Inc. |
| | |
31.1 | | Certification pursuant to Exchange Act Rule 13a-14(a) of Steven Stringer, as PEO and PFO |
| | |
32.1 | | Certification pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 of Steven Stringer, as PEO and PFO |
